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Nasdaq (NDAQ) Beats Q1 Earnings on Increased Revenues

Nasdaq, Inc. NDAQ reported record first-quarter 2016 earnings of 91 cents per share, which beat the Zacks Consensus Estimate by 2.2%. The bottom line also improved 13.8% from 80 cents earned in the prior-year quarter.

Revenues increased 5.3% to $534 million and also beat the Zacks Consensus Estimate of $532 million by 0.4%. On an organic basis, net revenues increased 4% year over year.

The impressive results were driven by strong operational activities, strong listings and IPOs. Share buybacks also added to the upside.

Detailed Analysis

Segment-wise, in the first quarter, net exchange revenues at Market Services increased 6.9% from the year-ago quarter to $201 million. Revenues from Listing Services increased 3.1% to $66 million, while Information Services’ revenues rose 6.4% to a $133 million, both on a year-over-year basis. Technology Solutions generated revenues of $134 million, up 3.1% year over year.

Nasdaq’s order intakes plunged 45% to $22 million from $40 million in the year-ago period. Additionally, total order value (the value of orders signed but not recognized as revenues) increased 7.6% to $783 million from $728 million in the prior-year quarter. New listings totaled 47, which included 10 IPOs.

Operating expenses in the quarter increased 3% year over year to $280 million. The rise in expenses was primarily due to a higher organic spend and the acquisitions of Dorsey Wright Associates, Chi-X Canada ATS Limited and Marketwired. The increase in expenses was partially offset by the favorable impact of changes in foreign exchange rates.

Financial Update

As of Mar 31, 2016, Nasdaq had cash and cash equivalents of $331 million. This is around 10% higher than $301 million at year-end 2015. Debt obligations at Nasdaq totaled $2.6 billion, 8.5% higher than nearly $2.4 billion at the end of 2015.

Nasdaq’s total assets jumped 15.6% to $13.7 billion as of Mar 31, 2016 from $11.9 billion at year-end 2015. Total equity inched up 1.6% to $5.69 billion from $5.61 billion at the end of 2015.

Capital Deployment and Dividend Update

Nasdaq spent $29 million on the buyback of 0.5 million shares during the reported quarter. As of Mar 31, 2016, the company was left with $500 million shares under its authorization, which includes an increase of $370 million in authorized value. Moreover, the company announced a dividend hike of 28% in the reported quarter.

Revised 2016 Expense Projection

The company updated its 2016 non-GAAP operating expense guidance to $1,180–$1,230 million from $1,110–$1,160 million. The revised guidance represents the impact of both the Chi-X Canada and Marketwired acquisitions that were completed during the reported quarter, as well as the pending acquisition of Boardvantage, expected to close in the second quarter of 2016.

Developments During the Quarter

During the quarter, Nasdaq completed acquisitions of Chi-X Canada, an Alternative Trading System for Toronto Stock Exchange (TSX) and TSX Venture Securities, from Chi-X Global. The securities exchange also purchased Marketwired – a leading global provider of news distribution services and analytics for communications professionals.

In addition, the company announced its decision to acquire International Securities Exchange, or ISE, which operates three electronic U.S. options exchanges, from Deutsche Börse Group and Boardvantage, Inc., a leading board portal solution provider specializing in leadership collaboration and meeting productivity, in the reported quarter.

Zacks Rank and Performance of Other Stocks

Nasdaq carries a Zacks Rank #3 (Hold). Some other players from the finance sector recently released their first-quarter earnings results. While the bottom line at RLI Corp. RLI and First American Financial Corp. FAF beat the respective Zacks Consensus Estimate, Progressive Corp. PGR missed the same in the first quarter.

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