NYSE Euronext makes $184M in Q2

Financial Highlights(*)

  • Diluted EPS of $0.64 vs. $0.51, up 25%
  • Net revenue of $654 million, up 7%
  • Fixed operating expenses of $407 million, down from $427 million in 1Q10
  • Operating income of $247 million, up 15%
  • Operating margin year-to-date of 36% vs. 32% for full-year 2009
  • Debt-to-EBITDA ratio declined to 1.9 times, down from 2.6 times at year-end 2009
  • Board declares third quarter 2010 cash dividend of $0.30 per share

(*)All comparisons versus 2Q09 unless otherwise stated. Excludes merger expenses and exit costs and net gain from disposal activities.

(*)A full reconciliation of our non-GAAP results to our GAAP results is included in the attached tables. See also our statement on non-GAAP financial measures at the end of this earnings release.

NEW YORK – August 3, 2010 – NYSE Euronext (NYX) today reported net income of $184 million, or $0.70 per diluted share for the second quarter of 2010, compared to a net loss of ($182) million, or ($0.70) per diluted share for the second quarter of 2009. Results for the second quarter of 2010 and 2009 include $32 million and $442 million, respectively, of pre-tax merger expenses and exit costs. Second quarter of 2010 results also include a net $54 million pre-tax gain from disposal activities. Excluding the impact of these items, net income in the second quarter of 2010 was $167 million, or $0.64 per diluted share, compared to $132 million, or $0.51 per diluted share, in the second quarter of 2009.

“Our strong second quarter results were driven by robust trading volumes, strong revenue generation from new initiatives across our segments and continued cost discipline, said Duncan L. Niederauer, CEO, NYSE Euronext. And building upon the initial steps taken with the creation of NYSE Liffe Clearing in 2009, we announced our new clearing strategy to develop clearinghouses in London and Paris by the end of 2012. As we move through the remainder of the year, we are focused on further strengthening our competitive position and seamlessly migrating markets and clients to our new data centers, which will serve as the liquidity hubs of the future and create unparalleled low-latency trading communities for market participants. The launch of our new data centers is integral to the implementation of our long-term strategy of operating the most meaningful capital markets, connecting members of the capital markets community to our networks and delivering innovative products to our ever expanding client base.”

“During the quarter, we continued to invest in new business initiatives that will drive our future growth and further reduced our fixed operating expenses, commented Michael S. Geltzeiler, Group Executive Vice President and CFO, NYSE Euronext. On a constant dollar, constant portfolio basis, our fixed operating expenses declined $29 million, or 7%, from the second quarter of 2009. Due to the strengthening of the dollar, we are revising downward our cost guidance and now expect full-year 2010 fixed operating expenses to be between $1,685 million and $1,729 million. And lastly, we made significant progress in de-levering, reducing our total debt outstanding by $538 million since the beginning of the year. Reduced debt levels combined with stronger EBITDA generation resulted in a debt-to-EBITDA ratio of 1.9 times, down from 2.6 times at the end of 2009.”

SECOND QUARTER CONSOLIDATED RESULTS
Total revenues less transaction-based expenses (net revenue), which include Section 31 fees, liquidity payments and routing and clearing fees, was $654 million in the second quarter of 2010, up $42 million, or 7% compared to $612 million in the second quarter of 2009. Second quarter of 2010 net revenue compared to the second quarter of 2009 included a $19 million negative impact attributable to foreign currency fluctuations. On a currency neutral basis, net revenue would have increased 10%. The increase in net revenue compared to the second quarter of 2009 was primarily driven by a $31 million, or 10% increase in net transaction and clearing revenue, principally related to derivatives trading, and a $26 million, or 53% increase in technology services revenue. These increases were partially offset by declines in revenue from BlueNext (other revenue), our environmental trading exchange, and market data.

Fixed operating expenses, excluding merger expenses and exit costs, were $407 million, compared to $397 million in the second quarter of 2009. Second quarter of 2009 fixed operating expenses included a discrete $10 million curtailment benefit for changes implemented to certain U.S. retiree medical plans. Excluding the impact of acquisitions, a $9 million positive impact attributable to foreign currency fluctuations and investment in new businesses, fixed operating expenses were down $29 million, or 7%, compared to the second quarter of 2009.

Full-year 2010 fixed operating expenses are now expected to be between $1,685 million and $1,729 million, adjusted for currency fluctuations. The new full-year 2010 fixed operating expense range is based on estimated full-year 2010 average currency rates of EUR/USD $1.30 and GBP/USD $1.50. The previous full-year 2010 fixed operating expense range of $1,723 million and $1,768 million was based on 2009 average foreign currency rates of EUR/USD $1.39 and GBP/USD $1.57.

Operating income, excluding merger expenses and exit costs, was $247 million, up 15% compared to the second quarter of 2009. Second quarter 2010 operating income compared to the second quarter of 2009 includes a $10 million negative impact attributable to foreign currency fluctuations. Operating margin was 38%, up from 35% in the second quarter of 2009 and well above the 32% recorded for full-year 2009.

Adjusted EBITDA which excludes merger expenses and exit costs, was $313 million, compared to $281 million in the second quarter of 2009. Adjusted EBITDA margin was 48% in the second quarter of 2010, compared to 46% in the second quarter of 2009.

Non-operating income for the second quarter of 2010 includes the impact of the investment in New York Portfolio Clearing (income from associates) and NYSE Liffe U.S. (net income attributable to non-controlling interest) initiatives. Both New York Portfolio Clearing and NYSE Liffe U.S. are currently in a loss position. Non-operating income in the second quarter of 2010 also includes a net pre-tax gain of $54 million related to disposal activities, primarily in connection with the sale of our 5% stake in the National Stock Exchange of India (other income).

The effective tax rate for the second quarter of 2010 was 27.5%.

At June 30, 2010, total debt declined $538 million from December 31, 2009 to $2.2 billion and consists of $1.9 billion in long-term debt and $0.3 billion in short-term debt. Cash, cash equivalents, investments and other securities (including $155 million related to Section 31 fees collected from market participants and due to the SEC) was $0.4 billion and net debt was $1.8 billion.

Headcount as of June 30, 2010 was 2,993, down 11% from December 31, 2009 and down 15% from June 30, 2009. June 30, 2010 headcount reflects 165 staff transitioned to FINRA as part of their agreement to assume market surveillance and enforcement functions previously conducted by NYSE Regulation.

The Board of Directors declared a cash dividend of $0.30 per share for the third quarter of 2010. The third quarter 2010 dividend is payable September 30, 2010 to shareholders of record as of the close of business on September 15, 2010. The anticipated ex-date will be September 13, 2010.

SECOND QUARTER SEGMENT RESULTS
NYSE Euronext’s reportable segments are focused on three global business units: Derivatives, Cash Trading and Listings, and Information Services and Technology Solutions. The financial results for each reported segment are presented below.

DERIVATIVES

  • Derivatives net revenue of $226 million in the second quarter of 2010 increased $57 million, or 34% compared to the second quarter of 2009 and included an $8 million negative impact from foreign currency fluctuations. Net revenue increased $2 million, or 1% compared to the first quarter of 2010 and included a $9 million negative impact from foreign currency. The increase in Derivatives net revenue compared to the second quarter of 2009 was primarily driven by a $51 million, or 34% increase in net transaction and clearing revenue principally due to strong European derivatives products and U.S. options trading volumes, as well as the contribution of NYSE Liffe Clearing. Adjusting for the impact of foreign currency fluctuations, Derivatives net revenue in the second quarter would have increased 38% compared to the second quarter of 2009 and 5% compared to the first quarter of 2010.
  • European derivatives net transaction and clearing revenue of $161 million in the second quarter of 2010 increased $42 million, or 35% compared to the second quarter of 2009, and included an $7 million negative impact from foreign currency fluctuations. Net transaction and clearing revenue decreased $1 million, or 1% compared to first quarter of 2010 and included a $9 million negative impact from foreign currency fluctuations. The 35% increase compared to the second quarter of 2009 was primarily driven by a 24% increase in European derivatives average daily volume (ADV) to 4.0 million contracts (excluding Bclear) in the second quarter of 2010, from 3.2 million contracts in the prior year period and the addition of NYSE Liffe Clearing revenue. Adjusting for the impact of foreign currency fluctuations, net transaction and clearing revenue would have increased 41% from the second quarter of 2009 and 5% from the first quarter of 2010.
  • The average net rate per contract for European derivatives (excluding Bclear), including the impact of currency fluctuations, in the second quarter of 2010 was $0.64 per contract, up from $0.60 per contract in the second quarter of 2009, but down from $0.66 per contract in the first quarter of 2010. On a currency neutral basis, using second quarter of 2010 currency rates, the average net rate per contract in the first quarter of 2010 was $0.63 and $0.58 in the second quarter of 2009.
  • U.S. equity options net transaction revenue of $42 million in the second quarter of 2010 increased $9 million, or 27% compared to the second quarter of 2009 and was flat compared to the first quarter of 2010. The increase in net transaction revenue compared to the second quarter of 2009 was primarily driven by a 57% increase in U.S. equity options ADV to 4.1 million contracts, up from 2.6 million contracts in the prior year period. Net transaction revenue was flat compared to the first quarter of 2010 due to a decline in capture rates of approximately 11% which offset a 10% increase in U.S. options ADV in the second quarter of 2010.
  • The average net rate per contract for U.S. equity options in the second quarter of 2010 was $0.17 per contract, down from $0.20 per contract in the second quarter of 2009, and down from $0.19 per contract in the first quarter of 2010. The decrease in the average net rate per contract compared to the second quarter of 2009 was primarily driven by an increase in penny-pilot issues traded over NYSE Arca. The decrease in the net rate per contract from the first quarter of 2010 was driven primarily by an increase in penny-pilot issues traded on NYSE Arca and minor pricing changes which were offset by market share gains. Penny-pilot issues represented 74% of consolidated U.S. options trading volume in the second quarter of 2010, compared to 50% in the second quarter of 2009 and 67% in the first quarter of 2010.
  • NYSE Euronext’s U.S. equity options exchanges accounted for 26% of total consolidated equity options trading in the second quarter of 2010, up from 18% in the second quarter of 2009, but down from 27% in the first quarter. In the second quarter of 2010, NYSE Euronext was the largest U.S. equity options exchange operator for the second consecutive quarter.
  • Operating income, excluding merger expenses and exit costs, in the second quarter of 2010 was $140 million, a 92% increase compared to $73 million in the second quarter of 2009 and an 8% increase from the first quarter of 2010.
  • Operating margin, excluding merger expenses and exit costs, was 62%, compared to 43% in the second quarter of 2009 and 58% in the first quarter of 2010. Adjusted EBITDA margin was 68%, compared to 54% in the second quarter of 2009 and 65% in the first quarter of 2010.
  • NYSE Euronext announced that it will commence clearing its European securities and derivatives business through two new, purpose-built clearinghouses based in London and Paris in late 2012.
  • New York Portfolio Clearing (NYPC), the innovative joint venture of The Depository Trust & Clearing Corporation (DTCC) and NYSE Euronext created to deliver unique capital efficiencies to the market by evaluating and margining a clearing member’s risk on a portfolio basis across both cash bonds and derivatives, appointed Walter Lukken as Chief Executive Officer, effective May 1, 2010. The management team for NYPC is now in place with the recent hiring of a Chief Operating Officer, Chief Risk Officer, Chief Regulatory Officer and Head of Operations. NYPC is currently undergoing regulatory review and expects to be operational shortly after regulatory approval.

CASH TRADING AND LISTINGS

  • Cash Trading and Listings net revenue was $321 million in the second quarter of 2010, a decrease of $38 million, or 11% compared to the second quarter of 2009 and included an $8 million negative impact from foreign currency fluctuations. Net revenue increased $9 million, or 3% compared to the first quarter of 2010 and included a $9 million negative impact from currency fluctuations. The decrease in net revenue compared to the second quarter of 2009 was primarily driven by a $20 million, or 13% decline in net transaction revenue and a $14 million, or 28% decline in other revenue. The decline in net transaction revenue was principally due to pricing reductions in European cash in 2009 and lower trading volumes and market share in U.S. cash trading. The decline in other revenue was principally due to a decrease in volumes on BlueNext, our environmental trading exchange. The increase in net revenue compared to the first quarter of 2010 was driven primarily by higher net transaction revenue, principally by a 26% increase in U.S. cash trading ADV and higher market share. Adjusting for the impact of foreign currency fluctuations, Cash Trading and Listings net revenue in the second quarter of 2010 would have decreased 8% compared to the second quarter of 2009 and would have increased 6% compared to the first quarter of 2010.
  • European cash products net transaction revenue of $71 million in the second quarter of 2010 decreased $10 million, or 12% compared to the second quarter of 2009 and included a $5 million negative impact from currency fluctuations. Net transaction revenue increased $2 million, or 3% from the first quarter of 2010 and included a $6 million negative impact from currency fluctuations. The decline in European cash net transaction revenue of $10 million compared to the second quarter of 2009 was driven primarily by 2009 pricing changes and the negative impact from currency fluctuations. Adjusting for the impact of foreign currency fluctuations, net transaction revenue in the second quarter would have decreased 6% compared to the second quarter of 2009 and would have increased 12% compared to the first quarter of 2010.
  • Average net revenue per transaction for European cash products, including the impact of currency fluctuations, in the second quarter of 2010 was $0.65 per transaction, down from $0.90 per transaction in the second quarter of 2009 and down from $0.80 per transaction in the first quarter of 2010. On a currency neutral basis, using second quarter of 2010 currency rates, the average net revenue per transaction in the first quarter of 2010 was $0.74 and $0.84 in the second quarter of 2009.
  • European cash market share (value traded) was 74% in the second quarter of 2010, down from 79% in the second quarter of 2009, but up from 73% in the first quarter of 2010.
  • U.S. cash products net transaction revenue of $60 million decreased $10 million, or 14% from $70 million in the second quarter of 2009, but increased $10 million, or 20% from the first quarter of 2010. The decline in U.S. cash net transaction revenue compared to the second quarter of 2009 was primarily driven by a 12% decline in U.S. cash trading volumes and declines in market share. The increase in U.S. cash products net transaction revenue compared to the first quarter of 2010 was primarily driven by a 26% increase in U.S. cash trading volume and an increase in market share.
  • Average net revenue per 100 shares handled for U.S. cash products in the second quarter of 2010 was $0.030, compared to $0.031 in the second quarter of 2009 and $0.032 in the first quarter of 2010. The decrease in the net rate per 100 shares handled from the first quarter of 2010 was driven by increased participation by liquidity providers on NYSE in April 2010 and a greater number of customers reaching volume tiers on NYSE Arca during the month of May 2010 on strong trading volumes. On May 1, 2010, NYSE Euronext modified pricing on NYSE which neutralized the increase in participation on the platform. Additionally, on July 1, 2010 static NYSE Arca volume tiers were eliminated and were replaced with variable volume tiers based on the consolidated U.S. cash average daily share volume.
  • NYSE Euronext’s Tape A matched market share in the second quarter of 2010 was 37%, down from 39% in the second quarter of 2009, but up from 35% in the first quarter of 2010.
  • Operating income, excluding merger expenses and exit costs, in the second quarter of 2010 was $126 million, a 13% decline compared to $144 million in the second quarter of 2009, but a 19% increase from the first quarter of 2010.
  • Operating margin, excluding merger expenses and exit costs, was 39%, compared to 40% in the second quarter of 2009 and 34% in the first quarter of 2010. Adjusted EBITDA margin was 53%, compared to 52% in the second quarter of 2009 and 48% in the first quarter of 2010.
  • NYSE Euronext’s global listings franchise experienced increased momentum in the first-half of 2010. A total of nine companies for a combined market capitalization of over $30 billion have announced transfers to NYSE Euronext markets from other exchanges including Kapstone Paper and Packaging, Targa Resources Partners, Charles Schwab, Paragon Shipping, Inergy, Inergy Holdings, Orion Energy Systems, Knight Capital Group, and Monmouth REIT.
  • A total of 55 IPOs listed on NYSE Euronext markets for total proceeds of $13.4 billion in the first half of 2010, compared to a total of 21 IPOs for $4.4 billion during the same period last year. Total proceeds raised year-to-date June 2010 include the $2.2 billion IPO of UC Rusal (Russia) on the Paris market in conjunction with their listing on Hong Kong. UC Rusal is the first Russian company to list on the European markets of NYSE Euronext. The $13.4 billion raised on NYSE Euronext markets in the first-half of 2010 was nearly three times the amount raised by any other U.S. exchange during the period according to Dealogic.
  • Venture Capital and Technology-related IPOs continue to be an area of strength for NYSE Euronext and the pipeline for the remainder of the year is strong. Venture Capital and Technology-related IPOs year-to-date include Sensata Technologies, MaxLinear, Calix, Higher One Holdings, Fabrinet, RealD and Green Dot.
  • SmartPool, NYSE Euronext’s European dark pool established in partnership with HSBC, J.P. Morgan and BNP Paribas, experienced significant growth in the second quarter of 2010, with matched volume increasing to €5.7 billion, making SmartPool the third largest dark Multi-Lateral Trading Facility (MTF) in the second quarter.
  • On July 13, 2010 NYSE Euronext began trading Tape C stocks on an Unlisted Trading Privilege (UTP) basis over the NYSE Amex platform, bringing a NYSE Euronext’s differentiated market model to the trading of Nasdaq-listed issues. With the addition of NYSE Amex, a designated market maker (DMM) is assigned to each issue with an obligation to make fair, orderly markets and to quote at the best bid or offer a certain percentage of the time. In addition to a DMM, there are one or more off-floor supplemental liquidity providers (SLP) for most issues with an incentive to add liquidity. Trading of Tape C stocks over NYSE Amex began with 10 issues and has now expanded to approximately 675 NASDAQ-listed issues.
  • The Financial Industry Regulatory Authority (FINRA) assumed responsibility for performing the market surveillance and enforcement functions previously conducted by NYSE Regulation for NYSE Euronext’s U.S. equities and options markets – the New York Stock Exchange, NYSE Arca and NYSE Amex.

INFORMATION SERVICES AND TECHNOLOGY SOLUTIONS

In the second quarter of 2010, the Information Services and Technology Solutions segment represented 16% of net revenue and 7% of operating income for NYSE Euronext (excluding merger expenses and exit costs), up from 14% and 5%, respectively, in the second quarter of 2009.

  • Information Services and Technology Solutions revenue was $107 million in the second quarter of 2010, an increase of $24 million, or 29% compared to the second quarter of 2009 and included a $3 million negative impact from foreign currency fluctuations. Revenue decreased $3 million, or 3% compared to the first quarter of 2010 and included a $4 million negative impact from foreign currency fluctuations. The increase in revenue compared to the second quarter of 2009 was primarily driven by the impact of the NYFIX acquisition and an increase in global SFTI and software sales revenue. Adjusting for the impact of foreign currency fluctuations, revenue in the second quarter would have increased 33% compared to the second quarter of 2009 and would have increased 1% compared to the first quarter of 2010.
  • Operating income, excluding merger expenses and exit costs, in the second quarter of 2010 was $20 million, a 67% increase compared to $12 million in the second quarter of 2009 and an 18% increase from the first quarter of 2010.
  • Operating margin, excluding merger expenses and exit costs, was 19%, compared to 14% in the second quarter of 2009 and 15% in the first quarter of 2010. Adjusted EBITDA margin was 26%, compared to 22% in the second quarter of 2009 and 23% in the first quarter of 2010.
  • During the second quarter of 2010 NYSE Technologies closed several multi-year software and infrastructure deals with leading investment banks and brokerage firms. The signed deals are reflective of NYSE Technologies growing capabilities and deepening technology relationships with leading sell-side firms.
  • NYSE Technologies and Markit, a leading global financial information services company announced the launch of a joint initiative designed to consolidate data and enhance transparency in the European over-the-counter (OTC) equity markets. As part of this joint initiative, NYSE Technologies will integrate data from Markit BOAT, the largest trade reporting venue in Europe, within its own range of market data products. This will give joint users access to trade reports on an average of roughly €30 billion of OTC trades in equities every day, equivalent to approximately 80% (data through April 2010) of the daily volume traded on all European equity markets. The initiative is open to other publication venues in Europe in order to give market participants access to the most comprehensive dataset on the European OTC equity markets from a single source.
  • NYSE Euronext and the Warsaw Stock Exchange (WSE) announced a strategic, long-term cooperation agreement covering the development of future mutually-beneficial business initiatives and the migration of WSE markets to NYSE Technologies™ Universal Trading Platform. As part of a multi-year commercial agreement, NYSE Euronext will provide WSE with the Universal Trading Platform for its cash and derivative markets.

CORPORATE AND ELIMINATIONS

  • Fixed operating expenses in the second quarter of 2010 increased $24 million compared to second quarter of 2009 due to an increase in data center/integration costs of $15 million and a discrete $10 million curtailment benefit for changes implemented to certain U.S. retiree medical plans in the second quarter of 2009.

Analyst/Investor/Media Call: August 3, 2010 at 8:00 a.m. (NY/EDT)/2:00 p.m. (Paris/CEST)

A presentation and live audio webcast of the second quarter 2010 earnings conference call will be available on the Investor Relations section of NYSE Euronext’s website, http://www.nyseeuronext.com/ir. Those wishing to listen to the live conference via telephone should dial-in at least ten minutes before the call begins. An audio replay of the conference call will be available approximately one hour after the call on the Investor Relations section of NYSE Euronext’s website, http://www.nyseeuronext.com/ir or by dial-in beginning approximately two hours following the conclusion of the live call.

Live Dial-in Information:
United States: 866.788.0541
International: 857.350.1679
Passcode: 83134795

Replay Dial-in Information:
United States: 888.286.8010
International: 617.801.6888
Passcode: 59984384

Non-GAAP Financial Measures
To supplement NYSE Euronext’s consolidated financial statements prepared in accordance with GAAP and to better reflect period-over-period comparisons, NYSE Euronext uses non-GAAP financial measures of performance, financial position, or cash flows that either exclude or include amounts that are not normally excluded or included in the most directly comparable measure, calculated and presented in accordance with GAAP. Non-GAAP financial measures do not replace and are not superior to the presentation of GAAP financial results, but are provided to (i) present the effects of certain merger expenses, exit costs and other special items, and (ii) improve overall understanding of NYSE Euronext’s current financial performance and its prospects for the future. Specifically, NYSE Euronext believes the non-GAAP financial results provide useful information to both management and investors regarding certain additional financial and business trends relating to financial condition and operating results. In addition, management uses these measures for reviewing financial results and evaluating financial performance. The non-GAAP adjustments for all periods presented are based upon information and assumptions available as of the date of this release.

About NYSE Euronext
NYSE Euronext (NYX) is a leading global operator of financial markets and provider of innovative trading technologies. The company's exchanges in Europe and the United States trade equities, futures, options, fixed-income and exchange-traded products. With approximately 8,000 listed issues (excluding European Structured Products), NYSE Euronext's equities markets – the New York Stock Exchange, NYSE Euronext, NYSE Amex, NYSE Alternext and NYSE Arca – represent one-third of the world's equities trading, the most liquidity of any global exchange group. NYSE Euronext also operates NYSE Liffe, one of the leading European derivatives businesses and the world's second-largest derivatives business by value of trading. The company offers comprehensive commercial technology, connectivity and market data products and services through NYSE Technologies. NYSE Euronext is in the S&P 500 index, and is the only exchange operator in the S&P 100 index and Fortune 500. For more information, please visit: http://www.nyx.com.

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