Nasdaq, Inc. (NDAQ)Q2 2025 Earnings Call Transcript

Access earnings results, analyst expectations, report, slides, earnings call, and transcript.

Overview

The earnings call highlights several positive aspects: a partnership with AWS, a 13% dividend increase, and strong free cash flow. Although there are regulatory uncertainties and elongated client conversations, these are normalizing. The Q&A reveals optimism in digital asset opportunities and capital market tech growth. Despite some unclear responses, the overall sentiment is positive, with strong financial performance and strategic initiatives supporting a positive stock price movement.

Key Financial Performance

Net Revenue $1.3 billion, a year-over-year increase of 12%. The increase was driven by new and existing clients, product innovation, higher valuations in Nasdaq indices, and higher overall volumes in Market Services.

Solutions Revenue $991 million, representing 10% year-over-year growth. Growth was attributed to strong demand for financial technology solutions and product innovation.

Annualized Recurring Revenue (ARR) $2.9 billion, a 9% year-over-year growth. Growth was driven by strong demand for SaaS and financial technology solutions.

Operating Income $721 million, a 16% year-over-year increase. The increase was driven by revenue growth and controlled expense growth.

Earnings Per Share (EPS) 24% growth year-over-year. This was driven by strong revenue performance and operating leverage.

Capital Access Platforms Revenue $527 million, a 9% year-over-year growth. Growth was driven by data and listings revenue, index revenue, and analytics.

Financial Technology Revenue $464 million, a 10% year-over-year growth. Growth was driven by demand for financial crime management technology, regulatory technology, and capital markets technology.

Market Services Revenue $306 million, a 21% year-over-year growth. Growth was driven by record net revenue in U.S. options and U.S. cash equities, higher share, and higher capture in U.S. options.

Operating Expense $585 million, an increase of just under 8% year-over-year. The increase was due to investments in technology, employee compensation, and inflation.

Free Cash Flow $467 million in the second quarter. This enabled the company to support deleveraging, dividends, and share repurchases.

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Operating Highlights

Agentic AI workforce: Launched by Nasdaq Verafin, this suite of digital workers aims to enhance compliance effectiveness and efficiency. Early results show an 80% reduction in alert review workload for banks.

Drug trafficking analytics: Launched in early beta, this product has already driven strong client engagement.

Digital assets innovation: Nasdaq Calypso announced a proof of concept to integrate on-chain capabilities for dynamic collateral management, targeting a launch in 2026.

IPO performance: Nasdaq welcomed 38 new operating companies in Q2, raising $3.6 billion. Year-to-date, 83 companies were listed, including 3 of the top 5 largest IPOs, with an 81% win rate.

European listings: Nasdaq exchanges in Europe saw 10 new listings year-to-date, raising EUR 2 billion, a fivefold increase compared to the first half of 2024.

Revenue growth: Net revenue increased by 12% year-over-year to $1.3 billion, with solutions revenue growing by 10%.

Efficiency program: Actioned $130 million out of a $140 million net expense efficiency program by the end of Q2.

Adenza acquisition: Achieved a gross leverage ratio of 3.2x, surpassing milestones set at the acquisition 16 months ahead of schedule.

Cross-sell strategy: Generated 7 cross-sell wins in Q2, with cross-sells accounting for over 15% of the Financial Technology sales pipeline.

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Risk or Challenges

Macroeconomic Uncertainty: Persistent macroeconomic uncertainty, including muted GDP growth in Europe and unclear long-term impacts of trade and economic policies, could impact client demand and overall business performance.

Regulatory Environment: Uncertainty around regulatory changes, such as the supplementary leverage ratio in the U.S., has caused delays in client readiness and professional services revenue growth.

Market Volatility: Heightened market volatility, while providing some opportunities, also poses risks to consistent revenue generation and operational stability.

Client Readiness Delays: Delays in client readiness, particularly in Regulatory Technology and Financial Technology segments, have impacted professional services revenue and could delay revenue realization.

Economic Conditions in Europe: Muted GDP growth and slow recovery in consumer demand in Europe could affect the company's European operations and revenue growth.

Competitive Pressures: The need to maintain a competitive edge through innovation and technology investments could strain resources and impact margins.

Supply Chain and Operational Risks: Complexity in financial institutions' landscapes and operational challenges in delivering mission-critical technologies could impact execution and client satisfaction.

Currency Exchange Risks: Movements in foreign exchange rates have impacted financial results, including a $20 million increase in expense guidance due to FX.

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Guidance & Outlook

IPO Outlook: Optimism on the IPO outlook for the remainder of 2025 and into 2026, driven by strong performance of recent listings and a robust pipeline.

Private Market Solutions: Focus on meeting growing demand for private market solutions, with new partnerships and client signings building momentum.

Financial Technology Growth: Continued growth expected across products, client segments, and geographies, supported by strong sales execution and demand for mission-critical technologies.

Regulatory Technology: Improved clarity around the regulatory environment in the U.S. expected to strengthen the pipeline and professional services revenue starting in Q4 2025 and early 2026.

Capital Markets Technology: Strong demand expected for technology infrastructure solutions and operational expertise, with a solid pipeline for the rest of 2025.

AI and Digital Assets Innovation: Nasdaq Verafin's Agentic AI workforce and digital asset initiatives targeting launch in early to mid-2026, focusing on compliance efficiency and institutional adoption.

Cross-Sell Revenue: On track to surpass $100 million in run rate revenue from cross-sells by the end of 2027, with cross-sells accounting for over 15% of the Financial Technology sales pipeline.

Expense Efficiency Program: Expanded $140 million net expense efficiency program expected to be actioned by year-end 2025.

Revenue Growth Outlook: 2025 revenue growth outlook for divisions and subdivisions expected to remain consistent with prior guidance.

Capital Allocation: Continued focus on organic investments, dividends, and opportunistic debt and share repurchases to support long-term growth.

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Shareholder Return Plan

Dividend Payment: Nasdaq paid a dividend of $0.27 per share, totaling $155 million in the quarter. This represents a 34% annualized payout ratio.

Share Repurchase: Nasdaq repurchased a total of 1.2 million shares of its common stock for approximately $100 million in the second quarter. This included the completion of annual employee dilution-related repurchases and additional opportunistic repurchases.

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Key Q&A

Q:Can you elaborate on the opportunity set for Agentic AI and its applications across Nasdaq?

A:Nasdaq is focusing on AI in products and business operations. In products, AI is integrated into the development pipeline, such as GenAI and algorithmic AI for Calypso (efficiency and risk management), governance platforms (Board summarization), and Sustainable Lens (sustainability program insights). In business operations, AI is applied to product development and client success areas. Efficiency gains are expected to scale further in 2026, with more disclosures to follow.

Q:Can you provide more details on the slight improvement in pipelines and sales momentum in fintech towards the end of the year?

A:Nasdaq has a healthy and maturing pipeline across fintech businesses, with demand for trade infrastructure, risk management, regulatory reporting, and anti-financial crime solutions. Financial crime management has seen twice as many deals signed with Tier 1 and Tier 2 banks compared to last year. Revenue contributions from these clients are expected to ramp up in Q4 and into 2026.

Q:How did customer conversations in fintech trend in the second quarter, and what impact did tariff-driven volatility have?

A:In March and April, some client conversations elongated due to uncertainty, but normalized by May and June. Regulatory uncertainty in the U.S. and Europe also delayed implementations, particularly for AxiomSL. However, regulatory guidance is now providing clarity, helping to shore up the pipeline and drive low single-digit growth in professional services.

Q:What is Nasdaq's latest thinking on leveraging the digital ecosystem, including stablecoin, tokenization, and crypto?

A:Nasdaq sees opportunities in the institutionalization of digital assets, including stablecoin for efficient payment rails and collateral movement. They are exploring on-chain capabilities for dynamic collateral management. In crypto, Nasdaq is engaging with regulators to develop investor-friendly market structures. They aim to support both traditional and crypto asset classes with technology solutions.

Q:Can you provide more color on the dynamics of the index business and the durability of strong flows?

A:Nasdaq focuses on new product creation, institutional adoption, and international expansion. They launched 33 new products this quarter, with $88 billion in inflows ($20 billion in the quarter). They work closely with investment managers to create indexes aligned with investor strategies, such as dividend-oriented or buyback strategies.

Q:What drove the strong sequential increase in ARR for the Capital Markets side of fintech?

A:The $39 million quarter-over-quarter ARR increase was driven by Connectivity Services (increased demand due to higher market volumes), Calypso (broad-based growth and upsells), and market tech (significant deals with Eqlipse Trading clients for managed services).

Q:What contributed to the revenue growth acceleration in the data and listings business?

A:The data business benefited from expanded relationships with retail brokerage platforms and global expansion. Usage-based data products also saw strong demand. In listings, an improving issuance environment and a healthy pipeline contributed to growth, though revenue recognition from new listings is amortized over multiple years.

Q:What is Nasdaq's view on the SEC's discussion of the trade-through rule (Rule 611)?

A:Nasdaq is open to engaging with the SEC on Rule 611. They operate successfully in markets without the rule (e.g., Europe, Canada) and are confident in their ability to adapt. Nasdaq emphasizes the need to consider adjustments to other parts of Reg NMS if Rule 611 is eliminated.

Q:How does international expansion factor into Verafin's medium-term growth outlook?

A:Verafin's medium-term growth outlook (mid-20s revenue growth) is primarily driven by SMB sector growth and U.S. Tier 1 and Tier 2 bank expansion. European expansion is a longer-term goal, expected to contribute to growth starting in 2027-2028.

Q:What is Nasdaq's strategy for expanding the index business into the insurance annuity space?

A:Nasdaq is early in its expansion into the insurance annuity space, focusing on creating specific vehicles for clients to gain exposure to the Nasdaq 100. This aligns with the long investment horizons of insurance clients and their interest in innovative growth companies.

Q:What is the outlook for capital markets technology growth in the second half of the year?

A:Nasdaq is maintaining consistency in growth expectations for capital markets technology, despite some elongated sales cycles earlier in the year. The maturing crypto ecosystem and potential institutional adoption of crypto could present additional opportunities.

Q:How does Nasdaq view the impact of tokenization on private and public markets?

A:Nasdaq views tokenization as a technology that can enhance liquidity, transparency, and integrity in both private and public markets. They emphasize the importance of regulatory frameworks and investor benefits. Nasdaq Private Market collaborates with corporates to facilitate transactions, including tokenized assets.

Q:How do price increases contribute to Nasdaq's growth formula?

A:Price increases are a consistent contributor to growth across segments like regtech, financial crime, capital markets tech, and data listings. These increases are in line with historical trends and often reflect the value of client engagements and upsells.

Q:What is Nasdaq's approach to capital allocation, including M&A?

A:Nasdaq prioritizes reinvesting in organic growth opportunities, maintaining a progressive dividend, and balancing debt reduction with share repurchases. They remain focused on inorganic growth opportunities but are currently emphasizing organic growth.

Q:Review of Unclear Management Responses

A:Management avoided providing specific revenue projections for the fintech pipeline momentum in 2026, stating it was too early to tell. They also did not provide detailed financial impacts of tokenization or the exact contribution of international expansion to Verafin's growth.

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Earnings Word Cloud

The most frequently occurring keywords in this quarter's earning call

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