The FINANCIAL -- The NASDAQ OMX Group, Inc. ("NASDAQ OMX(R)") (Nasdaq:NDAQ) on November 5 reported net income attributable to NASDAQ OMX of $60 million, or $0.28 per diluted share, for the third quarter of 2009 compared with net income attributable to NASDAQ OMX of $58 million, or $0.27 per diluted share, in the third quarter of 2008, and net income attributable to NASDAQ OMX of $69 million, or $0.33 per diluted share, in the second quarter of 2009.

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"For comparison purposes, results for the second and third quarters of 2009 are presented on a non-GAAP basis and exclude merger expenses, losses on the sale of investments, a debt conversion expense, and certain other non-recurring items. Results for the third quarter of 2008 are presented on a pro forma non-GAAP basis that reflect the financial results of NASDAQ OMX and the Philadelphia Stock Exchange as if they were a combined company for the period presented and exclude merger expenses and certain other non-recurring items. A complete reconciliation of GAAP results to non-GAAP and to pro forma non-GAAP results is provided as an attachment," NASDAQ OMX Group informs.

 

For the third quarter of 2009, net income attributable to NASDAQ OMX on a non-GAAP basis was $89 million, or $0.42 per diluted share, a decrease of 18%, when compared to pro forma non-GAAP net income attributable to NASDAQ OMX of $108 million, or $0.51 per diluted share, for the third quarter of 2008, and a decrease of 10% when compared to non-GAAP net income attributable to NASDAQ OMX of $99 million, or $0.47 per diluted share, for the second quarter of 2009.

 

Items excluded from third quarter 2009 non-GAAP results are:

 

 * $25 million in debt conversion expense associated with the
   inducement provided to Silver Lake and another holder to convert
   their 3.75% convertible notes into common stock;

 * $16 million in pre-tax expenses associated with asset retirements,
   workforce reductions, and other non-recurring items; and,

 * $5 million in pre-tax merger expenses.

 

"As stated throughout this year, we've targeted organic growth initiatives designed to bring transparency and innovation to the markets and are pleased to see several of these strategic initiatives gain traction," commented Bob Greifeld, NASDAQ OMX's Chief Executive Officer. "The growth of the BX market has established it as the most successful new trading venue, as it now averages more than 3.5% of the U.S. cash equities market. The recent move to a positive fee structure at BX follows a similar move at The NASDAQ Options Market, with the combined actions expected to make significant contributions to our results. And in our Market Technology business we are excited that the Osaka Securities Exchange and the Kuwait Stock Exchange each selected NASDAQ OMX as their strategic technology partner. We will continue to be innovative and use our technology leadership to bring new, creative market solutions to our trading community and to our exchange partners around the world."

 

Highlights

 

 * Continued expansion of the Market Technology business following
   its selection as the strategic technology provider to the Osaka
   Securities Exchange (OSE) and the Kuwait Stock Exchange (KSE).
   OSE, the premier Japanese derivatives and securities exchange, is
   the second major customer in Japan to choose NASDAQ OMX as a
   technology partner within the past 18 months.  As part of the
   agreement with KSE, NASDAQ OMX will deliver technology for trading,
   surveillance and market data.  KSE marks NASDAQ OMX's eleventh
   technology partner in the Middle East region.  Additionally,
   NASDAQ OMX and BM&FBOVESPA continue their discussions regarding
   possible technology cooperation agreements.

 

 * Enjoyed continued growth in volume and market share at NASDAQ OMX
   BX (BX), as the market now regularly trades approximately 350
   million shares per day with market share of U.S. cash equity
   trading in excess of 3.5%.  In the month of October, market share
   for The NASDAQ Stock Market grew to 21.1% while BX grew to 3.7%,
   for a combined market share of 24.8%.

 

 * Captured a total of 35 new listings during the third quarter of
   2009, including 33 on The NASDAQ Stock Market and 2 on the
   exchanges that comprise NASDAQ OMX Nordic and NASDAQ OMX Baltic.
   Included in new listings are 12 IPOs and 7 companies that switched
   their listing to NASDAQ from exchanges operated by NYSE Group.
   Switches include Mattel, R.R. Donnelley & Sons, and TriMas
   Corporation. NASDAQ OMX also recognized 135 secondary offerings
   during the quarter, up from 110 in the first two quarters of 2009.

 

 * Launched central counterparty clearing in the NASDAQ OMX Nordic
   exchanges in Copenhagen, Helsinki, and Stockholm through a
   partnership with EMCF (European Multilateral Clearing Facility)
   in October 2009.  The introduction of central counterparty clearing
   in the Nordic equity markets is part of NASDAQ OMX's strategy to
   increase market liquidity by introducing a competitive market
   structure that is accessible to new participants.

 

 * Grew Nordic derivatives volumes during the quarter.  Contributing
   to growing volume is the transition of volumes from the London
   Stock Exchange's EDX system into the NASDAQ OMX derivatives markets
   and clearinghouse.  This transition is expected to be completed by
   year-end 2009.

 

 * Witnessed renewed volume growth in our European power markets,
   with total cleared carbon contracts up more than 50% from the
   second quarter of 2009.

 

 * Announced plans to launch a third equity trading platform during
   2010, pending SEC approval. NASDAQ OMX expects to offer this equity
   trading platform with a new price/size priority model using the
   license acquired from its 2008 acquisition of the former
   Philadelphia Stock Exchange, known today as NASDAQ OMX PHLX.

 

 * Introduced next generation trading technology through the rollout
   of new enhancements and upgrades to INET, NASDAQ OMX's core trading
   technology platform.  Recognized as the most sophisticated trading
   technology in the world, INET is the common technology utilized
   across NASDAQ OMX's U.S. and European markets.  It also serves as
   the backbone for GENIUM, NASDAQ OMX's commercial exchange
   technology offering.

 

 * Announced plans to establish a new listing market, pending SEC
   approval, for companies that do not presently qualify for an
   exchange listing. The new listing market will be a modern venue
   for companies that aspire to list on, or return to, The NASDAQ
   Stock Market.

 

 * Continued the development of International Derivatives Clearing
   Group, an independently operated NASDAQ OMX subsidiary that
   operates a designated clearing organization for clearing and
   settling interest rate swap futures contracts and other fixed
   income derivatives contracts.  More than 20 counterparties have
   submitted in excess of $850 billion in notional value into the
   clearinghouse to test systems and internal processes.

 

 * Reduced total principal amount of debt obligations by $232 million
   in the third quarter of 2009, bringing the total year-to-date
   reduction to $452 million.  Actions during the third quarter of
   2009 include repaying $113 million in principal on $2.0 billion
   term loan and converting $119 million of 3.75% convertible notes
   held by Silver Lake and another holder into common equity.

 

"During the third quarter, NASDAQ OMX continued to execute on a key priority of lowering total debt obligations," noted Adena Friedman, Chief Financial Officer. "Through principal debt payments, repurchases of convertible notes, the conversion of convertible notes, as well as other actions, we have been able to reduce total debt obligations by approximately $452 million this year alone. Looking forward, we will continue to maintain the same financial discipline that has provided NASDAQ OMX with the flexibility needed to compete effectively. For the full year of 2009, we are updating our guidance for total operating expenses to be in the range of $840 million to $850 million, including approximately $50 million in non-recurring costs."

 

Financial Review

 

Revenues

 

Revenues less liquidity rebates, brokerage, clearance and exchange fees ("net exchange revenues") were $349 million for the third quarter of 2009, a decrease of $62 million, or 15%, from third quarter 2008 results, of which $14 million was due to changes in the exchange rates of various currencies as compared to the U.S. dollar. Net exchange revenues declined $18 million, or 5%, from second quarter 2009 results.

 

Market Services

 

Market Services net exchange revenues decreased to $230 million, down 21% from the prior year quarter, and down 7% from the second quarter of 2009.

 

Transaction Services

 

Net exchange revenues from Transaction Services were $139 million for the third quarter of 2009, a decrease of $51 million, or 27%, when compared to the third quarter of 2008, and a decrease of $16 million, or 10%, from the second quarter of 2009.

 

 * Cash Equity Trading net exchange revenues were $49 million for the
   third quarter of 2009, down $53 million, or 52%, from the prior
   year quarter and down $19 million, or 28%, from the second quarter
   of 2009.

 

   -- Net U.S. cash equity trading revenues decreased when compared to
      the prior year quarter and the second quarter of 2009 due
      primarily to declines in matched share volume and the average
      net fee per share matched on NASDAQ's trading system.

 

   -- European cash equity trading revenues declined when compared to
      the prior year quarter and remained equal to second quarter of
      2009 revenues.  The decline from the third quarter of 2008 is
      primarily due to a decline in value traded, which dropped from
      EUR 271 billion in the prior year quarter to EUR 141 billion in
      the third quarter of 2009.  Also contributing to the decline in
      European cash equity trading revenues when compared to the third
      quarter of 2008 are changes in the exchange rates of various
      currencies as compared to the U.S. dollar.

 

   -- Included in U.S. cash equity trading revenues in the third
      quarter of 2009 are $94 million in SEC Section 31 fees, compared
      with $42 million in the third quarter of 2008 and $92 million in
      the second quarter of 2009.  Corresponding cost of revenues,
      reflecting the reimbursement of these fees to the SEC, is
      included in brokerage, clearance and exchange fees.

 

 * Derivative trading net exchange revenues were $54 million for the
   third quarter of 2009, down $2 million, or 4%, from the prior year
   quarter and down $1 million, or 2%, from the second quarter of
   2009.

 

   -- The decline in net U.S. derivative trading revenue when
      compared to the prior year quarter is primarily due to lower
      industry volumes for equity option contracts, which declined 8%,
      offset somewhat by increased market share on The NASDAQ Options
      Market.  The decline from the second quarter of 2009 is
      primarily due to lower industry volumes.

 

   -- The increase in European derivative trading revenues when
      compared to the third quarter of 2008 is primarily due to the
      inclusion of NASDAQ OMX Commodities revenues following the
      October 21, 2008 closing of NASDAQ OMX's acquisition of Nord
      Pool ASA's clearing, international derivatives and consulting
      subsidiaries.  The increase in revenues when compared to the
      second quarter of 2009 is due primarily to changes in the
      exchange rates of various currencies as compared to the U.S.
      dollar.

 

 * Access Services revenues were $36 million for the third quarter of
   2009, an increase of $4 million, or 13% when compared to both the
   prior year quarter and the second quarter of 2009.  The increase
   in access services revenues when compared to both the prior year
   quarter and the second quarter of 2009 is primarily due to revised
   fees for access services and increased demand for co-location
   services.

 

Market Data

 

Market Data revenues were $79 million for the third quarter of 2009, down $8 million, or 9%, when compared to the third quarter of 2008 and equal to revenues reported in the second quarter of 2009.

 

 * Net U.S. tape plans revenues were $31 million in the third quarter
   of 2009, down $7 million, or 18%, when compared to the prior year
   quarter and up $1 million, or 3%, when compared to the second
   quarter of 2009. The decline in U.S. tape plans revenues, net of
   revenue sharing plans, in the third quarter of 2009 when compared
   to the third quarter of 2008 is primarily due to the decline in
   NASDAQ's trading and quoting market share of U.S. equities and a
   reduction in the size of tape plan revenue pools.

 

 * U.S. market data products revenues were $29 million in the third
   quarter of 2009, an increase of $2 million, or 7%, when compared
   to the year ago quarter, but down $1 million, or 3%, when compared
   to the second quarter of 2009.    Revenue growth when compared to
   the prior year quarter is driven primarily by the growth of
   products such as the NASDAQ Global Index Data Service, launched in
   first quarter of 2009, and other proprietary data products.

 

 * European market data products revenues were $19 million in the
   third quarter of 2009, a decrease of $3 million, or 14%, when
   compared to the prior year quarter and equal to revenues reported
   in the second quarter of 2009.  The decrease when compared to the
   third quarter of 2008 is primarily due to changes in the exchange
   rates of various currencies as compared to the U.S. dollar and
   declines in subscriber populations.

 

Issuer Services

 

During the third quarter of 2009, Issuer Services revenues declined $9 million, or 10%, to $80 million from the third quarter of 2008 and decreased $2 million, or 2%, from the prior quarter.

 

Global Listing Services

 

Global Listing Services revenues were $70 million for the third quarter of 2009, down $6 million, or 8%, when compared to the third quarter of 2008 and down $2 million, or 3%, from the second quarter of 2009. Decreases in revenues from the prior year period are due primarily to lower U.S. annual renewal fees resulting from fewer listed companies, and to lower market capitalization values for European listed equities, which in turn result in lower European listing fees. Also contributing to the decline in revenues from the third quarter of 2008 are changes in the exchange rates of various currencies as compared to the U.S. dollar. The decline when compared to the second quarter of 2009 is due to seasonally lower demand for corporate services.

 

Global Index Group

 

Global Index Group revenues were $10 million for the third quarter of 2009, down $3 million, or 23%, when compared to the third quarter of 2008 and equal to second quarter of 2009 revenues. Driving the decline in revenues when compared to the prior year quarter are lower license fees associated with NASDAQ OMX-licensed products, related to lower volumes in licensed derivatives and declines in assets under management in ETFs and structured products.

 

Market Technology

 

Market Technology revenues were $36 million for the third quarter of 2009, up $7 million, or 24%, when compared to the third quarter of 2008, and equal to the second quarter of 2009 revenues. Revenues increased when compared to the prior year quarter primarily due to the increased deliveries of market technology contracts.

 

Operating Expenses

 

Total operating expenses decreased $25 million, or 11%, to $197 million from $222 million in the prior year quarter and decreased $2 million, or 1%, from $199 million in the second quarter of 2009. The decrease in expenses from the third quarter of 2008 was realized through a reduction in compensation expense, lower marketing and advertising expense, reduced expenses for computer operations and data transmission, and lower general, administrative and other expense. These reductions were driven by successful integration efforts associated with NASDAQ's business combination with OMX and the acquisition of the Philadelphia Stock Exchange. Also contributing to the decline were changes in the exchange rates of various currencies as compared to the U.S. dollar. The decrease in expenses when compared to the second quarter of 2009 is driven by lower compensation expense, offset somewhat by increased expenses in various other line items due primarily to changes in the exchange rates of various currencies as compared to the U.S. dollar.

 

Net Interest Expense

 

Net interest expense was $23 million for the third quarter of 2009, compared with $23 million for the third quarter of 2008 and for the second quarter of 2009.

 

Earnings Per Share

 

On a non-GAAP basis, third quarter 2009 earnings per diluted share were $0.42 as compared to pro forma non-GAAP earnings per diluted share of $0.51 in the prior year quarter, and non-GAAP earnings per diluted share of $0.47 in the second quarter of 2009. NASDAQ OMX's weighted average shares outstanding used to calculate diluted earnings per share was 215 million for the third quarter of 2009 compared with 214 million for the third quarter of 2008 and the second quarter of 2009.

 

 

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