Item 2. Management's Discussion and Analysis of Financial Condition and Results Of Operations

The following discussion and analysis of the financial condition and results of operations of Nasdaq should be read in conjunction with our condensed consolidated financial statements and related notes included in this Form 10-Q.

OVERVIEW

Nasdaq is a global technology company serving the capital markets and other industries. Our diverse offerings of data, analytics, software and services enables clients to optimize and execute their business vision with confidence.

We manage, operate and provide our products and services in four business segments: Market Technology, Investment Intelligence, Corporate Platforms and Market Services.

First Quarter 2022 and Recent Developments

Cash Dividend on Common Stock

• In April 2022, the board of directors approved a regular quarterly cash dividend of $0.60 per share on our outstanding common stock, which reflects an increase of 11% from our most recent quarterly cash dividend of $0.54 per share.

• For the three months ended March 31, 2022, we returned $89 million to shareholders through dividend payments.

Share Repurchase Program

*•*In January 2022, we entered into an ASR agreement to repurchase $325 million of common stock. We received a total delivery of 1,876,387 shares of common stock and completed the ASR program during the first quarter of 2022.

*•*In the first quarter of 2022, in addition to the ASR described above, we repurchased 735,865 shares of common stock for an aggregate of $142 million.

• As of March 31, 2022, the remaining amount authorized for share repurchases under our share repurchase program was $459 million.

Recent Developments

• We have assessed the impact of the Russian invasion of Ukraine and as of March 31, 2022, we do not believe we have material exposure to Russian clients. We will continue to assess the ongoing impact of the war.

Corporate Highlights

• Overall AUM in ETPs benchmarked to our proprietary indexes totaled $401 billion as of March 31, 2022, an increase of 4% compared to March 31, 2021. Additionally, the number of futures and options on futures contracts tracking Nasdaq indexes set a quarterly record with 147 million contracts traded, an increase of 40% year over year.

• The Nasdaq Stock Market led U.S. exchanges for IPOs during the first quarter of 2022. The Nasdaq Stock Market IPO win rate was 86% in the first quarter of 2022, including 70 IPOs representing $9 billion in capital raised. There were 27 operating company and 43 special purpose acquisition company IPOs during the period.

• Market Services net revenues totaled $315 million in the first quarter of 2022, the second highest quarterly revenues versus the record achieved in the first quarter of 2021. In the equity derivatives business, Nasdaq led all exchanges during the first quarter of 2022 in total multiply-listed U.S. options traded and achieved record net revenues of $112 million. Nasdaq’s Nordic equities markets saw strong volumes with the value of shares traded on Nasdaq’s Nordic and Baltic markets totaling €289 billion, the highest in the last decade.

Financial Summary

The following table summarizes our financial performance for the three months ended March 31, 2022 when compared to the same period in 2021. The comparability of our results of operations between reported periods is impacted by the acquisition of Verafin in February 2021 and the divestiture of our U.S. Fixed Income business in June 2021, which was part of our FICC business within our Market Services segment, as well as the contribution of our NPM business in July 2021 to a standalone, independent company, of which we own the largest minority interest, together with a consortium of third party financial institutions. See “2021 Divestiture,” and “2021 Acquisition,” of Note 4, “Acquisition and Divestiture,” to the condensed consolidated financial statements for further discussion. For a detailed discussion of our results of operations, see “Segment Operating Results” below.

			Three Months Ended March 31,												Percentage Change
			2022			2021
			(in millions, except per share amounts)
Revenues less transaction-based expenses			$	892		$	851								4.8		%
Operating expenses			487			486									0.2		%
Operating income			405			365									11.0		%
Net income attributable to Nasdaq			$	284		$	298								(4.7)		%
Diluted earnings per share			$	1.70		$	1.78								(4.5)		%
Cash dividends declared per common share			$	0.54		$	0.49								10.2		%

In countries with currencies other than the U.S. dollar, revenues and expenses are translated using monthly average exchange rates. Impacts on our revenues less transaction-based expenses and operating income associated with fluctuations in foreign currency are discussed in more detail under “Item 3. Quantitative and Qualitative Disclosures about Market Risk.”

Nasdaq's Operating Results

The following chart summarizes our ARR (in millions):

ARR for a given period is the annualized revenue derived from subscription contracts with a defined contract value. This excludes contracts that are not recurring, are one-time in nature, or where the contract value fluctuates based on defined metrics. ARR is one of our key performance metrics to assess the health and trajectory of our recurring business. ARR does not have any standardized definition and is therefore unlikely to be comparable to similarly titled measures presented by other companies. ARR should be viewed independently of revenue and deferred revenue and is not intended to be combined with or to replace either of those items. ARR is not a forecast and the active contracts at the end of a reporting period used in calculating ARR may or may not be extended or renewed by our customers.

The ARR chart includes:

▪						Active Market Technology support and SaaS subscription contracts.
▪						Proprietary market data and index data subscriptions as well as subscription contracts for eVestment, Solovis, NDW Research Platform, Nasdaq Fund Network and Nasdaq Data Link. It also includes guaranteed minimum on futures contracts within the Index business.
▪						U.S. and Nordic annual listing fees, IR and ESG products, including subscription contracts for IR Insight, board portals and OneReport, as well as IR advisory services.
▪						Trade Management Services business, excluding one-time service requests.

The following chart summarizes our quarterly annualized SaaS revenues for our Solutions Segments, which is comprised of the Market Technology, Investment Intelligence and Corporate Platforms segments, for the first quarter of 2022 and 2021 (in millions):

Segment Operating Results

The following table presents our revenues by segment, transaction-based expenses for our Market Services segment and total revenues less transaction-based expenses:

						Three Months Ended March 31,												Percentage Change
						2022			2021
						(in millions)
Market Technology						$	124		$	100								24.0		%
Investment Intelligence						284			256									10.9		%
Corporate Platforms						168			146									15.1		%
Market Services						958			1,134									(15.5)		%
Other revenues						1			15									(93.3)		%
Total revenues						$	1,535		$	1,651								(7.0)		%
Transaction rebates						(581)			(654)									(11.2)		%
Brokerage, clearance and exchange fees						(62)			(146)									(57.5)		%
Total revenues less transaction-based expenses						$	892		$	851								4.8		%

The following charts present our Market Technology, Investment Intelligence, Corporate Platforms and Market Services segments as a percentage of our total revenues, less transaction-based expenses, of $892 million for the three months ended March 31, 2022 and $851 million for the three months ended March 31, 2021.

Percentage of Revenues Less Transaction-based Expenses by Segment for the:

MARKET TECHNOLOGY

The following tables present revenues and key drivers from our Market Technology segment:

			Three Months Ended March 31,												Percentage Change
			2022			2021
			(in millions)
Anti Financial Crime Technology			$	72		$	42								71.4		%
Marketplace Infrastructure Technology			52			58									(10.3)		%
Total Market Technology			$	124		$	100								24.0		%

						Three Months Ended March 31,
						2022						2021
						(in millions)
Order intake						$	48					$	41
ARR						435						416
Quarterly annualized SaaS revenues						298						260

In the table above, order intake is the total contract value of orders signed during the period, excluding Verafin. ARR and SaaS revenues include Verafin.

Anti Financial Crime Technology Revenues

Anti-financial crime technology revenues increased in the first quarter of 2022 compared with the same period in 2021 primarily due to the inclusion of revenues from our acquisition of Verafin, new sales and strong retention.

Marketplace Infrastructure Technology Revenues

Marketplace infrastructure technology revenues decreased in the first quarter of 2022 compared with the same period in 2021 primarily due to the successful completion of a significant long-term contract, and lower professional services revenue.

INVESTMENT INTELLIGENCE

The following tables present revenues and key drivers from our Investment Intelligence segment:

			Three Months Ended March 31,									Percentage Change
			2022			2021
			(in millions)
Market Data			$	108		$	106								1.9		%
Index			122			102									19.6		%
Analytics			54			48									12.5		%
Total Investment Intelligence			$	284		$	256								10.9		%

						As of or Three Months Ended March 31,
						2022						2021
Number of licensed ETPs						368						349
ETP AUM tracking Nasdaq indexes (in billions)						$	401					$	385
TTM Net appreciation (in billions)						$	33					$	127
Net impact of ETP sponsor switches (in billions)						$	(92)					$	—
TTM Net inflows in ETP AUM tracking Nasdaq indexes (in billions)						$	75					$	52
ARR (in millions)						$	570					$	542
Quarterly annualized SaaS revenues (in millions)						$	209					$	184

In the tables above, TTM represents trailing twelve months.

Market Data Revenues

Market data revenues increased in the first quarter of 2022 compared with the same period in 2021 primarily due to an increase in proprietary data revenues driven by higher international demand.

Index Revenues

Index revenues increased in the first quarter of 2022 compared with the same period in 2021 primarily due to higher licensing revenues from higher average AUM in ETPs linked to Nasdaq indexes and higher licensing revenues from futures trading linked to the Nasdaq-100 Index.

Analytics Revenues

Analytics revenues increased in the first quarter of 2022 compared with the same period in 2021 primarily due to the growth in our eVestment platform driven by new sales and strong retention.

CORPORATE PLATFORMS

The following tables present revenues and key drivers from our Corporate Platforms segment:

			Three Months Ended March 31,												Percentage Change
			2022			2021
			(in millions)
Listing Services			$	107		$	89								20.2		%
IR & ESG Services			61			57									7.0		%
Total Corporate Platforms			$	168		$	146								15.1		%

			As of or Three Months Ended March 31,
			2022						2021
IPOs
The Nasdaq Stock Market			70						275
Exchanges that comprise Nasdaq Nordic and Nasdaq Baltic			13						24
Total new listings
The Nasdaq Stock Market			110						319
Exchanges that comprise Nasdaq Nordic and Nasdaq Baltic			19						32
Number of listed companies
The Nasdaq Stock Market			4,242						3,667
Exchanges that comprise Nasdaq Nordic and Nasdaq Baltic			1,244						1,090
ARR (in millions)			$	576					$	487
Quarterly annualized SaaS revenues (in millions)			$	148					$	140

In the table above:

• The Nasdaq Stock Market new listings include IPOs, including issuers that switched from other listing venues and separately listed ETPs. For the three months ended March 31, 2022 and 2021, IPOs included 43 and 196 SPACs, respectively.

• Exchanges that comprise Nasdaq Nordic and Nasdaq Baltic new listings include IPOs and represent companies listed on the Nasdaq Nordic and Nasdaq Baltic exchanges and companies on the alternative markets of Nasdaq First North.

• Number of total listed companies on The Nasdaq Stock Market for the three months ended March 31, 2022 and 2021 included 447 and 410 ETPs, respectively.

• Number of total listed companies on the exchanges that comprise Nasdaq Nordic and Nasdaq Baltic represents companies listed on these exchanges and companies on the alternative markets of Nasdaq First North.

Listing Services Revenues

Listing services revenues increased in 2022 compared with the same period in 2021 primarily due to an increase in the overall number of listed companies.

IR & ESG Services Revenues

IR & ESG Services revenues increased in 2022 compared with the same period in 2021 primarily due to increased sales and higher retention rates. Growth in revenues reflect higher adoption across the breadth of investor relations and newer ESG advisory and reporting offerings as well as an increase in the number of corporate issuer clients.

MARKET SERVICES

Equity Derivative Trading and Clearing Revenues

The following tables present total revenues, transaction-based expenses, and total revenues less transaction-based expenses as well as key drivers from our Equity Derivative Trading and Clearing business:

			Three Months Ended March 31,												Percentage Change
			2022			2021
			(in millions)
Equity Derivative Trading and Clearing Revenues			$	351		$	422								(16.8)		%
Transaction-based expenses:
Transaction rebates			(232)			(296)									(21.6)		%
Brokerage, clearance and exchange fees			(7)			(20)									(65.0)		%
Equity derivative trading and clearing revenues less transaction-based expenses			$	112		$	106								5.7		%

In the table above, brokerage, clearance and exchange fees includes Section 31 fees of $5 million and $17 million in the first quarter of 2022 and 2021, respectively. Section 31 fees are recorded as equity derivative trading and clearing revenues with a corresponding amount recorded in transaction-based expenses.

			Three Months Ended March 31,
			2022						2021
U.S. equity options
Total industry average daily volume (in millions)			40.0						40.1
Nasdaq PHLX matched market share			11.4		%				12.9		%
The Nasdaq Options Market matched market share			8.4		%				7.9		%
Nasdaq BX Options matched market share			2.1		%				0.7		%
Nasdaq ISE Options matched market share			5.9		%				7.7		%
Nasdaq GEMX Options matched market share			2.4		%				5.9		%
Nasdaq MRX Options matched market share			1.8		%				1.4		%
Total matched market share executed on Nasdaq’s exchanges			32.0		%				36.5		%
Nasdaq Nordic and Nasdaq Baltic options and futures
Total average daily volume of options and futures contracts			365,611						358,365

In the table above, Nasdaq Nordic and Nasdaq Baltic total average daily volume of options and futures contracts include Finnish option contracts traded on Eurex for which Nasdaq and Eurex have a revenue sharing arrangement.

Equity derivative trading and clearing revenues decreased in the first quarter of 2022 compared with the same period in 2021 primarily due to lower U.S. matched market share executed on Nasdaq's exchanges and a lower capture rate partially offset by higher volumes. Also contributing to the decrease was lower Section 31 pass-through fee revenue.

Equity derivative trading and clearing revenues less transaction-based expenses increased in the first quarter of 2022 compared with the same period in 2021 primarily due to higher U.S. net capture rate, partially offset by lower U.S. market share.

Section 31 fees are recorded as equity derivative trading and clearing revenues with a corresponding amount recorded as brokerage, clearance and exchange fees in the Condensed Consolidated Statements of Income. In the U.S., we are assessed these fees from the SEC and pass them through to our customers in the form of incremental fees. Pass-through fees can increase or decrease due to rate changes by the SEC, our percentage of the overall industry volumes processed on our systems, and differences in actual dollar value traded. Since the amount recorded in revenues is equal to the amount recorded as brokerage, clearance and exchange fees, there is no impact on our revenues less transaction-based expenses. Section 31 fees decreased in the first quarter of 2022 compared with same period in 2021 is primarily due to lower average SEC fee rates.

Transaction rebates, in which we credit a portion of the execution charge to the market participant, decreased in the first quarter of 2022 compared with the same period in 2021 primarily due to lower overall U.S. matched market share executed on Nasdaq's exchanges and a lower rebate capture rate.

Cash Equity Trading Revenues

The following tables present total revenues, transaction-based expenses, and total revenues less transaction-based expenses as well as key drivers and other metrics from our Cash Equity Trading business:

			Three Months Ended March 31,												Percentage Change
			2022			2021
			(in millions)
Cash Equity Trading Revenues			$	510		$	617								(17.3)		%
Transaction-based expenses:
Transaction rebates			(349)			(358)									(2.5)		%
Brokerage, clearance and exchange fees			(55)			(126)									(56.3)		%
Cash equity trading revenues less transaction-based expenses			$	106		$	133								(20.3)		%

In the preceding table, brokerage, clearance and exchange fees includes Section 31 fees of $48 million and $115 million in the first quarter of 2022 and 2021, respectively. Section 31 fees are recorded as cash equity trading revenues with a corresponding amount recorded in transaction-based expenses.

			Three Months Ended March 31,
			2022						2021
Total U.S.-listed securities
Total industry average daily share volume (in billions)			12.9						14.7
Matched share volume (in billions)			142.2						152.6
The Nasdaq Stock Market matched market share			16.4		%				15.7		%
Nasdaq BX matched market share			0.5		%				0.7		%
Nasdaq PSX matched market share			0.9		%				0.7		%
Total matched market share executed on Nasdaq’s exchanges			17.8		%				17.1		%
Market share reported to the FINRA/Nasdaq Trade Reporting Facility			33.4		%				35.2		%
Total market share			51.2		%				52.3		%
Nasdaq Nordic and Nasdaq Baltic securities
Average daily number of equity trades executed on Nasdaq’s exchanges			1,133,543						1,093,684
Total average daily value of shares traded (in billions)			$	7.1					$	7.0
Total market share executed on Nasdaq’s exchanges			73.0		%				78.5		%

In the table above, total market shares includes transactions executed on The Nasdaq Stock Market’s, Nasdaq BX’s and Nasdaq PSX’s systems plus trades reported through the FINRA/Nasdaq Trade Reporting Facility.

Cash equity trading revenues and cash equity trading revenues less transaction-based expenses decreased in the first quarter of 2022 compared with the same period in 2021 primarily due to lower industry trading volumes, lower U.S. and European capture rates and lower European market share, partially offset by higher U.S. matched market share executed on Nasdaq's exchanges. The decrease in cash equity trading revenues was also due to lower Section 31 pass-through fee revenue.

Similar to equity derivative trading and clearing, in the U.S. we record Section 31 fees as cash equity trading revenues with a corresponding amount recorded as brokerage, clearance and exchange fees in the Condensed Consolidated Statements of Income. We are assessed these fees from the SEC and pass them through to our customers in the form of incremental fees. Since the amount recorded as revenues is equal to the amount recorded as brokerage, clearance and exchange fees, there is no impact on our revenues less transaction-based expenses. Section 31 fees decreased in the first quarter of 2022 compared with the same period in 2021 primarily due to lower average SEC fee rates.

Transaction rebates decreased in the first quarter of 2022 compared with the same period in 2021. For The Nasdaq Stock Market and Nasdaq PSX, we credit a portion of the per share execution charge to the market participant that provides the liquidity, and for Nasdaq BX, we credit a portion of the per share execution charge to the market participant that takes the liquidity. The decrease was primarily due to a lower rebate capture rate and lower U.S. industry trading volumes, partially offset by higher overall U.S. matched market share executed on Nasdaq's exchanges.

FICC Revenues

The following table present revenues from our FICC business:

			Three Months Ended March 31,												Percentage Change
			2022			2021
			(in millions)
FICC Revenues			$	13		$	16								(18.8)		%

FICC revenues decreased in the first quarter of 2022 compared with the same period in 2021 primarily due to lower commodities products revenues.

Trade Management Services Revenues

The following tables present revenues and key drivers from our Trade Management Services business:

			Three Months Ended March 31,												Percentage Change
			2022			2021
			(in millions)
Trade Management Services Revenues			$	84		$	79								6.3		%

			Three Months Ended March 31,
			2022						2021
			(in millions)
ARR			$	333					$	315

Trade management services revenues increased in the first quarter of 2022 compared with the same period in 2021 primarily due to increased demand for connectivity and infrastructure services.

OTHER REVENUES

For the three months ended March 31, 2021, other revenues include the revenues associated with our U.S. Fixed Income business, which was sold in June 2021. Prior to the sale date, these revenues were included in our Market Services and Investment Intelligence segments. See “2021 Divestiture,” of Note 4, “Acquisition and Divestiture,” to the condensed consolidated financial statements for further discussion of this divestiture. Additionally, other revenues include revenues associated with the NPM business which we contributed in July 2021 to a standalone, independent company, of which we own the largest minority interest, together with a consortium of third party financial institutions. Prior to July 2021, these revenues were included in our Corporate Platforms segment. For the three months ended March 31, 2022 other revenues are related to a transitional services agreement associated with a divested business.

EXPENSES

Operating Expenses

The following tables present our operating expenses:

			Three Months Ended March 31,												Percentage Change
			2022			2021
			(in millions)
Compensation and benefits			$	254		$	239								6.3		%
Professional and contract services			35			27									29.6		%
Computer operations and data communications			50			44									13.6		%
Occupancy			27			28									(3.6)		%
General, administrative and other			21			13									61.5		%
Marketing and advertising			10			10									—		%
Depreciation and amortization			67			63									6.3		%
Regulatory			8			7									14.3		%
Merger and strategic initiatives			15			45									(66.7)		%
Restructuring charges			—			10									(100.0)		%
Total operating expenses			$	487		$	486								0.2		%

The increase in compensation and benefits expense in the first quarter of 2022 compared with the same period in 2021 was primarily driven by continued investment in new employees to drive growth, inflationary pressures and performance-linked compensation, partially offset by an unfavorable impact from foreign exchange rates.

Headcount increased to 5,987 employees as of March 31, 2022 from 5,585 as of March 31, 2021 primarily due to growth in various businesses.

Professional and contract services expense increased in the first quarter of 2022 compared with the same period in 2021 primarily due to an increase in legal fees and consulting costs.

Computer operations and data communications expense increased in the first quarter of 2022 compared with the same period in 2021 primarily due to higher hardware and software maintenance costs related to increased cloud storage costs as well as our acquisition of Verafin.

Occupancy expense remained relatively flat in the first quarter of 2022 compared with the same period in 2021.

General, administrative and other expense increased in the first quarter of 2022 compared with the same period in 2021 reflecting higher travel costs.

Depreciation and amortization expense increased in the first quarter of 2022 compared with the same period in 2021 primarily due to additional expense for acquired intangible assets related to our acquisition of Verafin.

Regulatory expense remained relatively flat in the first quarter of 2022 compared with the same period in 2021.

Merger and strategic initiatives expense decreased in the first quarter of 2022 compared with the same period in 2021 primarily due to lower acquisition costs associated with the Verafin transaction. We have pursued various strategic initiatives and completed acquisitions and divestitures in recent years, which have resulted in expenses which would not have otherwise been incurred. These expenses generally include integration costs, as well as legal, due diligence and other third party transaction costs and will vary based on the size and frequency of the activities described above.

See Note 19, “Restructuring Charges,” to the condensed consolidated financial statements for further discussion of our 2019 restructuring plan and charges associated with this plan.

Non-operating Income and Expenses

The following table presents our non-operating income and expenses:

			Three Months Ended March 31,												Percentage Change
			2022			2021
			(in millions)
Interest income			$	—		$	1								(100.0)		%
Interest expense			(32)			(29)									10.3		%
Net interest expense			(32)			(28)									14.3		%
Other (loss) income			(6)			1									(700.0)		%
Net income from unconsolidated investees			7			57									(87.7)		%
Total non-operating income (expenses)			$	(31)		$	30								(203.3)		%

The following table presents our interest expense:

			Three Months Ended March 31,												Percentage Change
			2022			2021
			(in millions)
Interest expense on debt			$	29		$	26								11.5		%
Accretion of debt issuance costs and debt discount			2			2									—		%
Other fees			1			1									—		%
Interest expense			$	32		$	29								10.3		%

Interest expense increased in the first quarter of 2022 compared with the same period in 2021 primarily due to new issuances of senior notes in December 2020 and commercial paper issuances in the first quarter of 2021 to fund our acquisition of Verafin. See “2021 Acquisition,” of Note 4, “Acquisition and Divestiture,” to the condensed consolidated financial statements for further discussion of the acquisition of Verafin. See Note 8, “Debt Obligations,” to the condensed consolidated financial statements for further discussion of our debt obligations.

Other (loss) income decreased in the first quarter of 2022 compared with the same period in 2021 primarily due to a loss on strategic investments related to our corporate venture program.

Net income from unconsolidated investees decreased in the first quarter of 2022 compared with the same period in 2021 primarily due to a decrease in income recognized from our equity method investment in OCC. See “Equity Method Investments,” of Note 6, “Investments,” to the condensed consolidated financial statements for further discussion.

Tax Matters

The following table presents our income tax provision and effective tax rate:

			Three Months Ended March 31,												Percentage Change
			2022			2021
			($ in millions)
Income tax provision			$	91		$	97								(6.2)		%
Effective tax rate			24.3		%	24.6		%

For further discussion of our tax matters, see Note 16, “Income Taxes,” to the condensed consolidated financial statements.

NON-GAAP FINANCIAL MEASURES

In addition to disclosing results determined in accordance with U.S. GAAP, we have also provided non-GAAP net income attributable to Nasdaq and non-GAAP diluted earnings per share. Management uses this non-GAAP information internally, along with U.S. GAAP information, in evaluating our performance and in making financial and operational decisions. We believe our presentation of these measures provides investors with greater transparency and supplemental data relating to our financial condition and results of operations. In addition, we believe the presentation of these measures is useful to investors for period-to-period comparisons of our ongoing operating performance.

These measures are not in accordance with, or an alternative to, U.S. GAAP, and may be different from non-GAAP measures used by other companies. In addition, other companies, including companies in our industry, may calculate such measures differently, which reduces their usefulness as comparative measures. Investors should not rely on any single financial measure when evaluating our business. This non-GAAP information should be considered as supplemental in nature and is not meant as a substitute for our operating results in accordance with U.S. GAAP. We recommend investors review the U.S. GAAP financial measures included in this Quarterly Report on Form 10-Q, including our condensed consolidated financial statements and the notes thereto. When viewed in conjunction with our U.S. GAAP results and the accompanying reconciliation, we believe these non-GAAP measures provide greater transparency and a more complete understanding of factors affecting our business than U.S. GAAP measures alone.

We understand that analysts and investors regularly rely on non-GAAP financial measures, such as non-GAAP net income attributable to Nasdaq and non-GAAP diluted earnings per share, to assess operating performance. We use non-GAAP net income attributable to Nasdaq and non-GAAP diluted earnings per share because they highlight trends more clearly in our business that may not otherwise be apparent when relying solely on U.S. GAAP financial measures, since these measures eliminate from our results specific financial items that have less bearing on our ongoing operating performance. Non-GAAP net income attributable to Nasdaq for the periods presented below is calculated by adjusting for the following items:

*•*Amortization expense of acquired intangible assets: We amortize intangible assets acquired in connection with various acquisitions. Intangible asset amortization expense can vary from period to period due to episodic acquisitions completed, rather than from our ongoing business operations. As such, if intangible asset amortization is included in performance measures, it is more difficult to assess the day-to-day operating performance of the businesses, the relative operating performance of the businesses between periods, and the earnings power of Nasdaq. Performance measures excluding intangible asset amortization expense therefore provide investors with a useful representation of our businesses’ ongoing activity in each period.

*•*Merger and strategic initiatives expense: We have pursued various strategic initiatives and completed acquisitions and divestitures in recent years that have resulted in expenses which would not have otherwise been incurred. These expenses generally include integration costs, as well as legal, due diligence and other third party transaction costs. The frequency and the amount of such expenses vary significantly based on the size, timing and complexity of the transaction. Accordingly, we exclude these costs for purposes of calculating non-GAAP measures, which provide a more meaningful analysis of Nasdaq’s ongoing operating performance or comparisons in Nasdaq’s performance between periods.

*•*Restructuring charges: We initiated the transition of certain technology platforms to advance our strategic opportunities as a technology and analytics provider and continue the realignment of certain business areas. See Note 19, “Restructuring Charges,” to the condensed consolidated financial statements for further discussion of our 2019 restructuring plan, which was completed in June 2021. Charges associated with this plan represented a fundamental shift in our strategy and technology as well as executive realignment and were excluded for purposes of calculating non-GAAP measures as they are not reflective of ongoing operating performance or comparisons in Nasdaq's performance between periods.

• Net income from unconsolidated investee: See “Equity Method Investments,” of Note 6, “Investments,” to the condensed consolidated financial statements for further discussion. Our income on our investment in OCC may vary significantly compared to prior periods due to the changes in OCC's capital management policy. Accordingly, we will exclude this income from current and prior periods for purposes of calculating non-GAAP measures which provide a more meaningful analysis of Nasdaq’s ongoing operating performance or comparisons in Nasdaq’s performance between periods.

*•*Other significant items: We have excluded certain other charges or gains, including certain tax items, that are the result of other non-comparable events to measure operating performance. We believe the exclusion of such amounts allows management and investors to better understand the ongoing financial results of Nasdaq.

*•*Significant tax items: The non-GAAP adjustment to the income tax provision for the three months ended March 31, 2022 and 2021 includes the tax impact of each non-GAAP adjustment.

The following table presents reconciliations between U.S. GAAP net income attributable to Nasdaq and diluted earnings per share and non-GAAP net income attributable to Nasdaq and diluted earnings per share:

			Three Months Ended March 31,
			2022			2021
			(in millions, except per share amounts)
U.S. GAAP net income attributable to Nasdaq			$	284		$	298
Non-GAAP adjustments:
Amortization expense of acquired intangible assets			40			36
Merger and strategic initiatives expense			15			45
Restructuring charges			—			10
Net income from unconsolidated investee			(6)			(57)
Other			9			2
Total non-GAAP adjustments			58			36
Total non-GAAP tax adjustments			(13)			(7)
Total non-GAAP adjustments, net of tax			45			29
Non-GAAP net income attributable to Nasdaq			$	329		$	327
U.S. GAAP effective tax rate			24.3		%	24.6		%
Total adjustments from non-GAAP tax rate			(0.2)		%	(0.5)		%
Non-GAAP effective tax rate			24.1		%	24.1		%
Weighted-average common shares outstanding for diluted earnings per share			167.2			167.1
U.S. GAAP diluted earnings per share			$	1.70		$	1.78
Total adjustments from non-GAAP net income			0.27			0.18
Non-GAAP diluted earnings per share			$	1.97		$	1.96

LIQUIDITY AND CAPITAL RESOURCES

Historically, we have funded our operating activities and met our commitments through cash generated by operations, augmented by the periodic issuance of our common stock and debt. Currently, our cost and availability of funding remain healthy.

As of March 31, 2022, our sources and uses of cash were not materially impacted by COVID-19 and we have not identified any liquidity deficiencies as a result of the ongoing impact of the COVID-19 pandemic.

We will continue to closely monitor and manage our liquidity and capital resources. In addition, we continue to prudently assess our capital deployment strategy through balancing acquisitions, internal investments, debt repayments, and shareholder return activity, including share repurchases and dividends.

In the near term, we expect that our operations and the availability under our revolving credit facility and commercial paper program will provide sufficient cash to fund our operating expenses, capital expenditures, debt repayments, any share repurchases, and any dividends.

The value of various assets and liabilities, including cash and cash equivalents, receivables, accounts payable and accrued expenses, the current portion of long-term debt, and commercial paper, can fluctuate from month to month. Working capital (calculated as current assets less current liabilities) was $(673) million as of March 31, 2022, compared with $(449) million as of December 31, 2021, a decrease of $224 million. The decrease was primarily due to an increase in deferred revenue, short-term debt and other current liabilities and a decrease in other current assets, partially offset by an increase in cash and cash equivalents, receivables, net and financial investments and a decrease in accrued personnel costs.

Principal factors that could affect the availability of our internally-generated funds include:

• deterioration of our revenues in any of our business segments;

• changes in regulatory and working capital requirements; and

• an increase in our expenses.

Principal factors that could affect our ability to obtain cash from external sources include:

• operating covenants contained in our credit facilities that limit our total borrowing capacity;

• credit rating downgrades, which could limit our access to additional debt;

• a significant decrease in the market price of our common stock;

• volatility or disruption in the public debt and equity markets; and

• the impact of the COVID-19 pandemic on our business.

The following table summarizes our financial assets:

						March 31, 2022						December 31, 2021
						(in millions)
Cash and cash equivalents						$	486					$	393
Financial investments						225						208
Total financial assets						$	711					$	601

Cash and Cash Equivalents

Cash and cash equivalents includes all non-restricted cash in banks and highly liquid investments with original maturities of 90 days or less at the time of purchase. The balance retained in cash and cash equivalents is a function of anticipated or possible short-term cash needs, prevailing interest rates, our investment policy, and alternative investment choices. As of March 31, 2022, our cash and cash equivalents of $486 million were primarily invested in bank deposits, commercial paper and money market funds. In the long-term, we may use both internally generated funds and external sources to satisfy our debt obligations and other long-term liabilities. Cash and cash equivalents as of March 31, 2022 increased $93 million from December 31, 2021.

Repatriation of Cash

Our cash and cash equivalents held outside of the U.S. in various foreign subsidiaries totaled $329 million as of March 31, 2022 and $266 million as of December 31, 2021. The remaining balance held in the U.S. totaled $157 million as of March 31, 2022 and $127 million as of December 31, 2021.

Unremitted earnings of certain subsidiaries outside of the U.S. are used to finance our international operations and are considered to be indefinitely reinvested.

Cash Flow Analysis

The following table summarizes the changes in cash flows:

			Three Months Ended March 31,						Percentage Change
			2022			2021
Net cash provided by (used in):			(in millions)
Operating activities			$	605		$	394		53.6		%
Investing activities			(390)			(2,700)			(85.6)		%
Financing activities			368			164			124.4		%
Effect of exchange rate changes on cash and cash equivalents and restricted cash and cash equivalents			(164)			(177)			(7.3)		%
Net increase (decrease) in cash and cash equivalents and restricted cash and cash equivalents			419			(2,319)			(118.1)		%
Cash and cash equivalents, restricted cash and cash equivalents at beginning of period			5,496			5,979			(8.1)		%
Cash and cash equivalents, restricted cash and cash equivalents at end of period			$	5,915		$	3,660		61.6		%
Reconciliation of Cash, Cash Equivalents and Restricted Cash and Cash Equivalents
Cash and cash equivalents			$	486		$	774		(37.2)		%
Restricted cash and cash equivalents			31			38			(18.4)		%
Restricted cash and cash equivalents (default funds and margin deposits)			5,398			2,848			89.5		%
Total			$	5,915		$	3,660		61.6		%

We have adjusted prior period presentation of opening and ending amounts of cash, cash equivalents, and restricted cash and cash equivalents in our condensed consolidated statements of cash flows to include restricted cash and cash equivalents related to the default funds and margin deposits. See Note 2, “Summary of Significant Accounting Policies,” to the condensed consolidated financial statements for further discussion of this adjustment.

Net Cash Provided by Operating Activities

Net cash provided by operating activities primarily consists of net income adjusted for certain non-cash items such as: depreciation and amortization expense of property and equipment; amortization expense of acquired finite-lived intangible assets; expense associated with share-based compensation; deferred income taxes; and net income from unconsolidated investees.

Net cash provided by operating activities is also impacted by the effects of changes in operating assets and liabilities such as: accounts receivable and deferred revenue which are impacted by the timing of customer billings and related collections from our customers; accounts payable and accrued expenses due to timing of payments; accrued personnel costs, which are impacted by employee performance targets and the timing of payments related to employee bonus incentives; and Section 31 fees payable to the SEC, which is impacted by the timing of collections from customers and payments to the SEC.

Net cash provided by operating activities increased $211 million for the three months ended March 31, 2022 compared with 2021. The increase was primarily driven by a decrease in Section 31 fees payable to SEC due to a decrease in the SEC fee rates in 2021 and higher annual customer billings. The remaining change was primarily due to other fluctuations in our working capital.

Net Cash Used in Investing Activities

Net cash used in investing activities for the three months ended March 31, 2022 primarily related to net purchases of investments related to default funds and margin deposits of $372 million, purchases of property and equipment of $35 million and net purchases of securities of $26 million, partially offset by proceeds of $43 million from other investing activities.

Net cash used in investing activities for the three months ended March 31, 2021 primarily related to $2,430 million of cash used for acquisitions, net of cash and cash equivalents acquired of $221 million which was utilized to satisfy an acquisition-related tax obligation on behalf of Verafin, net purchases of investments related to default funds and margin deposits of $195 million, $42 million of purchases of property and equipment and $32 million of net purchases of securities.

Net Cash Provided by Financing Activities

Net cash provided by financing activities for the three months ended March 31, 2022 primarily related to a net increase in default funds and margin deposits of $856 million, proceeds of $541 million from the issuances of long-term-debt, partially offset by $420 million repayment of borrowings under our commercial paper program, net, $325 million of repurchases of common stock pursuant to the ASR agreement, $142 million in other repurchases of common stock and $89 million of dividend payments to our shareholders.

Net cash provided by financing activities for the three months ended March 31, 2021 primarily related to $435 million of proceeds from issuances of commercial paper, net and an increase in default funds and margin deposits of $12 million, partially offset by $162 million in repurchases of common stock and $81 million of dividend payments to our shareholders.

See Note 4, “Acquisition and Divestiture,” to the condensed consolidated financial statements for further discussion of our acquisitions and divestiture.

See Note 8, “Debt Obligations,” to the condensed consolidated financial statements for further discussion of our debt obligations.

See “ASR Agreement,” “Share Repurchase Program,” and “Cash Dividends on Common Stock,” of Note 11, “Nasdaq Stockholders’ Equity,” to the condensed consolidated financial statements for further discussion of our ASR agreement, share repurchase program and cash dividends paid on our common stock.

Financial Investments

Our financial investments totaled $225 million as of March 31, 2022 and $208 million as of December 31, 2021. Of these securities, $155 million as of March 31, 2022 and $162 million as of December 31, 2021 are assets primarily utilized to meet regulatory capital requirements, mainly for our clearing operations at Nasdaq Clearing. See Note 6, “Investments,” to the condensed consolidated financial statements for further discussion.

Regulatory Capital Requirements

Clearing Operations Regulatory Capital Requirements

We are required to maintain minimum levels of regulatory capital for the clearing operations of Nasdaq Clearing. The level of regulatory capital required to be maintained is dependent upon many factors, including market conditions and creditworthiness of the counterparty. As of March 31, 2022, our required regulatory capital of $132 million was comprised of highly rated European government debt securities that are included in financial investments in the Condensed Consolidated Balance Sheets.

Broker-Dealer Net Capital Requirements

Our broker-dealer subsidiaries, Nasdaq Execution Services, NFSTX, LLC, and Nasdaq Capital Markets Advisory, are subject to regulatory requirements intended to ensure their general financial soundness and liquidity. These requirements obligate these subsidiaries to comply with minimum net capital requirements. As of March 31, 2022, the combined required minimum net capital totaled $1 million and the combined excess capital totaled $16 million, substantially all of which is held in cash and cash equivalents in the Condensed Consolidated Balance Sheets. The required minimum net capital is included in restricted cash and cash equivalents in the Condensed Consolidated Balance Sheets.

Nordic and Baltic Exchange Regulatory Capital Requirements

The entities that operate trading venues in the Nordic and Baltic countries are each subject to local regulations and are required to maintain regulatory capital intended to ensure their general financial soundness and liquidity. As of March 31, 2022, our required regulatory capital of $35 million was primarily invested in European government debt securities, European mortgage bonds and Icelandic government bonds that are included in financial investments in the Condensed Consolidated Balance Sheets and cash, which is included in restricted cash and cash equivalents in the Condensed Consolidated Balance Sheets.

Other Capital Requirements

We operate several other businesses, which are subject to local regulation and are required to maintain certain levels of regulatory capital. As of March 31, 2022, other required regulatory capital of $10 million was primarily related to Nasdaq Central Securities Depository and is included in restricted cash in the Condensed Consolidated Balance Sheets.

Equity and dividends

Share Repurchase Program

See “Share Repurchase Program,” of Note 11, “Nasdaq Stockholders’ Equity,” to the condensed consolidated financial statements for further discussion of our share repurchase program.

ASR Agreement

See “ASR Agreement,” of Note 11, “Nasdaq Stockholders’ Equity,” to the condensed consolidated financial statements for further discussion of our ASR agreement.

Cash Dividends on Common Stock

The following table presents our quarterly cash dividends paid per common share on our outstanding common stock:

			2022						2021
First quarter			$	0.54					$	0.49

See “Cash Dividends on Common Stock,” of Note 11, “Nasdaq Stockholders’ Equity,” to the condensed consolidated financial statements for further discussion of the dividends.

Debt Obligations

The following table summarizes our debt obligations by contractual maturity:

						Maturity Date						March 31, 2022						December 31, 2021
												(in millions)
Short-term debt - commercial paper												$	—					$	420
2022 Notes						December 2022						599						598
2024 Notes						June 2024						499						499
Total short-term debt												$	1,098					$	1,517
Long-term debt - senior unsecured notes:
2020 Credit Facility						December 2025						(3)						(4)
2026 Notes						June 2026						498						498
2029 Notes						March 2029						658						676
2030 Notes						February 2030						658						676
2031 Notes						January 2031						643						643
2033 Notes						July 2033						675						694
2040 Notes						December 2040						644						644
2050 Notes						April 2050						486						486
2052 Notes						March 2052						541						—
Total long-term debt												$	4,800					$	4,313
Total debt obligations												$	5,898					$	5,830

In the table above, the 2024 Notes were reclassified to short-term debt as of March 31, 2022, and were repaid in April 2022.

In addition to the $1.25 billion revolving credit facility, we also have other credit facilities primarily to support our Nasdaq Clearing operations in Europe, as well as to provide a cash pool credit line for one subsidiary. These credit facilities, which are available in multiple currencies, totaled $204 million as of March 31, 2022 and $212 million as of December 31, 2021 in available liquidity, none of which was utilized.

As of March 31, 2022, we were in compliance with the covenants of all of our debt obligations.

See Note 8, “Debt Obligations,” to the condensed consolidated financial statements for further discussion of our debt obligations.

Contractual Obligations and Contingent Commitments

There were no significant changes to our contractual obligations and contingent commitments from those disclosed in “Part I. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report Form 10-K that was filed with the SEC February 23, 2022.

Off-Balance Sheet Arrangements

For discussion of off-balance sheet arrangements see:

• Note 14, “Clearing Operations,” to the condensed consolidated financial statements for further discussion of our non-cash default fund contributions and margin deposits received for clearing operations; and

• Note 17, “Commitments, Contingencies and Guarantees,” to the condensed consolidated financial statements for further discussion of:

◦Guarantees issued and credit facilities available;

◦Other guarantees;

◦Routing brokerage activities;

◦Legal and regulatory matters; and

◦Tax audits.