Nasdaq, Inc. (NASDAQ: NDAQ) Q3 2021 earnings call dated Oct. 20, 2021
Corporate Participants:
Ed Ditmire — Vice President, Head of Investor Relations
Adena T. Friedman — President and Chief Executive Officer
Ann Dennison — Executive Vice President, Chief Financial Officer
Analysts:
Richard Repetto — Piper Sandler — Analyst
Daniel Fannon — Jefferies & Company — Analyst
Owen Lau — Oppenheimer & Co. — Analyst
Christopher Allen — Compass Point Research & Trading — Analyst
Brian Bedell — Deutsche Bank — Analyst
Alexander Blostein — Goldman Sachs — Analyst
Michael Cyprys — Morgan Stanley — Analyst
Kyle Voigt — Keefe, Bruyette & Woods, Inc. — Analyst
Presentation:
Operator
Good day, ladies and gentlemen, and welcome to Nasdaq’s Third Quarter 2021 Results Conference Call. [Operator Instructions] As a reminder, today’s call is being recorded. [Operator Instructions]
I would now like to hand the conference over to your host today, Ed Ditmire, Senior Vice President of Investor Relations. Please go ahead.
Ed Ditmire — Vice President, Head of Investor Relations
Good morning, everyone, and thank you for joining us today to discuss Nasdaq’s third quarter 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. 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 T. Friedman — President and Chief Executive Officer
Thank you, Ed, and good morning, everyone. Thank you for joining us. My remarks today will focus on Nasdaq’s third quarter 2021 performance, the progress we’re making on our strategic repositioning, and updates on areas where we are making significant investments to address large opportunities. I’ll also share brief remarks about the current operating environment before I turn the call over to Ann, who will provide further details about our results, as well as an update on our guidance, our capital deployment, and our corporate sustainability efforts before we move to Q&A.
Let me begin by acknowledging the Nasdaq team’s dedication to our broader mission as we made notable progress in the third quarter. Their hard work has been critical to our success in delivering strong results for our clients. Together, we will continue our journey to become the leading provider of technology, data analytics, insights, and marketplace excellence to the global capital markets and beyond.
Now, turning to our financial results for the third quarter of 2021, Nasdaq delivered net revenues of $838 million, an increase of $123 million or 17% from the prior year period. Our growth was largely driven by 13% organic revenue growth in our Solutions segments, 14% organic growth in our Market Services business and contributions from our acquisition of Verafin. We continue to make notable progress across key secular growth opportunities as illustrated by total Company annualized recurring revenue, or ARR, of $1.834 billion, an increase of 19% compared to the prior-year period. Within our recurring revenue businesses, we are seeing some of our best performances from our SaaS-based solutions. Specifically, Anti Financial Crime Technology is showing particularly strong results with revenues increasing 16%, excluding the impact of Verafin. Verafin will begin to be included in our organic growth calculations next year and we saw an increase of over 30% versus prior year in that business. Additionally, in our Investment Intelligence business, our SaaS products including the Nasdaq Asset Owner Solutions, which is the new name for the combined eVestment and Solovis products drove the 13% increase in Analytics revenue.
Our third quarter results underscore the continued progress we’ve made to advance our strategy and additionally demonstrate the value capture from the flywheel effect, which is our ability to leverage the momentum in one business area to drive success in other parts of the business. For example, our success in attracting the majority of the quarter’s new listings and capital raise to Nasdaq drives higher growth in equities and options trading, and multiplies cross-sell opportunities for our investor relations and ESG-related services. It also contributes to the vitality of the — our Index business like the Nasdaq-100 and the NASDAQ Next Gen 100 Indexes and enhances the brand strength in other strategic growth areas of the Company.
As we continue to evolve Nasdaq into a high-performance technology Company, each quarter that passes gives us an opportunity to reflect on the progress we’ve made. A critical pillar of our success has been our ability to allocate capital towards our technology and analytics capabilities. Our acquisition of Verafin has established us as a leader in Anti Financial Crime Technology as we build upon our already strong foundation in that area of the market. In the third quarter, our legacy Trade Surveillance segment saw the largest quarterly order intake in the last several years, adding new business across all regions, while our Market Surveillance group signed two new clients for our SaaS-based solutions, including a new crypto exchange client.
Another pillar has been our ability to advance our leading corporate and marketplace positions. Corporate Platforms revenues increased 18% versus the prior year period, driven primarily by outstanding growth in the Nasdaq-listed issuer base across our US and Nordic markets. It has been a record year so far for new listings in the Nordics and with over 132 new listings coming to Nasdaq year-to-date. Additionally, the US has experienced the best new issuance year in the past two decades and Nasdaq continues to demonstrate strength with a 75% win rate for IPOs in the quarter and a 72% win rate year-to-date. As our listed issuer base grows, we’re seeing correlated demand for our suite of IR and ESG services. Within ESG specifically, we see continued interest in our Nasdaq OneReport and our ESG Advisory solution, coming from every — from companies at every stage of their ESG journey, including companies preparing to list on Nasdaq.
I would like to acknowledge briefly here that we are pleased with the SEC’s approval during the quarter of our proposal to enhance Board Diversity Disclosures. While there have been meaningful developments to advance Board Diversity across the governance ecosystem, we believe the standardized manner by which Nasdaq-listed companies will disclose this information will be critical to driving further progress. We look forward to working with our listed companies to implement the new listing rule.
Market Services is another area of our business where we are seeing that flywheel-related success. Our expanded issuer base benefits equity trading since our share of trading and average capture rate is significantly higher in Nasdaq-listed stocks than it is in stocks listed on other venues. An expanded ecosystem of equity trading in turn brings positive impacts to the options industry where Nasdaq led all exchanges in the third quarter in the US equity options contracts traded. We’re also excited by the early progress we’re seeing in the growing suite of ESG-related capital markets solutions within Market Services, these include the Nasdaq Sustainable Bond Network, our European green bond listing service, our carbon removal marketplace Puro.earth, as well as the expansion of our Nordic ESG derivatives offering. Overall, our Market Services segment saw revenues increase 15% in the third quarter versus the prior year. And this was largely driven by increases in equity derivatives and cash equity net revenues, although all sub-segments of Market Services delivered year-over-year increases.
Our Investment Intelligence business saw revenues increase 30% during the third quarter compared to the prior year period. I’m sorry, our Investment Intelligence businesses saw revenues increase 15% in the third quarter compared to the prior year period. This was driven by a combination of geographic expansion in our Market Data business, higher assets under management in exchange-traded products linked to Nasdaq indexes, as well as strong new sales, higher client retention, and take-up of new capabilities across the Analytics offerings.
Our Index business continued its strong 2021 performance in the third quarter with revenues up 38% versus the prior year on a combination of both strong market performance of our most important thematic indexes, as well as very material net inflows. We’re especially pleased to see positive responses from the market to some of our newer products in our Index franchise, with notable AUM growth in Invesco Innovation Suite, the new Mirae ETF tracking, the PHLX Semiconductor Index and the Hashdex products linked to the Nasdaq Crypto Index. More broadly, AUM in Nasdaq licensed ETPs launched since 2019 reached $13 billion at the end of the third quarter.
We are also unlocking new areas of innovation in our Analytics business to bring more data and transparency to the institutional marketplace. This includes a significant partnership announced in July with Mercer, a leading consultant for institutional asset owners, that gives our asset owner clients broader access to high-quality research on investment managers, and their various investment strategies through a simplified workflow, enabling deeper due diligence. We expect this partnership to expand our clients’ usage of our asset owner solutions going forward.
While we continue our strategic journey, I would like to highlight next how we are measuring our progress in evolving the Company at the highest level using two key metrics. First, our year-to-date organic revenue growth across the Solutions segments continues to meet or exceed the medium-term outlook of 6% to 9% annualized growth that we initiated after adding Verafin. Our 2021 year-to-date organic growth across the Solutions segments is 15%. Secondly, because we are growing our SaaS revenues even more quickly than the 19% increase in the ARR year-over-year, the total percentage of ARR that we are generating from our SaaS businesses rose to 34% at the end of the third quarter. This is up from 28% in the prior year period and continues to move us closer to our medium-term objective of 40% to 50% by 2025.
We are very pleased with the progress that our teams continue to make regarding SaaS contributions to our revenues, both organically and inorganically. Here are two brief examples that demonstrate our progress and innovation to support this growth. It has been eight months since we completed the acquisition of Verafin and our collaboration to date affirms our belief that this combination can accelerate new opportunities. This is particularly the case with larger Tier 1 and Tier 2 banks and those international banks from outside of Verafin’s traditional customer franchise in North America. The Verafin team is executing on its strategy to further penetrate Tier 2 banks, which we define as banks holding total assets of over [Phonetic] $50 billion and we secured another significant win during the quarter through our joint efforts. While we still have significant developments in progress to unlock broader adoption among new customer groups, our early milestones certainly validate the potential that we have identified together.
Additionally, we continue to evolve our cloud-based data offerings with the launch of the Nasdaq Data Link in September. This new platform includes a comprehensive suite of core data covering financial markets, investment fund information, and alternative data to every segment of the investment landscape. It’s the perfect illustration of our SaaS evolution and a key growth area at Nasdaq and it underscores our ability to give clients an efficient means to consume and manage market-related data sets in the cloud, which is becoming a standard practice for many users. Initial interest in Nasdaq Data Link is encouraging. The platform has seen daily average of 3,000 new visitors and 200 new account activations in the weeks following the launch.
Next, I will briefly address areas of our business where factors impacting the current operating landscape are particularly relevant today and in the near-term. By and large, we continue to operate within the confines of the pandemic. While there has been slow progress to enable in-person activities and on-site client visits, it remains far from the environment in which we operated prior to March of 2020. We are, however, fortunate that our diversified business model allows us to be executing at a very high level across our operations despite the prolonged backdrop of the pandemic. The logistical challenges of COVID-19 to travel, intense collaboration, and on-site installation and integration have had their highest impact on the market infrastructure technology business within our Market Technology segment. We have had several complex clearing and post-trade implementation projects that have experienced longer timelines and have required more resources to progress. These challenges have slowed revenue recognition and have increased near-term implementation expenses, impacting near-term margins and creating short-term capacity constraints despite growing demand from clients. The second half of 2021 continues to be heavily impacted by this dynamic and with this business having relatively high revenue visibility and clear capacity constraints, we know now that in the near-term Market Infrastructure Technology revenue growth within the broader Market Technology segment will continue to be impacted in 2022 even if the underlying logistical challenges of the pandemic improve.
On the other hand, in our Corporate Platforms business, the pandemic period has created some efficiencies on — to the go-public process, notably, IPO roadshows have turned virtual, making them more efficient for companies and investors. The new efficiencies have contributed to investors’ ability to evaluate the multitude of new issuers and have increased bankers’ capacity to support companies going through the IPO process. As of today, the pipeline for new listings remains robust based on the number of active S1 registrations on file with the SEC. Assuming current market conditions persist, we have a strong visibility into the upcoming six months and we anticipate this momentum to continue as we enter the final months of the year and into at least the first quarter of 2022.
Turning to how we envision our ability to sustain sizable growth in the long-term, I see two key elements to our potential future — sorry, our future potential. First, we have evolved Nasdaq’s businesses to focus on critical capabilities that are strategically important to our clients and we have become more client-centric than ever. This evolution has allowed us to focus on providing the right data, insights, and technology that our clients need to be successful across the capital markets today and tomorrow. Second, we have strong competitive positions in very sizable markets with — in the key areas of growth for Nasdaq. It is a combined serviceable addressable market of $20 billion across our Anti Financial Crime and Trade Surveillance technologies, our Indexes and Investment Analytics Solutions, as well as our Investor Relations, Governance, and ESG services. Based on our traction in these growth businesses today, we are incredibly excited about the opportunities that lie ahead of us.
As I wrap up, I want to reiterate that we are entering the final months of 2021 with remarkable momentum as we make steady and consistent progress across our three key growth areas and our foundational marketplace businesses. Combined with a favorable capital markets and macroeconomic backdrop, we remain well-positioned to advance our strategy into 2022 and beyond.
And with that, I will turn it over to Ann to review the financial results in greater detail.
Ann Dennison — Executive Vice President, Chief Financial Officer
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 US GAAP to non-GAAP results can be found in our press release, as well as in a file located in the Financials section of our Investor Relations website at ir.nasdaq.com.
I will start by reviewing third quarter performance beginning on Slide 11 of the presentation. The 17% increase in reported net revenue of $838 million is the net result of organic growth of 13%, including 13% organic increase in the Solutions segment and a 14% organic increase in Market Services and the contribution from Verafin, as well as the impact from divestitures.
Moving to operating profit and margins, non-GAAP operating income increased 20% while the non-GAAP operating margin of 53% increased 1 percentage point compared to the prior year period. Non-GAAP net income attributable to Nasdaq for the third quarter of 2021 was $303 million, or $1.78 per diluted share, compared to $256 million, or $1.53 per diluted share in the prior year period.
Turning to Slide 12, as Adena mentioned earlier, ARR totaled $1.834 billion, an increase of 19% from the prior year period, while annualized SaaS revenues totaled $620 million, an increase of 42%. Excluding the impact of Verafin, ARR increased 10% year-over-year.
I will now review quarterly segment results on slides 13 through 16. Starting with Market Technology, revenue increased $28 million, or 33%. The increase reflects the positive $29 million impact from the acquisition of Verafin and a $5 million increase in our existing Anti Financial Crime Technology business, partially offset by an organic revenue decline of $6 million in our Market Infrastructure Technology business. Excluding a $3 million FX impact, as well as the $7 million purchase price adjustment on deferred revenue associated with the closing of the Verafin transaction, Verafin revenues would have been $39 million in the third quarter period and Anti Financial Crime Technology would have been $73 million with both our existing Surveillance and Verafin’s FRAML solution continuing to exhibit strong momentum.
The revenue decline within the Market Infrastructure Technology business was driven primarily by the planned roll-off of a sizable maintenance and support licensing contract with a customer who will continue to use our technology under our license agreement, as well as a decrease more broadly and change request in installation revenues, a consequence of both a strong comparison period in the third quarter of 2020 and capacity constraints we’re working through due to logistical implications of the pandemic.
ARR for Market Technology was $428 million in the third quarter of 2021, an increase of 54% compared to the prior year period. The Market Technology segment operating margin was 9% in the period. Excluding the impact of the previously mentioned $7 million purchase price adjustment related to Verafin, the operating margin would have been 14%.
Investment Intelligence revenue increased $36 million, or 15%, all of which was organic. Organic revenue growth during the period reflects very strong growth in our Index business, as well as a meaningful contribution from Analytics. Annualized recurring revenue, or ARR, was $555 million, an increase of 9% compared to the prior year period. AUM and ETPs licensed to Nasdaq indices rose 15% compared to the prior year period to $361 billion, including $53 billion from net inflows and an $87 billion net increase from market appreciation, partially offset by a $92 billion negative impact related to the previously discussed ETP-sponsored switches. These switches collectively were associated with about a $3 million in run rate quarterly revenues, which will be fully reflected in our revenues for the first time in the fourth quarter of 2021. The Investment Intelligence segment operating margin of 65% is unchanged compared to the prior year period as we continue to make strategic investments in Index and Analytics to support sustained growth.
Corporate Platforms revenues increased $24 million, or 18%, reflecting organic growth. The increase was primarily driven by higher US listings revenues due to the expansion in our listed issuer base, as well as higher adoption across the breadth of our Investor Relations and newer ESG Advisory and reporting offerings. Corporate Platforms’ ARR was $529 million and increased 17% compared to the prior year period. The Corporate Platforms segment operating margin of 42% increased 3 percentage points compared to the prior year period.
Market Services net revenues increased $39 million, or 15%. The organic revenue increase was $37 million, or 14%, and there was a $2 million positive impact from changes in FX rates. The organic increase reflects higher equity derivatives, cash equities, and trade management services revenues. The segment operating margin of 63% increased 3 percentage points from the prior year period, reflecting strong operating leverage on higher trading revenues.
One modeling item to note is that, for the fourth quarter of 2021 and January 2022, we have waived the collection of certain regulatory fees for four of our US equity options markets. This is in order to ensure that collection of the fees in combination with other regulatory fees and fines does not exceed our regulatory costs. Holding all else equal, the removal of this fee is expected to reduce our reported capture rate by approximately $0.015 per contract in the fourth quarter of 2021, and approximately $0.005 per contract in the first quarter of 2022.
Turning to Page 17 to review both expenses and guidance. Non-GAAP operating expenses increased $51 million to $397 million. The increase reflects a $26 million, or 8% organic increase, a $21 million increase from the net impact of acquisition and divestitures, as well as a $4 million increase from the impact of changes in FX rates due to a weaker US dollar. The organic expense increase has two main drivers: first, higher compensation expense reflecting our continued investment to drive growth, and an increase in variable performance-linked compensation due to our outstanding results; and second, increased costs related to, what has been a very active capital markets backdrop, including expenses related to increased trading capacity and marketing commitments supporting our listing clients.
Consistent with what we said last quarter about expenses coming in near the high-end of the range, if performance continues to be strong in relation to our medium-term growth objectives, we are narrowing our 2021 non-GAAP operating expense guidance to a range of $1.605 billion to $1.62 billion from $1.59 billion to $1.62 billion previously. The updated range reflects the impact of strong and broad-based organic revenue growth in the first nine months of 2021 on variable expenses.
Turning to Slide 18, debt increased by $226 million versus 2Q 2021, primarily due to net issuances of $259 million of commercial paper, primarily used to fund the accelerated share repurchase program, or ASR, and a net increase of $19 million of Eurobond from refinancing our 2023 Eurobond with the 2033 Eurobond during the quarter. This is partially offset by a $52 million decrease in Eurobond book values caused by a weaker euro.
Our total debt to trailing 12 months EBITDA ratio ended the period at 3.2 times, unchanged from the second quarter of 2021. During the third quarter of 2021, the Company paid common stock dividends in the aggregate of $90 million and repurchased common stock in the amount of $475 million, including the initial delivery of approximately 2 million shares of common stock related to the ASR agreement we entered into in July. We expect to receive the remaining shares related to the ASR in the fourth quarter of 2021 and for additional planned repurchases related to the sale of our US Fixed Income business to resume in 2022. As of September 30, 2021, there was $984 million remaining under the share repurchase authorization. We continue to expect EPS dilution from the sale of Nasdaq Fixed Income to be about 2% in the first 12 months following the June 25 close, but to diminish to immaterial levels after that.
Turning to Slide 19, I want to begin regularly addressing our focus on ESG elements of our business, both internally and externally, because we believe Nasdaq has an important set of opportunities in terms of our sustainability and external impact and we have a strong momentum in executing against them. We’re committed to the highest level of sustainability in terms of how we run our businesses and serve all of our stakeholders, but also have positioned ourselves to develop high impact outside the organization through our Anti Fin Crime Solutions, our carbon removal marketplace, Puro, and our unique ESG products and services offered to our corporate clients, as well as our efforts to further our corporate purpose through focused philanthropy and volunteerism. Our purpose is to champion inclusive growth and prosperity and we have chosen to emphasize financial literacy and extensive entrepreneurship education and support within underserved communities throughout the US.
During 2021, we’ve expanded our ESG disclosures with new climate reporting and Task Force on Climate-Related Financial commitments. Additionally, we have substantially expanded our Anti Financial Crime and ESG products and services capabilities and we received SEC approval for our listing rule promoting increased transparency on Board Diversity. We have much to do to continue executing on our ESG opportunities, but we were very encouraged to see Sustainalytics, a leading provider of ESG research and ratings, recently recognized our progress in these areas. Our latest Sustainalytics ESG risk rating improved to a level that puts Nasdaq in the top 3 percentile of all rated companies. We look forward to updating you on a regular basis as we progress our ESG initiatives going forward.
Thank you for your time, and I’ll turn it back over to the operator for Q&A.
Questions and Answers:
Operator
Thank you. [Operator Instructions] Our first question comes from the line of Rich Repetto with Piper Sandler. Your line is now open.
Richard Repetto — Piper Sandler — Analyst
Yeah. Good morning, Adena, and good morning, Ann. And congrats on the strong results here.
Adena T. Friedman — President and Chief Executive Officer
Thanks, Rich.
Richard Repetto — Piper Sandler — Analyst
I guess, you’re having tremendous success with the annual growth in annual recurring revenues and the mix of SaaS revenues in there, and you did talk about, you said you’ve focused on the critical capabilities of your clients and more client set. So the question is, looking back, how important is equity trading and equity market share? Even though, again, your revenues there are growing because volumes have grown but looking — an old metric was equity market share and revenue capture, how important is that to Nasdaq as you make this transformation?
Adena T. Friedman — President and Chief Executive Officer
Well, I would say, every part of our business is important, Rich, and important to us. And so, we do look at — we examine every element of our business. Our core marketplace business really serves as our foundation for our ability to serve our clients in a lot of other ways. So, we’re extremely focused on it. I think that we’ve seen some shifts in market share, as well as just in a couple of different dynamics. One has been the increase in retail which has increased internalization and decreased overall exchange’s share of trading. And I think that within that that’s an area that obviously we’re seeing some more work done by the regulators just to understand that dynamic.
I think that the second is, of course, the launch of some new exchanges that have come forward. And they have actually primarily focused on gathering some of that retail order flow and trying to compete for it. So, we have really taken a very balanced approach in terms of being strategic in how we serve our clients. We want to make sure that we provide kind of a sustainable marketplace, that we do things in a competitive way that — but also creates a sustainable advantage for our markets and for our clients that operate in our markets. And so, we’ve taken a, I would say, a very measured and balanced approach to managing share, managing capture, and evaluating kind of the composition of trading in the markets to make sure that we’re kind of balanced there. And that — I would say, that applies to both our equities and options markets and how we’re looking at our share and capture and the dynamics there.
Richard Repetto — Piper Sandler — Analyst
Okay. And then — thanks, Adena. And then the one follow-up would be on Market Tech you certainly explained the quarter-over-quarter decline and the pandemic impact. Could you give more color on sort of the pipeline? And how long do you think this impact — I guess, if you could forecast that or just color going forward in the covenant if the environment stayed roughly the same, I guess?
Adena T. Friedman — President and Chief Executive Officer
Yeah. Well, first, I do think the environment is starting to generally improve in terms of being able to travel a bit now. But we’re still doing most of our client interactions on Zoom and that makes it harder. It’s also harder to develop the kind of, what I’ll call the top end of the pipeline, the top end of the funnel in terms of identifying new clients, but I do think we’ve done a good job of adapting there, to try to make sure that we know which new marketplaces are starting to consider launching and how we can serve them. So you’re seeing that we are still signing up new clients for sure. They are taking our SaaS-based Marketplace Solutions, which we’re also pretty excited about. I think more than 90% of our new clients, any new clients that’s signing up for us across all of Market Tech and that includes Market Infrastructure Technology clients, as well as Anti Fin Crime — actually, it’s well more than 90% are taking our SaaS-based solutions and that includes new markets launching in the cloud and taking our Next Gen trading system. So we see a good pipeline, I would say, Rich.
And we also see that we could do more and we definitely want to be able to identify client opportunities a little earlier and travel will help with that. But I also would say that on the post-trade side, which is where we’ve really experienced most of our delivery challenges, those are harder to implement. They take — they are multi-year programs, they always have been, but they are definitely lengthening out in time with their inability to be on-site. We are starting to get on-site now with some of our clients and that’s helping, definitely helping to accelerate things. And I also think that it’s keeping us from being able to meet all the demands that our clients have. So we do see good strong client demand there, but we have to make sure that we have the resources to be able to meet the demand. So, we’ve been working with our clients to kind of stage that over time and that’s what I think is going to — is what we really were referring to in our comments around 2021 and 2022 is just that we see the need for us to manage through those capacity constraints before we can really meet all the demands that our clients have.
Richard Repetto — Piper Sandler — Analyst
Got it. And congrats on the continued transformation, Adena. Thank you.
Adena T. Friedman — President and Chief Executive Officer
Great. Thanks a lot, Rich.
Operator
Our next question comes from the line of Dan Fannon with Jefferies. Your line is now open.
Daniel Fannon — Jefferies & Company — Analyst
Thanks. Good morning. I wanted to follow-up on the Market Tech component and just thinking, I think you mentioned some increased costs around some of the implementations as well. So, the longer-term kind of margin opportunity in this business, has that changed at all, or is that also just kind of part of the temporary revenue slowdown more of a factor than necessarily costs on a go-forward basis?
Adena T. Friedman — President and Chief Executive Officer
Sure. I think that there are two metrics that we’ve provided to our investor base to kind of measure our progress in the business. One is just our overall medium- to long-term growth outlook on revenues and then the other is this notion of the Rule of 40, which is really a combination of the growth in the revenues and the EBITDA margin of the business. And so, what our outlook is, is that, we expect to be able to deliver 13% to 16% annualized growth over the coming three- to five-year period across Market Technology and that includes the Market Infrastructure Technology business and the Anti Financial Crime business together. And we do continue to believe that that is an appropriate expectation of growth for the business going forward.
I think that the — on the Rule of 40, what we’ve communicated is that, we wanted to get to a Rule of 40, which is — as I said, a combination of growth in EBITDA by 2023 and we continue to see ourselves on track for that. So, you have to think about this as a shorter-term, or at least, a near-term challenge that we’re having to work our way through that part of the business that is most impacted to be able to get ourselves to a better growth state and more scalability as we sign more of our clients as SaaS clients instead of on-prem clients.
Daniel Fannon — Jefferies & Company — Analyst
Thank you. That’s helpful. And then as a follow-up on the Index business. Just to clarify the switches that has not yet to impact the revenue four — as we think about the fourth quarter. And could you maybe talk about the difference in the fees associated with what’s coming in, in terms of net inflows? I think you gave a stat around inflows since I think 2019. Maybe discuss kind of the different kind of fee thresholds as we think about the AUM mix?
Ann Dennison — Executive Vice President, Chief Financial Officer
So, Dan, on your first question, we saw about half — roughly half of the impact around the switches coming in the third quarter, and we’ll see the full run rate in the fourth quarter.
Adena T. Friedman — President and Chief Executive Officer
Yeah. And on the second part of your question, the fee base for the switches that we experienced, particularly one of them was very low. And so, therefore, that $3 million impact was — is a low revenue impact against the AUM that was switched.
I think going — with regard to the new products we’re launching, the fees that we are able to attract with regard to kind of what — some of our innovative products like the Nasdaq Next Gen 100, the Crypto Index and the Semiconductor indexes are, to me, more in line with our normal — our kind of historical norms. So they do carry a higher fee base than the AUM that we lost.
Daniel Fannon — Jefferies & Company — Analyst
Got it. Thank you.
Operator
Our next question comes from the line of Owen Lau with Oppenheimer. Your line is now open.
Owen Lau — Oppenheimer & Co. — Analyst
Good morning. Thank you for taking my question. I have a question about your partnership with Sporttrade and the sports betting industry overall. Could you please talk about maybe the potential market size, such as how many similar sports betting companies out there that you can provide your surveillance technology? And then, broadly speaking, could you please talk about your recent traction in the non-financial space? It looks like we haven’t talked about this for a while. Thank you.
Adena T. Friedman — President and Chief Executive Officer
Sure. Great. Hey, Owen. So on Sporttrade, there is a combination of what we’re doing there. One is, we have taken an investment in the business itself through our venture portfolio. And then, we also are providing them the surveillance technology. And what’s interesting about Sporttrade and the market model that they’re creating is, they are definitely creating more of, what I would call, like a marketplace model where they’re going to have market makers, they’re are going to have bid/ask spreads for different in-game betting opportunities. And it’s going to be really an interesting market model. Our surveillance technology absolutely applies to that type of market model, but actually, the module that we created around sports surveillance applies to the traditional model as well in terms of having kind of your own book and then betting against the house kind of thing. So, I think that we can apply the technology to a traditional sportsbook or to these new marketplaces. And we have created a module that’s specific to that segment. So we’re pretty excited about that.
And we don’t have a TAM or a SAM yet, and that’s actually a good question, Owen. So we’ll come back and think through, how do we look at that SAM developing, particularly for our surveillance and trading technologies for that segment going forward, but it’s obviously very early days here in the US for that.
In terms of other new markets and non-financial markets, we are continuing to support the crypto exchanges. I think we have eight exchanges leveraging our trading technology and nine leveraging our surveillance technology today. And then, we also are seeing kind of fractionalized markets like fractionalized real estate markets and others coming up, and actually several really interesting new marketplaces launching and they’re all coming onto what we’re calling our Nasdaq Marketplace Services Platform, which is really a SaaS-based and it can be delivered in the cloud or we can host it. But it’s a managed service platform, where we provide the technology, but also the infrastructure so that markets can spin up a lot faster. So, I would say, though Owen, as you know, this is an early part of our strategy, and — but we are definitely seeing nice progress. And we can provide you some more stats going forward on kind of new markets that we’re launching there.
Owen Lau — Oppenheimer & Co. — Analyst
Got it. That’s very helpful. And then could you please also explain a little bit more on how Nasdaq Data Link can expand what you have in Quandl? Is it related to like integrating the data in Quandl and provide clients with a more holistic view of data from different sources? Thank you.
Adena T. Friedman — President and Chief Executive Officer
You actually hit the nail on the head. So, think about Quandl now as like one component of Nasdaq Data Link. The Quandl data is like the alternative data that we provide to investment managers, or integrate it into Nasdaq Data Link. The technology that underpins Quandl is actually the underpinning of Nasdaq Data Link technology, but it also includes our market information, it includes some investment information, or never calling Nasdaq Asset Owner Solutions data like on the investment management funds and trends there. It actually — you can — a client could choose to put their own third-party managed data into the system and we can basically become their technology provider to making it to all of their data is managed and available to them in a really, really nice modern API structure. And so, it’s really an umbrella way for us to deliver market information, fund information, alternative information in a modern API and in cloud-based infrastructure. So, it’s really easy to use by the way, and it’s really easy to take the datasets and integrate them into Excel or anything else that you want to use internally.
Owen Lau — Oppenheimer & Co. — Analyst
Got it. That’s very helpful. Thank you very much.
Adena T. Friedman — President and Chief Executive Officer
Sure. Thank you.
Operator
Our next question comes from the line of Chris Allen with Compass Point. Your line is now open.
Christopher Allen — Compass Point Research & Trading — Analyst
Good morning, everyone. I was wondering if you can give a little more color on the Index business. Apologies if I missed it. I’m just kind of curious on the sequential growth that we saw in the quarter. Maybe if you can give us kind of an updated framework and how it’s breaking down between what’s AUM-driven subscription and transaction?
Adena T. Friedman — President and Chief Executive Officer
Oh, in terms of the futures versus the AUM?
Christopher Allen — Compass Point Research & Trading — Analyst
Yeah.
Adena T. Friedman — President and Chief Executive Officer
I think it’s a good question. So I don’t know if you have an easy answer to that.
Ann Dennison — Executive Vice President, Chief Financial Officer
Yeah. Usually, we don’t give the specifics on it. It’s about — you can think about that the AUM portion being about two-thirds of the Index line and then the rest will include the futures portion.
Adena T. Friedman — President and Chief Executive Officer
Yeah. And in general, though, I think what we have been doing now is in our statistics that we sent out, we provide you all an update on AUM, both in terms of net inflows, as well as market appreciation. And as we said, it’s really been a combination of inflows and market appreciation that have driven up the assets under management. I think it’s 15% for the quarter and then our revenues has been even better than that for the quarter based on a combination of those things.
Christopher Allen — Compass Point Research & Trading — Analyst
And any color on the $12 million sequential increase from 2Q to 3Q in revenues? Just it’s a pretty big number particularly in the — I know there’s a little bit of the $1.5 million from the switches coming now.
Adena T. Friedman — President and Chief Executive Officer
Yeah. I mean, it’s really been — I would say, it’s really largely inflows and market appreciation-driven more so than futures-driven for the quarter.
Christopher Allen — Compass Point Research & Trading — Analyst
Okay. Thank you.
Operator
Our next question comes from the line of Brian Bedell with Deutsche Bank. Your line is now open.
Brian Bedell — Deutsche Bank — Analyst
Great. Thanks. Good morning, folks. Let me just start with a question on — it’s kind of a broader question on Crypto but also Anti Financial Crime. So just the question would be — the broader question is, are you able to measure yet? And I know it’s early days, your contribution from Crypto broadly because it does touch a lot of different segments between the index licensing, potentially Anti Financial Crime mandates, and then, also obviously Market Technology. And then, if it’s too early to size that, maybe just give some perspective on how you see that developing across the segments and especially Anti Financial Crime, whether you’re actually seeing mandates that are based on Crypto, surveillance in that segment?
Adena T. Friedman — President and Chief Executive Officer
Yeah. No. It’s a great question. So, I would say, it’s probably — it’s a little early but it’s a good question. So, let’s take that back and see whether that’s something we want to start to think about how we communicate to you guys, but you are right. So we have the Crypto index product that has about — as we mentioned, it’s about $600 million of assets under management there. We have the Surveillance and the Market Tech solutions. And so, we will come back to you, Brian, just to kind of think about how we want to start to provide you more clarity there, but it is early days.
And on the Surveillance side and actually, the broader Anti Financial Crime side, that’s an area that we are really spending a lot of time on to try to figure out how we can provide broader services across our bank clients, as well as our brokerage clients because right now the surveillance capabilities is really driven by marketplaces. But over time, as Crypto becomes more integrated into the financial system, we want to make sure that we can provide solutions that meet the needs across all of our customers. So that’s actually an area of active evaluation right now and we’re looking at that. It’s a great — to have 2,000 banks as our clients across the US and Canada, really does give us a much broader opportunity to think about how to serve their evolving needs there.
Brian Bedell — Deutsche Bank — Analyst
Yeah. No, that sounds like an exciting growth opportunity. And then maybe just switching over to just a question on market structure. Obviously, with the new administration, well not so new now, but with talk about different views on working on market structure, especially on payment for order flow. And, I guess, what’s your view on — if you have a view on what you think would be a good solution to that? Obviously, we’ve talked about sub-$0.01 pricing on — being allowed on exchanges, if that’s a potential remedy for the order flow situation? And then also any other commentary on market data, where that stands given that the prior administration had put that rule in place?
Adena T. Friedman — President and Chief Executive Officer
Sure. So I think that with regard to the market structure discussions and I think the SEC’s paper was to me an early first step in a long process of evaluating how to continuously improve the market. So I think what we are happy about with that report, well, a few things: one, they did a really nice job of dissecting the activity and understanding that there wasn’t anything there that had, I would say, that — there was nothing there that really signified that there was any significant manipulation in the markets. I think the second thing is, if they really did note that the markets are really resilient and very efficient and that, obviously, is a good thing for us, but they also did point out a few key areas of focus. One is the quality of the National Best Bid and Offer, and the fact that so much more of that activity is happening in the dark, is there an impact on the quality of the National Best Bid and Offer. And that’s an area we’ve been doing some work on. I think our Chief Economist published some report on that last week.
And that then tees to what are the incentive structures that underpin the markets. And so, are we finding that order flow is being moved off-exchange and brought into these darker venues because of incentive structures. And I think — I don’t think that the SEC necessarily drew a definitive conclusion there, but it’s an area that I think that they will be focused on. All we can say is, we really believe in taking kind of iterative smaller steps, iterative change, rather than big bang changes to market structure because it’s such an intricately woven system that it’s really — if they allow [Phonetic] unintended consequences are high, but if they look at disclosures around PFOF, or if they look at making some measured changes to the PFOF structure, as well as making it so we can compete more order flow like sub-$0.01 pricing or other rules that encourage orders to come onto exchange and be let, I think that those are all things that would be positive for us. But recognizing that we like innovation, we like variety and competition, we think that those are all good for investors. And so, we have to make sure we’re taking measured steps there. And I got the sense that they weren’t looking at draconian steps and that they were going to take a pretty measured approach.
Brian Bedell — Deutsche Bank — Analyst
That’s good color. Thank you.
Operator
Thank you. [Operator Instructions] Our next question comes from the line of Alex Blostein with Goldman Sachs. Your line is now open.
Alexander Blostein — Goldman Sachs — Analyst
Hey. Good morning. Thanks for taking the question. I wanted to ask you around just the thoughts on sort of inflationary pressures we kind of hear in a number of different corners of financial services but I’ll say markets broadly, I guess, particularly when it comes to technology and technology talent. I know you guys don’t have a 2022 budget yet, but as you are thinking about where your growth focus is and where you’re investing, and where you’re sort of making incremental investments, how do you think about that as a potential headwind? What are the sort of things you can do to maybe offset that or re-engineer it, I guess, to some extent? Just curious to get your thoughts on what you’re seeing in the marketplace.
Adena T. Friedman — President and Chief Executive Officer
Sure. Yeah. I mean, I definitely think that there has been — I think that we all know that the competition for talent is pretty — at a pretty heightened level right now. And so, we are — we’ve honestly benefited from the ability for us to attract talent from all over the world. The benefits is that, we have tech talent in the US, in Canada, in Europe, in Asia, in Australia. We have tech talent kind of spread throughout different economies in different markets, which gives us more flexibility to seek out talent in markets where we think that we can do that efficiently. But at the same time, it is a competitive environment. We do think that there is going to be increases in wage and — I would say, wage increases as we go into 2022. But as you said, we haven’t yet finalized our budget and our planning. So we’ll be able to talk more about that on our fourth quarter call as we provide you with our 2022 guidance. But we are evaluating that as part of or part of the needs for us to compete for talent, but also recognize we have some benefits from having such a global workforce.
Alexander Blostein — Goldman Sachs — Analyst
All right. Thanks. I’ll stick with my one question.
Adena T. Friedman — President and Chief Executive Officer
Great. Thanks a lot, Alex.
Operator
Our next question comes from the line of Michael Cyprys with Morgan Stanley. Your line is now open.
Michael Cyprys — Morgan Stanley — Analyst
Hey. Good morning, and thanks for taking the question. I just wanted to circle back to the Nasdaq Data Link that you were talking about a little earlier. Just how might ESG data become a component or captured in the Data Link? And what’s the opportunity more broadly for Nasdaq to become a driver of ESG standards and scoring in the industry? And maybe you could talk a little bit about how you see that developing in the marketplace more broadly?
Adena T. Friedman — President and Chief Executive Officer
Yeah. Actually, part of Nasdaq Data Link is something called the Nasdaq ESG Data Hub. So it’s basically information that we’ve gathered from third-party sources that allow buy-side institutions to get information that they need, whether it’s climate-related information or other structured data that helps them evaluate companies and industries. So, I think that we actually are serving that up very successfully within Data Link. So that’s one of the modules of Data Link. But the one thing that we don’t have and what we don’t intend to do is become a rating agency ourselves. That’s just not our role. We are here — we look at it as — we have an ecosystem that includes 4,000 corporate clients. They have a lot of information that they need to be able to provide to investors and we want to support them in providing that information to investors. We then have thousands of institutional managers that receive our information and we can deliver data to them either through ESG Data Link or through our Nasdaq Asset Owner Solutions, where they can gather up informations they need to make better-informed investment decisions
And that over time, we hope that the data that we’re helping our corporate clients collect and distribute can actually be served up through our Nasdaq Asset Owner Solutions, and not just to the rating agencies, so that they can also control the information that they’re providing to investors. But I think that we are just not in the mode of actually being a rating agency ourselves. I think there are many of them out there right now. We have actually partnered with Sustainalytics to start to develop some index strategies that we think will be really interesting in this space, but that’s kind of the role that we’re playing as opposed to trying to be that rating agency ourselves.
Michael Cyprys — Morgan Stanley — Analyst
Great. Thanks.
Operator
Thank you. Our last question comes from the line of Kyle Voigt with KBW. Your line is now open.
Kyle Voigt — Keefe, Bruyette & Woods, Inc. — Analyst
Hi. Good morning. Thanks for taking my question. So, earlier in the call you reiterated that expectation for the 13% to 16% annual revenue growth range for the Market Tech segment as a whole. But if we just narrow in on the Market Infrastructure business specifically, it’s a business that has been able to grow quite strongly in the years before the pandemic. I understand there are some near-term challenges, but I’m just wondering if your medium-term revenue growth expectations for that Infrastructure business has changed at all over the last 18 months or whether or not there, I guess, expectations are relatively similar and we’re just trying to get through this kind of near-term — these near-term headwinds?
Adena T. Friedman — President and Chief Executive Officer
Yeah. I mean, I would say, our expectations are — over the medium-term are similar to where we have been and it’s really just getting ourselves through these immediate term issues that we’re having kind of managing our way through a more challenging delivery environment. So — and I think that the client demand is definitely there. Our engagements with our clients are excellent. I think our clients are excited to be able to leverage the Next Gen technology we have and we are delivering that to a lot of our clients. But we just have to work our way through some of these near-term challenges, but the medium-term outlook remains the same.
Kyle Voigt — Keefe, Bruyette & Woods, Inc. — Analyst
Got it. Thank you very much.
Operator
Thank you. There are no further questions. I will now turn the call back to Adena Friedman for closing remarks.
Adena T. Friedman — President and Chief Executive Officer
All right. Well, thank you all very much. And so happy to have you on the call. We’re very pleased to see that our business is continuing to deliver strong organic revenue growth. And as you know, we are really guided by our strategic direction and we have a clear focus as to how we want to continue to reimagine markets to realize the potential of tomorrow. So thank you all very much. We look forward to talking to you next quarter.
Operator
[Operator Closing Remarks]