Nasdaq Q3 2022 Earnings Call Transcript

Quartr
Provided by Quartr
October 19, 2022

Key Takeaways

  • Positive Sentiment: New corporate structure launched three divisions—Market Platforms, Capital Access Platforms and Anti Financial Crime—to deliver more integrated, client-centric solutions and unlock cross-division growth opportunities.
  • Positive Sentiment: Nasdaq reported $890 million in Q3 net revenues, up 6% year-over-year (9% organically), with ARR rising 8% to $1.97 billion and SaaS revenues growing 13%.
  • Positive Sentiment: Market Technology revenues surged 16% (18% organically), led by a 24% increase in Anti Financial Crime offerings and Verafin’s 25% growth, including 54 new small-to-medium bank clients.
  • Positive Sentiment: Nasdaq unveiled its Digital Assets business—an institutional-grade custody solution with integrated liquidity channels and crypto-specific anti-financial-crime capabilities—to drive broader market participation.
  • Positive Sentiment: Management lowered full-year non-GAAP operating expense guidance to $1.701–$1.720 billion, maintained a 53% non-GAAP operating margin and improved net debt/EBITDA to 2.7×.
AI Generated. May Contain Errors.
Earnings Conference Call
Nasdaq Q3 2022
00:00 / 00:00

There are 10 speakers on the call.

Operator

Good day and thank you for standing by. Welcome to Nasdaq's Third Quarter 2022 Quarterly Update Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session. Please be advised that today's conference is being recorded.

Operator

I would now like to hand the conference over to your first speaker today to Mr. Ed Dittmeier, Head of Investor Relations. Please go ahead.

Speaker 1

Good morning, everyone, and thank you for joining us today to discuss Nasdaq's Q3 2022 financial results. On the line are Adena Friedman, our CEO Ann Dennison, our CFO John Zekka, 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 and A. The The press release and presentation are on our website, and we intend to use the website as a means of disclosing material non public information and complying with disclosure I'd like to remind you that certain statements in this presentation during Q and A may relate to future events and expectations and as such constitute forward looking statements within the meaning The Private Securities Litigation Reform Act of 1995. Actual results may differ materially from these projections.

Speaker 1

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. Lastly, a quick programming mention. We're excited to be hosting our Investor Day on November 8. Our leadership team will give presentations about our strategy, operations I know many of you on the line today are planning to participate. If you have not registered, please do so at ir.nasdaq .com.

Speaker 1

I'll now turn the call over to Adena.

Speaker 2

Thank you, Ed, and good morning, everyone. Thank you for joining us. I'll begin today with a summary of the new The new structure organizes our business units into the following three divisions that align us more closely to the foundational That are driving our strategic evolution. Market platforms led by Tal Cohen will include our North American and European Market Services as well as our Market Infrastructure Technology business. The division will also include our Digital Assets and Carbon Markets businesses.

Speaker 2

Capital access platforms led by Nelson Griggs will combine our corporate platforms and Investment Intelligence businesses. And anti financial Crime led by Jamie King will include Verifin, our fraud detection and anti money laundering solution as well as our market and trade surveillance business. Our new structure will take effect by the end of the Q4 of 2022. As Anne will note later, we will we have provided And was furnished in our Form 8 ks filed this morning. Additionally, we will discuss our businesses through the lens of this new structure at our upcoming Investor Day on November 8.

Speaker 2

We believe the new structure will elevate our strategy and amplify our growth opportunities by allowing us to provide even more holistic solutions to our clients with complex challenges. We view this as the next chapter in the strategic pivot that we launched 5 years ago, which solidified our focus on liquidity, Transparency and integrity is a foundation of our strategic growth pillars. While these strategic themes are carried across our divisions, Each division has a central theme that will help define its strategic focus. Market platforms will focus on maximizing the liquidity of the capital markets through our role as a market And as a provider of market ecosystems to our technology clients. This division will center around the modernization of markets, including the migration of markets and core infrastructure to the cloud and the emergence of blockchain and the resulting digital assets as elements of future market infrastructure.

Speaker 2

Nasdaq today serves as a powerful capital markets platform. We are a leading force in the modernization of marketplaces through our world class technology, including the progress we're making as we migrate our own markets to our next gen exchange platform in an edge cloud environment. We are also actively deploying our next gen market platform to our market technology clients. And through our new structure, we see an opportunity for us to drive a broader strategy For instance, as we move forward with our digital assets platform, we see our role as being broader than a market operator or a market It is a true platform opportunity, creating a custody foundation with strong anti financial crime capabilities that allows multiple market venues, including those to whom we sell our market technology, to connect and where we can It's just one example of how the divisional structure will have more power, working together both as an operator and as a technology partner. We are excited to demonstrate how we can combine our expertise in managing market infrastructure, coupled with our focus on leading technologies to support exchanges and market participants in new ways to drive the global flow of capital.

Speaker 2

In our Capital Access Platforms division, we will leverage the insights and capabilities across our Corporate Platforms and Investment Intelligence team. And we will be focused on the transparency pillar, reflecting the profound shift in behavior among corporates and investors with a focus on long term value creation. We are seeing a sustained prioritization across the buy side on long term value creation and the subsequent response from across corporates to engage their investor base in this evolving construct. For instance, there is a notable opportunity for Nasdaq to be a leading ESG solutions provider. We are centered first on a foundation of serving the specific needs of corporate issuers 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.

Speaker 2

As we mature our strategy, we have an opportunity to bridge these capabilities into the investment community through analytics, indexes and data solutions. More generally, capital access platforms will be positioned to connect the investor and the issuer communities through actionable insights, industry leading indexes and modernize workflows. This will allow us to provide more seamless, more holistic and more impactful solutions that help both stakeholder groups navigate the increasing complexity of the evolving financial system. And finally, our Anti Financial Crime division will continue to focus on strengthening and safeguarding the integrity of the financial system. Anti Financial Crime Technology represents an already large and fast growing sector with structural and regulatory tailwinds.

Speaker 2

And as the financial system transforms and becomes more technologically driven and sophisticated, the threats to its integrity are growing in scale and sophistication as well. Financial institutions face increasing I'm sorry, face significant challenges in detecting and preventing financial crime, and therefore are investing significant capital and resources in combating those threats. Nasdaq's Anti Financial Crime division focuses on delivering a world class with holistic solutions and capabilities to support financial institutions in fighting financial crime more effectively across their networks and the broader financial system. We are very excited about the opportunities ahead of us to further lean into the areas that are primed for growth as we become the trusted fabric of the financial system. As I noted earlier, we will have an opportunity to provide more details and answer your questions about this new structure for Nasdaq at our upcoming Investor Day on November 8.

Speaker 2

Now let's turn to our results. Nasdaq delivered strong 3rd quarter results with $890,000,000 in net revenues, A 6% increase compared to the prior year period and a 9% on an organic basis, excluding the impacts of the changes in FX rates And acquisitions and divestitures. Our total annualized recurring revenue or ARR increased 8% to $1,970,000,000 Annualized SaaS revenues totaled $699,000,000 in the Q3 of 2022, growing at an even faster rate of 13%. We are pleased with the continued consistent growth across our recurring revenue segments, complemented by positive organic contributions from other areas, including index licensing and trading. Turning next to the specific business highlights, starting with our Solutions segment.

Speaker 2

Our solutions segments delivered total revenue of $584,000,000 during the Q3, an 8% increase from the prior year period or 10% organically excluding the effect of FX in an acquisition. The growth was driven from activity across the full breadth of our businesses, including our index and investment analytics offerings, the expansion of our listed issuer base, our anti financial crime offerings and Market Infrastructure Technology Business as well as strong demand for our IR and ESG Services. In our Investment Intelligence segment, we delivered $284,000,000 in total revenue in the 3rd quarter, a 4% increase overall from the prior year period. Our organic growth is 6%, excluding the effect of FX, with contributions to organic growth from each of the 3 businesses during the quarter. Revenue in our Market Data business increased by 2% from the prior year period and 5% organically, excluding the impact of FX, primarily due to an increase in proprietary data revenues from international clients.

Speaker 2

Our index business Saw revenue growth of 5% versus the prior year period, driven by positive net flows of $56,000,000,000 over the last 12 months. We also saw continued strong results from licensed futures activities, which together with the impact of positive inflows more than offset the negative impact In our Analytics business, revenues grew 8% from the prior year period and 10% organically, Our combined eVestment and Solovis offerings saw strong revenue growth driven by the sequential impact of new sales and client retention. This was the 6th consecutive quarter of double digit organic growth for that team, which underscores the power of these offerings across both asset owners and asset managers. Turning next to our Market Technology segment. We delivered $132,000,000 in total revenues in the 3rd quarter, a 16% increase from the prior year period.

Speaker 2

This was driven by growth in both the Anti Financial Crime and the Market Infrastructure Technology businesses. Our Anti Financial Crime Technology business had a very Encouraging Q3 with a 24% increase in revenues versus the prior year period. Growth was driven by new sales across with our fraud and anti money laundering and surveillance solutions as well as the $7,000,000 impact of the Verifin acquisition deferred revenue adjustment recorded in the prior year period. Regarding Verafin specifically, we grew revenues 25%, excluding the $7,000,000 impact of the deferred revenue write down on the prior year period. We are particularly proud of the team's continued ability to sign new clients across small to medium banks, which is the core of the current franchise With 54 new small to medium banks clients signed during the quarter.

Speaker 2

We are also pleased by the results of recent proofs of concepts with several Tier 1 banks. As an example, in one POC that we ran, we were able to reduce false positives by 25% by simultaneously Moving next to our Market Infrastructure Technology business, we generated $55,000,000 in revenues, representing 8% organic growth. We are pleased to see the business return to positive organic growth versus the prior year period for the first time in over a year. We continue to be on track with large complex deliveries and we have strong pipeline of engaged clients and prospects. Moving to our foundational marketplace businesses.

Speaker 2

Our Market Services segment delivered net revenues of $305,000,000 during the 3rd quarter, a 4% increase versus the prior year period or 8% higher organically excluding the impact of FX. The increased revenue year over year was broad based With especially strong growth in Trade Management Services, which had a record quarter and increases across each of our trading businesses, Equity Derivatives, Cash Equities and FICC. Lastly, we were excited to announce during the quarter the launch of our new digital assets business to power the digital asset ecosystem. This new business underscores our ambition to facilitate broader institutional participation in digital assets by providing trusted and institutional grade solutions focused on custody, liquidity and integrity. As part of our Market Services segment, Nasdaq Digital Assets will initially develop An advanced custody solution, coupled with liquidity and execution capabilities geared to serving institutional clients by enabling safe transaction and storage of digital assets.

Speaker 2

The solution is developed through an innovative technology approach that brings together the best attributes of hot and cold crypto wallets, providing a high degree of accessibility without compromising security. Additionally, we will incorporate our anti financial crime technology with new coverage for the cryptocurrency ecosystem, Including a comprehensive suite of crypto specific detection and investigation capabilities. Finally, our Corporate Platforms Segment delivered revenue of $168,000,000 in the 3rd quarter, an 8% increase from the prior year period or 11% organically, excluding the impact of FX and an acquisition. The growth was driven primarily by the increased demand for our IR and ESG services And secondarily, due to the expansion of the issuer bases across both our U. S.

Speaker 2

And Nordic listing franchises. Revenues in our IR and ESG Services Increased 13% organically, underscoring the strong demand for our technology based and consultative solutions during the period. The number of corporate clients using Nasdaq's IR and ESG solutions increased 5% from the prior year period. Examining our IR ESG solutions more Specifically, we have increased the number of companies using our ESG advisory services by 35% versus the prior year. We've also tripled the number of clients using our ESG workflow solutions to 170 companies, coming from both strong growth in OneReport Turning to our Listing Services business, revenue increased 6% to $105,000,000 As the number of Nasdaq listed corporate issuers, excluding SPACs, increased 5% compared to the prior year period.

Speaker 2

NASDAQ continued its competitive leadership in attracting the majority of new U. S. Listings during the quarter with 28 operating company IPOs and a 90% win rate. Next, I want to touch briefly on the current market environment. As we enter the final months of 2022, We continue to find ourselves amid an uncertain macroeconomic and geopolitical backdrop.

Speaker 2

While we will remain vigilant and maintain flexibility To respond effectively to changing conditions, we believe we continue to be well positioned to deliver for our clients and our shareholders throughout this cycle. Our results continue to demonstrate the quality of our businesses and the value inherent in our diversified model. We also Continue to see compelling opportunities to further deepen relationships with our clients in this environment and expand the ways we support them as they navigate these dynamics. The new corporate structure we unveiled last month will serve as a great foundation, providing us even more opportunities to lean into areas most Prime for growth and deliver even more holistic solutions to our clients across the ecosystem. With that, I will now turn the call over to Anne to review our financial details.

Speaker 3

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 Financial section of our Investor Relations website at ir.nasdaq.com.

Speaker 3

I will start by reviewing Q3 2022 performance Beginning on Slide 9 of the presentation. The 6% increase in reported net revenue of $890,000,000 Is the net result of organic growth of 9%, including a 10% organic increase in the Solutions segment And an 8% organic increase in Market Services, partially offset by a 3% negative impact from changes in FX rates and the net impact of acquisitions and divestitures. Moving to operating profit and margins. Non GAAP operating income increased 7%, while the non GAAP operating margin of 53% was unchanged compared to the prior year period. Non GAAP net income attributable to NASDAQ was $335,000,000 or $0.68 per diluted share compared to $303,000,000 or $0.59 per diluted share in the prior year period.

Speaker 3

Turning to Slide 10. As Adena mentioned earlier, ARR totaled $1,970,000,000 an increase of 8% from the prior year period, while annualized SaaS revenues totaled $699,000,000 an increase of 13%. I will now review quarterly segment results on Slides 11 through 14. Starting with Market Technology. Revenue increased $18,000,000 or 16% with $7,000,000 of the increase due to the impact of the deferred revenue write down on Verafin in the prior year period.

Speaker 3

Organic growth for the Market Technology segment was 18% in the period and driven by both the Anti Financial Crime and Market Infrastructure Technology businesses. Our Market Infrastructure Technology business grew 6 8% organically, excluding the impact of FX. This inflection reflects the progress we have made in advancing some of the largest client implementations through critical milestones earlier this year, New and expanded customer relationships and the lapping of difficult comparables due to the planned roll off of a client support contract in the second half of twenty twenty one. This progress is an encouraging early proof point that the programs and initiatives of our market infrastructure technology team have been implementing will move this business forward. ARR for Market Technology totaled $456,000,000 an increase of 7% compared to the prior year period.

Speaker 3

The Market Technologies segment operating margin was 15% in the period and increased 6 percentage points compared to the prior year period. Investment Intelligence revenue increased $12,000,000 or 4%, reflecting organic revenue growth of $16,000,000 or 6%. Organic revenue growth during the period reflects positive contributions from the Index, Analytics and Market Data Businesses. Asset Based Licensing Revenues declined 6% compared to the prior year period and represented 61 percent of index revenues. AUM and exchange traded products linked to NASDAQ indexes totaled $311,000,000,000 a decline of 14% from the prior year period.

Speaker 3

ARR totaled $583,000,000 an increase of 5% compared to the prior year period. The Investment Intelligence segment operating margin of 64% 1 percentage point from the prior year period. Corporate Platforms revenues increased $13,000,000 or 8%, including 11% organic growth. The increase was primarily driven by higher U. S.

Speaker 3

Listing services revenues as well as higher adoption across the breadth of Investor Relations and ESG and Advisory and Reporting offerings. Corporate Platforms ARR was $589,000,000 and increased 11% compared to the prior year period. The Corporate Platform segment operating margin of 44% increased 2 percentage points compared to the prior year period, driven by a combination of recent growth in the listed issuer base and lower marketing expenses due to the subdued IPO environment. Market Services net revenues increased $13,000,000 or 4%. The organic revenue increase was $24,000,000 or 8%, There was an $11,000,000 negative impact from changes in FX rates.

Speaker 3

The organic increase reflects growth across Trade Management Services, U. S. Cash equity, equity derivatives and fixed. Turning to Page 15 to review both expenses and guidance. Non GAAP operating expenses increased $20,000,000 to $417,000,000 The increase reflects a $40,000,000 organic increase, partially offset by a $19,000,000 decrease from the impact of changes in FX rates and a $1,000,000 decrease from the net impact The organic expense increase is primarily driven by higher compensation and benefits expense, reflecting two factors.

Speaker 3

1st is our continued investment in new employees to drive growth, including a 9% increase in the team over the past 12 months. 2nd is annual merit increases, which are reflected in the quarterly expense run rate starting in the Q2. The increase is higher than prior years due to on compensation, which we reflected in our guidance at the beginning of the year. We are lowering our 2022 non GAAP operating expense guidance to $1,701,000,000 to $1,720,000,000 lowering both the top and the bottom of the prior range To reflect the combination of the continued strong organic growth dynamics as we progress through 2022 along with the impacts of a stronger dollar on our non U. S.

Speaker 3

Lastly, we are lowering our 2022 tax guidance to a range of 24% to 25% versus 24% to 26% previously. Turning to Slide 16. Debt decreased by $344,000,000 versus 2Q 2022, primarily due to net repayment of $222,000,000 of commercial paper and a $123,000,000 decrease in Eurobond's book values caused by the strengthening dollar. Our total debt to trailing 12 months non GAAP EBITDA ratio ended the period at 2.7x, down from 2.9x in the Q2 of 2022. During the Q3 of 2022, Company paid common stock dividends in the aggregate of $99,000,000 As of September 30, 2022, There was $293,000,000 remaining under the Board authorized share repurchase program.

Speaker 3

Turning to Page 17 of the presentation, I would like to touch Some of the very material progress we have made executing our sustainability strategy. I would like to note that NASDAQ's GHG reduction targets were approved by the Science Based Targets Initiative. Our targets, including reducing Scope 1 and Scope 2 GHG emissions By 100% by 2,030 and absolute scope 3 GHG emissions 95% by 2,050. Additionally, EcoVadis upgraded our sustainability rating from silver to gold status, which is reserved for the top 5% of all companies rated. We also earned a place on Ceramount's 100 Best Companies list and were recognized as a Best Company for DAS for the 2nd consecutive year.

Speaker 3

We continue to see opportunities to advance our sustainability program across multiple aspects and look forward to updating you regularly on our progress. I would like to take a moment to discuss the new organizational alignment that we recently announced. On the Investor Relations website, we published supplement to help with the financial reporting under the new corporate structure, which will take effect by the end of the Q4 2022. The supplement covers the revenues, operating income and operating margin of each of the 3 new segments: Market Platforms, Capital Access Platforms and Anti Financial Crime as well as revenues of their underlying businesses. In addition, I would also like to Call your attention to a change in how we are grouping our recurring revenue segments collectively.

Speaker 3

In particular, we are now adding Trade Management Services to the prior Solutions segment grouping and calling it Solutions Businesses. The Solutions Businesses cover 75% of our last 12 months' revenues and encompasses all of our non trading revenues. At our Investor Day on November 8, we'll discuss our businesses, opportunities and strategy through the lens of this new corporate structure. And at that time, we will provide associated updates to our growth outlooks and other objectives. As such, we will answer any questions regarding the revenue growth outlook on Investor Day.

Speaker 3

In closing today, Nasdaq's 3rd quarter results reflect a continuation of the company's ability to consistently perform well across a wide range of operating environments. We delivered 10% organic revenue growth in the Solutions segment, 9% organic revenue growth across the entire company and achieved a 53% Thank you for your time, and I will turn it back over to the operator for Q and A.

Operator

Thank you. But please feel free to go back into the queue and if time permits, we'll be more than happy to take your follow-up questions at that time. Please stand by while we compile the Q and A roster. I show our first question comes from the line of Richard Repetto from Piper Sandler. Please go ahead.

Speaker 4

Yes. Good morning, Adena. Good morning, Ann. And Adena and Ann, since you both Adena, you started with the corporate structure. So my question is, first, on the organic growth rate has been such an important yardstick As you did the strategic pivot, so I'm just trying to understand and maybe this is addressing what you sent out, but Whether you're still committed to reporting market MIT or market infrastructure technology, the growth rate, Because it's going to get embedded in the market platforms, and that's the first part.

Speaker 4

And then the second On corporate structure, do you see any conflict? I know Tal called well, he's highly respected, but Where you're selling technology to other exchanges and you're also competing, potentially competing with them In the old market services business?

Speaker 2

Sure. So with regard to the way that we're going to manage disclosures, Rich, we recognize the fact that we've provided investors with a lot of visibility into the market infrastructure technology business For quite some time and we intend to continue to provide periodic updates to investors to make sure they can continue to track our progress both in terms of revenue progress And overall progress against some of the goals and targets that we set at the 2020 Investor Day, and we'll discuss that at the Investor Today, on November 8th. So we do recognize the need for us to continue to provide you with disclosures as we're managing that business. I do want to say, I think that with the Market Platform's construct, with the divisional structure, it actually just increases the opportunities for us to find new ways to serve our Marketech clients. And by thinking about us providing kind of an ecosystem orientation to Delivering solutions to Marketech clients, we hope that they see us as kind of a deeper partner, in helping them navigate the Kind of the modernization of markets, the way that you bring liquidity into markets, how you set up your infrastructure, etcetera.

Speaker 2

So we're quite excited about how this actually be an amplifier for the business. In terms of the conflicts, we do very periodically have to manage through situations where We are providing market technology to a client in the same market in which we're competing. It's very rare, but it does happen. And we have Process and a governance structure internally, leveraging our risk management team, our legal team. And so those conflicts we manage Very actively, I think we've done a very good job of managing these conflicts very well over the years.

Speaker 2

And so that really doesn't change. It just it kind of moves under It's Powell's responsibility to think through those issues, continue to consult with John Zekka, our General Counsel and Chief Risk Officer, obviously consult with me. So I just don't see any change in kind of how we're going to govern that going forward.

Speaker 4

Got it. Thank you. I figured you'd want to continue reporting MIT growth, especially as it turned positive here this quarter of the organic growth. Thanks.

Speaker 2

Sure.

Operator

Thank you. And I show our next question comes from the line of Gautam Sawant from Credit Suisse. Please go ahead.

Speaker 4

Hi, good morning. Can you please expand on how your new initiatives in the digital asset space are complemented by some of the existing capabilities of the NASDAQ platform?

Speaker 2

Sure. Yes, I think that it's interesting because on the one hand, we are building a new custody solution from Line 1 of Code, but we are Deleveraging the, what we're calling the marketplace services platform to support the liquidity capabilities that we're delivering on top of that custody solution. And so we have an amazing technology organization. I mean, it really is incredible. And so What we're able to do is think about all the work we've done to establish Nasdaq's financial framework, establish the platform that's serving as our next gen Exchange platform and leverage that, but then adding this custody solution that's very specific to digital assets.

Speaker 2

And I think that that allows us to Understand, we brought in some talent that's what I would call digital native talent to really support building the custody solution and yet they're working with Our existing Market Tech team, and to make sure that we're leveraging all of the capabilities we've been building over the last 5 years to support the liquidity that we're putting on top of the custody solution. And then I think in terms of also connectivity that we want to have with other changes, we provide the technology that powers 9 crypto markets today. And so as we work with them and as we expand that client base, we hope that they see us as a good place for them to be able to Custody their coins. And so we obviously will have connectivity points, to those exchanges as well. And then I guess the last part is anti fincrime.

Speaker 2

On Verafin and our trade surveillance business, we've developed out a crypto component essentially modules that support All the anti financial crime capabilities that you need in a crypto market. And so whether a digital wallet or your government fiat wallet within a bank, We can support the bank in making sure that they're managing their financial crime risk. And then with regard to markets and trading firms that trade crypto, we have modules that are custom built specifically to manage the crypto surveillance. So all of those things together really put together kind of the complete suite of what we're offering the industry in crypto.

Speaker 4

Got it. Thank you.

Operator

Thank you. And I show our next question Comes from the line of Brian Bedell from Deutsche Bank. Please go ahead.

Speaker 5

Great. Thanks. Good morning, folks. Thanks so much for the color on the new segments, Adena. Maybe if I could just ask one on that.

Speaker 5

I'm sure you'll cover this more on the Investor Day. But in general, Do you view the resegmenting internally? I guess, Is there going to be like a significant shift of personnel between the segments in terms of how they work together versus How they're working together right now? And then therefore, as a result of that, do you expect potential revenue synergies and how they're working together in the new structure? And I guess, also, Anne, if I can ask the same thing on the expense side, is it likely to drive some cost savings?

Speaker 5

Or, in contrast, Are there more growth opportunities that you may want to invest in as a result of the resegmenting?

Speaker 2

Great. Thank you. Yes, and we will cover that, I think in more depth on Investor Day. So we're excited to go through that and to make sure that you hear from Nelson and Tal and Jamie and the broader executive team as they're thinking through, how we're going to manage the divisions going forward. But the whole purpose of the divisional structure is actually to unlock more opportunity to serve our customers.

Speaker 2

And we really thought long and hard as to how best to combine Our organization, so that we are looking at our customers outside in and we're saying, okay, if you're a market participant, you're trading across NASDAQ's markets and you're trading in all the markets in which we provide technology. When we think about, the future infrastructure to support our markets, We're especially as we're moving into more of an edge cloud environment and we're looking at developing Our own data center into a local private zone and expanding what we can do to serve our ecosystem, we want to make sure we think about that both as a market And as a provider of technology, and so that we can be more holistic in serving market participants and their needs. And then also making it so that we can really amplify the modernization markets with other exchanges, we have one technology stack now. Yes, that didn't used to be the case. So we now have one leading edge, we think, technology that really that underscores our And we'll underscore the exchanges that we provide technology to.

Speaker 2

And so it allows us to think differently about how to serve those clients more holistically. So that's in as that's in Market Platforms, I think in and therefore, that's a revenue opportunity, put it that way. And The way that those teams are going to work together is they're basically the leaders of the North American markets, European markets and Marketech. They will serve as the key executives supporting PAL and then we've actually moved the product engineering team Under Brenda Hoffman into the division, so that the technology organization will be able to work even more closely with the business and we're moving product marketing into The division as well. So you've got kind of a more holistic way to run the business in an agile format.

Speaker 2

The same goes for capital access platforms, bringing Investors and corporates closer together, thinking about the services that we offer to corporates to communicate to investors, well, what data could we offer investors to help them understand Corporate is better. How do we leverage our investment in Salobo's technology platforms to make it so that asset owners and asset managers have Better line of sight into trends such as ESG trends and other things where we're gathering a lot of data and we're serving corporates well. So, And then of course, index products continue to be an area of just great imagination. We can do we've always done thematic indexes That underscore our role in the markets and we'll continue to be able to do that. So I feel like there's again more that we can think about in terms of Providing more services to investors, treating investors also as corporates in terms of governance and IR needs that they have, in addition to finding new ways to serve our company.

Speaker 2

So again, it's a revenue opportunity and the businesses, Oliver and Jeff Thomas, who run those respective businesses, will report it to Nelson and they will help him navigate that. And then lastly, Again, the product engineering and marketing teams will be rolling into the division to create a more agile way and more nimble way to move the business forward. So it is I I just want to say, the purpose of it is revenue opportunity, but the purpose of it also is to kind of make sure we're running these divisions And that will be an evolution over time. And we're excited to be able to go through that with you in more detail at Investor Day.

Speaker 5

That sounds great. Thank you.

Operator

Thank you. And I show our next question comes from the line of Craig Siegenthaler from Bank of America. Please go ahead.

Speaker 4

Hey, good morning, everyone. Our question is on the equity options business. There were some positive market share trends in the business this quarter. Most of this was actually driven by the BX option exchange. So can you talk about what drove the sharp increase in volumes at this specific exchange?

Speaker 2

I can just say generally, Craig, we manage that business very actively. We think about what the strategies are that our clients are trying to We think about it both in terms of functionality and in terms of pricing. And as we've been really help working to increase The utility of the BX options market, I think that we've had a really good market share growth in general across that business. And I think that some of all the work We've been doing foundationally to bring more participants in really came to fruition in the quarter. And so you're seeing a nice uptick in market share there.

Speaker 2

But again, it's a very dynamic as you know, it's a very dynamic environment and we are constantly vigilant in making sure that we're pricing our markets The right way to serve clients and we're offering functionality that really meets their needs. And across the 6 divisions, we basically can serve the needs of any options

Operator

Thank you. And I show our next question comes from the line of Michael Cho from JPMorgan. Please go ahead.

Speaker 6

Hi, good morning, Dina, and thanks for taking my question. I just I wanted to touch on Barafin And the performance this quarter, I think I heard you say there are 54 new client sign ups, which I think is a nice pickup from 37 last quarter. So wondering, can you give some color on the sales environment for Barafin as it relates to new customers getting some in some sense, it's a bit Counterintuitive just given the macro and uncertainty out there, but just curious if anything has changed in terms of the customer acquisition or sales cycle. And then also you mentioned some proof of concepts happening as well. Just also if you can update us on kind of the sales cycle from proof of concept

Speaker 2

So one thing that we did at the end of last year within Bantafin Crime's business We segmented the Verafin business into the small to medium banks and then what the midsized to large banks. And we have 2 leaders that have really taken on responsibility for looking at each of those groups in those segments of clients. And I think that we did that work at the end of last year and then we kind of put very specific programs in place to help amplify the growth characteristics In the small to medium bank space and then in the midsized to large bank space, because the sales cycles are different, the approach to the product are different. And certainly as we're moving up to the top tier banks, it's a different process and a different orientation and we wanted to make sure that we Kept that machine going within the SMB Banks, while we also continue to evolve the organization to serve the bigger ones. And I think a lot of the things that we've put in place at the beginning of the year for small to medium banks really have come to fruition.

Speaker 2

There's always ton of focus on Pipeline management, a ton of focus on client service, etcetera. And the sales cycles are relatively quick and the onboarding is relatively quick. So I think you're just seeing the machine working really well. But I would also say you asked about the current environment and this is how I look at Software Sales in an Uncertain Economic Environment. I think, first of all, there is this driving trend across All industries and all segments towards automation and finding ways to do more with fewer people.

Speaker 2

And the employment environment is very tight. So if anything, banks are struggling to find personnel to be able to manage There are financial crime risks, so they want to bring in more technology and technology generally and more automation will make them more efficient over time. So even in uncertain economic environments, you're still seeing generally strong demand for B2B software that drives automation and allows for more efficiency. But even more powerful is when that software solution is easy to implement. It's a light lift.

Speaker 2

It's not costly to bring the solution in house, and it's not a big strain on your So cloud based solutions, SaaS based solutions are much in higher demand than heavy implementation on prem solutions. And Verifin, therefore, kind of ticks every box, right? It ticks every box for the small banks. It's an all in one platform solution that allows them to have much better crime management with fewer people. And then when you look at the largest banks, They're struggling with just an increasingly complex environment and they need modules that can really help them be more efficient and more effective in finding criminals.

Speaker 2

And I think that Verifin can as it's scaling up to the top tiers is looking at it more as a modular. They can come in and just Focus on wire fraud, ACH fraud, business email compromise or AML. They can do one of those things. They can do all of those things. But as Thanks for looking at their most acute problems.

Speaker 2

We're coming in with a solution that where we can show material improvement and their ability to manage it. And I think that again, it's a SaaS based, cloud based solution. So it's a light lift, light implementation against a really, really great result. So the return on investment is high, and I think that's why we will be continue to be successful in managing through different economic environments. And we're very excited about how we're working with the large banks.

Speaker 2

That is a different sale. And our trade surveillance business has a lot of experience managing those complex sales, but those take a while and we've known that from the very beginning. Think when we announced Verafin, we said that we have kind of a 3 year view as to how we want to manage to start to penetrate The Tier 1s and we think we're making great progress, but it takes time to sign those clients after showing that our product is offering them a really good return.

Speaker 6

Okay. Wonderful. Thanks, Dina.

Speaker 3

Thank you.

Operator

Thank you. And I show our next question comes from the line of Dan Fannon from Jefferies. Please go ahead.

Speaker 7

Thanks. Good morning. I wanted to talk about the revenue opportunity from the listings companies, from all of the new IPOs over the last several years as they Kind of come off the starter kit for a lot of the services that you provide for free. Is there a way to quantify things like ESG and I think there's some IR and other services that It's being utilized today, but are going to become potentially fee paying services over the next handful of months years. Is there I guess just trying to help looking for ways to kind of quantify that opportunity?

Speaker 2

Yes. It's a good question. I think that if you We don't give very specific stats as to, what the very specific conversion rate is. But I would say that, If you think about all of the IPOs and you kind of look at the ones that are probably had larger raises Where they have a more established IR group and IR needs, I think that the conversion rate is very high because we do work very hard to Prove our value during the 3 years that they're providing these services free of charge. And so I think if you kind of Take the number of companies going public and then you look at the companies that had larger capital raises, I think that you should I think as you look at the smaller listings that has lower capital raises, they're going to be a little bit more Discerning as to which of the services they continue to take, but all of them are an upsell opportunity.

Speaker 2

And I think that Our team does a really good job of really managing the clients well, so that they really great get great value. So it's a natural thing for them to You know what, we're going to continue to receive this value and we're willing to pay for it. But we don't provide specific stats. I just think you're going to have to Kind of just look at the roll off periods, look at the number of IPOs and then, probably make some assumptions on conversion.

Speaker 7

Just to follow-up, is there a way to think about what number of services that you bundle in that starter kit beyond IR? Yes.

Speaker 3

I see.

Speaker 7

Is she part of Like just so we get a sense.

Speaker 2

Yes. Sure. Well, actually it's regulated. So the suite of services is publicly available. It's and it's Basically, you get to choose surveillance or targeting or perception.

Speaker 2

You get, I think, a set number of seats. It's anywhere from, I think, 1 to 3 seats 2 seats, I'm sorry, 2 seats for IR. And then the ESG reporting is really you're getting access You can choose 1 report or Metrio in terms of providing data aggregation and reporting solutions. And so That's actually, out there in the public domain. You can kind of see what we're offering and therefore, that would be what they would convert.

Speaker 2

Now during the 3 years, we Really hard to show them that they might want to take the overall surveillance service, which is just giving them insights into who's buying and selling They're stocked, but they might want to take targeting or they might want to do a perception study. So we do work with them to show them that there's incremental value they can receive even during the free period.

Speaker 4

Great. Thank you.

Operator

Thank you. And I show our next Question comes from the line of Alex Blostein from Goldman Sachs. Please go ahead.

Speaker 8

Hi, thanks. Good morning. Just going back to the anti financial crime and the new segmenting is the way you think about forward growth here. With this business probably coming in into more of a spotlight, is this some sort of a standalone segment? How are you thinking about the trade off and the opportunity on organic versus Inorganic growth here, obviously, it sounds like organic pipelines remain pretty robust given the efforts you have on the Tier one bank side.

Speaker 8

But Should we think about M and A being a bigger part of the story now that it will be a separate segment? Thanks.

Speaker 2

Thanks, Alex. I think that when we first of all, we really Spend the majority of our time really focused on organic growth. But as we look at opportunities for acquisitions and obviously we'll be very discerning During this period of time to make sure that we're driving to a financial return and a strategic value, I think that we focus We're focusing our acquisition, reviews in 3 key areas. It's really the modernization of markets and the idea of technologies to serving The financial community. The second is in ESG and how we can continue to provide better capabilities for Companies and investors connect together, to manage the complexity there.

Speaker 2

And then the third is on Anti Financial Crimes. So I think that you will see that We are focused in making sure that we make smart and value additive decisions If we're going to grow inorganically, I have to say, in Anti Financial Crime, as you said, there's a really great growth runway with the business as it is. And it is a very good and complete solution. But there may be ways to amplify that strategy or to go into more adjacencies And we'll evaluate that. But it's something that we look at we're looking at across all three themes as we're thinking about acquisitions going forward.

Speaker 4

Great. Thank you.

Operator

Thank you. And I show Our next question comes from the line of Owen Lau from Oppenheimer. Please go ahead.

Speaker 9

Good morning and thank you for taking my questions. Could you please talk about why you make the decision to get into digital asset custody space during In the middle of a crypto winter, I mean, there are some other companies launching crypto solutions, but I would like to hear from you What NASDAQ is seeing in this market currently? And then for future products, what other products Will make sense for NASDAQ down the road in the crypto space. And then will NASDAQ build its own technology or do you partner with 3rd party CryptoCusto DOA, the crypto company needs to offer solutions to clients. Thank you.

Speaker 2

Sure. Well, just to answer that last question first. Our primary goal is to build our solutions to serve the industry because we're trying to bring more modern infrastructure into the digital asset So we want to make sure that what we deliver is hyper resilient, is industrialized like we do with our own markets and our market tech And so we are we see ourselves as a builder in this space and we do think we can differentiate ourselves in that way. I think, Owen, how this came about? I think we started reviewing the digital asset space, obviously, years ago, but we really started to doing a deep dive As to how we could play a role in digital assets over the last 18 months.

Speaker 2

And I think that our view is that There are some very specific and acute pain points that keep institutions from engaging in digital assets. And yet, we're really good at providing industrialized solutions and capabilities that drive institutional engagement in markets. So we decided to focus in on how can we Provide infrastructure that helps drive adoption into the institutional community And how can we do it in a way that where we're not we're going to be conservative, but we're also going to be really, really thoughtful And making sure that we add value and we're not we did not want to go into the space and say we're just going to be crypto exchange Yes, 438 or whatever the number is, right? We wanted to make sure that we came in with something that's differentiated, institutions feel like they can use and they can rely on, that's accessible, available, resilient, etcetera and scalable. And so we decided to start with custody because it's foundational to anything in digital assets.

Speaker 2

Safekeeping of the coin, In our opinion, is a foundational layer, and whether that's cryptocurrencies or NFTs or other digital assets, It's just something that we felt that we needed to get good at and we needed to be able to deliver. As we think about solutions that we're going to add on top of that, the first one is this kind of institutional liquidity solution that It's not a continuous market. It's not driven it's not retail driven at all. It's really meant for institutions to be able to convert coins, to be able to transfer And it's a good entry point for us. What we're going to do going forward though, Owen, is going to depend on how successful we are with Step 1.

Speaker 2

So we want to get launched. We want to make sure that we have the licenses that we need to operate successfully, and then we will see gain some experience and then decide what's next for us. But we're excited to get into the space, but we're also doing it with our eyes wide open.

Speaker 9

Got it. Thank you very much.

Operator

Thank you. And I show our next question comes from the line of Andrew Bond From Rosenblatt Securities. Please go ahead.

Speaker 7

Hey, good morning. Just wanted to follow-up on U. S. Options. So options volumes market wide continue to be robust and that is actually a nice uptick in market share.

Speaker 7

Their pricings remain elevated all of its peers. So retail activity is obviously driving activity across the board, but it seems like NASDAQ is also benefiting from Hire capture complex orders. So I was wondering if you could talk a little bit about the size of the complex order market, how competitive it is and You're seeing significant growth there or most of the growth still coming from retail?

Speaker 2

I think that with regard to I would just say that the complex order functionality is relatively stable. I don't think we're seeing Significant changes in demand for complex order functionality. It is it's become increasingly competitive over the years. It's hard to build and it's hard to support. So we are honestly, we feel great about being in that space because we do it really well and I think we have a truly differentiated exchange offering Around complex order functionality, but it's not an area that kind of goes and swings very broadly from 1 quarter or 1 year to the next, And it's institutionally driven.

Speaker 2

But also remember that we also have our floor brokers, in PhilEx and our auction capabilities and kind of The ability to handle block trades as well and that's a different exchange with different capabilities and that market does ebb and flow a bit with institutional demand. And so and that also commands a different fee structure than the retail platforms. So I think that you're probably seeing a combination Of both, Andrew, in terms of helping in terms of both pricing and our market share. NASDAQ has I think one of the things we do differentiate ourselves on is the fact that we have retail driven platforms and we have institutionally driven platforms With a lot of different functionalities, so we can be a complete service provider. So in any environment where The trends are different or retail engagement ebbs and flows, we still have the ability to manage flow from everyone.

Speaker 2

And I think right now, you're just seeing us operating on all cylinders across the Options franchise.

Operator

Thank you. Thank you. This concludes our Q and A session. At this time, I'd like to turn the call back to Adena Friedman, CEO for closing remarks.

Speaker 2

Well, thank you very much for your time today. But before I conclude today's call, I would like to make sure you're aware of a change in our Investor Relations team. Specifically, Ed Dittmeier has chosen to take on a new challenge as the Head of Investor Relations in a different sector, And this will be his last earnings call with us here at NASDAQ. Ed joined us in 2013, and he has been Truly instrumental in shaping and improving our relationships with our investors throughout his tenure here. In nearly a 10 year timeframe in which our Stock delivered a 4 40 percent return, which is just an awesome track record for Ed.

Speaker 2

Along the way, Ed has become an integral part of senior team at NASDAQ And has brought our investors into the room, figuratively at least, as we've made important and impactful strategic decisions. We are launching a search for a new Head of Investor Relations, and we will provide an update once our new Head of IR is selected. During the interim period, Neil Stratton will report directly to Ann Dennison, and he will be the primary contact for analysts and investors. And I want to turn the call now to you, Ed, for a few comments.

Speaker 1

Thank you, Adena, for the very kind words. Working for standout leaders like Adena and Ann, We're always curious about how we could improve as well as the entire management team with the vision and execution chops to drive real Change kept everything perpetually exciting in my time here. And Nasdaq, I saw how creative, hardworking and humble teams can accomplish so much. And in particular, It's been very special to partner with Neil Stratton with his keen sense of what goes into a compelling investment and for sharing a really ambitious view of what's possible. To our especially discerning, mostly reasonable and always entertaining group of analysts and investors, thank you for being eager to engage, I'll get to the point.

Speaker 1

It's been a privilege Tell the incredible story of NASDAQ and its dedicated people, but nothing has been more satisfying than to see the substantial value that can be created when standout business performance was multiplied by the increasing respect earned from our investment community. In the weeks to come and especially at our November 8th Investor Day, I look forward to keeping the lines of communications open during this very exciting time at NASDAQ and then to continue our friendships for years behind. Thank you.

Speaker 2

Yes. And Ed will be with us at Investor Day, where we'll have a chance to provide him a proper send off. But, it is with sadness that we have to make But we're very excited for Ed. So congratulations, Ed, on your new chapter and your new adventure that you're going to be starting, later in November. Well, in closing, Nasdaq's 3rd quarter results demonstrate our strong execution thus far in 2022, and we look forward to speaking with you more about our future plans at our Investor

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