Nasdaq, Inc. (NDAQ) Q1 2016 Earnings Report, Transcript and Summary

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. [Operator Instructions] As a reminder, today's conference call is being recorded. I would now like to turn the conference over to Mr. Ed Ditmire, Vice President of Investor Relations. Please go ahead, sir.

Good morning, everyone, and thank you for joining us today to discuss Nasdaq's first quarter 2016 earnings results. On the line are Bob Greifeld, our CEO; Ron Hassen, our Interim CFO; our Chief Operating Officer and President, Adena Friedman; President, Hans-Ole Jochumsen; Ed Knight, our General Counsel; and other members of the management team. After prepared remarks, we'll open up to Q&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&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 first quarter 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 apply 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 shareholders, and our drive to generate attractive returns for our shareholders. I will update everyone on how this quarter reinforces those themes later in my remarks. Regarding generating attractive results for shareholders, we're also clearly detailed – 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 first quarter 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 for 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've 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 source that 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 to 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 million and $153 million respectively. During Investor Day, we also said that at NASDAQ our fundamental mission first and foremost is to serve our customers. We accomplished this through an intensive engagement and feedback with these customers. We see our success based on the four 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 discusses is growth. Here we are focused on two 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 a strong organic growth 6% as compared to the prior year quarter. Our cash equities business saw an organic growth of 17% on higher volumes in capture. While we also closed the acquisition of Chi-X 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 first quarter. 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 second 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 first quarter, so certainly like 10 – well 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 will pass 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 will welcome 14 new Nordic listings, a near record quarter. Beyond IPO activity, we've seen $122 billion in market value switched to our market in the last 12 months with category leader 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 first quarter alone, clearly the most by any U.S. exchange. Our total ETP listings on Nasdaq were 241 at the end of the quarter, up 36% versus the same period a year ago. The second 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’re the only U.S. provider of a complete lifecycle solution to the ETP industry, 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 that Nasdaq is our equity trading and listings business, so it's very encouraging to see it performing so effectively with results at multi-year 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 a record revenues and solid year-on-year growth not only in data products, but also in index and despite the first quarter’s pullback in average market levels as our first quarter 2015 acquisition of Deutsche Wright, they enjoyed significant organic growth post close. Now in addition to some of the positive organic growth trends, I just shared, are another fundamental prong in our growth strategy is strategic acquisitions. During the quarter, we announced or closed four 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 business – businesses we're 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 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 Chi-X Canada, the number two player in the Canadian equity space in early February. We are currently working on further expanding this offering, incorporating our technology and adding 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 and complex options trading and will provide new opportunities to innovate and bring greater value to our clients. Last week, we're informed by the DOJ that the ISC transactions 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 two 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 Boardvantage, we’ve 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 the singular focus to benefit our clients. Let me give you a few examples of this. With Nasdaq private markets, 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 is 122 private companies using our software products for employees, shareholder liquidity and equity cap table administration. This compares to the 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 industries, the public companies 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’ve successfully launched our next generation IR Insight platform in the first weeks of January. And through the first three months of this launch, we migrated 750 clients and over 1,200 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 six months and sunset the legacy T1 platform on schedule during the fourth quarter 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 platform offers serve us as an opportunity to deepen relationships with customers by cross-selling other products in advisory and communication 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 transfer for applied technology to increase the capabilities to utilize blockchain technologies to evolve our post rate operations, as we continue to enjoy near record high – highs in our signed contract backlog. SMARTS, our leading solution in the surveillance base is a good example of the success, we've had in evolving that product over time to increase the value for our clients. In fact we had a record quarter in terms of SMARTS 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 technology 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 apply technology is really only one half of the equation, is what we do with this technology to deliver on our clients' needs 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, our new concepts in a better way to serve our clients. Now in its nine 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 about 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 services and during the first quarter more than 70 companies managed 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 incumbence, 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 technologies, and the systems and how reliably they serve our customers. We also think more broadly than that and on how we run this organization. Central to this business model, our business model is a diverse mix of subscription and recurring revenue. Almost three quarters of our current revenue is subscription and recurring. We are also continuing on 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 of 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 is focused 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 delivered to our shareholders. What is most exciting for me is that when we look across all our businesses we're 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 this quarter is clearly an indication that we're 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. Now let's turn the call over to Ron. Thank you.

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 at ir.nasdaq.com. I will start by reviewing first quarter revenue performance relative to the prior year quarter as shown on page three of the presentation. The 5% or $27 million increase in reported net revenue of $534 million consisted of organic growth and market services net revenue of $12 million or 6%, resulting principally from higher cash equity and access revenues. Organic growth and non-trading Information Services, Technology Solutions and Listing Services segments totaled $7 million or 2% due to the growth in Listings and Information Services. In addition there was a – there was $10 million in revenue from recently completed acquisitions of Marketwired, Chi-X Canada plus one additional month in the first quarter of 2016 from DWA, while year-over-year change in FX rates, reduced revenue by $2 million. I am now going to go over some highlights within each of our reporting segments, all comparisons will be for the prior year period unless otherwise noted. Information services on page 5 saw a $5 million or 4% organic increase plus a $4 million increase related to DWA and Chi-X Canada acquisitions, reduced by a $1 million FX impact. Market data revenues saw $4 million or 4% organic increase reflecting revenue growth in index data and proprietary products. Index licensing and service – and services saw $1 million or 4% organic increase reflecting growth in DWA. Technology solutions shown on page 6 saw a $4 million or 3% increase in revenue, including four main contribution from the acquisition of Marketwired. The operating margin was 12%, up from 11% in the prior year period. We continue to have confidence and reaching on medium-term objective and expect further progress as we move through 2016. Corporate solutions saw $1 million or 1% organic decline as shown in the record – as growth in directed test 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 2016 at the earliest. Market technology revenues saw a $1 million or 2% organic increase due to organic growth in surveillance products. New order intake was $22 million in the first quarter and the period end backlog finished at $783 million, up 8% year-over-year and they were a all-time record of $788 million set in the fourth quarter of 2015. Listing Services, on Page 7 saw a $2 million or 3% 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 million or 6% organic increase in net revenues plus a $2 million increase due to the acquisition of Chi-X Canada reduced by $1 million 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 in net capture and increased industry volumes, partially offset by modestly lower market shares. Fixed Income, Currency and Commodities trading and clearing net revenues saw 17% organic decline from the prior year, principally due to an FX 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 million on an organic basis or 2% increase due to $6 million – and $6 million due to DWA, Marketwired and Chi-X Canada acquisitions, partially offset by $3 million in FX impact resulting in an $8 million or 3% reported increase. Turn to Slide 11. Our revised 2016 non-GAAP operating expense guidance is $1,180 million to $1,230 million versus the previous $1,110 million to $1,160 million. The core expense guidance is unchanged, but we are updating it to include the impact of closed Chi-X Canada and Marketwired acquisitions as well as board advantage acquisition, which we expect to close in the next week, which we collectively are expected to add $70 million of expense in 2016, including $5 million that was already included in the first quarter 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 first quarter 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 reflect in the margin improvement of our market service business – market service business, net interest expense was $27 million in the first quarter, unchanged from the prior year period. Other non-operating income came to $3 million in the first quarter, this income primarily represents our portion of income and losses from certain investment interest such as our equity interest in OCC, EuroCCP and TOM. Going forward including the pickup from the incremental equity and OCC that will occur when we close ISC, we expect other operating income to range between $1 million to $2 million per quarter for the foreseeable future. Non-GAAP effective tax rate for the first quarter was 33.5% and was within our guidance. Non-GAAP net income was a record of $153 million or $0.91 per diluted share, compared to $138 million or $0.80 per diluted share in the first quarter 2015. Now moving on to cash flow and capital. Please turn to Slide 13. During the quarter, we repurchased $29 million in stock – in stock and through dividends we repurchased as we returned $70 million 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 million in share repurchases, bringing the total remaining value authorized to $500 million. 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 floor back over to Bob.

Thank you, everybody. And we are ready for questions, right. Operator, can you please open the line for Q&A.

Absolutely. [Operator Instructions] And our first question comes from Richard 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 we – it feels like $70 million is probably the right number, but when do we get any of the $60 million in synergies, 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 2017 and 2018, the $60 million 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, I guess, my one follow-up would be for Bob, yesterday they had the EMSAC, the Equity Market Structure Advisory Committee and, I guess, two things that look relevant to NASDAQ would be the proposal for the cap on access fees. I know you done your test, but just any comments color on that and then also, I guess, they're outlined for propose on SRO liability sort of limiting the liability to certain areas, as well as they even propose, 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 do is put that committee in context in that it's a prelude, and it 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 two 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've said, and then we'll comment either through the official period or depending on what makes it true or we'll comment now. So, we're working with it. So, with respect to the access fee, as you know when you reference, we try that – we try that by ourselves, and clearly it has to be coordinated effort by the industry. So, we need to study the details but clearly we are aligned with that in concept with respect to immunities and Mr. Nights here to helping out, but understand the immunities are really a core issue more so than a commission issue at that point in time.

And the preliminary recommendations of subcommittee, there was none on immunity.

Right.

And I want to emphasize a point Bob was making. The sub-committee's recommendation, the next step is for the full committee to consider them. Then they go to the staff of the SEC.

Right.

The SEC has – staff has to decide what it recommends. Then it goes to the commission, the commission have to decide what it recommends. Then it goes to the public, and it goes to a process of public comments and the evidence in that comment period has to support the conclusions where there is the potential of court review. So there are many steps in this process.

Right. So, I've said before that the pace of the SEC could be described as glacial it's important to recognize this is before we even get to the SEC and they're also will be a change of administration both in the Whitehouse 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 will be at a very slow pace.

Got it. Thank you. And I totally agree with you on that sort of, what you call peculiar makeup of the committee. Thanks.

Thank you. And our next question comes from Ashley Serrao of Credit Suisse. Your line is now open.

Good morning.

Good morning.

So, I guess first question just on Corporate Solutions. With respect to the rollout of our insight, how'd you're making progress on the client conversions, but more curious about the competitive landscape, how our rivals responding and but even manage attracting 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 second quarter 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 the 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 second quarter.

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 is 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 our webcasting business. As we mentioned at Investor Day has created some short-term challenges and we are working through with the 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 you doing, Kyle?

Good. So I guess the first question I'm going to ask on NFX, 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 products 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 two things, one, there will always be some level of market maker incentive involved with NFX and other efforts in the 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 normal report 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 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 on May 1.

Okay and then just a follow-up would be on the debt financing for ISC 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 it’s 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 seven-year and ten-year, or actually a five-year and a ten-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.

Okay. Thanks, Ron.

Yes.

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. I appreciate the updated expense guidance up for the deals. I'm just wondering, if you could give us any color in terms of what the – if the deals had closed this quarter – be in the quarter what the revenue run rate would have been. I know you gave us a little bit on the kiosks [ph] kind of $2 million [indiscernible] full quarter, and if we included board event?

Well, the first thing I would say with ISE is, we didn't expect to get the approval so soon. So I know, I've not spend a second thinking about what the revere 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 announced the deal.

Okay.

So, I don't have anything here.

I think also, on Investor Day, we did provide you some disclosures of the impact of the acquisitions. And for the two conversations on acquisitions the revenues tend to be relatively stable quarter-over-quarter. So you can take some of our annualized impact and understand what would be impact would be for an individual quarter.

If we just go back to Investor Day – we gave you guidance for the Corporate Solutions to acquisitions to be $85 million, so it's more or less in line year-to-year.

Got it. So still stable with that the guidance you gave at the investor.

Yes, yes.

Okay. And then, just on the order backlog within market technology, I think, you said it was a record quarter in surveillance. But it is obviously is one of the lowest order in takes, we’ve seen in a while, rather could be pretty lumpy. Any like, how do we think about the order intake that current backlog and kind of what you are working on in terms of new sales there?

Sure. Well, I think it's very important to note that the fourth quarter 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 first quarter tends to be a little bit slower, this one was, we had extraordinarily strong end of the year and so our first quarter 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 of the business.

Great. Thanks a lot.

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. 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 five quarters, six quarters. It always seems like the first quarter, even though there’s seasonality, even on a year-over-year basis, it tends to look little bit weaker. Just wanted to get your take, is there something in the business that causes that and then you get kind of the resurgence throughout the year and that we should kind of expect on an ongoing basis? Or is there certain things like this quarter that kind of weight on that growth rate versus what we've been seeing in the past two few quarters?

Well, I would say this. Once we get into the software and services business, it does bring me back to my days of as a software entrepreneur or as at SunGard, where the fourth quarter is the big push and then the first quarter is always weak. So I think with the business models we have, we're not going to have that fourth quarter boom and boss, but we will definitely see seasonality effects on a consistent basis.

Okay. It's helpful. And then Ron, just two things, just wanted to get your take and I know this is going to be somewhat quite too long out there in terms of timeline, but when you think about those synergies that you mentioned in 2017 and 2018, just wondering to try to quantify that without giving maybe expense guidance for 2017 or 2018, which is why I want to make sure we have those, when we start thinking out for like the 2017 expense growth? And then also just cash use. So when we 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&A?

Yes. So, in terms of synergies, we're looking really at a 18-month horizon in terms of the $60 million 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 balance approach. We want to get down to the mid two and half level, and it's going to be 18 months to 24 months before we get there. So buybacks look to continue to happen as I said in my prepared remarks, its 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 us back to two and half times leverage.

Okay.

I would add two things. I would add two things to that. One with respect to the synergy realization, I don’t think the management team is completely baked in terms of what the plan is, I think you'll find more details from us in the quarters to come, we're definitely just happy to be closing these deals sooner than we thought, and obviously we haven't closed ISCA [ph] 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 the stock that we’re more aggressive rather than less.

All right. Thanks a lot.

Thank you. And our next question comes from Alex Kramm of UBS. Your line is now open.

Yes, hey, good morning, everyone. Wanted to just ask again about the excess services increase, I think, Ron mentioned, I think it 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 increase volume that people want more bands with or are there actually new people connecting?

I think all the above. But, if I was to highlight one factor, we have certainly had success with our microwave offering.

Okay.

And that was probably the strongest single contributor to a very strong first quarter.

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 just given some color in terms of the user base and also maybe how open interest is looking. So any particular color like who are the 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 that [indiscernible] is. 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 one. 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 biggest complex at OCC were 40% of the volume and obviously biggest features have been around for a lot longer period of time than that. So, still early days, but certainly more progress than we have planned for at this particular point in time. With respect to the first party of question, when you have 70 participants that 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 is aware of it, everybody is aware of the liquidity and particularly the products we have where we’re at double-digit market share on a daily basis.

All right. 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 question. Maybe just a focus on the Market Technology segment, question for Adena on the Corporate Solutions part. If you can just flush out it, I think, there was also some, you did mention in 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 towards the 20% op margin goal for the Market Technology 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 – seeking the first question with regard to energy clients. As a general matter, we're seeing some M&A and what we would say, working with some of our energy clients to make sure that they retain their service what that they may, we might reprice it, and the short-term can make sure that they can continue to afford our service while they are working through some of their own business challenges, that is creating some level of headwinds. So, both M&A and that kind of activity in the Investor Relation segment of our Corporate Solution. But we want to make sure that we continue to work with our clients. We are 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, adding users to existing clients, at the same time, working through some challenge sectors and managing through a lot of M&A activity amongst some of our clients. And with regard to the second question, as we've said before it's multi-year 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.

And last but not least, I mean, the acquisitions are certainly going to help you achieve scale and hit the market goals.

Absolutely.

Right. And that's helpful for the second half, I would assume on this acquisition closed on segment. 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 first quarter here and then what you are expecting with the new pricing arrangements for the balance of the year – like a quarterly EPS track?

The impact for 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?

Yes. We think there’s going to be two 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 NLX will decline, so the $0.03 might go to $0.02, but you are 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 and non-trading segments. I know we talked about the seasonality earlier, but if you guys think about the set up 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 where it's going to be the main drivers?

Yes. The thing I would start with this by saying that that is a target over a multi-year 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 sets, unless it'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 multi-year 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 you doing, Ken?

Doing great. Just a question then on the listing front. You guys had some pretty strong trends I think on the ETP business with 42% market share there. I was hoping if 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 are the 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, as bundle pricing across families and doesn't amount to a lot of money. Where the ETP market is interesting is if you happen to have one listed with you the trades actively. So clearly in this marketplaces, 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 lifting venue of choice for ETP is, we have the benefit of being able to offer the exchange trigger products visibility through the market side and other visibility programs that we have here, which makes it, so that we can differentiated from some of our competitors. The other thing that we do is we work with the lead market makers and the ETPs around our market maker quality program that also provide 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 indexed ourselves, we understand what it takes to be 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, they have the best possible market structure and market environment to trade their products. So, we're 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 first quarter is a great quarter for switches. And I think we have evolved our market structure to be sensitive to the particular needs of ETPs. I think you can see that trend line continue in the quarters to come where you'll have market structural enhancements just for these issuers.

Great. Thanks for 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 you're doing?

Good. Thanks. I want to get your thoughts on the U.S. cash equity markets, market volatility and volumes declined quite a bit from the beginning of the year. I mean, NASDAQ's market share is also continues to decline. Obviously, that's some of that is related to increase in volumes, but is there anything else driving the share declines from NASDAQ's market? Is there anything kind of strategic you wanted to do particularly as IEX becomes a national market soon, and DAX 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 at a given month or 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 untamed sea and that's the point of intersection between us on the trading side and 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 follow-up. Just a couple of things, one, 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 with just revenue and expense results, and general trends.

Okay. I think it was $3 million last quarter, so you've given in the past, I was just curious, be an update. But all right, anyways, second question, just on the Index business for second, this is more of bigger picture question like, obviously always highlighted the AUM there, but can actually break the segment, I know it’s a small segment like, how much of that business actually AUM from EPS? How much is the description 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 will 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 that of the matter is, we continue to see strong demand for this products, and that AUM has recovered quite nicely, as you we’ve gotten into the second quarter. In terms of – we don't breakout the revenue, in terms of how much is contributed to each, but we have seen strong trading activity in the first quarter. We also continue to see growth and demand and new product launches for our overall business, and continue to work very closely with the EPS sponsors to launch new products, which will drive further growth overtime.

All right. Very good. Thanks again.

Okay. All right, well, thank you everybody for your time today, and certainly we're proud to deliver another record quarter for our shareholders or stakeholders. And as I liked to say, we do judge how we are doing relative to our position with our customers and beyond the financial metrics we just disclosed. The first quarter 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 days and weeks to come. Thank you.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Have a great day, everyone.