Nasdaq Beats, Continues to Restructure Debt

| About: Nasdaq Inc. (NDAQ)
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Nasdaq OMX Group Inc.’s (NASDAQ:NDAQ) fourth quarter operating earnings per share of 46 cents surpassed the Zacks Consensus Estimate of 44 cents and prior quarter earnings of 42 cents. However, operating earnings declined substantially from 52 cents reported in the prior-year quarter. Total operating earnings, on non-GAAP basis, were $99 million, up from $89 million in the prior quarter but down from $110 million reported in the year-ago quarter.

Nasdaq’s GAAP net income was $43 million or 20 cents per share, up from $35 million or 17 cents in the year-ago quarter but down from $60 million or 28 cents in the prior quarter. This included $51 million in impairment charges related to unconsolidated investors (net of tax), $16 million in pre-tax expenses associated with occupancy sub-lease reserves workforce reductions, $12 million in pre-tax gains on the sale of certain businesses and $5 million (2 cents per share) in a Swedish tax benefit.

Total net exchange revenues declined 8% to $369 million from $403 million in the year-ago period on declining revenues from transaction services, market data, broker services and cash equity trading. Moreover, declining volumes and lower average net fee per share on Nasdaq’s trading system weakened the results. Market Services net exchange revenues for the quarter declined 14% from the year-ago period to $240 million, but increased 4% from the previous quarter.

Issuer Services revenues for the fourth quarter were $82 million, down 4% from the year-ago period on weak global listing services revenue. Market technology revenues increased 26% from the year-ago period to $44 million, primarily due to the increased deliveries of market technology contracts and changes in the exchange rates of various currencies compared to the US dollar.

On GAAP basis, total operating expenses declined to $220 million from $223 million in the previous-year quarter. On non-GAAP basis, operating expenses declined 4% from the prior-year period on a reduction in compensation expense and lower core operating expense. The reductions were driven by successful integration efforts associated with Nasdaq's business combination with OMX and acquisition of the Philadelphia Stock Exchange.

For full year 2009, net income attributable to Nasdaq OMX shareholders declined to $266 million or $1.25 per share from $314 million or $1.55 in 2008. This included a benefit of $19 million or 9 cents per share related to the Swedish tax benefit for 2009. Total net exchange revenues were $1.45 billion, down from $1.46 billion in 2008.

Debt Restructure Update

Moving ahead with its debt restructuring strategies, in Jan 2010, Nasdaq completed its $1 billion underwritten public offering of senior notes and borrowing from the $950 million senior unsecured credit facility. The new credit facility includes a $700 million funded term loan and a $250 million unfunded revolver.

The company used the net proceeds from the notes offering along with the borrowings from the new senior unsecured credit facilities and cash on hand to repay all outstanding debt taken under its existing senior secured credit facilities and cease the associated credit agreement.

Nasdaq is expected to benefit from the current debt restructuring as trimming its old debts will help generate financial flexibility, besides liberating it from the stringent terms and conditions of the old credit facility that allowed only a restricted utility of the borrowings. However, the current high rate of interest associated with the new loans may weigh on the company’s bottom-line in the upcoming quarters.

Overall, the issue of current debt offerings is crucial to Nasdaq given the company’s competitive environment in the backdrop of the current favorable economic trends that could provide more opportunities and leverage.


For fiscal year 2010, Nasdaq management expects total operating expenses to be in the range of $865 million to $885 million, including about $50 million in non-recurring costs. The company projects to record recurring quarterly tax benefits of $4 million to $5 million with respect to the Swedish tax benefit for the near future.