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Nasdaq Inc (NDAQ) Q2 2019 Earnings Call Transcript

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Nasdaq Inc (NASDAQ: NDAQ)
Q2 2019 Earnings Call
Jul 24, 2019, 8:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, ladies and gentlemen, and welcome to the Nasdaq Second Quarter 2019 Results Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. (Operator Instructions) As a reminder, this conference call is being recorded.

I would now like to introduce your host for today's conference, Mr. Ed Ditmire, Vice President of Investor Relations. Sir, you may begin.

Ed Ditmire -- Vice President, Investor Relations

Good morning everyone and thank you for joining us today to discuss Nasdaq's second quarter 2019 financial results. On the line are Adena Friedman, our CEO; Michael Ptasznik, our CFO; Ed Knight, our Chief Legal and Policy Officer and other members of the management team. Also prepared remarks -- after prepared remarks, we'll open up to Q&A. The press release and presentation are on our website. We intend to use the website as a means of disclosing material, non-public information and complying with disclosure obligations under SEC Regulation FD.

I'd like to remind you that certain statements in this presentation and during Q&A may relate to future events and expectations and as such constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from these projections. Information concerning factors that could cause actual results to differ from forward-looking statements is contained in our press release and periodic reports filed with the SEC.

I will now turn the call over to Adena.

Adena Friedman -- President and Chief Executive Officer

Thank you, Ed. Good morning everyone and thank you for joining us. My remarks today will focus on the following areas. First, we will review the company's second quarter 2019 results. Second, we'll review the segment level trends and update you on our important initiatives and recent acquisitions. And lastly, I will review some organizational changes and touch upon an early initiative related to total markets. Our comprehensive market structure blueprint before turning it over to Michael to review the financials.

Turning to our results, I'm pleased to report Nasdaq's solid financial performance for the second quarter of 2019. We delivered net revenues of $623 million including 4% organic revenue growth. After taking into consideration the net impact of the divestitures and recent acquisitions as well as an unfavorable change in the FX rates, our total net revenue grew 1% for the quarter. Our achievements in the period were driven by 10% overall revenue increase in the non-trading segments with 8% organic growth driven by our Market Technology Index and Investment Data and Analytics businesses.

Our foundational marketplace businesses, Market Services and Corporate Services delivered a steady quarter in aggregate as we maintained a strong competitive position in our largest U.S. and European markets and the Corporate businesses delivered moderate organic growth. Notably in both the second quarter of 2019, and in the first six months of 2019. The organic revenue growth rate in our non-trading segments remains consistent with our longer-term expectations of 5% to 7%.

Turning to the Segment level, segment specific highlights from the second quarter. Our Market Technology segment delivered strong growth in the second quarter with net revenue of $79 million, a 20% increase in the same period in 2018, including both organic expansion and the impact of the Cinnober acquisition. Results reflected an increase in both the size and the number of software delivery projects as well as continued strong growth in our SaaS surveillance solutions.

New order intake during the quarter was $46 million, including new customers like Caja De Valores, Argentina Central Securities Depository as well as signing a significant new enterprise contracts with a Tier-1 investment Bank for trade surveillance. Along with continued momentum in these more established areas serving the market infrastructure operators and sell side surveillance clients where we leave, we also saw important progress in some of our newer product and client verticals.

Earlier this week, we announced a partnership with Football Index, a UK based sports marketplace to deploy our cloud-based matching engine, an exciting milestone for our markets everywhere strategy. Additionally, after the quarter closed, we signed our fourth U.S. broker dealer to implement our trading platform as a hosted solution. This quarter we began disclosing a new metric for market technology. Annualized Recurring Revenue or ARR intended to help the investment community better understand the growth of the recurring software support licensing and SaaS subscription revenues which make up the majority of the market tech revenue.

In the second quarter of 2019, Market technologies ARR rose 16% compared to the prior year. Our Information Services segment delivered growth across all of its businesses with revenue of $194 million up $19 million or 11% from the same period in 2018. Market data growth reflected higher U.S. tape revenues due to equity market share gains and also benefited from partnership wins with Microsoft, Yahoo Finance and Robinhood announced during the quarter. With Microsoft, they now rely on Nasdaq Last Sale to provide real-time market data across all of their online platforms as well as embedded within EXCEL, making a real-time equity -- U.S. equity market pricing available to millions of users worldwide.

Yahoo Finance launched a new premium offering with access to original and in-depth market information, such as a supply chain dataset from our alternative data platform to help Main Street better identify investment opportunities. And with Robinhood, their focus is to increase informed investing across our client base with more in depth data and they now offer Nasdaq full depth of books data to all Robinhood gold clients. All of these positive developments in the distribution of our market data and the new unique data sets are making the U.S. markets more accessible to millions of Main Street investors in the United States and worldwide, we're very proud of the partnership approach we take with our media and online broker clients.

Revenue in our index business set new quarterly records -- set a new quarterly record driven by license -- licensing revenues from our futures trading linked to the Nasdaq-100 Index and ETP-A1, the latter of which increased 9% year-over-year to $203 billion as of the end of the second quarter, while our Investment Data and Analytics business continues to deliver against this double-digit organic revenue growth expectation.

Moving to our foundational businesses, our Market Services segment delivered $227 million in revenue in the second -- in the quarter, a moderate decline of 4% from the same period in 2018. In our U.S. equities and options markets as well as our European equities and equity derivatives markets. We continue to maintain a strong competitive position in share and capture. Our U.S. and Nordic equity marketplaces each delivered quarterly market share figures that were near the top of the recent -- recent multi-year highs, while pricing trends remained within our typical quarterly variation.

Our U.S equity options complex exhibited stable share and pricing and continues our established leadership in multi-listed contracts, while we were pleased with the competitive position of our larger equity and equity derivatives marketplaces. We continue to have more to do with our FICC products to get them to be where we want them to be. We saw revenue declines in both our larger FICC look -- both of our larger FICC revenue contributors, which are Nasdaq U.S. fixed income treasuries platform and our Nordic community -- our commodities platform, while each market and their respective ecosystems is relatively distinct and face their own set of specific challenges.

Our focus and our efforts to address some share and common themes. In both, we have more closely engage with our clients about ways to enhance the product offering to better meet their needs, and we are exploring with them the most promising avenues to bring additional participants and to deepen liquidity. We are committed to keeping you updated appropriately as we work to stabilize and ultimately return these businesses to growth.

Turning to our Corporate Services segment, our listings franchise remains the leader for IPOs with a win rate of 80% year-to-date, buoyed by strong demand from VC-backed private companies from a diverse range of industries including Technology, Healthcare and Consumer. This strong pace is reflective of their powerful value proposition that we offer to our listed clients as we constantly enhance our listing services. Specifically in the second quarter, we continue to lead the U.S. market for IPOs, with the 75% win rate, extending our IPO leadership to 22 consecutive quarters and helping companies raise a combined $11.4 billion in total proceeds. Of the 81 new listings that we welcome to the Nasdaq's stock market during the quarter, 60 we're IPOs led by Trade Web Markets, Zoom Video Communications, Change Healthcare, Beyond Meat and CrowdStrike.

Meanwhile, our Nordic and Baltic exchanges added 19 new listings for the quarter and our total Nordic listed issuer account rose 2% from the prior year. We continue to see a robust new issue environment as we progressed through 2019. Additionally, joining the first half of 2019 the Nasdaq private market facilitated 35 private company sponsored secondary transactions. A new record high for the period with total transaction value of $2.3 billion.

And lastly regarding Corporate Services and in line with our renewed strategic focus on the products and services most critical to the C-suite and to the Board to public and private companies. We continue to work on -- to unlock more potential from our IR Intelligence and Governance solutions businesses. We have added more research and insights for our users via the launch of the Nasdaq Center for Corporate Governance, while in IR we're seeing increased demand resulting from our ESG and MiFID II specific products, including our recently announced Kinect IR tool that helps corporate customers engage more effectively with the buy side.

In summary, the collective organic revenue growth across our non-trading segments continues to serve as a positive data point that when we create sustainable value for our clients, we can continue to drive accelerated growth for the company and its shareholders. Let me now highlight the focus areas of our new organic business investment and provide a brief update on recent acquisitions. With our renewed strategic direction to our guide we've been consistently focused on expanding our services to our core clients by leveraging the rapid technological changes that are bringing new potential benefits to the industry. After all, our mission is to reimagine markets to realize the potential of tomorrow.

In that regard, we continue to make targeted investments in strong long-term organic opportunities, including the Nasdaq financial framework build out in deployment, the expansion of our market infrastructure technology into our sell-side clients. Our buy side Smart surveillance solution, the Nasdaq private market and new alternative investment data products. Our goal with these investments is to advance our leadership position in the evolving capital markets as a trusted technology and analytics partner as our clients seek new ways to manage their liquidity and make ever smarter trading and investment decisions. We're also seeing encouraging progress in early results from our acquisitions of investment Quandl and Cinnober.

Investment had continue to delivering on the double-digit organic revenue growth opportunity we envisioned when we acquired them in late 2017. Through both expanded use from existing clients in -- particularly in United States as well as seeing continuous progress in international adoption of the platform. Quandl has now been fully integrated with Nasdaq's organic alternative data initiatives, the analytics hub and both it and investment have begun to benefit from sales opportunities open through other Nasdaq relationships. Yahoo's agreement to deliver analytics for its premium offering is one such example. With the Cinnober acquisition we've brought together our business and technology teams into common locations and we're working well together to win new client mandates and to begin the technology integration.

I'd like to talk now about some changes in the management team and structure. In June, Tom Wittman, who has led our Market Services Division for the past three years announced his decision to retire. Over the course of his remarkable career Tom has made considerable contributions at a benefit of both Nasdaq and the industry as a whole. Tom joined Nasdaq through our acquisition of the Philadelphia Stock Exchange in 2008, I speak for everyone at Nasdaq, when I say that we view times leadership is instrumental in building the U.S. as leading equities, options, complex at Nasdaq.

Enhancing the effectiveness of our US equities markets, helping us expand into Canadian equities and meticulously integrating both TSX [Phonetic] Canada and the International Securities Exchange. His stewardship and track record in the options and equities markets are known throughout the industry. Tom will continue to oversee our U.S. Treasuries business as well as have a more broadly contribute as an Executive Advisor until the end of the year. We extend our sincere gratitude for his numerous contributions to our success.

We also announced a new management structure for market services with distinct responsibilities for each of the North American and the European marketplaces. Specifically, Bjorn Sibbern has been appointed Executive Vice President of European Market Services where he will be responsible for all of our European marketplaces as well as associated market data and connectivity. And Tal Cohen has been elevated too, Executive Vice President of North American Market Services and will be responsible for driving the strategy and success of our trading businesses across all of equities, equity options, commodities and trade management services in the U.S. and Canada and will add U.S. Treasuries to his responsibilities at the start of 2020. This is an exciting evolution for how we manage Nasdaq's marketplace core and I'm excited to have Bjorn and Tal in place to drive these foundational markets forward.

To round out our management changes, in June we were thrilled to welcome Lauren Dillard to the Executive Team as Executive Vice President of Global Information Services. We're especially excited about how she will leverage to our extensive experience on the buy side coming from the Carlyle Group as we continue our strategy of delivering an expanded set of solutions to the investment and management industry during a period of profound change.

Before I conclude, I want to spend a moment on a new regulatory initiative. At Nasdaq we strongly believe that we differentiate ourselves by our expertise and ideas on market structure and other public policy issues. Our total markets blueprints, which we launched during the second quarter outlines the steps regulators and exchanges together with the broader investing community should take to modernize market structure. As a very first step of the total markets initiatives, this quarter we announced the detailed proposal to reform the professional and non-professional data user definitions. We're starting with public outreach including an appeal for public comment. Our top priority with this proposal is to ensure that the individuals investing their hard-earned money for long-term wealth creation are not paying data fees that are meant for market professionals.

Taken together, our total markets and revitalized campaigns provide a comprehensive framework of reform that will improve the market experience for investors, corporates and critical market intermediaries. Many of the priorities that we have set for the U.S. markets have been embraced by the legislative and regulatory communities as we remain focused on ensuring our markets continue to drive economic growth, job creation and wealth creation for all.

As I wrap up, I will summarize by saying the second-quarter results served as further evidence and encouragement that we can deliver for both clients and shareholders are on still early but now well established strategic direction. We want to -- continue to executing on our key priorities and are focused on building our momentum going into the second half of the year. I look forward to keeping you updated in the coming months and quarters.

And with that I will turn it over to Michael to review the second quarter financial details.

Michael Ptasznik -- Executive Vice President, Corporate Strategy and Chief Financial Officer

Thank you, Adena, good morning, everyone. 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 US GAAP to non-GAAP results can be found in the attachments to our press release and in the presentation that's available on our website at ir.nasdaq.com. I will start by reviewing second quarter revenue performance as shown on page three of the presentation and organic revenue growth on pages four and 14.

The $8 million increase in reported net revenue of $623 million was a net result of organic growth of $24 million or 4% including 8% organic growth in the non-trading segments and an $11 million positive impact from the inclusion of revenues from the acquisitions of Cinnober and Quandl. This was partially offset by a $17 million negative impact from the April 2018 divestiture of the public relation solutions and media -- digital media services businesses and the divestiture of BWise in March of 2019, and a $10 billion unfavorable impact from the changes in foreign exchange rates.

I will now review quarterly highlights within each of our reporting segments. I'll start with Information Services, which as reflected on pages five and 14, so a $19 million or 11% increase in revenue. This was driven by $19 million or 11% organic growth, $7 million, which was the result of investments purchase price, adjustment on deferred revenues in Q2, 2018. Excluding this adjustment, organic growth would have been $12 million or 7% primarily due to continued organic development or investment data analytics as well as index revenues. The operating margin was down 1 point year-over-year at 63% due to certain product and operational investments that we've made to support future growth.

Market technology revenue as shown on page six and 14, increased $13 million or 20%, including organic growth of $6 million or 9%. Organic growth during the period primarily reflects an increase in the size and number of software delivery projects as well as continued strength in our SaaS surveillance solutions. As Adena mentioned, we introduced a new market technology metric called ARR, which is total annualized revenue, our active software support and SaaS subscription contracts representing the vast majority of segment revenues.

Please see slide 19 of the presentation for historical ARR figures. In the second quarter, the operating margin for market technology was 10% versus 14% in the year ago quarter. However, if you look past some of the quarter-to-quarter variation in this business, in the first six months of 2019 operating margin for market technology was 10% versus 9% in the first half of 2018. As we have communicated in prior quarterly calls, investment spend in the market technology segment remains elevated in 2019. As we continue to invest in a number of growth initiatives, including most notably, our multi-year implementation of the Nasdaq financial framework. We do continue to expect margin expansion in 2020 and beyond as we progress the NFS deployment and customer adoption of the more scalable service model as well as benefit from the scale and synergies of a more fully integrated Cinnober.

Turning to Corporate Services, on pages seven and 14, revenues increased $3 million or 3%, organic revenue growth was $5 million or a 4% increase, with contribution from both the Listing Services and Corporate Solutions businesses. Listing services, organic revenue growth was primarily due to an increase in the number of listed companies, partially offset by the run-off of previously deferred revenue recognized from LAS or Listing of Additional Share fees. Corporate Services organic growth was primarily due to an increase in revenues from Governance solutions. The operating margin improved to 36% versus 28% in the prior year period.

Market Services net revenues on pages eight and 14, saw a $10 million or 4% decrease. Organic revenues declined $6 million or 3% and we experienced a negative impact from unfavorable changes in foreign exchange of $4 million. Our larger U.S. and European cash equities and equity options businesses, saw relatively stable year-on-year organic trends while our smaller FICC franchise as Adena mentioned earlier saw organic declines in the period. The operating margin in the market services was resilience in the period, it declined only 1 point to 56% [Phonetic] compared to the prior year period, despite the year-over-year revenue contraction.

Turning to pages nine and 14 to review expenses. Non-GAAP operating expenses decreased $3 million to $322 million. The change reflects a $7 million or 2% organic increase more than offset by an $8 million favorable impact from changes in foreign exchange rates and a $2 million decrease from the net impact of acquisitions and divestitures.

Turning to slide 10, we are updating our 2019 non-GAAP operating expense guidance range from $1.295 billion to $1.32 billion. Embedded in the updated 2019 expense guidance is a moderate pick-up in expenses in the second half of 2019, while last quarter we suggest the quarterly expenses we'd likely see a sequential step up beginning in the second quarter. The combination of FX impacts earlier, realization of acquisition synergies and timing of recognition of certain expenses temporarily offset the expected increase and resulted in second quarter expenses coming in line with the first quarter.

As exhibited by the midpoint of our revised expense guidance range we now expect to see a sequential pickup in each of the remaining two quarters of 2018, that spending on several product and operational initiatives ramp up as well as certain other factors. I would also note that while historically expenses typically exhibited seasonal lows in the third quarter of each year due in part to non-US vacation accruals. We've now changed our accounting methodology around these accruals to eliminate seasonality in our vacation expense recognition timing.

Moving to operating profit and margins. Non-GAAP operating income increased a $11 million in the second quarter of 2019, a 4% increase from the second quarter of 2018 and the non-GAAP operating margin was 48%, up 1 percentage point from the prior year period. Net interest expense was $28 million in the second quarter of 2019, a decrease of $7 million versus the prior year period due to lower debt balances and refinancing the 5.55%, $600 million U.S denominated bond with a new 1.75%, EUR600 million bond.

The non-GAAP effective tax rate for the second quarter of 2019 was 26% and for 2019 the non-GAAP tax rate is expected to be between 26% and 27%. Non-GAAP net income attributable to Nasdaq for the second quarter of 2018 was $203 million or $1.22 per diluted share compared to $194 million or $1.16 per diluted share in the prior-year period, representing a 5% increase.

Turning to capital on slide 11, debt decreased by $78 million versus Q1 '19 primarily due to paying down commercial paper, net issuances and payment on debt obligations, partially offset by an increase in Euro bond book values caused by changes in FX rates. Our total debt-to-EBITDA ratio ended the period of 2.7 times down from 2.8 times of the first quarter of 2019, fulfilling our capital plans objectives to delever to the mid 2 times -- 2 times leverage ratio by mid 2019.

During the second quarter of 2019, the Company returns $50 million to shareholders through its share repurchase program and paying the dividend in the aggregate amount of $77 million. In the first six months of 2019, we returned $200 million to shareholders through dividends and our share repurchase program.

And with that, I'll turn it back to the operator for the Q&A.

Questions and Answers:

Operator

Thank you. [Operator Instruction] Our first question comes from Richard Repetto with Sandler O'Neill. Your line is now open.

Richard Repetto -- Sandler O'Neill & Partners -- Analyst

Yeah, hi Adena. Hi, Michael. I guess, first one quick thing, just wanted to shout out to Tom Whitman, you forgot to mention Adena, you besides being a skilled practitioner -- market practitioner. He was a straight shooter as well, so we'll miss Tom.

Adena Friedman -- President and Chief Executive Officer

Thanks you and he is here, if he got to listen to that, for the thoughts and thank you.

Richard Repetto -- Sandler O'Neill & Partners -- Analyst

I'm sure he has a smile on his face, right now.

Adena Friedman -- President and Chief Executive Officer

He got it.

Richard Repetto -- Sandler O'Neill & Partners -- Analyst

Anyway. So first question on this ARR, the new metric for market technology. So, if it's $247 million and it covers the vast majority. I think you said vast majority of the revenue. Then, like the $247 million, say if you look at most estimates there were in the $320 million expectations for this year and higher than that for next year. So what's the GAAP between the $247 million recurring revenue ARR and sort of the that whatever $320 million to $350 million estimates annualized for the next couple of years.

Michael Ptasznik -- Executive Vice President, Corporate Strategy and Chief Financial Officer

Yeah, so the -- the 70 its represents about 70% of the market technology revenues in the second quarter. The differences will be things like Change requests and implementation or delivery of new build outs. So really what this is -- is becomes the service revenue, the maintenance fees and then also the SaaS revenue that we received from the Smarts business is another example.

Adena Friedman -- President and Chief Executive Officer

In our ongoing license.

Michael Ptasznik -- Executive Vice President, Corporate Strategy and Chief Financial Officer

In the ongoing licensees, yeah.

Adena Friedman -- President and Chief Executive Officer

So in a build period, Rich, we have certain delivery of fees that we charge, but that also is, of course has cost associated with it. So those fees are not -- those fees are not included and then the change request fees, which are kind of shorter-term changes that we make to the software to support our clients. Those are not -- those are not included, but 78%, as you said, pretty we would vast majority, yeah.

Richard Repetto -- Sandler O'Neill & Partners -- Analyst

Yeah, OK. That helps. Thank you. And my follow-up, semi-related, it is not, is a regulatory question and we appreciate. I think, the market appreciates the total -- the total markets initiative, but I was just trying to see if you get, could give us like at least your status update. It looks like things are quiet and we've given a lot of attention in U.S equities, but it looked like Chairman, Clayton offered a pretty balanced statement in regards to sort of the fee guidance that the trading and markets division and it seems like the access fee pilot and the sort of the litigation things kept everything on pause, as there have been any movement, would you say that the relationship say, with the SEC and the trading and markets head is -- has been more open recently or how would you characterize the status, I guess.

Adena Friedman -- President and Chief Executive Officer

Sure. I think overall, I think it is important to recognize. I think we said this before that we have a very good and comprehensive relationship with the SEC. We submit hundreds of rural filings every year to them and they approve hundreds of rural filings every year. So we -- when we work with almost every division within the SEC on a regular basis. I think that we do, however, as we all know, we have certain areas to be with the SEC around market structure.

And I would say, Rich, that the, there has been a lot of dialog with the SEC, both of the Commissioner level and at the staff level. We have been expressing our views and also making sure that they have data to support our views, they've been asking a lot of really good questions. I think that the total markets road map or blueprint does help frame out some of the larger market structure issues that we are hopeful that the SEC will start to tackle. And it also, I think put some of the initiatives that they've been seeking to do into a broader context and then we've also been engaging very extensively with our customers and with the industry in general to understand their point of view around some of the key elements of market structure that we outlined in total markets.

So, the dialog is definitely picked up, I think that there has been much more of a back and forth. In terms of really trying to understand each other, but at the same time, we will continue to manage these debates as we see fit in terms of making sure that the markets are as accessible and successful as possible for investors and that's our number one goal.

Richard Repetto -- Sandler O'Neill & Partners -- Analyst

Great, thanks, Adena.

Operator

Thank you. And our next question comes from Michael Carrier with Bank of America. Your line is now open.

Michael Carrier -- Bank of America Merrill Lynch -- Analyst

Hi, good morning and thanks for taking the question.

Adena Friedman -- President and Chief Executive Officer

Hi Mike.

Michael Carrier -- Bank of America Merrill Lynch -- Analyst

You guys have made good progress in certain areas like the market tech, the index, the analytics there's obviously some areas that you guys mentioned like fixed income, that's been a bit more challenging. I guess, just looking at the $85 million to $95 million due in the R&D spend. Can you maybe provide update on what's in there -- maybe some of the details, which ones you've seen some revenue traction associated with the initiatives, which ones are still losses and maybe like an average time of the initiatives that have been in place, just kind of an update on some of the new things that are taken place.

Adena Friedman -- President and Chief Executive Officer

Sure, yeah. So it is -- it is a combination of things and I kind of rattle them off quickly in my script. So you've got the investment we're making in the Nasdaq financial framework included in there that's both -- that's at least the amount that's expense. And then the other that you have in there is Nasdaq private market. As we mentioned, we are continuing to see a pickup in activity there and we have new initiatives to go into the private equity space, private equity funds, and so we continue to see very, very big opportunity in the Nasdaq private markets and good growth in that business, but that does continue to be an investment area for us.

And then additionally the banks and brokers strategy that we have -- applying some of our market technology beyond surveillance but applying trading technology, post-trade technology into the banks and brokers. We now just signed our fourth clients to provide them a hosted trading solutions. So that's picking up steam but that area of investments also in there. The fourth -- I'm sorry, the fourth area is in the buy side surveillance, so that one is in very early days. We did do a very small acquisition to supplement that and that also is included in the ongoing costs now in that area and we definitely see very good momentum, but it is a very -- a small -- kind of a small and upstart type of model -- upstarting with essentially four clients and moving into a much -- a much bigger space and we have good sales in that area to continue to develop.

And then another areas is Quandl, and the whole analytics have integration, the alternative data space and that is also an early days that we've said that in terms of really, frankly understanding the overall demand for an alternative data continuing to find new supply. And -- and then finding demand for that data across the industry, the Yahoo Finance implementation of some of the supply chain data, it does come out of Quandl and we have continued growth in some of the other data streams that they've created.

So we feel good about the growth, but in all of those areas remain investment areas as they graduate -- they graduate out of that program once they become kind of self-sufficient at least break even to profitable endeavors and so that's why we will always give you that R&D numbers. So that you kind of know which areas are major areas of investment for us.

Michael Carrier -- Bank of America Merrill Lynch -- Analyst

Okay, thanks a lot.

Operator

Thank you. And our next question comes from Ken Worthington with JPMorgan. Your line is now open.

Ken Worthington -- JP Morgan -- Analyst

Hi, good morning. Preceding received approval for non-transparent ETFs, Fidelity and T. Rowe have refiled their offerings for active funds. Can you talk about how you feel you're positioned versus ARCA, and BATS to sort of win listings and trading of the new ETFs as they are launched. And are you taking any special steps to cater to these firms that are listing these new products.

Adena Friedman -- President and Chief Executive Officer

Sure, no problem. So we actually have -- we were have been a leader from the very beginning as these new, what I'll call actively managed ETFs are being formed. We partnered with, from a several years ago to develop a program, to support these non-transparent ETFs and so we do understand them well, we understand that they -- they do require some specific market maker support and we do believe our market is well positioned to be able to lift those types of ETFs.

We continue to have very good growth overall in our ETF listings and we're very proud of the fact that we have well over 300 ETFs, I think it's at least it's probably in the high 300s listed on Nasdaq today. And so we do feel Ken that we're really well positioned competitively to be able to bring those types of ETFs to Nasdaq.

Ken Worthington -- JP Morgan -- Analyst

Okay. And are you doing anything special on the non-transparent side versus the transparent side?

Adena Friedman -- President and Chief Executive Officer

As I mentioned several years ago, we actually work with the firm that was developing a new constructs for non-transparent ETFs and we did work with them specifically to build out. Our market maker sponsorship program to support them, so yes.

Ken Worthington -- JP Morgan -- Analyst

Okay, great. Thank you.

Operator

Thank you. Then our next question comes from Ben Herbert with Citi. Your line is now open.

Ben Herbert -- Citigroup -- Analyst

Hey, good morning. Thanks for taking the question. Just wanted to get an additional thoughts on the pipeline into the sell-side on market tech, you mentioned, I think the surveillance when this last quarter and on the recent four broker dealer, but just how is that pipeline shaping up and kind of where you feel penetration is, at this point? Thanks.

Adena Friedman -- President and Chief Executive Officer

Sure. So the first thing to mention is that in our surveillance business that's of we've done, I think a great job of working with broker dealers to expand that product to be able to support all asset classes, as well as both exchange listed and OTC. And so that's been a great area of expansion for us as we've gone from firm-to-firm to take them from maybe -- maybe they only use it for equities and then they move to that fixed income and then they move to commodities, et cetera.

We also have global penetration in that business and we have a global sales force that supports it. So we've continue to see very strong demand characteristics, but we have over 150 clients use that service today. In terms of the matching technology, post-trade technologies that we're at the very beginning of that strategy and that's why that effort sits within our R&D initiatives, because we've built out a sales organization that we've -- and we continue to adapt our technology as well as kind of doing it on a hosted basis. So we -- in some instances, we also bring in market surveillance expertise to support them, and so we continue to make sure that we have a good pipeline of opportunity there.

As I've mentioned on the last call, it does take time to get some of these contract signed. The bank's definitely go through a very thorough contracting process as you probably know, but we are very, very excited about the level of opportunity and demand that we see, it's just a matter of making sure we systematically get our clients from interest to signing a contract, and as I mentioned, we do have a fourth clients that just signed up.

Ben Herbert -- Citigroup -- Analyst

Great, thanks. And then maybe just one quick follow-up would be on slide 19. We can see the dollar amount on the ARR, but would you be able to provide maybe last four quarters of the growth rate?

Adena Friedman -- President and Chief Executive Officer

Sure, I think that we know that a year-over-year it was at a growth rate -- year-over-year second quarter our growth rate of 16%, so we're happy to make sure we provide you more information on the growth rate.

Ben Herbert -- Citigroup -- Analyst

All right, thank you.

Adena Friedman -- President and Chief Executive Officer

Okay, great, thanks.

Operator

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

Alex Kramm -- UBS Investment Bank -- Analyst

Hey, hi, good morning everyone. Just actually, following up on this ARR number for a second, you just mentioned, the 16% again, but I think that's not an organic number. So maybe you can give me an organic number, if you have it handy. And then related to that, if you look at the year-over-year and maybe just splitting hairs a little bit, put the percentage of recurring is actually down year-over-year, which doesn't seem consistent with the story, you want to be telling in terms of more SaaS based growth. So maybe you could just flesh it out a little bit, I know the numbers are small, but if you think about over time, do you think is recurring percentage is going to be approaching 90%, 95% or is this kind of the range it's going to be in?

Michael Ptasznik -- Executive Vice President, Corporate Strategy and Chief Financial Officer

So I think that number is going to fluctuate and it's going to depend on the types of installations that we have in any specific quarter, the Change request, et cetera. So there, you will see fluctuations over a longer period of time as we continue to build that more of a SaaS platform and a platform-as-a-service with NFF. The intention, and the idea would be that more of the business will continue to become part of the annual -- annualized recurring revenue base. So over a longer period you will see that -- you won't necessarily see that next quarter or the quarter thereafter. It depends on the specific fluctuations of those individual quarters.

With respect to the organic growth, we're not going to break out the organic growth rate. The focus of this measure really is to try and provide some information that we've been, that people have asked us with respect to what is that recurring revenue base of the business going forward, that's to say on what percentage of the business is reflective of recurring revenue as opposed to these more one-offs or change request type revenue. So I think, this is the new measure for us that we've been, we just launched today, we will continue to take a look at it. We think it sends some good positive information because it does talk about the fact that the recurring revenue in the business does continue to grow and as our model continues to change more toward a platform-as-a-service or a SaaS type model and the fact that it does represent as we've mentioned earlier, 70% [Phonetic] or 80% of the revenue, is I think the key metrics that we want to focus on for now.

Alex Kramm -- UBS Investment Bank -- Analyst

Okay, fair enough. Thank you. And then secondly, obviously, a few weeks ago, a decline Deutsche Bank announced some restructuring, so just wondering how you view that as a service provider. I think historically you've said on the market data side that banks are actually the largest payer of market data and related services, also you struck a deal with them, I think it was on March on some outsourcing, of some trading solutions. So maybe a little bit too specific, but just wondering how you view that as clearly not a good sign for the year for the industry as a service provider for yourself.

Adena Friedman -- President and Chief Executive Officer

Sure. Well, I do think that the first thing I'd say is -- it's pretty early days and understanding the impact that the changes in Deutsche Bank is going to have in general within the U.S. In terms of the way that they trade, they tend to trade on behalf of customers, so that trading will either be transferred to another firm, if there is ultimately an acquisition of the business from Deutsche Bank or [Indecipherable] I'll move over to other clients, I mean, other service providers.

I think in terms of some of the recurring revenues are kind of the other parts of our business, we're still working actually pretty closely with Deutsche Bank to understand how they're going to continue to take certain services, how they might transition these services to other service providers. And so it's very early days for us, but we are working very closely with them to understand the overall impact. I also would say we have, as you know, 100s of clients that we serve both with our trading 1000s of clients we serve with our data and connectivity services. So we don't feel this is going to have an outsized impact, it's just something that we're managing through.

Alex Kramm -- UBS Investment Bank -- Analyst

Very good. Thank you.

Operator

Thank you. And our next question comes from Dan Fannon with Jefferies. Your line is now open.

Dan Fannon -- Jefferies Inc -- Analyst

Thanks, good morning. I know you talked about the multi-years change in the tech margin or the market tech margin. I guess, given you do have an acquisition and maybe some synergies coming out, can you talk maybe near term about, if we've seen the bottom and we should kind of be building from here or any kind of path toward we know longer term higher, but I guess, any kind of roadblocks or -- any kind of milestones we think about more in the intermediate time period.

Adena Friedman -- President and Chief Executive Officer

Well, I think that we are trying to give you some view into our overall long-term view of the business and I think we also are trying to give you a little more transparency into some of the drivers of our business that they are, I also -- as Michael has been saying, we have a period of investment, we want to make sure we're investing in our future. It's not just the investment in the Nasdaq Financial Framework itself, but it's also investing in some new verticals like the new markets, like I mentioned with getting into new industries with our technology as well as into the broker dealers, and as well as into the buy side for surveillance. So there are investment areas that are ongoing.

I also believe that we see very good demand characteristics across the business and we do see scalability in what we're creating and so over time, those things should generate the benefits for shareholders. As we've been mentioning, but it is an evolution and it's not something that this is going to be a step function from one quarter to the next. It's going to be over time.

Dan Fannon -- Jefferies Inc -- Analyst

Okay, thank you.

Operator

Thank you. And our next question comes from Alex Blostein with Goldman Sachs. Your line is now open.

Alex Blostein -- Goldman Sachs -- Analyst

Hi, good morning everyone. So thanks for additional disclosure on ARR and another couple of follow-ups here but I promise they all related. I guess, how should we think about the organic growth going forward. I know you don't want to get into the specifics, so what's kind of -- what's organic versus non-organic but on a forward basis as we think about this kind of 88% of market tech revenues. Should we think of that growth being at the upper end of the kind of 8% to 11% target that you set out for the segment overall.

And then maybe if you guys could help us understand the underlying customer base of that bucket today, by revenue contribution maybe between like buy side, sell side and market operator. So kind of like other exchanges that would be helpful just to provide some more context behind it. Thanks.

Michael Ptasznik -- Executive Vice President, Corporate Strategy and Chief Financial Officer

So I think, the way I think about the overall revenue growth. It's -- the overall revenue growth for the business is in that 8% to 11% target for the three to five year period and that's the way to think about it. And as I said the mix should change over time more of that will be coming from annualized recurring revenue as we continue to convert the platform over. What's built into this now. With respect to what's driving it relative to the overall mix of the business because it's typically in our market infrastructure operator business or the Core Exchange and clearing houses, et cetera. That's where we will have more of that Change requests or delivery type contracts.

We will see -- as more of those fluctuations which wouldn't be necessarily annualized recurring revenue. So if you look at the overall mix of the business relative to the mix of the ARR revenue, more of that will be coming from our Smarts business which is more -- which is a SaaS business. And so, from our relationship standpoint, more of that -- lesser that will be coming from the MIOs and more of that will be coming from the SaaS, when you compare it to the overall mix of the total business, which I think we'll provide in another slide. Does that help to answer the question.

Alex Blostein -- Goldman Sachs -- Analyst

Yes, it does. And just like the contributions by bucket or no. What -- that's sort of looks like today buy side, sell side to exchange operators?

Adena Friedman -- President and Chief Executive Officer

So we're not giving that level of granularity to that figure. I think that we're looking at how we can grow across all of our clients, and so we do see this is kind of a broader metric to help you to just understand. Overall, how we're bringing the business forward, but we're not, we don't provide that level of disclosure.

Alex Blostein -- Goldman Sachs -- Analyst

Got it.

Michael Ptasznik -- Executive Vice President, Corporate Strategy and Chief Financial Officer

Unless remember the part -- the part of this is the change where we used to have, which was that backlog, which at one point in time when this was all about the market infrastructure operators and building out that client base, which was these large contracts as we -- as we've move the business that backlog was rest of -- less of a relevant factor and we felt this is more reflective of the type in nature of the business going forward.

Alex Blostein -- Goldman Sachs -- Analyst

Got it, thanks.

Operator

Thank you. And our next question comes from Chris Allen with Compass Point. Your line is now open.

Chris Allen -- Compass Point -- Analyst

Good morning, everyone. Thanks for taking the question. I was wondering if you give a little bit -- give a little more color. Just on the impact on the change in the accounting for vacation accrual, just how much has been historically, and just from an R&D perspective, it sounds like the pace of investments has been a pretty steady across a couple of things. Is there any specific area is going to be ramping up as we look into the back half of next year or into 2020.

Michael Ptasznik -- Executive Vice President, Corporate Strategy and Chief Financial Officer

So on the first question, the first part of the question, it's I say approximately $3 million or so in -- for Q3 would have been the impact.

Adena Friedman -- President and Chief Executive Officer

And then on the second question, Chris, I think we've been -- we've been operating under a relatively steady level of investment and we try to make sure we're -- we review those investments every six months in a very deep dive and we continue to look that how we're going to potentially ramp up certain areas or moderate certain areas to try to make sure that we stay relatively consistent, but we do want to give ourselves the flexibility, if we see a great opportunity to continue to invest and grow certain investments if we need to.

Chris Allen -- Compass Point -- Analyst

Thanks, that's it from me.

Operator

Thank you. And our next question comes from Ken Hill with Rosenblatt Securities. Your line is now open.

Ken Hill -- Rosenblatt Securities -- Analyst

Great, hey, good morning everyone.

Adena Friedman -- President and Chief Executive Officer

Hey.

Ken Hill -- Rosenblatt Securities -- Analyst

I wanted to ask about the listing services business, during the quarter we saw the NYSE make some changes aimed at some of the smaller companies, particularly maybe Biotech stocks, where you guys do pretty well. I was hoping you could talk a little bit about the overall environment here in the U.S, and from a competitive standpoint, but also how you -- what you're getting from companies today in the market?

Adena Friedman -- President and Chief Executive Officer

Sure. Well, I think that we are extremely pleased that about 97% of all new healthcare companies do list on Nasdaq and that continued. If you look at the first half of the year, that number is consistent I think that as a result, we're always, we are very competitive and we are always looking for ways that we can compete better and listings that are may be traditionally going to the other guys and they are obviously always looking at ways they can compete as well. We do feel like we provide a pretty unique value proposition for healthcare companies in particular because of the Nasdaq biotech index in addition to some very deep IR intelligence capabilities we have to support that segment and those types of things in addition to the great marketing and the great market itself are the reasons why we think that we will continue to be the home to the fast SaaS majority of healthcare companies.

In general the listing environment continues to be very robust as we look at the pipeline of companies that have filed S1s as well as our success in attracting those -- that pipeline of companies to Nasdaq, and we definitely see a pretty. I mean, at least it's always subject to market conditions things could change, but at least as of right now, I would say we see a very robust calendar going through the fall.

Ken Hill -- Rosenblatt Securities -- Analyst

Okay. On a related basis I think yesterday, you guys had an announcement out about a record first half for Nasdaq private market, so just help me, I think we're kind of six years in now on that one. So may be you could talk a little bit about how you're monetizing those efforts, may be a little bit more and maybe what services you might expect to kind of grow from those companies using Nasdaq private markets going forward.

Adena Friedman -- President and Chief Executive Officer

Great. It's -- thank you. So with private market, it has been, I would say an evolution, not a revolution and so it is several years in and we are continuing to see a real evolution of how companies are managing their liquidity in that private market. So when we first launched, we only today -- we only cover companies sponsor tenders. So the job of MPM is to make sure we partner with the company to understand how they want to manage their liquidity. There is pretty -- that occurs outside -- the confines of a company sponsored tender and that's not the area that we've historically played in.

So when we look at company sponsored tenders historically they also really only -- they usually set the price found the investors, and then just asked us to essentially to facilitate that transfer of ownership on electronic mechanism as opposed to spending a lot of dollars on lawyers and a lot more time trying to get paperwork to be signed and pushed across. So we have electronify that transfer process, we've electronify the data room and made more information available et cetera.

However, what we're seeing today is some continued evolution. Number one, we've been launching some auction, price discovery events and processes with some of our clients today. So they actually are using the platform to find the right price for that private -- that private company transaction and that's a new, a really new phenomenon that we're starting to see pick up in the market. The second is they're starting to use us to help them find investors and that's also a new phenomenon.

And then the third is to understand that companies over time maybe want to have a more, I would say a high integrity way to allow their investors to transact with each other and that's another opportunity that we're considering. So there are ways that we can evolve that, I think the other area, that's also been kind of a long investment and it will have a long tail to it though is the development of liquidity and private equity funds, and we announced our partnership with iCapital a few months ago to allow for broker dealer, distributors and private equity funds to use our platform to facilitate secondary transactions there and we have also been working with GPs to start to -- think about using our platform for GP sponsored secondaries as well. So there are some really interesting developments there but it's a -- it's a long-term play, which is why it's in our R&D bucket.

Ken Hill -- Rosenblatt Securities -- Analyst

Okay, thanks for all the detail there.

Adena Friedman -- President and Chief Executive Officer

Thank you.

Operator

Thank you. And our next question comes from Kyle Voigt with KBW. Your line is now open.

Kyle Voigt -- Keefe, Bruyette & Woods, Inc -- Analyst

Hi, good morning and maybe that the -- the other deals behind you just wondering if we can get an update on the M&A environment. Then the public markets we're seeing, continued increase in asset valuations within the sector. Just wondering if you're seeing similarly proxy [Phonetic] valuations in the private markets. And then if you just give us an update on M&A more broadly, do you think these other scale deals like Oslo out there or is likely the near-term focus is going to be on market tech and data?

Adena Friedman -- President and Chief Executive Officer

Sure. Yeah, so I think that we were -- we were disappointed that we didn't win the Oslo deal to be honest, I think that it was a very logical expansion of our Nordic business and I think we would have been able to provide enormous amount of benefit to our clients in the Nordics. So for that reason, we are disappointed. I think that however, it does there are always opportunities out there, we are very focused on organic growth as a primary driver of growth in our business and I think you can hear that in all of the conversations we're having. But we do -- we do look at ways that we can either catalyze growth in those businesses like us and over deal or expand our capabilities in certain areas that where we have strategic focus, and that would be something like Quandl or Investment.

And so we will continue to evaluate those types of opportunities. In terms of you said scale opportunities, I think that we just like with Oslo there are -- there always going to be things like that where there might be an opportunity for us to drive scale through a big synergy type deal, but we again are really not, we're not hunting for those, we're finding those occasionally as we manage through an organic strategy.

Kyle Voigt -- Keefe, Bruyette & Woods, Inc -- Analyst

Great, thank you.

Operator

Thank you. [Operator Instructions] Our next question comes from Chris Harris with Wells Fargo. Your line is now open.

Chris Harris -- Wells Fargo Securities -- Analyst

Thanks. So you guys are now at your leverage target, so should we just be assuming now that your debt balances remain flattish from here. And related to that, all of the sudden the 3.9% Euro bonds seems expensive given where interest rates are in Europe. So, are there additional opportunities for you to potentially refinance debt early given how low interest rates are?

Michael Ptasznik -- Executive Vice President, Corporate Strategy and Chief Financial Officer

Yeah, so from -- so we are pleased that we've hit our target that we had -- that we had said a while ago, and it does show the cash flow that has been a business can generate, and that -- we can leverage up for deals and then within a fairly short period of time we able to pay down that leverage. And, so our intention is to maintain our investment grade status I continue with the other elements of our capital plan, including increasing the dividend as earnings grow over time and using our buybacks primarily to offsetting any dilution that we have for many of our equity programs. So that's the way we plan on the debt, and the debt will fluctuate depending on the situations that we're looking at, with respect to investment opportunities, et cetera, but the investment grade status will be sort of that guiding factor that sets that.

With respect to other opportunities, so we are pleased to be able to take advantage of the lower interest rates. We also have our -- have our commercial paper program, which has provided us with some benefits as well. And we'll continue to take a look at our debt going forward, we feel pretty good about the, the maturity curve that we have right now in front of us as we get -- as we start to think about our 2021s and the other opportunities, we'll assess those in future periods, but there is no immediate plans I can talk or mention right now.

Operator

Thank you. And our next question comes from Patrick O'Shaughnessy with Raymond James. Your line is now open.

Patrick O'Shaughnessy -- Raymond James -- Analyst

Hey, good morning. So fixed income is obviously, a really interesting area, right now I think particularly when you look at the PE multiples of trading platforms that specialize in that area, what do you see as obstacles for Nasdaq to turnaround its fixed income franchise.

Adena Friedman -- President and Chief Executive Officer

So we are looking at that very closely Patrick, and I think that there are a couple of things. We are sitting in a business in the U.S. Treasuries at least that has been subject to a lot of competition over many years. Whereas if you look at some of the other asset classes in fixed income, they're hitting -- they are facing the idea of electronification for the first time or they're starting to see an evolution into electronic, more electronic trading and there are fewer platforms out there that really serve that function.

In the U.S. Treasuries business, it's been a highly competitive, highly electronic trading environment for a long time and so I think that it's really for us it's a matter of how do we make sure that we are evolving our platform to meet the evolving needs of the broker dealer community, because right now, we sit as a broker-dealer -- dealer-to-dealer platform.

And what we're seeing is more of the broker dealers wanting to have more control over how orders get routed or where they get routed as opposed to on an anonymous central and on order book. And so we are looking at how we continue to partner with them to find ways to leverage our platform for more, I would say targeted liquidity and I think that's something that we have to understand what, what are all the moving pieces around that, because there are certain clients who really like to use the club and they want to maintain an egalitarian type of model and there are others who want to have more control of routing. So that's an area that we're really focused on and I do think that with our new technology platform, we have a lot more flexibility to be able to understand how to meet their evolving needs.

I think in the commodities business in the Nordics, we actually capture the, from a competitive perspective, we capture the business in the Nordics. I think that it has much more to do with the overall macro trends in trading commodity -- in trading Nordic power, frankly weather trends can impact to quarter link we did this quarter. I think the predominant thought on this quarter is just that it was a very low volatility quarter because the weather was cool and wet and it doesn't create a lot of fluctuation and the need for power, but I also think that in general, we obviously are working through the aftermath of, the clearing issue we had last year and we're working very, very closely with all of our clients to understand how they want to leverage the Nordic Commodities business going forward for both trading and clearing needs and how we might be able to branch out into more parts of Europe with our power business going forward.

So it is definitely an area of real focus for us Patrick, but it's -- but we don't have kind of short-term, we don't have immediate things that we think will suddenly turn things around. It's a longer-term partnership with our clients.

Patrick O'Shaughnessy -- Raymond James -- Analyst

Great, thank you.

Operator

Thank you. And ladies and gentlemen, this concludes our question-and-answer session for today's call. I would now like to turn the call back over Adena Friedman for any further remarks.

Adena Friedman -- President and Chief Executive Officer

Great, thank you. In closing, we are very encouraged by our solid second quarter and how it serves to reinforce that both the logic underlying our strategic pivot and our ability to execute on our new direction are becoming more and more clear. And we do also remain very focused on delivering against our priorities and in particular helping our clients reimagine markets to realize the potential of tomorrow. So thank you very much for your time today and we look forward to continuing the conversation in the coming months. Thank you.

Operator

Ladies and gentlemen, thank you for participating in today's conference, this concludes today's program. And you may all disconnect. Everyone have a wonderful day.

Duration: 59 minutes

Call participants:

Ed Ditmire -- Vice President, Investor Relations

Adena Friedman -- President and Chief Executive Officer

Michael Ptasznik -- Executive Vice President, Corporate Strategy and Chief Financial Officer

Richard Repetto -- Sandler O'Neill & Partners -- Analyst

Michael Carrier -- Bank of America Merrill Lynch -- Analyst

Ken Worthington -- JP Morgan -- Analyst

Ben Herbert -- Citigroup -- Analyst

Alex Kramm -- UBS Investment Bank -- Analyst

Dan Fannon -- Jefferies Inc -- Analyst

Alex Blostein -- Goldman Sachs -- Analyst

Chris Allen -- Compass Point -- Analyst

Ken Hill -- Rosenblatt Securities -- Analyst

Kyle Voigt -- Keefe, Bruyette & Woods, Inc -- Analyst

Chris Harris -- Wells Fargo Securities -- Analyst

Patrick O'Shaughnessy -- Raymond James -- Analyst

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