納斯達克交易所 (NDAQ) 2004 Q1 法說會逐字稿

Good afternoon and thank you for joining the NASDAQ Stock Market earnings teleconference call. All participants will be in listen only until the question and answer session. As a reminder, this conference is being recorded. If you have objections please disconnect at this time. Your host for this evening's conference is Mr. Vince Palmiere, Vice President of Investor Relations. Sir, you may begin.

Thank you. Good afternoon and thank you for joining us today to discuss NASDAQ's first quarter 2004 earnings results. Joining me are Bob Greifeld, President and Chief Executive Officer, David Warren, Chief Financial Officer and Ed Knight our General Counsel. Following our prepared remarks we will open up the line for Q&A. If you haven't done so already, you can access the results press release on the NASDAQ Investor Relations in NASDAQ's news room website at www.NASDAQ.com. If you have any follow up questions after the call please contact me at 212 401-8742.

Before we begin I'd like to remind you that certain statements in the prepared presentation and during the subsequent Q&A period may relate to future events and expectations and as such constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. I urge you to read the full disclosure statement concerning such forward-looking statements in our press release and the other factors detailed in the company's form 10-Q and periodic reports filed with the SEC. With that I turn the call over to Bob.

Thank you, Vince. Good afternoon everyone and thanks for joining us today to review our first quarter results. I will make some comments throughout the quarter, to provide an update to our strategic plan and then turn the call over to David Warren our CFO for the financial review. Afterwards we will both be available to take your questions during the remaining time.

This afternoon we reported a net profit from continuing operations for the first quarter of $4.6 million versus $5.9 last year. This quarter's results include one-time charges which David will discuss in a moment associated with accelerated depreciation, amortization, and severance expenses. However, when excluding these charges, net income from continuing operations non-GAAP was $9.9 million versus $5.9 million in the first quarter of 2003. These result represent a solid first quarter for NASDAQ. It is on our plan and it demonstrates the beginning of the benefits of last year's rigorous effort to focus our business model on core operations and reduced cost. Although trading volumes in the first quarter were strong, our profitability was also driven by our ability to reduce expenses. We are continuing our efforts to reduce cost and increase our profitability. These efforts are supporting our top line initiatives to capture market share through the NASDAQ market center and by increasing the number of NASDAQ listed companies.

Let's spend a minute reviewing our accomplishments in the first quarter. In the market services segment, there were three milestones that we achieved in the first quarter that increased NASDAQ's attractiveness as a listing and trading venue. Consistent with what was discussed with you on the last call we accomplished the following: First we established ourselves as a trading priced leader with a three-tiered pricing structure accompanied by an access fee cap and a profit sharing program all intended to lower trading cost for our market participants. We intend to maintain pricing leadership in what will remain a very competitive environment and we will continuously lower our operating cost base. Second we launch the NASDAQ market center which unites inter market trading of all NASDAQ, AMAX, ETF, and New York Stock Exchange stocks and we're able to do that on one single NASDAQ platform. Market center is a high speed fully redundant platform with enough capacity to maintain trading of all these securities across all markets in the event of a trading disruption. Third, we successfully developed and tested the closing cost. NASDAQ's closing auction process that converts trading and NASDAQ stocks at the end of the day to an agency auction market which captures liquidity and generates a single closing price.

This is a truly important development when you consider the fact that 10,000 mutual funds priced to the NASDAQ close every day. It is too early to measure the true results of any of these actions as they have been effectively in place for less than one fiscal quarter. NASDAQ's first quarter print market share was 50.6 down sequentially from Q4 and reflective of some market participants reporting trades to print facilities. However, as our new product offerings gain traction we believe market initiatives of these types should increase the value that NASDAQ brings to issuers, investors and all market participants and will draw trade print share back to NASDAQ. In the coming quarters we plan to roll out additional structural innovations including an electronic opening cross auction that similar to the closing cross will offer a mechanism superior to current industry solutions and will create improved transparency and price discovery at the beginning of trading for NASDAQ listed stocks.

This will represent another innovative program that NASDAQ is uniquely positioned to implement. We also will be introducing additional advanced auto X prototypes and new auto routing capabilities. In our issuer services segment, NASDAQ took 28 companies public in the first quarter up from 3 in the first quarter from the first quarter of last year. 2004 first quarter IPO market share was 68% and was consistent with the first quarter of last year and the fourth quarter of 2003. The pace of new offerings in the first half continues to be strong. Also on the issuer services side, as you know we launched dual listing program for New York Stock Exchange companies and added seven sector leaders to this program giving these companies access to NASDAQ's high quality platform and allowing them and their shareholders to experience NASDAQ's speed, efficiency and ability to be anonymous.

As we discussed last quarter, our revitalized sales force is gaining traction with our marketing sales program targeted towards public company and going public company CEOs. We will continue to leverage this unparalleled combination of a superior trading environment with a high quality issuer service offering to cultivate new issuers and reinforce and grow our market share. I'd like to spend a moment on the regulatory environment and FCCs proposed rules on market structure that are out for public comment. We recently testified before the committee and remain encouraged by the FCCs moves to modernize the U.S markets. As I said last quarter, we believe that these proposals will have a neutral to positive impact on our business. It is interesting to note that these proposals and other industry initiatives are directing market structure towards the NASDAQ model. We are not getting any requests or pressure to build a trading floor.

2004 is NASDAQ's year to reinforce our market model advantages by continuing to raise our ability to service market participants and issuers, ensuring that we are executing at the peak of that ability in every facet of our business model and continuing to improve the quality and the value of our trading environment. In the first quarter we maintained our momentum toward this mission. Again, our goal throughout the year is to obtain the dual objective of reinforcing NASDAQ's identity as the premier marketplace and steadily improving all of our operating metrics. Now let me turn the call over to David, who will discuss the numbers and our operational initiatives. David?

Thanks, Bob. And thanks again to everyone for joining us this afternoon. As we announced to you earlier this year, we've reclassified the businesses we exited in 2003 as discontinued. This reclassification does not affect first quarter 2004 results. It does impact last year's first quarter. Accordingly my remarks will focus on year ago comparisons involving continuing operations unless I specify otherwise.

Beginning with our P&L. First quarter revenue for 2004 was $128.4 million decreasing 20.9% year-over-year but down a lesser 7% sequentially. We look at our businesses now in two segments, market services and issuer services. I will comment briefly on the revenues in each. In the market services business first quarter revenue was $76.1 million down 31.8% year-over-year and down 11.8% sequentially. Transaction services revenue was $48.3 million down 28.9% year-over-year and down 9.9% sequentially as market center and access services continued to be affected by competitive pressures. Market information services revenue was $27.8 million down 36.4% year-over-year and 15% sequentially due to increased sharing under the UTP plan and the introduction of a general revenue sharing program with market participants.

In the issuer services business, first quarter revenue was $52.3 million up 3.2% year-over-year and up 1.4% sequentially. Corporate client group revenue was $40.5 million down 3.1% year-over-year and down 6.3% from the prior quarter as annual renewal fees increased because of fewer number of listed companies. This is primarily due to companies falling out of compliance with NASDAQ's listing standards. January 1, of this year there were 3,333 companies on NASDAQ, that was a drop of 326 companies in January 1, of the prior year. Financial products revenue was $11.8 million up 32.6% year-over-year and up 40.5% sequentially due to higher licensing revenues associated with a higher number of QQQ and NASDAQ indices options.

On the expense side, first quarter 2004 direct expenses of $108.4 million increased $26.7 million, almost 20% year-over-year reflecting our efforts to streamline our operations and lower our expenses. Total expenses of $152.3 million increased 21.3% year-over-year and were down 20.5% sequentially from the fourth quarter of 2003, a quarter that included $28.4 million of one-time expenses relating to our 2003 strategic review. Cash and marketable securities at quarter end was $406.4 million up nearly 12% from the year end number of $362.9 million. The increase resulting largely from the collection of annual listing fees. Bob mentioned that our first quarter net income from continuing operations on a GAAP basis was $4.6 million, 2 cents per common share. He also mentioned that on a non-GAAP basis that number was $9.9 million or 9 cents per share.

Included in our first quarter results are $8.7 million pre-tax of one-time expenses and I'm going to give some detail on these items right now. 1.6 of that number was related to severance booked in the first quarter in connection with head count reductions taken in the first quarter. At quarter end our head count was 917, that was a decrease of 4% from 956 at the end of the year but a very substantial decrease from the 1,284 positions that we had at the end of the first quarter of last year. NASDAQ continues to review opportunities to improve the efficiencies of our operations and as a result of this review we have changed the estimated useful life of certain assets and operating leases associated with our quoting platform and our trading and quoting network as we migrate them to lower cost environments. In these actions we took a total of 7.1 million of incremental expense in the first quarter. That gives you the detail in the 8.7 that I just mentioned.

For this effort, the quoting platform review and the trading and quoting network review, we expect for this year that there will be a total of $15 million of incremental expense associated with these initiatives. So we've already booked 7.1 of that 15 and have, as you can see, a little bit less than 8 million more for the year. We will continue to review our technology assets, our real estate assets, and our ongoing cost structure, and will provide you an update of our review as we move forward. This concludes our prepared remarks. Bob and I are now ready to take questions. Operator, if you would now please give instructions for the Q&A.

At this time all lines are in listen only. If you'd like to ask a question, press star 1. You will be announced prior to asking your question. Again to ask a question depress star 1. Charlotte Chamberlain, Nephews and Company (ph), you may ask your question.

Hi, guys and congratulations on a second straight profitable quarter. Question, two questions, actually. Almost simultaneously with your announcing your earnings and Intstinet announcing their earnings, Archipelago filed a, an updated Test 1 listing their pre-tax earnings for the quarter. While I'm not hugely familiar with their line items, they certainly sound very similar to yours and also Intstinet. What I was wondering, Bob and David, if you could talk about is that they're reporting about $22 million in pre-tax earnings and they haven't, you know, they basically have no listings and they're doing it with 216 people as opposed to 917. I was wondering if you could kind of comment on what you see as the comparability or the not comparability of your results versus their results.

Also I think it's kind of interesting that Intstinet, who certainly doesn't have any listings, their pre-tax for the quarter was about 6.1. But anyway, the second question has to do, Bob, with your testimony on the SEC. Something that struck me as quite surprising was that David told us that the market information services contributed roughly, let's just round it up, $30 million in the March quarter. So annualizing that would be right around $120 million. But, Bob, you said that you felt that these fees were way too high and in listening to it and reading it, it sounds as if you're proposing to cut them by 2/3. I notice you didn't talk about this in your remarks today or your strategizing today. I was just wondering if you could share with us your strategic thinking of why you'd want to cut those market information services fees by 2/3. Thanks very much.

Thank you, Charlotte. Responding to the first question, I certainly haven't seen the offer, revised S 1 nor have I studied the Intstinet quarter release as of yet. But, I certainly do want to respond in terms of what NASDAQ is about. NASDAQ has a diverse set of businesses and we feel each one of those businesses is an opportunity for profit improvement for NASDAQ. As I said in our opening remarks, we are on plan, we have a plan that we are executing and it will take a period of time to unroll but we are excited about the opportunities in each and every one of our businesses and we think this quarter represents solid progress for us.

With respect to market data, I mentioned that our actual market share of print was down this quarter. And a fundamental issue is that they are down but it's not really reflective of the value that we bring to the market. And people in the market have the ability to move prints because there is too much money in the system. So our basic motive as a profit driven entity is to remove that extra money from the system that exists in market data and then you will see NASDAQ increase in a fairly dramatic way the number of prints that it does. The percent of prints that it does in its market.

We also believe that we have ability to execute a business plan where we can bring true value added data products to the market that consumers would be very willing to pay for. Willing and really of their own free will. The $20 professional fee today is set in a monopolistic fashion. We believe there is a reason to have a minimum amount of data that every investor in this country should have access to but that should be a minimum amount and at a minimum rate and we've set a target of 5 to $7 and we believe it's in our wherewithal to come up with additional value added data products.

Okay, well, trying to get a handle on, or obviously I didn't ask the question right. Okay. If you go to 5-7 from I guess it's roughly 20 now, presumably that cuts the 120 million down to roughly 40 million. Is there any offset that you're thinking of?

No, there's one, the 120 is an aggregate number so it wouldn't be that big of a hair cut it would be hair cut on a certain amount of our market data revenue. But the logic is the same. We lose on each print but we clearly think we'll get more prints back into our market as exchange competitors have limited ability to buy prints as the amount of money in the printing business declines. We also think that we will win by having data products that we can sell into the marketplace that consumers will want to pay for.

Okay. I guess that kind of feeds in again to the Archi results in the sense they have no listings and they still made more than twice your operating number. They're going out for an IPO, it seems, you know, that if you can cut price to attract prints to NASDAQ, they can do it double, and basically wipe out that whole 120 million. Because, they've just got a lot more financial firepower.

I'm not quite following your logic but I'll say this. We have diverse lines of business, we have great opportunity in each and every one of them. We are executing a business plan that will bring very good results to NASDAQ shareholders. This first quarter represents solid progress on that business plan.

Okay. Great. Thanks.

There are no further questions.

Any further questions? Operator?

There are no further questions.

I appreciate your time this afternoon and look forward to providing an update to everybody on the next quarter.

And just a reminder to any immediates on the call, we're going to dial into the media portion of the call immediately following this. Thank you.