Nasdaq, Inc. (NDAQ) Q4 2012 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the NASDAQ OMX Fourth Quarter and Full Year End 2012 Earnings Conference Call. [Operator Instructions] As a reminder, today's conference may be recorded. It's now my pleasure to turn the time over to John Sweeney, Vice President of Investor Relations for NASDAQ OMX. Sir, the floor is yours.

Good morning, everyone, and thank you for joining us today to discuss NASDAQ's OMX's Fourth Quarter and Full Year 2012 Earnings Results. On the line are Bob Greifeld, our CEO; Lee Shavel, CFO; Ed Knight, General Counsel, and other members of the management team. After prepared remarks, we'll open up to Q&A. The press release and the 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 on SEC Regulation FD. I'd like to remind you of 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 those 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'll now turn the call over to Bob.

Thank you, John. Good morning, everyone, and thank you for joining us today on this call to discuss NASDAQ OMX's Fourth Quarter and Full Year 2012 Earnings Results. I am pleased to note that we're doing the call from Stockholm, where we are celebrating the 150th anniversary of the Stockholm Stock Exchange and joining with me here is Hans-Ole Jochumsen, the Head of the European business, and obviously, other members of the management team. When we look back at 2012 for NASDAQ, one word comes to mind: resiliency. In a year that was challenging for everyone, where we encountered market challenges, weak demand, political turmoil and even hurricanes, we never stopped executing on our business plan. The results we announced earlier this morning clearly demonstrate not only the resiliency, but the diversity and the strength of our business model. Let me start by giving you of a few key highlights of our fourth quarter, then I want to talk a little about how we got there. Fourth quarter non-GAAP revenues of $419 million was the highest of 2012. Recurring and subscription revenues accounted for 71% of total fourth quarter revenues, tied for the highest level in NASDAQ OMX's history. We delivered non-GAAP diluted EPS of $0.64, tied for the second highest quarterly performance in the firm's history. We finished the year with an exit run rate of $50 million in annualized expense savings, which I'll talk more about later. While we're pleased with these results, given the difficult times, by no means are we satisfied. We have yet to demonstrate the full earnings power of this franchise. One of the drivers that has made our model so successful over the past few years is the diversity of our business. Corporate Solutions led the way, an effort we undertook 6 years ago and built from the round up. Corporate Solutions revenues were $31 million in the fourth quarter, up an impressive 55% compared to a $20 million in the fourth quarter of last year, with strong 25% year-on-year revenue growth from our core products and services. Our success in diversifying our business model was also driven by our ability to create adjacent opportunities in our core business areas, many of which are non-transaction based and rooted in innovative technologies and software. Let me be clear, however, we love our Transaction businesses. We are leaders and execute exceptionally well in these areas. However, that love has never stopped us from looking for ways to: one, diversify our revenue portfolio; two, better serve our customers; and three, pursue adjacent growth opportunities. These opportunities have included a suite of solutions that cover the entire trading life cycle to our members. We continue to benefit, as we bring innovative data products and market system software and services to meet the needs of our customers and power their businesses throughout the world. We grew Access Services revenue 7% in the fourth quarter of 2012, compared with the fourth quarter of last year, and the Global Index Group increased by 8%. We continue to see good traction for our SMARTS Broker surveillance and risk management tools. We continue to make progress in our Market Technology business, which had exceptionally strong performance in the fourth quarter, delivering new business wins totaling $95 million. We were also pleased to close our first acquisition, the Global Index Group, in the fourth quarter, a leading player in dividend indexing. In contrast to most domestic equity mutual funds, which have experienced outflows over the past 3 years, inflows into equity income funds or dividend-focused funds have increased in that same time period, a factor that we believe bodes well for the future growth of this business. With this acquisition, the Global Index Group is one of the largest provider of dividend-themed indexes and further enhances our custom index offering capabilities. Our U.S. options business grew revenue 10% year-on-year in the fourth quarter, driven by increased revenue capture and expanding market share. In addition, so far this year, the signs for our transaction-based businesses are encouraging. On the operating front, in 2012, we continued our disciplined approach to expense control with the cost reduction program we announced in February of last year. We ended the year tracking ahead of our $25 million savings target, and exited 2012 with an annualized run rate cost savings of $50 million. In addition to expense control, we have an extremely disciplined capital allocation program. When we deploy capital in an acquisition, we always apply strategic rigor before we do any deal. As I've said before on this call, any transaction must make strategic sense, in some way must also level the mother ship and be accretive to our shareholders within a year. Share repurchases, dividend payments and acquisitions are all vital elements of our capital allocation strategy. In 2012, we generated nearly $600 million in cash flow from operations and we returned $270 million -- $275 million, actually, to shareholders through our share repurchase program, and an additional $65 million through dividend. Through our GIFT council, we continue to invest in and bring new and innovative products and services to market. In 2012, we generated approximately $134 million in revenue, based on the investments we have made in new initiatives over the past 4 years. Three great examples over our successful GIFT initiatives are BX Options, our insight sales force for Corporate Solutions, and our Index Weighting and Component product sets. Now as I've alluded to previously, the management team here is firmly focused on the opportunities across different sectors. We have driven growth and created scale across many of our businesses that are now providing operational visibility into these areas. We recently have made several noteworthy moves with this goal in mind. A few weeks ago, we announced the combination of our Market Technology business and our Corporate Solutions business to create a leading technology and software business, now called Global Technology Solutions. One of the drivers for this combination was the announcement of the acquisition of the IR, PR and Multimedia Solutions businesses of Thomson Reuters. As I mentioned before, we have long admired the Thomson Reuters model, and now, through this acquisition, we will accelerate our strategy and create one of the premier suites of products and services for public and private companies. We will bring the assets, talent and technology together to deliver a strong customer-centric value proposition to over 7,000 new clients in over 60 countries, truly an amazing opportunity. The transaction is currently under review by regulators and we expect it to close in the first half of this year. Once completed, it is expected to be accretive to earnings within the first 12 months, excluding transaction-related costs, and is expected to generate attractive returns on capital. We believe that technology and the continued innovation of industry-leading products and services will differentiate NASDAQ OMX. Our Global Technology Solutions business would be one of the larger players in this space, and similar in profile to companies such as ACI Worldwide, Fidessa, Pfizer, and Fidelity National Information Services. As part of this effort, we also announced a new Chief Information Officer who will be joining our firm, Brad Peterson. Last year, we took several key steps to improve our technology and enhance the way we bring products and services to market. We said one of the things we wanted to accomplish was to appoint a dedicated CIO. Brad brings significant experience and leadership skills to NASDAQ OMX, and his diverse background includes successful technology leadership roles at Charles Schwab, eBay and Epoch Partners. We are lucky to have him, and he will be the point person for all technology efforts across NASDAQ OMX. Just this week, we also announced the combination of our Global Index and Global Data Products businesses. Data Products and the Global Index Group both have high margins and saw a positive year-over-year growth in 2012. Bringing these 2 businesses together makes perfect strategic sense for us, as they are rooted in technology and in the delivery and distribution of data, things we do exceptionally well. Global Information Services, as we refer to the combined unit, will represent approximately 20% of NASDAQ OMX's total annual revenues and will have similar profile to companies such as MSCI, McGraw-Hill and Factset. This combination puts us in a great spot to capitalize on the work that has been done in both these areas and create new products and solutions for our customers, which really span virtually every corner of the financial services industry. The result of this diversified approach demonstrate that our strategy is working. Recurring and subscription-based revenue now accounts for 71% of our total revenue and reached $297 million in the fourth quarter of 2012. That is up $9 million from the previous year. It is truly a remarkable evolution of our business. Once we close the Thomson deal, we expect the recurring and subscription revenues will approach 75% of our total revenues. In closing, I have summarized what we consider to be the highlights of our strategy and a few examples of the successful execution of that strategy in 2012. Now, I'd like to discuss, in an overview fashion, our outlook for 2013. We believe that the year ahead will be positive for our business as the global economy continues to recover. We expect that our aggressive steps in meeting our cost, revenue and technology objectives over the last 3 years will enable us to benefit from improving economic conditions in 2013. We will continue to look for opportunities to further diversify our business with enhanced product offerings and possible acquisitions that complement our existing businesses. So far, the market environment has been encouraging in 2013. In the U.S., in January, we are seeing positive, multi-week equity inflows from retail investors for the first time in over 1 year. In addition, the last 3 reported weeks from Lipper, showed positive inflows into the U.S. equity mutual funds. We don't know if this trend will continue, but certainly, these are the most encouraging signs we've seen for U.S. equity volumes in many years. Still, our outlook will remain cautiously optimistic and we are planning for flat to relatively modest growth in volumes. Now with respect to our industry, we see that the market structure -- that market structure will continue to define and shape the discussion of the day. For NASDAQ OMX's role, we will continue to find leadership and innovation and market structure to benefit investors, not just so that markets remain stable in times of stress, but more importantly, so the markets can continue to fulfill their original purpose and intent. In 2012, NASDAQ overcame many of the internal and external challenges that were thrown our way, a credit to everyone on this team. At the end of the day, the challenges we faced in 2012 have made us a better company. As we move forward, we will continue to redefine and reshape our business and create even greater value for our customers, shareholders and stakeholders. And with that, I'd like to now turn the call over to Lee.

Thanks, Bob. The following comments will focus on our non-GAAP results. Reconciliations of the 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.nasdaqomx.com. I'll start by reviewing our fourth quarter revenue performance. Net exchange revenues came in at $419 million compared to $420 million in the prior year. Subscription and recurring revenue, representing 71% of total revenues, continue to show growth over the third quarter and the prior year quarter. And I'd like to highlight some of the areas in this revenue category where we saw particular strength. Access and Broker Services fourth quarter revenues increased by 7% over the year to $65 million. While we are starting to see some signs that customers are delaying their infrastructure spending, which has reduced the level of growth for our colocation and connectivity revenues, we continue to see encouraging momentum and positive outlook our for previously announced FinQloud and Microwave initiatives, where we've had a positive customer response and expect revenues starting in the second quarter of 2013. Corporate Solutions revenue increased 55% with 25% year-over-year organic revenue growth, with solid new business wins for BWise. And in Market Technology, we saw exceptionally strong order intake, rounding out a record year for new business wins. We anticipate first quarter 2013 Market Technology revenues of $44 million. Transaction revenues, which represent 29% of total, declined by $10 million or 8% year-over-year to $122 million. This was an improvement compared to the third quarter when our Transaction revenues declined 21% over the prior year quarter. We saw a substantial improvement in our U.S. options business, which had double-digit revenue growth versus the prior year through improvements in market share and revenue capture despite lower volumes over that year-over-year period. This represents the first time in 5 quarters that one of our Transaction businesses increased on a year-over-year basis. U.S. equity volumes, as Bob mentioned, showed some signs of improvement in the fourth quarter and continue to modestly improve in January. We saw some positive trends, in particular, for equity mutual fund inflows in the first weeks of January. While the low volatility environment with higher rates of internalization have contributed to our lower U.S. equity market share, we did see our U.S. equity capture rate increase 8% year-over-year in the fourth quarter. On the expense side, we continue to show solid expense growth with non -- I'm sorry, expense control, with non-GAAP operating expenses of $233 million in the fourth quarter, flat compared to the prior year. These results reflected incremental expenses from acquisitions and gift spending of $20 million, offset by a decline in core expenses, driven by our cost reduction plan. Moving onto our 2013 expense guidance, as outlined on Slide 13, we start our 2013 core expense guidance of $850 million to $870 million, which is in line with our 2012 actual core expenses of $855 million. And I would note that we do anticipate an increase of expenses in the core due to the successful graduation of 4 of our GIFT initiatives that will be moving from GIFT spending into our core spending, as well as through some structural increases within our core expense base. This chart clearly demonstrates how effective our cost reduction efforts were in 2012. Please remember that our initial guidance for 2012 was $915 million to $935 million for core expenses, substantially higher than our 2012 actual results. At current rates, we forecast foreign currency to increase 2013 expenses by approximately $10 million. Our 2013 cost guidance factors in $50 million of expenses related to the acquisitions we made in 2012 -- BWise, NOS and the Indxis business, reflecting the full year expense base for those combined acquisitions. And so this establishes our core expense base of $910 million to $930 million for 2013. In 2013, we expect to invest $50 million to $60 million in spending on new initiatives as we ramp up our initiatives at NLX and other internal GIFT projects. So our 2013 non-GAAP operating expense guidance sums to a range of $960 million to $990 million. Non-GAAP operating income in the fourth quarter of 2012 was $186 million, down $1 million compared to the prior year. Non-GAAP operating margin came in at 44%, down slightly from 45% in the prior year, primarily as the result of lower revenues in our higher-margin Transaction businesses. Net interest expense was $22 million in the fourth quarter of 2012, a decrease of $1 million versus the prior year. The non-GAAP effective tax rate for the fourth quarter was 35% and 34% for the full year. We anticipate that the tax rate may increase in 2013 due to the potential loss of tax deductions resulting from changes in tax laws in certain jurisdictions. The impact of such tax law changes has not yet been determined. And as a result, we expect an effective tax rate in the range of 34% to 37% in 2013. We understand that this is a wide range with the lower end, or 34%, signifying no change in the current tax laws, and the higher end, or 37%, reflecting an adverse change. We will continue to monitor the status of tax legislation and update our guidance as we get more clarity on the situation. Non-GAAP net income was $108 million, or $0.64 per diluted share, compared to $113 million or $0.63 per diluted share in the fourth quarter of 2011. The $0.01 increase in our EPS reflects a positive operational gain of $0.04 per share and a $0.04 benefit from our share repurchase activity, partially offset by a $0.03 reduction due to the increased fourth quarter 2012 effective tax rate, a $0.02 reduction due to the ramp up of our acquisitions and $0.02 reduction due to the funding of our gift initiatives. Moving on to the balance sheet. On Slide 16, we're showing our debt structure and our debt maturities. Our relatively low leverage, strong cash flow generation and spaced debt maturities give the company considerable latitude for our ongoing capital development initiatives. In 2012, NASDAQ OMX generated cash flow from operations of $594 million. Capital expenditures were $87 million in 2012, which is equivalent to approximately 5% of our net revenues. As some of our analysts have recently pointed out, this level of capital expenditure is at the lower end of the range for exchanges. Deducting capital expenditures of $87 million from our 2012 operating cash flow, results in the free cash flow of $507 million. This relatively high level of free cash flow generation means that NASDAQ OMX is currently valued at an 11% free cash flow yield at the current market cap, substantial discount compared to other U.S. exchange companies which trade in the 7% to 9% free cash flow yield range. On Slide 17, we show a track record of cash flow generation and cash flow utilization since 2009. As you can see, NASDAQ has generated roughly $2 billion in free cash flow in the last 4 years. We have used that free cash flow to repurchase approximately $1.2 billion of our outstanding common stock. This equates to 53.4 million shares at an average price of $21.97, a reduction of our share base by 26% in this time period. Between 2009 and 2012, Capital Returns from dividends and share repurchases represent 63% of our free cash flow, excluding Section 31 fees. We have refinanced and restructured our debt with a net repayment of debt of $540 million, and we have invested $320 million, net of dispositions, in acquiring a variety of assets including BWise, NOS Clearing, the Indxis business of Mergent, SMARTS, FTEN, Glide and the business of RapiData. These bolt-in acquisitions have allowed us to broaden our existing business and enhance our ability to grow profitably. Finally, we paid our third quarter dividend of $0.13 per share in December. This quarterly dividend represents a yield of about 2% at our current valuation. The underpinning of our capital deployment strategy is a robust return on invested capital framework. We continue to see attractive value-creating opportunities for internal investment and acquisitions. And as always, all potential uses of cash are screened to ensure that they have strong returns on invested capital for our shareholders, and we allocate our capital to the highest yielding investments. Thanks for your time, and I will now turn it back over to John.

Thank you very much. And operator, we'll now take some questions.

[Operator Instructions] Our first question comes from the line of Howard Chen with Credit Suisse. Howard Chen - Crédit Suisse AG, Research Division: Bob, on the operating backup, you noted the recent improvement in flows, but as a... [Technical Difficulty]

Our next question comes from Ed Ditmire with Macquarie.

Whether or not transaction revenues rebound in 2013 and mitigate the trend towards higher recurring revenues, NASDAQ's building this steady, rival, predictable revenues at a steady clip, and it seems to be building a higher capacity to support more dividends. I know NASDAQ finds great opportunities for money to work, for acquisitions, buybacks, et cetera. But can you give us more color on the appetite on your part for a higher dividend payout ratio? And/or what kind of times would be right to consider things like that?

Well, I would start by saying, one, it's certainly something that we consider. We obviously are, I think, comfortable with the dividend payout today as the best allocation of our capital. But it's something that we and the board revisit on a regular basis.

Can I have one follow-up? I wanted to ask you, is there any update on the Jefferies lawsuit related to IDCG?

Sure. Mr. Knight's on the phone. If you could handle that, Ed?

Yes. After a full arbitration hearing for 3 retired federal judges, and a hearing that lasted well over a week, briefing that went on for the year before, NASDAQ OMX prevailed on all claims and Jefferies was not awarded a penny in damages. We vigorously defended this matter and are very pleased with the outcome.

And obviously, well-served by Mr. Knight and, I think, the truth revealed itself through the course of the litigation.

Our next question comes from Howard Chen with Credit Suisse. Howard Chen - Crédit Suisse AG, Research Division: Bob, on the operating backdrop, you noted the recent improvement in flows, but as we've seen those flows, as you said, those inflows, into the equity markets, higher asset levels and that improvement in client risk appetite, we still seem pretty tepid overall volumes. I mean, what do you attribute that disconnect to?

Well, I think you got -- have to give it time. Right now, we're talking about 3 weeks of inflows and you'd have to reasonably expect that P&M's need to consider what to do with that money and how to invest it. So I think it's, one, it's too early to say that inflows will continue, and it's certainly too early to say what will happen to those inflows with respect to equity volumes. But it is a good thing. It is hard to construe January is being a bad thing, and I would say that we're running ahead of our internal budgetary numbers right now through the month of January. Howard Chen - Crédit Suisse AG, Research Division: Understood. Thanks, Bob. And then my follow-up, you've been a really active participant in industry consolidation in the past, and with 2 of your larger peers coming together, I was hoping for your view on ICE NYSE or your next combination, how you think it impacts the competitive landscape and your M&A priorities, as these deals historically have come in bunches in the past?

That's a great question. What's interesting is, we've digested the ICE NYSE acquisition, I think we, the management team and the board, really gained a sense of comfort with respect to the strategy that we have executed over the last number of years, and the positioning we have in the relative markets that we compete in today. And as I've said before, we compete aggressively with NYSE today, we expect that to continue post the acquisition. So we don't see that changing. We don't compete with ICE today and we don't see that changing either. So I think it validates our strategy. We've been able to, obviously, diversify, to do well -- not as well as we'd like, but still very well in respect of the times we lived in. And we're certainly levered to do incredibly well to the extent the economy gets that much better.

Our next question comes from the line of Rich Repetto with Sandler O'Neill. Richard H. Repetto - Sandler O'Neill + Partners, L.P., Research Division: I guess the first question is, strong results in the Corporate Solutions, and I was just wondering, Lee, whether you could -- you did mention BWise, but the $7 million uptick, just quarter-to-quarter, could you sort of dissect that a little bit more? And is that the run rate? Do you think it's sustainable going through 2013?

Well, I'd say that, clearly, we saw strong results from BWise. But I also don't want overshadow the fact that we also saw strength, continued strength, in our Directors Desk product, as well as in our PR Newswire business. So I'd say that across the board, we just saw overall stronger corporate activity. We do anticipate that BWise will continue to ramp up, they had a strong end to the year. And we also continue to be optimistic for growth in the Glide product. So I -- in terms of looking forward, I don't want to set a particular expectation, but I think we just anticipate continued growth across the board in our Corporate Solutions business.

Yes. Rich, I think we felt well positioned prior to the Thomson acquisition, and I think we'll be incredibly well positioned post the acquisition. We have invested in spaces that have some core organic growth opportunities in front of them and we intend to execute the plan. Richard H. Repetto - Sandler O'Neill + Partners, L.P., Research Division: Got it. And then -- on the expense side, for Lee or Bob. I'm just trying to understand, the spending that you have on Slide 13, the investment spending, the new initiatives as well as the acquisitions. And then trying to understand, I guess, Slide 15, like, how much revenue -- like, should we just take the $100 million to $110 million? What's in the revenue offsets right now? Is that -- I didn't totally understand the slides on 15 -- is that -- is there revenue offsets already in the run rate, too?

Well, I think what you see on Page 15 -- if you're looking at the 2013, is that we are anticipating $12 million of revenue from our current new initiatives that have been funded and will be continue to be funded through 2013. So that's what the -- where the revenue is coming from. Obviously, there's the larger amount of revenue which reflects all of the projects that we have invested in over this past 5-year timeframe. So that's the revenue. Rich, I don't know, is there another dimension as it ties to the $50 million to $60 million of expected investment in new initiatives that you were going at? Richard H. Repetto - Sandler O'Neill + Partners, L.P., Research Division: Well, I was just trying to see whether we should just model that in without any revenue offsets there. But I think we can do more on a follow-up offline. But I do have one last question I want to ask Bob.

Go ahead. Richard H. Repetto - Sandler O'Neill + Partners, L.P., Research Division: So, Bob, this is a little bit -- was asked prior. But with -- you talked about shaping and defining the market structure. I think investors are sitting here and, from a regulatory perspective, they're sort of mixed. They see headwinds, they see tailwinds. And you get Jeff Sprick, a friend of yours, coming out and say, he wants to strengthen the equity market structure. So I guess the question is, what are the things you can do that would be briefly but could be positive and help the U.S. publicly traded exchanges? And then, what are the -- what do you see as risk from a regulatory standpoint?

Well, one is, I welcome Jeff to these calls, I assume he's listening in, and we certainly welcome him to the fight to change U.S. equity market structure. I do believe he'll bring a different dimension to the discussion. Obviously, with deep experience in other markets, and I think that will be helpful. When we look at our plans for 2013, we include basically 0 positive and/or negative regulatory change into those plans. So from that point of view, we don't think there'll be any moves to -- in 2013, to speak to the increasing darkness in the market, nor do we see a transaction tax coming into the markets in '13. We certainly believe that the commission needs to step up to the market structure and address the increasing darkness of the market. And certainly, as we've said before, a large number of stocks is now over 50%, and I think that doesn't help anybody. So while we'll spend time and effort on those discussions, we don't expect -- we're not planning for that to have any impact in '13. And it if it does, we'll be pleasantly surprised.

Our next question comes on the line of Niamh Alexander with KBW. Niamh Alexander - Keefe, Bruyette, & Woods, Inc., Research Division: I guess, back on equities. I know it is a smaller part of your transaction businesses, by far, now. But your market share is dipping a little bit. I mean, here we are in January, it's only 3 weeks in, but we're below 18% as it's tracking there. I mean, is that a level that you're comfortable with? Or given that you're such a big listing venue, I'm just trying to understand your level of comfort with market share, does it matter less? I mean, I know it's you and NYX primarily losing to internalization at the market structure, but help me understand what's a good level for you? Where you're comfortable with? You've been very successful with just moving away from price wars into kind of offering different order types, but has that played out? And now, with kind of the algo offering kind of off the table, help me think about what you can do to bring up that share and if you want to.

Yes. Great question. I'd say, one is we're not at our level of comfort with respect to market share. So we certainly, in prior calls, talked about the fact that we were not going to optimalize just for market share, and we look at the capture and the overall health of the business. But our feeling right now is that our market share is not where it wants to be, and we do have, under Eric's leadership, a number of different plans that will be rolling out that I think will address that. And we did have some encouragement in the last week or so from our latest series of moves. So we're focused on it, we believe there is clearly opportunities within the current commission structure to offer more differentiation in how we approach our customers, and it's our job to maximize that opportunity, and we're focused on it. And in no way, shape does that focus mean that we're talking about getting into a compression capture game, we just think it's matter of proper differentiation. So we are focused. Niamh Alexander - Keefe, Bruyette, & Woods, Inc., Research Division: Okay. Thanks, Bob. And then on the capital, just now you kind of gotten to know Thomson a little bit better, I assume you've kind of gotten past the labor agreements you needed to get to for the definitive merger agreement. But are you still thinking that this doesn't change your capital return policy, with respect to maybe potential for dividend increase? And then, thinking about maybe capacity of $50 million to $75 million for share repurchases per quarter?

Yes. An -- just to reiterate what we've said before, we don't believe that the Thomson acquisition changes our capital return strategy in any way. Niamh Alexander - Keefe, Bruyette, & Woods, Inc., Research Division: So still potential for the $50 million to $75 million a quarter?

Yes.

Our next question comes from Matthew Heinz from Stifel, Nicolaus. Matthew S. Heinz - Stifel, Nicolaus & Co., Inc., Research Division: Just in light of the French transaction tax and then the potential for some of the individual E.U. members to go ahead with a sort of broader transaction tax. Do you think there's a possibility that, that pushes volume in certain markets into your [indiscernible] businesses where it doesn't look like those markets will be subject to any type of surcharges?

Great question. So one, implicit in your point is that, that we don't see any possibility of a transaction tax in Sweden. In that the government has strongly spoken against it. And the kind of been there, done that back in the '80s and it did not work. Whether or not that represents opportunities for us on a pan-European basis, we can't say at this point. I'm looking at Hans-Ole for some answer -- answering this question. But certainly, something that we're spending time thinking about. It's a possible opportunity, but we're not sure if it's a definitive one at this point. Matthew S. Heinz - Stifel, Nicolaus & Co., Inc., Research Division: Okay. And then just with respect to U.S. equity regulation. We have a new SEC chair coming into place here this year. I'm just wondering, how you kind of view the two-sided risk, I guess, between -- perhaps a broader crackdown on HFT, this could be detrimental to our business versus a -- sort of a shift away from internalization and dark [indiscernible] which could potentially benefit your business, how do you kind of view these potential offsets between those 2 pieces of regulation?

Yes. So I would say, one, in 2013, with respect to our planning, we have neither positive nor negative impacts from regulatory changes. That being said, if we were to give percentages on one thing happening versus the other. I think there's a growing and broadening base of participants who recognize that the increasing darkness of the market represents a problem. And so I would be more optimistic that in the fullness of time, we're able to make some changes on that. And I certainly believe, with respect to transaction taxes, that it's not something that we've heard mentioned for a long period of time in the States. Matthew S. Heinz - Stifel, Nicolaus & Co., Inc., Research Division: And then, the HFT piece?

Well, that kind of kind of goes a little bit hand-in-hand with the transaction tax. We don't see any movement with respect to transaction tax or HFT at this point in time. But clearly, not here to speak for the commission and they have to go through their own set of deliberations.

Our next question comes from Alexander Blostein from Goldman Sachs.

I wanted to follow-up on a couple of things. I guess when I look across the business, look at the Access Services business, look at the Market Tech business, and I guess where you got into a slight decline quarter-to-quarter in the Technology business. But when you look across the street, it feels like 2013 is still going to be a year for the rationalization across the seel side [ph] community, maybe to some extent the buy side [ph] community. When you think about these businesses for you guys, how do you feel about, I guess, the growth prospects in those 3 buckets for 2013?

This is Bob. I would say, one, our general attitude to each and every one of our businesses, without exception, is markedly more positive than 2012. And if you recollect in this call a year ago, we gave a fairly somber update. So that's a good thing. We also recognize that's against a low bar with respect to what our expectations were for '12. But it's good that it's better. And as I've said previously, January, for our businesses, has tracked better than we planned. Beyond that, it's hard for us to make predictions for the whole year.

And I would -- I'd attack it this way. First, when look at Access Services, as we indicated, there -- and some more of our traditional hardware businesses, clearly, there has been an impact as some of the firms, some of our clients have been reducing their overall technology footprint. Now some of that has created opportunity for us to sell some of our 40-gig connectivity products in place of the 1-gig and 5-gig products. And so, that's an opportunity. In addition, opportunities to sell them, technology that allows them to improve their efficiency, as we're doing with our FinQloud initiative, as well as risk management products, are also driving growth for us across that business. And beyond that, Microwave initiative is similarly -- is something that we see strong appetite for -- that is going to be generating revenues for us very quickly. So on that side of the business, we do some -- face some pressures on the traditional side, but we're seeing good appetite in growth, in particular around cost-driven technologies. As I mentioned, in Corporate Solutions, another key technology business for us, there we're seeing, across the board as I mentioned, good appetite for the Directors Desk product, increase in the number of news releases that are flowing through our newswire businesses, as well as clearly strong appetite for our BWise Enterprise Risk Management software. And then finally, in Market Technology, we have come through a period where we had some customers that did delay some of their spending. But as you saw in the fourth quarter, we've had the strongest order intake that we've seen in quite a while. And I think we continue to be optimistic that there is a shift in mentality. Our clients are feeling somewhat more comfortable in making the investments that they need to over the next years, as we see this market environment improving.

So in listening to Lee talk here, it really is remarkable, because the terms and the names that he's using today really did not exist in our vocabulary 3 years ago. So we have built a culture here to recognize that how we have made our money in the past will not be how we make it in the future. This is obviously fundamental in these times where you're fundamentally facing headwinds on a consistent basis. And we build the culture, we delivered results, as you see this quarter, as a direct consequence of that. Now to the extent that the macro environment gets better, we're clearly leveraged to do that much better. But we know that we have to do new and different things. A year ago, we didn't think about Microwave, we didn't think about 40G as a service, we didn't own products such as BWise. So this organization is evolving really on a constant and consistent basis. And that's been the key to our success and will continue to be the key to our success.

Got you. Lots of good color there. But -- so we -- just to make sure I understand. On the Market Tech, the quarter-over-quarter decline, is it just a timing issue? So going from $48 million to $44 million in the first quarter? And as you said, the backlog is pretty strong, so should we think about the ramp up in the backlog...

The backlog was more than strong. I mean, in the fourth quarter, we took in what, was it $95 million in new orders?

Yes.

So Market Tech, independent of the given quarter, had truly a phenomenal year. And we certainly topped it off with the $95 million in the fourth quarter.

Yes. There always are going to be, from quarter-to-quarter, delays. These are sometimes large projects with chunky revenues that are dependent upon the actual delivery of those projects, which can be subject to delays. So it may, from a timing standpoint, have an impact quarter-to-quarter. But what we focus on is building the backlog and just continuing to try to bring as much of that revenue through the product. I think what we're most confident about is that the backlog has continued to show strong growth. And we're not really seriously concerned about that sequential quarter results here. This is a business we look at for the long term.

Got it. Very helpful. And then my second question is on capital. Obviously, it's a high-class problem to have for you guys. But Lee, I think in the past, you talked about targeting sort of like an S&P 500 like dividend yield, which I guess was shaking out around 2. I guess, right now, maybe you guys are a little bit below that. Without, I guess, giving us too much guidance on this, but do you guys ever think of a sort of metric that you think from a dividend payout perspective or dividend yield perspective that we can think about with respect to further dividend increases?

Alex, we look at all of these metrics. And it really is looking at -- our yield relative to the S&P 500, the payout ratios, but most importantly -- sorry to reemphasize this, but we really look at what do we think the returns on our capital are going to be between our various options of investing in the business, in looking at acquisitions or returning it to shareholders. And when we make the decision on capital management and when we discussed that with the board, we look at all of those metrics to try to guide our decisions here.

Our next question comes from the line of Jillian Miller with BMO Capital Markets.

You laid out for us last quarter that, I guess, in your estimation about $50 million of your annual revenues are impacted by high-frequency trading, specifically from transaction revenue and colo. I was just hoping you might be able to broaden kind of the scope of your revenue estimate a bit for us? If we take into account like market data, which is a large chunk of your operating profit, could you give us an idea for what that figure might look like?

Yes. I recollect that number was inclusive of all aspects of our relationship with the defined high-frequency firms, the high frequency trading as we defined it last quarter.

That's correct, it did include market data.

Yes, it was the entire customer relationship.

That's helpful. And then you guys had cited NLX as one of kind of key investments you'll be making in 2013. And I was just wondering, now that NYSE is clearing arrangements kind of in place with ICE, if you could talk about how that might impact your strategy and prospects? Because as I recall, one of your selling points was that Liffe's clearinghouse would be untested and NLX provide an opportunity to remain at LCH. But not sure that, that argument kind of applies now that you've got the proven clearinghouse with ICE?

Yes, I agree. Clearly, the customers in London were giving very little credibility to Liffe's ability to leave LCH in that timeframe. Now Jeff and the ICE team bring more credibility to that, and obviously have demonstrated confidence of that in the past. So that's an aspect of it. But I would still say that the value proposition remains constant in that we will be clearing through LCH. The customer set is there, desires to stay there. And to the extent that we can provide a trading platform that has relative advantage and, first and foremost, is proven and trusted in a given timeframe, I think that will work out well for us. So we are investing in that. We have committed to that, and we're excited about the prospects.

Okay. And just one final one for me. The Global Index Calculator service, I know you guys mentioned that in the last call, and I think it was set to launch in the fourth quarter. So I just wanted to get an update on the progress there and maybe your expectations for potential impact to your index revenue line from that in 2013?

Wonderful. We're always happy to have a question on one of our high-margin growing businesses. And one of the final drivers to bring us to the point where we decided with data and the index business together is that we did successfully launched the product in December of 2012. We obviously have many more things we want to do with the product, but it's a major launch to have the Global Index capability available to us. The customer reaction has been very strong. This is a long sales cycle, they want to back test the data, they want to work with our data, and that engagement has been very strong. Now, one of the wisdoms of putting it together with our market data business is distribution in our data world is obviously very strong and also global. And for that to be really integrated indirectly from both the product development point of view and a distribution point of view will give us strong advantage in the market. So we are spending a lot of time, effort on this. As I said in my opening comments, this is a high-margin business, there is a tremendous amount of growth opportunity in it. There is an established order that is a very high-cost environment. We have the ability to disrupt, in a number of different ways, not just on cost, but also in terms of capability and flexibility, in terms of how our indexes are constructed, and still maintain very high-margin. So we're excited about it. We obviously want to focus on it, from both the investor point of view and a management point of view, and one of the key reasons why we have made it a separate and discrete reportable segment going forward.

Our next question comes from the line of Chris Allen with Evercore.

I just want to focus a little bit, again, on the expense guidance, because we're getting an inordinate amount of questions from investors on it, even though your track record on the expense side has always been healthy. I guess what I wanted to talk about is, if you guys can just give some color. When you look at FX and the acquisitions, FX it's kind of clear that it will be a positive net benefit if FX trends hold, given the later slide. Just on the acquisitions side, the impact of BWise, NOS and the Indxis acquisition, maybe if you can give some color just in terms of how accretive those acquisitions are, how the profit margin within those business compare to overall NASDAQ right now?

Well, on the acquisitions, I would just -- I'd say, we can't break out any individual acquisition. All of these -- we believe that all of these acquisitions are going to be accretive transactions for us within a year of their acquisition. From a margin standpoint, I don't say that BWise is a software-oriented business, it's inherently a lower-margin business than our Transaction businesses.

Our goal there would need to get that to 20%, 25% margin range, and it's not there today.

NOS is a clearinghouse, it's a higher margin business, that's where we've got great operating leverage. We're going to be leveraging not only our operational efficiency, but frankly, also our capital efficiency with NOS to generate a very attractive margin, consistent with our transactional businesses. And with Mergent, this -- in the index business, a great margin business as our existing index businesses. So we certainly think, additive to the margin overall. But I think it's important to understand the different characteristics of these businesses, particularly some of the software business versus some of our more transactional elements.

And I'll just add for you and any investors who are asking, we have a philosophy here that the quest for efficiency is really eternal, and it's something we work on, on a constant and consistent basis. As you saw in 2012, we initiated a formal program, but lacking a formal program is something we look at, and just to ensure everybody that this organization will always run lean and as efficient as possible. And the numbers you have here will be something that we always look to improve upon.

Got it. And then just on the new initiative spending, which is $50 million to $60 million of the guidance for next year, can you just remind us in terms of how you think about the pay off there, the flexibility if the investments are not panning out to cut back on expenses? Maybe the timeline to think about a positive impact to the bottom line?

Well, it's complete flexibility. And what we have set up with our GIFT council is really something ultimately worthy of the top venture capital firms we know in the valley with respect to how we track milestones and how we make fill-or-kill decisions based upon progress towards those milestones. So we certainly would hope that we have the opportunity to spend every 1 of those dollars because all of the initiatives are progressing and doing well. That tends not to be reality. And you saw in 2012, we did underspend on that and that we made the proper decision with respect to IDCG and into entering into a mutually beneficial contract with LCH. And we also had a couple of other less-noteworthy, but other initiatives that did not make it through the process. So it's something that we look at, but we certainly want to go into the year with the ability to fund everything that's valid, that has the ability to grow the franchise. And I'll just say that in my prepared comments, if you recollect, that we had what was $143 million, $134 million, I'm not sure which -- what it was, with respect to revenue in the fourth quarter from initiatives that we'd started in the last several years.

And let me just add to that, Chris, and try to give you some sense of the expected timing of payout in levels of payout. This portfolio of acquisition, it has a range of potential investment horizons where we expect them to be profitable and to be generating adequate returns on capital. I would say they tend to bulk towards the shorter time frame of generally within 2 years, some of them are longer, 3- to 5-year investments that we're prepared to make. But generally, what we're looking to do is to put capital into projects that we can leverage our existing infrastructure and generate a quick and attractive return on. But we are prepared, when we think the opportunity is substantial, to make investments that require a slightly longer payout. And what I would tell is that we require, depending upon the project, clear returns that are well in excess of our cost of capital and reflecting the risk of these enterprises.

And for the record, it was $134 million of revenue.

Okay. And then just on the Corporate Solutions business, there's a bunch of different businesses within that. I mean, how long term are the contracts or arrangements with customers in terms of thinking about how sticky the business is moving forward?

Well, I would say this, I don't think of the stickiness based upon contracts. They certainly vary in range from short term to long term. I look at the stickiness with respect to how integrated is it into the operation of the business that we serve. And as we evaluate these products to build or to buy, that's the key determinant. How sticky is it, how dependent do the companies get on it, get -- to be reliant on these products and services. So as you look across the portfolio products we have, there obviously is some range to them. But they tend to range towards the clearly sticky part of the equation. And the vast majority of the products are not nice-to-have products, but need-to-have products. So we feel very good about it.

And with that, that does conclude our time for questions. I like to turn the program back over to management for any additional or closing remarks.

I'll just wrap up by repeating, very briefly, what I said during the call. The fourth quarter was a very strong quarter, 2012 was very strong quarter. As against the backdrop of difficult economic times, it clearly has revealed the diversity of our business model and really within our core that we have evolved and changed our products over time. We are pleased with our progress, we're pleased with our strategic positioning, and certainly look forward to continuing to execute upon this plan. We have the team in place on a global basis to allow us to do that. It's a highly motivated, highly professional team, and we will continue to deliver to our investors. So we thank you for your time today.

Thank you, presenters. Again, ladies and gentlemen, this does conclude today's conference. Thank you for your participation and have a wonderful day. Attendees, you may log off at this time.