Nasdaq Q2 2022 Earnings Call Transcript

Participants

Corporate Executives

• Ed Ditmire, Vice President, Investor Relations
• Adena Friedman, President and Chief Executive Officer
• Ann Dennison, Executive Vice President, Chief Financial Officer

Analysts

• Richard Repetto, Piper Sandler Companies
• Alex Kramm, UBS Group AG
• Brian Bedell, Deutsche Bank Aktiengesellschaft
• Alexander Blostein, The Goldman Sachs Group, Inc.
• Daniel Fannon, Jefferies Financial Group Inc.
• Craig Siegenthaler, Bank of America Merrill Lynch
• Kyle Voigt, Keefe, Bruyette & Woods
• Michael Cyprys, Morgan Stanley
• Gautam Sawant, Credit Suisse Group AG
• Owen Lau, Oppenheimer Holdings Inc.

Presentation

[Operator]

Good day and thank you for standing by. Welcome to the Nasdaq Second Quarter 2022 Results Call. [Operator Instructions]

I would now like to turn the conference over to your speaker today, Ed Ditmire, Investor Relations. Please go ahead.

[Ed Ditmire, Vice President, Investor Relations at Nasdaq]

Good morning everyone, and thank you for joining us today to discuss Nasdaq's Second Quarter 2022 Financial Results. On the line are Adena Friedman, our CEO; Ann Dennison, our CFO; John Zecca, our Chief Legal Risk and Regulatory Officer, and other members of the management team. After prepared remarks, we'll open up the line to Q&A. The press release and presentation are on our website. We intend to use the website as a means of disclosing material, non-public information and complying with disclosure obligations under SEC Regulation FD.

I'd like to remind you that certain statements in this presentation and during Q&A 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. Actual results may differ materially from these 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 will now turn the call over to Adena.

[Adena Friedman, President and Chief Executive Officer at Nasdaq]

Thank you Ed, and good morning everyone, and thank you for joining us. My remarks today will focus on Nasdaq's second quarter 2022 financial and business performance, as well as the progress we've made to drive forward our strategic priorities for the year.

I'd like to begin by acknowledging that we continue to find ourselves amid an uncertain macroeconomic and geopolitical environment. Yeah, while markets investors and corporate clients all experienced increased levels of volatility during the second quarter, Nasdaq's strategic vision and our ability to execute on it remains clear. The strength and quality of our businesses puts us in an excellent position to navigate these dynamics.

Our record net revenue and non-GAAP EPS results demonstrate our ability to capture new opportunities in different operating environments, even as we continue to strengthen our positioning for longer-term growth through focused investments. I'm proud of our team's focus on delivering consistent results to our clients, against this dynamic backdrop.

Let's turn to our results. I'm very pleased to report Nasdaq's strong financial performance for the second quarter of 2022. We achieved a record $893 million in net revenues, a 6% increase compared to the prior year period, and 9% on an organic basis, excluding the impacts and changes in FX rates and acquisitions and divestitures. Our total annualized recurring revenue or ARR increased 9% to $1.97 billion.

Annualized SaaS revenues totaled 800 -- sorry, $679 million in the second quarter of 2022, growing at an even faster rate of 12%, which reflects strong demand for our Anti-Financial Crime Solutions and Investment Intelligence -- and Investment Analytics offerings. SaaS revenue now comprises 35% of total company ARR, a new high. The consistent growth we're seeing in our recurring revenue segments provides a powerful starting point for our overall performance. But we also delivered strong results across both our Index Licensing and trading revenues.

Turning next to specific highlights from our business segments. Our Solutions segments delivered combined total revenue of $582 million during the second quarter, a 10% increase from the prior-year period or 12% excluding the impact of FX. The growth was driven from activity across several of our businesses, including our index and analytics offerings, the expansion of our listed issuer base, our Anti-Financial Crime offerings, as well as strong demand for our IR and ESG services.

In our Investment Intelligence segment, we delivered $283 million in total revenue in the second quarter, an 8% overall increase from the prior year period and 10% excluding the impact of FX, with growth contributions from across the businesses during the quarter.

Revenue in our Market Data business increased by 1% from the prior year period and 3% excluding the impact of FX. Primarily due to an increase in proprietary data revenues from international clients.

In our Index business, we saw revenue growth of $17 million or 16% versus the prior-year period, driven by positive net flows of $71 billion over the last 12 months, including $25 billion of inflows during the especially challenging beta environment experienced in the first half of 2022. We also saw especially strong results from license futures activities, which together with inflows more than offset the negative impact of Market Data.

And in our Analytics business, revenues grew 8% from the prior year period and 10% excluding the impact of FX. Our flagship Investment Analytics offerings saw continued strong user adoption, both across our asset owners and asset managers and drove annualized SaaS revenues for the Investment Intelligence segment to increase 12% versus the prior year period to $215 million.

Turning next to our Market Technology segment. We delivered $131 million in total revenues in the second quarter, a 12% increase from the prior year period. This is primarily driven by continued growth in our broader Anti-Financial Crime Technology Solutions business. Our Anti-Financial Crime Technology business had a strong second quarter with a 29% increase in revenues versus the prior year period.

Growth was driven by sales in our Fraud and Anti-Money Laundering or what we call FRAML Solutions, as well as the impact of the Verafin acquisition deferred revenue adjustment recorded in the second -- in the prior year period. We welcomed 37 new clients during the quarter.

We continue to gain momentum with our efforts to expand Verafin's presence with larger Tier 1 and Tier 2 banks through our proof-of-concept trials. These are active evaluations within our prospective clients compliance infrastructures. While this diligence process results in a relatively long technology purchasing cycle, it is an important step to drive our success and extending our solutions to this area of the market.

Moving next to our Market Infrastructure Technology business, we generated $56 million in net revenues during the second quarter. Importantly, we made continued progress on the deliverables within a group of particularly large client projects that we have discussed in recent quarters, reflecting our increased ability to work with clients on site. Specifically, we completed Phase I deliveries for all four of our largest implementations by the end of the quarter. While some of the projects have follow-on phases, we are pleased to have met these important milestones so far this year.

Market Infrastructure Technology also had some exciting new relationships that were announced during the period. In May XP, a provider of financial products and services in Brazil announced the development of their new trading platform for digital assets, which is leveraging Nasdaq's next-gen technology, it deploys a SaaS solution in the cloud. In June Climate Impact X, a Singapore based marketplace for carbon credits, announced their decision to leverage Nasdaq's SaaS-based Marketplace Services platform to power their new spot exchange for carbon credits, which is slated for launch in early 2023.

As I noted earlier, we are actively engaging in person with our clients again, and the team recently welcomed over 100 officials from 50 global marketplaces to our Annual Technology of the Future Industry Conference. The overall sentiment from clients there was incredibly encouraging, particularly as the market infrastructure operators see the advantages that our technology, including our cloud deployed solutions can bring to their respective customers as they contemplate shifts and their operating models and look for new ways to differentiate their offerings. We remain confident in our ability to improve our organic growth through the remainder of 2022 and into 2023.

Moving to our foundational marketplace businesses, our Market Services segment delivered net revenues of $310 million during the second quarter. We maximized opportunities presented by robust levels of activity through strong market share and consistent pricing strategies. The share volume traded on NASDAQ exchanges grew by 22% compared to the prior year quarter and trade management services revenues hit a new quarterly high of $87 million, up 7% versus the prior year, reflecting an increase in demand for connectivity and infrastructure services.

At the end of June, Nasdaq's closing cross set a record for the number of shares traded during the 2022 Russell U.S. Indexes reconstitution. 3.3 billion shares representing nearly $64 billion were executed in two seconds across Nasdaq listed securities, a 40% increase in shares crossed from last year's event. I'm incredibly proud of our Market Services team on achieving yet -- this important milestone.

The new closing cross record is a testament to the investments we've made in our technology and the results of the trust the team has worked diligently to build with all investors, including through some of the most volatile market periods on record. Nasdaq's Nordic equities markets also saw strong volumes as well. The value of shares traded on Nasdaq's Nordic and Baltic markets for the first half of 2022 was the second highest since 2008.

Finally, our Corporate Platform segment delivered revenue of $168 million in the second quarter, a 13% increase from the prior-year period, driven primarily by our expanded listed issuer bases across both our U.S. and Nordic listing franchises, as well as growth in demand for our IR and ESG services. Revenues in our IR and ESG Services business increased 9%, underscoring the strong demand for our consultative and technology-based solutions during the period. The number of corporate clients using Nasdaq's IR and ESG Services Solutions increased 6% from the prior year period, while you've also been expanding relationships of existing clients.

In addition, during the second quarter, we acquired Metrio, a provider of corporate sustainability data analytics and reporting services to corporates. Metrio's SaaS-based platform is complementary to our existing suite of IR -- I'm sorry, of ESG Reporting Solutions and will accelerate our ability to support corporate clients and their expanding sustainability management and reporting needs. Our growing expertise in all components of E, S and G enable us to help our corporate clients confidently navigate the complexity of the modern capital markets, including managing their investor relationships more successfully.

Turning to our Listing Services business, revenue increased 15% to $107 million as the number of Nasdaq-listed corporate issuers, excluding stacks, increased 9% compared to the prior year period. Nasdaq continued its competitive leadership in attracting the majority of new U.S. listings for the 34th consecutive quarter with 38 IPOs, raising a combined $2.8 billion for an 88% win rate. In Europe, our Nordic, Baltic and First North exchanges also welcomed 25 new listings.

As I wrap up, I will summarize by saying that our second quarter results demonstrate how Nasdaq's client-centric culture and diversified business model provides us the stability to perform well in different market environments. As we enter the second half of 2022, we continue to focus on broadening opportunities within three major areas that align with our strategic evolution.

First, under the pillar of liquidity, we are a leader in the modernization of marketplaces through our world-class technology. This includes the progress we're making as we migrate our own markets to a cloud-enabled state, including the planned migration of our MRX options market in the fourth quarter of this year, as well as our efforts to enable more of our Market Infrastructure Technology clients to maximize cloud and other powerful technologies within their offerings.

Second, under the pillar of transparency, we believe that we are incredibly well positioned to execute on our unique and substantial opportunity to be a leading ESG solutions provider. We are centered first on a foundation of serving the specific needs of corporate clients by providing advisory services along with SaaS-based data aggregation and reporting capabilities to facilitate their ability to communicate their ESG and climate strategies and progress to the investment community.

And third, under the pillar of integrity, we play an important role in seeking to make the entire financial system more safe and fair for savers and investors through our powerful and diverse anti-financial crime offerings, combined with our network of bank and brokerage clients. We remain relentlessly focused on advancing our strategy and we believe that Nasdaq is well positioned to navigate the geopolitical and macroeconomic uncertainties that may persist as we move forward into the latter half of this year.

And with that, I'll now turn the call over to Ann to review our financial details.

[Ann Dennison, Executive Vice President, Chief Financial Officer at Nasdaq]

Thank you Adena, and good morning everyone. My commentary will primarily focus on our non-GAAP results and all comparisons will be to the prior year period unless otherwise noted. Reconciliations of U.S. GAAP to non-GAAP results can be found in our press release, as well as in a file located in the Financials section of our Investor Relations website at ir.nasdaq.com.

I will start by reviewing second quarter 2022 performance, beginning on Slide 10 of the presentation. The 6% increase in reported net revenue of $893 million is the net result of organic growth of 9%, including a 12% organic increase in the Solutions segment and a 4% organic increase in Market Services, partially offset by the net impact of acquisitions and divestitures and a 2% negative impact from changes in FX rates.

Moving to operating profit and margins. Non-GAAP operating income increased 6% while the non-GAAP operating margin of 54% was unchanged compared to the prior period. Non-GAAP net income attributable to Nasdaq was $342 million or $2.07 per diluted share compared to $316 million or $1.90 per diluted share in the prior year period.

Turning to Slide 11, as Adena mentioned earlier, ARR totaled $1.97 billion, an increase of 9% from the prior year period, while annualized SaaS revenues totaled $679 million, an increase of 12%.

I will now review quarterly segment results on Slides 12 through 15. Starting with Market Technology, revenue increased $14 million or 12% with $10 million of the increase due to the impact of the deferred revenue write-down on Verafin in the prior year period. Organic growth for the Market Technology segment was 14% in the period and it was driven by the Anti-Financial Crime business though Market Infrastructure Technology saw a sequential improvement. ARR for Market Technology totaled $451 million, an increase of 5% compared to the prior year period. The Market Technology segment operating margin was 12% in the period.

Investment Intelligence revenue increased $22 million or 8%, reflecting organic revenue growth of $25 million or 10%. Organic revenue growth during the period reflects primarily strong growth in our Index and Analytics businesses, as well as positive contribution from Market Data. ARR totaled $586 million, an increase of 7% compared to the prior year period.

Our Index revenues were up 16% compared to the prior year, due principally to higher revenues derived from Nasdaq-licensed derivative products, where we saw the benefit of both higher trading volumes in the products. As well as hitting the revenue threshold that triggers a step up in licensing economics, which happened about a month earlier in the year than we did in 2021.

Based on the strength in the futures side of index licensing during the period, the percentage of index revenues from AUM based licensing was 5 percentage points lower than the approximate two-thirds level we typically speak about. The Investment Intelligence segment operating margin of 66% increased 1 percentage point from the prior year period.

Corporate Platforms revenues increased $19 million or 13%, including 16% organic growth. The increase was primarily driven by higher U.S. listings revenues, as well as higher adoption across the breadth of Investor Relations and ESG Advisory and reporting offerings. Our listed corporate issuer base increased 11% or 9% excluding SPAC.

Corporate Platforms ARR was $586 million and increased 15% compared to the prior year period. The Corporate Platforms segment operating margin of 46% increased 4 percentage points compared to the prior-year period, driven by a combination of recent growth in the listed issuer base and lower marketing expense due to the subdued IPO environment.

Market Services net revenues increased $2 million or 1%. The organic revenue increase was $11 million or 4% and there was $9 million negative impact from changes in FX rates. The organic increase reflects growth in Trade Management Services, Equity Derivatives, and cash equity revenues. The segment operating margin of 65% was unchanged from the prior year period.

Turning to Page 16 to review both expenses and guidance. Non-GAAP operating expenses increased $21 million to $413 million. The increase reflects a $42 million organic increase, partially offset by a $17 million decrease from the impact of changes in FX rates and a $4 million decrease from the net impact of acquisitions and divestitures. The organic expense increase is primarily driven by higher compensation and benefits expense, reflecting two factors.

First is our continued investments in new employees to drive growth, including a 19% increase in the team over the past 12 months. Second is annual merit increases, which is reflected in the quarterly expense run rate starting in the second quarter. The merit increase was higher than prior years due to inflationary pressures on compensation and we've built the higher increase into our guidance at the beginning of the year. We continue to make significant investments in this tightened labor market to attract and retain the top talent in our industry.

We are narrowing our 2022 non-GAAP operating expense guidance to $1.71 billion to $1.74 billion, tightening both the top and bottom of the prior range to account for expectations of continued investments, current FX rates and the continued strong performance thus far in 2022.

Turning to Slide 17, debt decreased by $182 million versus 1Q '22, primarily due to our repayment of the $499 million -- repayment of $499 million of the 4.25% senior unsecured notes due June 2024, partially offset by a net issuance of $421 million of commercial paper and a $105 million decrease in Euro bonds book values caused by a weaker euro. Our total debt to trailing 12 months non-GAAP EBITDA ratio ended the period at 2.9 times, down from 3.1 times in the first quarter of 2022.

Let me take a moment now to update you on the dividend, stock repurchases, and our Board approval to split our stocks. During the second quarter of 2022, the Company repurchased $166 million in shares and paid common stock dividends in the aggregate of $98 million. We have successfully completed the share repurchase program to offset dilution related to the divestiture of our U.S. fixed income business in June of 2021. As of June 30, 2022, there was $293 million remaining under the Board-authorized share repurchase program.

I'm also pleased to announce that our Board approved and declared a three-for-one stock split in the form of a stock dividend. As we had previously disclosed, the approval of an amendment to our charter to increase the number of authorized shares of common stock to permit us to affect the stock dividend required the approval of both the SEC and our shareholders. We received both approvals last month and filed the charter amendment yesterday. The record date for the stock dividend will be August 12, with a distribution date of August 26 and we expect trading to begin on a split-adjusted basis on August 29.

Turning to Page 18 of the presentation. I'd like to touch on some of the very material progress we've made executing on our sustainability strategy. First, in terms of external impact, as Adena mentioned, we announced and closed on the Metrio acquisition in June, expanding our corporate serving ESG solution set, which will complement the more framework-based approach of our existing One Report solutions.

Second, in terms of corporate sustainability, we published our annual sustainability and TCFD reports in June. On advancing our climate strategy, we have had our 2021 GHG emissions verified by a third-party and submitted our science-based targets to the Science Based Targets Initiative for official validation.

Lastly, in July, we received the two-level upgrade of our MSCI ESG ratings to double-A, recognizing the overall strength of our sustainability profile, including our leading governance standards in particular. We continue to see opportunities to advance our sustainability program across multiple aspects and look forward to updating you on our progress regularly.

In closing, Nasdaq's second quarter results reflect the continuation of the Company's ability to consistently perform well across a wide range of operating environments. We delivered record quarterly revenues, 12% organic revenue growth in the Solutions segment and a 54% non-GAAP operating margin, resulting in what we see a strong momentum thus far in 2022 that we can build upon moving forward.

Thank you for your time and I'll turn it back over to the operator for Q&A.

Questions and Answers

[Operator]

Thank you. [Operator Instructions] Our first question comes from Rich Repetto with Piper Sandler. Your line is open.

[Richard Repetto, Analyst at Piper Sandler Companies]

Yeah, good morning Adena, and good morning Ann. And I guess the first question is, Adena, on regulation and I'm sure you had a chance to sort of digest Chair Gensler's comments about equity market structure that he made just over a month ago. So I guess I, by and large, look at it as a modest positive for exchanges, but bringing more volume back to lit venues, at least that's his intention anyway, but I'm just trying to see what you thought because he was critical of exchange rebates and was there anything that particular -- in particular stood out to you as noteworthy or that you might -- there could be unintended consequences because he put out, I think, five or six different areas he wanted to focus on.

[Adena Friedman, President and Chief Executive Officer at Nasdaq]

Yes, sure. Rich, it's great to hear from you. And I would say that with regard to the market structure discussions and proposals that we're seeing. First of all, we have a long way to go and because we haven't yet actually seen formal proposals, but as we're listening to Chair Gensler and understanding where he's focused. I think that we're, first and foremost, pleased that he does really recognize the value of exchanges and competition and lit markets.

He is really focused on strengthening the National Best Bid and Offers so that investors have a really solid understanding of true supply and demand in the market at all times. And he is really focused in on transparency, in terms of transparency around best execution, disclosure of execution quality, and really focusing on how to bring more orders into the lit venues, because -- and that's also focused on leveling the playing field from a competitive perspective between exchanges and dark pools. So, overall, we see what he is trying to achieve, we think is beneficial to investors.

I think as we look at some of the incentive structures that he is focused on, obviously, we see great value in the rebate structure that we have on exchanges, because it really incentivizes participants to put their quotes into a lit venue and make those quotes available on the National -- as part of the National Best Bid and Offer. And so the incentive structure is really literally designed to support lit quotes and lit orders.

But I think that generally speaking, we still have a long way to go to understand what all the proposals will be. And then of course that then starts the long process around the comments in the industry engagement to determine what a final proposal would look like. So, it's just the beginning, but we are encouraged by a lot of the areas that he is focused on.

[Richard Repetto, Analyst at Piper Sandler Companies]

Got it. And I don't know whether this qualifies as a necessary thought or not, but I guess just looking at your expense guidance, you narrowed it a bit, but second half expenses would still be up 5% more than first half. So, any color, and just your expense control this quarter was pretty standout, so anything, why the 5% increase in the back half are more color blind?

[Ann Dennison, Executive Vice President, Chief Financial Officer at Nasdaq]

Sure, Rich. So just back to sort of how we think about expenses in the context of revenue growth. We align, our medium term outlook for our Solutions segment revenues is 6% to 9%, and then against that we think about a 3% to 6% expense growth. Coming into the year, we did -- we talked about and built into our guidance an additional 2% to reflect inflationary factors, as well as the cost returned to office and travel, etc., and so that's all built into the guidance.

There is some variability in the way that things come in throughout the year. And so when you look at the second quarter, there's a couple of things, FX taking picking that down and just variability and the timing of accruals. And so, as we look forward to the back half of the year, we'd expect to come in, depending on performance, to either at the midpoint or towards the top end of our expense guidance range. And just like in past years, we'd expect an increase in 3Q and that to be even higher in 4Q, where we have some seasonality in expenses.

[Adena Friedman, President and Chief Executive Officer at Nasdaq]

And I think it's also just really important to note that in the last eight consecutive quarters we've had double-digit growth in our Solutions segment. So we've kind of been exceeding the overall medium term outlook that we've been providing in those segments, which then of course really makes us make sure that we have the right personnel and the right team to be able to support that growth, not only in terms of having all these new clients that we're now servicing from the growth that we've experienced, but also continue to make investments in the businesses to continue to drive the growth that we're hoping to achieve. So, all of that is reflected in the guidance and in addition to obviously the performance we've seen so far.

[Richard Repetto, Analyst at Piper Sandler Companies]

Got it, that's great color. Thank you

[Operator]

Our next question comes from Alex Kramm with UBS. Your line is open.

[Alex Kramm, Analyst at UBS Group]

Yes, hi, good morning everyone. Just going into the Technology segment for a second, you ran through a lot of numbers there and I think I may have missed some, but can you perhaps help us isolating the growth in the Financial Crime segment, that was a little bit softer than I thought. But maybe help us how Verafin did in particular on a standalone basis and maybe what's going on in the legacy Financial Crime businesses. So, any color around what's happening in those businesses and the numbers would be helpful. Thanks.

[Adena Friedman, President and Chief Executive Officer at Nasdaq]

Sure. Yeah, thanks, Alex. So we do provide the numbers now on that -- the basis of that sub segment which is Anti Fin Crime. But if I give some color around -- on the two components. So there's two components to the Anti Fin Crime business today. One is the Verafin business, which is the -- our Fraud and AML detection and investigation technology and the other is our Market Surveillance and Trade Surveillance business. And both of them continued to have healthy growth and healthy engagement with clients. I think that as we look at that business, just like we do with Market Tech, we look at it over a 12-month period, not so much quarter-by-quarter, but it is also probably worth noting that in the second quarter of last year Verafin had a truly outsized growth quarter. And so we're trying -- we're looking at that as a context of -- the current quarter in the context of that very outsized quarter last Q2.

I think in general, as you mentioned, we are seeing continued strong growth across Verafin. We expect Verafin to continue throughout the year to perform along the lines of, where we -- what we've been discussing with all of our investors since we bought Verafin. And we also are seeing really good engagement with the Tier 1 banks to try to deliver those services up market. I think the one thing about that is that the sales cycles with this Tier 1 banks are long and we know that. I mean we obviously serve Tier 1s with our surveillance solutions. Just getting through the contracting process can take time, and that can create a little bit more variability quarter-over-quarter in terms of the growth rate there, but we see really strong performance around the SME banks, the smaller banks, the mid-sized banks, fintechs and now really engaging more and more with the Tier 1 banks.

With regard to the Trade Surveillance and Market Surveillance business. Trade Surveillance continues to have really great engagement in terms of renewing contracts, expanding contracts. We now have a crypto trading module that we have -- we signed our first client around. And we also -- we're continuing to invest in that business. I think the Market Surveillance part of that business is a little bit of a slower growth business and I always has been, always will be, it's a smaller client set and there we had, I would say, more of a kind of a flat quarter -- year-over-year quarter experienced. So, I think all of that adds up, Alex, to what you saw. And I think that we -- but we continue to see great momentum in the business.

[Alex Kramm, Analyst at UBS Group]

Very good color, thank you for that. And then just a quick one. On the Analytics Business, not to be too nitpicky here, but the Analytics Business, I think the dollar revenues were flat literally over the last three quarters. I didn't think there was a lot of FX in there, but maybe I'm wrong about this. So, just anything that's happening in this environment that I should be aware of or maybe just FX?

[Adena Friedman, President and Chief Executive Officer at Nasdaq]

Yeah, no, it's -- well, it's a combination of things. So I'm going to try to answer some of it, and I'm going to hand it to Ann to make sure I give you a complete answer. But I think the first thing is, Investment continues to have good growth, they continue to find, sign new clients and continue to grow and expand what they're doing. And that shows up incrementally every quarter, sequentially, obviously there are going to be some quarters that are stronger than others, just in terms of sales and expansions of our contracts.

I think so that what you've got a couple of dynamics under the surface that one is just we have now some revenue associated with running programs around secondary transactions for private equity funds, and that showed up in the first quarter. And then I think there was something else in the fourth quarter, was it FX or there was --?

[Ann Dennison, Executive Vice President, Chief Financial Officer at Nasdaq]

No FX, we have a couple of other small non-recurring items that tip over the rounding. So there's a little bit of noise behind it, but the core of the Analytics business, the asset owner solutions are growing as expected.

[Alex Kramm, Analyst at UBS Group]

Okay. We can flesh it out later. Thank you very much.

[Adena Friedman, President and Chief Executive Officer at Nasdaq]

Yep, great, thanks Alex.

[Operator]

Our next question comes from Brian Bedell with Deutsche Bank. Your line is open.

[Brian Bedell, Analyst at Deutsche Bank Aktiengesellschaft]

Great, thanks. Thanks very much for taking my question. I'll bundle a few questions into one, they are related. The Solutions Segment organic growth, Adena, you get this question a lot I know on the 6% to 9% growth and obviously you've been tracking well ahead of that again this quarter as well. So just maybe in thinking, my guess is you're not changing that 6% to 9%, but maybe just talk about your optimism of continuing to see that level, given some of the organic growth initiatives that you're talking about in Market Infrastructure and new opportunities for Infrastructure for trading venues that are outside your norms?

And then the Tier 1 1Q banks cross sell, realizing of course that cycle is longer, but you're starting in right now, obviously with a stronger organic growth rate. So, I guess, what would drive that rate -- Solutions organic growth rate down into that 6% to 9%, given a lot of the opportunities you have?

And then the related follow-up just simply on index licensing, just thinking about what that run rate might be into 3Q, given you've reached the threshold. I guess when did you actually hit the threshold in the second quarter? Thanks.

[Adena Friedman, President and Chief Executive Officer at Nasdaq]

Sure. Okay. So I think we can answer the second question first, just because it's a probably shorter answer. Go ahead, Ann.

[Ann Dennison, Executive Vice President, Chief Financial Officer at Nasdaq]

Sure, Brian. So on the index question, we hit that threshold in late April. And so you can think about it, the threshold affecting two out of the three months of the quarter.

[Adena Friedman, President and Chief Executive Officer at Nasdaq]

Yeah. And so on a run rate basis going forward, I mean obviously it's subject to the volumes in the futures markets. But I think that's --

[Ann Dennison, Executive Vice President, Chief Financial Officer at Nasdaq]

Yeah, all else held equal, they look -- they'd look a third better than that particular part of the revenues.

[Adena Friedman, President and Chief Executive Officer at Nasdaq]

Yeah.

[Ann Dennison, Executive Vice President, Chief Financial Officer at Nasdaq]

We'll look at that better going into the third quarter.

[Adena Friedman, President and Chief Executive Officer at Nasdaq]

In terms of the bigger question that you asked regarding organic growth. I think that the first thing I would say is, we really are pleased with the performance of the business and we do have -- we provide mission-critical software and analytics solutions to corporates, to other exchanges, to banks and brokers, and to investment management firms. So, we do feel that our solutions really do add value, and particularly, with these periods of volatility, it's really important for corporates to really understand how their investors are changing, and how to engage with investors and obviously ESG is a growth -- long-term growth trend for that.

With our Investment Analytics, asset allocation decisions are super important, being with a management portfolio successfully as an asset owner is really important and so those services are really sticky. Anti Fin Crime, obviously huge long-term trend and providing more advanced technology there. And then for market operators, you've got mission critical technology that drives our business. So, we feel very good about the stickiness of our products as we're delivering them to clients. We have been investing across the franchise in terms of really delivering an improved and more modern technology solutions as we go, and I think all of that is accruing to our benefit in terms of the growth rate.

But we also -- there are a couple of things to think about in terms of the Solutions segments. I think that as we think about going forward, we have really strong growth in our listings business because we still have 9% more listed companies today than we had a year ago. Based on the IPO environment we're seeing today, that could be something that flows into 2023, that growth rate in our listings business, but the flip side of that is, we now have 9% more companies and as they roll off their IPO packages, we'd like to make sure that we secure them as paying customers for our IR and ESG services. So that kind of gives us the ability to continue to grow there.

And beyond that, I think you're right on the market Infrastructure Technology side, Brian that, I do feel like we're really engaging really well with clients today, they are focused on the future of their markets, they are focused on how they bring some of this latest technology into their marketplaces and the conversations are going from kind of theoretical to more concrete. And then on the back of that, we also with everyone getting back together, we're able to identify new market opportunity -- new markets that want to form and we've signed some really interesting and innovative markets in the quarter. So, we do feel like that has a lot of momentum as we're going into the second half of this year and into 2023.

[Brian Bedell, Analyst at Deutsche Bank Aktiengesellschaft]

Okay, so it sounds like some headwinds potentially, but really you remain optimistic on this really strong growth, organic growth in the Solutions segment.

[Adena Friedman, President and Chief Executive Officer at Nasdaq]

I mean, we -- I would say I'm an internal optimist. But I do remain optimistic that we're really -- we are delivering really great value to the clients. And so, we'd like to continue that. I think we just know that there are always different dynamics we have to consider and we're -- so therefore, we are maintaining our overall medium term outlook to the 6% to 9%, but obviously we have been performing better than that.

[Brian Bedell, Analyst at Deutsche Bank Aktiengesellschaft]

Yeah. Fair enough. Thank you so much.

[Adena Friedman, President and Chief Executive Officer at Nasdaq]

Thanks.

[Operator]

Thank you. [Operator Instructions] Our next question will come from Alexander Blostein with Goldman Sachs. Your line is open.

[Alexander Blostein, Analyst at The Goldman Sachs Group]

Hey, good morning everybody. Hello.

[Adena Friedman, President and Chief Executive Officer at Nasdaq]

Hey, Alex.

[Alexander Blostein, Analyst at The Goldman Sachs Group]

Hey, good morning, thanks for the question. So another one for you around the market structure regulation. Just to follow-up on Richard's question, I guess, around Chair Gensler's proposal. With respect to the, I guess, prior administration's proposal around market data, which was albeit feels like a bit more narrow relative to what the current SEC Commission is trying to achieve. How are you expecting this to go forward from here given that it still feels like kind of in the background, but it's not clear where that fits in with the existing proposals?

[Adena Friedman, President and Chief Executive Officer at Nasdaq]

Well, sure. I think the first thing we should notice, we were pleased with the court's decision in understanding the critical value of exchanges in terms of overseeing the SIP plans and then overseeing the Consolidated Tape. So we're pleased with that. And [Technical Issues] over consolidated data, which is a core part of the last, as you said, the last SEC rule proposal, really means -- the governance of that remains with the exchanges. But we also recognize we want to meet the needs of our clients. So, I think, Alex, that there are lots of -- there are lot of components to that rules, that was approved by the SEC and I think that is slowly going to start to move forward now that the governance is kind of settled. But it will take some time, because there were like multiple -- multiple elements of that in terms of odd lots, as well as the SIP data, as well as multiple consolidators, and then they are like, it's a phase in over multiple years.

So, I don't think we necessarily really fully understand the impact of that, but we also are engaging very much with the plans to figure out how we want to look at pricing. We have a pricing proposal with the SEC right now for them to consider. And we are also considering our role as a consolidator in the multiple consolidator model, because that could be an opportunity for us. And so I think that it's going to be a slow moving train. It is going to start to move forward now though, so that we -- I think because the governance structure is set and we'll just have to see how that goes over the next several years.

[Alexander Blostein, Analyst at The Goldman Sachs Group]

Got it. Great, thanks very much.

[Adena Friedman, President and Chief Executive Officer at Nasdaq]

Sure.

[Operator]

We have a question from Daniel Fannon with Jefferies. Your line is open.

[Daniel Fannon, Analyst at Jefferies Financial Group]

Thanks, good morning. Wanted to follow-up on Market Tech and the margin there has moved around a lot. I wanted to see is you are asked about whether you think you've seen the lows there and we can kind of consistently see margins kind of move higher. And then within that context, thinking about the normal seasonality of the legacy Market Tech business in terms of the fourth quarter with change orders and other things based on some of the dialog you've been talking about with clients, should we assume some normalization of that in 2022?

[Adena Friedman, President and Chief Executive Officer at Nasdaq]

Sure. I think I would say that, Daniel, that we are starting to operate in a normal mode now in Market Tech, right. So we are engaging with clients in person, we are co-locating client with clients and in some cases we are in a good place in terms of our delivery capabilities and we're servicing our clients well. And so I think that's all great. I think that in terms of the scalability of the business, we're signing, most of our new clients are signing SaaS-based contracts, which I think is very helpful in terms of, both in terms of the products they are buying, which are more standardized as opposed to specialized.

But also in terms of how we can support them in a more scalable way over the long term, but we still do have a lot of clients that are on-prem clients with pretty specialized solutions and we're still delivering those, so it's a real mix at the moment, it's a true hybrid. And I think as a result of that, you do see some more variability in margins, you see more variability quarter-over-quarter in revenues. So we are kind of getting back to a normalized mode in terms of change requests, in terms of deliveries, in terms of new sales and we are really encouraged by the SaaS orientation of the new sales.

The one thing I would say about change requests though is, as we move forward and signing more clients in a SaaS format, we are going to have lower change request revenues going forward, because it's less specialized, more standardized, but more stable and more -- and very sticky. And so, I don't think we're going to see an immediate change there, but I just would say over the longer term we would expect that to kind of moderate a bit in favor of more -- more sticky and stable revenue coming from SaaS.

[Daniel Fannon, Analyst at Jefferies Financial Group]

Thank you.

[Operator]

Our next question comes from Craig Siegenthaler with Bank of America. Your line is open.

[Craig Siegenthaler, Analyst at Bank of America Merrill Lynch]

Good morning, Adena.

[Adena Friedman, President and Chief Executive Officer at Nasdaq]

Good morning.

[Craig Siegenthaler, Analyst at Bank of America Merrill Lynch]

So, my question is on cash equities, a major competitor increased the pricing of trades in the opening, closing auctions this past quarter. And Nasdaq has high market share for these trades, wondering if Nasdaq also has the ability to raise pricing?

[Adena Friedman, President and Chief Executive Officer at Nasdaq]

Well, I think that we've been -- we've had very stable pricing in our auctions for a long time. I think there were some changes that our competitors did a couple of years ago in that space. We've been very, very stable there. And I think that we continue to think we provide a very, very high value in opening and closing auctions. We think we're paid for that value and I think our clients appreciate the execution quality they get. So we see that more as a -- steady as we go, because of the fact that we provide a great service and we do feel like that we are rewarded for that.

Obviously, we're really excited about what happened with Russell, because that was a -- that's a big events and then you have the quarterly [Indecipherable], you have other rebalances, these are big event for us. We invest a lot in our infrastructure to support those events. Those are really -- those are surge moments and we feel great about our ability to execute in this moment, but that we invest a lot to make that happen. And I think therefore we are paid appropriately for that, but that's kind of how we're looking at right now.

[Craig Siegenthaler, Analyst at Bank of America Merrill Lynch]

Thank you.

[Operator]

Our next question comes from Kyle Voigt with KBW. Your line is open.

[Kyle Voigt, Analyst at Keefe, Bruyette & Woods]

Hey, good morning. Thanks for taking my question. Just wondering if you could speak a bit about M&A. You've delevered quite a bit to 2.7 times net debt to EBITDA. Can you remind us where you feel comfortable taking leverage to on a net basis, given the current business mix and assuming you find an attractive acquisition opportunity.

And then just regarding the M&A environment. Over the past few years you've been looking at very attractive assets in terms of secular growth rates or medium-term growth rates and improving the growth profile of Nasdaq as a whole. I guess in the public markets we've seen valuations come in quite a bit for some of the higher growth assets. Have you started to see that in the private markets and has basically the bid-ask spread kind of narrowed, as we're looking at the environment today versus maybe where we were at a year ago?

[Adena Friedman, President and Chief Executive Officer at Nasdaq]

Sure. I mean, Ann, do you want to answer the first part of question in terms of --

[Ann Dennison, Executive Vice President, Chief Financial Officer at Nasdaq]

Yeah, I'll answer the question around sort of where we would -- where we would take that the leverage ratios. There's a lot of dependencies there, Kyle, in terms of what does the M&A opportunity, how quickly we could delever. I think maybe the best point of reference is, what we did at the Verafin deal, where we took the leverage up to 3.9% and on a gross basis and then we're back down to 2.9% now, and so you can think about it that way. We don't have a -- like there's no hard and set rules, it's very circumstance based and obviously we'd be working with the rating agencies on a -- on our -- on whatever our deleveraging plan would be in association with that, so.

[Adena Friedman, President and Chief Executive Officer at Nasdaq]

Yeah, and I mean I think the one thing we do say is that, we do like our investment grade rating. And so we would work with the rating agencies to understand, looking at deals and making sure that we factor in our investment grade rating as we're looking at and financing deals. So that's how we generally look at it.

In terms of the M&A environment, it is -- it is definitely a changing environment right now. I also think it takes time for companies to recognize what -- in a changing market cap environment, it takes time for companies to think to understand what their true value is over time, is the market going to recover and they feel that they are going to be able to grow their way into their market cap very quickly or their old market cap rate quickly, or are they understanding that this might be just a different longer-term environment. And I think that definitely factors into receptivity to M&A, both in the private markets and the public markets.

We are definitely seeing in the private markets, generally speaking, reductions in valuations, but that's kind of in line with the public markets or maybe not quite so much, not quite as dramatic. And but again, that's one thing to have that as a point in time reference for a CEO, it's another thing to think that that's the value that they should sell their company at. So, I still think it's a very dynamic environment. But I think, Kyle, we are always evaluating opportunistic ways for us to continue to drive our strategies forward, but we are really focused on organic growth. I mean that is, the vast majority of our focus inside of Nasdaq is how we want to continue to sustain our organic growth with us also looking at M&A, like small deals like Metrio and other things that we might do is, on the small and medium bolt-ons as we continue to grow out our business.

[Kyle Voigt, Analyst at Keefe, Bruyette & Woods]

Very helpful, thank you.

[Adena Friedman, President and Chief Executive Officer at Nasdaq]

Sure.

[Operator]

Thank you. And our next question comes from Michael Cyprys with Morgan Stanley. Your line is open.

[Michael Cyprys, Analyst at Morgan Stanley]

Hi, good morning. Just a question on ESG, I was hoping you might be able to remind us how much that contributes in revenue today, given some of the acquisitions that you've done. And when you look at the offerings that you have on the ESG side, which products, services are on ESG, you think could be the most meaningful to growth in ESG revenues at Nasdaq? And as you think about the offerings that you have on that side, how does that stack up relative to where you'd like to be in the marketplace with respect to ESG? Thank you.

[Adena Friedman, President and Chief Executive Officer at Nasdaq]

Sure. So I think that if we -- we don't disclose our ESG revenues separately from the rest of our Corporate Services revenues. But I would say that it is definitely the highest growth part of the business and it is helping drive to the higher growth rates we're seeing in IR and ESG right now.

As we -- we've given out some thoughts at the last Investor Day as to what we hope to achieve in terms of revenues between now and 2024, 2025. And we definitely feel that we're at least on track with that, and so -- and we continue to invest there. And so as we get into our Investor Day this year, we will be -- hopefully be able to give you a little bit more content and color around that, so that we can continue to help you understand how much of a business that's becoming for us and we're quite excited about it.

But I would point out that they are kind of -- there are several components to it, but within the Corporate space. Right now the Advisory business is actually the highest demand part of the business, but more and more, it's moving into reporting. So at first, the companies we're saying, five years ago they were saying, what is ESG and how do I communicate with investors around it? We help them think about their programs, mature their programs, we now have kind of annual contracts with clients to help them manage those programs in terms of communicating appropriately with investors.

Increasingly though, we're seeing more and more companies onboarding onto One Report and now Metrio for collecting data and reporting that data out to the rating agencies and that's going to be the long-term growth driver for us. Definitely, as companies in maturing their programs, it's going to be the tools that we provide to them that really help them mature those programs and then sustain them.

And then the other part of the business that we don't talk about a lot, because it is very, very small, like really small. But within our European markets business, we do have a carbon removal marketplace called Puro. Very early days, but -- even though it's, I would say, just say it's like $2 million of revenue today, it's really small. It is growing very quickly in terms of getting more suppliers into the platform and getting corporates more and more opportunities to offset their carbon output with true high quality carbon removals.

And we see that as kind of a 10-year, 5-year - 10-year plan to really build out of really successful marketplace there. So that will also be a long-term growth driver for us. But today, these are relatively small, but exciting and growing areas, and we will give -- and we will be able to give you more content at Investor Day.

[Michael Cyprys, Analyst at Morgan Stanley]

Great, thank you.

[Adena Friedman, President and Chief Executive Officer at Nasdaq]

Sure.

[Operator]

Our next question comes from Gautam Sawant with Credit Suisse. Your line is open.

[Gautam Sawant, Analyst at Credit Suisse Group]

Hey, good morning. Thank you for taking my questions. Can your provide us your outlook for growth of recurring and SaaS revenues could be affected by a recession in 2023. Specifically how are the potential for industry consolidation could affect Investment Intelligence?

[Adena Friedman, President and Chief Executive Officer at Nasdaq]

Sure. I mean I think that we obviously don't provide specific guidance in any of our businesses. But I would say in our SaaS businesses, the general -- what we've seen so far is that we have not seen any material changes in buying behaviors across our SaaS oriented businesses. And that includes Investment Analytics, our IR and ESG Services, our Anti Financial Crime Solutions and some of the newer sales in our Market Tech business. And so I think that we really don't see any sort of significant changes in behaviors there.

But as we go into a recessionary environment and that's hard to predict right now, but if we were to go into that and have that as a sustained economic environment that we're navigating through in 2023, I think that we would still look at the following. It is, our products are very sticky because of the fact they provide such -- such important services to clients to navigate the capital markets in every environment. In some cases, the technology that are the capital markets, and so we do think they're very sticky.

I think in terms of buying decisions, in a protracted recessionary environment, some of those buying decisions will take longer. We could have companies as we -- as you talked about that could have some M&A and have some on the edges, some changes in their corporate status, and that will obviously have some effect on retentions, but again, we're talking very high retention products, very, very important products, very sticky products.

In terms of M&A though, in the financial industry generally, if we look back over prior recessionary periods, you don't actually see a lot of M&A among banks and among asset managers, as a general matter, on the edges, yeah, but we're talking salaries. We have 3,000 banks and we have 3,000 asset managers that use our services. So, it's just not going to be a material part of the calculus in terms of our services, just based on the breadth and depth of the companies we support. And also by the way, I think it's 10,000 corporate clients that use our IR and ESG Services. So, we -- just by the scale of who we are, M&A is not going to be a huge factor, but we will certainly provide you updates if we are seeing changes there.

[Gautam Sawant, Analyst at Credit Suisse Group]

Got it. And just as a follow-up question, on compensation. What has been demand and what with talent in the technology space changed. And do you think that could help decelerate some of the expense growth there?

[Adena Friedman, President and Chief Executive Officer at Nasdaq]

Yeah, I think that it's interesting. Certainly, we've been doing the right things to make sure that we attract and retain great talent, and I feel very good about how we've been managing our compensation in this competitive environment. We have, I would say, in the last six weeks to eight weeks started to see more people really wanting to come to Nasdaq frankly, we're really strong company and we have a strong financial profile.

And I think that some people who left the company are coming back. Employees that are in some of the more hard hit parts of the technology industry are understanding the benefits of working in a place like Nasdaq. And so, I don't know yet on how much that might impact comp, but I would say that we feel good about our ability to attract great talent here.

[Gautam Sawant, Analyst at Credit Suisse Group]

Thank you for taking my questions.

[Adena Friedman, President and Chief Executive Officer at Nasdaq]

Sure.

[Operator]

Our next question comes from Owen Lau with Oppenheimer. Your line is open.

[Owen Lau, Analyst at Oppenheimer]

Good morning and thank you for taking my question. Could you please give us more color on your migration into the cloud. And I think you mentioned the first migration will be completed in the fourth quarter this year. Could you please talk about what have you learned so far in this process and how does that impact your process to migrate other systems in the future? Thank you.

[Adena Friedman, President and Chief Executive Officer at Nasdaq]

Sure. Hey, Owen. Yeah, so we're actually quite excited about the progress we're making with AWS. So, just to remind everyone, AWS is committed to create a private local zone within the Carteret data center, which is our primary data center in New Jersey, to support our markets in a cloud environment, but recognize, okay, so if we just take one step back, over the last 10 years we've really been focused on moving all of what we call surrounding systems into a public cloud environment. So, our market operations systems and some of the client facing systems that we have to support trading. But the trading systems themselves, the matching engine itself has always been an on-premise deployment.

So AWS is coming into our data center. We're moving our first options market into the AWS outpost infrastructure. Our plan is to do that in the fourth quarter. We are on track with that. What we've been learning is really helping us making sure we're optimizing for power in the context of bringing the AWS infrastructure into the data center, while we build out the data center. So over the next two years. We're going to be expanding the data center in connection with Equinox, that's our partner who really is working on that, and that will also expand our power.

As we work with AWS in the first iterations of putting outpost in and getting them up and running, we're just making sure we're managing to the power of that infrastructure in connection with, obviously, the power needs of all of our clients. And so that's the one thing that we're finding, it's really interesting to learn through.

But at the same time, we are very comfortable that we're moving now -- we've moved MRX onto Fusion. We've tested that in an on-prem environment with our clients as a baseline, and we now get to, therefore, start testing with our clients in the fall in the new environment and to make sure that we're delivering the same performance. So, we're well underway and we're learning a lot and it's been a great partnership and we feel very good about it.

[Owen Lau, Analyst at Oppenheimer]

Got it. Thank you very much.

[Adena Friedman, President and Chief Executive Officer at Nasdaq]

Sure.

[Operator]

Thank you. And that's all the time we have for questions. I'd like to turn the call back over to Adena Friedman for closing remarks.

[Adena Friedman, President and Chief Executive Officer at Nasdaq]

Well, thank you very much. And it's really -- thank you so much for spending time with us. We continue to be excited and proud of the results we've delivered and we will continue to update you on our progress as we heard and we will continue to update you on that. Thank you very much.

[Operator]

[Operator Closing Remarks]