Original Source: FD (FAIR DISCLOSURE) WIRE
. Vince Palmiere, The Nasdaq Stock Market, Inc., VP, IR . Bob Greifeld, The Nasdaq Stock Market, Inc., President, CEO . David Warren, The Nasdaq Stock Market, Inc., CFO . Niamh Alexander, CIBC, Analyst . Rich Repetto, Sandler O'Neill, Analyst . Rob Brookshell, Prudential Securities, Analyst . Ken Worthington, J.P. Morgan, Analyst . Patrick Pinschmidt, Merrill Lynch, Analyst . Christopher Allen, Banc of America Securities, Analyst . Josh Elving, Piper Jaffray, Analyst . Daniel Goldberg, Bear Stearns, Analyst . Roger Freeman, Lehman Brothers, Analyst . David Grossman, Thomas Weisel Partners, Analyst . Mike Vinciquerra, Raymond James and Associates, Analyst . Richard Herr, KBW, Analyst . Moshe Katri, Cowen and Company, Analyst . Scott Appleby, Deutsche Bank, Analyst . Howard Chen, Credit Suisse, Analyst
. Drew Figdor, Arbitrage Associates, Analyst . Isabel Cleary, Financial News, Media . Gaston Cerrone, Dow Jones, Media . Edgar Ortega, Bloomburg News, Media
For 3Q06, co. reported a 116.9% increase in operating income vs. prior year quarter. Net income was $30.2m and diluted EPS was $0.22. 2006 net income guidance is now $87-91m, up from previous estimate of $68-78m.
A. Key Data From Call 1. 3Q06 net income = $30.2m 2. 3Q06 diluted EPS = $0.22 3. 3Q06 operating income up 116.9% vs. prior year quarter.
4. 3Q06 GM = $171.2m 5. 3Q06 quarter-end cash and cash equivalence and investments and investments available for sale which includes investment in London Stock Exchange = $1.9b 6. 3Q06 quarter-end debt level = $1.6b 7. 2006 GM guidance = $675-680m 8. 2006 net income guidance = $87-91m
S1. 3Q06 Overview (B.G.) 1. 3Q06 Highlights: 1. Demonstrated continued ability to focus and execute on key operating priorities.
2. Operating income increased $36.6m or 116.9% vs. prior year
quarter. 1. Demonstrates ability to grow organically through continued innovation while quickly and successfully integrating acquisitions to drive profitability. 3. Over the past 12 months made four acquisitions. 1. In spite of this, quarterly expenses increased only 4% YoverY while GM grew 31%. 2. Increase in GM for quarter represents eighth consecutive quarter of growth.
3. Able to grow revenues even though average daily trading volume in NASDAQ-listed securities declined 13.5% vs. 2Q06. 4. 3Q06 net income increased to $30.2m, up nearly 70% from last year and up nearly 82% vs. 2Q06. 5. 3Q06 diluted EPS of $0.22 represents record high for NASDAQ as public company. 6. Within issue of services, co. very successful in attracting companies to NASDAQ. 1. 61% of IPOs in 3Q06 were listed on NASDAQ. 2. Continue to have success in having companies switch to co.'s market. 1. 76 companies have transferred to NASDAQ in first three quarters of year from other markets. 7. Completed PrimeZone acquisition, broadening growing IR and corporate communications suite of products. 8. Repackaged listing product to include basic suite of benefits that assist with compliance, shareholder communications and visibility. 9. In financial products, PowerShares launched 10 new ETFs on NASDAQ. 10. Within Market Services, during 3Q06 NASDAQ's trading share of U.S. equities continued to grow.
1. Firmly establishing NASDAQ as largest electronic liquidity
pool for U.S.-listed equities. 2. Match share of trading in NYSE-listed stocks continues to climb reaching 12.1% in 3Q06 with September share reaching 12.9%. 3. As announced in September, market share in large liquid NYSE stocks is now over 30% in more than 100 NYSE-listed companies. 4. In several high market cap stocks, market share over 40%. 5. Though still early in the game, encouraged by increased electronic trading of hybrid stocks and co.'s ability to capture market share. 1. Looking forward to launch of more stocks in hybrid market and fully prepared to compete aggressively.
11. Also announced plans during 3Q06 to create NASDAQ Options
Marketplace. 1. To take advantage of market structure changes expected with decimal pricing. 2. Should favor NASDAQ's sophisticated order routing and matching technology. 3. Expanding into options will permit co. to leverage trading platform and customer network to another asset class. 4. Pending SEC approval, plan to launch options marketplace in 3Q07. 12. Also continued to grow TotalView, with professional subscriber population doubling vs. prior year.
13. Enhanced ModelView, web-based historical data product, to
include NYSE- and AMEX-listed data as well as INET liquidity
statistics. 14. Also became operational as exchange in NASDAQ-listed stocks. 1. This week began migrating stocks onto single platform.
2. Platform will enable customers to enjoy full benefits of electronic liquidity pool, improve system performance in greater order interaction. 3. Operating single book also creates opportunity for increased innovation such as planned launch of intraday cross.
15. Co. proud of third quarter performance. 1. Execution remains strong and consistent and on track to achieve objectives.
S2. Review of Financials (D.W.) 1. Introductory Comments: 1. Will go into some detail in review of P&L on reasons for comparisons between sequential and prior year quarter to anticipate some questions. 2. Current quarter includes results from acquisitions made over past year from closing date of each transaction.
1. Carpenter Moore which closed on October 1, 2005. 2. INET which closed in early December 2005. 3. Shareholder.com which closed on February 1, 2006. 4. Most recent, PrimeZone, which closed on September 1, 2006. 2. Review of P&L: 1. 3Q06 GM was $171.2m. 1. Compares to $130.6m in year ago quarter, and $171.1m in 2Q06. 2. Within issuer services 3Q06 revenue was $59.8m, vs. $55.8m last year. 1. Up 7.2% YoverY and down $3.6m sequentially.
3. In corporate client group, acquisitions of Carpenter Moore,
shareholder.com and PrimeZone drove increases in revenue from
prior year. 4. IPOs and new listings that came to NASDAQ in 3Q06 drove increases in annual fees in 2Q06. 1. In 3Q06 initial listing fees declined from prior years. 2. Co. amortized these fees over six years, and recent decline in revenue is driven by loss of amortized revenue associated large number of initial listings in the year 2000. 3. Close to turning corner where billings will equal amount amortized in a year. 5. Finally, in financial products, revenues declined vs. both prior year and prior quarter.
1. As reported in 2Q06 10-Q, recent outcome of two court cases impacted NASDAQ's ability to collect licensing revenues for options traded on NASDAQ ETS. 1. This is first quarter in which this impact was seen. 2. This loss of revenue expected to be offset by anticipated
new revenue from transferring sponsorship of ETS to PowerShares as recently announced. 3. This is pending SEC approval. 6. Within Market Services, GM was $111.3m, up 48.4% vs. $74.8m recorded last year and up 3.3% sequentially. 7. Third quarter average daily volume was 1.85b shares per day, up from 1.65b recorded last year but down 13.6% sequentially. 8. Market center GM increased $21.9m or 50.6% vs. last year. 1. Primarily due to acquisition of INET, increases in ADV, increases in market share of NYSE- and AMEX-listed securities. 2. Market center GM grew $6m or 10.1% vs. 2Q06, despite decline in ADV. 1. Primary driver of increase is related to reduction in clearing costs associated with INET transactions. 2. INET trades are now cleared through NASDAQ's existing
clearing broker, so cost to revenues were reduced. 3. Included in market center execution and trade reporting revenues is: 1. $45.8m in SEC fees booked up from $27.3m in 2Q06. 2. $7.4m booked last year.
4. Included in cost of revenues is corresponding SEC fee that
mostly offsets amount of revenues collected. 5. NASDAQ operations as an exchange which became effective August 1, 2006, drove increase from 2Q06. 6. As previously disclosed, access services revenue declined vs. prior year due to retirement of a legacy product. 1. Customer adoption of new access service products has resulted in increase in access services revenue vs. 2Q06. 7. In Market Services subscriptions, revenue increased $11.4m, up almost 42% vs. prior year. 1. Primarily due to decreased sharing under UTP plan. 8. INET began to migrate trades to market center in 1Q06, increasing UTP market share. 9. Also, NQDS or level-two revenue is no longer included as shareable revenue in UTP plan. 10. 2Q06 UTP revenue sharing was lower by approximately $1.3m, due to recovery of 1Q06 NQDS revenues. 11. Excluding this adjustment Market Services revenues flat in 3Q06 compared to 2Q06 with increases in proprietary revenue offsetting reduction in non-proprietary revenue. 1. Non-proprietary revenues declined due to fewer non-professional subscriptions.
12. Increase in other market services revenue vs. prior year
due to contract with NASD to support operations of OTCBB which became effective on October 1, 2005. 13. Decline vs. 2Q06 due to waiver of testing fees as market participants began testing for single book integration. 3. Expenses: 1. 3Q06 total expenses were $103.3m, increase of just 4% YoverY, but down 23.4% sequentially.
2. YoverY increases due to recent acquisitions already discussed.