Tel Aviv Stock Exchange

Ladies and gentlemen, thank you for standing by. Welcome to the Tel Aviv Stock Exchange Q4 2024 results conference call. All participants are present in listen-only mode. Following management's formal presentation, instructions will be given for the question and answer session. For operator assistance during the conference, please press star zero. As a reminder, this conference is being recorded March 4th, 2025. The recording will be publicly available on TAZE's website. With us on the line today are Mr. Itay Ben-Zaev, CEO, and Mr. Yehuda Ben-Ezra, CFO. Before I turn the call over to Mr. Itay Ben-Zaev, I would like to remind everyone that this conference is not a substitute for reviewing the company's annual financial statements, quarterly financial statements, and interim report for the fourth quarter of 2024, in which full and precise information is presented and may contain inter alia forward-looking statements. in accordance to Section 32A to Securities Law 1968. In addition to IFRS reporting, we might mention certain financial measures that do not conform to generally accepted accounting principles. Such non-GAAP measures are not intended in any manner to serve as substitute for our financial results. However, we believe that they provide additional insight for better understanding of our business performance. Reconciliations between these non-GAAP measures and the most comparable related GAAP measures are included in tables that can be found in our earnings press release and in the slide presentation accompanying this call. Both can be accessed on the English Maya site and in the investor relations portion of our website at ir.tays.co.il. Mr. Benzaev, would you like to begin?

Good evening Israel Time everyone and thank you for joining us today. I'm happy to host you in our earnings call. I'm pleased to announce another record quarter and full year for TAFE with revenue growth topping 12% year on year and 14% quarter on quarter. Our adjusted EBITDA for the year was up 18% from the prior year and our adjusted EBITDA margin reached 42.6%. Adjusted net profit was 22% higher than in 2023. All this was achieved while continuing to maintain organic growth across all TAFE core activities despite the ongoing October 7 war. Yuda Ben Ezra, our CFO, We'll discuss the financial statements in detail later in this call. Trading on TAFE took place in 2024 against the backdrop of the ongoing war, with high volatility a dominant feature. Despite the war, the Israeli capital market has exhibited remarkable resilience, and in the last few months of 2024, we saw yields on the TACE indices reach a turning point and a positive change in market trends such that for the year as a whole, the leading TACE equity indices outperformed the leading global indices. At the end of 2024, TACE equity market cap reached 1.4 trillion shekels, a 30% increase from the year end 2023, largely due to the impact of the rise in taste equity indices. Compared to 2023, trading volumes in taste markets increased significantly in 2024, with the equities ADV reaching 2.2 billion shekels, up 10% over the ADV in 2023. During 2024, eight new companies completed an IPO on TACE with an aggregated value of 8.3 billion shekels. Since the beginning of 2025, we have seen a resurgence in the issuance market and already five new companies have completed an IPO, and other companies are in the pipeline with IPOs scheduled in the coming months. During 2024, the taste bond market displayed increased strength as a major source for raising debt, both for listed companies and also for the Israeli government. Corporate bond issuances totaled 123.5 billion shekels in 2024, compared to 100 billion shekels in the previous year. The Ministry of Finance raised 186 billion shekels in Israel during 2024, more than double the amount raised in 2023. The strong demand in Israel and abroad for Israeli government bond is a powerful sign of confidence in the Israeli economy, particularly as the war was still being fought throughout the year. As for our strategic core activities, we continue to work on implementing our strategic plan to strengthen business activity. Last year, we announced are planned to change Taste Trading Week to Monday-Friday, which is intended to strengthen Israel's position on the international financial stage, increase the Israeli capital market's liquidity and accessibility for foreign investors by bringing the trading days into line with international markets. I'm pleased to inform you that the Ministry of Finance recently announced his support for this measure that we are promoting together with the ISA and the Bank of Israel. We are planning to implement this change at the beginning of 2026. As part of the preparations for the change in trading days, we recently announced that we are intending in coordination with the ISA, to use AI to translate immediate and annual reports into English in cooperation with Israeli fintech company T-Pranks. Initially, the reports of the companies included in the TA-125 index will be published on TACE English website, allowing foreign investors to receive reports in English in real time. We continue to expand the number of TACE members and trading firms. In 2024, Jump Trading Europe BV joined as a remote member, and Alshuler Shacham Trade began operating as a TACE and Clearinghouse member. Additionally, Clearstream Banking SA joined as a custodian member. Alongside the growth in the number of new TAFE members, we have also witnessed a 12% increase in the volume of trading by new retail investors trading on TAFE. This positive development is also part of the continuing cooperation between the financial regulators that are working together to make the Israeli capital market more accessible to the public. Responding to strong demand in the last quarter of the year, we increased our co-location capacity in our main hosting site with an additional 11 cabinets. We also continued to develop the communication hubs outside of Israel. In addition to the first POP in London, we began to provide connectivity services through the second new POP we established in Frankfurt several months ago, and we have already recruited our first customers for this service. In 2024, we continue to invest resources in developing our index business. Overall, during 2024, we launched 21 new new equity and bond indices. Consequently, we plan to increase and diversify the products as part of our strategic plan to improve and develop more investment products for investors. At the end of December 2024, the total amount of AUM over indices exceeded 100 billion shekels. representing an 18% increase over 2023. Additionally, at the beginning of November, we launched a block trade facility for large prearranged and protected transactions that ensure real-time transparency to the market. In addition, we completed at the end of October 2024 the main phase in the reform of the OTC trading system, adopting it for use by foreign investors and aligning it with international standards. Moreover, further to the ISA approval last August for non-bank state members to trade in cryptocurrencies for the customers, in January this year, we published a draft for public comments on the basis of which we will for the first time allowed the registration of ETFs on digital assets such as Bitcoin. In the derivatives market in September, we launched for the first time futures contracts on three leading indices. We also appointed a market maker to ensure liquidity and trade volume in this market and to enable the public to invest at more competitive prices. In addition, following the measure we began in June 2024 to reduce the multipliers in the derivative market on the options in certain equity indices and foreign exchange indices, we have seen average daily trading volumes on these options grow by 25% compared to the same period last year. In January 2024, as part of the continuing restructuring of TAFE, a deal took place for the sale of the bank's legacy arrangement shares. Within the framework of this deal, 18.5% of the company's shares were sold. In December 2024, an additional consideration of 10.1 million shekels was received from a TACE member that is another shareholder of Legacy Arrangement Shares. TACE has now received a total of 317 million shekels from the sale of the Legacy Arrangement Shares. The proceeds received by TACE for the Legacy Arrangement Shares have been credited directly to TAIS shareholders' equity and are earmarked for developing investments in TAIS technological infrastructure. Further to the buyback plans that were implemented in 2022 and 2023, which resulted in the purchase of 10.2 million shares for a consideration of 186 million shekels, on January 9, 2025, a buyback transaction took place with Manicay Fund that held 19.2% of TAFE's equity at that time. The buyback transaction comprised the purchase of 4.6 million ordinary shares, constituting 4.6 82% of TAFE-issued share capital at a price of 43.79 shekels per share for a total consideration of 202.4 million shekels. The transaction was carried out as an OTC transaction and following its execution and to the best of the TAFE knowledge, The Medicaid fund currently holds 15.2% of TACE shares. I would like now to provide you with information regarding TACE capital return to our shareholders. The dividend distribution policy adopted for 2024 to 2026 requires the distribution of 50% of the annual profits. In accordance with our declared policy, I'm pleased to announce the Taste Board of Directors has approved the distribution of a dividend totaling 51 million shekels, representing 52 agorot per ordinary share that will be paid on March 20, 2025. In total, over the 14-month period from January 2024 to March 2025, TAFE will have made 526 million shekels in distributions to its shareholders, comprising 324 million shekels through dividends and 202 million shekels through share buyback. In conclusion, the 2024 financial statements show that even in this challenging year of war in Israel, we are still witnessing the strength and resilience of TAFE, which rests on the strong foundation of the Israeli economy. We have continued to invest in developing the TAFE infrastructure and in developing new and diverse products for the benefit of investors so that we can continue to achieve the goals we have set for ourselves in accordance with our strategic plan for the coming years. And now, I'd like to hand over to Mr. Yehuda Benezra, who will continue with the review of the yearly and Q4 results.

Thank you, Itay. As Etai has already mentioned, TES has once again posted strong financial results for both the whole of 2024 and for the fourth quarter, demonstrating resilience despite the ongoing war. These results serve as a testament to the economic strength of Israel and the robustness of its capital market. Some of the main financial metrics are shown in slide number four. Our revenue in 2024 reached a new high of 437.8 billion shekels, increasing by a record 12% compared to the previous year. Adjusted EBITDA in 2024 improved significantly by 18% to a record of 186.3 million shekels, while the adjusted EBITDA margin also improved from 40.4% to 42.6%. Adjusted net profit displayed substantial growth of 24.5% and increased to a new record of 107.2 million shekels. Our basic earned per share in 2024 reached a new high of 1.093 shekels, increasing by a record 27% compared to the previous year. I will continue with slide 11, which shows some of the key highlights from our results for the fourth quarter. Revenues amounted to 115.4 million shekels compared to 101.4 million shekels in the corresponding quarter last year, a 14% increase. This is the highest quarter of the revenues since this IPO, and growth was evident across all operations. Our revenue from non-transactional services increased by 4%, to 63% of the total revenues. Expenses totaled 84.2 million shekels, compared to 76.9 million shekels in the corresponding quarter last year, a 9% increase. The increase in expenses was due mainly to higher employee benefit expenses and marketing expenses. Adjusted EBITDA totaled 46.8 million shekels, compared to 40.1 million shekels in the corresponding quarter last year, a 17% increase. The increase was due to higher revenues. Adjusted net profit amounted to 26.5 million shekels compared to 22.7 million shekels in the corresponding quarter last year, a 16% increase. The increase was due mainly to higher revenue from services, although this was partially offset by the increase in the cost and tax expenses. Let's go now to slide number 12, where we can take a deeper look into the composition of our revenue in the fourth quarter. Revenue from trading and clearing commissions increased by 5% compared to the corresponding quarter last year, a total of 43 million shekels. An increase in trading volumes, particularly in shares and derivatives, was the main factor behind this. This increase was contributed by a reduction of six trading days between the quarters. Revenue from listing fees and annual levies increased by 11% compared to the corresponding quarters last year and totaled 22.3 million shekels. The increase was mainly due to higher revenues from listing fees and levies and to an increase in revenues from examination and listing fees, largely as a result of more companies applying for listing and offerings. Revenues from clearing house services increased by 25% compared to the corresponding quarter last year, a total of 26.1 million shekels. The increase is mainly due to higher revenues from clearing house services to members, particularly befalling the completion of regulation measures in relation to the OTC transactions, and from custodian fees as a result of increase in the value of assets that are held in custodianship. Revenues from data distribution and connectivity services increased by 24% compared to the corresponding quarters last year, a total of 23.1 million shekels. The increase is mainly due to updating the index usage fees and to the increase in value and greater use of test indices. I would like now to discuss our expenses in the fourth quarter of 2024, So, please refer to slide number 15. Employee benefit expenses increased by 12% compared to the corresponding quarter last year, a total of 45.2 million shekels. The increase was due to an increase in wages and variable compensation. Compared to computer and communication expenses increased by 1%, a total of 10.5 million shekels. Marketing expenses increased by 81% compared to the corresponding quarter last year and totaled 2.9 million shekels. The expenses and period include the cost of new advertising campaign launched at the end of third quarter. Depreciation and amortization expenses increased by 7% compared to the corresponding quarter last year and totaled 14.4 million shekels. The increase in depreciation and expenses was due mainly to the upgrading of infrastructure and the launch of new products. Net financing income totaled 2.6 million shekels compared to net financing income of 3.2 million shekels in the corresponding quarter last year, a 20% decrease. Net financing income in the period decreased to the higher financing expenses as a result of a bank loan taken at the end of 2023. This was partially offset by interest income from deposits and profit of pocket-billed securities. Financial position, I would like now to review our financial position highlights at the end of 2024, as shown in slide number 16. Our equity totaled 721.3 million shekels, and for promise, 80% of the balance sheet, excluding open derivatives or position balance, and total deferred income from listing fees. We earned 531.4 million shekels in cash and investment financial assets. The balance of bank loan totaled 100 million shekels. The surplus equity over regulatory requirement at year-end 2024 totaled 627 million shekels, compared to 318 million shekels at the year-end 2023. The increase was mainly due to 252.5 million shekels in proceeds received from the sale of the arrangement shares. The consideration received by TES was carried directly to equity and is being invested in test technological infrastructures. The surplus liquidity of the regulatory requirement at year-end 2024 totaled 172 million shekels compared to 145 million shekels at year-end 2023. On January 9, 2025, the company entered into a transaction with 1EK Fund for a buyback of company shares for a total consideration of 202.4 million shekels which will reduce the company equity by a corresponding amount. Furthermore, despite having sufficient liquidity reserves, we have entered into an agreement with the bank to receive a three-year, 130 million shekels loan, which was used to repay the 100 million shekel bank loan that existed in the year 2024. The terms of the new loan are better than the previous loan, with the new loan bearing an annual interest at a rate of prime plus 0.2%. The 30 million shekel difference between the two loans increase test liquidity funds. The agreement also includes the guarantee of 120 million shekels credit line for a period of one year. I would like now to go to slide number 17 to review our cash flow highlights for 2024. Cash flow from financing activities resulted in negative cash flow of 79.7 million shekels compared to negative cash flow of 1.4 million shekels in the previous year. The higher negative cash flow are due mainly to dividend payments in 2024 of 272 million shekels and the bank loan repayment of 50 million shekels that were offset by the 252 million shekels in proceeds received from the sale of the arrangement shares. Cash flow from investing activities resulted in negative cash flow of 55.7 million shekels compared to positive cash flow of 57 million shekels in the previous year. The reversal in cash flow is due mainly to the consideration received from the realization of market-based securities in the previous year. Test-free cash flow amounted to 100.8 million shekels compared to 100.9 million shekels in the previous year. Also, the Board of Directors approved today the payment of dividends of 50.7 million shekels, representing 0.52 shekels per ordinary share, to be distributed on March 2025. And with that, I will turn the call to our moderator to conduct the Q&A.

Thank you. Ladies and gentlemen, at this time, we will begin the question and answer session. If you have a question, please press star 1. If you wish to cancel your request, please press star two. If you're using speaker equipment, kindly lift the handset before pressing the numbers. Your questions will be pulled in the order they are received. The first question is from Dan Fannin of Jefferies. Please go ahead.

Good evening, gentlemen. This is actually Rick on for Dan. Well, I hope you guys are well. And if I could get started with the 2025 budgeting process, and understanding how expenses look like or the trajectory for expenses look like going into next year, particularly interested as well in the marketing expense line, understanding that you are getting to a more normalized level of activity there and how that might look going into next year along with the rest of the expenses, and maybe also tying in a comment related to the lower margins we've seen in the past two quarters and how that might look going into next year.

Hi, Rick. So with respect to 2025 budget, I can tell you that most likely in the way we see it in terms of our marketing expense, we will not make an expense that will be higher than the one we did in 2024. So this is one thing. Another thing in terms of the margins, I think that going forward, as we stated in the past, we believe that we will continue to see double-digit growth in our revenues. And in terms of our cost structure, in terms of compensation, As we stated when we signed the union agreement that is due until the end of 2028, the way that the bonus calculation is being calculated to the employees has a cap which has a limit tied to the annual salaries of the employees. There is a chance that in 2025, this cap will actually be reached. So this will give another leverage to increasing our margin going forward. Because as for 2024, because the company made more profits, compared to 2023, it means that the employees got a higher bonus than in 2023.

Understood. That's all helpful context. And then I guess staying on expenses, maybe non-operating expenses with the new loan related to the Manicay repurchase. How should we, understanding it's at a better rate, how should we think about run rate, I guess, net financing income on a dollar basis?

The loan is in a better condition than the old loan, of course. I mentioned it before. We are going to repay this loan in a period of two or three years. We used 200 million shekels from our cash to do this bike. Of course, it will decrease some of our interest income in the coming years. But we still have more than 300 million shekels. So I believe that we'll continue to see also a positive income from a full interest rate and a net financing income.

Understood. That is helpful as well. And then maybe then moving on to the revenue side of things, just on good volumes, I would say, and then especially in the equity franchise, but just on the the fee rate generated from equities, you know, it was a low point over a few years there, if I'm not mistaken. Is that related to the block trading initiative, or how should we think about, I guess, the commission rate on the equity franchise?

No, the block trade is a relatively new product. I think that in general, because, I mean, if you've seen it in the fourth quarter, once volumes are higher, it means that we generate a higher income. You know, that's the way it is. And part of everything that we invested and did in our market, we are now seeing higher volumes. By the way, you know, January and February are also public data. You can see that what we have seen in November, December continued in the first two months of 2025. So as long as volumes are higher, we will see higher revenues with respect to our equities. And I think the fact that we are adding more, I would say, features, and we are getting more and more value proposition, which is similar to what the large exchanges are offering to the clients, it helps us in giving more flexibility to our clients even though the actual incremental income out of the new product that we do is not material to the business.

Got it. And that is helpful. And then moving away from trading revenues into non-transactional, specifically with data revenues, now, if I'm not mistaken, this is kind of the end of the period, the one-year period post the pricing changes. So how should we think about the new effective growth rate in data distribution revenues, or is it similar to, I guess, the 12% to 15% CAGR you guys have laid out for non-transactionals?

I mean, you are right that the two-year actually ended at the end of 2024. We continue to launch various features of all of the data products. We still have a few years to close the gap in terms of what we can do because At the end of the day, we have market participations, and they also need time to digest the products that we give them. And also you have an effect, you know, you have more clients on the co-location, you have more trading, you have more people that want to get data. So this is an ongoing effect, and this is part of the, I would say, correlated process. things that we have in all of the assets that we run. On top of it, bear in mind that, as I mentioned, AUM in the indices that we run has accelerated in a nice figure in 2024, and it is continued to go at the beginning of 2025. So this is also a positive factor. So I would say that I expect that we will continue to grow, but clearly not at the same phase that we have grown over the past two years. But as you mentioned, double-digit growth, this is what we expect from our data businesses going forward.

Perfect. Well, thank you so much for your time, gentlemen. That's all I have.

Okay. Thank you very much. Thank you.

If there are any additional questions, please press star 1. If you wish to cancel your request, please press star 2. Please stand by while we poll for your questions. There are no further questions at this time. This concludes the Tel Aviv Stock Exchange Q4 2024 results conference call. Thank you for your participation. You may go ahead and disconnect.