Nasdaq, Inc. (NASDAQ:NDAQ) has updated its expense guidance for 2020.
The company noted that trading volume in certain asset classes and assets under management in licensed ETPs set new quarterly records, while the number of Nasdaq IPOs in the quarter set a multi-decade high, resulting in higher than expected revenues in the fourth quarter of 2020. These higher revenues coupled with the impact of changes in Forex rates were the primary drivers of incremental expenses of $20 million, reflecting increases in performance-linked compensation and other variable expenses.
In addition, during the fourth quarter of 2020, Nasdaq updated its review and refined its plans across its large-scale post-trade clearing implementation projects, in part due to the logistical implications of COVID-19.
“As a result, a single customer implementation project is now expected to have costs that exceed revenues by $25 million over the remainder of the term of the contract (approximately 13 years), which, under the accounting rules, requires a reserve to be established to reflect the expected loss”.
Due to this, Nasdaq expects 2020 non-GAAP operating expenses to exceed the high end of its prior 2020 guidance range by approximately $45 million.
Let’s recall that, in the third quarter of 2020, Nasdaq generated net revenues of $715 million, an increase of $83 million, or 13%, from $632 million in the prior year period. Net revenues reflected a $41 million positive impact from organic growth in the non-trading segments, a $29 million positive impact from organic growth in the Market Services segment, a $4 million increase from the inclusion of revenues from acquisitions and a $9 million increase from the impact of favorable changes in FX rates.
GAAP operating expenses were $389 million in the third quarter of 2020, a decrease of $17 million from $406 million in the third quarter of 2019. The decrease primarily reflects lower general, administrative and other costs and lower restructuring charges, partially offset by higher compensation and benefits expense and professional fees.
Non-GAAP operating expenses were $346 million in the third quarter of 2020, an increase of $29 million, or 9%, compared to the third quarter of 2019. This reflects a $17 million organic increase primarily due to higher compensation and benefits expense, a $7 million increase from the impact of acquisitions as well as a $5 million increase from the impact of unfavorable changes in FX rates.