Good day, ladies and gentlemen, and welcome to the NASDAQ First Quarter 2016 Results Conference Call. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will follow at that time. As a reminder, today's conference call is being recorded. I would now like to turn the conference over to Mr.
Ed Dittmeier, Vice President of Investor Relations. Please go ahead, sir.
Good morning, everyone, and thank you for joining us today to discuss Nasdaq's Q1 2016 earnings results. On the line are Bob Greifeld, our CEO Ron Hasson, our Interim CFO our Chief Operating Officer and President, Adena Friedman President, Hanzola Jacobsen Ed Knight, our General Counsel and other members of the management team. After prepared remarks, we'll open up to Q and A. The press release and presentation are on our website. We intend to use the website as a means of disclosing material, non public information and complying with disclosure obligations under SEC Regulation FD.
I'd like to remind you that certain statements in this presentation and during Q and A may relate to future events and expectations and as such constitute forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from these projections. Information concerning factors that could cause actual results to differ from forward looking statements is contained in our press release and periodic reports filed with the SEC. I now will turn the call over to Bob.
Thank you, Ed. Good morning, everyone, and thank you for joining us today to discuss Nasdaq's record Q1 2016 results. First, I want to thank those of you that attended our recent Investor Day. I hope you found it beneficial in your understanding of our mission and our strategy. Among the themes we highlighted during this day was we are an applied technology company at our core.
Our spirit of innovation and how that lays the foundation for our growth, our resiliency for both our customers and for our shareholders and our drive to generate attractive returns for our shareholders. I'll update everyone on how this quarter reinforces those themes later in my remarks. Regarding generating attractive results for shareholders, we have also clearly detailed the opportunity we have to consistently deliver strong returns. So in keeping with that theme, I can't think of a more compelling way to start than in the context of record quarter results we delivered and how it indicates how our model is performing. In the Q1 of 2016, on a non GAAP basis compared to the prior year, organic net revenue growth was a solid 4%.
Our operating income grew 8% due in large part to a strong operating leverage And then largely due to the impact of capital deployment over the last year, our diluted EPS grew to a more impressive 14%. Adding in the dividend, which we recently announced had been raised, and an approximate 2% yield, the total shareholder return assuming constant valuation was around 16%. Now we certainly know the stars don't always align every quarter, but we do know our strong organic growth prospects, our operating leverage and our discipline around capital positions us to deliver strong returns for shareholders. Non GAAP diluted EPS reached an all time high of $0.91 and non GAAP operating income and net income both were records at $254,000,000 $153,000,000 respectively. During Investor Day, we also said that at NASDAQ, our fundamental mission, 1st and foremost, is to serve our customers.
We accomplish this through an intensive engagement and feedback loop with these customers. We see our success based on the 4 core principles: Applied Technology, Growth, Innovation and Resiliency. When we do all these well, it will translate into a very positive total shareholder return, and that is our focus. So with that in mind, I'm going to organize my remarks today around these four principles as they relate to our performance this quarter. The first principle I'll discuss is growth.
Here we are focused on 2 key areas, organic growth and expansion through acquisitions that are strategically compelling and meet our strict financial criteria on returns and accretion. When you look at the NASDAQ value proposition, we know our clients face increasingly complex challenges. And as a result, everything we do is laser focused to ensure we are listening to them and executing to better meet their needs. Clearly, a good example of this intense focus is our market services business. We saw strong organic growth, 6% as compared to the prior year quarter.
Our cash equities business saw organic growth of 17% on higher volumes and capture, while we also closed the acquisition of Chaius Canada, which provides Nasdaq access to a healthy adjacent market and expands our equities footprint in North America. Our laser focus on the soundness and efficiency of our market plays a significant factor in our ability to capture higher share during times of volatility, and this is certainly what we experienced in the Q1. We look forward to seeing how far new concepts like dynamic pricing can take things to further improve the quality of our markets in the most critical times. Turning to our Listing Services. Despite a rough start to the year for the broader IPO market, this business still delivered its 2nd best quarter ever in terms of revenue, driven by a strong year on year increase in the number of listed companies.
Overall, NASDAQ's U. S. Win rate continues to be a very strong 76% market share of all IPOs and 278 new listings during the last 12 months. We won 10 of 10 IPOs in the Q1. So certainly why 10 while 10 is not a good number, 10 out of 10 we have to be proud of.
This increasing competitive effectiveness should benefit us as we move past a volatile start to 2016 and have better prospects of seeing more IPOs come out of a still healthy backlog of filed issuers. IPO activity on our Nordic markets has been quite remarkable. During the quarter, NASDAQ welcomed 14 new Nordic listings, a near record quarter. Beyond IPO activity, we've seen $122,000,000,000 in market value switch to our market in the last 12 months with category leaders such as Willis Towers Watson, Scripps Network Interactive, CSX, TD Ameritrade and T Mobile. We're also seeing a very strong performance in ETP listings.
Year to date, NASDAQ won 43 new ETPs or switches, including 25 in the Q1 alone, clearly the most by any U. S. Exchange. Our total ETP listings on NASDAQ were 2 41 at the end of the quarter, up 36% versus the same period a year ago. The 2nd quarter is also off to a fast start with 18 additional new listings.
Clearly, these are big wins for us and certainly this is further indication of the value proposition this franchise offers in the marketplace. We are the only U. S. Provider of a complete life cycle solution to the ETP ranging from product development and index creation to launch listing and trading of the ETP. I've said several times over the recent periods, but I think it bears repeating again this quarter, the foundation of Nasdaq's very diversified product offering at NASDAQ is our Equity Trading and Listings business.
So it's very encouraging see it performing so effectively with results at multiyear highs as well as maximizing opportunities for other businesses across our broader franchise such as in derivatives, data and connectivity. A great example of a business that is leveraging that foundation to succeed in terms of organic growth is our information services business, where we saw record revenues and solid year on year growth not only in data products but also in index and despite the Q1's pullback in average market levels as our Q1 2015 acquisition of Dorsey Wright, they enjoyed significant organic growth post close. Now in addition to some of the positive organic growth trends I just shared, another fundamental prong in our growth strategy is strategic acquisitions. During the quarter, we announced or closed 4 new acquisitions, which we're quite pleased about. Most importantly, because they're all in our previously committed strategic direction, they are leveraging our areas of expertise, they will build upon the businesses we are already successful and well established in.
Repeating the disclosures made at Investor Day, we said these acquisitions are each expected to generate attractive returns and generate EPS accretion within 12 months of closing and together would have driven an 11% increase in our non GAAP diluted EPS based on 2015 results assuming full synergy realization. We are confident these acquisitions will also drive meaningful growth opportunities and deliver even larger impact in the years to come. In the Market Services segment, we closed the acquisition of Chai X Canada, the number 2 player in the Canadian equity space in early February. We are currently working on further expanding this offering incorporating our technology and added capabilities, which will benefit the Canadian market. The acquisition of IFC will provide us with the opportunity to broaden our U.
S. Options offering, in particular, gaining new capability through IFC's leadership in complex options trading and provide new opportunities to innovate and bring greater value to our clients. Last week, we were informed by the DOJ that the ISC transaction's HSR review has been successfully completed and we will work with the SEC towards obtaining their approval for this transaction. Contingent on receiving regulatory approval, this transaction could close as early as the end of the second quarter. Our original estimate was in the second half of the year.
In our Corporate Solutions business, we announced 2 acquisitions, Marketwired and BoardVantage. These acquisitions will enable us to extend our corporate client customer base and increase our exposure to some of the highest margin and fastest growing segments in our Corporate Solutions business. With respect to Marketwired, which closed in late February, we are now working through the integration of the systems, technology and talent with the goal of a single new platform for news distribution and analytical information. With respect to Board Vantage, we received notice yesterday that the HSR review has also been successfully completed and we anticipate closing in the coming week. We look forward to strengthening our position as a leading provider of Board and collaboration tools.
As I mentioned earlier, technology is core to what we do here. It is core to the way we apply everything in our businesses and we do that across products and solutions with a singular focus to benefit our clients. Let me give you a few examples of this. With NASDAQ Private Market, we are on a mission to bring increased liquidity and other advantages from the public market to the private market space. Our efforts continue to resonate with private companies and at the end of the quarter, NPM now has 122 private companies using our software products for employee shareholder liquidity and equity cap table administration.
This compares to 46 in the prior year period. We continue to enhance this platform in new and innovative ways to reduce the administrative complexities and cost private companies face today. This success follows last quarter's successful execution of the first blockchain enabled transaction in the private space. This enabled participants to reach settlement in minutes compared to the industry's the public company's industry current standards, which is measured in days. We are doing incredibly exciting things in the private market space today.
But most importantly, we are only beginning to scratch the surface in terms of level of innovation and capabilities we can in fact deliver for private companies. In our Corporate Solutions business, which serves Issuers both public and private, we successfully launched our next generation IR Insight platform in the 1st weeks of January. And through the 1st 3 months of this launch, we've migrated 750 clients and over 1200 users. That's truly impressive. We also received much feedback from the early adopters, most of it overwhelmingly positive, but this feedback loop is also helping us to develop and quickly deploy innovative new features.
We expect to complete the transition of the remaining 2,500 clients within the next 6 months and sunset the legacy T1 platform on schedule during the Q4 of this year. We've added also new customers through cross selling our existing base and winning competitive situations. In addition, we've seen IR Insight and the integration of the platform offers serve us as an opportunity to deepen relationships with customers by cross selling other products in Advisory and Communications segments. While still early days, we see clear examples of how elevating the bar in terms of technology and product design will be key to bringing sustained organic growth to Corporate Solutions in the periods to come. Moving on to our Market Technology business, we're also leveraging the trends for applied technology to increase the capabilities to utilize blockchain technologies to evolve our post trade operations as we continue to enjoy near record highs in our signed contract backlog.
SMARTS, our leading solution in the surveillance space, is a good example of the success we've had in evolving a product over time to increase the value for our clients. In fact, we had a record quarter in terms of Smart's new order intake, and this is really a strong growth story for us as our clients are turning to us more and more to help them manage the complexities of the new regulatory environment. We are also currently exploring the application of technologies such as machine intelligence, which we expect to open up a host of new opportunities and capabilities for advanced compliance and surveillance that will detect fraud more quickly and in more asset classes. We're also currently exploring a number of proofs of concept in our lab that looks to harness the predictive capabilities machine intelligence offers to enhance our listing, our trading, our index and our data product areas. To ensure we are positioned to take advantage of these opportunities, we are making investments and also we have partnered with Digital Reasoning, one of the thought leaders in this space.
Our use of applied technology is really only one half of the equation. It is what we do with this technology to deliver on a client's need that is the most important and in many respects where true innovation takes place. NFX, our energy derivatives market, is a good example of our focus on new concepts and a better way to serve our clients. Now in its 9th month of operation, we are extremely encouraged by the volume and open interest progress we are seeing. During the April trading, volume passed a significant milestone, moving above 100,000 contracts per day on average, while open interest also continued to set new records, and we went above 800,000 contracts just this week, and we now make up about 40% of the futures open interest at OCC.
We are seeing a growing number of firms use our NFX service and during the Q1 more than 70 companies manage their trading and hedging needs on NFX. On May 1, we will implement our new fee program for NFX. We are committed to provide the market with transaction costs that are 50% lower than the incumbents. These fees will be introduced in a phased manner. May 1 is the first phase of that program.
When we think about resiliency at NASDAQ, we of course think about our technology and the systems and how reliably they serve our customers. But we also think more broadly than that in how we run this organization. Central to this business model, our business model is a diverse mix of subscription and recurring revenue. Almost 3 quarters of our current revenue is subscription and recurring. We're also continuing our maniacal focus on optimizing efficiency and margins on a product by product basis, even while investing materially to grow each franchise.
And this is evidenced in the significant increase in our profitability year over year. In fact, our 48% non GAAP operating margin matches a multiyear high. Together, these give us an exceptional amount of visibility and stability in our growth path, which combined with our organic growth opportunity, significant operating leverage and disciplined deployment and return to capital has us on a great path to deliver strong shareholder returns, both in terms of combined earnings, growth and dividend yield. It also continues a successful story that can we can continue investing and innovating on behalf of our customers as well as nourishing the seeds of tomorrow's growth. In closing, it was another tremendous quarter for this franchise.
The examples I've outlined here today clearly demonstrate this franchise's focus on the innovative use of technology, growth and resiliency is not only increasing the amount of client opportunities for us, but it does manifest itself in the results we deliver to our shareholders. What is most exciting for me is that when we look across all our businesses we are in, there are perhaps more quality opportunities in front of us today than during any other time during my tenure. We certainly feel very good about our ability to execute on these behind the resilient business model we have built. We alluded to strong value creation during Investor Day, and I think that this quarter is clearly an indication that we are on the right glide path to achieve this and look forward to exceeding expectations for our clients and our shareholders in the quarters to come. I'll now turn the call over to Ron.
Thank you, Bob. Good morning, everyone, and thanks for joining us today. My commentary will focus on non GAAP results. Reconciliations of GAAP to non GAAP results can be found in the attachments to our press release and in the presentation that's available on our website atir.nasdaq.com. I will start by reviewing 1st quarter revenue performance relative to the prior year quarter as shown on Page 3 of the presentation.
The 5% or $27,000,000 increase in reported net revenue of $534,000,000 consisted of organic growth in market services, net revenue of $12,000,000 or 6%, resulting principally from higher cash equity and access revenues. Organic growth in Non Trading Information Services, Technology Solutions and Listing Services segments totaled $7,000,000 or 2% due to the growth in Listings and Information Services. In addition, there was a there was $10,000,000 in revenue from recently completed acquisitions of Marketwire, Chai X Canada plus one additional month in the Q1 of 2016 from DWA, while year over year change in FX rates reduced revenue by $2,000,000 I am now going to go over some highlights within each of our reporting segments. All comparisons will be to the prior year period unless otherwise noted. Information Services on Page 5 saw a $5,000,000 or 4 percent organic increase plus a $4,000,000 increase related to DWA and Chyak's Canada acquisitions, reduced by a $1,000,000 FX impact.
Market data revenue saw a $4,000,000 or 4% organic increase, reflecting revenue growth in index data and proprietary products. Indexed Licensing and Services saw a $1,000,000 or 4% organic increase, reflecting growth in DWA. Technology Solutions shown on Page 6 saw a $4,000,000 or 3% increase in revenue, including $4,000,000 contribution from the acquisition of Marketwire. The operating margin was 12%, up from 11% in the prior year period. We continue to have confidence in reaching our medium term objective and expect further progress as we move through 2016.
Corporate Solutions saw a $1,000,000 or 1 percent organic decline as shown in directors as growth in directors' desks was more than offset by declines in multimedia. Repeating what we said at the recent Investor Day, we continue to believe we are on the path to return to organic revenue growth in Corporate Solutions, but would expect that in the second half of twenty sixteen at the earliest. Market Technology revenue saw a 1,000,000 dollars or 2 percent organic increase due to organic growth in surveillance products. New order intake was $22,000,000 in the Q1 and the period end backlog finished at $783,000,000 up 8% year over year and they are an all time record of $788,000,000 set in the Q4 of 2015. Listing services on Page 7 saw a $2,000,000 or 3 percent organic increase in revenues, driven primarily by increase in the number of listed companies.
Operating margin of 42% was down from 44% in the prior year period prior year quarter. Market services on Page 8 saw a $12,000,000 or 6 percent organic increase in net revenues, plus a $2,000,000 increase due to the acquisition of Chaix Canada, reduced by $1,000,000 FX impact. Operating margin increased to 56% from 54% in the prior year period. Equity Derivatives Trading and Clearing net revenue achieved a 4% organic growth, primarily due to the higher U. S.
Industry trading volumes and higher U. S. Average net capture, partially offset by lower U. S. Market share.
Cash equities trading net revenues saw a 17% organic increase due to the higher cash equity and net capture and increased industry volumes, partially offset by modestly lower market share. Fixed income, currency and commodities trading and clearing net revenues saw a 17% organic decline from the prior year, principally due to NFX related trading incentives and lower U. S. Treasury volumes, partially offset by growth in European fixed income and commodities trading. Access and Broker Services saw a 7% organic revenue increase due to the increase in customer demand for network connectivity.
Turning to Page 9 to review expenses. Non GAAP operating expenses increased 5,000,000 dollars on an organic basis or a 2% increase due to $6,000,000 and $6,000,000 due to DWA, Marketwired and Chai X Canada acquisitions, partially offset by $3,000,000 in FX impact, resulting in an $8,000,000 or 3 percent reported increase. Turning to Slide 11. Our revised 20 16 non GAAP operating expense guidance is $1,180,000,000 to $1,230,000,000 versus the previous $1,110,000,000 to $1,160,000,000 The core expense guidance is unchanged, but we are updating it to include the impact of closed Chaix counter and Marketwire acquisitions as well as Board Vantage acquisition, which we expect to close in the next week, which we collectively are expected to add 70,000,000 dollars of expense in 2016, including $5,000,000 that was already included in the Q1 of this year. The expense guidance does not include the impact of our pending acquisition of ISC, but we look forward to updating you on its impact after it has closed.
Non GAAP operating income in the Q1 increased 6% on an organic basis and 8% in total. Non GAAP operating margin came in at 48%, up from 46% in the prior year period and primarily reflecting the margin improvement of our market service business market service business. Net interest expense was $27,000,000 in the Q1, unchanged from the prior year period. Other non operating income came to $3,000,000 in the Q1. This income primarily represents a portion of income and losses from certain investment interests such as our equity interest in OCC, EuroCCP and Tom.
Going forward, including the pickup from the incremental equity in OCC that will occur when we close ISC, we expect other operating income to range between $1,000,000 to $2,000,000 per quarter for the foreseeable future. Non GAAP effective tax rate for the Q1 was 33.5% and was within our guidance. Non GAAP net income was a record of $153,000,000 or $0.91 per diluted share compared to 138,000,000 dollars or $0.80 per diluted share in the Q1 2015. Now moving on to cash flow and capital. Please turn to slide 13.
During the quarter, we repurchased $29,000,000 in stock and through dividends and repurchases, we returned $70,000,000 in capital to the shareholders. Additionally, during the quarter, we announced a 28% increase in our quarterly dividend to $0.32 and NASDAQ's Board of Directors authorized an additional $370,000,000 in share repurchases, bringing the total remaining value authorized to 500,000,000 dollars This authorization is expected to be used primarily to offset share issuance such as employee share based equity plans and as such, we expect its utilization to be over a multiyear period. Thank you for your time, and I'll turn the call back over to Bob. Thank you, everybody.
Ed, we're ready for questions, right?
Operator, can you please open the line for Q and A?
Absolutely. And our first question comes from Rich Repetto of Sandler O'Neill. Your line is now open.
Yes. Good morning, Bob. Good morning, Ron. And congrats on the record earnings quarter, Bob.
Thank you. Appreciate it.
I guess the first question is just a technical question. On the increased expense guidance, Ron, it just seems are we it feels like 70,000,000 dollars is probably the right number, but like when do we get any of the $60,000,000 in synergies? Is there is the synergies, I guess, baked into that as well?
Right now and for 2016, Rich, we're seeing very little synergies, and it's really going to happen really in 'seventeen and 2018, the $60,000,000 that we actually disclosed to you during Investor Day. So there is no synergies really in that number at this stage.
Okay. Okay. And then, guess my one follow-up would be for Bob. Yesterday, they had the MSAC, the Equity Market Structure Advisory Committee. And I guess 2 things that look relevant to NASDAQ would be the proposal for the cap on access fees.
I know you've done your test, but just any comments, color on that? And then also, I guess, their outline for proposal on SRO liability, sort of limiting the liability to certain areas as well as they even proposed, I think, the idea of capital being retained at the exchange for that liability. So I guess thoughts on those things that occurred yesterday at the Equity Market Structure Advisory Committee?
Yes. Rich, the first thing I'd do is put that committee in context in that it's a prelude and that has no official standing in the process. So whatever recommendations come out of that may or may not be put out for comment and review. And as you know, the comment review process is long and difficult by itself. So this is just very early stage with everything.
And as you know that we think the committee is not formed in a proper way, and it's a strange and curious situation where the 2 listing exchanges not part of that committee. And I think that in some very significant way diminishes the authority of the committee even though it doesn't have an official position. So we'll digest what they said and then we'll comment either through the official period or depending what makes it through or we'll comment now. So we're working with it. So with respect to the access fee, as you know and you referenced, we tried that.
We tried that by ourselves. And clearly, it has to be a coordinated effort by the industry. So we need to study the details. But clearly, we're aligned with that in concept. With respect to immunities, and Mr.
Knight's here to help me out, but understand that immunities are really a court issue more so than a commission issue at that point at this point in time.
And the preliminary recommendations of the subcommittee, there was none on immunities. Right. And I want to emphasize the point Bob was making. The subcommittees' recommendations, the next step is for the full committee to consider them. Then they go to the staff of the SEC.
The SEC has to decide what it recommends. Then it goes to the commission. The commission has to decide what it recommends. Then it goes to the public and it goes through a process of public comment and the evidence in that comment period has to support
pace of the SEC could be described as glacial. It's important to recognize this is before you even get to the SEC and there also will be a change of administration both in the White House and at the SEC probably in the not too distant future. So it's hard to predict what's going to be happening, which is we'll be at a very slow pace.
Got it. And I totally agree with you on the sort of, what do you call, peculiar makeup of the committee.
Thank you. And our next question comes from Ashley Saral of Credit Suisse. Your line is now open.
Good morning.
Good morning.
So I guess first question client conversions, but more curious about the competitive landscape, how are rivals responding and whether you've managed to attract any newer clients to the offering?
Hi, this is Adena. Yes, we have been able to attract new clients into the offering and our sales pipeline is picking up quite nicely, particularly as we go into the Q2, because we had to get the system launched and then we had to start to show it to all the clients and it's easier to sell a product once it's in full production and you can really show it in all of its glory. So we are definitely seeing an increase in the sales pipeline as well as sales as well as competitive wins. And we definitely see that picking up as we get into the Q2.
Okay. And just another question on Corporate Solutions. I guess, MMS or Multimedia Solutions has been a drag now for many quarters. Just curious if there's anything you can do to either improve the margin profile of that business or even if you consider that a core offering today?
I think that the multimedia solutions business, which really is our webcasting business, as we mentioned at Investor Day, has created some short term challenges and we are working through with a partner to continue to look at enhancing our offering and we continue to look at how we offer the product in terms of pricing and service. So we are working through those issues and we will continue to update people as we progress. Okay. Thanks for taking my questions.
Thank you. And our next question comes from Kyle Voigt of KBW. Your line is now open.
Hi. Thanks for taking my questions. Good morning.
How are we doing, Kyle?
Good. So I guess the first question I'm going to ask on NFX. It seems like you've been making some good progress there. But I believe some of the trading incentives were going to be eliminated for certain shortly. So can you just give us an update on the timing there and remind us which products you expect to wind down the incentives for first?
Thanks.
Well, I'd say 2 things. 1, there will always be some level of market maker incentive involved with NFX and other efforts in this space. But I think it's important to note, as I said in my prepared comments on May 1, we will start charging early days some nominal rate by charging for those products where we basically have double digit market share. And it's important to recognize that these charges have been done in direct consultation with our market committee and has broad support from the customers that now is the time to move along with that. So as I said in all my comments, we are in active engagement with our customers across a wide range of our businesses and it's nowhere more true than in NFX, where we have strong customer support, strong customer support for what we're doing and actually start the charging in May 1.
Okay. And then just a follow-up would be on the debt financing for ISE and some of the other acquisitions. So there are some headlines that came across just suggesting that you're planning to issue a euro denominated bond. Can you just give us an update on the financing plans and whether this has changed the outlook for a 4% to 5% interest rate on the new debt? Thanks.
Yes. That was a great question. Yes, we are definitely looking into the both the euro market as well as the U. S. Market.
And as I mentioned to you at Investor Day, we're looking between a 7 10 year or actually between a 5 10 year offering. And as I indicated 4% to 5%, I would guide you closer to the low end of that in terms of an interest rate since the euro market looks very favorable at this point.
Thanks, Ron.
Thank you. And our next question comes from Chris Allen of Buckingham. Your line is now open.
Good morning, everybody.
Chris, good to have you back.
Thanks. Appreciate it. Appreciate the updated expense guidance for the deals. I'm just wondering if you could give us any color in terms of what the if the deals have closed this quarter, at the beginning of the quarter, what the revenue run rate would have been? I know you gave us a little bit on the Caius count of $2,000,000 mark or what, dollars 4,000,000 just wondering like full quarter and if we included Board Advantage?
Well, the first thing I would say with ISC is we didn't expect to get the approval so soon. So I know I have not spent a second thinking about what the revenue would look like. And if we close this deal at the very end of June, I think that would be beyond our most optimistic thoughts as we announce the deal. Right. So I don't have anything
to add. I think also at Investor Day, we did provide you some disclosures of the impact of the acquisitions. And for the 2 Conversations acquisitions, the revenues tend to be relatively stable quarter over quarter. So you can take some of our annualized impact and understand what would the impact would be for an individual quarter.
If we go back to Investor Day, I believe we gave you guidance for the Corporate Solutions 2 acquisitions to be $85,000,000 So it's more or less in line here for the year.
Got it. So it's still stable with the guidance you gave to
the investor? Okay.
And then just on the order backlog within Market Technology, I think you said it was a record quarter in surveillance, but it obviously is one of the lowest order intakes we've seen in a while. It really could be pretty lumpy. How do we think about the order intake, the current backlog and kind of what you're working on in terms of new sales there?
Sure. Well, I think it's very important to note that the Q4 was an extraordinarily strong quarter for us in terms of closing new sales across the entire business, Be Wise, Smarts and the core Market Tech business. And generally, what happens is you go through a really big push at the end of the year and the Q1 tends to be a little bit slower. This one was we had an extraordinarily strong end of the year. And so our Q1 has been a little bit slower.
But we definitely see a very strong sales pipeline, frankly, across the entire market technology franchise. So we have no concerns over the overall strength and growth potential.
Thank you. And our next question comes from Mike Carrier of Bank of America. Your line is now open.
Thanks guys. How are you doing Mike?
Good. Hey Bob, just wanted to get your take. Like when I look at the growth that you guys have put up particularly on the non transaction side, it's been healthy when you look over the past, call it 5, 6 quarters. It always seems like the Q1, even though there's seasonality, even on a year over year basis, it tends to look a little bit weaker. Just wanted to get your take, is there just something in the business that causes that and then you get kind of the resurgence throughout the year that we should kind of expect on an ongoing basis?
Or is there certain things like this quarter that kind of weighed on that growth rate versus what we've been seeing over the past few quarters?
Well, I would say this. Once we get into the software and services business, it does bring me back to my days as a software entrepreneur or at SunGuard, where the Q4 is the big push and then the Q1 is always weak. So I think with the business models we have, we're not going to have that Q4 boom and bust, but we will definitely see seasonality effects on a consistent basis. Okay.
That's helpful. And then, Ron, just two things. Just wanted to get your take, and I know this is going to get somewhat probably too long out there in terms of timeline. But when you think about those synergies that you mentioned in 2017 2018, just wanted to try to quantify that without giving maybe expense guidance for 2017 or 2018. But just want to make sure we have those when we start thinking out for like the 2017 expense growth.
And then also on just cash use, so when you think about capital deployment, just what we should be thinking about in terms of the debt pay down versus what I would call more core for you like buybacks and M and A?
Yes. So in terms of synergies, we're looking really at an 18 month horizon in terms of the $60,000,000 that we're looking at in terms of majority of it anyway. In terms of the buybacks and the deleveraging, I think we mentioned this before, it's going to be more of a balanced approach. We want to get down to the mid-2.5 level, and it's going to be 18 to 24 months before we get there. So buybacks look to continue to happen.
As I said in my prepared remarks, it's more or less going to offset the natural dilution that we have in the share count that we have. And we're really going to focus on deleveraging getting back us back to 2.5x leverage.
I would add 2 things to that. 1, with respect to the synergy realization, I don't think the management team is completely baked in, in terms of what the plan is. I think you'll find more details from us in the quarters that come. We're definitely just happy to be closing these deals sooner than we thought. And obviously, we haven't closed ISC yet.
So we have some more work to do there. And with respect to the buybacks, in addition to maintaining the share count, we would look to do buybacks on an opportunistic basis as we've done in the past, and we've been successful at making sure that we see value in
lot.
Thank you. And our next question comes from Alex Kramm of UBS. Your line is now open.
Hey, good morning, everyone. Wanted to just ask again about the access services increase. I think Ram I think an increase in network demand. Can you flush it out a little bit more? It seems like the trading space has actually grown much slower in terms of new users.
So is that pricing? Or do you actually see with increased volume that people want more bandwidth or are there actually new people connecting?
I think all of the above. But if I was to highlight one factor, we have certainly had success with our microwave offering and that was probably the strongest single contributor to a very strong Q1.
All right, great. And then just secondly, just circling back to NFX. Obviously, yes, the incentives coming off and so forth. But I think in the past, you've given some color in terms of the user base and also maybe how open interest is looking. So any particular color like who are these 70 people that are trading?
Are you getting some of the commercial users to sign up? And also how does your open interest can compare to what you see at the incumbents at DME and I's? Any differences there that make us believe this is more sustainable than maybe some of the other initiatives that you had in the past? Thank
you. Well, I would say 1, by definition open interest shows that you're building an asset over time. And to get to 800,000 contracts in open interest, I think, is certainly remarkable. 100,000 contracts, we're very proud of is daily activity, but 800,000 of open interest. And as I said in my prepared remarks, compared to basically the VIX complex in at OCC, where 40% of the volume and obviously, VIX futures have been around for a lot longer period of time than that.
So still early days, but certainly more progress than we would have planned for at this particular point in time. With respect to the first part of your question, when you have 70 participants, it has to represent the broad spectrum of the marketplace. We're averaging now in the high 40s on a daily day with respect to number of participants. So we feel very good about that. So beyond the investment banks and beyond the market makers, we certainly see what we call the naturals coming in to the marketplace.
And we're obviously a big story within that marketplace. We're too big to hide. Everybody's aware of it. Everybody's aware of the liquidity, in particular, the products we have where we're at double digit market share on a daily basis.
All right. Very helpful. Thank you.
Thank you. And our next question comes from Brian Bedell of Deutsche Bank. Your line is now open.
Great. Thanks for taking my questions. Maybe just a focus on the Market Technology segment. A question for Dina on the Corporate Solutions part. If you can just flesh out it, I think there was also some, I think you had mentioned at Investor Day, some reduced pricing for some of the energy clients also being a headwind to that revenue stream?
And then, if you can talk about the progress toward the 20% op margin goal for the Market Technologies segment? I know obviously it's depressed in 1Q, but if we're still on track for that for full year 2016.
Well, I think that, the just taking the first question with regard to energy clients. As a general matter, we're seeing some of M and A and what we would say working with some of our energy clients to make sure that they retain their service, but they may, we might reprice it in the short term to make sure that they can continue to, afford our service while they're working through some of their own business challenges. That is creating some level of headwinds, so both M and A and that kind of activity in the Investor Relations segment of Corporate Solutions. But we want to make sure that we continue to work with our clients. We're very focused on that, and we will continue to do that, while we also grow through new clients and other things.
So it's definitely a mixed story right now in terms of finding new clients, upgrading our clients, having adding users to existing clients, but at the same time working through some challenged sectors and managing through a lot of M and A activity among some of our clients. And with regard to the second question, as we've said before, it's multiyear outlook for the business to achieve a 20% run rate margin across Technology Solutions, which includes Market Technology and Corporate Solutions, and we continue to be on track with that, and we discussed that at Investor Day and we continue to see that as an achievable goal for us.
Okay. And last but not least, I mean, the acquisitions are certainly going to help you achieve scale and hit the margin
goals. Absolutely.
Right. And that's helpful for the second half, I would assume on the acquisitions close on the second half. Yes. Okay. And then just a quick follow-up on the Bob or Ron, the EPS drag that you expect from NFX and NLX combined, I guess, maybe just in the Q1 here and then what you are expecting with the new pricing
NFX this quarter was $0.02 and NLX was $0.01
Okay. And do you expect that to improve with the new pricing dynamic over the next three quarters?
We think there's going to be 2 different things happening as we get to the second half of the year. We will be charging on the NFX side. And also, I think our cost base with Enelx will decline. So the $0.03 might go to $0.02 but you're in that kind of ballpark.
Okay, great. Thanks for taking my question.
Thank you. And our next question comes from Chris Harris of Wells Fargo. Your line is now open.
Hey, thanks guys. Just want to come back to the organic revenue growth in non trading segments. I know we talked about the seasonality earlier. But if you guys think about the setup for the rest of the year, do you guys think you're going to be able to potentially hit your mid single digit target? I know that's more of a longer term target, but I'm thinking specifically for 2016.
And if you do feel comfortable with that, what are going to be the main drivers?
Yes. The thing I would start with is by saying that that is a target over a multiyear period of time. And we're still in a building cycle the way I look at it. We're certainly very excited with the rollout of IR Insight. We're very excited about the integration of the acquisitions into the existing product set and what's going to mean to our competitive positioning in the marketplace.
Market technology is on the cusp of a new product cycle and certainly we see great opportunities in clearing enabled and enhanced by blockchain technology. So this is a multiyear goal. I personally don't think about 2015, 2016 in a given time period, but look at the trend line that we have and we feel very good about that.
Okay. Thank you.
Thank you. And our next question comes from Ken Hill of Barclays. Your line is now open.
Hey, good morning, everyone.
How are we doing, Ken?
Doing great. Just a question then on the listings front, you guys had some pretty strong trends I think on the ETP business with 42% market share there. I was hoping you could go through how you're seeing that market evolve for both the listing standpoint, maybe how you're differentiating yourself versus other exchanges out there as you guys compete for listings for exchange traded products going forward? And maybe what other benefits that gives your business over time?
Yes. So let me start with the last part, and then I'll let Adena answer part of it. It's important to recognize that with the ETP listing, it's not a great revenue opportunity for us. It's bundled pricing across families and it doesn't amount to a lot of money. Where the ETP market is interesting is if you happen to have one listed with you that trades actively.
So clearly in this marketplace is call it 10 that matter to the trading community. The others are good to have. We service our customers well with it, but not drivers of revenue in any significant way.
Yes. In terms of our efforts to continue to be the listing venue of choice for ETPs, we have the benefit of being able to offer the exchange traded products, visibility through the market side and other visibility programs that we have here, which makes it so that we can be differentiated from some of our competitors. The other thing that we do is we work with the lead market makers and the ETPs around market maker quality program that also provides for some rebate program to the lead market makers in addition to working through an opportunity to provide some benefit to the issuers on that as well. And then we also I think that we have this kind of full service approach. We are an indexer ourselves.
We understand what it takes to be a successful exchange traded product. We leverage that expertise and we talk and we feel that we're very client focused around making sure the ETPs feel that they have the best possible market structure and market environment to trade their products. So we're pretty proud of what we can offer and that's obviously showing up in some really great success last year and this year.
Yes. So certainly, Q1 was a great quarter for switches. And I think we have evolved our market structure to be sensitive to the particular needs of ETPs. And I think you could see that trend line continue in the quarters to come, where you'll have market structure enhancements just for these issuers.
Okay, great. Yes, thanks for taking my question.
Thank you. And our next question comes from Andrew Bond of RBC Capital Markets. Your line is now open.
Thank you. Good morning. How are you doing? Good. Thanks.
I wanted to get your thoughts on U. S. Cash equity markets, market volatility and volumes declined quite a bit from the beginning of the year. NASDAQ's market share has also continued to decline. So obviously that's some of that's related to increasing dark volumes.
But is there anything else driving the share decline from NASDAQ's market? Is there anything kind of strategic you might need to do particularly as IEX becomes a national market soon and that potentially gets more competitive given the recent IPO?
Yes. I would say this. As we said before, we're very focused on managing the balance between share and capture, and I think the team has done an outstanding job with that over the years. So in a given month or a given quarter, the focus will change somewhat. But overall, I think we have a good balance.
And it's important to recognize from a trading perspective, we still by far and away run the largest venue on tape C, and that's the point of intersection between us on the trading side and on the listing side. So we're very comfortable with our positioning there.
Okay, great. Thanks.
Thank you. And our final question comes from the line of Alex Kramm of UBS. Your line is now open.
Hey, thanks for squeezing me in for a follow-up. Just a couple of things. 1, Adena, did you actually give the net sales number in Corporate Solutions? Maybe I missed that. And I have another question.
We do not disclose net sales and we provide you this revenue and expense results and general trends.
I think it was $3,000,000 last quarter, so you've given it in the past. I was just curious if you had an update. But all right, anyways, second question, just on the index business for a second, this is more of a bigger picture question. Obviously, you always highlight the AUM there, but can you actually break that segment down? I know it's a small segment.
Like how much of that business is actually AUM from ETFs? How much is subscription revenues? And how much is derivatives trading fees? And can you give any general trends in terms of are you taking pricing on subscriptions? And any other color you can provide so we can model that piece better?
Thanks.
The data revenue associated with the index business is in the data business. So you'll see that sitting in the data business. In terms of and so in terms of just generally though on the index business, we continue to see strong trends in overall demand for our products. We have had some market related headwinds within AUM, but the fact of the matter is we continue to see strong demand for those products and that AUM has recovered quite nicely as we've gotten into the Q2. In terms of we don't break out the revenue in terms of how much is a contributor to each, but we have seen strong trading activity in the Q1.
We also continue to see growth in demand and new product launches for our overall business and we continue to work very closely with ETF sponsors to launch new products, which will drive further growth over time.
All right. Very good. Thanks again.
Yes. Okay.
All right. Well, thank you everybody for your time today. And certainly, we're proud to deliver another record quarter for our shareholders, our stakeholders. And as I'd like to say, we do judge how we are doing relative to our positioning with our customers. And beyond the financial metrics we just disclosed.
The Q1 was another good quarter for us improving our competitive positioning with our customers, and obviously, that will determine our long term financial success. So we're proud of hitting on both cylinders. We again thank you for your time and look forward to answering your questions in the days weeks to come. Thank you.
Ladies and gentlemen, thank you for