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

82K characters. Original on sec.gov · Markdown

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.

In September 2022, we announced a new organizational structure, which aligns our businesses more closely with the foundational shifts that are driving the evolution of the global financial system. The new corporate structure includes three business segments: Market Platforms, Capital Access Platforms and Anti-Financial Crime. See Note 18, “Business Segments,” to the condensed consolidated financial statements for further discussion of our reportable segments as well as how management allocates resources, assesses performance and manages these businesses as three separate segments. All prior periods have been restated to conform to the current period presentation.

First Quarter 2023 and Recent Developments

Dividends on Common Stock

For the three months ended March 31, 2023, we returned $98 million to shareholders through dividend payments.
In April 2023, the board of directors approved a regular quarterly cash dividend of $0.22 per share on our outstanding common stock, which reflects an increase of 10% from our most recent quarterly cash dividend of $0.20 per share.

Share Repurchase Program

In the first quarter of 2023, we repurchased 2,610,000 shares of our common stock for an aggregate of $159 million.
As of March 31, 2023, the remaining amount authorized for share repurchases under our share repurchase program was $491 million.

Corporate Highlights

The Nasdaq Stock Market led U.S. exchanges for IPOs during the first quarter of 2023. The Nasdaq Stock Market IPO win rate was 91% in the first quarter of 2023, including 40 IPOs (30 operating companies and 10 SPACs).
In the three months ended March 31, 2023, Nasdaq led all exchanges during the period in total volume traded for multiply-listed equity options.

Nasdaq's Operating Results

The following tables summarize our financial performance for the three months ended March 31, 2023 compared to the same period in 2022. For a detailed discussion of our results of operations, see “Segment Operating Results” below.


	Three Months Ended March 31,				Percentage Change
	2023		2022
	(in millions, except per share amounts)
Revenues less transaction-based expenses	$	914	$	892	2.5	%
Operating expenses	502		487		3.1	%
Operating income	412		405		1.7	%
Net income attributable to Nasdaq	$	302	$	284	6.3	%
Diluted earnings per share	$	0.61	$	0.57	7.0	%
Cash dividends declared per common share	$	0.20	$	0.18	11.1	%

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.”

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. Also excluded are contracts that are signed but not yet commenced. 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:


▪						Anti-Financial Crime support and SaaS subscription contracts.
▪						Proprietary market data subscriptions and annual listing fees within our Data & Listing Services business, index data subscriptions and guaranteed minimum on futures contracts within our Index business and subscription contracts under our Workflow & Insights business.
▪						Market technology support and SaaS subscription contracts as well as trade management services contracts, excluding one-time service requests.

The following chart summarizes our quarterly annualized SaaS revenues for our Solutions Businesses, which are comprised of the Capital Access Platforms and Anti-Financial Crime segments and the Marketplace Technology business within the Market Platforms segment, for the three months ended March 31, 2023 and 2022 (in millions):

1287

Segment Operating Results

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


	Three Months Ended March 31,				Percentage Change
	2023		2022
	(in millions)
Market Platforms	$	1,032	$	1,039	(0.7)	%
Capital Access Platforms	416		419		(0.7)	%
Anti-Financial Crime	84		72		16.7	%
Other revenues	1		5		(80.0)	%
Total revenues	$	1,533	$	1,535	(0.1)	%
Transaction rebates	(487)		(581)		(16.2)	%
Brokerage, clearance and exchange fees	(132)		(62)		112.9	%
Total revenues less transaction-based expenses	$	914	$	892	2.5	%

The following charts present our Market Platforms, Capital Access Platforms and Anti-Financial Crime segments as a percentage of our total revenues, less transaction-based expenses.

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

457

470

MARKET PLATFORMS

The following tables present revenues from our Market Platforms segment:


	Three Months Ended March 31,				Percentage Change
	2023		2022
	(in millions)
Trading Services	$	886	$	907	(2.3)	%
Marketplace Technology	146		132		10.6	%
Total Market Platforms	$	1,032	$	1,039	(0.7)	%
Transaction-based expenses:
Transaction rebates	(487)		(581)		(16.2)	%
Brokerage, clearance and exchange fees	(132)		(62)		112.9	%
Total Market Platforms, net	$	413	$	396	4.3	%

Trading Services

Our Trading Services business includes equity derivatives trading, cash equity trading, Nordic fixed income trading & clearing, U.S. Tape plans and other revenues. The following tables present net revenues by product from our Trading Services business:


	Three Months Ended March 31,				Percentage Change
	2023		2022
	(in millions)
U.S. Equity Derivative Trading	$	102	$	94	8.5	%
Cash Equity Trading	103		102		1.0	%
U.S. Tape plans	36		41		(12.2)	%
Other	26		27		(3.7)	%
Trading Services, net	$	267	$	264	1.1	%

In the table above, Other includes Nordic fixed income trading & clearing, Nordic derivatives, Nordic commodities, and Canadian cash equities trading.

U.S. Equity Derivative Trading

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


	Three Months Ended March 31,				Percentage Change
	2023		2022
	(in millions)
U.S. Equity Derivative Trading Revenues	$	327	$	327	—	%
Section 31 fees	23		6		283.3	%
Transaction-based expenses:
Transaction rebates	(224)		(232)		(3.4)	%
Section 31 fees	(23)		(6)		283.3	%
Brokerage and clearance fees	(1)		(1)		—	%
U.S. Equity derivative trading revenues, net	$	102	$	94	8.5	%

Section 31 fees are recorded as U.S. equity derivative and cash equity trading revenues with a corresponding amount recorded in transaction-based expenses. 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. Section 31 fees increased in the first quarter of 2023 compared with the same period in 2022 primarily due to higher average SEC fee rates. Since the amount recorded in revenues is equal to the amount recorded as Section 31 fees, there is no impact on our net revenues.


	Three Months Ended March 31,
	2023		2022
U.S. equity options
Total industry average daily volume (in millions)	42.4		40.0
Nasdaq PHLX matched market share	11.1	%	11.4	%
The Nasdaq Options Market matched market share	7.1	%	8.4	%
Nasdaq BX Options matched market share	3.3	%	2.1	%
Nasdaq ISE Options matched market share	5.8	%	5.9	%
Nasdaq GEMX Options matched market share	2.0	%	2.4	%
Nasdaq MRX Options matched market share	1.5	%	1.8	%
Total matched market share executed on Nasdaq’s exchanges	30.8	%	32.0	%

U.S. equity derivative trading revenues remained flat in the first quarter of 2023 compared with 2022 as higher industry trading volumes were offset by lower overall matched market share executed on Nasdaq's exchanges and lower gross capture rates.

U.S. equity derivative trading revenues less transaction-based expenses increased in the first quarter of 2023 compared with 2022 primarily due to higher industry trading volumes and higher capture rates, partially offset by lower overall matched market share executed on Nasdaq's exchanges.

Transaction rebates, in which we credit a portion of the execution charge to the market participant, decreased in the first quarter of 2023 compared with 2022 primarily due to lower rebate capture rate and lower overall U.S. matched market share executed on Nasdaq's exchanges, partially offset by higher industry trading volumes.

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
	2023		2022
	(in millions)
Cash Equity Trading Revenues	$	366	$	449	(18.5)	%
Section 31 fees	102		48		112.5	%
Transaction-based expenses:
Transaction rebates	(257)		(340)		(24.4)	%
Section 31 fees	(102)		(48)		112.5	%
Brokerage, clearance and exchange fees	(6)		(7)		(14.3)	%
Cash equity trading revenues less transaction-based expenses	$	103	$	102	1.0	%

See discussion in "U.S. Equity Derivative Trading" for an explanation of Section 31 fees and the period over period analysis.


	Three Months Ended March 31,
	2023			2022
Total U.S.-listed securities
Total industry average daily share volume (in billions)	11.8			12.9
Matched share volume (in billions)	121.8			142.2
The Nasdaq Stock Market matched market share	15.8		%	16.4		%
Nasdaq BX matched market share	0.4		%	0.5		%
Nasdaq PSX matched market share	0.5		%	0.9		%
Total matched market share executed on Nasdaq’s exchanges	16.7		%	17.8		%
Market share reported to the FINRA/Nasdaq Trade Reporting Facility	31.6		%	33.4		%
Total market share	48.3		%	51.2		%
Nasdaq Nordic and Nasdaq Baltic securities
Average daily number of equity trades executed on Nasdaq’s exchanges	787,715			1,133,543
Total average daily value of shares traded (in billions)	$	5.3		$	7.1
Total market share executed on Nasdaq’s exchanges	68.9		%	73.0		%

In the tables above, total market share 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 decreased in the first quarter of 2023 compared with 2022 primarily due to lower U.S. industry trading volumes, lower overall U.S. matched market share executed on Nasdaq's exchanges, as well as lower capture rates.

Cash equity trading revenues less transaction-based expenses increased in the first quarter of 2023 compared with 2022 primarily due to higher U.S. capture rate, partially offset by lower industry trading volumes and lower overall U.S. matched market share executed on Nasdaq's exchanges.

Transaction rebates decreased in the first quarter of 2023 compared with 2022. 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 lower U.S. industry volumes and lower U.S. matched market share executed on Nasdaq's exchanges, partially offset by lower rebate capture rate.

U.S. Tape Plans

The following table presents revenues from our U.S. Tape plans business:


	Three Months Ended March 31,				Percentage Change
	2023		2022
	(in millions)
U.S. Tape plans	$	36	$	41	(12.2)	%

U.S. Tape plans revenues decreased in the first quarter of 2023 compared with 2022 primarily due to lower collections from under-reported usage.

Other

Other includes Nordic fixed income trading and clearing, Nordic derivatives, Nordic commodities and Canadian cash equities trading. The following table presents revenue and a key driver from our Other business:


	Three Months Ended March 31,				Percentage Change
	2023		2022
	(in millions)
Other	$	26	$	27	(3.7)	%

In the table above, Other includes transaction rebates of $6 million and $9 million in 2023 and 2022, respectively.


	Three Months Ended March 31,
	2023	2022
Nasdaq Nordic and Nasdaq Baltic options and futures
Total average daily volume of options and futures contracts	344,141	365,611

In the tables 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.

Other revenues remained relatively flat in the first quarter of 2023 compared with 2022.

Marketplace Technology

Marketplace Technology includes our trade management services and market technology businesses.

The following tables present revenues and key drivers from our Marketplace Technology business:


	Three Months Ended March 31,				Percentage Change
	2023		2022
	(in millions)


Marketplace Technology	$	146	$	132	10.6	%


	As of or Three Months Ended March 31,
	2023		2022
	(in millions)
ARR	$	510	$	473
Quarterly annualized SaaS revenues	37		35
Order intake	32		38

In the table above, order intake is for our market technology business and represents the total contract value of orders signed during the period.

Marketplace technology revenues increased in the first quarter of 2023 compared with 2022 primarily due to higher trade management services revenues associated with increased demand for connectivity services as well as higher market technology revenues due to increased professional services fees.

CAPITAL ACCESS PLATFORMS

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


	Three Months Ended March 31,				Percentage Change
	2023		2022
	(in millions)
Data & Listing Services	$	186	$	182	2.2	%
Index	110		122		(9.8)	%
Workflow & Insights	120		115		4.3	%
Total Capital Access Platforms	$	416	$	419	(0.7)	%


	As of or Three Months Ended March 31,
	2023		2022
	(in millions)
ARR	$	1,204	$	1,146
Quarterly annualized SaaS revenues	386		357

Data & Listing Services Revenues

The following table presents key drivers from our Data & Listing Services business:


	Three Months Ended March 31,
	2023	2022
IPOs
The Nasdaq Stock Market	40	70
Exchanges that comprise Nasdaq Nordic and Nasdaq Baltic	2	13
Total new listings
The Nasdaq Stock Market	81	110
Exchanges that comprise Nasdaq Nordic and Nasdaq Baltic	7	19
Number of listed companies
The Nasdaq Stock Market	4,163	4,242
Exchanges that comprise Nasdaq Nordic and Nasdaq Baltic	1,250	1,244

In the tables 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, 2023 and 2022, IPOs included 10 and 43 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, 2023 and 2022 included 539 and 447 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.

Data & Listing Services revenues increased in the first quarter of 2023 compared with 2022. The increase was primarily due to an increase in proprietary data revenues driven largely by higher international demand, partially offset by lower initial listings fees revenues and the unfavorable impact of changes in foreign exchange rates.

Index Revenues

The following tables present key drivers from our Index business:


	As of or Three Months Ended March 31,
	2023		2022
Number of licensed ETPs	387		368
TTM change in period end ETP AUM tracking Nasdaq indexes (in billions)
Beginning balance	$	401	$	385
Net (depreciation) appreciation	(57)		33
Net impact of ETP sponsor switches	(1)		(92)
Net inflows	23		75
Ending balance	$	366	$	401
Quarterly average ETP AUM tracking Nasdaq indexes (in billions)	$	341	$	383

In the table above, TTM represents trailing twelve months.

Index revenues decreased in the first quarter of 2023 compared with 2022. The decrease was primarily due to lower asset-based licensing revenues linked to the Nasdaq-100 Index.

Workflow & Insights Revenues

Workflow & Insights revenues increased in the first quarter of 2023 compared with 2022. The increase was due to an increase in both analytics and corporate solutions revenues. The increase in analytics revenues was primarily due to the growth in our and eVestment and Solovis product offerings. The increase in our corporate solutions revenues was primarily due to increased adoption of our ESG services.

ANTI-FINANCIAL CRIME

The following tables present revenues and key drivers from our Anti-Financial Crime segment:


	Three Months Ended March 31,				Percentage Change
	2023		2022
	(in millions)
Anti-Financial Crime	$	84	$	72	16.7	%


	As of or Three Months Ended March 31,
	2023		2022
	(in millions)
ARR	$	321	$	280
Total signed ARR	354		294
Quarterly annualized SaaS revenues	306		263

In the table above, total signed ARR reflects ARR recognized as revenue in the current period as well as ARR for new contracts signed but not yet commenced.

Anti-Financial Crime revenues increased in the first quarter of 2023 compared with 2022 primarily due to an increase in demand for fraud detection and anti-money laundering solutions.

OTHER REVENUES

For the three months ended March 31, 2022, Other revenues include revenues related to our Nordic broker services business, for which we completed the wind-down in June 2022. Prior to the closing of the transaction, these revenues were included in our Market Platforms. For the three months ended March 31, 2023 and 2022, Other revenues also include a transitional services agreement associated with a divested business.

EXPENSES

Operating Expenses

The following table presents our operating expenses:


	Three Months Ended March 31,				Percentage Change
	2023		2022
	(in millions)
Compensation and benefits	$	256	$	254	0.8	%
Professional and contract services	32		35		(8.6)	%
Computer operations and data communications	54		50		8.0	%
Occupancy	39		27		44.4	%
General, administrative and other	14		21		(33.3)	%
Marketing and advertising	9		10		(10.0)	%
Depreciation and amortization	69		67		3.0	%
Regulatory	9		8		12.5	%
Merger and strategic initiatives	2		15		(86.7)	%
Restructuring charges	18		—		N/M
Total operating expenses	$	502	$	487	3.1	%

N/M Not meaningful.

The increase in compensation and benefits expense in the first quarter of 2023 compared with 2022 was primarily driven by continued investment in employees to drive growth, partially offset by a favorable impact from foreign exchange rates of $9 million.

Headcount, including employees of non-wholly owned consolidated subsidiaries, increased to 6,486 employees as of March 31, 2023 from 5,987 as of March 31, 2022, reflecting growth across each of our three segments.

Professional and contract services expense decreased in the first quarter of 2023 compared with 2022 primarily due to reduced legal fees, partially offset by an increase in consulting costs.

Computer operations and data communications expense increased in the first quarter of 2023 compared with 2022 primarily due to higher costs related to our cloud initiatives.

Occupancy expense increased in the first quarter of 2023 compared with 2022 primarily due to asset impairment charges related to our lease assets. During the quarter ended March 31, 2023, we initiated a review of our real estate and facility capacity requirements due to our new and evolving work models. As a result, we recorded $12 million in impairment charges and exit related costs following the abandonment of leased office space.

General, administrative and other expense decreased in the first quarter of 2023 compared with 2022 primarily due to an insurance recovery related to a legal matter.

Marketing and advertising expense decreased in the first quarter of 2023 compared with 2022, reflecting lower IPO activity.

Depreciation and amortization expense increased in the first quarter of 2023 compared with 2022 as a result of our impairment of leasehold improvements related to vacated leased office space, partially offset by a favorable impact from foreign exchange rates. See Note 15, “Leases,” to the condensed consolidated financial statements for further discussion of our asset impairment charges related to vacated leased office space.

Regulatory expense remained relatively flat in the first quarter of 2023 compared with 2022.

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 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 2022 divisional alignment program and charges associated with this plan. We expect to achieve benefits, in the form of combined annual run rate operating efficiencies and revenue synergies of approximately $30 million annually by 2025.

Non-operating Income and Expenses

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


	Three Months Ended March 31,				Percentage Change
	2023		2022
	(in millions)
Interest income	$	6	$	—	N/M
Interest expense	(36)		(32)		12.5	%
Net interest expense	(30)		(32)		(6.3)	%


Other expense	—		(6)		(100.0)	%
Net income from unconsolidated investees	14		7		100.0	%
Total non-operating expense	$	(16)	$	(31)	(48.4)	%

N/M Not meaningful.

The following table presents our interest expense:


	Three Months Ended March 31,				Percentage Change
	2023		2022
	(in millions)
Interest expense on debt	$	35	$	29	20.7	%
Accretion of debt issuance costs and debt discount	1		2		(50.0)	%
Other fees	—		1		(100.0)	%
Interest expense	$	36	$	32	12.5	%

Interest income increased in the first quarter of 2023 compared with 2022 primarily due to an increase in interest rates.

Interest expense increased in the first quarter of 2023 compared with 2022 primarily due to an increase in interest rates related to borrowings under our commercial paper program.

Other expense primarily represents realized and unrealized gains and losses from strategic investments related to our corporate venture program.

Net income from unconsolidated investees increased in the first quarter of 2023 compared with 2022 primarily due to an increase 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
	2023			2022
	($ in millions)
Income tax provision	$	95		$	91		4.4	%
Effective tax rate	24.0		%	24.3		%

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 also provide 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. We believe that excluding the following items from the non-GAAP net income attributable to Nasdaq provides a more meaningful analysis of Nasdaq’s ongoing operating performance and comparisons in Nasdaq’s performance between periods:

*•*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 and the relative operating performance of the businesses between periods.

*•*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. The frequency and the amount of such expenses vary significantly based on the size, timing and complexity of the transaction. These expenses primarily include integration costs, as well as legal, due diligence and other third-party transaction costs.

*•*Restructuring charges: In 2022, following our September announcement to realign our segments and leadership, we initiated a divisional alignment program with a focus on realizing the full potential of this structure. See Note 19, “Restructuring Charges,” to the condensed consolidated financial statements for further discussion of our 2022 divisional alignment program.

Net income from unconsolidated investees: We exclude our share of the earnings and losses of our equity method investments, primarily our equity interest in the Options Clearing Corporation, or OCC. This provides a more meaningful analysis of Nasdaq’s ongoing operating performance or comparisons in Nasdaq’s performance between periods. See “Equity Method Investments,” of Note 6, “Investments,” to the condensed consolidated financial statements for further discussion.
Other 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. Other significant items include:

◦for the three months ended March 31, 2023, other items includes an impairment charge related to our operating lease assets and leasehold improvements associated with vacating certain leased office space, which are recorded in occupancy and depreciation and amortization expense in our Condensed Consolidated Statements of Income; and

◦for the three months ended March 31, 2023, other items also includes insurance recoveries related to certain legal matters, which are recorded in professional and contract services and general, administrative and other expense in the Condensed Consolidated Statements of Income.

*•*Significant tax items: The non-GAAP adjustment to the income tax provision for the three months ended March 31, 2023 and 2022 primarily includes the tax impact of each non-GAAP adjustment.

The following tables present 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,
	2023			2022
	(in millions, except per share amounts)
U.S. GAAP net income attributable to Nasdaq	$	302		$	284
Non-GAAP adjustments:
Amortization expense of acquired intangible assets	38			40
Merger and strategic initiatives expense	2			15
Restructuring charges	18			—
Lease asset impairments	17			—
Net income from unconsolidated investees	(14)			(6)





Other	(9)			9
Total non-GAAP adjustments	52			58


Total non-GAAP tax adjustments	(15)			(13)
Total non-GAAP adjustments, net of tax	37			45
Non-GAAP net income attributable to Nasdaq	$	339		$	329

U.S. GAAP effective tax rate	24.0		%	24.3		%
Total adjustments from non-GAAP tax rate	0.6		%	(0.2)		%
Non-GAAP effective tax rate	24.6		%	24.1		%

Weighted-average common shares outstanding for diluted earnings per share	494.8			501.7

U.S. GAAP diluted earnings per share	$	0.61		$	0.57
Total adjustments from non-GAAP net income	0.08			0.09
Non-GAAP diluted earnings per share	$	0.69		$	0.66

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 debt. Currently, our cost and availability of funding remain healthy. 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 $(164) million as of March 31, 2023, compared with $(231) million as of December 31, 2022, an increase of $67 million. The increase was primarily driven by decreases in short-term debt, Section 31 fees payable to the SEC and accrued personnel costs and an increase in restricted cash and cash equivalents, partially offset by increases in deferred revenue and other current liabilities and a decrease in cash and cash equivalents.

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

The following table summarizes our financial assets:


	March 31, 2023		December 31, 2022
	(in millions)
Cash and cash equivalents	$	373	$	502

Financial investments	197		181
Total financial assets	$	570	$	683

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, 2023, our cash and cash equivalents of $373 million were primarily invested in commercial paper, money market funds, treasury bills and bank deposits. 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, 2023 decreased $129 million from December 31, 2022.

Repatriation of Cash

Our cash and cash equivalents held outside of the U.S. in various foreign subsidiaries totaled $299 million as of March 31, 2023 and $275 million as of December 31, 2022. The remaining balance held in the U.S. totaled $74 million as of March 31, 2023 and $227 million as of December 31, 2022.

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,
	2023		2022
Net cash provided by (used in):	(in millions)
Operating activities	$	565	$	605
Investing activities	(133)		(390)
Financing activities	(613)		368
Effect of exchange rate changes on cash and cash equivalents and restricted cash and cash equivalents	29		(164)
Net increase (decrease) in cash and cash equivalents and restricted cash and cash equivalents	(152)		419
Cash and cash equivalents, restricted cash and cash equivalents at beginning of period	6,994		5,496
Cash and cash equivalents, restricted cash and cash equivalents at end of period	$	6,842	$	5,915
Reconciliation of Cash, Cash Equivalents and Restricted Cash and Cash Equivalents
Cash and cash equivalents	$	373	$	486
Restricted cash and cash equivalents	57		31
Restricted cash and cash equivalents (default funds and margin deposits)	6,412		5,398
Total	$	6,842	$	5,915

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; net income from unconsolidated investees; and non-cash restructuring charges.

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 changes in SEC fee rates and the timing of collections from customers and payments to the SEC.

Net cash provided by operating activities decreased $40 million for the three months ended March 31, 2023 compared with the same period in 2022. The decrease was primarily driven by Section 31 fees payable to the SEC due to higher average SEC fee rates and timing of payment as well as increase in receivables due to 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, 2023 primarily related to net purchases of investments related to default funds and margin deposits of $89 million, purchases of property and equipment of $40 million and net purchases of trading securities of $14 million, partially offset by proceeds of $10 million from other 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 Provided by (Used in) Financing Activities

Net cash used in financing activities for the three months ended March 31, 2023 primarily related to $317 million from repayments of our commercial paper, net, $159 million in repurchases of common stock, $98 million of dividend payments to our shareholders and $40 million of payments related to employee shares withheld for taxes.

Net cash provided by financing activities for the three months ended March 31, 2022 primarily related to an 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 repayments 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, $89 million of dividend payments to our shareholders and $52 million of payments related to employee shares withheld for taxes.

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

See “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 share repurchase program and cash dividends paid on our common stock.

Financial Investments

Our financial investments totaled $197 million as of March 31, 2023 and $181 million as of December 31, 2022. Of these securities, $126 million as of March 31, 2023 and $161 million as of December 31, 2022 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, 2023, our required regulatory capital of $124 million was comprised of highly rated European government debt securities 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.

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, 2023, the combined required minimum net capital totaled $1 million and the combined excess capital totaled $21 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, 2023, our required regulatory capital of $34 million was primarily invested in 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, 2023, other required regulatory capital of $10 million, primarily related to Nasdaq Central Securities Depository, was primarily invested in European government debt securities 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.

Equity and dividends

Stock Split Effected in the Form of a Stock Dividend

On August 26, 2022, we effected a 3-for-1 stock split of the Company's common stock in the form of a stock dividend to shareholders of record as of August 12, 2022. The par value per share of our common stock remains $0.01 per share. All references made with respect to a number of shares or per share amounts throughout this Quarterly Report on Form 10-Q have been retroactively adjusted to reflect the stock split.

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.

Cash Dividends on Common Stock

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


	2023		2022
First quarter	$	0.20	$	0.18

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, 2023		December 31, 2022
		(in millions)
Short-term debt:
Commercial paper		$	347	$	664



Long-term debt - senior unsecured notes:
2026 Notes	June 2026	498		498
2029 Notes	March 2029	646		637
2030 Notes	February 2030	645		637
2031 Notes	January 2031	644		644
2033 Notes	July 2033	662		653
2040 Notes	December 2040	644		644
2050 Notes	April 2050	487		486
2052 Notes	March 2052	541		541
2022 Credit Facility	December 2027	(5)		(5)
Total long-term debt		$	4,762	$	4,735
Total debt obligations		$	5,109	$	5,399

In December 2022, Nasdaq amended and restated the 2020 Credit Facility with a new maturity date of December 16, 2027. In addition to the 2022 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 $185 million as of March 31, 2023 and $184 million as of December 31, 2022 in available liquidity, none of which was utilized.

As of March 31, 2023, 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, 2023.

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.

Previous: Item 1. Financial Statements · Next: Item 3. Quantitative and Qualitative Disclosures About Market Risk