TMX Group Limited

Good day, ladies and gentlemen, and welcome to the TMX Group Limited Q1 2023 Financial Results Conference Call. At this time, all lines are in a listen-only mode. If at any time during the call you require immediate assistance, please press star zero for the operator. This call is being recorded on Tuesday, May 2, 2023. I would now like to turn your conference over to Amin Massavian. Please go ahead.

Thank you, Michelle, and good morning, everyone. I hope you're all doing well and enjoying the longer spring days. Thanks for joining us this morning to discuss the 2023 first quarter results for TMX Group. As you know, we announced our results late yesterday and copies of our press release and MD&A are 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 the opening remarks, we will have a question and answer session. Before we begin, I would like to remind you that certain statements made in this call may relate to future events and expectations and constitute forward-looking information within the meaning of the Canadian securities law. Actual results may differ materially from those expectations. Information concerning factors that could cause actual results to differ from forward-looking information is contained in our press release and in periodic reports that we have filed with the regulatory authorities. And with that, I turn the call over to John.

Well, thanks Amin and good morning, everyone. Thank you for dialing into the call today to discuss TMX Group's financial results for the first quarter of 2023. And to everyone listening in this morning, I want to wish you the very best of health to you and your families. Now, it is a busy day for us here at the TMX. Following the call today, we are holding our annual and special shareholders meeting this afternoon. Today's AGM, our 21st as a public company, will be a hybrid meeting. And I'd like to personally welcome any shareholders that are interested to join us in person at the new TMX Market Center for the meeting this afternoon. Now, as we announced in March, we are preparing for a transition in board leadership. And I will talk a little bit more about that at the conclusion of my remarks today. Now, before we get into the details of our performance in the first three months of 2023, I want to reinforce TMX's commitment. Through every reported period, And amidst all market conditions, we are working to build TMX stronger, more capable, and more responsive. It requires an adaptive and innovative mindset. And the truth is, for all business, even one with a proud 170-plus year track record, change is the only constant. But importantly, what doesn't change is our commitment to our purpose, to make markets better and empower bold ideas. And we continue to make progress in key enterprise initiatives to accelerate TMX's ongoing evolution to better serve our growing client base and broad range of stakeholders here in Canada and around the world. I'm turning now to our performance. TMX's first quarter results are excellent, with solid revenue growth compared to the same period last year, highlighted by significant momentum in some key areas, despite the sustained challenge posed by macroeconomic conditions and environmental factors. And as our purpose propels us forward, TMX continues to benefit from a stress-tested, diversified business model, and our Q1 results once again reflect the value of maintaining that long-term view. TMX reported record revenue of over $299.1 million, a 4% increase from Q1 of last year, driven by double-digit growth in revenue from global solutions insights and analytics, including both TMX data links and trade ports. and derivatives trading and clearing excluding box. Increased revenue was partially offset by lower revenue from equities and fixed income trading due to lower trading volumes on Toronto Stock Exchange, TSX Venture Exchange and Alpha, and lower capital raising activity on TSX and TSX Venture. On an adjusted basis, Q1 diluted earnings per share was $1.85, a 2% increase from Q1 2022. Total reported operating expenses increased by 10% compared to Q1 last year, but sequentially just 3% when compared to Q4 of 2022. And David will take a closer look at these expenses in his remarks to follow. Moving now to our business areas. Starting with Global Solutions Insights Analytics, or GSIA, revenue from GSIA was $102.6 million, a 14% increase from Q1 2022, reflecting higher revenue from TMX DataLinks, our Information Services Division, and Trayport, our connectivity platform for European wholesale energy markets. TMX DataLinks revenues was $56.8 million in the first quarter, an increase of 16% from last year due to higher revenue from data feeds, benchmarking indices, co-location, analytics, and price adjustments, as well as a favorable FX impact from a stronger U.S. dollar. And we continue to focus our strategic expansion opportunities for TMX DataLinks, seeking out new ways to empower our clients with the advanced tools and insights they need to gain a competitive investment edge. Q1 revenue included $1.7 million from Wall Street Horizon, a Boston-based provider of global corporate event data sets that we acquired in November 2022. And in February of this year, we acquired Sigma Logic, a U.S. fintech firm providing advanced analytics and portfolio tools to the wealth management industry. And while the revenue contribution was modest in Q1, Just over 10 days ago, we completed the next step of our strategy with the sale of SigmaLogic to Vetify. As you will recall, earlier this year, we made a strategic investment in Vetify, a global indices and ETF service provider, which includes a commercial agreement. And this latest deal, made in exchange for common equity of Vetify, builds on that initial investment and enhances the value of our partnership as we work together to bring more client-centric index and benchmark products into Canada. Momentum here is important with enterprise-wide implications. Much of TMX's future success will be determined by our ability to build on our expertise and strengthen our capabilities to meet the needs of the modern market. And for TMX data links, our strategies focus on ways to extract more value from our existing assets and the pursuit of essential innovation. Now, moving to Tradeport, revenue grew 12% or 14% in common currency pound sterling compared to Q1 2022. driven by a 9 percent increase in trader subscribers and annual price adjustments. TradePort's core jewel network continues to support energy market participants navigating severe market volatility with customized client-focused trading tools, insights, and solutions. And that interconnected ecosystem of participants, execution venues, and clearinghouses across world power and natural gas markets continues to grow. Since the beginning of 2022, TradePort has added more than 60 new clients in core and new growth areas. And beyond the strong core growth, TradePort continues to pursue its global diversification strategy, seeking out opportunities in new asset classes as well as new geographies. Now, turning to derivatives. Excluding Box, revenue from derivatives trading and clearing was $43.8 million in Q1, up 14% from Q1 of last year. driven by a 13 percent increase in revenue from MX and a 15 percent increase in revenue from CDCC due to higher volumes traded and cleared. MX total volumes increased 15 percent compared to Q1-22, and overall open interest grew substantially year-over-year, up 22 percent at March 31, 2023, and compared to the end of the first quarter of the last year. MX's recent growth highlights the value of TMX's balanced, diversified business model. And while volatility had had a negative impact on activity in the equity and fixed income markets during the first quarter, investors were very active in trading our key derivatives products. Overall, the interest rate product line performed extremely well, with volume up 19% over the first three months of 2022. And some other key highlights included 122% growth in ETF option volumes, highlighted by increased activity from institutional investors, trading the broader index, financials, REIT, and crypto sectors, and pronounced growth in the short-term interest rate products year over year. VACs volumes traded were up 29%, and volumes in the CGZ, MX's new two-year Government of Canada bond future contract, was up 113%. Looking to the future, Canada's primary interest rate benchmark is about to change. By next year, most of the world's jurisdictions, including Canada, will have fully transitioned from IBOR to a new risk-free alternative benchmark. Preparing for the industry transition from CEDAW to the Canadian Overnight Repo Rate Average, or CORA, ahead of the scheduled succession date in June 2024 is a key priority for the team at MX. And we're working hard to ensure a smooth transition from our signature BACS contract to the new three-month CORA futures or CRA contract. Volumes traded in CRA reach an average daily volume of approximately 10,000 contracts in Q1 2023. Now, turning to capital formation. It is no surprise that global macroeconomic factors, including sustained high interest rates, concern over inflation and increased volatility, weakened the capital raising environment in the first quarter of the year. Revenue from capital formation in Q1 2023 was $63.5 million, a 1% decrease from last year, reflecting lower revenue from additional listing fees due to a lower number of financing transactions on Toronto Stock Exchange and a decrease in dollars raised on both TSX and the TSX Venture Exchange. Despite the impacts of these worldwide environmental challenges, Our public market ecosystem remains resilient and we are seeing positive signs within the deal-making community that markets are poised for a rebound as conditions normalize. And while the slowdown in financing activity during the first quarter had a negative impact on our results and the number of new listings on TSX and TSX-V decreased year over year, Canada's markets remain the number one growth platform in the world for small to medium-sized enterprises. And it's important to measure our performance versus those global peers. we stack up extremely well. In fact, our exchanges rank second among global peers by the number of new listings during the first three months of the year, and third by the number of new international listings. New listings during the quarter included some notable success stories from across our unique two-tiered ecosystem. In March, we welcomed SP Strategic Acquisition Corp, a new capital pool company created by diversified investment management firm Sterling Partners to the TSX Venture Exchange. And what's notable is that this marks the first Chicago-based CPC in the history of our program. In February, Lumine Group, a spin-out from Constellation Software listed on TSX Venture, one of the largest venture tech issuers ever, and Lithium Royalty raised $150 million in its IPO on the Toronto Stock Exchange. The company is focused on mineral properties around the world that supply raw materials to support electrification and decarbonization. Now, revenue from other issuer services was $24.3 million in Q1, a 42% increase compared to Q1 of 2022, reflecting strong growth in our TSX Trust business, driven by higher net interest income and slightly offset by lower transfer agent fees. TSX Trust's enhanced product suite and client service capability following the successful integration of ASC Canada has enhanced our position in a highly competitive market. Now, finally, I'd like to provide an update on an important long-term initiative, our post-trade modernization program. Now, earlier this year, Canada's regulators, in conjunction with the USSEC, announced the adoption of T plus one, a reduction in the standard settlement cycle from two days to one day, with an expected implementation date in May 2024. And while our post-trade modernization program is well on track for implementation this fall, After careful consideration and with consultation with our participants, we have decided to defer delivery from late 2023 to late 2024 to allow for the industry to seamlessly transition to T plus one settlement in a timeframe that aligns with regulatory requirements. I personally would like to thank our participants for partnering with us and testing and developing with us thus far and for their continued commitment towards this future implementation. In David's comments later, he will share the impacts on this deferral. But before I turn to David, I want to thank our people here in Canada and around the world for their continued and unwavering commitment to serving our clients and our markets with excellence and for bringing TMX's corporate purpose of life in their work every day. Now, as I mentioned a few months ago at the outset, this afternoon's AGM marks an important milestone for TMX. Pending the results of a shareholder vote, we expect to welcome Luc Bertrand as the new chair of TMX Group's Board of Directors. the third in our 20-plus year history as a public company. Luke has been a board member for more than 10 years and a friend for much, much longer. And I look forward to continuing to work with him and the entire board as we strive to build on this institution's impressive track record and advance our long-term growth strategy. And then finally, on behalf of our entire senior management team and the company as a whole, I want to sincerely thank Chuck Winograd for his exemplary service to the company as board chair over the past 11 years. So much of the world has changed since the Maple transaction in 2012. And during Chuck's tenure with the board, TMX has grown into a world leader. We have expanded our global presence, sharpened our focus on serving stakeholders and clients, and advanced our long-term growth strategy. TMX has also navigated through complex challenges over the years and we have taken important steps to strengthen the organization's culture while defining our new purpose. Chuck's expertise, guidance, and insight have been major assets to the company and to me personally through this period of pronounced growth. And as we continue to build on TMX's success, his legacy of leadership will endure. And with that, let me pass the call to David. Thank you.