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

All right. We'll get going here. Welcome to the 2:00 session. My name is Michael Cho. I am an equity analyst here at JPMorgan, and we have Nasdaq's CFO, Sarah Youngwood, here with us today for this session. So as far as for format, Sarah and I will do about 20 minutes of fireside Q&A. I'll leave the last 10 minutes or so for audience Q&A. So please think of questions, and we'll go from there.

Sarah, thanks for joining us. Thanks for the time, as always. I'll kick it off with an easy market question here. So I mean, equity markets and listings, I mean it's been a strong, I guess, growing tailwind heading into the shutdown. We've had the shutdown. We've emerged on the other side. So maybe you could talk through a little bit about pipeline and what you're seeing and what you're hearing now that we are on the other side of the shutdown.

Yes. So we most definitely happy to be on that other side and to have that visibility into the year. We're late in the year, but the year is not finished. And importantly, we've had a lot of ingredients that were together as we were finishing 2024 that are here, again, I would say, with a productive despite everything, 2025 that has happened. So when you think about the capital raises in dollars, in number of deals that have happened, the performance of the deals in general has been relatively good. The cost of capital is not going up. How fast it goes down is a question. But all of those ingredients participate in what we call our IPO pulse and puts us, again, in a very good position to look at 2026. And also, when you look at what has happened for us this year, we've had a pretty robust performance in Capital Access Platforms in general, and this was one of the contributor.

Wonderful. Have you -- I guess, our issuers and kind of that pipeline, if you think about -- we're pretty close to year-end. So how are we thinking about maybe things getting done this year versus things getting pushed out?

There is still activity that is planned for this year, and there is extremely strong pipeline for next year. So not everybody is trying to go in the month of December or in the rest of November. But there is still some activity that is planned, and we're well positioned. We have a very strong pipeline. But what's interesting about the pipeline is it's actually pretty well laid out. Like this morning, I was having breakfast with somebody who is more of a July player. And then you have the March players and you have the ones that are going right now. And so people are considering that, obviously, you can't tell what the windows will be, but that there is a year to optimize their time lines.

That's fair. If I could just squeeze one more shutdown question. Anything else in terms of outside of the listings business, right? I mean, Nasdaq operates broad diversified business in a lot of different areas. Anything else just to keep in mind when we think about shutdown and effects that anything pushouts, anything like that?

No, no material impact from the shutdown for Nasdaq.

Fair enough. Fair enough. And then just staying on pipelines, maybe a different angle to it. I mean, ETFs and the dual share -- class of dual shares, it's been a growing topic in the mutual fund industry. Clearly, Nasdaq is a player in the ETF listings as well. Arc is there as well. But just kind of curious, if we think about that pipeline, and I think maybe there's like close to 100 folks waiting and that could be hundreds of listings in the years ahead. Like when we think about economics and maybe the benefits that accrues to Nasdaq, I mean, how would we kind of frame that benefit as that comes to fruition?

Yes. So taking a step back, this is a very productive idea to be able to have both the mutual fund and the ETR fund for people to choose the structure that fits best their objectives. So it's a good thing that we believe that there will be lots of approvals related to that. And that opens more business for people like us. We like it. Is that going to be like a dramatic change in the performance of all of Nasdaq? No. But is it something which we're excited about that we're well positioned for? Absolutely.

Is this something to pay attention maybe like a 2026 event or '27 and beyond? I mean, how that...

I think it starts in '26. But again, it's not going to be like a dramatic shift in the entire performance of Nasdaq, but yet it's something smart that's happening that is incrementally positive.

Okay. Maybe I'll just stay on Capital Access while we're -- we talked about listings. Maybe we'll talk about the other subsegment in data and listings. So maybe I'll just touch on data for a second. I mean data has been doing quite well recently and actually highlighted that it continues to trend well in terms of customer demand and outlook there as well, at least into year-end. Can you just help unpack what's really driving that data business and what's really happening underneath that's ultimately benefiting that segment?

Yes. So if you start with the conclusion, we ended up increasing the expectation for the full year for all of CAP in part because of the strength of data and listing that we are looking at. So when we unpack that, we just talked about the listings. But when we look at data, you've got several phenomenon. First of all, we have a global franchise, and we are seeing global investors that are very interested in trading in the U.S. So the U.S. remains the deepest, widest capital market that's available and people want to access it. With 24/5, people want to access it in their daylight hours. And it extends beyond the U.S. For example, we had an announcement with eToro, where they're distributing our data, and this is the Nordic data. So now you're seeing that investors who have a bias for their home market are also using Nasdaq data to do so in the Nordics. And so we're very well positioned. We have -- this is the regulated data that I'm speaking about, but we also have an excellent nonregulated data where we sell data sets and monetize that, and we're very, very good at that, but that doesn't sit in that. But in general, we've been able to be viewed as really the gold standard for data, traded data that is real tight and that is leveraging the trends of retail globalization and 24/5.

That's fair. Is there -- and I'm sure there is, but I would love to just touch on the data, some of the things you're talking about. You mentioned eToro and the partnership there. And some -- a lot of that is driven with retail interest and ongoing interest in that segment of the market. I mean, so how -- if we think about -- and maybe your answer from retail is here to stay. But if we think about the other side of that, if things slow down, I mean, is there a correlation when we think about trends in data that might go the other way as maybe things normalize more in that segment?

Well, I think that after COVID, people were -- is retail going to stay? COVID was some time ago and retail has stayed. I think that when you're looking -- and we're not speaking about market services right now, but when you're looking at the volumes that we are seeing first half of the year, normal volatility, event-driven, high [indiscernible] second half of the year, pretty regular environment, and yet we're continuing to see massive volumes and retail has been a big part of that. And we're continuing to see that, we think, as a sustainable trend.

If I could switch gears a little bit. I just want to talk about private markets in general. I really want to ask about eVestment and indices, but I'll save that for a second. Solovis, acquired a few years ago, announced the sale, not too long. Maybe just talk us through -- refresh out kind of the thoughts behind divesting that business and the gap that -- maybe there was no gap that left. But if I think about private markets and the piece that Solovis kind of filled, again, maybe just talk through the logic around divesting that business.

Yes. So this is a process that's not new at Nasdaq that we've done many and many times and many and -- over many and many years, which is we always look at our capital allocation internally. And so as we allocate dollars, we want to make sure that we allocate dollars where we believe the innovation is going to be most fruitful for our shareholders and where we are feeling that we are the best positioned owner for any asset that we own. When you look at Solovis, the synergies with eVestment were not quite as much. So this is the LP versus GP. So whereas you think that there is some synergies that's very, very different. And eVestment is a great engine. And so this is where we've decided to focus our investments. We've got over 1,000 allocators who are looking through our eVestment contributory data across 89,000 strategies. And that is a very cemented, very fruitful avenue for us to continue to grow. And I'm sure many of you in the room are using it and are seeing the value of what I'm describing. And you're not necessarily consulting with your LPs. So like you're not seeing that synergy, and we were not either. So when we are taking that, we really like the opportunity to serve both public and private markets around the eVestment asset. In eVestment, we've been able to now double what we are serving our asset managers, GPs in terms of private data. So we are very much investing in this, and that has a nice link towards also data link, et cetera. And so we feel that, that's a robust strategy that we're very excited to have.

That's great. I mean, so for folks who are in the room in terms of eVestment, and again, private markets and private markets data, particularly is a -- has been and is continued to be a growing theme. And for folks in the room, when we think about eVestment, I mean, historically, I've always come to like public market funds, right? And you've got to be in the network, you got to get into the consultants, right? And so -- but when we talk about eVestment in the private market data sense, and I recognize there's private market data in there, but can you just help us understand what kind of part of the private market and kind of data sets that eVestment is providing today and then kind of the sourcing of that data to any extent you can...

Yes. So private data is not super easy to source. And so we're doing the hard work of doing interviews and actually getting that data. We're also applying technology, including Gen AI to it to make our processes very efficient. And so we've been able to grow the data set, but it's effectively building the equivalent of the eVestment data, but on the private side so that you can actually have a choice in between private and public strategies, which we think converges over time more and more with the regulatory environment. We are also separate from what we're doing there, distributing other private data. So for example, the tape D is a Nasdaq Private Market, which is a venture investment of ours. And that's the tape that they do based on the tenders of private shares that they are doing. And we are distributing that. We already have 4 clients who have been taking it, and this is just brand new almost. So we are definitely creating a data ecosystem around privates, which we think is very complementary. And actually, in that particular case, our differentiated advantage is that we already have the distribution, and it's the same buyer who actually wants both.

Anything on index or indices along the same conversation -- some other players have announced partnerships and launching various kind of things. Anything on -- I mean, clearly, Nasdaq is a dominant player in index as well. So just kind of curious if there's anything for us to keep an eye on or maybe not...

You can keep an eye on it, but we don't have yet something to announce. But yes, this is definitely something that would be part of the strategy that we are interested in and working on, but I don't have anything specific that I can announce today.

Fair enough. Verafin, if I -- so continuing to sign Tier 1s and Tier 2s. I think you've highlighted implementations that are set to go right now. How does that kind of shape the look ahead in terms of the medium-term outlook for Verafin as you have these implementations that are happening as we speak, more Tier 1s coming online. It feels like there are some tailwinds there, not to speak of easier comps as well near term, right, into next year, but just kind of help us frame the outlook for Verafin as these are happening underneath?

Yes. So for a while, we've been very excited about the value that Nasdaq can add to Verafin, which is we have great credibility and relationships with Tier 1s -- Tier 1s, Tier 2s, et cetera. But -- and then came Adenza, and you also have a lot of potential synergies between that client base and Verafin. And it took some time, but we announced Goldman Sachs last quarter. That's a name that most of you recognized. We had announced Citi about 2 years ago. And in between, we have been announcing 19, I believe, Tier 1s and Tier 2 together. So we are really now at the point where we have a real amount of names, but many of them just came live in the last few months and so as you know, the time between the signing and implementation is 9 to 12 months. But given that some of them were a few months ago, we are starting to be very close to it. And that's really the cadence that you should expect. So implementation gives you a little bit of professional services fees. That flows nicely through the revenue, but not quite as fast through the ARR and then comes the ARR, and that gives you a path towards that medium-term outlook.

With the Tier 1s and 2s coming online, as you said, and you're kind of exiting some of these longer sales cycles, I understand that the upsell cycles are a little bit shorter than the initial. So can you kind of talk through what you're seeing in terms of the upsell conversations that you're with the Tier 1s and 2s. I think you've announced a couple or indicated a couple in the past in terms of upsells, but just kind of curious more broadly, how is that initiative going as well?

Yes. So in the ones we have seen, generally, you can do an upsell twice as fast as a land, and that's helpful. The other phenomenon that we're starting to see, and this is still at POC stage. So I don't have a proof point I can actually give you that some of the large Tier 1s are sometimes looking at more than one POC at the same time. So it would be nice to be able to do them literally compressed into one. We don't have a proof point for that happening yet, but that's something that we're starting to see as a new phenomenon as some of the Tier 1s, by definition, know that they were not first. since we've been talking about it by -- for a few years. So look, this is the U.S. and then you've got a POC that is in process in the U.K. And so we look forward to continuing to penetrating Europe. And then you've got also the BioCatch piece, which we think is very interesting.

We'll get to BioCatch in a second.

The only transition for you.

Before we go there, I have one more. Most of the growth is still driven by the SMB market, right? And it's been a strong driver for Verafin for years now. If you think about all the newer modules that are coming out with AI and various tools, and I'm going to say things that maybe Nasdaq is better positioned to deploy and invest in than maybe your Verafin was 10 years ago, right? And so -- but the value add is there. If you think about SMB, I guess, 2 things, adoption and price, like are those things accelerating, decelerating? I'm just kind of curious how the -- if that core driver of growth is sustainable longer term.

I would say -- and you can look at the words that we have used in all of our earnings. And every time we are talking about a steady contribution, a steady pace. And so they are contributing at pace. They are not accelerating or decelerating. Obviously, it's on a higher base. So that is an immense effort in itself, and it's at a high level of contribution. And so we feel very good about the fact that we have a very good product for those SMBs that we're maintaining the relevance to the SMBs. And they're particularly appreciative about the Gen AI investments that we have made in the products, starting with the Copilot, but now including agents, and we're seeing very high level of adoption. And even BioCatch, sorry, I'm coming back to that one, is actually not just for the enterprises, but it's also for the SMBs. And so for us to have not only a good reason to give them pricing, but for us to start the dialogue on what else they can do with us is very important. And so we've got this anchor into their core banking platform, and we're making it worth a while.

Fair enough. I just want to pause here for a second, make sure I open up for questions. I'll keep going, but if you have questions, please raise your hand and wait for the mic.

Ram from TD Asset Management. The one question which I keep thinking about it is what is your biggest regulatory threat to the industry?

To the Financial Crime Management?

Yes, to Financial Crime Management, right? So it's something where you're growing pretty quickly. And so are you thinking about risks, threats, who is coming up and coming? And does it become an opportunity in the future?

So as far as regulatory threat, honestly, we don't think that that's a topic where regulators are going to say, yes, we love fraud. Let's get the fraudsters to win. That we haven't heard anywhere. And so if anything, the U.S. was actually quite well organized under the Patriot Act even 15 years ago, and that's what we've been able to leverage to build a consortium data, which now has over $10 trillion of assets of banks represented across 2,700 banks. But now we're seeing the regulators in Europe go in that direction, and that's actually the opening that we have in the U.K., and it's coming in other places. So in general, I would not see regulatory threat as an issue there. Now you always have innovation that needs to be something that we work on every day, which we do. So we've got the benefit of a moat of data. And we certainly are appreciative of the fact that we're 15 years ahead on that. And I don't think you can really catch that one easily. But that being said, we are staying on the forefront of innovation because that's what the clients expect. And we can't just rest on our data moat even though we have it.

So Nasdaq recently announced a partnership with BioCatch -- Verafin and BioCatch. Maybe one, can you just remind us what BioCatch is for those that are not as familiar? And what exactly this partnership entails?

Yes. So if you think about Verafin, we are looking at transactional data, and we are helping to catch the fraud that way. But there is another way to catch fraud, which is behavioral and device-related data. So if I am holding my iPhone at this angle versus that angle, if I'm pressing hard or not, if I'm a righty or lefty, if I put it to my ear to take a wiring instruction, there are tons of things I'm doing in the way I am behaving with my phone. And if you take 3,000 of those behaviors and you model them, you get BioCatch. And so BioCatch is helping financial institutions to catch the fraud through that behavioral analysis. So now if you are combining their behavioral data with our transactional data and you can integrate them in the same workflow, the Verafin workflow, which is nicely integrated into the core banking platform. That's like tremendously valuable for our clients, and we have a lot of client interest. So we have this partnership with BioCatch to do that together. They also have a great complementary international presence for Caesars. So we're much stronger in the U.S. They are much stronger in some of the places where we are not yet as represented. And so we believe that there are some very nice opportunities that are win-win for both of us.

How would the go-to-market work with this partner? Meaning if you have a Verafin client in the U.S. today in SMB I guess, would it be an incremental -- like how would that go-to-market work?

So we're doing an integration to be able to effectively visualize the BioCatch data and those alerts into the workflow. So that's like a tech integration that we're doing. And once we have it, we make it available. And it's -- you don't have to go pitch them one by one. It's like an upsell.

And when we think about -- I don't know if cross-sell is the right word, right?

Yes. I mean I said like an upsell...

But yes, if we think about the international clients that BioCatch has. And I think...

That's different. And we have a trip that's plan with them where a group from Verafin and a group from BioCatch are taking faint, meeting in a particular geography and pitching together. That's for like larger banks internationally.

And again, you just announced the partnership. The teams are just getting together. If we think about sales cycle when we think of international banks that are clients of BioCatch that could potentially become Verafin clients over time. And how should we kind of think about sales cycles and kind of opportunity to expand in those areas given that you just announced the partnership.

So I would say any lending of a large Tier 1 or Tier 2 is not fast. And it didn't come super fast because of BioCatch. But the short -- the sales cycles for the SMB is much shorter. So once we have done the tech integration, you can see that being much, much faster.

Fair enough.

There's a lot of client interest.

Next quarter. I have a capital allocation question later, but maybe since we're talking about BioCatch. So I mean, it seems like there's a lot of compatibility in terms of the capability that they bring, the clientele that they bring versus what Verafin has already. So I mean, other than saving a few billion dollars, is there a benefit to having BioCatch as a third-party partner? Or is there something more incremental that Nasdaq can leverage if they were brought in-house theoretically over time?

Right now, we believe that we have a construct where we can get a lot of value, and they can get a lot of value from the partnership. So it's a very well-structured partnership that, as you can tell, since there is some tech integration, et cetera, some ability to distribute together, really seems to serve the purpose very well. And now it's up to us to execute.

Just one question on BioCatch. What proprietary signals are you looking at, which you cannot replicate, which you get from BioCatch essentially? And can you essentially combine both of this together and predict some sort of risk earlier?

So everything is possible in life. And you can -- but analyzing and doing regressions on -- I gave you 3,000 behaviors. It's not to say that it's using a technology that we couldn't do. And if we had all the time in the world, we could probably do it. But they are doing it great, and they are #1 at what they do. And so there is a value today in partnering with a best-in-class player like them.

We have about a minute left. Any final -- I'll ask a final one on capital since we kind of touched on that topic. So I mean, Nasdaq generates about $2 billion of cash flow a year. The leverage profile has come down considerably. We could debate how further is going to go or not, fine. But there's some modest amount earmarked for dividends. If we think about kind of allocation outside of those things and balancing organic versus inorganic investments, is there a framework we should have in mind as you kind of approach it given the balance sheet is where it's at today versus all the other kind of businesses kind of working in concert, so organic and inorganic kind of balance.

Yes. So we always start with organic. And before you get to the $2 billion, we've really funded all of our investments. That number is after we have done that. And then you've got the dividend, which we would categorize as progressive. And that leaves you with a fair bit of optionality, which we've used so far to delever. We are right now just above 3x at 3.1x. We've given an expectation of 3x by the end of this year. And we have done some share repurchases beyond the employee dilution even this year. So when you try to think about that, I've used a lot of words, which I will repeat today, which is right now, our focus is on organic. And we are also really being very thoughtful between the share repurchases and the debt repurchases. The math is actually closer than you would think. And so we analyze different bonds, different maturities. We look at share repurchases. And I would say right now, we've got a fairly balanced approach to all of that. Would we look at a bolt-on? Of course, why not? But we are really always looking at alternatives like, for example, is the partnership the right way to do it. And so we don't have one only way to do things. You've seen us doing partnership ventures. And -- but right now, we've got a lot of organic opportunities in front of us.

Perfect. We'll stop there. Thank you very much, everyone.