* $19.5 million associated with tax benefits shared with strategic investors,
* $5.8 million related to the early extinguishment of debt, and
* $1.1 million in workforce reduction expenses.
When excluding these items, net income on a non-GAAP basis was $62.1 million, or $0.42 per diluted share.
Revenues less liquidity rebates, brokerage, clearance and exchange fees ("net exchange revenues") were $210.0 million in the third quarter of 2007, an increase of 22.7% from $171.2 million in the year-ago period, and up 5.7% from $198.7 million reported in the second quarter of 2007.
"We are pleased to have once again reported record operating results, built largely on the success of new highs in trading volume and market share," commented Bob Greifeld, NASDAQ's President and Chief Executive Officer. "Our growth and liquidity has firmly established NASDAQ as the leader in the U.S. equities marketplace, driven largely by the pace at which we introduce new products and services designed to meet the needs of our customers. We know firsthand that working closely with customers to develop innovative products distinguishes NASDAQ from the competition and is a key driver behind our strong financial performance."
Recent Highlights
* NASDAQ expanded its leadership position as the largest single pool of liquidity in which to trade U.S. listed equities, matching 29.5% of all volume. NASDAQ also achieved new market share highs in the trading of NYSE-listed equities, matching a record high 18.0% of volume during the quarter.
* Announced the proposed acquisition of the Boston Stock Exchange (BSE), providing NASDAQ with a second exchange license and, subject to SEC approval, utilization of the BSE Clearing Corporation.
* NASDAQ has agreed to acquire all the shares of OMX that Borse Dubai has acquired or will acquire through its August 9 announced offer for OMX. NASDAQ's acquisition of OMX has received the support of the OMX Board and OMX's largest shareholders.
* NASDAQ has agreed to acquire a 33 1/3% interest in DIFX, a subsidiary of Borse Dubai, and an international stock exchange located in Dubai. Working with DIFX, NASDAQ intends to develop DIFX into a regional center for capital formation.
* Completed the sale of NASDAQ's share capital of the London Stock Exchange for a $431.4 million pre-tax gain. Of the $1.8 billion in proceeds generated from the sale, $1.1 billion was used to retire outstanding debt obligations.
* Launched the Portal Market, NASDAQ's electronic trading platform for 144A private placement securities. This market is designed to encourage capital formation by improving the efficiency and transparency of the private placement market.
* Began operation of The NASDAQ ETF Market, designed specifically for exchange traded funds (ETFs) and Index Linked Notes (ILNs), further strengthening NASDAQ's leadership position in the U.S. ETF sector.
* Launched the Select Market Maker Program, a certification program designed to recognize market makers who offer the highest levels of quoting and execution quality in NASDAQ-listed securities. Investors, NASDAQ-listed companies, funds, and prospective public companies benefit from the Select Market Maker Program through the ability to identify which firms continuously provide high-quality liquidity.
* Launched NASDAQ Data Store, which provides online access to innovative data tools for institutional and individual investors. NASDAQ was also recognized as the world's premier stock exchange for data feeds for the second consecutive year in the annual Waters Rankings.
2007 Outlook
NASDAQ expects the following results for the full-year 2007:
* Net income in the range of $501.0 million to $507.0 million for the year.
* Net exchange revenues in the range of $800.0 million to $810.0 million.
* Total operating expenses in the range of $435.0 million to $445.0 million.
These estimates include the impact of the pre-tax gain of $431.4 million and other non-recurring items noted above.
"NASDAQ is in its strongest financial condition since becoming a public company," commented NASDAQ's Chief Financial Officer, David Warren. "We've paid down our INET-bank debt in a little under two years and have $1.3 billion in cash on the balance sheet. Looking forward we will continue to focus on revenue growth and free cash flow generation, while maintaining our strict focus on cost control and leveraging our fixed-cost platform. The strength of our core businesses and our strong cash position give us the ability to continue to be opportunistic and invest in areas that will benefit our shareholders and customers."
Financial Review
Net exchange revenues increased 22.7% in the third quarter to $210.0 million, up from $171.2 million in the prior year quarter, and up 5.7% from $198.7 million reported in the second quarter of 2007.
Market Services
Market Services net exchange revenues increased to $136.7 million, up 22.8% from the prior year quarter, and up 6.9% from the prior quarter.
Issuer Services
During the third quarter Issuer Services revenues increased 22.4% to $73.2 million from the prior year quarter and increased 3.5% from prior quarter.
Total Operating Expenses
Total operating expenses increased 22.1% to $126.1 million from $103.3 million in the prior year quarter and increased 26.5% from $99.7 million in the prior quarter. Third quarter 2007 expenses increased from last year and prior quarter primarily due to a pre-tax charge of $19.5 million associated with tax benefits shared with strategic investors and a pre-tax charge of $5.8 million related to the early extinguishment of debt.
Earnings Per Share
Third quarter earnings per diluted share were $2.41 versus $0.22 per diluted share in the prior year quarter, and $0.39 in the second quarter of 2007. NASDAQ's weighted average shares outstanding used to calculate diluted earnings per share were 152.3 million in the quarter versus 150.8 million in the year-ago quarter and 152.0 million in the second quarter of 2007.
