TMX Group Limited

Good morning, ladies and gentlemen, and welcome to the TMX Group Limited Q2 2021 Financial Results Conference Call. At this time, all lines are less than early mode. Following the presentation, we will conduct a question and answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on Thursday, August 5th, 2021. I would now like to turn the conference over to Paul Malcolmson. Please go ahead.

Well, 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 second 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 our website, tmx.com, under Investor Relations. This morning, we are once again joining virtually and have with us John McKenzie, our Chief Executive Officer. and David Arnold, our Chief Financial Officer, joining for his first earnings call at TMX. Welcome, David. Following opening remarks, 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 TMX Group's financial performance for the second quarter and first half of 2021. As people here in Canada and across much of the world work towards the next normal phase of life during the COVID-19 pandemic, I want to start by wishing everyone listening in this morning the very best of health on behalf of all of us here at TMX. Now, as Paul mentioned, we announced our Q2 21 results last night, and I trust many of you had the chance to read through our financial statements and related disclosures. And today is an exciting day for us as we welcome the new voice to our quarterly discussion, David Arnold, our new Chief Financial Officer. David joined the organization at the beginning of June and has hit the ground virtually running in many respects, acclimating himself to TMX and his new role and getting to know the great finance team we have here. I will turn the call over to David in a few minutes, and he will take us through the strong financial results for the quarter. But I want to focus my comments this morning on TMX's performance throughout the first six months of 2021. and the progress we are making in some of our priority initiatives as we move back into the back half of the year. TMX's operating results reflect some of the considerable successes in the first half of 2021, including the vitality of our capital markets ecosystem, including some significant records and milestone achievements in our core listing franchise, the benefits of TMX's long-term diversification strategy, and a demonstrated ability to leverage the depth of capabilities across the organization to add value to the markets we serve, and ultimately to achieve growth. And while we operate in an industry subject to sudden and unpredictable change, a key and consistent factor contributing to TMX's success this year, as much as any other in our long history at the center of Canada's capital markets, is the unwavering commitment of our people. Since the beginning of the COVID-19 pandemic, people in all walks of life have faced considerable challenges in their efforts to balance remote work and family life. and I'd like to recognize the fantastic efforts of TMX employees, staff working in our offices and at home to adapt to the increased workload of a busy market and ensure we continue to provide excellent service to our clients here in Canada and around the world. Turning now to our results in the first half of the year, revenue was 497 million, an increase of 13% from the first half of 2020. Diluted earnings per share grew 27% or 24% on an adjusted basis compared with the first six months of 2020. Overall growth was driven by strong performances across several of our business areas, including capital formation, equities, and fixed income trading and clearing and trade port. Total operating expenses increased 1% from the first six months of 2020, largely due to higher costs related to our short-term employee incentive plan and sales commissions and increased severance costs. These increases in expenses were somewhat offset by the net litigation settlement costs incurred in the first half of last year. Now, taking a closer look at performance of our business areas, revenue from capital formation was $130.3 million, an increase of 48% from the first half of 2020, driven largely by a surge in the number of issuer financings and financing dollar raised on Toronto Stock Exchange and TSX Venture Exchange. We are in the midst of the strongest IPO market in 15 years, with 35 corporate IPOs on Toronto Stock Exchange and TSX Venture Exchange in the first half of the year. In total, we had 247 new listings, a 79% increase from the first half of last year. And TMX Exchanges ranked number two in the world in new listings among our global peers through June 30th, according to data from the World Federation of Exchanges. And momentum in companies coming to market has continued through the early weeks of summer. Entrepreneurs in Canada and around the world are leveraging our public markets to access growth capital, and the profile of visionary companies choosing a public path to growth is as broad as ever. In all market conditions, it is crucial to the long-term success and competitiveness of a marketplace that we continue to seek out adaptive ways to address the needs of businesses of all sizes and in various stages of their development. And a look at a few of the additional key stats for the first half provides some helpful context as to the broad scope of the success. In terms of equity financing on TSX and TSX Venture, we had our best first half in history, with a combined total of $34.7 billion raised by our issuers, a 101% increase over the first half of 2020. And for context, issuers on the two exchanges raised $42.8 billion in the entirety of 2020. Total combined TSX and TSX Venture market capitalization reached $4 trillion for the first time in our history, including $100 billion on TSX Venture, also an all-time high. And TSX Venture also graduated 19 companies to the Toronto Stock Exchange through June, more than any other first half in the last 10 years. And we're seeing encouraging signs that our recent efforts to improve an important program geared to serving this critical foundation of our two-tier ecosystem is working for our clients. At the beginning of the year, TSX Venture Exchange revamped its signature capital pool company or CPC program, which is a unique listing vehicle that has accounted for nearly one-third of the new TSX Venture Exchange listings in the past 10 years. The changes in the policy were designed to increase flexibility, reduce the regulatory burden, and improve the overall economics for prospective issuers. And the early returns are very positive. In the first half of the year, TSX Venture listed 37 new CPCs, a 131% increase from the first half of 2020. And in addition, our other issuer services revenue also increased, increasing by 7 million or 53% from the first six months of last year, reflecting increased revenue from TSX Trust due to higher transfer agent fee revenue and increases in corporate trust and recoverable revenues. Our TSX Trust team has been handling more files than ever, as increased market activity has boosted demand for our corporate trust transfer agent register and register plan services. And the expected close of our AST Canada transaction, announced in September of last year, will further augment our ability to serve the needs of companies across the marketplace, broadening the scope and scale of its service offering. Now I'd like to turn to equity trading. Revenue from equities and fixed income trading and clearing was $126 million in the first six months of 2021, up 7% from last year. The year-over-year growth was driven by an increase of 88% in TSX Venture Exchange volumes and 43% higher volumes on TSX Alpha, partially offset by an 11% decrease in volumes on the Toronto Stock Exchange. Trading activity surged on TSX Venture throughout the first half, reflecting increased investor interest in a diverse set of early-stage companies listed on our world-leading junior market. The S&P TSX Venture Composite Index was up 55% year-over-year through the end of June, ranking among the top performing markets in the world. And across our core equities markets, we continue to be committed to enhancing the TMX trading client experience. Our equities trading team continues to work with clients and stakeholders to ensure our markets remain responsive, innovative, and globally competitive. our key upcoming initiatives remain on track. The launch of our new improved TSX Market Unclosed facility, or MOC, is also due to launch on schedule this fall. The MOC facility plays a crucial role in Canada's markets, setting the official closing price for eligible Toronto Stock Exchange and select TSX Venture Exchange listed issues and facilitating benchmark portfolio rebalancing. And we are especially proud to bring the revamped MOC to market this year, as this initiative is the result of dedicated collaborative effort with our industry partners to better align our model with global peers and provide clients with increased transparency and consistency of execution. And TSX Dark, Canada's fastest growing dark pool, is set to launch trading and conditional orders in the fourth quarter of 2021, a move designed to increase functionality and further attract liquidity. The addition of conditional orders is the next step in the TSX Dark client engagement strategy as we continue to explore ways in which we can augment and adapt the functionality on TSX Dark and build on its reputation as a premier dark pool in Canada. Now moving on to Tradeport. Revenue for Tradeport was $73.8 million, a 10% increase from the first half of 2020 driven by a 7% growth in the average number of subscribers. The average number of trader subscribers was up 7% from the first half of last year, as was average total subscribers. TradePort continues to add to its capability to serve the data and analytical needs of traders, portfolio managers, and analysts across the rapidly evolving global energy market. In June, TradePort completed the successful acquisition of TradeSignal, a leading producer of rule-based trading and technical chart analysis software. Now integrated into TradePort's dual network, the addition of TradeSignal brings enhanced charting and analytics features to TradePort's primary client offering, along with opportunities for clients to test both short and long-term trading strategies. Revenue from derivatives trading and clearing was $71.4 million, up 1% from the first six months of 2020, including a 3% increase in revenue from MX and CDCC. Overall MX volumes increased 12%, when compared with the first half of last year. But revenue growth was somewhat offset by a lower revenue per contract due to an unfavorable product mix. Within the overall growth in volumes, we are encouraged by the keen investor interest we are seeing in specific products, including single share futures with average daily volumes up 32% over the first six months of last year, a 23% growth in equity and ETF options, and 8% volume increase in the interest rate derivatives. Overall open interest at June 30, 2021 was also up 23% from last year. Now looking forward, MX's 30-year New Government of Canada Futures Contract, or LGV contract, is on track to launch by year-end. And together with the recently launched CGZ, our two-year Government of Canada contract, the LGV will complete MX's client-driven initiative to create liquidity points along the entirety of Canada's listed yield curve. And the next phase of MX Extended Hours Initiative remains on track as well, as we prepare for the launch of trading on Asian Hours in the second half of this year. Now, in closing, as we move into the back half of 2021 and continue to adapt to evolving conditions in our operating environment and in just about every facet of life, I want to clearly reaffirm TMX's commitment to serving clients across our business, throughout our market ecosystem and around the world with excellence. and we have recently taken on some important steps to enable TMX to fulfill that commitment today and long into the future. Earlier this year, we embarked on an enterprise-wide exercise to define the high-performing culture we want TMX to be known for, with a new purpose statement and values to guide us in the way we do business with both our stakeholders and each other. As part of that process, we gathered input from employees across all levels, locations, and businesses, and brought together senior leaders to work through the insights and engage in an open and productive conversation about how to realize our potential and fuel the future success of TMX. And we're excited to introduce our new purpose statement and values that will serve to shape the high-performing culture we want to continue to build together. Our purpose is very clear. We make markets better and empower bold ideas. It's a rallying cry from all of us here at TMX. It's foundational to our business strategy and it's intrinsic to who we are. And our values are focused on what matters in how we deliver. Client centricity. We put clients at the heart of everything we do. Courage. We act with courage to be bold and to innovate. And trust. We operate with unyielding respect and integrity, fostering inclusiveness and belonging. Now enacting a culture shift doesn't happen overnight. It is a journey. And what I find most encouraging as we move forward in this journey is the pride and dedication TMX employees bring to their roles every day. These core attributes are key contributing factors to our success today and crucial to ensuring TMX's success into the future. And with that, let me turn the call over to David.