TMX Group Limited

Good morning, ladies and gentlemen, and welcome to the TMX Group Limited Q1 2022 Financial Results Conference Call. At this time, online is in a listen-only 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 May 3, 2022. I would now like to turn the conference over to Mr. Paul Malcolmson, Managing Director, Investor Relations. Please go ahead, sir.

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 first quarter 2022 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 have with us John McKenzie, our Chief Executive Officer, and David Arnold, our Chief Financial Officer. Following opening remarks, we will have a question and answer session. Before we start, 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. Thank you for joining us this morning for the discussion of TMX Group's financial performance for the first quarter of 2022. And I'm very pleased to be coming to you directly from the office in Toronto for the first time in two years to do this call. So on behalf of all of us at TMX, we'd like to wish you also the best of health to everyone listening this morning. Now, as Paul mentioned, we announced our results last night, and David will join us in a few minutes to take you through the first quarter numbers in more detail. But my comments this morning will focus more on our performance during the quarter, the progress we are making across the enterprise throughout 2022 to advance our global growth strategy, and the important adaptive steps TMX is taking to address the needs of the modern marketplace. to empower clients across our dynamic and diverse capital market ecosystem, and to compete every day. Now, to set the context for our discussion of the quarter ended March 31st, 2022, I want to open with a quick look a little further back. Although it may seem like yesterday to some of us, April 23rd marked the 25th anniversary of the last floor trade on the Toronto Stock Exchange, as we became the very first exchange in North America to go fully electronic. Since 1997, The digital age has transformed all aspects of our world in more ways than we could have imagined at the time. But the truth remains, our markets have a proud history of innovation. And today's TMX is dedicated to living up to that legacy of innovation by helping to define new sectors, reaching into new asset classes and jurisdictions around the world, and delivering groundbreaking data and analytic applications. We see these as a key defining elements in fulfilling our role as an engine of opportunity at the heart of the market, serving modern issuers and participants, investors and traders in Canada and around the world. Now, turning to our first quarter results, TMX reported revenue of $287.1 million, a 14% increase from Q1 of last year. Due to higher revenue from derivatives trading and clearing, trade port and capital formation, and partially offset by lower revenue from equities and fixed income trading and clearing. The higher revenue included $33 million of revenue from Box, which we began consolidating in January 2022, as well as an $8.8 million revenue increase from revenue from ASD Canada, acquired in August 2021, and $0.6 million from Trade Signal, acquired in June 2021. Now, on an adjusted basis, diluted earnings per share was $1.82, a decrease of 3% from Q1 of 2021. And our total operating expenses increased 22% compared to Q1 of last year, or 2% when you exclude those expenses related to Box, AST Canada, and Trade Signal. Now, these are results that our team can be quite proud of, given that more challenging global capital market ecosystem that we have seen in 2022. Geopolitical events, including the ongoing conflict in the Ukraine, and macroeconomic factors have negatively impacted markets here in Canada and across the world. But as we consider how these events impact our business, let's first pause to give our thoughts and support to all those directly and indirectly affected by this conflict. Now, despite the effect of these near-term headwinds on some of our key core business drivers, including capital raising and equities trading activity, TMX, as I said earlier, delivered solid first quarter results. Overall, TMX's Q1 performance reflects the depth of strength in our business model and underscores the efficacy of our long-term diversification strategy. And as we look to the future, the capital markets ecosystem, this powerful core engine of opportunity remains strong and prospects bright when conditions again normalize. Now, moving on to our business areas. Revenue from capital formation in Q1 was 63.9 million. a 5% increase from the first quarter of last year, reflecting the inclusion of revenue from ASD Canada and higher revenue from initial and sustaining fees, partially offset by a decrease in the number of financing transactions and dollars raised on Toronto Stock Exchange and TSX Venture Exchange when compared to Q1 of 2021. It is no secret that we are in the midst of challenging conditions for capital raising. Global uncertainty around inflation and interest rates a pullback in valuations in some sectors, and increased volatility have affected the ability and appetite for companies to come to market to raise capital. And while the IPO market slowed in the first quarter, there were some encouraging signs for our unique two-tiered marketplace. Overall new listings on the TSX Venture Exchange were up 23% year over year, including 23 new capital pool companies, a 156% increase from Q1 of 2021. The most popular means of going public on TSX Venture, the CPC path, allows companies more latitude and flexibility than the traditional IPO process in terms of timing. And most importantly, from our perspective, our pipeline remains very strong. And as always, we are in regular dialogue with companies across all sectors, as well as our stakeholders across the ecosystem, including bankers, venture capitalists, or private equity firms about potential IPO candidates within their portfolios, who will come to market when the conditions are right for them. TMX markets are a proven breeding ground for the next big thing. This ecosystem has a proud history, 170-year track record of helping to build generational companies, and we are committed to doing everything in our power to help fuel that next wave of game changers. Now, turning to derivatives. Excluding Box, revenue from derivatives trading and clearing was $38.5 million in the first quarter of 2022, up 3% from Q1 last year. The increase was driven by 13% higher revenue from CDCC due to repo dealer activity and fee changes, and partially offset by a 2% decrease in revenue from the Montreal Exchange, despite higher overall volumes due to both client and product mix. Canada's derivative markets continue to build on a strong 2021 in the first three months of this year, with 3 percent growth in total volumes on MX and 20 percent growth in open interest. Volume growth was driven by sustained client interest in developing product areas and increased investor demand for tools to manage risk during turbulent market conditions. Our average daily volume traded in equity options increased 28 percent compared to Q1 2021, driven by higher activity from both institutional and retail clients, particularly in the energy and financial sectors. Volumes in MX single stock or share futures grew 28% in Q1 compared to the first quarter of last year. And as product awareness continues to grow among our client base and our business development team continues to work, we will continue building that new pipeline for more prospects. Our index futures were up 15% compared to Q1 of last year as clients moved to manage positions and exposure to markets and major indices. And MX's global expansion strategy continued to gather momentum. Trading in the extended hour session, synced with markets in the UK and Asia, currently makes up about 6% of MX's overall daily trading volumes. The extended hour session generated robust activity during February, accounting for approximately 10% of daily volumes. And in parallel with our move to make our derivatives markets available nearly around the clock, MX's efforts to attract more global participation to Canada's markets is having a positive impact. Approximately 20% of MX volume is derived from participants who have connected to our market in just the past five years. And looking ahead, we continue to explore new ways to enhance our product suite to meet investor demand, with a focus on new areas, including sector futures and crypto futures, which we expect to launch later this year. Now, revenue from Treport in the first quarter was $40.7 million, a 9% increase from the first quarter of 2021, driven by a 7% growth in the average number of total subscribers. The conflict in Ukraine and the corresponding sanctions continue to have a significant impact on global energy commodity trading markets, driving sustained volatility. And Treport's core network plays a vital role in Europe's energy trading markets, particularly during periods of extreme turbulence, providing access to more than 50 execution venues and clearinghouses across more than 20 power and 20 natural gas markets. Thus far in 2022, Trayport has also taken important steps to execute on its global strategy to diversify and expand into new asset classes and geographies. At the end of March, we announced in collaboration with Incubex the successful launch of the Voluntary Climate Marketplace, or TVCM. TVCM offers carbon offset projects from five of the leading offset registries, which are tradable with live bids and offers through Trayport's dual platform. Our teams are working together to build liquidity in the physical voluntary carbon market. And this is an important and unique initiative for Trayport and its applications across TMX's ecosystem. For companies like us, looking to achieve their ESG commitments and achieve net zero targets, the voluntary carbon market provides price discovery and efficient access for trading carbon credits. Ourselves, TMX Group, participated in the first trade on TVCM last year as we purchased credits to offset our 2020 and 2021 emissions and to enable us to meet our 2021 net zero target. And just last week, Trayport and Tradition, one of the world's largest inter-dealer brokers in OTC financial and commodity-related products, announced the successful adoption of Trayport's technology across Tradition's global refined oil operations. This move to expand Joule's refined oil trading network is squarely aligned with TradePort's strategic objective to meet the diverse needs of market participants and support the continued growth and digitalization of energy markets around the world. In closing, I want to briefly outline what I can confidently describe as TMX's decisive edge. During 2021, we laid the groundwork for the next stage of our organization's evolution. which included an in-depth, company-wide internal exercise to build a high-performance culture and define our corporate purpose. We make markets better and empower bold ideas. Those eight words define our reason for being, our reason for getting up in the morning. And while they sound great, they truly capture the spirit of the organization. They're not just words, and they cannot alone determine our future. Our people will ultimately define our success. And in any quarter, And in all market conditions, it's the dedication of our people that is the great source of pride and our perpetual driving force. They are TMX's prevailing competitive advantage. And I'd like to take the opportunity to thank our employees all around the world for their steadfast commitment to serving our clients with excellence and for bringing our purpose of life in the work every day. Now, before I turn the call over to David, I also want to thank David directly. This is his fourth quarter, and I want to thank him for the leadership over the past four quarters in terms of leading our finance team. But separately, I also want to thank David for his leadership of Team TMX as we embark on the first-ever ride to conquer cancer as an organization. And I want to thank him for bringing this unfold so we as an organization can continue to give back to causes that matter in the community. So with that, David, my finance lead and my captain, over to you.