Nasdaq, Inc.
Q4 2021 Earnings Call Transcript

Published: 26 Jan 2022

[Operator:]

Good day and thank you for standing by. Welcome to the Nasdaq Fourth Quarter 2021 Results Conference Call. Please be advised today's conference may be recorded. I'd now like to hand the conference over to your host today, Ed Ditmire, Senior Vice President of Investor Relations. Please go ahead.

[Ed Ditmire:]

Good morning, everyone. And thank you for joining us today to discuss Nasdaq's fourth quarter and full year 2021 financial results. On the line are Adena Friedman, our CEO; Ann Dennison, our CFO; John Zecca, our Chief Legal and Regulatory Officer and other members of the management team. After prepared remarks, we'll open up the line 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. And information concerning factors that could cause actual results to differ from forward-looking statements is contained in our press release and periodic reports filed with the SEC. I'll now turn the call over to Adena.

[Adena Friedman:]

Thank you, Ed. And good morning, everyone. Thank you for joining us. Let me first note how proud I am of the resilience of Nasdaq's business, the nimbleness and dedication of our global team and the trusted relationships we have with our clients. We are certainly familiar with how unpredictable today's operating environment can be as we continue to navigate a dynamic pandemic and economic landscape. Before I turn to our performance, I would briefly like to address the current market environment. While the markets have experienced increased levels of volatility since the start of the year, we maintain a positive overall economic outlook going into 2022 as the underlying economy continues to have the ingredients for continued growth. Notably, consumer demand for products and services remains high. The ongoing digital transformation of industry continues to drive long-term demand for advanced software and other technology and market innovations. And the resulting employment environment is very strong. That said, there are several factors driving the current market volatility. Notably, due to the cyclical and structural issues we are entering 2022 with a tight labor market and supply chain challenges, both of which are contributing to inflationary pressures. Those pressures are then creating uncertainty around the pace and rate of monetary policy adjustments. Additionally, there are broader geopolitical challenges and continued pandemic impacts that are adding to the macro uncertainty. So, while our overall outlook remains positive, we expect the confluence of market-driven factors, and macroeconomic and political factors to continue to drive volatility over the near term. Within that context, we also remain confident in the strength and resilience of our business. For example, we've seen significantly higher trading volumes and within the last week, the industry processed and Nasdaq processed a new record number of messages in a single trading day. We continue to have a healthy pipeline of companies expecting to tap the public markets during 2022. In fact, we have more than double the number of S1s on file with the SEC compared to the prior year period, although market volatility could cause some delays to IPO, timing, something we are monitoring closely. And in our index business, we expect index asset values to experience some impact associated with various market levels and investor appetite for products tracking our indexes, but also the benefit from higher futures trading volume due to the use of our core indexes in market hedging strategies. The diversification of our business over the past number of years has created a flywheel effect between our foundational U.S. and European marketplaces and the technology solutions we deliver to thousands of clients across public companies, investment managers, and banks, as well as the 100 plus market infrastructure operators, all of whom rely on our mission critical software to navigate the financial system successfully. This is especially the case during these periods of heightened market turbulence. We help asset owners rebalance their portfolios and manage asset allocation decisions. We enable banks and brokers to prevent financial crime while handling increased investor activity. We provide critical investor relations insights to corporate clients to understand changes in their investor base. And we empower exchanges around the world to handle the market volumes and volatility. Nasdaq is there as a critical partner across the financial markets and our business has demonstrated time and again, that we can achieve success in the face of these types of backdrops. I'm confident this time will be no different. Let's now turn to our results. My remarks today will focus on the following areas

[Ann Dennison:]

Thank you Adena and 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 U.S. GAAP to non-GAAP results can be found in our press release as well as in a file located in the financial section of our investor relations website at ir.nasdaq.com. I will start by reviewing fourth quarter performance beginning on Slide 12 of the presentation. The 12% increase in reported net revenue of $885 million is the net result of organic growth of 10%, including 12% organic increase in the solution segments and a 6% organic increase in market services. And the contribution from Verafin as well as is the impact from divestitures partially offset by the negative impact from changes in FX rates. Moving to operating profit and margins, non-GAAP operating income increased 18% while the non-GAAP operating margin of 51% increased three percentage points compared to the prior year period. Non-GAAP net income attributable to Nasdaq for the fourth quarter of 2021 was $328 million or $1.93 per diluted share compared to $268 million or $1.60 per diluted share in the prior year period. Turning to Slide 13, as Adena mentioned earlier, annualized recurring revenue or ARR totaled $1.87 billion, an increase of 19% from the prior year period while annualized SaaS revenues totaled $640 million, an increase of 43%. Excluding the impact of Verafin, ARR increased 9% year-over-year. I will now review quarterly segment results on Slides 14 through 17. Starting with market technology, revenue increased $25 million or 24%. The increase reflects the positive $35 million impact from the acquisition of Verafin and the $3 million increase in our existing Anti Financial Crime Technology business, partially offset by an organic revenue decline of $10 million in our market infrastructure technology business. Excluding a $4 million purchase price adjustment on deferred revenue associated with the closing of the Verafin transaction, Verafin revenues would have been $39 million in the fourth quarter, an increase of 30% year-over-year; and Anti Financial Crime Technology would have been $76 million with both our existing Surveillance and Verafin's FRAML Solutions continuing to exhibit strong momentum. On a sequential basis and excluding the impact of the purchase price adjustment on deferred revenue, Verafin revenues of $39 million in the fourth quarter compares to $36 million in the third quarter. As we discussed last quarter, the revenue decline within the Market Infrastructure Technology business was impacted primarily by the successful completion of mid-year of a significant long-term maintenance and support licensing contract with a customer who will continue to use our technology as well as decrease more broadly in change requests and installation revenues mostly due to capacity constraints we are working through as a result of logistical implications of the pandemic. That said, as Adena discussed a few minutes ago, we see some encouraging signs, including the $142 million of order intake during the quarter. ARR for Market Technology was $428 million in the fourth quarter of 2021, an increase of 51% compared to the prior year. The Market Technology segment operating margin was 15% in the period, an increase compared to the prior year quarter primarily due to a $25 million reserve related to an unexpected loss on an implementation project taken in the fourth quarter of 2020. Excluding the impact of the previously mentioned $4 million purchase price adjustment related to Verafin, the operating margin would have been 18% in the fourth quarter of 2021. Investment Intelligence revenue increased $43 million or 18%, reflecting organic revenue growth of $44 million. Organic revenue growth during the period reflects very strong growth in our index business as well as a meaningful contribution from analytics. ARR was $567 million, an increase of 10% compared to the prior year period. AUM and ETPs licensed to Nasdaq indices rose 18% compared to the prior year period to $424 billion, including $74 billion from net inflows and an $83 billion net increase from market appreciation, partially offset by $92 billion in net negative impact related to the ETP sponsor switches that we have discussed earlier in 2021. The Investment Intelligence segment operating margin of 64% is down 1 percentage point compared to the prior year period as we continue to make strategic investments in Index and Analytics to support sustained growth. One note looking forward to the first quarter of 2022. Trading activity of instruments licensed to our Indexes achieved certain annual thresholds mid-year that resulted in an increase in licensing economics in the second half of the year. Similar to what we described in the call one-year ago, as we begin 2022, the economics of certain agreements reset for the New Year. We estimate that this will lead to approximately $7 million of lower revenue in the first quarter of 2022 compared to the fourth quarter of 2021, assuming similar trading activity and product mix in the two periods. Corporate Platforms revenues increased $23 million or 17%, reflecting organic growth. The increase was primarily driven by higher U.S. listings revenues due to the 23% expansion in our listed corporate issuer base, primarily due to a higher number of IPOs as well as higher adoption across the breadth of Investor Relations and newer ESG and reporting offerings. Corporate Platforms ARR was $546 million and increased 16% compared to the prior year period. The Corporate Platform segment operating margin of 37% increased 7 percentage points compared to the prior year period, primarily driven by the continued increase in the listed issuer base. Market Services net revenues increased $15 million or 5%. The organic revenue increase was $17 million or 6%, and there was a $2 million negative impact from changes in tax rates. The organic increase primarily reflects higher equity derivatives and trade management services revenues. The segment operating margin of 61% was unchanged from the prior year period. Turning to Page 18 to review both expenses and guidance. Non-GAAP operating expenses increased $28 million to $430 million; the increase reflects a $6 million or 1% organic increase and a $24 million increase from the net impact of the acquisition and divestitures, partially offset by a $2 million decrease from the impact of changes in FX rates due to a stronger U.S. dollar. Excluding the $25 million reserve in the Market Technology segment taken in the fourth quarter of 2020, the organic expense increase totaled 8%. The organic expense increase has two main drivers

[Operator:]

Our first question comes from Rich Repetto with Piper Sandler.

[Rich Repetto:]

Yes. Good morning, Adena; good morning, Ann.

[Adena Friedman:]

Hey, Rich.

[Rich Repetto:]

Hey, Adena. First, congrats on the AWS partnership because it just shows that market trends continue to move in your favor, which is by no means an accident. I don't think either. But anyway, I got a question. Given this technology focus, I got a question on Market Technology; you're going to kill me for this question. But we had a record quarter, revenue increased 15%, high order intake increase in SaaS, the margin expanded, but the ARR stayed flat quarter-to-quarter. It was the only segment where the ARR did stay flat. So can you give us some insight into the incremental, I guess, revenue composition in the pick-up in the revenues and Market Technology?

[Adena Friedman:]

Well, first of all, Rich, we welcome all of your questions. So thank you for that, and thanks for the mention on AWS. But Ann is going to go ahead and give you some color on that.

[Ann Dennison:]

Sure. So thanks for the question, Rich. We did – we were flat in ARR for Market Tech overall and so there's a couple of different pieces to it. What I would say is we saw growth in the Anti Financial Crime portion of ARR and some – a slight decline in the market infrastructure technology piece of ARR as we had a contract that was – there was a duplicate contract that we were serving a client in transition that rolled off. So a minor thing there. What we're also seeing, when you see the revenue growth in the Market Technology business, a lot of that growth is – in this quarter is coming from additional change requests and the seasonal type items we see in the fourth quarter. Those things don't contribute to ARR but I will want to just point on the positive side that we had a very strong order intake quarter in the fourth quarter and also a record order intake number for the year in marketplace infrastructure attack. And so when you think about the future, while we won't see that coming into ARR right away because there's an implementation phase in many of those projects, we will see the benefits in ARR over time.

[Adena Friedman:]

Yes. And I think 1 other just piece of color on the order intake for the year, when we look at it, well more than 50% of the order intake is from either expansions of our relationships with existing clients or from new clients. So it's a net new revenue opportunity for us as we execute against these contracts.

[Rich Repetto:]

Yes. The positive thing is you get us focused on ARR. So...

[Adena Friedman:]

I agree. That's a great thing. Thank you.

[Rich Repetto:]

Thanks.

[Adena Friedman:]

Thanks.

[Operator:]

Our next question comes from Alex Kramm with UBS.

[Alex Kramm:]

Hey, good morning everyone. Just want to talk about the 2022 outlook a little bit more in terms of organic growth. I know you have your medium-term guide here, 6% to 9%, starting this year. Obviously, last year was great. And I know some of the things that impacted a number like the Index business obviously had a bad start to the year. I think AUM is down 12% or so year-to-date, if my numbers are right. But I think even with that and looking at some of the exit rates and some of the other businesses, that 6% to 9% seems fairly safe. So I was just wondering if you could give us any commentary on how you feel about that 6% to 9% for fiscal year 2022 and any other color would be great. Thanks.

[Adena Friedman:]

Okay. Great. Thanks, Alex. So first of all we continue to support our medium-term, long-term outlook on our Solutions segment revenues in terms of the outlook that we provided to you around that 6% to 9%. I think that all of the businesses have slightly different dynamics. But the one thing I would agree with you on is that the entry rate for those businesses is quite strong. So we had a really strong end to 2021. And then, of course, with ARR, annual recurring revenue, it kind of portends to a strong entry rate for 2022. But as we look at kind of the longer – medium- to long-term trends of the business, we continue to support that 6% to 9%. And as we continue to perform and execute and grow and expand the businesses, like we did when we announced the Verafin deal, we will certainly make the appropriate adjustments there. But I think, Alex, that as you know, it's always – it's a very dynamic environment. So we feel very comfortable with that outlook, and we will see how we execute against it this year.

[Alex Kramm:]

Fantastic. Thank you.

[Operator:]

Our next question comes from Dan Fannon with Jefferies.

[Dan Fannon:]

Thanks, good morning. I wanted to also talk about just kind of the outlook for Market Services and understanding that volumes are going to come and be what they are. But thinking about capture rates within both options and equities, whether that's because of mix or any competitive factors, how you're thinking about those into 2022?

[Adena Friedman:]

Yes. You actually pointed out a lot of key contributors, Dan. So capture is really – is definitely mix plays a big role in that. The types of – the types of instruments that are also more heavily traded in any given period of time, and then both also deliberate actions that we might want to take in order to attract certain volumes into our markets from a competitive perspective. So as you know, with more retail, particularly in options just to point out, and more – and heavier volumes in what I would call the price time markets in options during turbulent times, those venues carry with them a lower capture. Whereas in our Philex and our ISC marketplaces that have support more complex transactions have a higher capture. So any time where you see more retail and more volumes coming in to the price time venues you're going to see capture change. But then at the same time, we do try to manage our capture quite actively in terms of attracting certain order flow into our market stand. So that's a – there's a lot of dynamics underpinning that. But what we look at is the mix of capture and market share and volumes to try to make sure we're optimizing the results for our shareholders. And I think we've done an excellent job of that, really maintaining, I think a really strong marketplace across all of our businesses, all of our markets in a highly competitive time for the marketplace.

[Dan Fannon:]

Great. Thank you.

[Operator:]

Our next question comes from Owen Lau with Oppenheimer.

[Owen Lau:]

Good morning and thank you for taking my question. I have a question about your partnership with AWS. When people saw this news about this partnership, I think many of them understand this partnership from the cost perspective. But could you please explain a little bit more about like if you have an example, if there's any revenue opportunity here? And Adena, you mentioned the migration, I think, option market first and then your target over the next 12 months. But could you please talk about the pace of when do you expect to complete all the migrations? Thank you.

[Adena Friedman:]

Sure. Thanks, Owen. So yes, our AWS partnership actually, I think is really unique because there are a few things. First of all, we do have a lot of our technology services today that are already cloud-based in AWS and also in Azure. And so we have already have, I think a lot of experience in working in the cloud. So as we start to really focus in on the marketplace businesses, and we start to bring our markets into the cloud environment. I think we're doing it in a really, really thoughtful way. But what's really cool and I think cook and unique about the relationship that we've developed here is that bringing AWS into the Carteret data center. And then Equinix has committed to expanding the data center very significantly. We're doubling size of the data center, doubling the power into the data center. So as we create this kind of – this best private local zone for AWS in Carteret, number one, it makes it much easier for our clients to migrate to the cloud environment that they're going to create inside the data center. And number two, it gives us more space, more power to offer additional services to our clients and to give our clients a chance actually to bring more of their surrounding systems, more of their trading systems into a cloud environment, but in a very controlled way. So it gives us expansion opportunities within Carteret and ways to expand our client relationships there. And then with the go-to-market plans that we have with AWS with our market technology clients around the world, this private local zone construct and the ultra-low latency edge compute system that we co-designed with them we can then deploy that to other major markets around the world and help them with their cloud journeys. And that gives us a chance to be more of a, number one, to deploy our cloud-based marketplace solutions, which we also are implementing for MRX. And then number two, to become more of a managed service provider to our Market Tech clients, which then builds a bigger relationship with them that accrues to our benefit. So a lot of revenue opportunity there in the coming years. I just want to say, those are all long-term, kind of think about the data center, for instance, it's going to take a couple of years to build out the data center. It will take some time for us to deploy our cloud solutions to our Market Tech clients. But we see a really nice medium-to-long-term journey that we can have with AWS on that. In terms of our own markets and moving our markets, we are starting with MRX in 2022, we want to gain some experience with it. We want to hear from our clients as we manage the migration and complete it. And then we will set a more of a targeted time line for how we'll continue the migration of our markets in the U.S. But I want to say we want to start with the first one before we commit to a very specific schedule for the rest.

[Owen Lau:]

Got it. Thank you.

[Operator:]

Our next question comes from Alex Blostein with Goldman Sachs.

[Alex Blostein:]

Great. Good morning, thanks for taking the question. I had a follow-up with respect to the Market Tech business, particularly the comment around the order intake, 50% plus expansion with existing clients and new clients definitely encouraging. Can we get the breakdown between the infrastructure business and then the financial crime services business within that? And then Adena, to your point around accelerating momentum in some of the conversations you're seeing on the import truck aside. Can you help contextualize that a little more in terms of what that means for revenue growth for 2022 in that part of the model?

[Adena Friedman:]

Sure. Yes. So first of all, the order intake numbers that we provide still do not include Verafin. So it only includes our trade and market surveillance business, in addition to the market infrastructure operator business. And I just want to say that the majority of the – I would say, the large majority of order intake is related to our market infrastructure operator clients because of the fact that they tend to be longer-term contracts. Our trade and market surveillance contracts tend to be shorter in duration and smaller in size. So I think that you should assume that the large majority of ARR is related to market infrastructure operators. Ann you're saying $20 million or 10%?

[Ann Dennison:]

$20 million.

[Adena Friedman:]

So about $20 million of the order intake is related to our market and trade surveillance business. Just to give you a sense of the size. In terms of – as we look into 2022, I think it's important to note a few things. Ann mentioned the fact that in the latter half of last year, we had a long-standing client who has – will continue to license our software, but it was always planned that they would come off our service and maintenance agreement, which is a recurring revenue part of the contract. So that happened in the second half of last year. I think in the third quarter, we announced that. That has to flow through the full year. So that will impact the first half of 2022. Then we also have two of our larger implementations going live with their first phase in the first half of 2022, which obviously gets us then into a different and a stronger revenue mode with them going into the latter half of 2022. And then we have this big set of new order intake that we took in during 2021. And that will take a while for that to flow into the revenue as we complete the implementations of that. So you should assume that you're going to see more momentum as we go through the year of 2022 and digest that order intake as well as turn some of our clients into production clients and get through that full year impact from that one contract. So I think you'll assume – you just see more momentum going through the latter half of the year.

[Alex Blostein:]

Got it. Thanks so much.

[Operator:]

Our next question comes from Craig Siegenthaler with Bank of America.

[Craig Siegenthaler:]

Thank you. Good morning, everyone.

[Adena Friedman:]

Good morning.

[Craig Siegenthaler:]

So I had a follow-up on Market Technology, but I want to isolate it around Verafin. And I appreciate Ann's comments that revenues are still growing quickly at 30% year-over-year. But as you leverage the network effect of Nasdaq's Tier 1 and Tier 2 financial services relationships, do you expect this revenue growth rate to remain robust? Or could there be some deceleration just as the larger revenue base affects it through the law of large numbers?

[Adena Friedman:]

Well, I mean, we continue to see massive opportunity for the Verafin organization in three areas. One is as you mentioned, moving up to the larger banks. And we are – we have signed some really great clients getting into some of the Tier 1 and Tier 2 banks. And we actually have several POCs running with some of the largest banks as they're looking at our fraud solutions and really trying to evaluate that. So those sales cycles are longer, but obviously, the contracts are bigger. So we definitely see a lot of momentum there. The second is, as we look at global expansion and going into Europe, we do have one client that's fully live and working with us. And we're building out a pipeline now to help support more clients in Europe and making sure our solutions are geared towards the European landscape. And so that's an area of focus for us, but that – if that door opens well and we execute well there, that's just a huge growth area for us over the long term. And then the third is actually in the digital asset space. We actually are coming out and we've been in a beta mode with a solution that's geared towards providing traditional banks who want to offer digital wallets to their clients as well as vast who need really stronger Anti Financial Crime solutions with specific solutions that are geared towards the digital asset ecosystem. And we plan to launch that more fully this quarter, which we also see as just a big growth runway for us in addition to fintech. So I would have to say, if anything, it's there's so many great avenues for growth, and these avenues are long-term in nature, in terms of the growth opportunity that we are very excited to continue the momentum of their Verafin business. The product is superb and I think it's proving itself out really well.

[Craig Siegenthaler:]

Thank you Adena.

[Adena Friedman:]

Thank you.

[Operator:]

Our next question comes from Kyle Voigt with KBW.

[Kyle Voigt:]

Hi, good morning. Ann, you mentioned some inflationary pressures being felt you noted those are short term. Just wondering if you could speak about those pressures in a bit more detail, is that entirely going to be felt in wages? Are there other areas to note? And looking forward to 2023, I guess, why are you comfortable that this 2% increase is more of a one-off item? And then lastly, sorry for the multipart question, if you're seeing more of the modest inflation on the expense side, are there any opportunities where we could pass along some of those inflationary pressures and take more price on the top-line side? Thank you.

[Adena Friedman:]

Ann is going to go ahead on the cost side.

[Ann Dennison:]

Sure. So on the cost side, so we talked about the incremental 2% within the expenses, maybe 1.5%, we see that as being inflationary pressure. Most of that is on the wage side. I do think there's some inflationary pressure across our supplier contracts, which we'll manage through. But the vast majority is on the wage side. And as we think about managing through that, our ultimate goal here is attracting and retaining the best talent to continue to support the long-term growth of the business. And so while we see the pressure right now here being short term in nature, we expect to continue to invest over the long term against those needs.

[Adena Friedman:]

Yes. I think it's important to recognize it's hard to know what the world can be like in 2023. But in 2022 right now, we're frankly managing our talent really well. I think our attrition has stayed very consistent to our historical expectations. But at the same time, it is a tight labor market we want to compete for the best talent. We have amazing talent in Nasdaq that we want to retain and reward. So I think that as we look at 2022, in terms of the labor market right now, I think we feel good about that increase that we mentioned to be able to manage through that situation. It's hard for us to know what 2023 might come – might hold for that. I think in terms of the revenue side, we do make price increases, CPI adjustments to our prices, and we do that during certain periods of time during the year. We did some adjustments like that going into 2022. But we also tend to take – number one, we have a lot of long-term contracts that really don't lend themselves to year-over-year price increases. And secondly, we take a long-term view of our clients. We really want to make sure that we're managing to a long-term relationship that they're getting value for every dollar they're spending. And so, we do some CPI adjustments, but we generally try to manage our prices based on incremental value that we're providing to them.

[Kyle Voigt:]

Very helpful. Thank you.

[Operator:]

Our next question comes from Brian Bedell with Deutsche Bank.

[Brian Bedell:]

Great, thanks. Good morning, folks.

[Ann Dennison:]

Good morning.

[Brian Bedell:]

Good morning. Just, back to the topic of the day, the Amazon Web Services partnership and another question on that, how are you thinking about the scalability of that migration over time? I realize it's still very early. But in terms of the impact on Nasdaq expense base, maybe first of all, can you frame out what sort of the build might the components of the build in the 2022 guidance might be? And then how should we think about the ability of this partnership to you either reduce the long-term expense growth of Nasdaq or become more scalable? And then longer term, do you view this partnership as more of a revenue opportunity or more of a cost reduction opportunity for Nasdaq?

[Adena Friedman:]

Sure. Yes, so I think the good news is that we've been working over the last five years with AWS to move a lot of our surrounding systems around the markets into the AWS cloud, which has actually accrued greatly to our benefit over the last five years because, for instance, just with these record volumes we're experiencing, the surrounding systems, which are like trade management solutions all of the things that happened right after the trade, we have hyper scalability of our solutions today that otherwise we would have had to buy hardware to support. So that's been a real benefit to us and allows for us to have both scalability for our clients, but also definitely a moderation in terms of our CapEx expenses. I think as we go forward, a few things, we also have spent the last five years building out our next-generation trade life cycle solution to be a cloud-ready, cloud-native solution. So, we are deploying that. We deployed that for our BX Options market in 2020. We're now deploying that for MRX in 2022. We're also deploying that for our derivatives markets in the Nordics right at the beginning of 2022, and in fact, in the next month or so. And we're deploying that out to our Market Tech clients in terms of our clearing solutions and our trading solutions. So, we have already been making the investments that we've needed to make to make sure that we are building out our solutions to support an AWS environment. Now it's really the partnership with Equinix and AWS, where they're going to be making their investments in our infrastructure to make it so that we can execute against what we've been discussing. So, we see this as very much part of our 3% to 6% expense growth really factors in the investments we have been making and will continue to make in this area. So that also – in terms of once we get to scale and we have fully deployed, everything is fully deployed, we do have the opportunity to look at lower CapEx expenses, more scalability in our expense base. But also, I think, that the bigger opportunity for us is in the revenue side because we have a bigger footprint in order to support our clients here in the U.S. and we have the ability to deploy this very differently to our clients around the world. So that to us is definitely the bigger opportunity in the long run.

[Brian Bedell:]

That's very comprehensive. And three- to five-year period is what you would describe as the long run?

[Adena Friedman:]

I think that we actually look at this as these things always happen in slower motion than you think. So, we have six options markets in the U.S. and three equities markets in the U.S. And so, we're starting with one. As I said, we'll gain some experience before we set a time line for the rest. And as we deal with our market tech clients, those implementations especially when you're changing out infrastructure, you're looking at probably a two-year to three-year type of implementation once we've actually come to an agreement. So, this is more like, I would say, five to seven years, but I think that's the better time line to consider.

[Brian Bedell:]

Got it. Thank you so much. Great color.

[Adena Friedman:]

Okay, thank you.

[Operator:]

Our next question comes from Michael Cyprys with Morgan Stanley.

[Michael Cyprys:]

Hey good morning. Thanks for taking the question. Just wanted to circle back to the Nasdaq Datalink. You mentioned the new Data Fabric offering. I guess just a bigger picture question here is how do you see the data link offering evolving over the next couple of years? I guess, what's your vision for that looking out five years? And maybe talk about what's on your to-do list in terms of next steps as you look out to 2022?

[Adena Friedman:]

Sure. Yes, I mean I think that one of the things we hear from our investment management clients is their biggest challenge is managing their data. They are dealing with all of this data, both the traditional financial data that they've always had, but then alternative data and other new data points that they think that might be relevant to making investment decisions or managing their portfolio risk. So, what Data Fabric does is we – Datalink in general is there as a container for alternative data as well as financial data, our traditional market data, other exchanges data, et cetera, to kind of make it so it's really, really easy to implement, and it's a cloud-based solution that is really ultra-light in terms of for clients to be able to access the data. Then with Data Fabric, what does is almost create a data management layer for our clients so they can put their own data, their own research into the same platform and make it so that it's all there in one container available to investment professionals, to the traders, to the research analysts and it creates a little bit of order out of the chaos that they're dealing with right now in terms of managing the data. So, that's the vision or that's what we've built. In terms of implementation and the five-year plan, I mean, I think that, obviously, the cloud is there to support more and more real-time workflows. The cloud is there to be able to offer you much better ability to create analytics off that data, to do machine learning algorithms on the back of the data and that's where, I think, over the next five years, we need to continue to enable our clients to leverage the benefits of the cloud as well as kind of the order and the capabilities that we can supplement the data with. So that's our view, Mike, but that's a longer-term view as to how we help our clients manage through this.

[Michael Cyprys:]

Great, thank you.

[Adena Friedman:]

Thank you.

[Operator:]

That concludes today's question-and-answer session. I'd like to turn the call back to Adena Friedman for closing remarks.

[Adena Friedman:]

Great. Thank you very much. Well, thank you so much for your time today. In closing, Nasdaq's fourth quarter and full year 2021 performance was solid, and we are starting off 2022 with really strong momentum. Our leadership team remains very focused on executing our strategy to deliver for all of our stakeholders. And we look forward to continuing our discussions throughout the year on the progress that we make as we continue to advance our strategic priorities and ambitions. So, thank you very much, and have a great day.

[Operator:]

This concludes today's conference call. Thank you for participating. You may now disconnect.