Revenues, less liquidity rebates, brokerage, clearance and exchange fees ("net exchange revenues") were $198.7 million in the second quarter of 2007, an increase of 16.1% from $171.1 million in the year-ago period, and up 3.4% from $192.1 million reported in the first quarter of 2007.
"In the second quarter of 2007 NASDAQ's core business operated on all cylinders, reaching record operating earnings on the back of new product innovation and customer service initiatives. In addition, we are pleased with the pace of our integration planning efforts with our prospective merger partner OMX and are confident that together we will create the strongest global marketplace and technology platform," commented Bob Greifeld, President and Chief Executive Officer of NASDAQ. "Our ability to capture market share has grown NASDAQ into the largest single pool of liquidity for trading cash equities, creating a robust platform for growth. To that end, we believe our business is poised to deliver strong results over the second half of the year through continued product innovation and diversification."
Recent Highlights
* Entered into an agreement to combine with OMX AB to create the world's premier exchange and technology company.
* NASDAQ became the largest single pool of liquidity in which to trade U.S. listed equities. NASDAQ also achieved new market share highs in the trading of U.S. listed equities, matching a record high 28.8% of traded volume; while share volume matched by NASDAQ grew 19.7% from the prior year quarter.
* Quarterly operating income reached the highest level ever recorded for NASDAQ, increasing 172.7% from the prior year's quarter and 21.6% from the prior quarter.
* Expanded NASDAQ's comprehensive suite of crossing products with the launch of the intra-day and post-close cross, enabling institutional-sized orders to find liquidity anonymously and with greater efficiency.
* Announced plans to launch The NASDAQ ETF Market, a market segment designed specifically for exchange traded funds (ETFs) and Index Linked Notes (ILNs). The program will further strengthen NASDAQ's leadership position in the U.S. ETF sector. In June 2007, NASDAQ captured more U.S. ETF market share than any other U.S. exchange with total ETF volume at 52.1%
2007 Outlook
NASDAQ expects the following results for the full-year 2007:
* Net income in the range of $171.0 million to $181.0 million for the year.
* Net exchange revenues in the range of $775.0 million to $790.0 million.
* Total operating expenses in the range of $400.0 million to $415.0 million.
"Operating margins for the quarter were 49.8%, demonstrating our ability to deliver synergies from acquisitions while simultaneously introducing innovative customer products and services," commented NASDAQ's Chief Financial Officer, David Warren. "Our focus on operating efficiency is yielding positive results. This focus will continue to drive value for our shareholders as we introduce new services such as our Options and Portal markets, and strive to complete our planned combination with OMX."
Financial Review
Net exchange revenues increased 16.1% in the second quarter to $198.7 million, up from $171.1 million in the prior year quarter, and up 3.4% from $192.1 million reported in the first quarter of 2007.
Market Services
Market Services net exchange revenues increased to $127.9 million, or 18.8%, from prior year quarter, and increased 1.8% from the prior quarter.
Issuer Services
During the quarter Issuer Services revenues increased 11.5% to $70.7 million from the prior year quarter and increased 6.5% from prior quarter.
Total Operating Expenses
Total operating expenses decreased 26.0% to $99.7 million from $134.8 million in the prior year quarter and decreased 9.9% from $110.7 million in the prior quarter. Second quarter 2007 expenses decreased from last year due to the completion of the INET acquisition integration, which resulted in NASDAQ migrating all trading to a single trading platform. Also contributing to the decline from prior year were charges incurred in the second quarter 2006 associated with the extinguishment of a credit facility, costs associated with NASDAQ's continuing efforts to reduce operating expenses and improve the efficiency of its operations, offset somewhat by a foreign currency gain. Expenses decreased from first quarter 2007 primarily due to charges incurred in the prior quarter related to a NASDAQ clearing contract, offset somewhat by the recording of a gain associated with freezing the employee pension plan and SERP.
Earnings Per Share
Second quarter earnings per diluted share were $0.39 versus $0.13 per diluted share in the prior year quarter, and $0.14 in the first quarter of 2007. NASDAQ's weighted average shares outstanding used to calculate diluted earnings per share were 152.0 million in the quarter versus 145.2 million in the year-ago quarter and 151.8 million in the first quarter 2007.
