TMX Group Limited

Good day and thank you for standing by. Welcome to the TMX Group Limited First Quarter 2021 Financial Results Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker today, Paul Malcolmson. Please go ahead.

Thank you, operator, and good morning, everyone. I hope that you and all of your families are staying well and safe. Thank you for joining us this morning for the first quarter 2021 conference call for TMX Group. As you know, we announced our results late yesterday, and a copy of our press release is available on TMX.com under Investor Relations. This morning, we are once again joining virtually. And have with us John McKenzie, our Chief Executive Officer, and Frank DiLiso, our Interim Chief Financial Officer. Following opening remarks from John and Frank, we will have a question and answer session. Before we begin, I want to remind you that certain statements made on today's call may be considered forward-looking. I refer you to the risk factors contained in our press release and reports that we have filed with regulatory authorities. And with that, I'd like to turn the call over to John.

Well, thank you, Paul, and good morning, everyone. Thanks for dialing into the call today to discuss our TMX Group's financial performance for the first quarter of 2021. I do want to start by wishing the very best of health to you and your families. And on behalf of us at TMX, I want to send sincere thanks to those brave people on the front lines, including healthcare workers and first responders, who continue to fight to save lives and contain the impact of the current wave of COVID-19, the crisis in our own communities. Now, with spring of 2021 arriving, there is a sense of hope and renewal in the air, and it brings us one step closer to a return to normalcy. Now, as Paul mentioned, we announced our Q1 21 results last night. Frank will take us into a deeper dive into the first quarter results in a few moments, but to put it simply at the outset, Canada's capital markets are thriving. It is no accident it is something that all Canadians should take great pride in. Our markets are among the best in the world, fair and transparent, liquid and competitive, and feature a diverse and deep set of great companies and investment opportunities. TMX's work in support of the sustainable success of our markets is fundamental to who we are and core to our mission, to serve as an engine of opportunity, a catalyst for growth for our clients here in Canada and across the world. The focus of my RUX this morning will be on the key factors that drove TMX's strong performance in the first three months and initiatives that we have undertaken to innovate for and with our clients to address their needs. and help set the stage for future success. I will close with a brief update on the progress we have made in our priority growth areas. Now, turning to TMX's operating results for Q1. Revenue was $252 million in the quarter, an increase of 14% from the first quarter of 2020, and earnings per share was up 37% or 23% on an adjusted diluted basis. The strong start to the year extended across much of the enterprise, with overall growth driven by an increased revenue from capital formation, equities, and fixed income trading and clearing. GSIA, including Tradeport, and all that slightly offset by lower revenues from our derivatives business. Operating expenses were up 9% from Q1 2020, largely due to higher costs related to our short-term employee performance incentive plan and sales commissions, given the strength of TMX's performance so far in 2021. Now, taking a closer look at the performance of our business areas, revenue from capital formation was $61.1 million, up 52% from the first quarter of last year, driven by a surge in new listings and issuer financing activity. It was a tremendous quarter for the Toronto Stock Exchange and TSX Venture Exchange, the best first quarter in 15 years, with over $20 billion in capital raised by our issuers and 19 corporate IPOs on the first three months of the year. And a quick look at just a few of the Q1 highlights illustrates the impressive overall strength of our listing franchise. New listings were up 45% on the TSX and 57% on TSX Venture compared with last year. Our markets ranked number two in the world in new listings, according to the World Federation of Exchanges. IPOs were up 25% on TSX in Q1, and IPO financing dollars raised on TSX equaled more than half of the total dollar amount raised in all of 2020. Total financing dollars raised by issuers was up over 100% on TSX and over 200% on TSX Venture, compared with Q1 of 2020, and equaled nearly half of the total financing dollars raised in the entire year of 2020 across both exchanges. It was also a record-breaking quarter for the innovation sector, as TMX's exchanges continued to fortify our reputation as a premier destination for cutting-edge companies in all stages of maturity and from all regions of the world to access capital. In less than five years, the TSX and TSX Venture innovation sector has more than tripled in size. And at the end of the first quarter, the sector topped $500 billion in total market cap, surpassing the mining sector for the first time ever. Q1 also featured some important milestones. TELUS International raised $1.4 billion in the largest tech IPO in Toronto Stock Exchange history, and they joined our market in February. And the Toronto Stock Exchange also home already of the world's first ETFs back in 1990, launched the world's first publicly listed Bitcoin and Ether ETFs in the quarter. Overall, companies in the sector raised $10.7 billion in equity capital in Q1. And technology companies alone raised $7.3 billion, nearly reaching the full year record of $8.1 billion, which was set just last year in 2020. And our innovation indices continue to be among the top performing indices across the world. One-year total returns through March 31st were 70% for the TSX S&P Tech Index and 88% for the S&P TSX Clean Tech Index. The momentum has continued also into the first few weeks of Q2. Last month, we welcomed Thinkific Labs to Toronto Stock Exchange. The Vancouver-based software as a service company IPO raised more than $160 million in total proceeds. And Waterloo cybersecurity startup Magnet Forensics debuted that same week on TSX, raising $100 million in their IPO. Investor appetite for these and other new IPOs has been strong, and the pipeline of companies looking to go public on both TSX and TSX Venture remains robust. Now, turning now to equities trading, revenue from equities and fixed income trading and clearing was $68.7 million in Q1 2021. up 18% from last year, driven by higher volumes across all of our exchanges. Overall volume increased 50%, compared with the first quarter of 2020, led by 175% gain in volumes on TSX Venture Exchange. And within the numbers, we are seeing specific investor interest in technology and life sciences, as well as the resource sector and a surge in volumes from retail investors. There has been a great deal of attention on and speculation on the impact of the rise of retail investing on the markets in 2021. Retail trading compromised 35% of total equity trading back in 2019, just two years ago. But in the first quarter of this year, retail participation levels reached an average of 46%, with a peak of 48% in February. In Canada and for TMX, the importance of retail segment of our marketplace extends beyond the news cycle of the meme stock phenomenon that occurred in the US in February. The increase in retail investing as a proportion of our trading volumes represents a meaningful shift and a development we've been tracking closely over time. And the first quarter shines a bright light on the important role that a healthy retail market plays in a vibrant and growing market ecosystem. Increased retail activity helps to fuel strong valuations making it more attractive for new companies to come to public markets to fund their business strategies, creating jobs, and driving economic growth. And our equity training team has been working hard to address the needs of our diverse range of clients. TSX Dark, Canada's fastest growing dark pool, continues to move forward in a client engagement strategy with the launch of our new analytics reporting platform. And last month, we filed a submission with regulators to add conditional orders to TSX Dark, designed to increase user functionality and attract additional volumes to the platform. Our revamped Market Unclosed facility is on track for implementation this fall. The client feedback has been tremendously positive to the new and improved mock and shows again the benefits of taking an inclusive, collaborative approach across our stakeholders, including clients and regulators, to address the ways in which we can make our markets better. Now let me turn to Trayport. The average number of trader subscribers was up 4% for the first quarter versus last year, and average total subscribers increased by 5%. TradePort continues to seek out expansion opportunities in the evolving global energy landscape. And this week, TradePort announced an agreement to acquire TradeSignal, a leading provider of rules-based trading and technical chart analysis software based in Germany. This is an important step forward in TradePort's growth strategy. as we continue to seek out ways to meet client demand for data and analytics, and to support the evolution of quantitative and automated approaches to trading. TradeSignal will integrate seamlessly with Juul, and combined with TradePort's data and analytics and auto trader solutions, will offer clients enhanced charting and analytics capabilities to further enhance decision-making and the overall trading experience. The transaction is expected to close in the second quarter of 21, subject to customary closing conditions. In Q1 as well, TradePort also added to its refined oil offering on the Juul platform, signing an agreement with a leading global inter-dealer broker. And the team is now in the process of rolling out refined oil pricing data to trading desks in London, Singapore, and North America. And now let's turn to derivatives. Revenue from derivatives trading clearing was $37.5 million, down 3 million or 7% from Q1 2020. And while overall MX volumes increased slightly year over year at a 2% growth, revenue per contract was lower due to an unfavorable product mix. And while the prevailing low interest rate environment has had that negative impact on volumes in some of Montreal Exchange's key products, particularly the short-term interest rate products, we are seeing some important signs of growth within the numbers, including momentum on our single-share futures, higher volume in equity and ETF options, and increased overall open interest. Frank will go into more detail on Amex's results for the quarter in a few minutes. But before that, let's talk about Asia, where Amex has set a launch date for the second half of 2021 for our Asian Extended Hours Initiative. And we are in the process of obtaining regulatory approvals and working with regulators and all stakeholders to ensure the industry is prepared for that implementation. Canada offers a compelling value proposition for investors in Asia and all over the world, including access to highly liquid, world-class markets and a leading global economy. Now, before I close off my remarks today, I want to specifically highlight progress we are making in two of TMX's priority growth areas, enhancing our talent and culture and ESG. And as the world emerges from the grips of COVID-19 and our industry continues to prepare for the post-pandemic operating environment, TMX is dedicated to building stronger, better than a return to what was normal. We are striving to better serve our clients and stakeholders and to help propel our industry forward. And true progress requires talent, motivation, and collaboration. We're fortunate to have great people here at TMX. So I'd like to thank our dedicated employees in Canada and around the world for adapting to remote working and living in the environment during the COVID-19 pandemic. Our team's effort to meet the demands of a busy market and the increased workload that brings with it has indeed set an impressive new standard of excellence. And over the past year, we have taken significant steps forward in TMX's evolution as a public company to enhance our talent and culture. Cindy Bush, TMX's chief human resource officer, joined in December and really hit the ground running, embarking on a deep dive into our workplace culture, asking the important questions and identifying opportunities to bolster employee engagement and purpose. We recently completed our first equity, diversity, and inclusion survey to gather demographic data on our workforce. And based on the survey data, an ED&I council composed of a diverse group of employees across TMX is developing our long-term strategies around EDI in TMX. Today also marks the issuance of our second annual ESG report. The report, which will be available on our website under investor relations, details the progress that we have made in our sustainability journey over the past year as we work to integrate environmental, social, and governance objectives into our corporate strategy business processes, and investment decisions. This year's report again includes Sustainability Accounting Standards Board, or SASB-aligned reporting, and in 2021, we are committed to incorporating the recommendations of the Task Force on Climate-Related Financial Disclosure, or TCFD. And TMX is not alone in this journey. We're playing an active role in positioning Canada as a world-leading marketplace for sustainable investment and finance. empowering clients to become ESG leaders in their own right through educational tools, products, and services. And to that end, we just signed a new agreement with IHS Market to facilitate broader ESG reporting and data distribution for issuers listed on the Toronto Stock Exchange and TSX Venture Exchange. Under the terms of this initiative, TSX is endorsing the IHS Market ESG Reporting Repository to provide benefits to both issuers who are new to ESG disclosure practices as well as those who are more advanced on their ESG disclosure journey. Now, in addition to the Q1 financial results for last night, we were also very pleased to announce a 10% dividend increase from $0.70 to $0.77 per share, payable on June 11, 2021, to shareholders of record at the close of business on May 28, 2021. This is the fourth increase in TMX Group's dividend in three years, and it demonstrates our proven ability to generate increasing cash flows over time in all market conditions, as well as our continued commitment to delivering long-term value to our shareholders. Now, in closing, I want to mention the addition of another new leader to TMX, and someone many of you will get to know very soon. Last month, following an extensive and expansive search process, we were pleased to name David Arnold as TMX Group's new Chief Financial Officer, effective June 1, 2021. David joins us from CIBC, where he served in various roles over his 20 years, and most recently, as Executive Vice President, Enterprise Programs, Technology, and Operations. He has a proven track record in leading large teams and large-scale initiatives, and most importantly, David brings key TMX attributes to the role, including an innovation mindset and a collaborative approach. David will join us for his first TMX Group Analyst Call following the Q2 hearings in early August. And before I turn the call over to Frank, who many of you listening this morning have gotten to know since he stepped up as interim CFO in August 2020, I want to take this opportunity to thank him for the tremendous job he has done in leading our finance team in the interim and for his valuable contributions to the senior management team throughout this interim period and beyond. Frank's leadership has been and continues to be instrumental within the organization, and I know he will play a significant role in helping David quickly acclimate to TMX and further strengthen our team for success into the future. So with that, I will turn the call over to you, Frank.