TMX Group Limited

Good morning, ladies and gentlemen, and welcome to the TMX Group Limited Q2 2022 Financial Results Conference Call. At this time, all lines are 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 Wednesday, July 29, 2022. I would now like to turn the conference over to Paul Malcolmson, BP Enterprise Sustainability and Investor Relations. Please go ahead.

Well, thank you, Michelle, and good morning, everyone. I hope that you and all of your families are staying well and enjoying the summer. Thank you for joining us this morning for the second quarter 2022 conference call for TMX Group. As you know, we announced our results late yesterday afternoon, 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'll 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 today and reports that we have filed with regulatory authorities. And with that, I'd like to turn the call over to Jonathan.

Well, thank you, Paul, and good morning, everyone. Thank you so much for joining us today to discuss TMX Group's financial performance for the second quarter and for the first six months of the year. And let me start by echoing Paul's comments in terms of wishing everyone an excellent summer, a well-deserved good summer after two years that have been more challenging. Now, David will join us in a few minutes to take you through the second quarter results in detail, but before he does, my comments this morning will really focus on TMX Group's performance throughout the first half of the year, the progress that we are making on our enterprise growth initiatives, and the proactive measures TMX has undertaken in an effort to address the needs of our broad and diverse stakeholder group and to help push the evolution of our capital markets ecosystem to ensure we maintain our competitive edge into the future. Now, in many respects, and this is no secret to anyone listening, the 2022 business environment looks very different from the same time last year. Macroeconomic conditions, geopolitical events, including the conflict in Ukraine, rising interest rates and inflation concerns have negatively impacted global markets. And it is a stark reality for our clients and peers across the financial industry and people around the world. But before we begin to examine the business impacts, I want to take a moment to pause and send our thoughts out to support all those people who are directly and indirectly affected by these global challenges. Now turning to our performance. Overall, TMX continues to deliver positive results, both for the second quarter and the first six months of the year, despite the impact of significant and persistent headwinds on some of our key businesses, including capital raising and equity trading activity. TMX reported revenue of $573.2 million for the first six months of the year, which is a 15% increase from the same period of 2021, due to higher revenue from derivatives trading and clearing, trade ports, and capital formation. Increased revenue was partially offset by lower revenue from equities in fixed income trading and clearing due to lower trading volumes on the Toronto Stock Exchange and TSX Venture Exchange. Now, buyer revenue included $60.3 million in revenue from Box, which consolidated in January 2022, as well as revenue from our 2021 acquisitions, $21.1 million from ASD Canada, acquired in August 2021, and 0.8 million from TradeSignal acquired in June 2021. Now, excluding revenue from last year's acquisitions, revenue was down 1 percent from the first six months of 2021. And on an adjusted basis, diluted earning per share was 371 in the first six months, a decrease of 2 percent from 2021. And total operating expenses increased 27 percent compared to last year, or 4 percent when you exclude expenses related to Box, ASD Canada, and TradeSignal. And TMX's performance in the first half of 2022, again, highlights the power of our resilient business model and underscores the efficacy of our adaptive long-term diversification strategy. TMX's corporate purpose is to make markets better and empower bold ideas, and it's a central and guiding theme in that strategy. Our pledge to our vast and varied group of stakeholders, and we never lose sight of the importance of our role at the center of the market, and what this ecosystem of opportunity means to the country's economy and the people in the communities from coast to coast. Now, turning to each of our business areas. Revenue from capital formation in the first six months of 2022 was $137.2 million, or a 5% increase from last year, and the year-over-year increase reflected the inclusion of revenue from ASD Canada and higher revenue from initial and sustaining listing fees. partially offset by lower additional listing fees reflecting a decrease in the number of financing transactions and dollars raised on TSX and TSX Venture. And coming off a record-setting 2021, global conditions have been less favorable for capital raising in 2022 due to inflation concerns, rising interest rates, and increased volatility. And while the IPO market slowed year over year, we proudly welcome new listings to the market in the first half of 2022, including Bausch & Lomb, Ivanhoe Electric, Dream Residential REIT, and two large Florida-based SPACs, Agrinam Acquisition Corp. and FG Acquisition Corp. And we remain actively engaged with potential IPO candidates in all sectors, as well as dealmakers from across the interconnected ecosystem. And we also continue to see evidence of the strength of TMX's unique value proposition for companies looking to access public markets. TSX Ventures' Signature Capital Pool Company Program is thriving, and despite the overall challenging capital raising conditions. TSX Venture added 46 new CPCs in the first half of 2022, a 24% increase over the first half of 2021. Now, consistent with TMX's corporate purpose, our work to ensure we remain the market of choice for the next wave of great companies poised to come to market is proactive, and it's an always-on campaign. So in June, TSX Venture launched VentureForward, It's a new community-driven program focused on strengthening Canada's crucial public venture market. This collaborative long-term initiative is designed to engage our public venture stakeholders, including entrepreneurs, investors, financiers, lawyers, and advisors, to help identify priority challenges and friction points and map out a plan to pursue workable solutions. We have begun to reach out to stakeholders to help frame the issues, and our next steps include developing near- and longer-term plans and we intend to publish highlights of our findings and feedback along the way with planned next steps by the end of the year. June also marked the in-person return to the Prospectors and Developers Association of Canada, or PDAC, convention. And for years, our exchanges have proudly supported this massively popular and annual event, which brings mining companies, investors, and policymakers from all over the world together into Toronto. And it makes good sense. TMX is the world's premier marketplace for resource companies to raise capital. More than 40% of the world's public mining companies are listed on TSX and TSX Venture. And we were honored this year to participate in the International Mines Minister Summit at PDAC 2022. The theme of this year's summit, an annual meeting of leading mining representatives and governments from around the world, was ESG and Emissions Reductions. and the increased production of lithium, nickel, copper, and other essential minerals in the global efforts to achieve net zero. And we shared TMX's perspectives with the ministers on how governments can help support a thriving mining sector by minimizing regulatory burden where appropriate, by committing to make the necessary infrastructure investments, and to fostering collaboration with local communities, and specifically indigenous communities. Mining is a rapidly evolving industry, And as the transition to low-carbon economy continues to gain momentum, investors are paying close attention. And so we recently launched a new benchmark to serve the needs of investors seeking increased exposure to and deeper insights into the clean tech and energy transition story. The new S&P TSX Battery Metals Index measures the performance of TSX and TSX Venture listed companies focused on the exploration, development, and production of select commodities that serve as significant inputs and the decarbonization of the transportation sector. Now, I'd like to turn to derivatives. Excluding box, revenue from derivatives trading and clearing was $75.3 million in the first six months of 2022, an increase of 5% from last year. Now, the increase was driven by 15% higher revenue from CDCC due to repo dealer activity and fee changes, and a 2% increase in revenue from Montreal Exchange reflecting higher overall volumes and fee changes on the SXF, particularly offset by a slightly unfavorable product and client mix. Total volume increased 2% over the first half of 2022, with strong growth in overall open interest at June 30, 2022, up 25% as compared to the same point last year. Now, in the midst of a volatile and turbulent market environment, investor demand for tools to effectively and efficiently manage risk increased year over year. Volumes traded in options grew 21% over the first half of 2021, led by trading in the energy and financial sectors and reflecting increased activity from our institutional investors as well as our retail client base. Trading in ETF options also gained strong momentum, particularly in the second quarter amongst institutional investors, with volumes up 11% compared to the first six months of 2021. And volume in index futures trading was up 19% in the first half of the year, compared to 2021, as clients moved to manage exposure to volatility in equity markets. The first half of the year was also marked by sustained growth in our newer Government of Canada bond futures contracts, with 38% increase in the volume traded in the CGF, or the five-year contract, and 155% increase in volumes traded in the CGZ, our two-year contract. These recent additions to our product suite are proving effective in creating efficient cross-market trade opportunities. and continue to gain in profile among global investors. Now, the maturation of the CGF product itself is a definitive success story, as it has now reached levels of liquidity where introductory incentives are no longer required to sustain its growth. Moving now to Trayport, revenue in the first half of the year was 79.2 million, a 7% increase from the first half of 2021, 14% in common currency, or pound sterling, and driven by an 18% increase in trader subscribers, annual price adjustments, and consultancy revenues. Now, the conflict in the Ukraine and the impact of the corresponding sanctions continue to drive increased volatility in global energy trading markets. And TradePort's core network of dynamic tools and solutions supports the needs of traders across the European energy markets and connects clients to execution venues and clearinghouses across key power and natural gas markets. Now, while primarily focused on meeting the demands of a robust market during the first half of 2022, Trayport also successfully advanced on its global strategy to diversify and to move into new asset classes and geographies. In June, Trayport announced a minority investment in Ventrix, a cloud data technology company that offers a platform for data acquisition, integration, and business intelligence. And under a new partnership agreement, Trayport will further expand its product offering to meet the growing client demand for data and analytics. The Ventrix solution complements TradePort's existing suite of data, automated and algorithmic trading tools, and will further enhance decision-making and improve the overall trading experience. In closing today, I want to commend, as always, our people for the work that they do and their everyday contribution to TMX's success, and specifically to thank our team of professionals for their efforts this summer in transitioning TMX into a hybrid working environment. I'm very confident that the new balance of virtual and in-person work will ultimately prove more stimulating, engaging, and productive for all of us. And we don't have to look too far for compelling and relevant examples of the value of renewed in-person engagements. In June, our team hosted two annual trading conferences in person for the first time since 2019, the TMX Equity Conference in Toronto and the Canadian Annual Derivatives Conference, or CADC, in Montreal. Each of these signature events brings together as professionals and industry experts, our partners across the capital markets ecosystems to share perspectives on the current and future state of our markets and to exchange ideas on challenges and opportunities across the Canadian equities, fixed income and derivatives landscape. So I'd like to thank everyone in the markets division to our stellar marketing and support teams for pulling together two extremely successful and well attended events. In addition, last week we also took an important step forward towards TMX's reconciliation journey. A diverse group of business leaders from across TMX gathered in Wendake, a First Nation in Quebec, to participate in an immersive shared learning experience to develop TMX's foundational principles and philosophies for reconciliation. This two-day session featured a productive, open exchange of ideas and perspectives, highlighted by invaluable insights and experience shared by members of our host community, the Huron-Wendat Nation. The efforts of the team and the contribution from our generous hosts will help to define the long-term vision and tactics for how TMX can contribute to a future of shared prosperity for indigenous businesses and communities. This should be no surprise. This is what we do at TMX. TMX is a purpose-driven, people-driven organization. Employees across the enterprise are unified by our unwavering commitment to make markets better and empower bold ideas. And this mindset fuels all of our client and stakeholder engagements and guides our business and corporate initiatives during robust and thriving markets, and even more importantly, when challenging conditions negatively impact key components of our ecosystem. In all market conditions, the pursuit of meaningful ways to do better, to be better, is constant. And for TMX, making markets better includes ensuring that we have the most resilient, robust, and reliable operating systems and protocols, constantly striving to adapt our products and services across the franchise to meet the evolving need of the modern marketplace and our increasingly global client base, and activating TMX as a leading voice for measures to create conditions for our enduring success. So with that, let me say thank you, and I'll turn the call over to David.