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

All right, everyone. Welcome back to the 2025 Piper Sandler Global Exchange and Trading Conference. I'm Patrick Moley, senior research analyst covering the exchanges, brokers and trading companies. Our next guest, we're joined by Nasdaq's Chair and CEO, Adena Friedman. Nasdaq is a global exchange operator and financial technology company that services a broad range of financial market participants. Adena has been CEO of Nasdaq for, I think, almost 10 years now.

About 8.5.

8.5. Okay, 8.5. And since you've taken over, Nasdaq has undergone a pretty significant strategic pivot toward more of a financial technology firm, but we do appreciate you continuing to take part in the exchange conference.

So we've seen a lot of volatility in the first half of the year. People were pretty optimistic, I think, coming in that we would see a reopening of the capital markets in the IPO window. From the beginning of the year to now, how has the -- your conversations with clients been and how does the IPO pipeline look? Does it seem like things are opening up?

So I mean, certainly, it has been a different start to the year than I think people are envisioning when we were going through it. But it has -- it's interesting. First of all, the underpinning of the U.S. economy continues to show strength. And I think that's what -- and resilience, which I think has helped because as we've been managing through a lot of changes in the overall environment, we're able to show that the data is still coming out to show that the economy is working. People are continuing to put capital to work. Companies are putting capital to work. They're investing. And then capital markets have gone through a lot of volatility, but that's also starting to kind of moderate so that there's a little bit more of an opportunity probably for the IPO window to really open up. And you're starting to see companies get out, go out, get out, do well. And I think that's going to hopefully create some momentum. And lots of very, very constructive conversations with companies wanting to come out into the public markets ready. They've been getting themselves ready in some cases, for a couple of years. And so a lot of pent-up supply. And I also feel like investors are realizing that this is an environment that's going to be relatively persistent. So let's start deploying capital and figure out where we want to put our dollars. And therefore, the companies that are getting out are doing pretty well. So we're optimistic that we could see more activity as we go through the summer and into the second half of the year.

Any specific sectors where you're seeing the most engagement?

Well, you're certainly seeing it in anything related to like AI technology, the financial services, right? So fintech has been an interesting space. We have -- I know that time is out in doing their marketing now. And then also anything I would say in the digital space because you have to think about what's going to -- how are investors going to be able to evaluate companies in different sectors. And in sectors that are more impacted by the potential of the tariff environment, it's going to be harder for investors to predict the future of those companies. And so I think those companies are taking a little bit more of a wait-and-see approach, whereas companies that are in the digital economy that are less affected or are really kind of more domestically oriented, those companies are finding that it's -- the investors are more ready to put risk capital to work. So those are the types of companies that are coming out.

So in terms of the sales cycle earlier this year, you had indicated that you were seeing some delays in customer decision-making as a result of some of the tariff uncertainty. At the time, I think you said that these were idiosyncratic. How has that sales cycle kind of evolved throughout all the tariff volatility that we've seen? Are you seeing that improve at all?

Yes. So first of all, you're right that it was very specific to certain conversations, particularly within the U.S. and within one of our product areas that I think that we saw some conversations were just like, well, let's understand what's happening around us a little bit more before we continue. Those conversations have normalized. And so I would say that the overall demand orientation around our financial technology solutions is quite strong. It's very healthy. There are conversations all over the world, and our teams are very busy engaging with our clients on making sure that they're choosing us and that we're getting -- we're moving forward with all those product implementations. So it feels like a -- quite a healthy environment. And I would say that we feel that we're really well positioned competitively with our products to be able to continue to drive the business forward very successfully.

So at Investor Day last year, and you talked about on the calls, but this idea of the One Nasdaq strategy and bringing your products to business -- or to customers across the 3 business lines. How has this strategy been working out for you? And the target that you laid out of $100 million in cross-selling opportunities by the end of 2027, how have you progressed toward that goal?

Yes. So I think we're progressing as we would expect. It's still early days. So the first thing is we had to get our teams working together. The second thing is we had to get our client data in a state where we could really track that, but not only track it, but also find where the opportunities are and make sure we're engaging our clients in a holistic way. And the third thing is, of course, culturally, we want to make sure we're aligning incentives and behaviors and everything to gear towards being able to achieve that target. And I would say we're very much on track along all 3 of those areas as well as the fact that our clients are excited to work with us on more. So when we go out and when Tal or I or Valerie, we go and talk to our clients, their first inclination is, what more can you do for us? And oh, I didn't know that you had that. Let's talk more about that. And really opening the doors across the banks is something that I think we're getting better and better at. But right now, I think as we've mentioned on the second quarter -- no, the first quarter call -- sorry, on the first quarter call, about 15% of our fintech pipeline is in cross-sells. And as long as we are able to close deals that are consistent with our pipeline, we feel very good about that $100 million target just in terms of kind of the trajectory of sales going forward.

And I think did that jump from 10% to 15% in the first quarter?

Yes. And it's going to ebb and flow. So I don't want people to think it's going to be a constant 15% or constant 10% because obviously, when we close a deal, then that comes out of the pipeline. And so then you have to replenish the pipeline. So that's going to ebb and flow a bit. So I don't want people to overread it. But the general tenor of it being in the 10-ish percentage point, that's a good place for us to be.

Are there any -- you mentioned that you were finding it easier to -- or you're engaging banks and seeing that they have a need for more products. Any specific anecdotes that you can give on what those opportunities might be and where that you're seeing the most traction?

Yes. I mean, well, I do actually think we have strong demand in every vector of our product suite, and that's exciting. So if we look at the fact that surveillance, we've had some new regulations come out. We've had also just -- we've actually been able to move more into the crypto space there as well as in the investment management space around our surveillance solutions. So the demand there is very good. Market modernization continues to be a broad-based theme across markets in terms -- and you're seeing us -- hopefully, you're seeing that. We're doing really well in signing new contracts for our next-gen solution, which we have finally named Nasdaq Eclipse. So that is Eclipse trading, Eclipse Clearing, Eclipse settlement. We're very excited about a lot of new signings there and our work to continue to modernize markets as well as with our partnership with AWS on their infrastructure. And then with Calypso, it's just people are wanting to make sure that they're modernizing their capabilities around risk management. They're standardizing them across the world and across asset classes. And we continue to build out new capabilities there. And also, we're doing some really cool things in terms of bringing more AI capabilities into the risk management side that I think will continue to really accrue to our benefit and demand. AxiomSL is just a constant demand driver around changes in regulation the ability for bank, it's moving down, it's moving across, but also banks are growing, like they're looking at new ways to grow, and that means that they have to deal with new regulators. And then lastly, of course, in our anti-financial crime suite, it is just an incredible demand driver for anti-financial crime technology. Our solution is very differentiated. We're proving that out. We're doing really well within the SMB space. That's the small to medium banks, really well as we continue to move upmarket. We're just starting to move into Europe and getting some POCs running, but it's very early days there.

We've talked a lot today with other folks about market modernization, whether it's 24/7 trading, whether it's tokenization. It seems like there's a lot that's building, and there's going to be new challenges and things that people need to manage in terms of the risks. It seems like this would present a big opportunity for you, whether it's in surveillance and things like that. Crypto specifically and tokenization is one. So how do you view those 2 or that pocket of the market? What role do you think Nasdaq plays there going forward? And what opportunities it open up for you?

Yes. I mean, first of all, I think that the regulatory environment around crypto exchanges in the United States is continuing to be formed. So we want to make sure we understand what that landscape looks like as we consider our role specifically in that space in the United States. But as a market technology provider, we're already providing trading and clearing technology to crypto markets, surveillance technology, we're definitely seeing -- that's definitely a growth lane for us. And we also are thinking about it in terms of the more that cryptocurrencies become bankable and therefore, they go into the banking system. And the more that stablecoin is actually becomes normalized, like that stablecoin legislation and other things come, taking out the friction, there's a lot of opportunity to take friction out of the financial system just through the technology that underpins it, so the tokenization, as you said, of the industry. So one example is the flow of collateral and how we can help facilitate and hopefully break down friction in the flow of collateral globally because we are the #1 collateral management solution for the industry through our Calypso platform. And if we can help them then manage that collateral in a more modern way, leveraging Stablecoin and other tokenized technology. We're pretty excited about how we can use our technology assets to bring it forward. And then, of course, we list ETFs, and we're very excited to be the home of [indiscernible] and other crypto ETFs. And then we'll have to look at what are the other opportunities in front of us as the regulatory environment becomes more clear.

So shifting gears, the index business has continued to impress. I think revenues have surprised to the upside for like the last 5 quarters. Can you walk us through the strength that you've seen here and what you feel like is driving the outperformance?

And I think we do a pretty good job of providing first, just overall transparency into the index business, but also this alpha beta split that we are now disclosing to our investors that Sarah introduced, I think, is really helpful to you say, well, what's really our effort that we're driving forward, where do the markets play a role? And what we're seeing is just a really healthy alpha generation within the index business with a good beta backdrop. And we have, of course, the flagship product with the Nasdaq 100, which historically has been really a retail product. And what we're now working on is how do we get that more into the institutional ecosystem, and we're starting to -- we're announcing kind of we're launching new products, new capabilities around that. We have a sales team, we have a strategy. That's one of the vectors of growth. The second is continuing to create new products and broaden and diversify our suite. And we've talked about the fact that even I think through the first quarter, we'd already created -- I don't want to say the wrong number, but I think it was 30 new products or 33 new products in the year. So -- and that we also mentioned that over the last 12 months (sic) [ in the first quarter of 2025 ], like 50% of the inflows were in non-Nasdaq 100 products. So we are really showing that there's really exciting new products that we're bringing to market. And then the third is globalizing the business. And we've definitely been much more intentional about using One NASDAQ to open doors around the world and make sure we're really bringing those indexes around the world. So all 3 of those lanes are really good growth drivers driving alpha with a good beta backdrop for the most part, obviously, a little more volatility as we go through the year, but overall, a good backdrop.

We've talked to a few people today as well about 24/7 trading. Earlier this year, you announced that you would look to enable 24-hour trading in NASDAQ markets. I think the target you set was the second half or sometime in 2026. What's driving the demand from your perspective for around-the-clock trading? And what are some of the biggest hurdles and whether it's market structure or regulatory that need to be crossed for us to really see that proliferate?

Yes. So I think, first, we're focused first on 24/5. And it could be that -- and we're still -- we're engaging very much with the industry and with the industry infrastructure to say what's the right paradigm. It could end up being 23/5 at first just to accommodate certain things. But I would say let's just call it 24/5. What we -- there is retail demand around the world to trade, in particular, Nasdaq stocks. And so we've seen ATSs kind of pop up to facilitate that demand. And yet, I think the concern we've always had is that the guardrails that really protect investors during the market day in the U.S. do not exist after hours. And what I like to call non-U.S. hours. So in non-U.S. hours between -- after 4:00 and before 9:30, we don't have any volatility guards. We don't have all of the things that really kind of make it so that we have the same level of rigor and resilience that is built into the market infrastructure during the regular U.S. hours. So if we're going to put our brand and we're going to bring our markets and bring an exchange into the non-U.S. hours, we want to do it right. So we said, okay, let's do it right. Let's give ourselves the time to do it right. That means having a consolidated tape that facilitates those hours. So the SIP committees have approved that was a big step to get the SIP committees to approve having 24/5 distribution of data. We now have to build that, which we know to do, but we have to do the work. The second is making sure that from a clearing and settlement perspective, that DTCC can accommodate this kind of trading activity so that we have kind of a seamless capability. The third thing is we just have to make sure we accommodate our own systems. We build those solutions for others. So we know exactly what we need to do. We just need to make sure we're building out the capability to accommodate it. We will not put that though in like a core match. We'll have a second matching engine to support the non-U.S. hours. And then the last thing is just regulatory approvals, which I actually don't see as a gating issue. So we could be up and running in a year, but it could take us longer. So we wanted to give ourselves kind of the second half of '26 to say, let's get the whole industry ready. The last thing that we really want to make sure, though, is that we're bringing the industry with us, including the listed companies. This is their stock. Their stock is going to be trading. I think what accommodates the fact that they're saying, well, it's already trading. So let's make it trade better. Let's put the resilience and everything in place to make it work. But how do we manage corporate actions? How do we make sure that this really does work. We want to take the time to engage the industry on that. And that's what we're spending a lot of our time on.

So shifting gears, I think you issued a press release a week or 2 ago about some of the legislative changes that occurred in the state of Texas. What are your thoughts on Texas emerging as a capital markets hub more and more. You announced an initiative to launch a regional headquarters in Dallas. I know that you've had a big presence in the state in the past. But what do you see -- what's going on down there now? What do you kind of view as the opportunity in Texas going forward?

Yes. I mean I think we have to look at, first of all, the Texas economy is a really big economy. We have 900 (sic) [ 800 ] clients in Texas. Now that includes about a little over 200 listed clients and then hundreds of other clients that use other solutions we have to offer, including anti-financial crime. So we have -- there are a lot of banks in Texas. Our IR solutions, we serve a lot of non-NASDAQ-listed companies with Investor Relations and governance and other things. So we have a big presence there. The second thing is that it's a very pro-business environment in Texas. And so more and more companies are moving headquarters or establishing themselves in Texas. So it's a growth area for us. And we want to make sure that we are in the state, engaged in the state, engage with our clients very, very completely. I think the third thing is, as you said, that the governor has a very concerted effort to create a capital markets hub in Texas, which we think is great, just more opportunity for us to have great capital markets in the United States. And what we talk to our clients about, though, is let's make sure we have a really strong presence in Texas. We're there for our clients to serve them, but they then connect into a global market with a global investor base and all of the benefits that we provide our listed companies, which are numerous, and we make huge investments in that area to serve our clients. So it's a very -- it's an exciting time. And I also -- Texas is leading the way on thinking about certain corporate reforms that are so necessary for this country. Some of them, they can do within the state. Some of them, we have to advocate in Washington. We've launched an entire blueprint of what needs to change in the regulatory environment in the United States to make the corporate experience less onerous and more constructive to be a public company. A lot of those are very consistent with what the Texas legislator is trying to achieve. So we've been encouraging them, working with them to make sure that our messages that we're sending down to Washington are also resonating in the state of Texas. So it's an exciting time.

Yes. So we were up here with Lynn Martin earlier, and she said that there was some demand from customers that were looking to dual list. Do you know when you'll have more of a presence down there? I think you've announced that you're going to open up a regional headquarters. Was there anything being done right now? And any time line you can give us as to when...

Well, we have to -- that's up to the property management team. So some work to do there. But we have a team established there. We have a real presence there already, but we want to make sure we're building out that presence in a really meaningful and thoughtful way. So we're working with our teams to make sure that. So I don't -- we don't have specific dates, but it's very much in motion.

Sure. All right. Very good. But M&A has been a big topic of conversation this year for NASDAQ. I think it was overblown and you were pretty adamant on the call that you're not looking to do anything in the short term. But I think that there is a cohort of investors out there that feel like your strategy longer term is that within the next few years, you could look to do a larger scale deal what would you say to those folks that kind of think that you're destined to do a larger deal in the next few years?

So I would say, first of all, we have an incredible organic growth path in front of us. So we have to really make sure that we optimize for that outcome. It's a hugely high-return activity for us to grow organically. We have 3 really nice lanes of organic growth across our platform. So let's make sure we execute really well. The second thing is we are continuing to delever. We want to make sure we're also, over time, buying back stock to make sure that we deliver on what Adenza was intended to deliver on. And we feel great about our execution on the Adenza transaction, but let's make sure that we execute completely for our shareholders across that. And we are very -- that is what we're focused on. Now we've always said that could there be some really small bolt-ons, potentially. But right now, honestly, that organic journey is pretty awesome. So that's really where we're spending our time, our energy, our focus and conversations. And so that's where we are and where we're going to take the company right now.

All right. Great. You spoke on it a little bit earlier, and I know we talked about it last year, but artificial intelligence. When do you expect -- what areas, I guess, of artificial intelligence are you implementing today, whether it's on the product side or internally? And when do you expect to generate returns from these investments? And can it be supportive of further margin expansion for Nasdaq in the future?

Yes. So we have -- we talk about AI in 2 vectors. One is AI in the product and then AI on the business. Definitely, the easier part of that is the AI and the product because we have incredible engineers. We have really -- we've modernized our products. Our products have a very -- for the most part, have really good modern data underpinnings. And so it's -- and it's fun. So a lot of development organizations are -- we've built AI capabilities into all of our product road maps. And so that's really moving along really nicely. And we've already launched out a lot of AI capabilities like in anti-financial crime. We're launching similar capabilities in surveillance on the workflow automation. Obviously, anti-financial crime has a huge amount of AI on the detection side, too. And then we also have it in, as I mentioned with Calypso with the XVA Accelerator in our markets with Dynamic M-ELO in Board Vantage, super cool stuff happening there. So we have a lot going on. AI on the business, harder. That's change management. That's changing how you deliver product or develop and deliver product, how you deliver service to your clients, how you think creatively around marketing and other things. And so we've gone through a journey of maturing our organization to be ready to deploy that at scale and really managing through the change, and we're starting to see the effects of that. The first year was just making sure everyone understood the technology, put it into people's hands and get them using it. The second year was let's do -- we did 6 hackathons across hundreds and hundreds, I think actually probably over 1,000 of employees engaged in hackathons to show where we could use this technology to drive efficiency in the business. That was the entire purpose of all of the hackathons. Low code, no code, high code, it was super fun. But it also showcased where these -- there are pockets of efficiency that can be delivered. Now we're saying, okay, now let's scale this and let's actually drive it across the business and deliver impact. And we call this -- this is the first year of impact. And that is part of the expansion of our efficiency program was because we saw and we know that we can deliver impact. That's in product development, that's in client success, marketing, other places. But one of the things that I keep telling our team is we are a growth business. If we can actually change the way we develop product and deliver product, in a way that delivers more capabilities per Sprint, higher code quality per Sprint, then we can go faster and we can deliver more capabilities to our clients. And therefore, we can grow faster. So that's the way that we're approaching it. And I think that, that's keeping people engaged in a really constructive way. So excited about it, but it's just the beginning. And yes, I do think over time, there's margin expansion opportunity.

So we covered a lot of ground today. I think we have time for one more actually. What do you think the biggest storylines are going to be over the next 5, 10 years in the exchange business? Is it going to be AI? Is it going to be tokenization 24/7 trading or 24/5 trading. What do you kind of -- there are so many things, really.

I mean we actually are engaged on all of those. So when we go through our strategic framework and we talk about the future of our business, we talk, I would say, most on AI and tokenization as to 2 major modernization trends that we want to make sure that we're staying in front of we're engaged in, but also with our risk profile. We are a hyper-resilient business. We are critical infrastructure to the U.S. economy, the Nordic economy. We provide critical infrastructure to economies all over the world, but we can be an innovator and we will be an innovator across whether it's tokenization or AI. I personally think AI is a global megatrend is the biggest global megatrend that this world has seen and will see for quite some time. But of course, in our business and in the financial industry, the broadening out of tokenization into the traditional finance world is exciting and very interesting.

Okay.