TMX Group Limited

Good morning, ladies and gentlemen, and welcome to the TMX Group Limited Q3 2023 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 Tuesday, October 31, 2023. I would now like to turn the conference over to Mr. Amin Massavian, Vice President, Investor Relations, Treasury, and Administration of TMX Group. Please go ahead, sir.

Thank you, Laura, and good morning, everyone. It is October 31st, and I hope this Halloween brings you delightful moments and memorable experiences. Thanks for joining us today to discuss the 2023 third 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 during this call may relate to future events and expectations and constitute forward-looking information within the meanings 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'll turn the call over to John.

Well, thank you, Amin, and good morning, everyone. Thank you for dialing into the call this morning to discuss TMX's financial results for the third quarter and the first nine months of 2023. My comments this morning will really focus on TMX's performance year-to-date through September 30th. and the important progress we have made in executing the enterprise growth strategy and advancing our key initiatives. David is here as well with me in Montreal this morning, and he will take us through the third quarter results in detail in a few minutes. Now, before I turn to business, I do want to address something that has been on all of our minds for the last few weeks, and that is the Middle East. TMX is actually part of the business community in Israel. We have one of the largest presences of any international market, with 16 listed companies raising capital via our public market ecosystem. Team members, clients, and people we work with closely are going through a profoundly difficult time and our hearts are with them. And so we are so grateful for the humanitarian efforts of groups working to treat and protect the lives of people in affected communities and providing essential relief services and resources. And we collectively pray for peace and a brighter tomorrow. Now, turning to TMX's performance. We reported continued positive results for the first nine months of 2023. with solid year-over-year revenue growth for three consecutive quarters amidst prevailing challenges across much of our operating environment. Our 2023 results through September reflect the depth of value in our business. The execution of TMX's long-term strategy has strengthened our ability to deliver positive results even in difficult macroeconomic conditions. This has been a deliberate effort. to build the amount of business that's driven through our data services and in run rate revenues so the business is more resilient in times of economic strife. More importantly, today's TMX is better positioned to serve clients across our markets, increasingly around the world, and better positioned for growth. TMX reported revenue of $892.6 million, a 6% increase from the first nine months of last year. driven by double-digit growth in revenue from our information services business, or GSIA, which includes Tradeport and TMX data links, as well as increased revenue from capital formation, derivatives trading and clearing, excluding Vox. These overall 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 activities. Clearly, this has been a challenging capital markets period, And we want to just have a quick shout out to our clients as well who are suffering through some of those same challenges. On a adjusted basis, diluted earnings per share for the first nine months of the year was $1.10, a 2% increase from the same period in 2022. Total reported operating expenses increased 10% compared to the first nine months of last year. And David will take a closer look at these expenses in his remarks to follow. Now moving now to each of our business areas. GSIA remained our fastest growing business area through three quarters of the year. Revenue from GSIA was $311.6 million through the first three quarters of the year, which is a 17% increase from 2022, reflecting higher revenue from Tradeport and TMX data links, including co-location. Tradeport's revenue grew 22%, or 17% in common currency pounds sterling year over year, driven by a 9% increase in trader subscribers, annual price adjustments, and the impact of a favorable FX rate. Tradeport's core jeweled network plays a key role in serving world power and natural gas markets, linking participants to execution venues and clearinghouses, and delivering innovative products and services to a growing client base. And September marked the 30th anniversary for Tradeport. The number of game-changing achievements over the years as the company has expanded its network into new asset classes and geographies and added new cutting-edge capabilities is impressive. Among other successes since TradePort joined TMX in 2017 includes enhancing the client offering with the acquisition of leading solution providers such as TradeSignal and Visitech, launching an initiative to aggregate the global environmental markets, and adding over 400 net new clients. And world energy markets are rapidly evolving demand for data and analytics to support new quantitative and automated approaches continues to grow. And a proven ability to meet the needs of the marketplace and a committed strategic focus on seeking out new opportunities has positioned Tradeport well for continued success. DMX data links grew 13% in the first nine months due to higher revenue from data feeds colocation benchmark indices and enterprise agreement renewals. as well as the favorable FX impact from a stronger U.S. dollar. Revenue for the first three quarters of the year also included $5.3 million from Boston-based Wall Street Horizon acquired in November of last year. 2023 has been a landmark year for our information services business, marked by high performance and definitive steps forward in our strategy to boost our capabilities, expand our datasets, and deliver modern solutions to clients. Progress this year also includes our participation in the creation of the new term CORA benchmark and our investment in Vetify, a global provider of indices and ETF services. Importantly, information and more specifically what we can do with it is not the focus of just this one division, but it is a crucial and common element in TMX's enterprise global growth strategy. Across the organization, we are focused on new ways to leverage our robust proprietary data sets to solve client challenges today and into the future. Earlier this month, we announced the launch of the new TMX ESG Data Hub. Working with leading global ESG data and analytics provider, the new hub expands TMX Data Links' offering in support of client demand for integrating ESG measures into the investment decision-making process. This includes tracking company climate action plans, quantifying impact, screening, and peer analysis. Now, turning to derivatives. Excluding box revenue from derivatives trading and clearing was 121.1 million in the first nine months of 2023. A 13% increase from last year driven by higher revenue from MX and CDCC due to increased volumes traded and cleared. MX total volume grew 12% compared to the first nine months of 2022. And the level of overall open interest at September 30th, 2023 was 16% higher than the same date last year, which is an important key measure of liquidity growth in some of Amex's key products. Fixed income and equity derivative markets grew sequentially from Q2 to Q3 as higher volatility and an active central bank policy environment drew increased activity from institutional investors in Amex's short-term interest rate products. Highlights from the first nine months of the year featured year-over-year growth in key product areas, including 10% higher volumes from equity options, 20% higher volumes from ETF options, heavy trading in the BAX CORA and the CGZ, MX's two-year Government of Canada bond future contract, up 26% and 88% respectively. And overall, the interest rate product line also performed extremely well, with volumes up 19% compared to the first nine months of 2022. Now, moving to capital formation. Revenue for the first nine months of 2023 was $205 million, a 3% increase from 2022 reflecting higher revenue from TSX Trust and partially offset by lower revenue from additional listing fees due to a decrease in the number of financing transactions and dollars raised on Toronto Stock Exchange and a decrease in the total financing dollars raised on TSX Venture Exchange. though we are encouraged by the year-over-year increase in the number of junior financing transactions being completed. Revenue from other issuer services, which largely consists of our TSX Trust business, including AST, was $83.9 million, a 37% increase compared to the first nine months of last year, driven by higher net interest income, slightly offset by lower transfer agent fees. The stark realities of prevailing high interest rate environment and inflationary pressures through the first nine months of 2023 continued to weigh on equity markets and capital out-raising activity here in Canada and economies around the world. And while the overall number of new listings on TSX and TSX Venture is down from the same period last year and the record highs of as recent as 2021, the pipeline of GO public prospects we are connected to remains strong. Within the numbers, we're also seeing positive signs in traditional and non-traditional sectors, along with some recent competitive wins among our new listings, as companies continue to choose the TSX and the TSX Venture ecosystem to gain access to the capital they need to grow. In September, we welcomed Allied Gold, a Canadian-based gold producer with operations in Africa, to Toronto Stock Exchange. The company raised approximately $364 million in a reverse takeover transaction, representing our largest GoPublic offering in the mining sector since 2017. This listing was a significant win for the TSX and the entire ecosystem that surrounds the Canadian mining sector and speaks to the strength of our global value proposition. Also in September, TSX listed DRI Healthcare Trust, a global leader in financing life sciences innovation, and completed two bought deal financings of around $100 million. And earlier this month, Strathcona Resources, one of North America's fastest growing energy companies, began trading on TSX following an acquisition at a $6 billion valuation. And so we continue our business development efforts in targeted regions around the world. In September, we had a full time presence in Australia focused on the mining sector and the innovation sector. In 2021, we also undertook an important initiative to improve Indigenous relationships at our organization. And over the past two and a half years, we have made some important progress on our company's reconciliation journey, always stressing the need to prioritize actions over words. And last week, we were proud to host the inaugural TSX Indigenous Investor Day at our Market Centre in Toronto. For TMX, connecting entrepreneurs and growing businesses to potential investors is a fundamental core function of our marketplaces. And so this event marked an especially important milestone as we were able to bring a representative range of decision makers together to discuss strategies for growing Indigenous-led businesses to the benefit of these businesses and the investors, as well as the broader community and ultimately all Canadians. Canada's markets have an outstanding long-term track record of helping visionary entrepreneurs and early-stage businesses raise growth capital and enabling investors to participate in that growth. And TMX is committed to building on that track record, enabling more efficient access to underrepresented groups and emerging industries long into the future. Now, I'd like to finish up my comments this morning by emphasizing our commitment to our growth strategy and our stakeholders. While our 2023 results today show impressive resilience, TMX is not sitting idly by waiting for things to swing our way. We are ever focused on the future, on ways to adapt and accelerate our growth plans by invigorating our purpose to make markets better and empower bold ideas. We also have a strong balance sheet and flexibility to make future investments to continue to accelerate this growth, which David will take us through in more detail a little later on. And in closing, I would like to thank all of our employees across the organization for their exemplary efforts this year in a very challenging market. All of our business strategies are rooted in a responsibility we have to serve stakeholders across our markets with excellence and integrity, vision and purpose. PMX's people here in Montreal, across Canada and around the world share an unshakable commitment to fulfilling that responsibility. And together, we look forward to the challenges ahead. With that, let me pass the call over to David. Thank you.