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

Good morning, everyone. Welcome to one of our first presentations here at Barclays for our 23rd Annual Global Financial Services Conference. And if you don't know me, I'm Ben Budish, I cover the U.S. brokers, asset managers and exchanges. And really delighted to kick it off with Sarah Youngwood, CFO of Nasdaq. Sarah, welcome.

Thank you.

Thanks for joining us.

Well, great to have you kind of kicking off today. I mean, I feel like you guys always have a unique view into the macro backdrop. So could you perhaps, starting off, talk about what you're seeing coming out of a period of very intense volatility earlier in the year? How does the environment look for capital markets, IPOs, the fintech business? I think investors are always particularly curious about your near-term 6-, 12-month expectations for IPOs, how volumes looked year-to-date? I know there's a lot in there, but what are you seeing out there?

Yes. So if you kind of like go back to January, we entered the year with like 20% chance of recession, which is super low. And then got into further January and then February, March, April, May, somehow got to 60% risk of recession, which usually, by the time you're at 60%, it's exponential back into recession. But we managed back by May to be at 40%, and we've stayed around there since then. And that's actually just above the average. So fairly normal, not very elevated level. When you look at what has happened in the meanwhile, what was interesting is that we actually had good activity. Even during that period, the first half we had -- in 2025, we had 50% more listings and 25% more value of those listings than a year ago for that first half. So through that period of extreme volatility, that really was a sign that the market wanted to do more in the IPO market. We also were able to deliver, thanks to the diversification of the platform, very well, I would say, overall for Nasdaq with 12% revenue growth, with 10% solutions growth, 9% ARR growth. So I would say you wouldn't have imagined the [indiscernible] of the economic environment as you looked at the performance of both the IPO market as well as our performance. Now the IPO market was a lot less than what had been anticipated as of January, but all of that pipeline stayed alive. And so what we saw is that right now, we are expecting a fairly strong second half with, of course, there's still elevated risk in the systems, 40% is not 20%. And -- but what we are seeing is momentum towards continuing to build on the strength of the IPOs that have gone. So what's very important for the market is that what goes, goes well, that has been generally the case for what we have experienced. And then in terms of fintech, we talked about some of the slowdowns at some point. But by June, we made comments that, that had been resolved in terms of sales cycle. And so we're seeing also companies very much active and we have seen the resiliency of our products, but also the need to continue to do all of that for financial institutions in those type of markets.

Great. Well, you mentioned fintech, that's a good segue to go to the next couple of questions here. So maybe we'll start focusing on Verafin. You've been pushing more into Tier 1 and Tier 2 banks. Can you talk a little bit about how that's been going? What does the typical appetite look like across that client cohort? What are the solutions you're typically signing first? When you have a new enterprise client, what solutions follow? How is the overall progress going with this cohort?

Yes. So it was really our strategy, when we bought Verafin, to expand into not just SME, which was their core franchise, which is now 2,600 banks and was then, call it, 2,000 banks, and really go into enterprise and international. And in enterprise, we are now at 5 Tier 1s and what we've seen is really this first half, especially in the second quarter, some acceleration of the momentum. So we were very pleased in the second quarter to have twice the amount of signing in those enterprises we had, had for all of 2024. And whereas that doesn't generate revenue in the second you announce it because of the time to value even once signed, it does generate the momentum that we were looking for as we think forward. And in terms of like how it works for a Tier 1, well, we've got those 2,600 banks. So they create this consortium data, it's a moted data set under the PATRIOT Act. And so it becomes very important to get access to that because fraud goes to those who have the least protections and so why not add this Nasdaq service, Nasdaq Verafin service in financial client management as all of the banks are dealing with this 3 trillion issues. And benefiting from the value of the others in the consortium is something which we provide. And the first solution usually, it can vary, but usually in our payment solution because it leverages this consortium.

Great. You mentioned briefly international because Europe has been another initiative. Can you talk about the progress there? I think in the past, you've talked about leveraging the Calypso footprint. What does the pipeline look like for Verafin in Europe? What types of banks are you seeing interested in the product there?

Yes. So what you're seeing in international is we launched it in Q4 '24, and so quite recent still. And by 2Q '25, we had the first POC. That time line is actually a fairly short time line, and it was a major Tier 1. And we are, of course, now translating that POC into a signing and then the time to value will generate revenue, that will take some time, but the receptivity in Nordic, in Europe is very strong. We even have demand from the rest of the world, but we are not acting on all of that demand because at some point, we need to prioritize. There is one more thing, which is you might have seen that last week, we announced a partnership with BioCatch, which is the leading in behavioral intelligence. And when you combine the moted dataset that we have around consortium fraud data as well as behavioral insights then you start to have something that's extraordinarily powerful to fight financial crime and so we think that has a lot of merits internationally as well as in the U.S.

Great. Maybe putting it all together, growth in Verafin has been at the low end of the mid-20s growth outlook, the expectation is that's going to be similar in 2025. How should investors think about the timing of a reacceleration here as these new initiatives start turning on a little bit? How do we think about sort of the cadence in the next 12 to 24 months? And given the medium term target is an average target over that period as we go further out, do you think we can see growth above the mid-20s or is that sort of like the range to be thinking about?

So the medium term outlook is in the mid-20s. As you know, as with the medium term outlook, it can vary. So nothing exceptional about what's happening this year. There is some timing, especially with the enterprise deals. And what we've seen right now, and we've talked about it in the first and the second quarter, and so I'm not going to say anything that's different from that actually in here, is what's important is to get the momentum of the signings and by having gotten that and by also starting to do upsells, which we think is important and having time line of the upsells, which is much faster than the land, so when you expand is 50% faster than your land, you end up having the ingredients for an acceleration. So we wanted to make sure that the market was certainly appreciating that it doesn't happen overnight, which is why we said starting in the fourth quarter. And in terms of like medium term outlook, therefore, we feel good about it, but continue to maintain the same comments we have maintained for this year.

Understood. We've talked a bit -- you guys have talked publicly about AI quite a bit in the context of Verafin as well as elsewhere. Sticking with Verafin for just a moment longer. You've mentioned the agentic AI workforce last quarter. Can you maybe dig into this a little bit? Talk about what exactly is this doing for clients and what's the early feedback look like?

Yes. So this is super exciting to me. So we have this agentic AI. So this is a real agent that you insert into the triage workflow of a bank. And at that point, you can get, based on our early testing, about 80% of the alerts that don't need to be reviewed by humans. So basically, being able to assess whether there is a risk to do the finding, to do all of the things you need to do without the humans as what an actual agent can do, and if you can basically reduce the workload of the bank team by providing effectively agents for additional people in some ways, who can do that work for 80% of those sanctions, that's very powerful for sanctions. So that's something which we are launching really now and the test -- the testing, because it's all testing for now with clients, has gone very well and that 80% is very powerful. And that's in addition to what we already had talked about, which was not an agent, but an aid in some ways to the humans where enhanced due diligence helped the humans really do all of their work with tremendous additional efficiencies. But it's really good to see that we were very early in the market in having the generative AI help the humans, and that we're able to take it one step further with full sanctions at least an agent.

Maybe pivoting to the regtech business. The regulatory environment still feels somewhat uncertain, particularly with some recent proposals around changes to the SLR. How is that evolving landscape affecting your sales conversations? How do you see it affecting the business moving forward?

Yes, so if you take a step back and you try to say over the last few years, whether I was a bank CFO, now at Nasdaq, what are like the 2 topics that all of the banks really want to address, SLR and particularly the treasury in SLRs and Basel III end game. And I think it's very comforting that this government is actually tackling both. And so the meaning of SLR is less that we have a lot of pipelines associated with SLR because that's not specifically the case. But the fact that they're addressing the right topic is encouraging that they are providing the certainty and also the advancements that the financial institutions, and therefore, us, since they are our clients, are looking for. And then in terms of Basel III, very recently actually September 4, it seems like this is back on the agenda for probably the end of the year, it could be early 2026. But having it on the agenda for the FDIC, the Fed, the OCC, is an important thing to see, and that has actually real pipelines associated with it.

Okay. Pivoting to the capital markets technology, Calypso more specifically. Earlier you mentioned the kind of previously communicated slow down to the sales cycle has kind of been reversed, but we're still seeing some tariff-related volatility. Can you walk us through a little bit what played out as the year progressed? How are sales conversations been lately? It sounds like you're mostly kind of through the woods there, but it seems like volatility is the new normal. So what are you hearing more recently?

Yes. We would say that the sales cycle are normal for our FinTech division at this point. I mean, don't forget that they are not exactly short sales cycle, but that is normal for us. But what we are seeing is that some of the delays, it's like basically, if you do a pause during the year, it carries its effect, which is what we described in the second quarter, but nothing more than that. What we are seeing is quite engaged dialogue with our clients, people continuing to have budgets for the important solutions that we have. People finding the prioritization, if anything, the amount of signings that you saw in our reporting in the second quarter, not just for financial client management, which we just talked about, but across the platform, were very strong and very encouraging. And so that's a testament of not just people reengaging slowly in conversation, but actually yielding to inking. And so we're seeing that. And I would say it's generally across the board with the only area, which we mentioned, continuing to be a bit slow is the start of the implementations, even of some of the signed things on regulatory and that's why it's so important to see the clarity that is now coming -- starting to come from Washington.

Great. Maybe thinking a bit about the cross-sell opportunity between Nasdaq's legacy product set and Calypso, Axiom. I think you've noted that cross sales are around 15% or more of the FinTech sales pipeline. How are you going after this opportunity? Maybe talk about what you're doing tactically? Where are the most natural areas of overlap for Nasdaq that didn't exist for Adenza on its own, but are available to you?

Yes. So this is, I never want to say, the most important part of the acquisition, but really a key part of the acquisition is to make sure that we do more together than they would have done alone. And so we've delivered very well on all of the expense side of the equation and overachieved there. But on the revenue side, the time line is just a bit longer. We had said by the end of 2027. And so we're showing you the earlier indicators. That 15% is a good number. It's actually fascinating to see that 15, 1-5, percent of all of our FinTech pipeline is in cross-sells. And that means that we have results from the campaigns that we're doing. It's not just in one thing. So it could be offering a treasury product, for example, from Calypso -- a collateral product from Calypso to either an Axiom or Financial Crime Management. Probably Financial Crime Management is the most likely case for that. Financial Crime Management is benefiting, as you just mentioned, from the sales force and distribution in Europe of Calypso, in particular, the Axiom, too. We are also seeing Axiom to Calypso because interestingly, that was not yet fully monetized by Thoma Bravo before they sent that to us. And then what you're also seeing is beyond the campaigns, beyond the integration of sales force, you've got the additional relationships of Nasdaq, which bring credibility, trust with those large financial institutions and C-suite relationships.

Maybe one last question kind of on the fintech side, a little bit of a newer topic. But as you're looking forward, how are you thinking about new opportunities around digital assets, stablecoins, is there a future state where Nasdaq's exchanges facilitate the trading of tokenized stocks in and out of stablecoins or do the opportunities lie more on the infrastructure side? How are you thinking about the range of outcomes for you?

Yes. So what you will have seen, just this morning actually, is that we announced a rules change proposal towards Nasdaq offering the tokenization of equities and exchange-traded products on its markets. So offering that trading is very important. And also the solution, which is all detailed in this proposal, is simple, leverages the current infrastructure and all of the current market rules structure, which I think is really the best of both worlds to be able to take the innovation of digital assets and then embed them into the current infrastructure so that you benefit from the pillars, which we've always stood for as Nasdaq of liquidity, of integrity, all of the market protection, investor protections, which we're here to do. And we're doing that through the DTC, which provides the clearing and settlement for those tokenized form equities.

Very interesting. Anything in the works on the infrastructure side, Calypso trade...

Yes. Yes, so in addition to what we had -- so that's a new news. The other news which we had already talked about at the second quarter earnings is that we have a pilot with the Calypso collateral management. We think collateral management is an area that is going to be very important. And then digital asset, we believe, is going to be an important part of the monetization of financial structure. And so with that, that creates market structure opportunities, surveillance opportunities and as I mentioned, Calypso opportunities.

Great. All right. Moving to capital markets. We talked earlier about IPO conditions. Same subject, but I just want to ask a more high level, how do you think about Nasdaq's business and what drives your high win rate and how you're maybe trying to position yourselves for hopefully the next 6, 12 months of a more exciting time?

Yes. So 81% win rate and 55% of the proceeds, we are very, very well positioned. Why do people come to us? The first thing is we have a great brand. People want to be associated with us. We stand for innovation, not just technology but innovation. Innovation and trust will be 2 of the pillars in our brand. We are one of the top 100 brands in the world. Usually, it's consumer brands like Nike, Amazon, those type of things. But actually, we are in there at #60, which I think is extraordinary. And that carries also into the index opportunity for some of the larger caps. And so being part of the NASDAQ 100 has some benefits because effectively, it creates a very attractive owner being the index owner, and so that is an interesting catalyst for stocks. We also provide a community to our Nasdaq companies. We're very, very involved including the management team of Nasdaq, including me. And you've got the IR, which also enables our companies to have a better sense for what they are experiencing with investors. And so it's that whole picture in addition to, of course, the fact that we have great volumes, great liquidity and great closing costs and that we do our job extremely well and that in times of high volatility as we -- you've seen in the beginning of this year, we are able to scale up with really 0 noise.

Under that same umbrella, your Workflow and Insights business, you saw a nice pickup in ARR last quarter. I think there were a couple of notable wins in Corporate Solutions. Unpack what you're currently seeing there? To what extent is the improving IPO market playing a role in sales conversations? How do you think about that as a driver?

So I would say for what we've seen last quarter, it was 5% ARR, which for that business is actually a good level of ARR, but it was driven by the analytics side. So less driven by the IPO market and really driven by our specific data solutions as well as our investment solutions and all of that generating the engagement because we can help investors generate alpha, which in all environment is incredibly important and those products are very differentiated. When you look at Corporate Solutions, as you said, some notable wins, and we've been pleased with the fact that we've had some momentum. But for example, one of the large wins that we talked about was a very large financial institution, so clearly not related to the IPO market. But as the IPO market restarts, you certainly would see a momentum. And then you also have the pipeline that it creates for when those companies come off the free period.

Got it. Maybe coming back to index. Similarly, can you talk about the strategy there? I mean, besides the phenomenal market-driven growth, what else do you think Nasdaq can do to kind of enhance this business, whether it's on the AUM side, additional strategies, derivatives, things like that?

Yes. So what we've said for a few quarters at this point, and we've been extremely focused on it, proud of it is, for example, last quarter, we were at half of the growth of 17% that was generated with alpha. And if you look at it for other quarters, we've seen that in a very consistent manner. And why is that happening? The first thing is we have a lot of new products. And so that new product innovation is not just in the Nasdaq complex, that is also outside of it as well as international and as well as annuity products. The second part beyond that is really to push, as I said, on international and to push on the institutional opportunities. So on international, we've been growing those AUM by 40%. So that's starting to be a very meaningful contributor to the growth. And then on annuities, it's a $700 billion opportunity. We're about at 7%. And so that's not a huge part right now of the contribution, but it's one which we've been investing in, and you're seeing -- for example, it was 7 of 33 products for last quarter, but it's always a meaningful part of our innovation that goes in that direction. We also have some sales efforts that are dedicated to that. So those are important because they're quite untapped.

Got it. Maybe on the -- moving to the market services side of the business. So across both equity options and cash equities, it looks like over the past several years, Nasdaq share has been trending lower. How do you think about competition in these businesses and generally defending share in the exchange business? And along the same lines, you recently filed an application to add Monday and Wednesday expiries to a handful of qualifying securities. What would your expectations be for zero-dated single stock options, assuming an okay from your regulator?

Yes. So this is a very competitive market, but it's also a growing market. And so what we've been able to do is to defend the differential in share, which is still very significant and also really focus on not just share, but share capture and eventually revenue. So when you look at the revenue story that we've been able to generate for the last few quarters, and we certainly have been able to offset that share, not just with market volumes but also with the management of capture and with the focus on being there for the clients at those times of volatilities, it takes a lot of investments actually to be able to be the venue of choice when that volatility is extreme, and we've been able to do that. So we feel very good that revenue is the driver that share is still at a level of differentiation versus others, which is extremely strong. We're not sitting on our laurels because we know that it's a very competitive space, but we're able to be -- to continue to be viewed as the #1 venue and to provide that innovation to our clients, and therefore, that's certainty of execution to our clients. When you look at the numbers, we were in double digits for the end of last year and the beginning of this year. Obviously, those are very elevated numbers. We're not saying that's the new normal. But certainly, that gives you a sense that we didn't just lose share.

And then the other part of the question, the -- yes, how do you...

Yes. Very interesting for us. Many of you have been asking, including you, and I think that you were right to ask and we are focused on it. We're starting, I would say, where it makes sense, which is with some of the large names, but this is something which we believe is an opportunity, and so we're pursuing it.

Great. Maybe moving to costs and capital allocation. So we talked earlier about AI. More broadly, how do you think about the opportunity internally? How much runway is there for additional efficiency gains to be made by implementing AI at Nasdaq?

Yes. So we talked a little bit before that about the fact that the Adenza-related synergies, which then got expanded into a broader efficiency program, are going very well. So we've got this $140 million program and we're in spitting distance of being done with it. And there is a portion of that, which is AI on the business. So I talked earlier about in the products, for example, in Financial Crime Management, we have that in many products. And this is about on the business. So on the business would be Sarah Young was thinking about her finance team and our General Counsel thinking about his legal team and how do you want -- and then very importantly, all of the tech team leveraging GenAI. We think it's a real opportunity. We think we're at the beginning stages. The portion that's in the $140 million is a real number, but it's not like the majority of the $140 million by any stretch. And we think that as we continue to deploy and to see the successes that this will become meaningful. So we're putting a lot of not just efforts but also rigor in tracking on what's going there. And we do believe that there will be additional efficiencies beyond the $140 million, we have talked about that. We'll be able to talk about, but we haven't announced the number yet.

Okay. Great. On the capital side, so at the end of Q2, gross leverage was approaching 3%, I think you're at 3.2%. Any updated thoughts you can share around getting below your leverage targets? How do you think about buyback opportunities? What the cadence looks like, anything like that?

Yes. So we've been very pleased about the deleveraging story. We had a milestone of 3.3%, we achieved that one and in fact, overachieved it being at 3.2% in the second quarter, 16 months ahead of the time line and our goal is to continue to go on that track. We've been able to do that with, first of all, the power of our free cash flow generation. So that free cash flow generation affords us to do several things. We've got a progressive dividend. We've got, of course, the support of our organic growth, which I should have started with because it's the #1 thing that we do, and we really fund our investments at a high level, which is why you hear us talk about GenAI here, GenAI there. And not just that also migrating markets to the cloud. I mean, we do some very real things. Calypso, the cloud improvements that we had talked about. We do a lot of things, and we're very proud of that. Then you go into the debate between share repurchase and debt repurchases. And you've seen us skewing towards the debt repurchases as we prioritize really getting that leverage down, but given where we are, and you will see an increasing focus on share repurchases, while we continue to execute on both.

Got it. So at the opposite end of the spectrum, we've seen Nasdaq spin-off some businesses in the past. I think earlier this year, you spun-off your European power trading business. Is there anything else across the portfolio that feels like it doesn't quite fit with your core strengths? Could we see other divestitures in the future?

So I would say at Nasdaq, before me and with me too, it has been a constant rigor to do reviews of the portfolio. So it's -- we will always do the review, we will always evaluate on the margin if there are things that make sense. We are not like changing our business model. But certainly, the evaluation of each piece is always a good rigor to have.

Got it. Great. Well, maybe circling back to a couple of things we talked about earlier. With the beginning of our conversation, we talked about the IPO market. Curious if you could talk about the mix of the pipeline? It's a question we get a lot, whether it's on the exchange side, the alternative asset management side, which me and a lot of my peers also cover. It seems like the market has been more open for certain types of companies, tech growth, crypto. How does the pipeline look? Do you think that the appetite or the desire to go is kind of broadening? And I think we talked about sort of the broad market, but how do you think about like the different sectors and the ability to go public as we're looking out over the next year?

Yes. We think that it really depends on the quality of the players on -- although there was a bar that was, I would say, so extraordinarily high that nothing could happen about a year ago. And that bar remains a high bar. And it's a combination of more companies are meeting that bar and the bar went from, I would say, exponential to high. And across the sectors, technology, software have been very good. Crypto has had a very good track record so far. Fintech, there is a good pipeline in fintech, and you saw the execution with time. So -- and then we've seen a little bit in health care. And then you get into some like smaller here and there. You'd see some consumer retail, you'd see some energy, but that's not the majority of the pipeline.

Got it. And a separate topic was something you mentioned. It feels like something even like a year or 2 ago, we talked about a lot, the conversations more moved to AI. But on the cloud side maybe 2 parts. Can you talk about where Nasdaq is in kind of your broader cloud journey? And then I feel like just a few years ago, there used to be a lot of conversation about moving whole markets to the cloud. What's the latest there? Is there still -- is the blockchain sort of the updated version, we don't need it anymore? Or is there still experimentation momentum happening there? Like what are your thoughts on it?

So when you move a market to the cloud, you're first, in some ways, like reengineering the processes and then moving into the cloud. And so we're going through all of that. And there are some markets that get all of the benefit, I would say, with that reengineering and others that actually benefit more if you do it in the cloud and so we make the right analysis as to what to do where. It has been a constant part of our investment. And so this is not one where we go in, we go out. This is one which we've been doing for many, many years and which we're continuing to do. We don't talk about it, I would say, as often because it's not as new, but it's a core part of our investments. And I will say, when you saw us execute, I won't say brilliantly, but really well, in the first half of this year through those extreme volatilities. I mean to calibrate, the messages went from -- when we talked about it at the Investor Day, we said approximately $200 billion; at that point, like a record would have been 250 billion messages a day, which is already extraordinary. And then you go, okay, in the first quarter that became a record of $450 billion a day, and then that number became in April $550 billion a day. So we are like dealing with a scale and a scaling need, which has benefited from the investments we've made, both into all of the exchanges but also the ones that have gone into the cloud. So that's happening. We've seen also other investments in the cloud, whether it's in surveillance, whether it's in the Calypso. You've seen us also even on Axiom continuing to do that with clients. And so this is something which got started 10 years ago, at this point might be 11 even. But -- so it's not a new trend for us. But if we want to get the full benefit of GenAI, there is a real value for the cloud.

Maybe one last final question with a little bit of time we have left. So another one of your recent announcements is another planned Investor Day next February. I think we -- you have a somewhat regular cadence. So not too unexpected, but just you've kind of gone through this period of acquisitions, Axiom, Calypso. Feels like investors kind of understand now like how that -- the story all fits together. So how do you think about, clearly, we'll get there when we get there. But what should we be looking for when we kind of see you again, I think, next February?

Yes. I mean, I would say you should -- strategies shouldn't change every time you have an Investor Day. So you know our strategy, we've been executing our strategy, we've got a focus on organic growth for now. And this is a strategy which is embedded in a very large TAM and SAM, and the SAM is actually benefiting from the conversion of the TAM. We think that at this moment in time, with the trends of digital assets, there is even more need for our services that we are giving. We think that the accelerations of trading and the advent of retail create data and opportunities for infrastructure, which again position us well. And so I wouldn't like walk into Investor Day thinking that you're going to hear like a brand-new story from us, but that we will give you a lot of proof points for how we've been executing and a bit more time than what we can do in 40 minutes.

Great. Well, we'll leave it there. Sarah, thank you so much for joining. It's a pleasure to have you.

Thank you.