Nasdaq, Inc. (NASDAQ:NDAQ) Q4 2023 Earnings Call Transcript

Nasdaq, Inc. (NASDAQ:NDAQ) Q4 2023 Earnings Call Transcript January 31, 2024

Nasdaq, Inc. beats earnings expectations. Reported EPS is $0.72, expectations were $0.69. Nasdaq, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good day and thank you for standing by. Welcome to Nasdaq Fourth Quarter 2023 Results Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there’ll be a question-and-answer session. [Operator Instructions] Please be advised that today’s conference is being recorded. I’d now like to hand the conference over to your first speaker, Ato Garrett, SVP, Investor Relations. Please go ahead.

Ato Garrett: Good morning, and thank you for joining us today to discuss Nasdaq’s fourth quarter and full year 2023 financial results. On the line are Adena Friedman, our Chair and Chief Executive Officer; Sarah Youngwood, our Chief Financial Officer; John Zecca, our Chief Legal Risk and Regulatory Officer; and other members of the management team. After prepared remarks, we will open the line for Q&A. The press release and earnings 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 Regulation FD. I would like to remind you that certain statements in this presentation and during Q&A may relate to future events and expectations and 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 continued in our press release and periodic reports filed with the SEC. Further, any references to organic growth will exclude the impact of changes in FX rates, and the impact of acquisitions and divestitures which this quarter substantially, all relate to the two months of Adenza performance included in the fourth quarter and [Technical Difficulty]

Operator: Ladies and gentlemen, please continue to hold. Your conference call will resume momentarily. Please remain on the line. Your conference call will resume shortly. Ladies and gentlemen, please continue to hold. Your conference call will resume shortly. Please remain on the line. Your conference call will resume shortly.

Adena Friedman: An improving business environment for Nasdaq in 2024. We have a healthy pipeline of companies that have filed to go public on Nasdaq. Additionally, throughout 2023, we benefited from $31 billion in net inflows into our Index products, which represents a strong starting point for 2024. In the fourth quarter, we also saw early signs of normalization in sales cycles for our IR and asset-owner solutions. And lastly, market volumes are off to a solid start in the New Year and client interests in our comprehensive suite of technology solutions remains very strong. Turning now to our financial results. In the fourth quarter, Nasdaq crossed the $1 billion mark in net revenues for the first time in a single quarter, achieving revenues of $1.1 billion.

This is a 23% increase compared to the prior year period and a 7% increase on an organic basis. We delivered 9% organic growth across our solutions businesses during the quarter where market services was flat. For the full year, net revenues of $3.9 billion increased 9% from 2022 or 5% on an organic basis. Solutions generated 7% organic — annual organic revenue growth, which is consistent with our overall solutions revenue outlook, despite a dynamic market environment. Our market services revenue were flat year-over-year, primarily due to continued muted volumes in Europe on the back of strong performance in 2022. Our annualized recurring revenue, or ARR, ended the year at $2.6 billion, an organic increase of 6% year-over-year. This slower IPO environment as well as lower buying activity by corporates for our IR solutions contributed to a more modest growth in ARR in 2023.

Annualized SaaS revenues increased to $910 million in the fourth quarter of 2023. Excluding Adenza, this represented a 12% growth rate and 38% of total company ARR. Across the company, we accomplished revenue growth and business expansion while maintaining our operating margin at 52% for both the quarter and the full year basis, excluding Adenza. Our strong performance in 2023, illustrates the strength of our diversified business and ability to deliver against our longer-term objectives in an unpredictable environment. We did this while taking an important strategic step in Nasdaq’s evolution. On November 1, we were pleased to complete the Adenza acquisition and we are now working as one team to further our clients’ goals for risk management and regulatory reporting excellence.

Reflecting on the past year, I’m extremely proud of Nasdaq’s team’s accomplishments. With the establishment of our divisional structure and the Adenza acquisition, 2023 was a transformational year for our business. Throughout the year, we achieved several major milestones to deepen our client relationships and advance to our vision to be the trusted fabric of the world’s financial system. Now let’s review the highlights of our operating — operational accomplishments and client successes by division, starting with Capital Access Platforms. As you know, at Nasdaq, our exchanges are our foundation. We maintained our position as the premier US exchange for IPOs with an 81% US operating company win rate in 2023. In total, we welcomed 103 operating company IPOs that raised more than $11 billion in proceeds, marking Nasdaq’s fifth consecutive year as the leading US listing exchange in terms of both number of IPOs and proceeds raised.

In addition, 18 companies representing $377 billion in market value switched their listings to Nasdaq during the year. In Index, we had $31 billion of net inflows for the year, including $10 billion in the fourth quarter. Our clients want — our clients launched 83 new products linked to Nasdaq indices during the year, bringing to market robust solutions in line with investor demand. Beyond our exchange and Index leadership, we are a leading source of institutional intelligence to the buy side through investments and have continued to expand our offering into alternatives in ESG. We continue to broaden our ESG Solutions in 2023, launching multiple new offerings to help corporates and investors navigate an evolving ESG ecosystem, including Nasdaq Metrio and eVestment ESG Analytics.

We also introduced a suite of new solutions designed to help corporate clients drive governance excellence and accelerate their ESG strategies, including Sustainable Lens through IR Insight. Turning to the FinTech division. With the completion of our Adenza acquisition, we have created a financial technology powerhouse of Anti-Financial Crime, Surveillance, Market Technology, and Risk and Regulatory reporting solutions that positions us as a key risk management partner to the global financial system. Our Calypso solution helps financial institutions navigate a range of market conditions, providing a live view of risk across proprietary and client trading portfolios with detailed analytics to support real time risk management decision-making.

Similarly, in an increasingly complex and fragmented global regulatory environment where risks need to be managed in shorter timelines at a granular level, our AxiomSL solution enables our clients to benefit from the Nasdaq’s global scale and expertise. We now can be a comprehensive partner to banks, brokers, financial market infrastructure providers, and investment managers worldwide by helping them maximize their liquidity through world class capital markets in risk management technology, as well as by enhancing integrity across the banking system through our regulatory reporting and Anti-Financial Crime suite of solutions. With the closing of Adenza, we’re fully focused on engaging with our clients and new employees to ensure a smooth and successful transition and integration.

Tal Cohen, Nasdaq’s Co-President and Leader of the FinTech division and I have personally been speaking with our clients over the past few months and there is a lot of excitement around the potential opportunities now that Adenza is part of Nasdaq. Adenza finished the year with strong sales and upsells across its solutions. Specifically, in the last two months, we signed six new clients, including two central banks. We also expanded our relationships with 35 existing clients. For the full year, Adenza added 23 new clients and expanded our relationships with 142 existing clients, including three cross-sells. We are thrilled to enter 2024 with Adenza as part of Nasdaq and we’re very excited to drive the business and the solutions to new heights in the years ahead.

Turning to market technology. In 2023, we bolstered our global client footprint with the addition of seven clients, including four in the fourth quarter. We also expanded our relationships with four clients in the fourth quarter and more than 10 clients for the full year. Importantly, we had key technology client signings in APAC and in the LATAM regions. We are proud to forge new technology partnership with nuam exchange, which is the consolidation of marketplaces across Peru, Chile, and Colombia. We also expanded our relationship with Chile’s central securities depository with capabilities to manage digitized assets and with B3 in Brazil to develop a new clearing solution, and with BMV in Mexico to modernize this entire post-trade technology platform.

Our growing customer relationship highlights the importance of the Financial Technology we provide, which powers resilient and liquid markets around the world. In our Anti-Financial Crime suite of solutions, we’re bringing world-leading technology coupled with our consortium dataset from 2,500 banks that fights the growing threat of financial crime in the global financial system. Our inaugural Global Financial Crime Report which was conducted in partnership with outside experts, estimates that over $3 trillion of illicit funds flow through the global financial system and $500 billion is lost abroad. It’s an enormous challenge that requires collective action across the banking sector, the public sector and the embrace of advanced technology.

We are very proud of our role in fighting financial crime, and we’re finding tremendous opportunity to continue to expand our capabilities across the banking sector. In 2023, we reached a significant milestone in our Anti-Financial Crime growth strategy. During the year, Verafin our fraud and AML solutions signed its first three Tier 1 banks as well as four Tier 2 banks, including one Tier 1 client and one Tier 2 client in the fourth quarter. We also partnered with a growing number of small and medium-sized financial institutions for a total of 237 new clients this year and 100 for the fourth quarter alone. Additionally, we developed our first proprietary Verafin GenAI Copilot, which is now in beta with our customers. Our GenAI tools reduce time and resources spent on manual tasks and processes such as alert reviews, research and documentation.

By increasing our operational efficiency, Verafin enables our clients to invest in resilient growth at an attractive ROI. In Surveillance, we signed 27 new clients in 2023, including six in the fourth quarter. We made significant strides in modernizing our solutions by launching a new cloud-based architecture and capabilities within Surveillance user interfaces. These innovations give our clients the ability to calibrate their Surveillance setup more efficiently and effectively. Today, 50% of Nasdaq Trade Surveillance clients, leverage our cloud-deployed solutions which support access to 200 sophisticated alerts across more than 160 markets globally. As we continue to enhance our surveillance capabilities, we’re encouraged by the early adoption of our NextGen cloud architecture and new user interfaces.

Moving onto Market Services, in the fourth quarter, we maintained our strong 72% market share for our cash equities markets in the Nordics against the challenging volume environment across the European markets. We’ve also continued to demonstrate a leading market position in the US equities and options markets. In the fourth quarter, we benefited from robust closing cross volumes from the S&P, MSCI and our own Nasdaq rebalance events and we continue to experience growth — growing adoption of our NDX Index Options product. Additionally, we continue to advance the modernization of markets with the successful migration of our second half US options market to the AWS cloud infrastructure and with the SEC approval of the first AI-powered order type called Dynamic M-ELO, which we expect to launch in the first quarter of 2024.

Altogether, we’re moving with speed while delivering revenue growth at an attractive margin profile that will drive shareholder value. With the year ahead now in focus, I’d like to share our enterprise priorities for 2024. Our first priority is to continue the successful integration of Adenza. We’ve made great progress in the initial phase of the integration and remain confident in our ability to deliver on the goals that we laid out at the time of the deal. Second, we’re accelerating the impact of our divisional structure to activate and unlock new opportunities that will drive our business into the future. Over the past year, we have delivered significant progress across each of our business divisions and we will continue to realize the benefits of this structure in 2024.

Third, we are institutionalizing client listening across the company to unlock revenue growth through a One Nasdaq approach to our client engagements. In 2024, we have a focused program to organize our client data, advance our CRM and other related systems, and enhance our processes across the enterprise to gain a holistic understanding of our clients with a goal to drive partnerships in cross-selling opportunities going forward. And fourth, we will further amplify the impact that AI has on the business and in our products. Nasdaq is leveraging several critical components to ensure AI is implemented safely, securely and fairly. And through our focus on AI, coupled with the vast proprietary data sets that we’ve created over decades in our markets and in our solutions covering investment analytics, investor relations and Anti-Financial Crime, we’re confident that we can extend Nasdaq’s competitive advantage in the years ahead.

We look forward to updating you on our progress on these priorities at Investor Day and in the quarters to come. To wrap up, 2023 was another year defined by significant strategic and operational milestones and strong execution. As we look ahead to 2024, we’re well-positioned to better serve our clients more holistically as we become the trusted fabric of the world’s financial system. And with that, I will now turn the call over to Sarah to review our financial details.

Sarah Youngwood: Thank you, Adena, and good morning everyone. I am thrilled to be here for my first earnings call at Nasdaq. I could not be more excited to join the firm at such a transformational time and I look forward to seeing many of you at Investor Day. Now, I will turn to our financial results. My commentary will be focused on non-GAAP results and year-on-year growth rate will be provided on an organic basis. Similarly, operating margins will be discussed ex-Adenza for comparability purposes. I will discuss Adenza’s [generic] (ph) results at the end of the fintech section. Before we move to the quarter, I would like to give you the highlights for the full year 2023 starting on Slide 12 of the earnings presentation. In an uncertain environment, we delivered solid financial performance and strong cash flow generation.

Revenue of $3.9 billion was up 5%, with solutions revenue of $2.9 billion, an increase of 7%. Non-GAAP expense was $1.8 billion, up 5%, in line with guidance for a 52% operating margin, which was flat versus the prior year. This resulted in diluted EPS of $2.82, reflecting organic growth of 6%. We had $1.6 billion of free cash flow ex-Adenza, a growth rate of 11%. Moving on to the fourth quarter on Slide 13. We reported revenue of $1.1 billion, up 7%, with Solutions revenue of $860 million, an increase of 9%. Non-GAAP expense was $504 million, up 2%, and with an operating margin of 52%, up 3 percentage points. Overall, this resulted in diluted EPS of $0.72, reflecting organic growth of 11%. Turning to Slide 14. ARR totaled $2.6 billion, up 6% organically.

The annualized SaaS revenue totaled $910 million, representing organic growth of 12%. Excluding Adenza, SaaS was 38% of ARR, an improvement of 2 percentage points. Including Adenza, that number is 35%, which will improve as the cloud portion of their revenue increases. As a reminder, we only consider the cloud portion of their revenue to be SaaS. Let’s review division results for the quarter starting on Slide 15. For capital access platforms, revenue of $461 million increased 10%, driven by excellent performance in Index. In Data and Listing Services, we saw 3% growth. In data, we have seen a continued increase in proprietary data revenues, driven largely by higher international demand. In listings, the positive impact of pricing was partially offset by the combined impact of de-listings, a muted IPO environment and the rollup of prior year’s initial listings revenue.

Workflow and Insights revenue increased 3%. Analytics delivered high single digit growth, reflecting our ability to monetize the value of our data to the buy side with new business and increased pricing across traditional and alternative asset managers. The strength in analytics was partially offset by a weaker capital raising markets and the impact of elongated sales cycle in corporate solutions. Index revenue increased 26% and overall AUM grew by 34%. Over the last 12 months, our net inflows were $31 billion, $10 billion of which occurred during the fourth quarter. Licensing revenues for futures contracts linked to the Nasdaq 100 Index increased as well, driven by higher capture partially offset by a decline in trading volumes. As a reminder, our capture increases once we cross a volume threshold and then resets at the beginning of each year.

While smaller in size, Index revenue also benefited from index data revenue growth. ARR for capital access platforms was $1.2 billion, up 3%. ARR growth was largely driven by analytics and to a lesser extent, data and listings. The muted IPO environment impacted ARR growth. However, we are cautiously optimistic that we could see a recovery in IPOs combined with more normalized sales cycles as we progress through 2024. As a reminder, substantially all our Index revenue is excluded from ARR. The division’s operating margin was 54% for the quarter, an increase of 4 percentage points due to higher revenues. For the full year, it was 55%, up roughly by 50 basis points. The increase was driven by higher revenues, partially offset by inflation, revenue-related expense, and investments in particular across data and Index.

Moving to financial technology on Slide 16. The division delivered revenue of $399 million for the quarter, up 8%. Regulatory technology grew 17% with Verafin at 25%. Verafin added 100 new clients this quarter, including our Tier — third Tier 1 bank. While we are excited about these additions, as we have previously discussed, the contracting and implementation with these larger, more complex institutions is longer. We will start recognizing subscription revenue in 2024 but we believe that the effect will only accelerate as we expand relationships with these clients. The strong performance of Verafin along with 6% growth in Surveillance led to the 17% growth of regulatory technology. For Surveillance, the fourth quarter growth was impacted by the timing of bookings in 2023 versus 2022, but fundamentals remained strong for the year with six new clients in the fourth quarter and 27 for the full year.

We also made inroads with the Tier 3 broker client cohort, which reflects progress beyond our leadership position with large banks. Cloud for trade Surveillance is now above 50% deployment, which is an important driver of client stickiness through the speed and efficiency it enables us to provide. Moving on to Capital Markets Technology, we saw 3% growth driven by data center connectivity demand. We had new market tech contract signings in Latin America and with one of our US Tier 1 clients. We expect these contracts to start to accrue in 2024. As Adena mentioned, we continue to increase our market technology presence in Latin America and to have a leading role in the modernization of markets in the region. ARR for FinTech totaled $1.35 billion, an increase of 10% due to continued customer wins at Verafin as well as growth in Trade Management Services and Market Technology.

The division’s operating margin in the fourth quarter was 40%, up 4 percentage points. The organic margin expansion reflects solid top line growth and expense control with an overall increase in revenue-related costs, offset by efficiencies and lower professional fees. We are progressing on our journey to improve the efficiencies in Market Technology while continuing to support the growth of Verafin and Surveillance. For the full year, the operating margin was 40%, up 5 percentage points with a story which mirrors that of the quarter, including strong operating leverage and investments. Before closing on FinTech, a few additional words on Adenza. For November and December, Adenza contributed [$149] (ph) million in revenue, $458 million of ARR of which $98 million was in SaaS, and $35 million in non-GAAP operating expense.

A strong finish to the year drove a 77% operating margin for our two month ownership. On a full year basis, Adenza had an adjusted EBITDA margin of 59%, ahead of our initial 58% outlook for the year. Let me now talk about Adenza’s full year revenue and ARR. Revenue was $583 million in 2023, up 14%. ARR of $458 million with 16%, excluding a significant bankruptcy that occurred during the year or 14% net of it. Both metrics are on a constant currency basis. We had nearly 50% of new ACV coming from cloud this year. The strong cloud take-up by our clients supports our growth and efficiencies. Revenue growth benefited from a large portion of ARR up for renewal in the quarter and in the year. Going forward, we expect Adenza’s revenue growth to be in the low to mid-teens, consistent with the medium to long term outlook we provided when we announced the acquisition.

The timing of contracts being up for renewal and the mix of revenue between cloud and on-premise delivery will have an impact on revenue growth in any given quarter and year. This is why we are focused on ARR growth, which is not as impacted by annual renewable and delivery method. We’ll provide more details on the revenue dynamics of our FinTech division at Investor Day. And wrapping up our divisional overview with Market Services. Net revenue was $247 million for the quarter, roughly flat with growth in US cash equities offset by decreases in US options. US cash equities growth was driven by higher capture, partially offset by lower share. In a very competitive US options environment, we are defending our strong market share lead and our attractive capture.

Meanwhile, in Europe, tepid exchange volumes were positively offset by a $7 million nonrecurring payment and by the benefits of diversification between fixed income and equity. The investments we have made in leveraging our technology and data to provide our European market clients with transparency helps them to generate [indiscernible]. This has enabled us to help our clients improve their execution quality and has been key to our ability to reclaim our 72% market share, a 2 percentage point increase. The division’s operating margin was 57% in the fourth quarter 2023 compared to 60% in the prior year quarter as a result of higher compensation costs as we continue to invest in our people and higher technology costs due to ongoing investments related to both capacity and migrating US market to the cloud.

The full year operating margin for the division totaled 59% with the same drivers as recorded history. Turning to Slide 19. This quarter’s non-GAAP operating expense was $504 million, an organic increase of $8 million or 2% versus our organic revenue growth of 7%. I went through the story in the businesses, and it reflects good expense discipline as well as the timing of marketing and professional fees. Overall, this reflects a 52% operating margin, up 3 percentage points. For the full year, our non-GAAP operating expense was $1.83 billion, in line with guidance. We were up 5% consistent with revenue growth for a flat operating margin at 52%. The increase is due to investments in key growth areas, inflation and higher revenue-related expense.

We also achieved efficiencies during the year as we continue to optimize our location footprint and bring the divisions together as part of our divisional realignment. If you include Adenza for the full year, operating expense totaled $2.05 billion. Now on to guidance. We are initiating 2024 non-GAAP operating expense guidance of $2.105 billion to $2.185 billion, the midpoint of which reflects pro forma growth of 5%. This includes a full year of Adenza and the in-year expense benefit of net synergies. On an organic basis, excluding Adenza, Nasdaq’s expense growth will be just under 4.5%. We will spend more time on synergies at Investor Day, but we reiterate the net $80 million synergy target by the end of 2025 and $80 million cost to achieve are set forth in the restructuring program we just initiated.

Additionally, we are guiding the full year tax rate of 24.5% to 26.5% on a non-GAAP basis, slightly higher than 2023, due to lower expected tax benefit on equity awards. Turning to Slide 20. Strong free cash flow continues to be the hallmark of Nasdaq. For the year, we had $1.6 billion of free cash flow ex-Adenza, and Adenza had $306 million in unlevered pretax free cash flow. Our gross leverage ratio was expected to be at 4.7 times at the time of deal close but we are pleased to share that at year-end, we are at 4.3 times despite 0.1 times headwind from euro strength. Let’s go through the details on the chart. At the end of the third quarter, our adjusted leverage ratio was 2.4 times. We added the leverage to acquire Adenza. At the beginning of December, we posted share repurchases and repaid $260 million of term loans.

The ratio benefited from the incremental EBITDA from Adenza’s full year and net tax growth. We expect to continue deleveraging in the first quarter of 2024. And to wrap up on free cash flow utilization, we have repurchased $269 million of our common stock this year, including $110 million in the fourth quarter. And we paid a quarterly dividend of $0.22 per share for a 35% annualized payout ratio. In closing today, this quarter and this year’s performance shows Nasdaq’s ability to deliver consistent growth, margin and free cash flow in a range of environments. We are committed to disciplined execution and continued innovation. The investment we have made in our resilience, our technology and our data over the years, coupled with our reach and track record, position us for sustainable growth as we power our client’s success.

Thank you for your time, and I will turn it back to the operator for Q&A.

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Q&A Session

Operator: Thank you, ma’am. [Operator Instructions] And I show our first question comes from the line of Owen Lau from Oppenheimer. Please go ahead.

Owen Lau: Hi, good morning. Thank you for taking my question. I know Sarah mentioned that as you may talk about that during Investor Day, but could you please add more color on the initial progress of integrating Adenza and achieving revenue and cost synergies? Thanks.

Sarah Youngwood: Sure. Hey, Owen. Yeah. So we — as you said, we closed on November 1. We immediately created the operating model on a go-forward basis, meaning we combined the teams. We have a leader structure now that is a combination of Adenza and Nasdaq personnel under Tal. And we’ve been working very hard to make sure that we bring the sales organizations together, the client delivery success, the operating teams as well as the technology teams together. And so, Owen, I think it’s only a couple of months in, but we are definitely operating as one team. We have been — we have a very specific and defined synergy plan. We have a very clear line of sight as to how we’re going to achieve that plan. We will provide more details on that.

But I would say, Owen, that across all of Nasdaq, we have a combination of efforts to make sure that we create efficiencies within the team just as a normal acquisition, integration would occur, but then also a locational strategy that allows us to align ourselves with our clients going forward and leverage the strengths that Adenza has in some very critical centers of excellence around the world. So we do have, I think, a good plan. We will provide more details at Investor Day. And then the last thing I would say on revenue synergies, it’s obviously very early days, and it takes time to sign new deals. It takes time to develop those relationships. But the early conversations that I’ve had and that Tal and Valerie, who’s the Chief Revenue Officer, have had has been extremely encouraging.

People really want to partner with us. They see us now as a partner to help them solve their largest problems. That’s across reg tech, that’s across anti-fin crime and risk management. I think they understand that we understand them. We are regulated. We have great relationships with the regulators. I mean, they also understand we can bring a lot of advanced technology in and advanced cloud capabilities within Adenza. So I have to tell you that the early conversations are really great. But as we’ve said all along, it will take time for those revenue synergies to actually show up in the financials. And again, we’ll provide you more color on that at Investor Day.

Owen Lau: Got it. So on Verafin, you published a report, you talked about the amount of fraud and also potential opportunity. Can you talk about the strategy for you in 2024 for Verafin? Which area do you think you can win more Tier 1 and Tier 2 clients? Is it more on the payment side or in other areas? Thanks a lot.

Sarah Youngwood: Yeah, sure. Yeah, thanks for pointing that out, Owen. We did create a study that — we’re working with two outside parties. So it was both outside parties and us. We interviewed a lot of the key personnel within banks that are responsible for anti-fin crime to understand, number one, how big is the problem. $3 trillion of money laundered through the system, $0.5 trillion lost to fraud. And then how big is the problem in terms of actually having to solve it? And what are the challenges? One is that different criminal actors act differently. So you have to really have different typologies of analytics to try to root out different criminal behaviors, number one. Number two, obviously, we’ve always said criminals, they don’t just bank in one bank.

So a single bank cannot look at all their transaction data and actually solve the problem. So Verafin is really a truly unique solution because we do have 2,500 banks that represent $6 trillion of assets, all within a consortium data link that allow us to find very defined topologies and really root out more criminal behavior. So we’re seeing fewer false positives, more fraud found, more AML found, and we’re able to prove that out, and that’s why we’ve been able to sign up the Tier 1s and Tier 2s with another Tier 1 signed in the fourth quarter. Where we’ve been focusing? I would say, a couple of things, Owen. One is on continuing to kind of have that flywheel on the SMBs. And in that particular case, we’re really focused on moving to real-time payments and making sure that the small to medium banks have world-class AFC around their real-time payments.

And so that’s a big growth area for us in ’24. In the larger banks, we’ve been — definitely the easiest ROI to show is fraud. So payment like wire fraud, ACH fraud, check fraud, all of the payments fraud we’re finding is a huge benefit and very clear ROI. AML is a harder problem to solve, but we actually had signed one of the large Tier 2s, I think actually two of the large Tier 2s is really focused on AML. And as we solve the fraud problem, what we’re also finding is as soon as we go into these large banks, we show them our benefit on fraud. They’re already starting talk to us on AML. So that’s the land and expand opportunity that we have. And we definitely see expansion opportunities in ’24 with the banks you’ve already signed. And then the last thing I would say is that we also are really focused now in the UK.

And in fact, Brendan is meeting with banks this week to really understand and look at our — particularly our payments fraud capabilities in the UK. The laws are changing to allow for more data sharing, and that will make it so that our pooling is much more effective in supporting their problem and making it so that we can provide a solution there. So that’s our next leg of growth as we go through ’24 into ’25.

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

Michael Cho: Hi, good morning, Adena and Sarah. Thanks for taking my question. My question, I just wanted to touch on Adenza here. You talked about ARR growth [that can fall in] (ph) the mid-teens, and you’ve clearly discussed your medium-term ambitions there. But just given the kind of somewhat lengthy sales cycle there, I mean, I was hoping you could talk a little bit about any expectations for Adenza revenue growth this year, maybe in the context of your long-term targets? And then also any color you can provide between Axiom and Calypso would be helpful.

Adena Friedman: Sure. Yeah. I would just say on an ARR growth perspective, we did provide you kind of that mid-teens view of ARR growth and we continue to see the business dynamics supporting that. And so we would expect that, that medium-term outlook for Adenza will continue to support that mid-teens growth. I think that as we know, revenue growth is — also is impacted by timing of bookings, timing of renewals there and whether or not it’s on-prem or cloud. So we’re going to actually unpack that at Investor Day to help you understand how do you turn ARR into revenue, how do revenue dynamics change and recognizing there would be more quarterly shift in revenues. But the general view is that, that ARR growth is definitely the fundamental thing to look at in terms of how you evaluate the growth and progress of Adenza or Calypso and Axiom.

And at the same time, we do want you to understand how the revenue dynamics work. The more we sign cloud, the more the contracts become ratable over the life of the contract. And whereas in on-prem deals, we recognize half the license fees upfront upon signing. So there’s a lot to unpack there. But we feel great about the overall demand drivers. The other thing to think about with Axiom and Calypso is that timing of renewals also can have an impact in revenue recognition. But again, we’re seeing really strong demand cycles for both Axiom and Calypso, so we feel very good about that, whereas timing of revenue might be a little different from one to another just based on when the renewal cycles hit in that kind of given year. So that’s definitely — again, we’ll go through it.