納斯達克交易所 (NDAQ) 2004 Q4 法說會逐字稿

Good afternoon and thank you for joining the NASDAQ Stock Market earnings teleconference. All participants will be in a listen-only mode until the question and answer session. To ask a question please press star, 1. This conference is being recorded. If you have any objections please disconnect at this time. Your host for this evening's conference is Mr. Vince Palmiere, Vice President of Investor Relations. Mr. Palmiere, you may begin.

Thank you, operator. Thanks for joining us today to discuss NASDAQ's 2004 4th quarter and full year earnings results. Joining me are Bob Griefeld, President and Chief Executive Officer, David Warren, Chief Financial Officer and joining us by phone is Ed Knight, our General Council. Following our prepared remarks we will open up the line for Q&A. If you haven't done so already, you can access the press release on NASDAQ's investor relations, NASDAQs newsroom website at www.NASDAQ.com. To any follow-up questions after the call give me a call at 212-401-8742. Before we begin, I would like to remind that you 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 statements concerning such forward looking statements in our press release and the other factors detailed in the company's 10-K and periodic reports filed with the SEC. And with that I will turn the call over to Bob.

Thank you, Vince. Good afternoon, everyone. Thanks for joining us us today to review our 2004 4th quarter and year-end results. We're excited to be discussing our results with you at this very important time for the NASDAQ stock market. We have just completed a secondary offering that greatly increased our float and established NASDAQ as a stock that is traded at long last on our own national market system. I would like to extend a warm welcome to our new NASDAQ shareholder who participated in the offering and in doing so demonstrated a belief in what we at NASDAQ are striving to accomplish. As is our practice, I will begin with some comments about the 4th quarter and a brief review of our accomplishments in 2004. I will walk you through our strategic outlook for 2005 and beyond. Then I'll turn the call over to David Warren, our Chief Financial Officer, for a financial review. Afterwards we will both be available to take your questions. This afternoon NASDAQ reported detailed 4th quarter results expanding upon the results reported in our 8-K filing on February 8th. 4th quarter net income from operations was 7.4 million versus a loss of 21 million last year. As in past quarters, these results include pretax charges associated with our cost reduction actions. When you exclude these charges on a non-GAAP basis NASDAQ's net income was 13.4 million or $0.15 per share versus 8.1 million or $0.09 per share in the 3rd quarter. We benefited from increases in both average daily trading volume and market share.

Average daily trading volume for the 4th quarter was 1.89 billion up 21 percent sequentially and 7 percent year on year. The percent of shares traded in our market increased reflecting liquidity generated by the opening and closing crosses and a strong retail investor interest in the market. The competitive environment remains tough which is why we believe price leadership is the correct approach in what is becoming a commodity business. Succeeding in a commodity business calls for a scale, price competitiveness and being a low cost provider. NASDAQ already has a scale. It has implemented the price leadership policy and we are making significant progress in becoming the low cost provider. We reaffirmed our price leadership policy with a combined NASDAQ brood pricing we introduced during the quarter. As we have discussed with you, this policy reflects our belief that market centers including NASDAQs fail at their peril to acknowledge the economic pressures that their trading customers face. NASDAQ is offering professional market participants a solution that combines a realistic outlook for prevailing commission rates with a realistic outlook of the cost to operate an equity trading system. Our pricing policy is based on the projected economics of our business model, once our technology road map is complete and we are well on track to achieve our cost reduction goals. We regard this as the right strategy to expand our profitability for the long-term. And while our strategy recognizes the transaction business as a commodity business, we believe that it is a business in that we -- a business in which we can continue to innovate.

This is evidenced by the introduction of the opening and closing auction processes launched last year. We believe our strategy of price leadership and continued innovation is the correct one to maximize our profit opportunities over the long-term. Here are the highlights of the 4th quarter. In our issuer services segment NASDAQ listed 43 IPO's in the 4th quarter versus 41 in the 3rd quarter and 35 last year. The pace of new offerings coming into 2005 thus far remains robust. NASDAQ was thrilled to win the Sears listing, enter a competitive process similar to the one in which we won Google. NASDAQ brings a compelling value proposition to public company CEO's. While many listing decisions were historically made purely on brand, today's CEO's have a responsibility to have the stock listed in the market of best execution. NASDAQ wins the vast majority of the time in a listing competition that is based upon market performance and price. We increased our investment in the NASDAQ insurance agency. We now own 100 percent of this group and are intensifying our efforts to offer our nonconflicted insurance brokerage services to our listed companies. In the 4th quarter we brought the listing of the queues, the NASDAQ 100 index tracking stock home to NASDAQ. The Q's are the most actively traded ETF in the world and the most heavily traded listed equity security in the U.S. We also received approval to trade the EQQQ in Germany, the largest European market for ETS. In our market services business we successfully integrated brood operations, fully absorbing the organization into NASDAQ while continuing to lower operating expenses and have head count.

We are now working on integrating the virtual book which we plan to have completed by the end of the 1st quarter. This will enable any NASDAQ customer regardless of entry point to see one unified auto book whose functionality will be transparent to that customer. Once this is complete we will take the final step of integrating the back end technology platforms which we expect to complete later this year. During the 4th quarter we also implemented our opening cross. We rolled it out to all NASDAQ listed securities in December. This new product builds on the success of our closing cross which I will speak to later. The opening cross offers a transparent flexible single opening price that benefits all market participants. The Dow-Jones Industries, the Russell Industries and the Standard and Poors are now all using the opening cross price for the expiration of options and futures. Those are the highlights for the 4th quarter and they cap off a very successful year in NASDAQ's evolution as a lean, efficient and increasingly profitable company. We took significant actions to solidify and differentiate NASDAQ's competitiveness both as a listing entity and as a market center. In issue of services we effectively communicated the benefits of listing on NASDAQ as evidenced by our historically high retention rates, winning competitive listing decisions such as Google and launching the dual listing initiative. We continue to lever our ability to create and market branded financial products in our high margin financial products business. In market services we continue to innovate by unifying all trading of NASDAQ, New York Stock Exchange and annex listed equities on to one high capacity trading platform by creating the opening-closing crosses and by adding routing technology to our market center through the brood acquisition.

Lastly, as I mentioned before we were decisive in establishing price leadership. Finally, we built operating leverage in our business model, decreased total expenses by 26 percent, eliminating 170 positions, particularly at the management level. And we made strong progress on our ongoing program to aggressively reduce our real estate and technology costs. We enter 2005 in a very strong position both competitively and financially. For 2005 our strategy centers upon enhancing the premiere standing of our marketplace while continuing to improve our business model to drive earnings growth. In our issue of services segment we will continue to aggressively compete for new listings and by demonstrating the compelling value and service we bring to issuers. Further, all listings business offers us a large pipeline of additional opportunity in services that we plan to develop building on the successful launch of NASDAQ insurance and Georgia and shareholder services. In our market services segment, we plan to further strengthen our competitive position by maintaining price leadership and continuing to innovate in our market. Further, we continue to work on the development of proprietary data products.

An example is our partnership with Hyperfeed's data processing ticker. Additionally, we will continue to reduce our run rate operating expenses as David will discuss in a moment. This is a low risk earnings growth strategy with the majority of projected cost savings for the next three years already identified and with projects in place to achieve them. We will also use this year to develop a long-term revenue growth plan beyond 2005 that leverages our diverse revenue streams and unparalleled market position. This unique position affords us opportunities that we are exploring, including additional new proprietary data products, evidence of market share growth in our transaction business, increased listings, end client services and additional opportunities in our financial products business including license products globalization of the Q -- Q's and the expansion of structured products. We will offer you more detail as these long-term plans solidify. I can tell that you this perspective revenue model is planned to leverage our increasingly productive business model in future years. David will provide you more detail and I will now turn the call over to David.

Thanks, Bob. And thanks again, everyone for joining us today. I will take you through the financials and operational review. As I said on previous earnings calls, last year we reclassified the businesses we sold in 2003, specifically NASDAQ Europe and Indigo markets as discontinued. Therefore as I go through the results today my comparisons to the prior year will involve continuing operations unless I specify otherwise. Beginning with our P&L,the 4th quarter 2004 revenue was $168.1 million increasing 21.8 percent year over year and 35.6 percent sequentially. Brute operations were included in our results for the full quarter. Revenues from transactions executed through group are reported on a gross basis with expenses such as liquidity rebates reported as cost to revenue because group access principal in their transaction. Revenue from transactions executed through the NASDAQ system will continue to be recorded on a net basis. 4th quarter gross margin then was 121.4 million compared to 138 million in the 4th quarter of last year. But sequentially up from $114.8 million 3rd quarter of this year. We book our businesses in two segments. Issuer services and market services and I will comment briefly on the revenues from each. Issuer services 4th quarter revenue was 51.9 million slightly up year-over-year and up 2.4 percent from the last quarter. At quarter end there were 3,271 companies listed on NASDAQ versus 3,333 the year before.

Annual fees as well as fees from new shares and initial listings were all fairly comparable with prior periods. Market services 4th quarter revenue was 116.2 million up 34.6 percent year-over-year and up 58.5 percent sequentially. Gross margin for this segment was 69.5 million up 8.4 percent sequentially. 4th quarter daily volume averaged 1.89 billion shares per day versus 1.56 for the 3rd quarter and our market share increased as well. With the percentage of share volume reported at NASDAQ at 57 percent versus 48 for the 3rd quarter. Now turning to the expense side, 4th quarter total expenses were 121.4 million, a decrease of 19 percent year-over-year and were down 2 percent sequentially. As Bob mentioned earlier, our 4th quarter results included pretax charges associated with our continuing efforts to streamline operations, reduce operating expenses and improve efficiencies. Total charges included in total expenses for the 4th quarter were 25.5 million. Excluding these charges for the 4th quarter as well as 22.4 million in pretax charges from the 3rd quarter, total expenses in the 4th quarter on a non-GAAP basis decreased $5.4 million or 5.3 percent sequentially. Also included in the 4th quarter is a pretax gain in discontinued operations of 15.1 million related to the release of a reserve for a potential claims established in 2003 in conjunction with the transfer of ownership of NASDAQ Europe. This gain contributed $9.6 million net to the bottom line.

Let's go through in more detail the 25.5 million in 4th quarter charges. First 23 million of the charge as well as the $15.1 million reserve release is noncash. And all elements of these charges were within the expectations we issued last quarter. NASDAQ took a 4th quarter $1.8 million charge for severance and related costs reducing the workforce to 786 employees at year-end including the integration of Brute done in September. Charges related to workforce reductions totaled $9.4 million for all of 2004. As part of our real estate consolidation plans NASDAQ took a 4th quarter charge of $16.8 million representing plans to vacate surplus office space at its One Liberty Plaza headquarters and plans to sell an owned facility in Maryland. Charges related to real estate consolidation totaled $29 million for the entire 2004. In the technology area NASDAQ took 4th quarter charges of $6.9 million associated with our technology roadmap where we changed the useful lives of certain assets and changed the lease terms on certain operating leases associated with this technology roadmap which is an effort to migrate technology and communication platforms to lower cost environments. And charges for all of -- for all of 2004 in connection with our technology initiatives were $24.2 million. Back to Q4 for just a minute, of the Q4 charges a total of 14.8 of that 25.5 is in our G&A expense line. 8.9 is in depreciation and amortization and $1.8 million is in compensation. For 2005 we project approximately 22 to $25 million of pretax charges associated with NASDAQ's cost reduction initiatives.

These charges break out as follows: Approximately 2 to3 million in severance, approximately 8.8 to 9 million in depreciation and noncash charges related to real estate, and approximately 12 to 13 million in depreciation associated with our technology roadmap. And this afternoon we are also reaffirming our 2005 outlook as follows: Net income will be in the range of 35 to $42 million for the year or approximately 35 -- $0.35 to $0.43 per common share. This EPS guidance includes the impact of the charges I just referred to and this impact is in the range of $0.17 to $0.19 per share. Both margins will be in the range of approximately 480 to 490, total expenses are projected to decline in the range of 415 million to 425 million. That's down from the 476 million for 2004. And we expect to accrue similar benefits in our cost reduction program in future periods. The total expense is anticipated decline 10 percent to 12 percent annually for 2006 and 2007. Finally, during the 4th quarter we exchanged all of our series A preferred with newly issued series C incurring a one time charge to retained earnings of $3.9 million. This exchange for 2005, however, will have an EPS benefit of $0.10. Turning briefly to the balance sheet, cash and investments at year-end were 261.7 down slightly from 267.6 of last quarter. That included obviously the acquisition of Brute, $190 million in September. Outlook expenditures for 2004 are approximately 26 million. That's down from 31.6 in 2003, 75 million in 2002 and $108 million in 2001. So we continue to maintain our discipline in driving capital expenditures down. This concludes my prepared remarks. Bob and I are prepared to take your questions now, so, operator, if you could please open up the lines and begin this process.

Thank you. If anyone would like to ask a question, please press star, 1 on your touch tone phone. Our first question come from Todd Helke. Your line is open.

Hey, guys. It's Todd Helke, Sandler O'Neill. First question is just on the -- there is a lot of press out there on the concept or the practice of tape shredding and, it is our understanding that letters were sent out to all the exchanges to have them kind of rectify this situation by the end of February, at least come to a conclusion on how they were going to do that. I just want to get your take on how you see this playing out, the whole phenomenon of the tape shredding on the NASDAQ market and, just how you view that going forward.

Well, we are happy to receive the letter from the SEC. We think it is a bad market practice and it certainly was interesting to see the average trade size on the Q's when they move from the annex to NASDAQ. So we're happy to see the SEC turning their attention to it and I think that will eliminate certain distortions in the market.

I mean, and do you think that something will take place this year on this? Is that your understanding?

You know, I'm certainly in the practice of not speaking for the commission, but the fact that the letter is out and they are asking for fairly quick response is probably indicative of the seriousness of the issue.

Okay, fair enough. And the second, just sort of high level, is clearly consolidation remains to be a key theme in the industry. You guys even highlighted in the prospectus that you were bidding for a potential large ECN. I just kind of want to get your take -- not necessarily on if that transaction is eminent, but more just what you think from your perspective as you look at consolidation as the potential synergies from a cost standpoint if two platforms were to get together. And then also on the revenue front and just from a competitive standpoint.

All right. Well, we certainly think there is a series of M&A activities that will be available to NASDAQ in the weeks, months and the years to come. The first comment I would like to make is we would approach any of these opportunities with two major disciplines. One is the transaction has to be accretive to our shareholders within the first 12 months. The second is the transaction has to be strategically significant to us. Now, we completed the Brute acquisition. It was an auction process. And we were favored with the win. And that transaction met both of those criteria. It is interesting that with brute we committed on our board that it would accrete to our shareholders within the 12 months. And it was accretive one quarter out. So this is the kind of actions that you will look to expect or expect from NASDAQ in the time to come.

Okay. Great. Thank you very much, guys.

Rick Bandavien your line is open. You may ask your question.

Hey, guys, congratulations on the successful offering. We think you did a terrific job telling the story. And I know you guy did not take the road show over to Europe and there are many in the states who tried to meet with you, but didn't have the opportunity. What are your plans in the future to continue to get the NASDAQ story out there?

Well, let me just respond in general. We certainly wanted to get to Europe. The schedule just did not permit. We are just ecstatic of being in a position now to communicate the story. We understand that the 8-day road show was really the start of that effort and certainly not the finish. So we tend to be very aggressive with bringing the NASDAQ message forward to investors. David, would you like to add something?

No. I'm just going to build on it. Our efforts away from any transaction will be thorough and comprehensive and continuing. And we look forward to it. And I wouldn't encourage people who have an interest in talking to us -- if we're not reaching out to you, reach out to Vince or to myself.

Thanks, guys.

Thank you, Rick.

Charlotte Chamberlain, you may ask your question.

Good afternoon. So many questions, so little time. With respect to Brute, first of all, in the cost of revenues, are the clearing expenses in there, or are they someplace else?

The clearing expenses for Brute are in the cost of revenues.

Okay. And can you give us an idea of how much per share that is?

No, I don't think we -- I'm not sure we do it. We don't calculate that way, Charlotte.

Okay. Can you kind of give us an idea -- of what percentage of the cost of revenues was clearing?

Yeah, it is mainly a fixed cost.

Yeah, it is mainly a fixed cost, Charlotte. It is hard to break it up the way you are suggesting because it is kind of all bundled together. So I think I might suggest in the interest of the other questions is we might just discuss that a little bit further separately.

That's fine. That's fine.

Okay?

Yes, that's fine. Now, on the last call you said the clearing arrangement with Sun Guard goes for five years. Falling on to, I think, the second question about and your reference to a large ACN that you would be interested in acquiring, the biggest one that is for sale is in fact self-clearing. If you, in fact, did acquire a large ECN and it did -- and is there anything in the Brute contract that would require you to clear through Sun Guard for an additional acquisition?

Charlotte, I would just say that off the top of my head there is nothing that mandates us to use Sun Guard's processing system. So Sun Guard is not in the business of clearing. They provide us with processing services to affect the clearing. So, I always say we have flexibility.

Okay. Let's see. At the December 15th open meeting of the SEC the director of market relation, Annette Radrab [ph] said in response to a question by commissioner Komos that they are working on the NASDAQ exchange optimistic and that they are very optimistic that we have come up with an alternative that will work for them and that we would recommend to the commission and we hope shortly to share with you our views. You being the commission. I was wondering if you could share with us what the -- what this is in terms of what is it that they have come up with, or I assume you jointly have come up with. That it would move this ball forward.

Yeah, Charlotte, the statement I can give you is that, one, we appreciate the efforts of the commission in working with us over these past weeks and months and the direction I'll give you is the solution is built around corporate structure as opposed to market structure. As you and others know, we stand firm in our belief that the NASDAQ market structure yields a great outcome for all investors, and we are not willing to change that structure so that we could be called an exchange. So working with the commission I think we come out with an effective way that will benefit all to solve this, basically, standoff through corporate structure.

Okay. And is that what they suggested to you?

What's that?

Well, she was very specific, at least the transcript is pretty specific, saying we are very optimistic that we, presumably, the SEC, have come up with an alternative that will work for them, presumably, NASDAQ, and that we would recommend to the commission. So is this corporate structure what they came up with?

Well, Charlotte, I don't recollect that. I mean, we have so many discussions with the commission on it I think the key point is that we think we are coming close to an arrangement that works for investors in our market and works within the rules set as defined by the commission. And we appreciate Annette's and everybody else's participation for market regulation.

Okay. So from what your comments when you said it wasn't market structure, but rather corporate, it is not something like turning off the preferencing button on the market center.

Well, what I prefer to say right now, Charlotte, it is around corporate structure, it does not change our fundamental market structure.

So it wouldn't change the montage that a market maker would see.

Well, Charlotte, we are speaking about the fundamental discussion we have had with the commission over the last four years is not so much about our matching products, but it was about our internalization products. So when we speak to the fact that we're not changing our market structure, we are speaking to the fact that we're not changing the ability to internalize on the NASDAQ Stock Market.

Oh, okay. All right. So -- all right. And then finally, I know in your prepared remarks, Bob, you talked about the price cuts that you instigated -- or you initiated during the quarter which ended December 30th, but subsequent to that you -- you also put out some price cuts where you cut the prices for high volume users of market center and Brute who route out through Brute, and you also eliminated the $0.02 per order charge for preferencing. And I was wondering if you could talk about why you cut those prices, especially the preferencing one. Unless nobody was using it, I would assume that because NASDAQ is the best place for internalization, the demand would be pretty elastic for preferencing, so why would you cut it? Unless nobody is using it.

Preferencing on super montage was not one of our more popular products, Charlotte. Most of the internalization comes to us outside of that part of our transaction business and just as a policy statement again, it is our intention to be the low cost producer and provider in this space and we have made tremendous progress in the trading community of communicating that policy decision. And what you -- I have to stress and it is hard to appreciate is that our job was to get people coming from a point of view where they saw NASDAQ as being an expensive place to trade and a relatively slow place. They always saw it as reliable. But what we have done in the trading community is transform that perception to seeing NASDAQ as being a place to trade one where it is reliable and two, it is fast and three, it is the price leader.

Okay. Well, the final, final question with respect to that, when will we see any indication in terms of an outward and visible measurement of -- of this leadership which I don't doubt. The issue is we just don't see any outward and visible measurement because you still don't -- or you haven't turned back on the statistics on how many shares -- how many shares and trades are actually executed on the market center on a daily basis or a weekly or monthly basis. Are we going to see that?

Let me respond to the first general point is that if we step back a year or so ago we saw a NASDAQ Stock Market that was losing market share. And then as we released product and capability and speed to our system we saw that we entered a period of time of stabilization. Now we see ourselves entering a period of time of incremental growth in our market share. So we feel very good about positioning. We understand that we had a lot of work to do with the trading community. And you do not change perceptions in a day or a week or a month nor do you change technology routing decisions. But we make progress in all those areas. With respect to how we report market share, I think it is very important to understand that the NASDAQ stock market is just not about an internal matching product. We have a fundamental belief that investors are best served by the NASDAQ market model. And that allows both internalization and order matching. And we're committed to that. We are committed to it for four years as we discussed our exchange application and it is the true measure of our success in the market place.

I am not questioning that. It is for us poor number vampires out here that have to put together models and have to put together analysis, is that it would be very, very helpful to be able to see what you actually execute so that we could get better precision or any precision whatsoever in our forecast of what your revenues are going to be.

Well, Charlotte, we look forward to working with you and obviously there is some difference between a match trade and an internalized trade, but they are both economically beneficial to NASDAQ. They are both important to us. And again, for investors, it provides a better outcome. And that's why we think that's how we think we should be judged.

Okay, so presumably we're not going to see execution -- shares executed anytime soon then.

No. Again, we focus on how we provide trading services to the entire market. I mean, we are competing with competitors who tend to be one trick ponies. We do not want to be identified into that one part of the market. So what's important to us and what is important to investors is how we handle trading on a holistic basis.

Great, thanks.

Thank you, Charlotte.

Ed Shen, you may ask your question.

Hey, guys, congratulations on the offering. I just had a couple of kind of housekeeping questions. I was wondering, you went through the numbers kind of fast and I didn't get them. But the pretax charges of 25.5 if you could just go through again which line items those are allocated to not only for the 4th quarter but also the 3rd quarter and also for the full year.

I gave them for the 4th quarter.

Okay.

Let me do that first, okay? For the 4th quarter 14.8 for NG&A, 8.9 million were in depreciation and amortization. And 1.8 are in compensation.

Okay.

For the 3rd quarter the number is 22.4 which we reported last year. And that -- you can find that basically in the same 3 line items. G&A was 10.9 of that. D&A was 6.7.

Yeah.

And comp and benefits was 4.8. For the year was 47.5 were the total charges. This is continuing ops. That includes the 15.1, right?

Okay.

47.5. So you have 25.9 in G&A and now for the full year. 25.5 in depreciation. Now you come up with a new line which is computer ops and data. The charges are in the 1st and 2nd quarter in that line item. Those were $1.8 million total for the year.

Okay.

Then in comp and benefits you had 9.4 for the year and obviously what's in the 4th quarter and discontinued operations is the release of the reserve at 15.1. So you carry that obviously forward for the full year and you get a total number of 47.5 for the year.

Okay. Got it.

Is that okay?

And then that reserve -- that was -- that last item of 15.1 that is in discontinued ops, right?

That's in discontinued ops. We established that reserve last year. Actually in 2003 when we transferred our ownership in NASDAQ Europe. And what we did in 2004, those were -- that was established against potential claims by other shareholders against NASDAQ within the majority shareholder through our ownership of NASDAQ Europe and so we then went out and negotiated settlements with all of those shareholders releasing NASDAQs that we now release to the [inaudible].

Got it. And then just conceptually, the write offs that are going through D&A, are those just accelerated depreciation?

They're largely accelerated depreciation and where we've made decisions on technology and to go to different technology platforms and software and what we were doing then is obviously accelerating the remaining depreciation over a shorter -- the remaining asset over a shorter use life.

Okay. So the amounts that you have outlined for next year, the 12 to 13 and the 8.9 of depreciation in later charges, are those somewhat similar in nature then to the charges you just described for the historical period?

For 2005, right?

Yes, exactly.

Those are very similar. It is really just a continuation of the implementation.

Got it. And just in terms of capital expenditures, I think you were giving a number of 26 million for the year?

Yeah.

And if I just -- I think if my math is correct that implies there is 12 million in the 4th quarter? I just kind of subtracted out the amounts that were in your previously recorded quarters.

Based on what we reported. There is no report in the 3rd quarter. I'm just checking that. That was expected. There was some -- one there was some -- there was some capital investments made in the 4th quarter that this on a timing basis is part of the technology roadmap we expected to make. That was really just sort of a phasing in of that program and when we need to bring some of the assets on line. And then we also made some investments in the 4th quarter in real estate to make some improvements so that we could further consolidate and get more people into one building. We made some investments to make certain properties we want to stay in long term more efficient and able to hold more people. We're getting better use out of those properties and thus able to sublease or sell the property that now becomes surplus.

Okay. And can you give as you sense of what CapEx is likely to be in '05?

I'm not going to do that today's call. But we obviously have driven things down as I mentioned in my comments very dramatically. And I think that discipline will continue.

Okay. Fair enough. Thanks a lot.

Thanks a lot.

Operator, do we have any other questions?

Charlotte Chamberlain, your line is open.

Yes, just a quick follow-up. Since your continuing earnings for common shareholders was a negative 2.2 million, it makes figuring out pretax margins a little bit frustrating. I was wondering though with your non-GAAP measurements, there is nothing there to kind of throw us some bread crumbs to get back to -- once you take out all these one time charges what the pretax margin might be and I was wondering if you could help us with that.

This is for -- are you talking about 4th quarter or are we talking about going forward?

Yeah, no. 4th quarter.

Yeah, well we had a loss from continuing operations of 2.2 million.

Right.

So you want to know the non-GAAP?

You want pretax?

Yeah, I mean -- what would you consider your pretax margin to be on your -- using the -- using the non-GAAP basic and diluted earnings per common share from continuing operations. What would be the appropriate -- by your calculations the appropriate pretax margin used comparable to the $0.15 that you've got here.

I know what you want, Charlotte. We'll compute it and we'll call you.

Perfect. Thanks so much, guys.

Thanks a lot, Charlotte.

No more analysts, sir.

Okay. All right. If there are no other questions, we're going to conclude the investor portion of the call.

I appreciate your time. This is Bob speaking and we look forward to getting back together with you in probably two short months. With the 1st quarter results. Thank you.

And for the members of the media if they are on if they can hold for a minute and we'll get started with the media portion of the call with Bethany Sherman that will lead that. Thank you.

One moment please. Okay. You may continue.

Thank you, Operator.

And were you ready to take questions from the reporters, or --

Yes, Operator. If we can proceed with the media portion.

Do you want to introduce me, or how do you want to -- the lines are open, your line is open, if anyone does have a question at this time, please press star, one. Gaston Serin, your line is open.

Hi, Bob, Bethany are you there?

Yea, we're here.

Great thanks a lot. A couple quick questions. Bob, you talked about the benefits of the -- at the very beginning of the call I think you talked about the benefits of the recently completed secondary. You talked about increasing the flow and that sort of thing. Can you talk a little bit more about that? I am just kind of wondering if you are seeing this translated yet into kind of raising NASDAQ's profile among investors, mutual fund institutions interested in stock or perhaps more analyst coverage and things like that?

Well I'll say a couple things. One is we certainly saw a greater participation on the analyst call than we have at any time in the recent past. Second is if you look at the average daily volume of our stock today compared to where it was during the bulletin board days, it is a dramatic difference.

So that float did increase.

What's that?

The float certainly did increase.

We went from 18,000 shares a day to over 300,000. So that means there is a lot more investors paying attention, looking at our stock and what we need to do is to get our story out because it is a compelling story. So the extent we have interest then more people are certainly listening.

And the other thing is can you say where these -- where these talks with this large unnamed DCN stands or what kind of the update on that?

You know, Gaston, I'm sitting here with a few lawyers, so you can imagine how much I can say. There is not a lot. The only thing I will say, I'll repeat what I said before. If you see us do a transaction that will mean that it accretes to our shareholders in the first 12 months and it will be strategically significant. So I have been involved in this kind of situation a number of times before and it is important to make sure you keep those disciplines in place.

Right. But what's -- regardless of this particular deal, is your expectation that NASDAQ over the foreseeable near term will continue to be as inquisitive as it was last year with the purchase of Brute?

I think to the extent that the opportunities present themselves that show accretion and are strategically significant, we will have a strong interest. And in addition to Brute we completed the acquisition of the part of the insurance agency that we did not own and we are excited about the opportunities there.

Great. And one last thing if you can educate me a bit, I could have some of my details wrong, but I believe that at some point, correct me if I am wrong, at some point maybe next year you guys have some sort of a -- some type of a debt payment coming due with Heltman and Friedman, I'm kind of wondering how you guys plan on meeting that and if you have sort of taken any popular renegotiating terms or anything with that.

Gaston, it's David. That debt matured in May of 2006.

Okay. What's the amount?

240 million.

Right.

And that debt will be paid off, that maturity, and we have not -- we're not looking to refinance that. We just will pay it off with maturity.

Great, thanks.

Max Bowie, your line is open.

Good evening, gentlemen. I'm interested in the market data portion of your results and your plans for 2005. It says here in the results that although market data -- sorry, market services subscriptions have fell over the quarters last year they did actually did increase in the last quarter. You must be pleased about that. And I was wondering several things. Firstly, what is exactly is included within market services subscriptions, secondly to what do you attribute that uptick in the 4th quarter, and thirdly how that is affected by the NASDAQ general revenue sharing program and the unlisted trading privileges sharing program.

Okay. I'll start David and you'll fill in the details. You know, the market data has two drivers. One is what I call the size of the pool and that is the number of investors who are interested in a level one, level two or total view products. And you see as market activity increases you tend to have a slight lag effect, but a very noticeable correlation where the number of users of those market data products increases. And these people are obviously paying and that money that they are paying goes into this pool which is administered through the SEP or the UTP program. And we participate in that pool based upon our percent of trading activity. Trading or order activity.

So we had a strong 4th quarter and that helped. You also had strong retail investor interest in the market in the 4th quarter and that also helps. So those were some of the drivers. And I think as we mentioned before you will see us look to innovate in this space. You know, the space has been defined by the level one and the level two product for really a long period of time. So we saw increased customer pick up or a total view product in 2004 and we anticipate that product and other proprietary products that we come out with will continue to help us grow the top and bottom line. David, do you want to add anything?

Yeah, just on the question of 4th quarter revenues that 116 -- yeah, that includes, but basically what we had was we look at in some detail we had market services subscription revenue that sequentially went up a little bit. It went up from 44 to 45 stronger demand and we also had as Bob alluded to we had less sharing in the 4th quarter because our market share interest with more executions done, more volume coming over our total systems we increased our take out of the pool out of the data revenue that is shared under the UTP program. Those were the main drivers that speak to the growth, the change between the 3rd quarter and the 4th quarter.

Thank you. And can you say anything else about the upcoming proprietary data product that you mentioned earlier, Bob?

Not too much, but I will say that total viewers are leading proprietary data product today. And we experience roughly about a 40 percent growth in that product in '04. So I think you will see us look to add additional features and capabilities under the total view brand.

Thank you very much. Can you say anything about what those features will be?

Not at this point. But hopefully soon enough.

Thank you very much, gentlemen.

Thank you. Appreciate your time.

Once again, if anyone does have a question please press star ,1 on your touch tone phone. Gaston Serin your line is open.

I just have a very quick follow-up for David, I think. I was just curious, I think you were asked this during the conference call and so I apologize, but the 25.5 million in various cost-cutting charges during the latest quarter, what part of the earning statement does that fall into? And the reason why I ask is because if you look at the -- I'm sure you know if you look at the earnings statement under expenses you guys for the year ago quarter you guys have a 28.4 million in severance and restructuring and whatnot. I am just wondering how come the 25.5 didn't fall on the same line this time around.

Yeah. A couple of things. In 2003 we conducted a strategic review and that was a comprehensive review of all of NASDAQ's business and a decision to exit certain businesses and a number of broad strategic decisions were made under that effort. Therefore on the accounting guidance we took charges in connection with those activities potentially as strategic review charges and reported them as such below our normal operating lineups.

Right.

We do not -- we are not involved in that similar initiative in 2004. What we really are involved with is 2004 is an ongoing effort to take the new NASDAQ that emerged out of that strategic review and now go through initiatives that make that more efficient. So that is consolidating real estate. That is head count reductions and that is -- those are continuing efforts to make our technology more efficient. So that contrast between a strategic -- a comprehensive strategic review that really focuses on the certain business we want to be in. So, for that reason for 2004 we don't report those charges in a separate group, quote, sort of below the line. But we now -- we report those in our standard operating line expenses. But as you know from our prior conference calls to provide people with visibility into where we're headed we separate those out, we speak to how much of that is sort of cash versus noncash and then we say of that -- of the total charges for a particular period, where do you find those in our expense lines? So that's why I went through the discussion.

Right, right.

I think people can now sort of understand where that 25.5 occurred in our P&L in G&A and in compensation and in depreciation. So it is really -- I think that's clear. It is really just basically the fact that 2003 was a strategic review where we were allowed to group the expenses separately. 2004 is really just an ongoing and continuing effort to be more efficient and why we still take those charges based on accounting treatment we are not allowed to group them separately.

You said you are staying at One Liberty Plaza just as you are doing --

We are basically getting down to we were here on almost three floors and we're getting down to a floor and a half.

One last thing, Bob, I'm wondering what you can say about the outlook for MNS and sort of your expectations there.

Again I'm very hesitant to speak for the commission, but I would make a statement that I believe the commission is committed to seeing it through to approval in a relatively short period of time. And that's my personal belief.

But do you have any expectation on the impact that will have on NASDAQ or anything at this point?

You know what, I look at the proposals of NMS. They are all good for NASDAQ.. You know, we have been arguing, are they going to be great or very good or good? So we're anxious to move it along. The basic concept of NMS and trade through is to try to basically fix what was happening at the New York stock exchange. And to bring it to the electronic age.

I'm sorry I cut you off. Go ahead.

That's all good things for NASDAQ.

Okay. So any possible expansion of the trade through world to the NASDAQ world, even if that were to happen, that doesn't keep you up at night or anything like that?

It is not a positive development for the NASDAQ Stock Market because it essentially layers on a cost with no discernible benefit. So that certainly is a drag on investors' return and we believe it should not be enacted. But when you look at the imposition of the trade through rule on the New York stock exchange and the fact that they now have to interact with liquidity pools and respond to the second. It is clearly a great benefit for us.

Okay and I'm sorry two more very quick things. I don't want to hog things up. One I just thought of is, I'm sure you know a lot has been made of the big boards possibly expanding trading to -- they are expanding their trading session by moving the open perhaps by an hour. You know I know obviously there is some expanded -- that there is some premarket trading that goes on in the NASDAQ world before 9:30. But I'm wondering if New York takes the actual step of moving its opening bell to say 8:30 would NASDAQ consider moving kind of the quote, unquote, full day up to 8:30 or what would you kind of think about that?

We would certainly guide our -- have our actions guided by the input from the customer base. If the buying and selling community expressed to us a substantial majority view point saying that you should move this up earlier, then we would certainly listen to our customers. So far we have not heard that from our customers, but we certainly will be reaching out to them.

So you're saying so far you haven't heard a clamor for opening earlier?

We heard the opposite. We've heard that most customers do not at this point in time seem to be enamored about opening the market earlier. And we had the opportunity as part of the road show to spend time on the west coast. And I would say that that was uniformly dismissed as a bad idea to open the market earlier.

Okay. Thanks a lot.

Are there any other questions?

No, I am showing no further questions.

Thank you very much for joining us. And we will talk to you soon. My number is 212-401-8714. Thank you.

Thank you.

Thank you. This does conclude the conference call. You may disconnect at this time.