納斯達克交易所 (NDAQ) 2012 Q4 法說會逐字稿

Good day, ladies and gentlemen.

Thank you for standing by.

Welcome to the NASDAQ OMX fourth-quarter and full year-end 2012 earnings conference call.

At this time, all participants are in a listen only mode.

Later we'll conduct a question and answer session and instructions will follow at that time.

(Operator Instructions)

As a reminder, today's conference may be recorded.

It's now my pleasure to turn the time over to John Sweeney, Vice President of Investor Relations from NASDAQ OMX.

Sir, the floor is yours.

Good morning, everyone.

Thank you for joining us today to discuss NASDAQ OMX's fourth-quarter and full-year 2012 earnings results.

On the line are Bob Greifeld, our CEO; Lee Shavel, CFO; Ed Knight, General Counsel; and other members of the management team.

After prepared remarks we'll open up to Q&A.

The press release and the presentation on our website, we intend to use the website as a means of disclosing material non-public information and complying with disclosure obligations and SEC regulation FD.

I'd like to remind you of certain statements in this presentation and during Q&A may relate to future events and expectations and, as such, constitute forward-looking statements under the meaning of the Private Securities Litigation Reform Act of 1995.

Actual results may differ materially from those projections, information concerning factors that could cause actual results to differ from forward-looking statements is contained in our press release and periodic reports filed with the SEC.

I'll now turn the call over to Bob.

Thank you, John.

Good morning, everyone, and thank you for joining us today on this call to discuss NASDAQ OMX's fourth-quarter and full-year 2012 earnings results.

I am pleased to note that we're doing the call from Stockholm where we are celebrating the 150th anniversary of the Stockholm Stock Exchange and joined with me here is Hans-Ole Jochumsen, the head of the European business and obviously other members of the management team.

When we look back at 2012 for NASDAQ, one word comes to mind, resiliency.

In a year that was challenging for everyone, where we encountered market challenges, weak demand, political turmoil and even hurricanes, we never stopped executing on our business plan.

The results we announced earlier this morning clearly demonstrate not only the resiliency but the diversity and the strength of our business model.

Let me start by giving you a few key highlights of our fourth quarter and then I want to talk a little about how we got there.

Fourth-quarter non-GAAP revenue is up $419 million with the highest of 2012.

Recurring and subscription revenues accounted for 71% of total fourth-quarter revenues, tied for the highest level in NASDAQ OMX's history.

We delivered non-GAAP diluted EPS of $0.64, tied for the second highest quarterly performance in the firms history.

We finished the year with an exit run rate of $50 million in annualized expense savings, which I'll talk more about later.

While we're pleased with these results, given the difficult times, by no means are we satisfied.

We have yet to demonstrate the full earnings power of this franchise.

One of the drivers that has made our model so successful over the past few years is the diversity of our business.

Corporate solutions lead the way, an effort we undertook six years ago and built from the ground up.

Corporate solutions revenues were $31 million in the fourth quarter, up an impressive 55% compared to $20 million in the fourth quarter of last year with strong 25% year on year revenue growth from our core products and services.

Our success in diversifying our business model was also driven by our ability to create adjacent opportunities in our core business areas, many of which are non-transaction based and rooted in innovative technologies and software.

Let me be clear, however, we love our transaction businesses.

We are leaders and execute exceptionally well in these areas; however, that love has never stopped us from looking for ways to one, diversify our revenue portfolio; two, better serve our customers; and three, pursue adjacent growth opportunities.

These opportunities have included a suite of solutions that cover the entire trading lifecycle to our members.

We continue to benefit as we bring innovative data products and market system software and services to meet the needs of our customers and power their businesses throughout the world.

We grew access services revenue 7% in the fourth quarter 2012, compared with the fourth quarter of last year, and the global index group increased by 8%.

We continue to see good traction for our SMARTS broker surveillance and risk management tools.

We continue to make progress in our market technology business which had exceptionally strong performance in the fourth quarter, delivering new business wins totaling $95 million.

We are also pleased to close our first acquisition to the Global Index Group in the fourth quarter, a leading player in dividend indexing.

In contrast, the most domestic equity mutual funds, which have experienced outflows over the past three years, inflows into equity income funds or dividend focused funds have increased in that same time period, a factor we believe bodes well for the future growth of this business.

With this acquisition, the Global Index Group is one of the largest providers of dividend themes indexes and further enhances our custom index offering capabilities.

Our US options business grew revenue 10% year-on-year in the fourth quarter during my increased revenue capture and expanding market share.

In addition, so far this year, the signs for our transaction based businesses are encouraging.

On the operating front in 2012, we continued our disciplined approach through expense control with the cost reduction program we announced in February of last year.

We ended the year tracking ahead of our $25 million savings target and exited 2012 with an annualized run rate plus savings of $50 million.

In addition to expense control, we have an extremely disciplined capital allocation program.

When we deploy capital in an acquisition, we always apply strategic rigor before we do any deal.

As I've said before on this call, any transaction must make strategic sense, in some way must also lever the mothership and be accretive to our shareholders within a year.

Share repurchases, dividend payments and acquisitions are all vital elements of our capital allocation strategy.

In 2012, we generated nearly $600 million in cash flow from operations and we returned $275 million to shareholders through our share repurchase program, and an additional $65 million through dividends.

Through our gift council, we continue to invest in and bring new and innovative product and services to market.

In 2012, we generated approximately $134 million in revenue based on the investments we have made in new initiatives over the past four years.

Three great examples of our successful gift initiatives are BX Options, our insight sales force for corporate solutions, and our index weighting and component product sets.

Now as I've alluded to previously, the management team here is firmly focused on the opportunities across different sectors.

We have driven growth and created scale across many of our businesses and are now providing operational visibility into these areas.

We recently have made several noteworthy moves with this goal in mind.

A few weeks ago we announced the combination of our market technology business and our corporate solutions business to create a leading technology and software business now called Global Technology Solutions.

One of the drivers for this combination was our announcement of the acquisition of the IR, PR, and multi-media solutions businesses of Thomson Reuters.

As I mentioned before, we have long admired the Thomson Reuters model and now, through this acquisition, we will accelerate our strategy and create one of the premier suites of products and services for public and private companies.

We will bring the assets, talent and technology together to deliver a strong, customer centric value proposition to over 7,000 new clients in over 60 countries, truly an amazing opportunity.

The transaction is currently under review by regulators and we expect it to close in the first half of this year.

Once completed, it is expected to be accretive to earnings within the first 12 months, excluding transaction related costs, and is expected to generate attractive returns on capital.

We believe that technology and the continued innovation of industry leading products and services will differentiate NASDAQ OMX.

Our global technology solutions business would be one of the larger players in the space and similar in profile to companies such as ACI Worldwide, Fidessa, Fiserv and Fidelity National Information Services.

As part of this effort, we also announced a new Chief Information Officer will be joining our firm, Brad Peterson.

Last year we took several key steps to improve our technology and enhance the way we bring product and services to market.

We said one of the things we wanted to accomplish was to appoint a dedicated CIO.

Brad brings significant experience and leadership skills to NASDAQ OMX, and his diverse background includes successful technology leadership rolls at Charles Schwab, eBay and Epic Partners.

We are lucky to have him and he will be the point person for all technology efforts across NASDAQ OMX.

Just this week, we also announced the combination of our global index and global data product businesses.

Data products and the global index group both have high margins and saw positive year on year growth in 2012.

Bringing these two businesses together makes perfect strategic sense for us as they are rooted in technology and in the delivery and distribution of data, things we do exceptionally well.

Global Information Services, as we referred to the combined unit, will represent approximately 20% of NASDAQ OMX's total annual revenues and will have a similar profile to companies such as MSCI, McGraw Hill and FactSet.

This combination puts us in a great spot to capitalize on the work that has been done in both these areas and create new products and solutions for our customers, which really span virtually every corner of the financial services industry.

The results of this diversified approach demonstrate that our strategy is working.

Recurring and subscription-based revenue now accounts for 71% of our total revenue and reached $297 million in the fourth quarter of 2012.

That is up $9 million from the previous year.

It is truly a remarkable evolution of our business.

Once we close the Thomson deal, we expect our recurring and subscription revenues will approach 75% of our total revenues.

In closing, I have summarized what we considered to be the highlights of our strategy and a few examples of the successful execution of that strategy in 2012.

Now I'd like to discuss, in an overview fashion, our outlook for 2013.

We believe that the year ahead will be positive for our business as the global economy continues to recover.

We expect that our aggressive steps in meeting our cost, revenue, and technology objectives over the last three years will enable us to benefit from improving economic conditions in 2013.

We will continue to look for opportunities to further diversify our business with enhanced product offerings and possible acquisitions that compliment our existing businesses.

So far, the market environment has been encouraging in 2013.

In the US, in January, we are seeing positive multi-week equity inflows from retail investors for the first time in over one year.

In addition, the last three reported weeks from Lipper show the positive inflows into the US equity mutual funds.

We don't know if this trend will continue but certainly, these are the most encouraging signs we have seen for US equity volumes in many years.

Still, our outlook will remain cautiously optimistic and we are planning for flat to relatively modest growth in volumes.

Now with respect to our industry, we see that the market structure will continue to define and shape the discussion of the day.

For NASDAQ OMX's role, we will continue to provide leadership in innovation and market structure to benefit investors, not just so that markets remain stable in times of stress, but more importantly so the markets can continue to fulfill their original purpose and intent.

In 2012, NASDAQ overcame many of the internal and external challenges that were thrown our way, a credit to everyone on this team.

At the end of the day, the challenges we faced in 2012 have made us a better company.

As we move forward, we will continue to redefine and reshape our business and create even greater value for our customers, shareholders, and stakeholders.

And with that, I'd like to now turn the call over to Lee.

Thanks, Bob.

The following comments will focus on our non-GAAP results, reconciliations of the GAAP to non-GAAP results can be found in the attachments to our press release and in the presentation that is available on our website at ir.nasdaqomx.com.

I'll start by reviewing our fourth-quarter revenue performance.

Net exchange revenues came in at $419 million, compared to $420 million in the prior year.

Subscription and recurring revenue, representing 71% of total revenues, continued to show growth over the third quarter.

And the prior year quarter and I'd like to highlight some of the areas in this revenue category where we saw particular strength.

Access and broker services, fourth-quarter revenues increased by 7% over the year to $65 million.

While we are starting to see some signs that customers are delaying their infrastructure spending, which has reduced the level of growth for our co-location and connectivity revenues, we continue to see encouraging momentum and positive outlook for our previously announced thin cloud and microwave initiatives where we've had a positive customer response and expect revenues starting in the second quarter of 2013.

Corporate solutions revenue increased 55% with 25% year-over-year organic revenue growth, with solid new business wins for BWise.

And in market technology, we saw exceptionally strong order intake, rounding out a record year for new business wins.

We anticipate first quarter 2013 market technology revenues of $44 million.

Transaction revenues, which represent 29% of total, declined by $10 million or 8% year-over-year to $122 million.

This was an improvement compared to the third quarter when our transaction revenues declined 21% over the prior year quarter.

We saw substantial improvement in our US options business which had double digit revenue growth versus the prior year through improvements in market share and revenue capture, despite lower volumes over that year-over-year period.

This represents the first time in five quarters that one of our transaction businesses increased on a year-over-year basis.

US equity volumes, as Bob mentioned, showed some signs of improvement in the fourth quarter and continue to modestly improve in January.

We saw some positive trends in particular for equity mutual fund inflows in the first weeks of January.

While the low volatility environment, with higher rates of internalization, has contributed to our lower US equity market share, we did see our US equity capture rate increase 8% year-over-year in the fourth quarter.

On the expense side, we continue to show solid expense growth with non, I'm sorry, expense control with non-GAAP operating expenses of $233 million in the fourth quarter, flat compared to the prior year.

These results reflected incremental expenses from acquisitions and gift spending of $20 million, offset by a decline in core expenses driven by our cost reduction plan.

Moving on to our 2013 expense guidance, as outlined on Slide 13, we start our 2013 core expense guidance of $850 million to $870 million, which is in line with our 2012 actual core expenses of $855 million.

And I would note that we do anticipate an increase of expenses in the core due to the successful graduation of four of our gift initiatives that will be moving from gift spending into our core spending, as well as through some structural increases within our core expense base.

This chart clearly demonstrates how effective our cost reduction efforts were in 2012.

Please remember that our initial guidance for 2012 was $915 million to $935 million for core expenses, substantially higher than our 2012 actual result.

At current rates, we forecast foreign currency to increase 2013 expenses by approximately $10 million.

Our 2013 cost guidance factors in $50 million of expenses related to the acquisitions we made in 2012, BWise, NOM and the index business, reflecting full year expense base for those combined acquisitions, and so this establishes our core expense base of $910 million to $930 million for 2013.

In 2013, we expect to invest $50 million to $60 million in spending on new initiatives as we ramp up our initiatives at NLX and other internal gift projects, so our 2013 non-GAAP operating expense guidance sums to a range of $960 million to $990 million.

Non-GAAP operating income in the fourth quarter of 2012 was $186 million, down $1 million compared to the prior year.

Non-GAAP operating margin came in at 44%, down slightly from 45% in the prior year, primarily as the result of lower revenues in our higher margin transaction businesses.

Net interest expense was $22 million in the fourth quarter of 2012, a decrease of $1 million versus the prior year.

The non-GAAP effective tax rate for the fourth quarter was 35% and 34% for the full year.

We anticipate that the tax rate may increase in 2013 due to the potential loss of tax deductions resulting from changes in tax laws in certain jurisdictions.

The impact of such tax law changes has not yet been determined and, as a result, we expect an effective tax rate in the range of 34% to 37% in 2013.

We understand that this is a wide range with the lower end, or 34%, signifying no change in the current tax laws and the higher end, or 37%, reflecting an adverse change.

We will continue to monitor the status of tax legislation and update our guidance as we get more clarity on the situation.

Non-GAAP net income was $108 million, or $0.64 per diluted share, compared to $113 million, or $0.63 per diluted share, in the fourth quarter of 2011.

The $0.01 increase in our EPS reflects a positive operational gain of $0.04 per share and a $0.04 benefit from our share repurchase activity, partially offset by a $0.03 reduction due to the increased fourth quarter 2012 effective tax rate, a $0.02 reduction due to the ramp up of our acquisitions and a $0.02 reduction due to the funding of our gift initiatives.

Moving on to the balance sheet, on Slide 16 we are showing our debt structure and our debt maturities, our relatively low leverage, strong cash flow generation and space debt maturities give the Company considerable latitude for our ongoing capital development initiatives.

In 2012, NASDAQ OMX generated cash flow from operations of $594 million, capital expenditures were $87 million in 2012, which is equivalent to approximately 5% of our net revenues.

As some of our analysts have recently pointed out, this level of capital expenditure is at the lower end of the range for exchanges.

Deducting capital expenditures of $87 million from our 2012 operating cash flow results in free cash flow of $507 million.

This relatively high level of free cash flow generation means that NASDAQ OMX is currently valued at an 11% free cash flow yield at the current market cap, a substantial discount compared to other US exchange companies which trade in the 7% to 9% free cash flow yield range.

On Slide 17 we show our track record of cash flow generation and cash flow utilization since 2009.

As you can see, NASDAQ has generated roughly $2 billion in free cash flow in the last four years.

We have used that free cash flow to repurchase approximately $1.2 billion of our outstanding common stock.

This equates to 53.4 million shares at an average price of $21.97, a reduction of our share base by 26% in this time period.

Between 2009 and 2012, capital returns from dividends and share repurchases represent 63% of our free cash flow, excluding Section 31 fees.

We have refinanced and restructured our debt with a net repayment of debt of $540 million, and we've invested $320 million, net of dispositions, in acquiring a variety of assets including BWise, NOS Clearing, the index business of Mergent, SMARTS, FTEN, Glide and the business of RapiData.

These bolt in acquisition have allowed us to broaden our existing business and enhance our ability to grow profitably.

Finally, we paid our third-quarter (sic) dividend of $0.13 per share in December.

This quarterly dividend represents a yield of about 2% at our current valuation.

The underpinning of our capital deployment strategy is a robust return on invested capital framework.

We continue to see attractive value creating opportunities for internal investment and acquisitions and, as always, all potential uses of cash are screened to insure that they have strong returns on invested capital for our shareholders and we allocate our capital to the highest yielding investments.

Thanks for your time.

I'll now turn it back over to John.

Thank you very much and, Operator, we'll now take some questions.

Yes, sir.

(Operator Instructions)

Howard Chen, Credit Suisse.

Howard?

Are you there, Howard?

I'm here.

Can you hear me okay?

Yes, we can.

Bob, on the operating back drop, you noted the recent improvement in flows but --.

Howard?

Operator, we seem to have lost Howard.

Can we move to the next question and come back to him?

Yes, sir, we sure can.

Ed Ditmire, Macquarie.

Good morning.

Whether or not transaction revenues rebound in 2013 and mitigate the trend towards higher recurring revenues, NASDAQ is building a steady, reliable, predictable revenues at a steady clip and it seems to be building a higher capacity to support more dividends.

I know NASDAQ finds great opportunities to put money to work for acquisitions, buybacks, et cetera, but can you give us more color on the appetite on your part for a higher dividend pay out ratio and/or what kind of times would be right to consider things like that?

I would start by saying it's certainly something that we consider, we obviously are comfortable with the dividend pay out today as the best allocation of our capital, but it's something that we and the Board revisit on a regular basis.

And one follow-up.

I wanted to ask you, is there any update on the Jefferies lawsuit related to IDCG?

Sure.

Mr. Knight is on the phone, if you could handle that, Ed?

Yes, after a full arbitration hearing before three retired federal judges and a hearing that lasted well over a week, a briefing that went on for the year before, NASDAQ OMX prevailed on all claims and Jefferies was not awarded a penny in damages.

We vigorously defended this matter and are very pleased with the outcome.

Okay, thank you.

And obviously well served by Mr. Knight and I think the truth revealed itself through the course of the litigation.

Thank you.

Thank you, sir.

Howard Chen, Credit Suisse.

Hi, good morning.

Can you hear me any better?

Yes, we can hear you fine.

Okay, great.

Congrats on a nice end to the year, Bob.

Thank you.

Bob, on the operating back drop, you noted the recent improvement in flows but as we've seen those flows, the said inflows into the equity market, higher asset levels and that improvement in client risk appetite, we still seem pretty tepid overall volumes.

What do you attribute that disconnect to?

Well, I think I have to give a time.

Right now we're talking about three weeks of inflows and you have to reasonably expect the PMs need to consider what to do with that money and how to invest it.

So I think it's too early to say that inflows will continue and it's certainly too early to say what will happen to those inflows with respect to equity volumes, but it is a good thing.

It's hard to construe January as being a bad thing and I would say that we're running ahead of our internal budgetary numbers right now through the month of January.

Understood, thanks, Bob.

And then my follow-up, you've been a really active participant in industry consolidation in the past and with two of your larger peers coming together, I was just hoping for your view on ICE/NYSE Euronext combination, how you think it impacts the competitive landscape and your M&A priorities as these deals historically have come in bunches in the past.

Thanks.

That's a great question.

What's interesting is we digested the ICE/NYSE acquisition.

I think we, the management team and the Board, really gained a sense of comfort with respect to the strategy that we have executed over the last number of years and positioning we have in the relative markets that we compete in today.

And as I've said before, we compete aggressively with NYSE today, we expect that to continue post the acquisition, so we don't see that changing.

We don't compete with ICE today and we don't see that changing either, so I think it validates our strategy.

We've been able to obviously diversify to do well, not as well as we would like but still very well in respect to the times we lived in and we're certainly levered to do incredibly well to the extent the economy gets that much better.

Great.

Thanks for the thoughts.

Thank you, sir.

Rich Repetto, Sandler O'Neill.

Yes, good morning, Bob.

Good morning, Lee.

How you doing there, Rich?

I'm doing fine.

The first question is strong results in the corporate solutions and I'm just wondering, Lee, you did mention BWise but the $7 million uptick just quarter to quarter, could you sort of dissect that a little bit more and is that a run rate you think is sustainable going through 2013?

Well, I'd say clearly, we saw strong results from BWise but I also don't want to overshadow the fact that we also saw continued strength in our Director's Desk product as well as in our PR Newswire business, so I'd say that across-the-board we just saw overall stronger corporate activity.

We do anticipate that BWise will continue to ramp up.

They had a strong end to the year and we also continue to be optimistic for growth in the Glide product.

So in terms of looking forward, I don't want to set a particular expectation but I think we just anticipate continued growth across-the-board in our corporate solutions businesses.

Rich, I think we felt well positioned prior to the Thomson acquisition and I think we'll be incredibly well positioned post the acquisition.

We have invested in spaces that have some core organic growth opportunities in front of them and we intend to execute the plan.

Got it, and then on the expense side for Lee or Bob, I'm just trying to understand, does the spending that you have on Slide 13, the investment spending, the new initiatives as well as the acquisitions, and then trying to understand Slide 15, how much revenue -- should we just take the $100 million to $110 million?

What's in the revenue offsets right now?

Is that -- I didn't totally understand the slides on 15.

Is there revenue offsets already in the run rate too?

Well, I think what you see on Page 15, if you're looking at the 2013, is that we are anticipating $12 million of revenue from our current new initiatives that have been funded and will be continued to be funded through 2013, so that's where the revenue is coming from.

Obviously, there's the larger amount of revenue which reflects all of the projects that we have invested in over this past five year time frame, so that's the revenue.

Rich, I don't know if there is another dimension as it ties to the $50 million to $60 million of expected investment in new initiatives that you were going at?

Well, I was just trying to see whether we should just model that in without any revenue loss that is there, but I think we can do more a follow-up offline, because I do have one last question I want to ask, Bob.

Go ahead.

So Bob, this is a little bit was asked prior but you talked about shaping and defining the market structure, I think investors are sitting here and from a regulatory perspective sort of mixed.

They see headwinds, they see tail winds, and you got Jeff Sprecher now, a friend of yours, coming out and saying he wants to strengthen the equity market as a structure.

So the question is what are the things that you can do that would be briefly but could be positive and help the US publicly traded exchanges and then what do you see as risks from a regulatory standpoint?

Well one is I welcome Jeff to these calls.

I assume he's listening in, and we certainly welcome him to the fight to change US equity market structure and I do believe he will bring a different dimension to the discussion, obviously with deep experience in the markets and I think that will be helpful.

When we look at our plans for 2013, we include basically zero positive and/or negative regulatory change into those plans.

So from that point of view, we don't think there will be any moves in 2013 to speak to the increasing darkness in the market, nor do we see a transaction tax coming into the markets in '13.

We certainly believe that the commission needs to step up to the market structure and address the increasing darkness of the market and certainly as we've said before, in a large number of stocks it's now over 50% and I think that doesn't help anybody.

So while we'll spend time and effort on those discussions, we don't expect, we're not planning for that to have any impact in '13 and if it does, we'll be pleasantly surprised.

Okay, helpful, thank you.

Thank you, sir.

Niamh Alexander, KBW.

Hi.

Thanks for taking my questions.

Back on the equities, I know it is a smaller part of your transaction businesses by far now but your market share is dipping a little bit.

Here we are in January.

It's only three weeks in but we're below 18% it's tracking there.

Is that a level that you're comfortable with or given that you're such a big listing venue, I'm just trying to understand your level of comfort with market share.

Does it matter less?

I know it's you an NYX primarily losing to internalization and some market structure but help me understand what's a good level for you, where you're comfortable, you've been very successful with moving away from price wars into offering different order types but has that played out and now with the [Algo] offering kind of off the table, help me think about what you can do to bring up that share and if you want to.

Yes, great question.

I would say one is we're not at our level of comfort with respect to market share, so we certainly, in prior calls, talked about the fact that we are not going to optimize just for market share and we looked at the capture and the overall health of the business.

But our feeling right now is that our market share is not where it wants to be and we do have, under Eric's leadership, a number of different plans that we'll be rolling out that I think we'll address that, and we did have some encouragement in the last week or so from our latest series of moves.

So we're focused on it.

We believe there is clearly opportunities within the current commission structure to offer more differentiation in how we approach our customers and it's our job to maximize that opportunity and we're focused on it and in no way or shape does that focus mean that we're talking about getting into a compression capture game.

We just think it's a matter of proper differentiation, so we are focused.

Okay, thanks, Bob.

And then on the capital, just now you've kind of gotten to know Thomson a little bit better.

I assume you've gotten past the labor agreements you needed to get to for the definitive merger agreement, but are you still thinking this doesn't change your capital return policy with respect to potential for a dividend increase and thinking of capacity to $50 million to $75 million for share repurchases per quarter?

Niamh, just to reiterate what we said before, we don't believe that the Thomson acquisition changes our capital return strategy in any way.

So still potential for the 50 to 75 a quarter?

Yes.

Okay, thanks, Lee.

Appreciate it.

Thank you.

Matthew Heinz, Stifel Nicolaus.

Hi, good morning guys.

How you doing, Matthew?

Doing well, thanks.

Just in light of the foreign transaction tax and the potential for some of the individual EU members to go ahead with a broader transaction tax, do you think there's a possibility that, that pushes volume in certain markets into your Nordic businesses or it doesn't look like those markets will be subject to any type of surcharge?

Great question.

So one, implicit in your point is that we don't see any possibility of a transaction tax in Sweden in that the government has strongly spoken against it and they kind of have been there done that back in the 80s and it did not work.

Whether or not that represents opportunities for us on a Pan-European basis, we can't say at this point looking at Hans-Ole as I'm answering this question but certainly something that we are spending time and thinking about.

It's a possible opportunity but we're not sure if it's a definitive one at this point.

Okay, thanks and then just with respect to US equity regulations, we have a new SEC chair coming into place this year.

I'm just wondering how you kind of view the two sided risk between perhaps a broader crack down on HFT which could be detrimental to your business versus a shift away from internalization and dark pool trading which could potentially benefit your business, how do you view the potential offset between those two pieces of regulation?

Yes, so I would say one, in 2013 with respect to our planning, we have neither positive nor negative impacts from regulatory changes.

That being said, if we were to give percentages on one thing happening versus the other, I think there's a growing and broadening base of participants who recognize that the increasing darkness of the market represents a problem.

And so we would be more optimistic that in the fullness of time we're able to make some changes on that, and I certainly believe with respect to transaction taxes that it's not something that we've heard mentioned for a long period of time in the states.

And then the HFT piece?

Well that kind of goes a little bit hand in hand with the transaction tax, so we don't see any movement with respect to transaction tax or HFT at this point in time, but I'm clearly not here to speak for the commission and they have to go through their own set of deliberations.

Okay, thanks very much.

Thank you, sir.

Alexander Bolstein, Goldman Sachs.

Good morning guys.

How you doing?

Wanted to follow-up on a couple things.

When I look across the business, look at the access services business, look at the market tech business and, Lee, you guided to slight decline quarter-over-quarter in the technology business, but when you look across the street, it feels like 2013 is still going to be a year of further rationalization across the sell-side community maybe to some extent the buy side community.

When you think about these businesses for you guys, how do you feel about the growth prospects and those three buckets for 2013?

This is Bob.

I would say one, our general attitude to each and every one of our businesses without exception is markedly more positive than 2012 and if you recollect on this call a year ago, we gave a fairly somber update, so that's a good thing but we also recognized that's against a low bar with respect to what our expectations were for '12, but it's good that it's better.

And as I've said previously, January, for our business, has tracked better than we planned.

Beyond that, it's hard for us to make predictions for the whole year.

And Alex, I'd attack it this way.

First, when we look at access services as we indicated, they're in some more of our traditional hardware businesses and clearly there has been an impact as some of the firms, some of our clients have been reducing their overall technology footprint.

Now some of that has created opportunity for us to sell some of our 40 gig connectivity products in place of 1 gig and 5 gig products and so that's an opportunity.

In addition, opportunities to sell them technology that allows them to improve their efficiency as we're doing with our thin cloud initiative, as well as risk management products are also driving growth for us across that business.

And beyond that, our microwave initiative similarly is something that we see strong appetite for that is going to be generating revenues for us very quickly.

So on that side of the business, we do face some pressures on the traditional side but we're seeing good appetite in growth, in particular around cost driven technologies.

As I mentioned in corporate solutions, another key technology business for us, there we're seeing, across-the-board as I mentioned, good appetite for the Director's Desk product, increase in the number of news releases that are flowing through our Newswire businesses, as well as clearly strong appetite for our BWise enterprise risk management software.

And then finally in market technology, we have come through a period where we had some customers that did delay some of their spending but as you saw in the fourth quarter, we've had the strongest order intake that we've seen in quite awhile, and I think we continue to be optimistic that there is a shift in mentality.

Our clients are feeling somewhat more comfortable in making the investments that they need to over the next years as we see this market environment improving.

So in listening to Lee talk here, it really is remarkable because the terms and the names that he's using today really did not exist in our vocabulary three years ago, so we have built a culture here to recognize that how we have made our money in the past will not be how we make it in the future.

This is obviously fundamental in these times where you fundamentally are facing headwinds on a consistent basis, and we built the culture, we've delivered results as you see this quarter as a direct consequence of that.

Now to the extent that the macro environment gets better, we're clearly leveraged to do that much better, but we know that we have to do new and different things.

A year ago we didn't think about microwave, we didn't think about 40g as a service, we didn't know in products such as BWise, so this organization is evolving really on a constant and consistent basis and that's been the key to our success and will continue to be the key to our success.

Got you, thanks.

Lots of good color there, but solely just to make sure I understand on the market tech, the quarter-over-quarter decline, is it just a timing issue so going from 48 to 44 in the first quarter and as you said the backlog is pretty strong so should we think about the ramp up?

The backlog was more than strong.

In the fourth quarter we took in what was $95 million in new orders.

So market tech, independent of the given quarter, had truly a phenomenal year and we certainly topped it off with the $95 million in the fourth quarter.

There are always going to be quarter to quarter delays.

These are sometimes large projects with chunky revenues that are dependent upon actual delivery of those projects which can be subject to delay so it may, from a timing standpoint, have an impact quarter to quarter but what we focus on is building the backlog and just continuing to try to bring as much of that revenue through the product.

I think what we're most confident about is that the backlog has continued to show strong growth and we're not really seriously concerned about that sequential quarter results here.

This is a business we look at for the long term.

Got it.

Thanks, very helpful.

And my second question is on capital.

Obviously, it's a high class problem to have for you guys but, Lee, I think in the past you talked about targeting an S&P 500 dividend yield which was shaken out around two, right now maybe you guys are a little bit below that.

Without giving us too much guidance on those, but do you guys ever think of sort of a metric that you think from a dividend pay out perspective or a dividend yield perspective that we can think about with respect to further dividend increases?

Alex, we look at all of those metrics, and it really is looking at our yield relative to the S&P 500, the pay out ratios but most importantly, sorry to reemphasize this, but we really look at what do we think the returns on our capital are going to be between our various options of investing in the business, in looking at acquisitions, or returning it to shareholders.

And when we make the decision on capital management and when we discuss that with the Board, we look at all of those metrics to try to guide our decisions here.

Got it.

Thanks a lot for taking my questions.

Thank you, sir.

Jillian Miller, BMO Capital Markets.

Hi, guys.

How you doing?

I'm doing well.

You laid out for us last quarter that in your estimation about $50 million of your annual revenues are impacted by high frequency trading, specifically from transaction revenue and co-lo and I was just hoping you might be able to broaden the scope of your revenue estimate a bit for us.

If we take into account market data, which is a large chunk of your operating profit, could you give us an idea for what that figure might look like?

Yes, I recollect that number was inclusive of all aspects of our relationship with the defined high frequency firms, the high frequency trading as we defined it last quarter.

That's correct.

It includes market data.

Okay.

It was the entire customer relationship.

Okay, got it thanks, that's helpful.

And then you guys had cited NLX as one of your key investments you'll be making in 2013 and I was just wondering now that NYSE's clearing arrangement is in place with ICE, if you could talk about how that might impact your strategy and prospect just because I recall one of your selling points was that [Life's] Clearing House would be untested and NLX provided an opportunity to remain at LCH, but not sure that argument kind of applies now that you've got the proving clearing house with ICE.

Yes, I agree.

Clearly, the customers in London were giving very little credibility to Life's ability to leave LCH in the time frame.

Now Jeff and the ICE team bring more credibility to that and obviously have demonstrated competence in that in the past, so that's an aspect of it.

But I would still say that the value proposition remains constant in that we will be clearing through LCH, the customer set is there, desires to stay there, and to the extent that we can provide a trading platform that has relative advantage and first and foremost is proven and trusted in a given time frame, I think that will work out well for us, so we are investing in that.

We have committed to that and we're excited about the prospects.

Okay, thanks, and just one final one for me.

The global index calculator service, I know you guys mentioned that in the last call and I think it was set to launch in the fourth quarter, so just wanted to get an update on progress there and maybe your expectations for potential impact to your index revenue line from that in 2013.

Wonderful.

We're always happy to have a question on one of our high margin growing businesses, and one of the final drivers to bring us to the point where we decided to put data and the index business together is that we did successfully launch the product in December of 2012.

We obviously have many more things we want to do with the product but it's a major launch to have the global index capability available to us.

The customer reaction has been very strong.

This is a long sale cycle.

They want to back test the data, they work with our data and that engagement has been very strong.

Now one of the wisdoms of putting it together with our market data business is distribution in our data world is obviously very strong and also global.

And for that to be really integrated indirectly from both a product development point of view and distribution point of view will give us strong advantage in the market.

So we are spending a lot of time and effort on this.

As I said in my opening comments, this is a high margin business, there is a tremendous amount of growth opportunity in it, there is an established order that is a very high cost environment.

We have the ability to disrupt in a number of different ways, not just on cost but also in terms of capability and flexibility in terms of how our indexes are constructed, and still maintain very high margins, so we're excited about it.

We obviously want to focus on it from both the investor point of view and management point of view, and one of the key reasons why we have made it a separate and discrete reportable segment going forward.

Got it.

Thank you.

Thank you, ma'am.

Chris Allen, Evercore.

Good morning, guys.

Nice quarter.

Thank you, Chris.

Appreciate it.

Just want to focus a little bit again on the expense guidance because we're getting an inordinate amount of questions from investors on it even though your track record on the expense side has always been very healthy.

What I want to talk about, if you guys could just give some color, we look at FX in the acquisitions, FX it is kind of clear that it would be a positive net benefit if FX trends hold given the later slide.

Just on the acquisition side, the impact of BWise and NOS and the index acquisition, maybe you could give some color in terms of how accretive those acquisitions are, how the profit margins within those business compare to overall NASDAQ right now.

Well, on the acquisitions, I would just say we can't break out any individual acquisition.

All of these -- we believe that all of these acquisitions are going to be accretive transactions for us within a year of their acquisition.

From a margin standpoint, I would say that BWise is a software oriented business.

It's inherently a lower margin business than our transaction businesses.

Our goal there would be to get that to 20% to 25% margin range, and it's not there today.

NOS is a clearing house, is a higher margin business, that's where we have great operating leverage, we're going to be leveraging not only our operational efficiency but frankly also our capital efficiency with NOS to generate very attractive margin, consistent with our transactional businesses.

And with Mergent, this is, in the index business, a great margin business as is our existing index business is, so we certainly think additive to the margin overall.

But I think it's important to understand the different characteristics of these businesses, particularly some of the software business versus some of our more transactional elements.

And I'll just add for you and for any investors who are asking, we have a philosophy here that the quest for efficiency is really eternal and it's something we work on, on a constant and consistent basis.

As you saw in 2012, we initiated a formal program but lacking a formal program is something we look at, and just to insure everybody that this organization will always run lean and as efficient as possible and the numbers you have here will be something that we always look to improve upon.

Got it, and then just on the new initiative spending which is a $50 million to $60 million of the guidance for next year, can you just remind us in terms of how you think about the pay off there, the flexibility if the investments are not panning out to cut back on expenses, maybe the timeline to think about a positive impact to the bottom line.

Well, it's complete flexibility and what we have set up with our gift counsel is really something ultimately worthy of the top venture capital firms we know in the valley with respect to how we track milestones and how we make fill or kill decisions based upon progress towards those milestones.

So we certainly would hope that we have the opportunity to spend every one of those dollars because all of the initiatives are progressing and doing well that tends not to be reality.

And you saw in 2012, we did under spend on that in that we made the proper decision with respect to IDCG and entered into a mutually beneficial contract with LCH.

And we also had a couple other less noteworthy but other initiatives that did not make it through the process.

So something we look at but we certainly want to go into the year with the ability to fund everything that's valid that has the ability to grow the franchise.

And I'll just say that in my prepared comments, if you recollect we had what was $143 million, 134 I'm not sure what it was with respect to revenue in the fourth quarter from initiatives we started in the last several years.

Let me just add to that, Chris, and try to give you some sense on the expected timing of pay out and levels of pay out.

This portfolio of acquisitions has a range of potential investment horizons where we expect them to be profitable and to be generating adequate returns on capital.

I would say they tend to bulk towards the shorter time frame of generally within two years, some of them are longer, three to five year investments that we're prepared to make.

But generally what we're looking to do is to put capital into projects that we can leverage our existing infrastructure and generate a quick and attractive return on but we are prepared, when we think the opportunity is substantial, to make investments that require a slightly longer pay out.

And what I would tell you is that we require, depending upon the project, clear returns that are well in excess of our cost of capital and reflecting risk of these enterprises.

Got it.

And for the record, it was $134 million in revenue.

Okay, and then just on the corporate solutions business, I realize there's a bunch of different businesses within that, how long term are the contracts or arrangements with customers in terms of thinking about how sticky the business is moving forward?

Well, I would say this.

I don't think of the stickiness based upon contracts.

They certainly vary in range from short-term to long term.

I look at the stickiness with respect to how integrated is it into the operation of the business that we serve and as we evaluate these products to build or to buy, that's a key determinant.

How sticky is it, how dependent do the companies get on it, get to be reliant on these product and services.

So as you look across the portfolio of products we have, there obviously is some range to them but they tend to range towards the clearly sticky part of the equation and the vast majority of the products are not nice to have products but need to have products, so we feel very good about it.

Thank you, sir.

With that, that does conclude our time for questions.

I'd like to turn the program back over to the management for any additional or closing remarks.

I'll just wrap up by repeating very briefly what I said during the call.

The fourth quarter was a very strong quarter, 2012 was a very strong quarter.

It was against the back drop of difficult economic times.

It clearly has revealed the diversity of our business model and really within our core, how we have evolved and changed our products over time.

We are pleased with our progress, we're pleased with our strategic positioning and certainly look forward to continuing to execute upon this plan.

We have the team in place on a global basis to allow us to do that.

It's a highly motivated, highly professional team and we will continue to deliver to our investors.

So we thank you for your time today.

Thank you, presenters.

Again, ladies and gentlemen, this does conclude today's conference.

Thank you for your participation and have a wonderful day.

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