TMX Group Limited

Good morning, ladies and gentlemen, and welcome to the TMX Group Limited Q4 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 0 for the operator. This call is being recorded on Tuesday, February 6, 2024. I would now like to turn the conference over to Mr. Amin Mosavian. VP Investor Relations and Treasury. Please go ahead, sir.

Thank you, Lara, and good morning, everyone. Thanks for joining us today to discuss the 2023 fourth 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 remind you that certain statements made during 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 these expectations, and additional information is contained in our press release and in periodic reports that we have filed with the regulators. Now I will turn the call over to John.

Well, thanks, Amin, and good morning. Good morning. Thank you all for dialing in today to discuss TMX Group's financial results for the fourth quarter of 2023 and the full year. Now, our record 2023 results included important contributions from all across our business. And while our primary focus is always on the long term, our quarterly discussions serve as an important progress report. And David will talk about the quarter shortly. In my comments this morning, I want to highlight the key drivers of our success in 2023. including significant accomplishments across our business areas, as well as the outstanding progress we made during the year to advance TMX's long-term growth strategy, capped off by a game-changing acquisition closed on the first business day of 2024. Now, turning now to TMX's performance. TMX's positive results are no accident. Sustained growth during 2023 reflects the power of the enterprise we have built over the last 20-plus years, a deep, diverse, and resilient business model, Importantly, over that time, we have implemented an organizational mindset and a commitment to seeking out strategic opportunities to ensure our continued long-term success. As we reflect back on a year of significant milestones and business achievements, 2023 already appears far off in the rearview mirror, and our eyes are firmly fixed on the road ahead. And we're most enthusiastic about TMX's future. and how the strategic steps we took during 2023 to accelerate the evolution of TMX and the investments we have made in our burgeoning global information business will enable us to better serve our growing client base and range of stakeholders around the world. Now, TMX reported full-year revenue of $1.19 billion, a 7% increase from 2022 driven by double-digit growth from GSIA, which includes TMX Tradeport and TMX Datalinks. as well as higher revenue from derivatives trading and clearing, excluding box. And in the face of persistent challenges across much of our operating environment, we reported four consecutive quarters of year-over-year revenue growth. Increased revenue was partially offset by the impact of lower capital raising activity on our listings business, as well as decreased revenue from equities and fixed income trading, as a result of lower trading volumes on the Toronto Stock Exchange, TSX Venture Exchange, and Alpha. Adjusted diluting earnings per share was $1.46 for 2023, a 2% increase from 2022. Our total operating expenses increased 10% when compared to 2022, reflecting costs related to investments we have made in the business, including TMX Vetify, Sigma Logic, Wall Street Horizon, as well as expenses related to Box. We also incurred strategic realignment costs in 2023, as well as higher headcount and payroll costs, including merit increases, and higher costs related to our short-term employee performance incentive plan. And David will take a closer look at these expenses in his remarks to follow. Now, moving on now to our business areas. Revenue from GSIA was $419 million in 2023, a 16% increase from 2022, reflecting higher revenue from TMX-Trayport and TMX-Datalinks, including co-location. 2023 was an outstanding year for GSIA. It's our fastest growing segment and a driving force of TMX's overall success. Both TMX TradePort and TMX DataLinks delivered double-digit revenue gains year over year. TMX TradePort's revenue grew 23% compared to 2022, or 17% in pound sterling, driven by a 9% increase in trader subscribers, annual price adjustments, and the impact of a favorable FX rate. And we continue to build on TMX TradePort's success in connecting energy traders and to premier execution venues and clearinghouses across world power and natural gas markets. We added 28 new clients to our core Juul network in 2023. And looking ahead, TMX TradePort's growth strategy is focused on opportunities to support growth in demand for quantitative and automated trading approaches in existing as well as new markets. Global climate markets are rapidly evolving, and we are working to strengthen our aggregation solution with a newly launched web screen and the onboarding of new brokers, exchanges, and data providers to our platform. PMX DataLinks revenue grew 11% year-over-year due to higher revenue from data feeds, co-location, benchmark, and indices, and enterprise agreement renewals, as well as a favorable FX impact from a stronger U.S. dollar. Revenue for the year included $7.3 million from Wall Street Horizon, which was acquired in November of 2022. And last month, we completed the acquisition of Vetify, a US-based indexing, digital distribution, analytics, and thought leadership company. As we articulated back in December when we announced the deal, this acquisition fits squarely with TMX's disclosed strategic, financial, and transformational objectives. And TMX Vetify adds a leading platform in a large and growing market to TMX's information business and a team of proven talented individuals with an innovative and entrepreneurial spirit. The newly combined TMX Vetify team is working to assess the scale and scope of our joint capabilities and to make clients aware of the opportunities ahead. And while it is early days, our people have had the benefit of 12 months of experience working together since we made our initial and minority investment in the company in January 2023. TMX Vetify key attributes include an index calculation that provides data on more than 300 indices, a large number of international clients who stand to benefit from access to TMX content, and advanced digital distribution capabilities to effectively amplify an ETF issuer's distribution to a network of advisors. In addition to the acquisition of Vetify, TMX Data Links continues to build on its broad suite of multi-asset class data and analytic solutions and to look for ways to address challenges across our global client base. And further to our global benchmarking and indices strategy, TMX played a very important role in Canada's transition to a new commercial interest rate, participating in the creation and delivery of the new term CORA benchmark. The new transaction-based and risk-free benchmark gives industry participants complete transparency on both the data sources and core futures traded on the Montreal Exchange and the methodology used to arrive at its rates. And in December, we launched the TMX ESG Data Hub, which delivers data and analytics from premier providers to investors to help inform ESG-based investment decisions. The new hub is designed to help solve data quality, consistency, and accessibility challenges that are inhibiting investors from adopting and incorporating ESG factors into the investment process. Now I'd like to turn to derivatives, another significant contributor to TMX's success in 2023. Derivatives trading and clearing revenue, excluding box, increased 13% year-over-year, driven by higher volumes traded and cleared on MX and CDCC. the positive impact of the pricing changes which came into effect in January 2023, and a one-time reduction in 2022 related to the termination of a market-making program. MX total volume grew 15% compared to 2022 in a complex macro environment with continued inflationary pressure and central bank activity. Overall, MX performance highlights included 22% higher volumes in interest-related products, 14% higher volumes in ETF options, and an 11% increase in equity options traded when compared to 2022, driven by record volumes in the fourth quarter. Liquidity in key products also grew substantially, as year-over-year overall open interest at December 31, 2023, was 17% higher than at the end of 2022. And in terms of our recent product development initiatives, we have seen exceptional growth in our Cora Futures products, or CRA, as the market enters the final stages of the transition from CEDAW to the Canadian Overnight Repo Rate Average, or CORA, planned for June 2024. Our three-month CRA contract surpassed the backs and volumes traded and open interest during the fourth quarter for the first time. And investor interest continues to grow in MX's two-year and five-year Government of Canada bond futures contracts. Volumes increased 83%, in the CGZ or two-year contract and 21% in the CGF or five-year contract year over year. And lastly, last week we celebrated 150 years of the Montreal Exchange. I'd like to take a moment to thanks to everyone throughout our history who have contributed to the success of the MX. Now moving on to capital formation. Revenue was 268.2 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 total financing dollars raised on TSX Venture Exchange. Revenue from TSX Trust, which is shown as other issuer services, increased by 26% when compared to 2022, driven by higher net interest income due to higher rates and activity. 2023 provided to be a challenging year for many of our listed issuer clients and prospects here in Canada and around the world. Macroeconomic factors, including a high interest rate environment, inflationary pressure, both had a negative impact on capital raising conditions. But despite these conditions, 2023 features some important success stories and competitive wins for our unique two-tiered ecosystem, which continues to build on its track record of facilitating growth. 12 companies graduated from TSX Venture to TSX during the 2023, adding $4.3 billion in new market capitalization to our senior market. And we also welcomed more than a dozen up listings. These are companies that are already public coming from competing markets to our market in 2023. An additional $5.6 billion in market cap, including two leading companies in the North American cannabis space, Terrasend and Curaleaf. We remain a formidable competitor for listings among our exchange peers outside of Canada and inside. TSX and TSX Venture ranked third amongst our global exchange peers by the number of new listings, international listings for 2023. And since Toronto Stock Exchange created the ETF prototype in 1990, we have worked in close partnership with providers to bring unique investment opportunities to a broad retail audience in support of the growth of the industry. Today, we have near 1,000 ETFs listed on TSX from 40 providers, including 114 new ETF listings in 2023, representing more than $380 billion in assets under management. And the industry continues to expand, offering investors access to new asset classes, including high-interest savings accounts. Net new flows into the Canadian ETFs totaled $38.4 billion in 2023, compared to outflows of $57 billion from the Canadian mutual fund industry. Our deep commitment and long-standing connection to the ETF community is yet another reason we are so excited about our recent addition. TI Funds recently announced the launch of two new ETFs tracking customized underlying indices created by TMX Vetify. This is an early indication of the power of the combined enterprise. Capital Formation, TMX Data Links, TMX Vetify, working together to deliver unique, tailored solutions to meet the needs of our clients and expand the marketplace. Now, through all turns of the market, in keeping with our purpose, TMX is focused on building stronger, more adaptive, more responsive, and more competitive, and it starts from the foundation up. In keeping with the commitments we made to our stakeholders under our Venture Forward Initiative in 2023, we began the rollout of a new TSX Venture passport listing process, an initiative designed to accelerate the listing and capital raising timeline for qualified new listing applicants, creating a path for entrepreneurs to go public, raise capital, and achieve liquidity while upholding TSX Venture listing standards. And we continue to look for ways to innovate across our markets. In 2023, we took important steps forward in our equities trading strategy with the launch of AlphaX and AlphaDark, our new lit and dark order books. The initial features of the new platforms are designed to improve execution quality and provide trading clients with new cutting edge functionality. Longer term, Alpha X and Alpha Dark will enable our markets team to deploy adaptive strategies to further enhance the overall trading experience. And we've also advanced plans in the development of a U.S. equities trading initiative aimed at improving execution quality for buy side clients south of the border as well. The development of this technology is well underway And while we are looking to potentially launch by the end of 2024, obviously these are pending regulatory approval and as progress on our initiative. Now in closing, I want to recognize the extraordinary efforts of our people. TMX is an innovation story with a proud 170 plus year history at the forefront of industry progress. It's a story of leadership and strategic vision rooted in purpose to make markets better and empower bold ideas. TMX story is written by the tremendous people past and present who have held tightly to the primary commitment to serve our clients and stakeholders across our markets with excellence and integrity. And together we look forward to the work ahead as we write the next chapter for the 170 years to come. And with that, I'll pass it over to David.