Nasdaq, Inc. (NASDAQ:NDAQ) Q3 2023 Earnings Call Transcript

Nasdaq, Inc. (NASDAQ:NDAQ) Q3 2023 Earnings Call Transcript October 18, 2023

Nasdaq, Inc. beats earnings expectations. Reported EPS is $0.71, expectations were $0.67.

Operator: Good morning, and welcome to Nasdaq Third Quarter 2023 Results Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your first speaker, Ato Garrett, Senior Vice President and Investor Relations Officer. Please go ahead.

Ato Garrett: Thank you. Good morning, everyone, and thank you for joining us today to discuss Nasdaq’s third quarter 2023 financial results. On the line are Adena Friedman, our Chair and Chief Executive Officer; Ann Dennison, our Chief Financial Officer; John Zecca, our Chief Legal, Risk and Regulatory Officer and other members of the management team. After prepared remarks, we will open up the line to Q&A. The press release and earnings presentation are available on our website. We intend to use the website as a means of disclosing material non-public information and complying with the disclosure obligations under SEC Regulation FD. I would 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 will now turn the call over to Adena.

Adena Friedman: Thank you, Ato, and good morning, everyone. Thank you for joining us for Nasdaq’s third quarter earnings call. Before I begin, I would like to offer brief comment on the situation in the Middle East. We were horrified by the acts of terrorist violence that occurred in Israel last week, and we were deeply saddened by the subsequent loss of innocent lives in Israel, Gaza and the wider region. Our focus has been on supporting our people and our clients with connections in the region. We will continue to monitor the situation closely and stay engaged with them throughout this emerging crisis. Turning now to my remarks about the quarter. I will start by covering Nasdaq’s performance and how our strategy is unfolding in the context of the current operating environment, as well as provide key business highlights.

I will then turn the call over to Ann for a detailed review of our financial results. I’m pleased to share that Nasdaq continues to make solid progress in our strategic objectives to capitalize on the key megatrends shaping the financial system. Nasdaq continues to execute against the strategic vision to become the trusted fabric of the global financial system, delivering broad-based growth across our businesses, including 6% overall net revenue growth and 8% year-over-year organic revenue growth in our Solutions Businesses. I’m proud of the team’s efforts to continue to serve our clients and I’m pleased to see our revenue growth improving in the third quarter, aided by strong performance in our Capital Access Platforms division, particularly in our Index business.

In addition, our Anti-Financial Crime division delivered — continued to deliver strong results with solid growth in our Surveillance business and Verafin continuing to demonstrate strong new customer growth, as well as an expansion contract with the Tier 2 clients. With respect to the market backdrop, during the quarter, we saw variety of cross currents, including increasing market volatility, fluctuating equities markets and rising long-term interest rates. Nevertheless, we experienced modestly improving momentum in our Listings business amid a gradual re-emergence of the U.S. IPO activity with 35 operating companies choosing to list in Nasdaq during the quarter. Based on our client conversations and our growing IPO pipeline, we remain cautiously optimistic on the outlook for the upcoming year.

Across the company, as we’ve discussed before, Nasdaq is well-positioned to thrive by capitalizing on three key megatrends that are shaping the financial system: the modernization of markets, the development of the corporate and investor ecosystem for environmental sustainability, and the increasing need for integrity solutions across the financial system, including risk management, surveillance, regulatory compliance and anti-financial crime technology. By aligning our business to these key megatrends, we’re unlocking attractive opportunities for sustainable growth and we’re building a diversified business that’s well-positioned to succeed through economic cycles. In this regard, I’d like to provide a few highlights from the quarter that illustrate the progress we’re making to capitalize on these growth opportunities.

First, our focus on market modernization continues to deliver innovation that enhances the liquidity and underlying market infrastructure that powers the world’s economies. A major driver of that innovation has been our ability to adopt and leverage technologies, including cloud and artificial intelligence across our markets and in our products. In the third quarter, we are pleased to announce the approval by the SEC of the first exchange AI-powered order type, which we call Dynamic Midpoint Extended Life Order or Dynamic M-ELO. For the last several years, we’ve offered an order type called the Midpoint Extended Life Order for clients seeking larger trade sizes at the midpoint. The order introduces a fixed holding period together order interest before execution.

Through extensive testing and consultation, we determined that our clients trade execution could be improved under certain market conditions by applying adaptable holding periods. This led to the creation of Dynamic M-ELO, which leverages AI to adjust the length of holding periods throughout the trading day on a stock-by-stock basis to improved fill rates and reduce market friction. We’re very excited to rollout this enhanced order type to our clients in the coming months. And we see significant opportunity ahead to drive the application of AI and other emerging technologies across our markets. Next, regarding the development of the environmental sustainable ecosystem, during the quarter, we were proud to launch two new offerings designed to help corporates and investors streamline their sustainability journeys.

Following the acquisition of Metrio last year, we have integrated Nasdaq’s OneReport and Metrio’s sustainability reporting and workflow offerings into a single solution called Nasdaq Metrio, which was officially launched during the quarter. Nasdaq Metrio is a SaaS based end-to-end solution that helps corporates better collect, measure and report sustainability data on a single platform. In addition, in our Investment Intelligence business, we announced the launch of Nasdaq eVestment ESG Analytics, which is designed to help asset managers better quantify and showcase the environmental, social and/or governance impact of our portfolio’s position in the market. It enables asset managers to demonstrate their portfolio’s sustainability strategies to asset owners, including pension funds, sovereign wealth funds and endowments.

These two solutions underscore our role as a bridge between corporates and investors by creating market-based demand driven solutions that help bring clarity to a rapidly evolving environment for sustainability reporting. Lastly, looking at the increasing need for integrity solutions, including risk management and anti-financial crime technology, we’re developing innovations that make our clients anti-money laundering or AML programs more efficient. Specifically, in October, we have launched the beta version of an AML workflow to co-pilot tool that will leverage generative AI to automate portions of our clients’ AML processes. We look forward to updating you on our progress with these opportunities in the quarters to come as we continue our journey to leverage technology to advance our clients’ evolving needs.

Turning next to our results. I’m pleased to report Nasdaq’s continued solid financial performance in the third quarter of 2023. We achieved $940 million net revenues, an increase of 6% compared to the prior year period, an increase of 5% on an organic basis. Revenues across our Solutions businesses were $694 million, up 9% from the prior year period and 8% on an organic basis. Our total ARR increased 6% to $2.1 billion. Annualized SaaS revenues totaled $773 million in the third quarter, which represents an annual growth rate of 11%. Our SaaS revenues now comprise 37% of total company ARR. In our Capital Access Platforms division, we delivered $456 million in total revenue in the third quarter, an 8% increase from the prior year period. Our Index revenues grew 15% from the prior year period.

The performance in our Index business reflects strong year-over-year market performance, $24 billion in net inflows over the past 12 months, including $5 million in the third quarter and strong features capture, partially offset by lower derivatives volumes. Our Workflow and Insights revenues grew 5% over the prior year period, reflecting sustained demand for project work in our ESG Solutions and steady analytics solutions sales to asset managers. While we continue to see elongated sales cycles for certain products in this business, we’ve not seen a material improvement or worsening of sales cycles from the second quarter of 2023. Our Data and Listing Services revenues grew 5%. Our Listings revenues was largely unchanged due to continued muted IPO activity and heightened de-listings, while our Data business delivered continued strong revenue growth, driven by demand from international data clients.

We maintained our track record for winning new operating company listings, ending the quarter with strong momentum from some of the year’s biggest IPOs by proceeds raised. Year-to-date, Nasdaq welcomed 83 new operating company IPOs for an 84% win rate. As of the end of the third quarter, we have welcomed four of the five top IPOs by capital raised. And in the third quarter, we achieved an overall win rate of 95% and welcomed several marquee IPOs including Arm Holdings and Instacart. This momentum was also bolstered by several notable listing switches to Nasdaq in the quarter, including DoorDash and Roper Technologies. Overall, 11 companies had transfered to Nasdaq year-to-date, representing a total market value of $184 billion. The September Listing success coincides with the launch of our new IPO and Broadcast Center at the Nasdaq MarketSite in Times Square, further establishing Nasdaq as the world’s premier venue for listings.

The reimagined space reflects our commitment to showcasing our clients and elevating their IPO experience, and enables us to create more visibility for first trade celebrations through increased access to global media outlets. Looking ahead, we remain well-positioned to capture new listings activity. We have a strong pipeline of companies who are committed to Nasdaq and are in close contact with these companies as they evaluate their IPO timelines. Turning next to our Market Platforms division. We delivered $381 million in total revenues during the third quarter, a 1% increase over the prior year period. In our Trading business, revenues declined 1% compared to the prior year, with lower European revenue, partially offset by modest growth in U.S. equities revenue due to higher revenue capture and a small FX benefit.

In our Marketplace Technology business, revenue grew 4% with growth in both trade management services and market technology solutions. During the period, we completed delivery of a major CSD project for a Latin American central securities depository and signed a contract extension, including an upgrade to our next-gen trading system with one of the largest stock exchanges in Southeast Asia. Turning next to a brief update on Adenza. We’re progressing well towards the closing of the Adenza transaction. We have completed the anti-trust review and Thoma Bravo is on track to obtain the remaining approvals from the Nordic and Baltic financial regulators to become a major shareholder in Nasdaq. Therefore, we expect to close the transaction in the fourth quarter of 2023.

As previously disclosed, this business will be reported as part of the newly created Financial Technology division, alongside our Marketplace Technology and Anti-Financial Crime businesses. In the third quarter, Adenza continued its strong performance, delivering constant currency ARR growth in the high-teens. Year-to-date through the third quarter, they added 17 new clients and three total cross-sells, which compares to seven new clients and three cross-sells over the same period last year. Additionally, Adenza maintains solid growth in net revenue retention at 97.4% and 113%, respectively. We’re also pleased with the momentum of Adenza’s journey towards the cloud-based delivery of its solutions across both existing and new clients. Through the first three quarters of 2023, 55% of bookings have been for cloud delivery solutions versus 27% over the same period last year.

Since the transaction was announced in June, we’ve held extensive integration and planning discussions with the leadership team at Adenza, and we’re very excited about the opportunities ahead. As a result of our early interactions together, we have developed a very clear path and process for integration that we intend to execute successfully starting on day one post-close. Finally, turning to our Anti-Financial Crime division. We delivered $93 million in total revenue during the third quarter, a 21% increase in the prior year period. Nasdaq Verafin grew 29% primarily driven by growth in the adoption of our Fraud and Anti-Money Laundering or FRAML solutions by small and medium sized banks, as well as an expansion of wallet share among existing clients.

We continue to expand client relationships with 47 new small-medium sized financial institutions adopting our FRAML solutions. Additionally, we continue to have momentum in our move-up market. This quarter, we signed an expansion agreement with an existing Tier 2 bank client. Specifically, this is a bank client that’s signed on to our Fraud Detection and Workflow solution in the first quarter of 2023 and is now expanded their relationship with us to include our complex investigations solution. We view this expansion as a strong proof point and our ability to land and expand our relationships with large bank clients. We continue to be actively engaged in contract negotiations and proof-of-concepts with several Tier 1 and Tier 2 banks, and remain on track with our plans to sign additional large banks in the coming quarters.

Our Surveillance business delivered 9% organic revenue growth with continued new customer growth including Tier 3 banks and retail brokers as we expanded our leadership position with large customers. And lastly, I’m pleased to announce that we’ve officially named Brendan Brothers, Executive Vice President of our Anti-Financial Crime division. As you may recall, Brendan was named to the role on an interim basis earlier this year and we’re thrilled to welcome him formally as a member of our leadership team continuing to report directly to me. To wrap-up, our third quarter results demonstrate the strength of our diversified business and reflect our strong position going into year-end with the closing of the Adenza transaction view. And with that, I’ll now turn the call over to Ann to review our financial details.

Ann Dennison: Thank you, Adena, and good morning, everyone. Turning to this quarter’s results. My commentary will primarily focus on our non-GAAP results and all comparisons will be to the prior year period unless otherwise noted. Reconciliations of U.S. GAAP to non-GAAP results can be found in our press release, as well as in a file located in the financials section of our Investor Relations website at ir.nasdaq.com. I will start by reviewing third quarter 2023 performance, beginning on Slide 11 of the presentation. The 6% increase in reported net revenue of $940 million is the net result of organic growth of 5%, including an 8% organic increase in the Solutions Businesses and slightly lower Trading Services revenue, and $3 million in net positive impact from changes in FX rates and acquisitions and divestitures.

Moving to operating profit and margins. Non-GAAP operating income increased 4%, while the non-GAAP operating margin of 52% was down approximately 90 basis points from the prior year period. Non-GAAP net income attributable to Nasdaq was $349 million or $0.71 per diluted share compared to $335 million, or $0.68 per diluted share in the prior year period. Turning to Slide 12, as Adena mentioned earlier, ARR totaled $2.1 billion, an increase of 6% from the prior year period, while annualized SaaS revenues totaled $773 million, an increase of 11%. ARR and SaaS revenue growth in the quarter reflect broad based growth led by continued bookings strength in our Anti-Financial Crime division. We are delivering solid performance despite ongoing elongated sales cycles in certain areas of our Workflow and Insights business similar to recent quarters.

We are working closely with our customers in the current uncertain macroeconomic environment and are executing well on our strategic pillars of bringing liquidity, transparency and integrity to financial markets. I will now review quarterly division results on Slides 13 through 15. Starting with the Market Platforms division, revenues increased $2 million or 1%, driven by a positive impact from changes in FX rates. Trading Services organic revenue was down 2% driven by lower European trading revenues due to lower volumes. Despite better cash equity revenue capture that offset largely flat U.S. revenues. While we have seen an increase in off-exchange trading, which is common in a lower volatility environment, Nasdaq share of available volume has remained steady.

In Marketplace Technology, we delivered 3% organic revenue growth, reflecting solid revenue growth in our Market Technology business. As a reminder, Marketplace Technology revenue growth in the first half of the year benefited from testing revenue and a large project delivery that we don’t expect to recur in the second half of the year. We continue to expect full year revenue growth for Marketplace Technology to be at the upper end of our medium term outlook. ARR totaled $511 million, an increase of 2% compared to the prior year period. This growth rate is lower compared to prior periods due to slower Trade Management Services growth resulting from near term market conditions. Market Platforms operating margin was 52% in the third quarter of 2023, representing a 370 basis point decrease from the prior year period due to lower revenue, resulting from lower European trading activity, as well as higher compensation costs, ongoing investments related to migrating U.S. markets to the cloud, and investment in new growth opportunities in Marketplace Technology.

Turning to Capital Access Platforms. Revenues increased $34 million or 8%, reflecting organic revenue growth of $32 million and a $2 million positive impact from changes in FX rates. We delivered broad based organic growth in the third quarter, driven by strong performance in Index. Index revenue increased 15% compared to the third quarter of 2022, primarily driven by a 22% increase in average AUM over the prior year quarter. Licensing revenues for futures contracts linked to the Nasdaq 100 Index increased 14%, reflecting higher pricing per contract, partially offset by a decline in trading volume. Additionally, we saw in net inflows over the trailing 12 months of $24 billion including $5 billion in the quarter. While AUM has benefited from a strong year-to-date market performance, we saw AUM impacted by overall markets trending lower in the last two months of the quarter.

Moving to Data and Listing Services. Our revenue grew 5%; excluding the positive impact from changes in FX rates, our organic growth was 4%. Revenue growth reflects continued strength in our Data business and the combined impact of de-listings and a more muted IPO environment on Listings revenue growth. However, as Adena mentioned, we have seen several high profile initial listings and 11 switches year-to-date. Workflow and Insights revenue increased 5% organically compared to the third quarter of ’22, reflecting growth across our ESG and Analytics businesses, despite ongoing elongated sales cycles with corporates, particularly for our IR tools and for our asset owner portfolio management solutions, affecting revenue growth in the third quarter.

ARR for Capital Access Platforms totaled $1.2 billion, an increase of 4% compared to the prior year period. While ARR growth related to our data products remained solid, the Capital Access Platforms ARR growth rate has been impacted by slower listings growth and the impacts of continuing elongated sales cycles on parts of our Corporate Solutions and Analytics businesses. The division operating margin was 56% in the third quarter of 2023, an increase of roughly 50 basis points from the prior year period. Anti-Financial Crime revenue increased $16 million or 21% compared to the third quarter of 2022. Growth reflects robust demand for Fraud Detection and Anti-Money Laundering solutions, as well as our SaaS-based Surveillance Solutions. Our Fraud Detection and AML solutions revenues grew 29% compared to the third quarter of 2022.

Surveillance revenues grew 9% compared to the third quarter of ’22 with continued customer growth including Tier 3 banks and retail brokers. These new customer wins reflect our ability to drive growth beyond our leadership position with large banks and expand into new customer segments. ARR for Anti-Financial Crime totaled $348 million, an increase of 18% compared to the prior year period. Signed ARR, which also includes ARR for new contracts signed but not yet commenced totaled $381 million, an increase of 19% versus the prior year period. The Anti-Financial Crime division operating margin was 33% in the third quarter of 2023 versus 27% in the prior year period with approximately one half of the margin growth resulting from the timing of recognition of incentive compensation.

Turning to Page 16 to review both expenses and guidance. Non-GAAP operating expenses increased $32 million to $449 million. The increase primarily reflects a $32 million organic increase or 8%. The organic year-over-year increase reflects increased compensation and benefits expense due primarily to increased headcount and the impact of merit increases, higher technology spend attributable to continued investment in our business and higher G&A expense. We are narrowing our 2023 non-GAAP operating expense guidance to $1.785 billion to $1.805 billion, which is a $10 million reduction to the top end of the guidance range. As a result, the midpoint of the updated expense guidance range is $5 million lower than our prior guidance, which reflects an annual expense increase of approximately 4.5% for 2023.

Assuming stable performance and exchange rates, we currently expect 2023 expenses to be near the middle of the updated guidance range. Additionally, we narrowed our full year non-GAAP tax rate guidance range from 24% to 26% to a range of 24.5% to 25.5%. We expect to come in at or around the midpoint of this updated range for the full year. Turning to Slide 17. Excluding Adenza related debt, our adjusted total debt to trailing 12 months non-GAAP EBITDA ratio ended the period at 2.4 times, down from 2.6 times at the end of the second quarter of 2023. During the quarter, we paid common stock dividends in the aggregate of $108 million. And in September, our Board approved an increase to our share repurchase authorization to a total of $2 billion.

Our balance sheet remains solid and our cash flow generation is strong, including $1.6 billion of free cash flow on a trailing 12-month basis. We remain well-positioned to support organic growth, execute on the deleveraging plan we announced with the Adenza acquisition, increase our dividend payout ratio over time and repurchase shares to minimize dilution. In closing today, Nasdaq’s third quarter results reflect the continuation of the Company’s ability to perform consistently well across a wide range of operating environments. Thank you for your time and I will turn it back over to Adena.

Adena Friedman: Thank you, Ann. And before we turn to Q&A, I would like to take a moment to acknowledge Ann Dennison. After eight years at Nasdaq, Ann will be stepping down from her role as CFO at the end of this year. Ann has been a guiding voice to the market on our financial performance, a leader in enhancing our Investor Relations and ESG reporting efforts, and as steward to our company’s transformation, most recently, through our announced acquisition of Adenza. In conjunction with Ann’s upcoming departure from Nasdaq, we’re pleased to welcome Sarah Youngwood as our next EVP and CFO. Sarah will join us from UBS Group, where she served as CFO and a Group Executive Board member. Sarah will officially join us on December 1, and will work closely with Ann and the team to ensure a seamless transition.

I want to thank Ann personally for her many contributions to Nasdaq. She has been a phenomenal partner to me and the company, and we wish her the very best. And now, I’ll turn the call back over to the operator for Q&A.

Operator: Thank you. [Operator Instructions] And I show our first question comes from the line of Michael Cho from JPMorgan. Please go ahead.

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Q&A Session

Michael Cho: Hi. Good morning. Thanks for taking my question. I just wanted to touch on Adenza for my first question. I think, Adena, you talked through the update and I think you mentioned the ARR. But can you also just — hoping you can talk about for both Axiom and Calypso, the year-to-date revenue growth trends for both of the segments? And then related to that, I was hoping you can touch on kind of the revenue opportunity or revenue growth opportunity as you think about clients going from on-prem to the cloud solution for Adenza. Thanks.

Adena Friedman: Sure. Great. Thank you. Well, we don’t provide or break out the financial, the revenue differences between Axiom and Calypso. But we do provide — I can give you some color in that, when we’re looking at new bookings for the year, we had — as I mentioned, we had 17 new clients so far in 2020 or I should say they have 17 new clients so far in 2023 and three cross-sells. And when we break that out between Calypso and Axiom, so Calypso had nine new clients sign up and one cross-sell; and Axiom had eight new clients sign up and two cross-sells. And then in terms of the upsells, 95 total and it’s really a good even split, 55% upsells in Calypso and 40 in Axiom. So it’s really a nice split of revenue growth and opportunity across both of these solutions.

When we think about why that is the case, I think that there are a range of reasons, just trends out in the marketplace that are driving demand for both risk management solutions, more advanced risk management solutions for — across all asset classes, as well as better regulatory reporting solutions. And obviously, those are the two great things that Calypso and Axiom do. And when we think about that acceleration of new sales because they had seven new sales — new clients sign up last year versus 17 this year, we’re definitely seeing a momentum in terms of the regulatory obligations that are coming into the United States as well as the Basel III end game that’s really coming across both the U.S. and Europe driving certain demand, but then also moving down market.

I mean I think Axiom did a really nice job of bringing in even more banks and brokers into their solutions. So generally, it’s just — we’re very pleased with the continued momentum in the business. When it comes to cloud, it’s really interesting to see. As I mentioned, the 55% of total bookings were for cloud — I’m sorry, new bookings were for cloud delivery solutions versus 27%, I think it was last year. And that’s really, I think, a combination of two things. One is the fact that banks are more ready to accept cloud delivered solutions. And so that’s been a real — we’ve seen that across all of our solutions across Nasdaq. They’re just more ready to have cloud be a big part of their infrastructure. And they’re trying to — some banks are purposely trying to move out their data centers.

I think that the second is that the cloud based delivery solutions are modern. They’re modular, they’re more flexible. And I think that the team has done a really nice job of selling the benefits of that and you’re right in terms of the revenue opportunity. There is a revenue uplift when we are able to sell a cloud module because we become a managed service provider and that takes away costs from on their side for managing an on-prem solution. So we are able to upcharge from that. We haven’t discussed what that means in terms of revenue uplift. But — so one thing just to recognize also is that from a GAAP perspective, cloud revenue is recognized ratably over the life of the contract, whereas the on-prem revenue, there’s more revenue recognized upfront.

So this will create more stability in revenue going forward as well.

Michael Cho: Okay. No. Great. Thanks for all the color there. If I could just switch gears a little bit for my second question. I just want to touch on Verafin. I mean, it seems like revenue growth is accelerating there. I’m just curious the types of conversations that Nasdaq’s happened with clients there. I mean, do you get the sense that the SMB clients are tightening budgets or expanding budgets for these types of solutions in Verafin?

Adena Friedman: I would say that every bank is facing more and more challenges of fraud and AML. So the fraud side is just a pure — it’s a very easy return on investment calculus because they are losing money to fraud and they have to — and when they make their clients good on something that’s happened in their accounts. So it’s a really nice clear return on invested capital when they come in and leverage our solutions. Additionally, it is a cloud-based solution. So they’re having to make less of an upfront investment from an infrastructure perspective. And so it’s a cleaner kind of, frankly, commitment to us. And then lastly is, we do a really good job of onboarding clients. And so particularly small to medium banks, we have an amazing machine to onboard those clients and bring them up into the system very quickly.

For the large scale banks, we’re working really well with them to integrate or implement and integrate these solutions. And as you can see, we did have that one expansion contract with the client that just signed OFS (ph) in the beginning of the year. So they took our solution. We’ve been able to implement it and immediately sort of realizing that they wanted more capabilities from us with the complex investigations. So we see really good opportunity to expand. In the AML side, it’s a matter of just a lot of regulatory pressure and frankly, the banks really having a true interest in just making sure they do not have that type of money laundering going through their systems. And so again, it’s an increasing threat. It’s become more complex. Our systems are more advanced than many others.

We use a lot of AI in the algorithms to root out criminals. We’re able to show much — many fewer false positives and more activity found than our competitors, and it’s just driving a lot of good conversations and demand. So we’re — I really do think — also the last thing I would say is, when I go to these conferences and I have gone to meetings with small banks, and I have had banks come up to me and say Verafin is by far their favorite partner. They just — they find that we’re a really good partner, and they use that word as opposed to vendor. And I think that that’s really a testament to the great service that the Verafin team provides to the clients.

Michael Cho: Great. Thank you so much, Adena.

Operator: Thank you. And I show our next question comes from the line of Kyle Voigt from KBW. Please go ahead.

Kyle Voigt: Hi. Good morning. So now that you have line of sight to deal closure and you have a bit more clarity on the interest rate environment and where your stock is trading, just wanted to revisit the topic of capital allocation after the deal closure. How should we think about capital priorities, specifically on deleveraging versus buyback, post deal closure? And is there any framework you could provide for maybe level of buybacks anticipated for a specific period post deal closure that could kind of help frame the mix there?

Adena Friedman: Ann?

Ann Dennison: Sure. Hi, Kyle. Absolutely. So, as we think about post deal closure, obviously, we will evaluate the market conditions from a share repurchase perspective. But in terms of our capital priorities, first and foremost, we are going to continue to invest to drive the business organically. But after that, our priority is to deleverage and to meet the deleveraging targets that we set out when we announced the Adenza acquisition. And then beyond that, we — our next priority will be to increase our dividends to get our payout ratio up to the 35% to 38% ratio over the next three to five years. And then beyond that, what’s left over, we’re going to use to offset the dilution, both from our employee share issuances and then also from the issuance related to the Adenza deal.

And our cash flows remain very strong. I mentioned we had $1.6 billion in free cash flow on a trailing 12-month basis. So we feel really well positioned to do all of those things in the priority order that I listed.

Kyle Voigt: Okay. Understood. Thank you for that. And Adena, I mean, you mentioned some of the drivers for the strong kind of high-teens growth for Adenza ARR. Just given the nature of the Adenza business, kind of the length of the sales cycle there and the progress that you’ve seen since the deal announcement in June, just wondering, if you could provide any updates on — do you feel more or less confident in kind of that medium term — low to mid-teens medium-term revenue growth target for Adenza as we look out and for 2024, specifically?