TMX Group Limited

Good morning, ladies and gentlemen, and welcome to the TMX Group Limited Q3 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. A reminder that this call is being recorded today, Thursday, October 27th. 2022. I would now like to turn the conference over to Paul Malcolmson. Please go ahead, sir.

Thank you, Michelle, and good morning, everyone. I hope that you and all of your families are staying well. Thank you for joining us this morning for the third 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'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 and reports filed with regulatory authorities. With that, I'd like to turn the call over to John.

Well, thank you, Paul, and good morning. And thanks to everyone for dialing into the call today to discuss our TMX Group's financial results for the third quarter and the first nine months of 2022. Now, this morning, we're actually coming to you from our offices here in Montreal. And to kick off, I'd like to thank the whole team here in Montreal for hosting us this week and for their continued and phenomenal contributions to the overall success of TMX. And now, will David join us in a few minutes to take you through the third quarter results in more detail? My comments this morning will really focus on TMX Group's performance during the first nine months of 2022, providing an update on our key growth initiatives and the progress we are making in TMX efforts here in Canada and around the world to address the priority needs of stakeholders across our diverse and dynamic ecosystem. Now, it almost goes without saying that it's been a turbulent and profoundly challenging year for financial markets and for a wide range of industries and businesses around the world. Macroeconomic conditions, geopolitical events, shocks to the global supply chain, rising interest rates, and elevated inflation concerns have had a negative effect on capital markets activity and stifled economic growth. And we recognize that the challenges to businesses actually take a back seat to the challenges for people in the communities in which we operate. The war in Ukraine, the lasting pandemic effects, the dramatic rise in the cost of living, all continue to impact people's lives around the world. And our thoughts are with those that are most effective. But we all continue to look forward to the future with optimism and hope. So turning now to the performance for the company for the first nine months of the year, overall, TMX continues to deliver positive results, despite the decreased capital markets activity when compared to 2021. and including lower capital raising among our listed issuer client base and lower equities trading volumes. PMX reported revenue of $842.5 million for the first nine months of the year, a 16% increase from the same period in 2021 due to higher revenue from capital formation, global solutions and insights in analytics, and derivatives trading and clearings. Our increased revenue included $90.8 million in revenue from Box, consolidated in January 2022, and $27.4 million in revenue from AST Canada, acquired in August 2021. The increase was partially offset by lower equities and fixed income trading and clearing revenues due to lower trading volumes on Toronto Stock Exchange, TSX Venture Exchange, and Alpha. Excluding revenue from the consolidation of Box in last year's acquisitions, revenue was down slightly 1% from the first nine months of 2021. And on an adjusted basis, diluted earnings per share was $5.38 in the first nine months, a 1% increase from 2021. Our total operating expenses increased 24% compared to last year, or 4% when excluding expenses related to Box, ASD Canada, and TradeSignal. Now, looking back on 2021, this was a banner year for Canada's public markets and a record-setter in terms of some of TMX's key performance measures, including deal-making activity and new listings on our equity markets. And it helps to frame the context for our results for the first nine months of this very different year. TMX's diverse business model has again generated positive results in the face of persistent and multifaceted challenges. and we remain committed to executing our adaptive long-term strategy no matter what the markets throw our way. So moving now to our business areas. Revenue from capital formation in the first nine months of 2022 was $199.7 million, a 5% increase from last year, reflecting the inclusion of revenue from AST Canada and higher revenue from sustained listing fees. Partially offsetting this year-over-year increase, was lower revenue from additional listing fees due to a decrease in the number of financing transactions and dollars raised on both TSX and TSX Venture. Capital raising conditions in 2022 for our issuer clients here in Canada and markets around the world have been weakened by inflation concerns, rising interest rates, and increased volatility. And again, the context is important. Because from a global and a competitive perspective, the truth is that even in difficult conditions, we continue to stack up very well next to our peers thus far into 2022. Despite being the 10th largest market in the world, TMX exchanges ranked number two in new listings and number one in new international listings amongst global exchanges through June 30th, according to data from the World Federation of Exchanges. And that pipeline for new issuers remains strong. Our TSX and TSX Venture business development teams are directly engaged with the deal-making community and GoPublic prospects in all sectors, and we are confident that companies currently on the sidelines will come to market as conditions normalize. And as always, at all times, we're focused on the global expansion of our listings franchise. We are active in targeted areas around the world, including the U.S., Europe, and South America, and specifically in regions with financing gaps that Canada's capital markets can address, and growth companies that fit the profile of our markets. Last month, we added a full-time presence in Dallas, and we are currently on a six-city roadshow focused on establishing new U.S.-based founders in TSX Venture Exchange's signature Capital Pool Company program. We are teaming up with a number of our capital markets partners on this initiative, aimed at connecting Canadian dealmakers with U.S. private companies and introducing U.S. dealmakers to established CPC founders. The CPC program is the number one vehicle for new venture listings to enter our market. And effective at the beginning of last year, we made a number of changes designed to enhance this program by increasing flexibility, reducing regulatory burden, and improving the overall value proposition. These changes have been well received, and the results from it are impressive. Since these changes came into effect on January 1, 2021, we've added 145 new capital pool companies, including 57 new CPCs through the first nine months of this year, despite the capital raising headwinds. Along with our efforts to promote our two-tiered growth platform, Beyond Our Borders, We are also taking important steps to ensure Canada's public markets remain the most viable, efficient path for success for emerging companies in the future. And as such, this summer we launched TSX Ventures' Venture Forward Initiative, an initiative designed to find collaborative ways to strengthen Canada's public venture market. As with all of our stakeholder engagements, it starts with active listening, and the program kicked off with a survey of our broader venture community to help us zero in on the current challenges friction points, and barriers to success. And the response to this first phase of Venture Forward has been tremendous, with feedback from over 500 constituents, including entrepreneurs, investors, financiers, lawyers, and advisors. This type of feedback is invaluable to TMX as we work to push the evolution of our marketplace, helping to fuel positive changes that we can implement at the exchange level, but also to inform our advocacy efforts with regulators and policymakers. And as we analyze the findings now, we would intend to publish the highlights, including priority areas for improvement and plans by the planned next steps by the end of next year. Now, turning to derivatives. Excluding Box, revenue from derivatives trading and clearing was $106.8 million in the first nine months of 2022, a 2% increase from last year. driven by a 13% increase in revenue from CDCC due to higher repo dealer activity and fee changes. The increase was partially offset by a 2% decrease in revenue from the Montreal Exchange, reflecting termination fees related to a market-making program and a retroactive client billing credit, as well as impacts from product and client mix. Total volume increased 3% over the first nine months of 2022, And we're encouraged by the continued strong growth in the open interest this year, up 21% as of September 30th, compared to that same point of last year. And now, while volatility was a prevailing factor in the day-to-day equities and fixed income markets in the first nine months of this year, investors increasingly turned to derivatives instruments to actively manage risk in their portfolios. Through nine months, volumes traded in equity options on MX grew 20% over 2021, led by increased trading in the energy and financial sectors by both institutional and retail investors. Volumes in ETF trading, led by the broader index as well as energy and financials, were 32% higher overall compared to the first nine months of last year. In July, MX actually reached a new record in open interest in ETF contracts of 4.3 million contracts. Trading index futures has also been an area of strong growth in 2022, up 17% in total volume versus the first nine months of 2021. An activity in MX's recently added Government of Canada bond futures contracts continues to grow as these new products gain traction with global investors. Volume traded was up 34% in the CGF or five-year contract and 169% in the CGZ or two-year contract compared with the first nine months of 2021. And last month marked a one-year anniversary of a significant milestone in our global expansion efforts. The launch of trading on Asia Pacific hours and the availability of MX products during these business hours across global investment hubs to help attract liquidity into our market over the long term. Now, trading in the overall extended hour session during the first nine months of 2022 made up approximately 5% of MX total daily trading volumes. But it is important to note that the volume trends in core products have often mirrored what we've seen domestically. Strong growth in activity in bond and index futures somewhat offset by lower trading in the BACs. our signature short-term interest rate contract due to volatility and uncertainty in the short-term rate environment. Now, the anniversary of extended hours coincided with a TMX business development campaign in both Sydney and Melbourne, Australia, promoting Canada as a premier investment for pension funds and investment managers in the APAC region, including the Australian super fund industry. Our first in-person visit in a number of years Canada's story was extremely well received in our meetings, our engagements, and our events. And it should come as no surprise. Our capital markets are alike in many important ways. Canada and Australia are both globally recognized leaders in natural resources and mining. In fact, we currently list 22 Australian companies on TSX and TSX Venture, mostly in the mining sector. And while each of our economies has pronounced strength in traditional sectors, our countries are also home to some of the best and brightest technology talent in the world and a new wave of tech entrepreneurs. So we look forward to continuing to build our relationships there and exploring future opportunities for Canada's markets and TMX in the region and around the world. Now moving now to Trayport. Revenue in the first nine months of the year was $116.6 million. a 4% increase from 2021, or 13% in common currency pound sterling. Higher revenue was driven by a 17% increase in trader subscribers, annual price adjustments, and consultancy revenue. And Tradeport's core network, featuring a depth of trading tools, insights, and solutions, continues to provide valuable client support through the sustained period of volatility thus far in 2022. And demand has continued to grow. As new market participants seek access to execution venues and clearinghouses across key power and natural gas markets, Tradeport has added more than 50 new clients in the last 12 months in core and new growth areas of the business. Tradeport has also made progress on its global diversification strategy, pursuing opportunities to move into new asset classes and geographies. And we have seen some traders aggregating North American markets for the first time and increased engagement from U.S. market participants as they actively seek to access European power and gas markets. And we continue to work closely with Incubex on developing the voluntary climate marketplace and building liquidity in the physical voluntary carbon market. We added several new build clients for the TVCM platform during the third quarter. Now, in closing my remarks today, I want to acknowledge a very proud milestone for us. Earlier this week, we celebrated the 170th anniversary of Toronto Stock Exchange. And the history of TSX is closely linked with the formative steps of our country. Many of the companies that built Canada's infrastructure, railways, manufacturing, resource exploration, communications, raised the capital to run their business via Toronto Stock Exchange. And Canadian companies continue to make history. Our interconnected ecosystem helps pave the way for homegrown and increasingly global corporate success stories across a range of sectors, from oil and gas and mining to financial services and technology. This is a powerful and proven diverse and ever-evolving growth engine. And while we're proud of our history, we are continuously driven to make markets better. We never lose sight of the importance TMX role has at the center of the market and what public markets mean to the country's ecosystem, the economy, and the people in our communities from coast to coast. TMX is committed to working with our vast group of stakeholders and help push the evolution of our capital markets ecosystem and to ensure we maintain our competitive edge in the future. It's a responsibility that we all embrace. And with that, I want to sincerely thank our people, for bringing TMX's corporate purpose to life in the work they do every day, striving to make markets better and empower bold ideas. With that, let me turn the call over to David.