NASDAQ OMX Group Inc.’s (NDAQ) third quarter 2011 operating earnings per share of 67 cents came in line with the Zacks Consensus Estimate of 67 cents but modestly ahead of 50 cents in the prior-year quarter.
NASDAQ’s GAAP net income came in at $110 million or 61 cents per share, surpassing $101 million or 50 cents in the year-ago quarter. Results in the reported quarter included $9 million (pre-tax) of debt extinguishment, merger and strategic initiatives along with $5 million of a one-time tax expense.
Excluding this, net income was $121 million compared with $101 million in the year-ago quarter. Besides, total operating earnings, on non-GAAP basis, climbed 20.7% year over year to $204 million.
Total net exchange revenues increased 17.7% year over year to $438 million, also exceeding the Zacks Consensus Estimate of $431 million. The marked increase was attributable to the positive impact of exchange rates and substantially improved volumes.
Revenues were helped by significant growth across most segments including market data, transaction, issuer services and market technology and derivative trading. These were, however, marginally offset by continued tepidity in European equity trading and lower average fees per contract.
Segment-wise, Market Services net exchange revenues for the quarter spiked up 20.5% from the year-ago period to $300 million. Issuer Services revenues for the reported quarter were $92 million, up 8.3% from the year-ago period on modest performance from global index group coupled with growth in global listing services revenue. Market technology revenues grew 21.1% year over year to $46 million.
During the reported quarter, NASDAQ’s order intakes jumped to $35 million from $27 million in the year-ago quarter. Consequently, total order value (the value of orders signed that have not been recognized as revenue) improved to $473 million from $446 million in the prior-year quarter.
Meanwhile, on non-GAAP basis, operating expenses increased 15.0% from the prior-year period to $234 million, primarily due tocosts associated with FTEN, SMARTS and Zoomvision Mamato acquisitions. Exchange rate of various currencies as compared to the U.S. dollar increased expenses by $10 million compared with the year-ago quarter.
Consequently, operating margin improved to 47% from 45% in the year-ago quarter. On a GAAP basis, total operating expenses surged 17.4% year over year to $243 million.
Financial Update
As of September 30, 2011, NASDAQ had cash and cash equivalents of $543 million, up from $315 million at the end of 2010. Debt obligations lowered to $2.17 billion from $2.18 billion at the end of 2010. While total assets decreased to $13.16 billion, total equity grew to $5.0 billion, over 2010.
During the reported quarter, NASDAQ entered into a $1.2 billion senior unsecured five-year credit facility to refinance its existing credit facilities due 2013, and simultaneously initiated a cash tender offer for its outstanding 2.50% convertible senior notes.
NASDAQ subsequently accepted for payment $335 million or 78% of the outstanding notes tendered during the offer period. These transactions have reduced the company's overall borrowing costs, extended the maturity profile of debt obligations, increased revolver borrowing capacity and generated positive earnings per share returns.
Capital Plan
On October 12, 2011, NASDAQ announced a new capital plan, according to which the board of NASDAQ announced the approval of a new stock repurchase program worth $300 million through open market operations. The new capital plan is further expected to help the company achieve its long-term leverage ratio target of 2.5x as it aims to prepay about $109 million of its debt in the fourth quarter of 2011. This is in addition to the regular $11 million quarterly debt payments, total debt payments being $120 million in the fourth quarter of 2011.
Guidance
For fiscal year 2011, NASDAQ management contracted its operating expense outlook to the range of $915–925 million from the prior range of $920–940 million. However, the revised guidance excludes approximately $75 million in merger related and other infrequent charges, higher than the previous estimate of $40 million.
Others
During the reported quarter, NASDAQ processed 18 initial public offerings (IPOs) raising over $848.9 million, although new listings totaled 38 against 45 in the year-ago quarter.
Meanwhile, NASDAQ’s arch-rival NYSE Euronext Inc. (NYX) is scheduled to release its earnings results before the market opens on November 3, 2011.
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