All right. We're at 3:00 P.M. now, so we're gonna get started with our next session. It's my pleasure to welcome Sarah Youngwood, CFO of Nasdaq. Over the years, Nasdaq has significantly evolved, from being a global exchange operator into a technology and platform provider, serving clients across capital markets, ecosystem, and really broader financial system as well. During our chat, we'll spend some time with Sarah on how Nasdaq's progressing against your goals and initiatives in 2024, and more importantly, talk a little bit about 2025, what you have in store. And thank you for joining us. It's your first time. We were just saying it earlier. It's your first time at Goldman Financial Conference, probably since the time you were, JP Morgan.
That's right.
IR, so welcome back, I guess.
Excited to be back.
It's great to have you here.
It was a good one.
So, I wanted to start off with your key priorities into 2025. Earlier this year, Nasdaq held an investor day outlining a number of key medium-term targets. We can go through all of them, but at a high level, solutions revenue growth 8%-11% against, you talked about 5%-8% expense growth. You're well on your way there. You guys seem to be executing quite well on a performance base against the, so as you look out into 2025, what are some of the top-of-the-house priorities for the team?
Yeah, so growth is an important priority, and you're gonna see us continuing to do growth. In addition, we also, of course, have the expense and the operating leverage that comes with that, the deleveraging, and then on the innovation and the acceleration, AI and the cross-sell. But if I take a step back on growth, I think it's really important to look at growth in the context of what we are achieving. We start with our formation, which is we aim to be the trusted fabric of the financial system. We've established our trust over 50 years as a critical market operator, and we also have the technology that can move 200 billion messages a day, and that's no small feat.
What we've done is we've been able to actually expand our mandate to be able to serve as a global tech company that has more recurring revenues, higher growth, by actually continuing to leverage those skill sets.
Mm-hmm.
But really adapt them into data workflows, innovations, and we are already performing, as you just mentioned. I appreciate that. For example, the index business is a six times over seven years. That transformation is very much happening. You will see us executing also on the Calypso and AxiomSL businesses. That is very much in the mid-teens, as we have told you to expect. And financial crime management, a great opportunity where we're well-positioned, and that is in the mid-20s. When you take all that together, we've got a $31 billion sum. We've got an 8% growth of that sum, 10% penetration of that, and that enables us to continue to fuel that growth, which by definition is very much the first priority of next year. That's why continuing on the synergies, the deleveraging, the innovation, and the cross-sales.
Got it. Okay. Let's spend some time on probably all of these over the course of the next, you know, 30 minutes or so. I do wanna start with Adenza. Obviously, it was a big deal for Nasdaq. You closed the deal, you know, about a year ago, so you're well into integrating the transaction now. You talked about Adenza's ARR up about 15% year- over- year as a 3Q, so to your point, kind of right in the middle.
Yep.
Of what you promised the market. Can you update us on where you are in the integration process? What's been accomplished so far in 2024? What's coming up in 2025? And, you know, one of the questions that I get all the time from the outside looking in, what are some of the most important, like, KPIs we should be focused on looking out into next year?
Yeah. So what we're seeing on Adenza is, first of all, thanks for saying it, we're performing well. We're executing. It's really strong case of people, system, process, all of that, just like being very diligently executed. And what's even better than that is that our clients are seeing us as one team, and they have complex problems, and we can help them on solving those most complex problems. If you look at the specifics and to get to some of the metrics on people, the first thing we did was we put together a leadership team, and that was, like, early on, like, literally within the month of closing, you had clarity on everything. We also put in the incentives plans because if you want to achieve anything, you are gonna need to have the incentives lined up. That goes back all the way to January.
Then you go to systems. You need the integration of Salesforce. We did that in our integration. We're six months ahead, and so that was done in the second, in the beginning of the second half of the year. That enables us to not just look at, like, offline dashboards, but to have all of the data. We started doing campaigns and tracking all of those campaigns very early, and we're seeing good performance of the campaigns. We express it to you also in terms of, like, the pipeline, and so what is the percentage of the pipeline that is cross-sell that is already over 10%? That's an important marker that tells us that we are on track towards the $100 million plus that we have.
We also, of course, have all of the financial dashboards, synergies dashboards, to make sure that all of the efficiencies are tracked very detailed, and you've seen us, on, that delivering ahead. So, we're already at 80% achieved on, the synergies, with, those action contributing to the operating leverage of this year already. And then we were seeing the deleveraging also being ahead.
Yeah. Great. All valid points. Let's get maybe a little bit more specific. Adenza's growth overall is tracking up somewhere in the high teens, I believe, for 2024.
Mm-hmm.
This is just revenue growth and, you know, the way the market will obviously look at it. Axiom is selling a bit slower, Calypso a bit higher. A lot of it is timing.
Yep.
And just accounting recognition of various things. But as you look out into 2025, 2026, how should we think about growth, for both of these businesses?
Yeah. So the first thing I would want to anchor you in is medium-term outlook.
Yep.
So that medium-term outlook, mid-teens for the ARR, and low-to-mid-teens for the revenue. I would say, in general, that's always gonna be true. And what we feel very good about is that we gave you information at the time of the closing of the deal, and we are reiterating that information, and we keep reiterating that information. Then you have the nuances, and you talked about some of the accounting nuances. The first one is, and it just applies really to Calypso. The only thing that is not ratable now is Calypso. But that does mean that if you have a renewal, the timing of that renewal matters to the revenue and not to the AR. So look at us and judge us on ARR for Calypso because you can celebrate the very elevated revenue growth that we had in the first half of this year in Calypso.
But at the same time, that means that at some point, there is an offset somewhere else. And then the second thing I would note is professional services fees, which is for the Adenza businesses, something like a 20% part of the total revenue. That can be more lumpy, and we have seen a bit less of that on AxiomSL, this year. And then lastly, and that is not in the Adenza businesses, but we remind people, that on Market Tech, we also had a pretty lumpy item, for this year, which goes away for next year.
Yep. Okay. All fair. Let's expand this a little bit. I wanna talk about just banks as a customer segment because it cuts you guys in a number of different ways, but also overlaying that with the current environment, and of course, the change in administration. There's a broader expectation that deregulation is coming, or to some degree, not as intense of a regulatory backdrop for the GC banks and maybe some of the smaller banks. In addition to that, there's a view maybe there's gonna be a bit more bank consolidation.
Mm-hmm.
So let's talk about both of these themes and how they could impact sort of various parts of your ecosystem. There's some natural, you know, businesses like Verafin, obviously, serve smaller banks. Axiom, you guys work with a lot of larger banks. So how do you think about that, you know, potential change in the context of your growth opportunity?
I think when I think about all of Nasdaq, this is gonna be an administration that is supportive of capital markets, of growth, of an economy that is supportive. And in that sense, I think that you have a backdrop that is positive. You also have the specifics of smart regulation. I think they're gonna want to use a lot of, like, we want to be efficient, we want to be smart, we want to be well-calibrated, and we very much benefit when our clients benefit. We also benefit when there is change, and I think we can expect change from this administration. And if you look at the very specific item that one could say, like, Basel III Endgame, is that gonna happen or not happen? First of all, there is the possibility that it could be well-calibrated rather than not happening.
But in any case, those are very small numbers in our pipeline. So when we look at the opportunity, if our clients do well, they could have more budgets to do more with us. We are a solution that is more effective, cheaper, well-enabled in terms of cloud, AI, etc., across the board. And we certainly don't expect for deregulation to enable more financial crime or to enable less asset and liability management. We play in places which we believe are important and where smart regulation is gonna be good for our clients and good for us.
Gotcha. Okay. How does bank consolidation affect? I know it could cut a number of different ways, but based on your experience, with some other bank deals maybe from years ago, how do which way does it typically cut? And not sure if it's easy to summarize, but how would you frame that?
Yeah. So I'll take it by business. If you look at the Verafin businesses, that's probably actually a tailwind rather than a headwind because we charge by the asset size, and it's also a product that is additive. So in the same way that you would probably not remove a cyber help, you're not gonna want to take the risk on something which is proven to reduce your wire fraud or your check fraud, or your efficiencies in dealing with some of your AML. So we feel very good, and we've had that experience in the 2023 events where this was very well digested by our organization. If you look at it in AxiomSL, it is the leader, and it is very efficient to and modular.
You are very rarely gonna find a such an opportunity to do something more efficiently in the context of an integration than to just basically do AxiomSL because it's easy to implement, it's modular, and it's gonna serve you where it serves you, and it doesn't need to be the backbone of your whole infrastructure. So it's okay for it to deal with one thing differently than another one. We think this one is well-positioned too. You could have a little bit of one plus one equals, is it fully two? But then because we only have a 10% penetration, you have the ability.
Mm-hmm.
To do upsell in an attractive way, at that price that enables you to have a winning proposition for both the client and for us. Calypso is maybe the one where I would say, depending on who the acquirer is, if there was a competing system, you would potentially see something. But if they have a choice in the context of the acquisition, I am convinced that they will want to do Calypso, which is more modular, more cloud-oriented. And so when we look at it, like, in the totality of those products, at the end of the day, first of all, it will take some time for bank M&A to happen. And when we size it and we do sensitivities, we don't see anything that would be material to talk about within the.
Gotcha. Okay. That's really helpful. Thanks for that. Let's talk about FinTech a little broadly and the way you guys articulated growth for that subsegment or segment of various subsegments within FinTech. You talked about 10%-14% revenue growth, and you expect to be at the upper end of that, once you get a couple of years out from the Adenza acquisition, some of these recurring revenue synergies come through. In one of your earlier comments, you mentioned that, you know, integration is going well. Sounds like $100 million of cross-selling revenue still clearly on the table. You feel pretty good about that. What's the timing around that? Just give it a little more color where you are in terms of cross-selling and actually recognizing some of these revenue synergies.
Yeah. So I'll start with our clients. The voice of customer, and we do a lot of voice of customer all the time, is very positive, and so the clients are seeing us coming together and being additive to what they can do, and so they think of us now in a much more open-minded way in terms of, like, what else can you do with me? And that bodes well for the cross-sell. When you look at the timing of the cross-sell, there is a long sales process, and that's not good news. It's not longer than expected. It's just as expected, but just as expected meant that we always expected the progression to be back-ended.
Yep.
And so, it is healthy to talk about it in terms of, like, percentage of the pipeline, in terms of, like, the number of deals, the POCs, the voice of customer, the feedback we're getting from customers, but the dollars of revenues immediately are not very large yet.
Got it. Okay. Let's hit on anti-financial crime, for a couple of minutes. It's your fastest-growing business, mid-20s, medium-term revenue growth targets. In 2024, you're tracking a little bit below kind of 23-ish% rate. So, you know, still within the range, a little bit below the range. Can we talk a little bit about what kind of factors contributed to slightly slower growth this year and how you're thinking about it next year?
Yeah, so I'll start by giving, like, a little bit of background on, like, financial crime management is in the mid-20s because you have a $3.5 trillion opportunity where, 15 years ago, Verafin started, AI and cloud, under the Patriot Act, has the ability to do consortium data in a very pure way. And that enables us to give clients the benefit of that. And so we're the number one ranked in the space. And when you look at it on, for example, a wire fraud, you can have 25% less false positives and 250%+ fraud caught. So it's a very compelling product, which also happens to not be very expensive. And so when you take all of that together, we have this mid-20s opportunity. And what enables us to sustain it is to look at it through three lenses. First of all, small and medium-sized businesses where we still have ways to go, 2,500 banks, and that's where you are seeing us go a little bit higher in the spectrum.
And that's a little bit part of what we've seen this quarter. That's one of the factors where, as you go to higher tiers, you extend a little bit your time to value, and that can create a little bit of timing gap. And then the second leg of growth is your Tier 1s. The Tier 1s are super exciting because if you look at a TAM of $11 billion in that space, that TAM is half in the Tier 1s and Tier 2s. And we are at effectively zero or marginally zero in terms of revenue recognition. So our penetration there being where it is, we have great growth opportunity.
But now, again, on timing, we had some strong professional services fees a year ago with therefore a bad comp and, again, a little bit of timing there. So I would say nothing fundamental that has changed, but that explains those pieces. And then you have the third leg of growth. Again, it takes several legs of growth to stay in a sustainable way in the mid-20s, and that is international. Where we have one international that is landed, but we have several POCs, and we are developing strategies which we believe will be very well received.
Great. Okay. Let's talk about another really fast-growing business for you, which is index. We spent quite a bit of time on this. You mentioned that earlier today as well. Clearly, lots of structural underpinnings in that business, and Nasdaq occupies an important role there. A lot of it has been beta, though, right? In fact, I just look at the, and I love the way you guys talk through your revenue bridge, what's alpha versus what's beta. You know, markets are up, a lot of flows coming into the Qs. That's all great news. How are you thinking about the alpha component? How are you thinking about either new index creation or, you know, expanding the customer base for the existing indices that are outside of the Qs, trading products against that? So what else are you doing to continue to drag growth in that business outside of just the beta?
Yeah. So, first of all, nobody has seen six times in seven years was just beta. So we definitely have had a lot of alpha in there. And we have alpha last quarter when we had $62 billion of inflows. We also have 35 new products that we did last quarter. The way we play that strategy is across, and we're investing fairly heavily in index. We see lots of opportunities in index. We think that it's very fruitful. So there are three places. The first one is gonna be new products. The second one is gonna be international, and the third one is gonna be institutional. So new products, as I mentioned, 35 quarters, we always give you a lot of like flavor, and it is NDX and non-NDX. And we are seeing a lot of like appetite from our partners, asset managers, to co-create with us.
And so that has been very productive. Of the 35 on international, 20 were international. So you're seeing that as a big part of how we are diversifying the platform and expanding. What's great about Nasdaq is it's valued as one of the top 100 global brands. And that global factor means that when you have the brand value of Nasdaq, it's not just brand value here in the U.S., it's a brand value that is global, and that is supporting our growth. And of course, we also have very strong technology, which is being deployed, and that enables us to be a great international partner. And then institutional $700 billion of annuity space, and we've got a 6% penetration.
If you think about the need for the insurance industry to be more invested in the Nasdaq-100 or any of our other indexes, it's a lot more than the current level of penetration. Therefore, a big opportunity. Seven of last quarter's new products were with insurance companies. We have a pretty dedicated effort there, and we're seeing that as being well-received also.
Great. Okay. Let's talk about some of the cyclical businesses for Nasdaq. Listing probably the first one that comes to mind.
Mm-hmm.
It's been a bit slower. Couple of things going on there. Obviously, we haven't really seen a lot of IPOs in the last two years. On top of that, you were, you know, seeing some headwinds with respect to delistings that impact revenue growth for you guys this year. To start, I guess, talk a little bit about the pipelines. There's a lot of enthusiasm around IPO markets opening back up into 2025. What are sort of the expectations? I know it's gonna be a slow build. It's not like there's a lot of IPOs and it all hits revenues next quarter, but that pipeline and sort of probability of that pipeline coming through, what are you guys seeing on the ground?
Yeah. I love that you're asking about the probability of the pipeline, because what we're seeing, actually, if you look at the filings, which you can look at.
Mm-hmm .
It has not really changed tremendously.
Yeah.
But the probability of the pipeline, as well as the quality.
Mm-hmm.
of the pipeline is really special. The other thing that you're not seeing in the numbers is the pitches, and there was just a lot of activity around companies that want to go public that may be sponsor-backed and where the sponsor was like off-market.
Mm-hmm.
And now they are like, "Okay, finally, I can use the public capital markets as I had expected." It could also be not private equity related. And we're seeing some great companies that have been private for a while, and that are catching this market as, "Okay, that might be the right time for us." And so we're seeing very healthy pipeline. We're seeing our position as Nasdaq as continuing to be very good. Of course, we have had a 75% win rate, and so we're very well positioned. We are seeing the flow. You are seeing the extension of the window into this year. So we're already fairly late in the year, and you still have some things that are planned on happening.
Mm-hmm.
And then, first quarter, second quarter, pretty robust. But at the same time, making sure that, like, you can't decide in a day, "Okay, now the market's there. I need to go." You need to have the time to value S-1. Sometimes you might decide, "I want to wait for my full year numbers." That puts you into the second quarter instead of the first.
Yeah.
So there are timelines to everything, but in general, very healthy, very supportive, a lot of dialogue, and we feel very well positioned.
Gotcha. Great. Not directly related to that, but a healthy end-customer base should also be helpful to some of your other, I don't wanna call them legacy Nasdaq businesses, but let's just call them non-FinTech, recurring part of the solutions revenue stream. One thing that comes to mind is, workflow and insights.
Yes.
It's been slower. One of the reasons it has been slower is obviously the customer base has been, you know, struggling to some extent. To what degree an easier capital markets backdrop, more companies going public, more IPOs could actually enhance the workflow and insight part of the business? That's the one that feels like it's rather below your targets in terms of growth. And what, I guess, could that mean for growth over the next year or two?
Yeah. So I'll start with what has performed well, even in this environment. The business of eVestment has been a good business. The business of Data Link, which is the non-regulated data, has performed well. Even actually the data piece that's regulated, because of international expansion, has been quite healthy.
Yep.
in the pieces of like IR Insight, Boardvantage, nobody invested in those products if they didn't want to really be public.
Sure.
And so you definitely have more of a reason to want to invest in your IR function, in your secretary of the board function. And then that also coincides, at least for Boardvantage for us, where we have put a lot of investments in our products, but also in IR Insight. That's the case where we have gone from, for example, migration to the cloud, which is great and very important, but potentially not features and functions. And so we are in a place in the cycle where we have good features and functions. So we feel pretty bullish about the fact that those are good products. But at the same time, you can now caveat that with the fact that a lot of those are three-year cycle because they are free for three years.
Mm-hmm.
And so, great sale and nothing in the revenue for a long, long time. And then, ESG, I would say, is not seeing tailwinds yet.
I gotcha. And is that structure consistent, on the forward as well? So when the company goes public, on Nasdaq, IR, solutions or IR function and Boardvantage, like, that is also coming in with a discount for three years and no fees for three years, or there's room to change that where, you know, companies that are going public might, if they wanna sign up with the service, they might have to start paying for that right away.
Look, there are different products where you pay or you don't pay. So it's not an absolute statement.
Mm-hmm.
But in general, it is part of the value proposition. And we end up having a very good value proposition for our clients when they go public. So we're not trying to change that value proposition.
Got it. Okay. Let's talk about retail for a minute, in terms of more of a thematic and a bit of a macro trade, but retail trading has been incredibly powerful and feels like it's accelerating. Talk a little bit about how you're thinking about monetizing that. I know we don't spend a lot of time talking about the kinda exchange businesses.
Yeah.
For Nasdaq, but how big of an opportunity is that? And I'm really thinking more from a data access connectivity perspective, a more vibrant, a more active retail investor. What does it mean for Nasdaq? Kinda how do you take advantage of that?
Yeah. We think retail participation is incredibly important. Actually, if you look at what is differentiating the U.S. and the Nordics business from the rest of the world, is retail participation.
Mm-hmm.
So, that participation is increasing. We do believe that it is structural. It's not, and it's also global to a degree. So, we like seeing that, and it's important for that participation to be supported by different ways for that retail participation to be expressed. And so, in the options market where we have a 30% share in the U.S. and where we are the clear leader, you have a lot of that retail participation that happens on exchange. So that's positive for us.
Yeah.
And then, when you look at the equities piece, that's typically gonna be done off exchange, but then that becomes a data opportunity.
Mm-hmm.
And we're well positioned for that data piece. When you look at the connectivity again, it is good for us to have done the investments to be well positioned to have that space that we have secured in NY11, because that is supporting our clients who are facilitating those retail flows. So again, we are participating in the trend, and we think that it's a structural trend. And it's one of the things which are being supported right now.
Is there a pricing opportunity or a mixed opportunity from retail platforms? In other words, when a retail investor becomes more active or when Robinhood brings in a bunch of new customers, those that are taking market data, does that come with a different price point and therefore slightly more creative than the backbook? Does that make sense?
Yeah, so if you're talking about the general data, it's regulated data.
Yep.
It's subject to that regulation.
Sure. Yep.
Data and the pricings that we put there to the extent that more of a hedge fund, for example, would take some non-regulated data. That's where there is more pricing benefits.
Got it. Okay. Including, like, active retail, for instance, if somebody takes the more proprietary data that you have.
Yeah. If you end up doing, like, more of the, I'm expressing a view.
Understood.
with derivatives, that's where there is a bit more.
Great. Okay.
Yeah.
We have about five minutes left. So I do wanna hit on two topics, one being expenses. You guys have executed quite well so far this year. You're targeting 5%-8% expense growth over time, but you're still benefiting, obviously, from some of the synergies from Adenza near term. You said you've actioned about 80% so far. I'm assuming not all of that is in the run rate for 2024. So just help us maybe unpack how much of what you've actioned will hit in 2025 on a run rate basis, and when does the remaining 20% hit the P&L?
Yeah, so if you take 80% action and you compare that to the 2% that we have given to the year, you would say, "Well, that means that there is more to come in 2025," and you'll be right.
And so we told you that you have approximately 2% impact. So that would mean that the growth rate, 2024 versus 2023, of expense is benefiting by 2 percentage points, because of the synergies and the efficiencies that we're generating there. So that's something which is helping us this year on the operating leverage. And it is also something which will continue to help us for next year on the operating leverage, with the caveat which is that we are organic growth focused, and therefore we are also reinvesting some of that if we see some attractive organic growth opportunities. And so you can't take all of that and you'll be to the bottom line.
Yeah. Okay. Fair enough. Capital management, similarly to expenses and revenue, you guys have done a really nice job getting leverage lower towards your target levels. I think a lot of folks in the room also really appreciate a little bit of a buyback as Thoma, as part of the Thoma Bravo secondary early this year. So talk to us a little bit more about expectations for share repurchase in the next 12-18 months. Your leverage level gets pretty comfortable fairly quickly here. So, what are the expectations there?
Yeah. We have a lot of free cash flow. When you start with a lot of free cash flow, that gives you the ability to do more than one thing.
Yeah.
Which is what we've done this year, so organic growth, as I just mentioned, and we do have some really attractive opportunities that are in front of us and that we are funding very well. The second thing that we're doing is progressive dividend, and so continuing to execute on that. The third thing is then a dialogue between share repurchase and the additional pay down, and we have prioritized the pay down while doing the employee dilution for this year, and we think that that was important to always do the employee dilution, but when you do the math, EPS acquisition dilution neutral on the pay down versus the shareholder dilution, the versus, sorry, the employee repurchase, then you look at free cash flow equivalent to do the pay down, and then you look at doing the multiple. And we did a fair bit of regression, and it's very, very clear that when you are above three times, it's hard to get paid fully for the level of growth that we generate. And so we are factoring that in our decision-making. That being said, we are reserving optionality.
Yeah.
We will continue to do so. But so an organic growth path with a focus on deleveraging that's gonna continue, but with reserving optionality.
Once you get down to the appropriate leverage level, the way you talked about, is it fair to assume that buybacks will become a bigger part of the story given how, you know, how much cash you guys generate, really high cash flow conversion, and, you know, to be fair, an, an important source of earnings growth potentially?
Yeah. Look, we certainly like share repurchases in general. We think that it's a very big part of the equation, and it's, if you all have an organic growth story, it's a super important part of the EPS and return on invested capital story for our investors.
Okay. Great. Well, I think we'll leave it there. Sarah, thank you very much. Appreciate your time. Thank you for coming to the conference.
Thank you.