TMX Group Limited

Good morning, ladies and gentlemen, and welcome to the TMX Group Limited Q2 2023 Financial Results Conference call. At this time, online is in listen-only mode. If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on Friday, July 28th, 2023. I would now like to turn the conference over to Amin Musavian, VP Investor Relations, Treasury Administration. Please go ahead.

Thank you, Anas, and good morning, everyone. I hope you're all doing well and enjoying the summer. Thanks for joining us this morning to discuss the 2023 second 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'll have a question and answer session. Before we begin, I would like to highlight that we successfully completed our five-to-one share split on June 13th, and all common share numbers and per share amounts, including comparative figures, have been adjusted to reflect the stock split. Also, I would like to remind you that certain statements made during the call may relate to future events and expectations and constitute forward-looking information within the meaning of Canadian securities law. Actual results may differ materially from these 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.

Thank you, Amin, and good morning, everyone. To everyone listening today, we all hope your summer is off to a great start and appreciate you spending some time and dialing into the call today with us to discuss TMX Group's financial results for the second quarter of 2023 and the first six months of the year. Now, before I turn the business, I do want to take a moment and send a message of support out to all those who have been impacted by the wildfires across Canada and actually around the world and express how grateful that we are at TMX for those on the front lines that are working to protect the lives of people in affected communities and providing that essential relief, services, and support. Now, my comments this morning are going to focus on TMX's first half performance and the important progress that we have made this year in advancing our key enterprise initiatives. following which David will take us through the Q2 numbers in detail. Overall, TMX continues to deliver, reaping the benefits of a diverse and balanced business model and a consistent and disciplined long-term growth strategy. We reported positive results for the first six months of the year, with solid year-over-year revenue growth, including record revenue for the second consecutive quarter, despite sustained headwinds across key elements of the capital markets. Fueled by our purpose to make markets better and empower bold ideas, we are continuing to build TMX ever stronger, more capable, more innovative, and more resilient to continue to deliver innovative solutions and a clear path for the success of our clients and stakeholders across the markets we serve around the world long into the future. Now, TMX reported revenue of $605.3 million, a 6% increase from the first half of last year, driven by double-digit growth in revenue from our information services businesses, or GSIA, which includes Tradeport and TMX data links, as well as increased revenue from capital formation, derivatives trading, and clearing, excluding box. Actually, excluding box, revenue increased actually 9% in 2023. These gains were partially offset by decreased 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 an adjusted basis, diluted earnings per share for the first six months of the year was 75 cents, a one cent increase from the same period in 2022. Now, total reported operating expenses increased 9% compared with the first half of last year, largely driven by inflationary pressures and FX impacts, but also by discrete investment choices we have made as an organization to accelerate our long-term growth. And David's going to dig into this deeper in his remarks to follow. Moving now to our business areas. Starting with Global Solutions, Insight and Analytics, our fastest growth business area, GSIA represents 34% of TMX's revenue in the first half of 2023, up from 31% in the same period of last year. Revenue from GSIA was $207.3 million, a 16% increase from the first six months of 2022, reflecting higher revenue from Tradeport, our connectivity platform and service provider for European wholesale energy markets, and TMX Data Links, our information services division. Trade ports first half revenue grew 18%, or 15% in common currency pound sterling, compared with the same period in 22, driven by a 9% increase in trader subscribers, annual price adjustments, and the impact of a favorable FX rate. Trayport's core jewel network connects, serves, and supports a growing ecosystem of participants, execution venues, and clearinghouses across world power and natural gas markets. And Trayport continues to pursue innovative ways to enhance the overall client experience for energy market participants by augmenting trading tools, insights, and analytical capabilities across its core jewel network. And in addition to areas of strategic focus in our business, Tradeport continues to seek out expansion opportunities in new asset classes and new geographies as global energy markets continue to evolve. We continue to work on building the voluntary climate marketplace, a collaboration with Incubex launched last year and designed to provide clients with the broadest possible view of the fragmented voluntary carbon market. TMX DataLinks revenue was $113.6 million in the first six months, a year-over-year increase of 14%, due to higher revenue from data feeds, co-location, benchmark and indices, and corporate and reference data, as well as a favorable FX impact from a stronger U.S. dollar. The first half of the year was marked by important progress and notable milestones for our information service business, including strategic investments as we move to expand our capabilities, broaden our datasets, and deliver leading-edge analytics and tools to our clients. The first half revenue included $3.4 million from Boston-based Wall Street Horizon, a provider of global corporate event data sets acquired late last year. And earlier in 2023, we made a strategic investment in Vetify, a global indices and ETF service provider, which includes a commercial agreement. TMX and Vetify teams are continuously working together towards the development and delivery of new client-centric index and benchmark products into Canada. And earlier this week, we took another step forward in our benchmark and indices strategy and product roadmap, as we finalize an agreement with our partner, Candeal, to participate in the creation of the new term CORA benchmark. A Candeal affiliate will operate the benchmark administrator and TMX data links will provide licensing and distribution capabilities. Now, as you can clearly see, information is key to our long-term global growth strategy. It's a vital strategic enabler as we enter into the next phase of TMX's evolution. And across the organization, we're also focused on new ways to leverage our robust proprietary data sets to solve existing and emerging client challenges. Now with that, let's turn our attention to the derivatives business. Excluding Box, revenue from derivatives trading and clearing was $82.2 million in the first half of 2023, a 9% increase from last year driven by higher revenue from MX and CDCC due to increased volumes traded and cleared. MX total first half volume grew 13% compared to 2022, and the level of overall open interest at June 30th, 2023 represented a 17% increase from the same date last year. Recent additions to MX's product suite are proving effective in creating efficient cross-market trading opportunities and continue to gain profile among global investors. Strong first half performance was driven by significant growth in activity along MX's interest rate product line with volumes up 19% in the first six months of 2022 and 6% growth in volumes in equity derivatives. Some of the other highlights and trends within the activity include ETF options, specifically broader index financials, REIT, and crypto sectors show continued strong interest among investors with volumes up 46% compared to the first six months of 2022. Investors were very active in the short-term interest rate products due to the active central bank policy environment. Volume traded in the BACs or CORA contract were up 33%, and volumes in the CGZ, MX's two-year Government of Canada bond future contract, increased 90% compared to the first six months of 2022. Now looking ahead, a key priority for MX, the MX initiative, is the transition from CEDAW to the Canadian Overnight Repo Rate Average, or CORA, with full cessation of CEDAW on track for June 2024. The three-month CORA Futures, or CRA, continues to gain traction, reaching an average daily volume of approximately 14,000 contracts in the first half of this year. Now, turning to capital formation, revenue was $144.6 million, a 5% increase from the first six months of 2022, reflecting higher issue services revenue and partially offset by lower revenue from additional listing fees due to a decrease in the number of financing transactions on Toronto Stock Exchange and decrease in dollars raised on both TSX and TSX Venture Exchange. Revenue from other issuer services which largely consists of the TSX Trust business was $60.9 million, a 50% increase compared to the first half of last year and driven by higher net interest income slightly offset by lower transfer agent fees. Macroeconomic factors including sustained high interest rate environment and inflationary pressures continue to weigh on capital raising activity during the first half of the year. And while the number of new listings on TSX and TSX Venture decreased year over year, the pipeline of GoPublic prospects is robust and we are confident in a resurgence as conditions normalize. Our unique two-tiered ecosystem remains the choice for small and medium-sized enterprises here in Canada and increasingly around the world. TMX exchanges rank third amongst our global peers by the number of new international listings during the first six months of the year. And more than half of those new companies joined our markets from the U.S. Our business development efforts to continue to promote TSX and TSX Ventures' value proposition among early-stage companies and targeted regions across the U.S. And consistent with our history of industry leadership and innovation, TMX continues to be focused on the future of our markets. Last year, our capital formation team undertook an important initiative called VentureForward. designed to solve the current challenges of stakeholders across our vital venture community and strengthen our markets into the future. TSX Venture has an impressive track record of launching early-stage public companies, funding primarily growth stages and providing us investors with access to unique small-cap investment opportunities. But we can always do better. And so in June this year, following an extremely productive and in-depth consultation process, TSX Venture produced a comprehensive report that outlines our commitment to doing better in support of innovation and growth and in order to clear a path for new companies' investors to enter our ecosystem. The key venture-forward commitments include a TSX Venture passport listing process to accelerate the listing and capital raising timeline for qualified new listing applicants, a TSX Venture sandbox, an initiative to better support the listing of unique businesses or transaction structures, and third, to evaluate the potential need for a new and highly differentiated exchange to complement TSX Venture with the goal of providing new categories of early-stage companies, alternative asset classes, and investors with access to public markets. Venture Forward's commitments are in lockstep with TMX's corporate purpose across the organization as we're pursuing new ways to make markets better. In our equities trading business earlier this year, we announced two new order books on TSX Alpha Exchange, Alpha X, a visible lit order book, and Alpha Dark, a dark order book. With initial features designed to improve execution quality and provide traders with innovative new functionality, the additional order books establish new platforms for continued innovation and an enhanced overall trading experience. And we are on track with this initiative to go live this fall as planned. Earlier this month, we published a consultation paper seeking industry feedback regarding trading of digital assets, including cryptocurrency, on TSX Alpha Exchange. In our view, Canada has an opportunity to be a world leader here in providing a fair and transparent structure for investors to participate in the growth of the digital asset industry. But like all we do, our priority focus is on serving the needs of our clients and stakeholders. So industry feedback will inform TMX's next step, and we will update the market on our plans as appropriate. In closing today, I'd like to thank all of our partners across the capital markets industry, stakeholders, clients, participants, regulators, for their continued partnership and support. And with that, let me turn the call over to David.