Nasdaq, Inc. (NDAQ) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. The 2020 Annual Meeting of Shareholders of Nasdaq, Inc. is hereby convened and called to order. My name is Michael Splinter, Chairman of the Nasdaq Board and Chairman of this meeting. On behalf of the Board of Directors of Nasdaq, welcome to Nasdaq's 2020 Annual Meeting of Shareholders. We appreciate your attendance, your interest and your support of Nasdaq. This year, for the first time, our annual meeting is accessible only through the Internet. We adopted a virtual format for our annual meeting to protect the health and well-being of our employees, directors, shareholders and other stakeholders in light of the COVID-19 pandemic. Additionally, we believe that this virtual meeting allows us to make participation accessible for shareholders from any geographic location with Internet connectivity, including for shareholders that may otherwise have desired to attend but are prevented from doing so due to COVID-19 travel restrictions. We have adopted a series of procedures that we believe provides the shareholders with the same rights and opportunities to participate in this meeting as they would at an in-person meeting. Following the meeting, we will consider any additional feedback from shareholders on the meeting format. The meeting is being recorded and will be available for replay on our website for the next 90 days. Please note that if we experience technical issues, such as a loss of audio or webcast connection, we ask the shareholders and guests stand by and allow us time to try to resolve the issue and resume the meeting or otherwise provide an update relating to the meeting. If a technical disruption occurs that prevents us from continuing the meeting and the polls have been opened but the meeting is not adjourned, the polls will be closed immediately. In that situation, votes received prior to the time the polls were closed will be counted. The meeting will not be reconvened and the results will be announced publicly. Finally, if you need technical assistance during the meeting, please call 1-800-586-1548, if you're a U.S. participant or plus 1 303 562-9288 for international participants. We will have technicians available to assist you. I'm pleased to inform you that certain members of our executive leadership team are present at the meeting, including Adena T. Friedman, President and Chief Executive Officer; John A. Zecca, Chief Legal and Regulatory Officer; Michael Ptasznik, our Chief Financial Officer; and Joan C. Conley, Senior Vice President and Corporate Secretary. All of the members of the Nasdaq Board and other members of the executive leadership team are also in attendance at this meeting. Representatives from Ernst & Young LLP, the company's independent auditor, and from Broadridge Financial Solutions, the inspector of elections, are also in attendance. The representatives from Ernst & Young are available to answer any questions you may have during the Q&A session. Now we will proceed with the meeting formalities. I will ask Mr. Zecca, Chief Legal and Regulatory Officer, to make his report. Mr. Zecca?

Thank you, Mike. I present proof by affidavit that notice of the meeting has been duly given and that a notice of Internet availability of proxy materials has been mailed on or about March 31, 2020, to every shareholder of record as of March 23, 2020. As of March 23, 2020 record date, there were 164,347,798 shares of Nasdaq common stock outstanding subject to the voting limitation in our certificate of incorporation that generally prohibits a holder from voting in excess of 5% of the total voting power of Nasdaq. I also report that the Board of Directors has appointed Broadridge Financial Solutions to act as the inspector of election at this meeting and any adjournments hereof and to count and examine all votes. The inspector of election has filed with me an oath of inspector and a report of inspector that a quorum is present at this meeting. Finally, I would like to remind you that certain statements in today's presentation and during Q&A may relate to future events and expectations and as such, constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from these projections. Information concerning factors that could cause actual results to differ from forward-looking statements is contained in our press releases and periodic reports filed with the SEC.

Thank you, John. There being a quorum present, we will proceed with the business of the annual meeting. The agenda and meeting rules, which will govern the meeting are available on the virtual meeting website. As the agenda notes, there are 5 matters for consideration by shareholders. No other business will be presented at this meeting, although time has been set aside for question-and-answer sessions. Questions may be submitted during the meeting through the Q&A box on the virtual meeting website. We encourage you to go ahead and submit any applicable questions that you may have. Also, if there are any shareholders or proxy holders present who have completed proxies on the virtual meeting site and have not submitted their vote, please do so at this time or prior to the polls closing in accordance with the instructions in the proxy statement and using the virtual meeting website. I'd now like to call upon Adena Friedman, our CEO, to provide a few remarks at this time. Adena?

Thank you, Mike. I'd like to welcome all of you to Nasdaq's 2020 Annual Meeting of Shareholders. As we gather in a virtual setting for our meeting this year, allow me to begin by acknowledging that we are all navigating through an unprecedented moment in history as our global community fights the spread of COVID-19 and prepare for what will be lasting impact on our daily lives. First, before we get started, I speak for the entire Nasdaq family when I say that our thoughts are with those who are battling this virus, the families who have lost loved ones and those who are on the front lines of our economy and our society, putting themselves at risk every day to care for us and our well-being. The crisis has highlighted how the human spirit manifests itself, and it has been truly inspiring. Across the executive leadership team, we have been focused on the safety and well-being of the Nasdaq team as well as the broader needs of our client community. I want to thank our global team for their continued dedication to our clients during this extraordinary time. As we transition to 98% of our team into a remote workforce, in many ways, our role has never been more connected. Nasdaq was founded on the idea that people do not need to be in the same physical place to be part of the same community. This founding principle drives -- continues to drive us as we face the unexpected. I will now spend time to briefly review our progress from 2019 to accelerate our strategy in creating a global technology and analytics provider to the capital markets and beyond. In addition, I will also detail our objectives for the remainder of this year. Nasdaq delivered $2.54 billion in annual net revenues in 2019, a 4% increase, excluding the impact of divestitures with faster growth and a resulting increase in revenue contribution from our technology and analytics businesses. In terms of some of the components driving our revenue growth, we experienced an acceleration in market technology and new order intake as the year progressed. Our ETP assets under management reached record levels. And for the seventh consecutive year, we led the U.S. market for IPOs. As we enter our third year since the announcement of our new technology-led strategy for Nasdaq, these results underscore our client-centric focus, disciplined business execution and diverse revenue streams. Given our capital allocation priorities, I'm also pleased to report that we delivered $505 million of capital to our shareholders in 2019, including $200 million in stock repurchases and $305 million in quarterly dividends, the latter representing a 9% increase over 2018 dividend levels. Turning to specific highlights that drove our strong results in 2019. Our Market Technology segment saw strong new order intake last year from market infrastructure operator clients as well as new sell-side and buy-side clients for our regulatory technology surveillance solutions. In late 2019, we saw our Markets Everywhere vision come to life with several new clients, including the signing of a landmark deal with an Airbus subsidiary called Skytra to provide a full suite of marketplace solutions to enable air travel industry to price and manage the revenue risks associated with fluctuating ticket prices. Additionally, our work on the core platform of the Nasdaq Financial Framework reached advanced stages. In our Information Services segment, we achieved increased organic growth through strong demand for our index and investment data and analytics offerings as well as from our legacy market data businesses. The year of 2019 also marks a unique milestone for this business with over half of our revenue being generated by our higher-growth index and investment data and analytics businesses for the first time. It's exciting to see this progress in the areas with clear secular growth opportunities born out of our strategic pivot in action. Moving to our foundational marketplace businesses. In our Corporate Services segment, we had another milestone year for new listings, welcoming 188 IPOs with a 78% U.S. win rate, our seventh consecutive year leading the U.S. market. This includes listing 10 of the top 15 IPOs by dollars raised. Meanwhile, our Nordic, Baltic and First North exchanges continue to attract new companies from across Europe adding 53 new listings, including 34 IPOs in 2019. We also saw demand for our governance and investor relations solutions, which allows us to deepen our relationships with our corporate clients. And earlier this year, we acquired one report to accelerate delivery of ESG workflow technology to public companies who are looking to simplify the ESG reporting process. Finally, in our market services business, we saw consistently strong demand for our multi-asset class trading solutions last year, and our strong market position would position us well to serve the higher demand in 2020 as the markets became more volatile. To continue our commitment to client advocacy, we launched our total markets reform agenda in April, building on the revitalized campaign we launched in 2017. While total market focuses specifically on market structure improvements, the goal of both efforts is to make the capital markets more efficient for investors and more attractive for small-to-medium growth companies. These achievements underscore the efforts we have made in the last few years to focus on the employee experience needs of our global workforce. As we pursued the early stages of our strategic pivot, it was crucial to evolve our people team to create the talent, wellness and leadership and development solutions needed for us to realize our full potential. Our diversity and inclusion efforts were recognized last year with a perfect score by the Corporate Equality Index. We remain committed to fostering a corporate culture that is agile and innovative and able to adapt to meet the needs of our clients. In addition, we reconfirmed our commitment to sustainability and the health and safety of our employees, families and communities by practicing sustainability, advocating for volunteerism and promoting philanthropy. We achieved a major environmental milestone in 2019, reducing our carbon footprint to 0 through an Offset Purchase Program. And for the fourth consecutive year, Nasdaq was the only stock exchange operator named to the prestigious Dow Jones Sustainability Index, a testament to our industry leadership in integrating sustainable practices into our business. Despite the challenges our global community will face in the months ahead, we remain committed now more than ever to our strategy to reimagine markets to realize the potential of tomorrow. As we continue on our journey for the next several years, we are guided by a set of core ambitions: first, to become the most trusted, most successful market technology and regulation technology partner to trading firms, financial marketplaces and new nonfinancial markets worldwide; second, to evolve as a strategic market operator and specialized analytics partner to the investment management community across index, active and alternative management; third, to serve as the destination exchange and partner for companies worldwide with unparalleled expertise across equity markets, investor relations and governance; fourth, to strengthen our position as a preeminent market operator in North America and Europe by enhancing the client experience across the trading, data and connectivity aspects of our exchange complex; and fifth, to become the trusted or to be the trusted provider of liquidity solutions for private asset classes, including private company shares, private equity funds and other traditional and digital assets. Throughout our journey for the past 3 years, we have focused on a comprehensive transformation of our business without sacrificing the quality of service we provide to our stakeholders, including the value creation for our shareholders. The results we are seeing both in 2019 and during the first 4 months of 2020 are a strong indication that this strategy is working. However, we are never complacent. We recognize that to maintain our momentum and continue rewriting tomorrow, particularly through the very unpredictable times ahead, we must continue to challenge ourselves each and every day. When we meet again in 2021, we will mark a significant milestone for our company, Nasdaq's 50th anniversary in February. Reimagining our company at this stage is no small feat, and it would not be possible without our talented team. Our technology is only as strong as the people who build and deliver it to our clients and partners. And together, we believe the best is yet to come. With that, I turn it back over to you, Mike.

Thank you, Adena. We will now proceed with the matters described in the proxy statement, specifically, proposal 1, to elect 10 directors. Shareholders are requested to approve the election of the following director nominees to the Board of Directors to serve until the next annual meeting or until such directors' successors are duly elected and qualified. Melissa M. Arnoldi; Charlene T. Begley, Steven D. Black, Adena T. Friedman, Essa Kazim, Thomas A. Kloet, John D. Rainey, Michael R. Splinter, Jacob Wallenberg, and Alfred W. Zollar. Proposal 2, to approve the company's executive compensation on an advisory basis. Proposal 3, to approve the employee stock purchase plan as amended and restated. Proposal 4, to ratify the appointment of Ernst & Young LLP as Nasdaq's independent registered public accounting firm. And as noted in the company's proxy statement, the Board recommends that shareholders vote for the election of each nominee and for director, and for proposals 2 through 4. Proposal 5, to consider the shareholder proposal entitled adopt a new shareholder right, written consent. [ Mr. Jesse Alba ] is invited to present the shareholder proposal within the 3-minute time frame set forth in the meeting rules. I would now ask that, operator, open the line for [ Mr. Alba ] for him to present the shareholder proposal.

Thank you, and good morning. Proposal 5 adopts a new shareholder right, Written Consent, sponsored by Kenneth Steiner. Shareholders request that the Board of Directors take the steps necessary to permit written consent by shareholders entitled to cast the minimum number of votes that would be necessary to authorize an action at a meeting at which all shareholders entitled to vote thereon were present and voting. Hundreds of major companies enable shareholder action by written consent. This proposal topic won majority shareholder support at 13 large companies in a single year. This included 67% support at both Allstate and Sprint. This proposal topic also won 63% support at Cigna Corporation in 2019. This proposal topic would have received higher votes than 63% to 67% at these companies, if more shareholders had access to independent proxy voting advice. In spite of management opposition, this proposal topic received impressive shareholder support of 46% in 2018. The 2018 version of this proposal probably would have received majority support if management had not used shareholder money to distribute an extra advertisement opposing it. Apparently, the meaning of "stockholder engagement" at Nasdaq is the management send extra advertisements to shareholders at shareholder expense telling shareholders how to vote. In contrast to Nasdaq, after a 45% vote less than a majority vote for a shareholder proposal in 2018, The Bank of New York Mellon has adopted the shareholder proposal in 2019. The 2019 management statement next to this proposal topic hid from shareholders that all shares that call for a special meeting must be held for 1 continuous year. Thus, a 15% stock ownership requirement to call a special meeting could potentially be a 30% stock ownership threshold after the shares are subtracted that are held for less than 1 year. A 30% stock ownership threshold puts shareholders at a disadvantage. Hiding key information from shareholders and spending extra shareholder money in opposition to shareholder proposals would seem to raise questions on the stewardship of Michael Splinter, the Nasdaq's Chairman of the Board, who also chaired the Nasdaq Governance Committee. Mr. Splinter received the most negative votes of any director at the 2019 Nasdaq Annual Meeting. Written Consent won 44% support at Capital One Financial Corporation in 2018, and this increased to 56% support in 2019. Written Consent won 47% support at United Rentals in 2018, and this increased to 51% support in 2019. Again, the official vote reported on this proposal will be understated because management used shareholder money to forward advertisements opposing it. Please vote yes, adopt the new shareholder right, Written Consent, proposal 5. Thank you.

Thank you, [ Mr. Alba ]. As noted in the company's proxy statement, the Board recommends that shareholders vote against this proposal, #5. We will now hold the question-and-answer session on the 5 proposals for consideration. A general question-and-answer session will follow the business portion of the meeting, so please limit your questions and comments at this time to these 5 proposals presented. I would ask again are there any questions with respect to these 5 proposals?

Chairman, there are no questions on the proposals at this time.

Thank you, Ed. We will now proceed with the vote on these 5 matters. Shareholders who have not voted yet or wish to change their vote, may do so at this time, in accordance with the instructions provided in the proxy statement. Please remember that if you already voted prior to the meeting, it is not necessary to vote again at this time. It is now 8:52 a.m. Eastern Time, and the polls are open for all proposals. If there are shareholders who still desire to vote using the virtual meeting website, using the instructions described in the proxy statement. We will leave the polls open for a short period of time to allow any shareholders who have not voted to vote at this time. We appreciate your patience during this period, during which there will be silence. [Voting]

It is now 8:53 a.m. Eastern Time, and the polls are now closed for all proposals. No further voting will be permitted. We will now take questions that have been submitted prior to or during the annual meeting to our virtual meeting website and in accordance with the instructions in the proxy statement and our meeting rules. Ed, are there any questions?

Yes, Chairman. The first question is from Gerald Matthews of the United Brotherhood of Carpenters, the carpenter union pension fund. The Board has taken a variety of steps to strengthen the company's liquidity position, including a strategy to prudently assess its capital deployment strategy. However, the Board has not suspended the share repurchase program leaving share repurchases as a possible use of capital. Could you discuss why the share repurchase program has not been frozen? And explain what factors will guide Board decisions to repurchase shares during this challenging time?

Adena, would you take that question, please?

Absolutely. Well, first, I just want to provide some context to respond to your question. The first is that earlier this year, we strengthened our capital position with 2 bond offerings. The first was to refinance our 2021 bond with a new 10-year eurobond with a coupon rate of 0.875%. The second was to issue a $500 million 30-year bond with a coupon rate of 3.25%, with the use of proceeds to pay down our outstanding commercial paper. So therefore, as of today, we have no debt outstanding until 2023, and we are very well capitalized with strong continued cash flow from operations. Our business model is quite resilient in times like these due to the diversity of our revenue and the fact that both our trading businesses and our recurring businesses are critical services offered to the financial industry, and we are very proud to have a very resilient business model. So on the first quarter -- so turning to the share repurchase program. The primary stated purpose of the program is to offset annual dilution from our equity programs. And on the first quarter call, we announced that we have, in fact, repurchased $150 million in shares so far this year, which largely has offset our expected dilution from our equity programs in 2020. And while we've achieved our primary goal this year, we would like to maintain our flexibility to use our share repurchase program to return capital to shareholders as we evaluate all uses of our cash flow in the quarters ahead. So it is really to maintain the flexibility to provide for capital returns to the extent we see it as prudent in the times ahead, given the strength of our business and the strength of our cash flows.

Thank you, Adena. Ed, are there any other questions?

Yes. We have more questions. I have a question from a shareholder. Can you explain in more detail your opposition to the shareholder proposal?

Right. So we actually provide a pretty thorough explanation of our concerns related to the shareholder proposal on Page 118 of our proxy materials. In summary, the company is proud of its engagement with and responsiveness to its shareholders as shown by the adoption of the corporate governance policies that serve the interest of all stockholders. They are spelled out on Page 118 in a nice chart. Nasdaq's existing corporate governance structure is supportive of stockholder rights. And accordingly, the adoption of the proposal permitting action by written consent is unnecessary, inappropriate and not in the best interest of Nasdaq or its stockholders.

Thank you. More questions, Ed?

Yes. I have one more question. A shareholder, Jim Angel writes, I really like the virtual shareholder meeting format as it makes it easier to attend the meeting. Can you tell me how many people are logged in?

Mike, I also have that answer, and that is that we have 102 people logged in today. So thank you very much for your comment.

Thank you. Ed, are there further questions?

That's the last question we have.

Thank you, Ed. We'll now proceed to the announcement of the preliminary results. Our Inspector of Elections, Mr. Tony Carideo of Broadridge Financial Solutions, has provided me with the preliminary voting results, which I will now present. Preliminary voting results are as follows: proposal 1, each of the 10 director nominees has been duly elected. Proposal 2, the compensation of our named executive officers on an advisory basis has been approved. Proposal 3, the employee stock purchase plan, as amended and restated, has also been approved. Proposal 4, the appointment of E&Y as our independent registered public accounting firm for the fiscal year ending December 31, 2020, has been ratified. And proposal 5, the shareholder proposal regarding action by Written Consent has not been approved. We expect to report the final results of the voting on a Form 8-K to be filed with the SEC within 4 business days of this meeting. This concludes the official business portion of our meeting. I want to thank you all for attending today's meeting and for the interest you have shown in Nasdaq. Since there is nothing further to come before the meeting, I will declare this meeting adjourned as of as of 8:59 a.m. Eastern Time. Thank you.

Thank you. The event has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.