TMX Group Limited

Good morning, ladies and gentlemen, and welcome to the TMX Group Limited Q1 2024 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 Friday, May 3, 2024. I would now like to turn the conference over to Mr. Amin Mousavian. Please go ahead.

Thank you, Joel, and good morning, everyone. Thanks for joining us today to discuss the 2024 first quarter results for TMX Group. It is a beautiful day here in Toronto, and it looks like winter is finally deciding it's time to leave. 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, David Arnold, our Chief Financial Officer, Following the opening remarks, we'll have a question and answer session. Before we begin, let's cover our forward-looking legal disclosure. 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 periodic reports that we have filed with the regulatory authorities. Now I will turn the call over to John.

Well, thank you, Amin, and good morning, everyone. Thank you for joining us today to discuss TMX Group's financial results for the first quarter of 2024. And to everyone listening in, as Amin said earlier, thank you for joining us on such a beautiful spring Friday. Now, today's actually a more formal Friday than usual for us in the Toronto office today because it's AGM Day here at TMX. And we look forward to hosting our special annual general meeting this afternoon at 2 p.m. And for the rare occasion of doing it while the Maple Leafs are still in the playoffs, and I'm sure we all appreciate that. Now, turning to the business at hand this morning. Our first quarter results reflect solid performances from key components of our business, including areas of recent global expansion as we continue to build on our growing information business. Also reflected in TMX results is the fact that we are not immune to challenging market conditions. Macroeconomic factors continue to weigh heavily on important segments of our ecosystem during the first three months of this year, creating uncertainty and inhibiting growth. And as a result, capital markets activity and some of our traditional key performance indicators are down year over year. Importantly, these environmental challenges are not exclusive to TMX. Many of our stakeholders are negatively impacted by sustained short-term uncertainty. And that is why now, and through all turns of the market, our focus is squarely on seeking out ways to create meaningful and lasting competitive advantages for our growing client base here and around the world. Now, while David will take you through the Q1 results in greater detail in a few minutes, I'd like to focus my comments this morning on outlining some key performance highlights during the quarter and update you on progress we have made in advancing some important strategic initiatives. So turning first to TMX's first quarter performance. Overall revenue increased 16% from Q1 of 2023, largely as a result of higher revenue from Global Solutions Insights and Analytics, which included $37.9 million from TMX Vetify. fully reflected in our results for the first time following the close of the acquisition on the first business day of the year. Q1 results also featured year-over-year growth from TMX TradePort and partially offset by lower revenue from capital formation, equities, and fixed income trading. Organic revenue, excluding the addition of TMX Vetify, increased 3% year-over-year. Diluted earnings per share was $0.38 on an adjusted basis for Q1, also a 3% increase from the first quarter of last year. And total operating expenses increased compared to Q1-23, largely due to the inclusion of TMX Vetify. And David will take a little closer look at these Q1 expenses in his remarks to follow. Moving now to our business areas. Revenue from GSIA in Q1 was 48% higher than Q1 of 2023, or 11% excluding TMX Vetify. TMX Vetify's revenue was 33% higher in U.S. dollar compared to the same period last year prior to the acquisition. And that year-over-year growth was primarily driven by higher indexing revenue and reflecting organic growth in assets under management and revenue also from the 2023 acquisitions of Robo Global and the EQM indices, as well as higher revenues related to events. February marked TMX Vetify's premier annual event, Exchange. Now, this is a three-day conference billed as an advisor-centric networking and educational experience. And this year's edition was a phenomenal success with near 2,000 attendees from across the ETF and financial services industry. And the feedback our team received was overwhelmingly positive. It also served as a powerful networking opportunity for our various business development teams, including listings, trading, and TMX data links. Now, upon announcing the deal late last year, David and I talked about how the addition of Vetify, a U.S.-based indexing, digital distribution, and analytics and thought leadership company would create value for our clients, strengthening our ability to meet the needs of the indexing and ETF community here in Canada and around the world. And we were also clear on how the acquisition would accelerate TMX's strategic, financial, and transformational objectives, increasing the proportion of our revenue derived from recurring sources, adding to our fastest growth business area, and increasing our global footprint. And this remains a compelling story. Our experience working together from the time of TMX's initial investment in early 2023 gave a strong indication of the caliber of talent across the team and some of the opportunities in front of us. And to be candid, we set the bar pretty high for TMX Vetify. And while it's still early, they have exceeded our initial expectations in every way. GSIA sustained growth momentum in other two areas as well. It was another strong quarter for TMX TradePort. Revenue grew 21% to Q1 of last year, or 16% in pound sterling, driven by a 26% increase in trader subscribers, annual price adjustments, and the impact of a favorable FX rate. TMX TradePort continues to benefit from an innovative and adaptive approach to serving world commodity markets. Big wins in the quarter featured existing clients expanding their usage and including large European energy utilities, and adding 11 new trading firms. We are also seeing significant growth in TMX TradePort's combined data-driven trading offering, featuring data analytics, trade signal, and auto trader. Client subscriptions to this powerful combination of analytics, advanced technical charting, and their algorithmic trading capabilities now account for nearly 11% of overall TMX TradePort revenue. Focused on the future growth, TMX TradePort continues to seek out opportunities to move into new asset classes and geographies, and to meet the rising demand for advanced trading tools, insights, and solutions. For example, we are seeing intriguing signs of growth in the Japanese power markets, currently in a transitional period due to deregulation. And while this is still a nascent market that has been slow to develop, we are encouraged by the more than 200% year-over-year growth in OTC cleared volumes and 180% increase in active users. And TeamX data links revenue grew as well, growing 4% year-over-year due to higher revenue from benchmark and indices, driven by the new term CORA benchmark, as well as higher revenue from co-location, data feeds, and price adjustments in Q1 of 2024. Now, I'd like to turn my attention to derivatives. Derivatives trading and clearing revenue, excluding box, decreased 3% year-over-year. The decrease included a 9% lower revenue from MX due to an unfavorable product mix and a 3% decrease in overall volumes traded. Lower revenue from derivatives trading was partially offset by a 9% increase in revenue from CDCC due to the positive impact of the pricing changes which came into effect in January 2024 and higher repo volumes. And while sustained volatility across fixed income markets and monetary policy uncertainty continue to drive strong volume activity and liquidity in many of our key products, volumes traded in equity options were down 11% when compared to the first quarter of last year, which was a period of pronounced growth. And we're encouraged, though, by the continued upward momentum in other areas. Some of the key MX Q1 highlights included 11% higher volumes in share futures, 6% higher volumes in interest rate products, including continued strength in our bond futures products, volumes in our two-year and five-year government of Canada bond futures contracts grew by 66% and 25% respectively when compared to Q1 of 2023. And overall open interest on March 31st was 16% higher than at the same date last year. MX's three-month core futures contract or CRA has been a tremendous success. Trading has grown substantially over the past year and set a new record in Q1. with more than 93,000 contracts traded. The CRA is now established as the product of reference for short-term rate management as the industry prepares for the transition from CEDAW to the Canadian Overnight Repo Average Rate, or CORA, planned for next month. Now, in keeping with our corporate purpose, TMX's client-driven, innovative mindset extends to our post-trade business. Earlier this week, in collaboration with Clearstream, we were pleased to announce the successful launch of the new Canadian Collateral Management Service, the first tri-party repo capability in the Canadian market. Developed over the past year by TMX and Clearstream, CCMS is designed to modernize Canada's funding market, automating the lifecycle of all secured funding transactions starting off with repo to enable participants to better mobilize, track, and optimize their collateral securely. And we are excited about it. Efficient markets are more liquid, they're more attractive, and they are more competitive. So CCMS is a game changer for Canada's money markets, accelerating the evolution of a well-functioning, modernized market, supporting the expansion of tri-party repos for the first time in Canada, and has a viable investment value for buy and sell side participants. as providing an important optimized financing solution as bankers' acceptance come to an end with the cessation of CEDAR at the end of next month, and providing a platform for participants to manage collateral in support of the critical transition to T plus one settlement, the reduction of the standard settlement date from two days to one day later this month. And while this is still very early, we're seeing strong industry demand. Five major Canadian banks were among the first to participate in live transactions this week, and we will be onboarding new clients over the coming months. And then looking a little further down the road, we are planning to expand this new service beyond repos into additional collateral exposures. Now, as you may recall, last year, Canadian regulators, in conjunction with the SEC, announced the timeline for T Plus One. We made the decision at that time to defer delivery of our post-trade modernization program to ensure the industry participants seamlessly transitioned to one-day settlement aligned with regulatory requirements. But we expect our PTM program to be ready for implementation as planned by the end of this year. Our team is working closely with our participants and stakeholders on re-engagement activities, as this is a collaborative exercise. And thus, that timing may change if there is any significant delay in the T plus one go live date, which is currently May 27th, or gaps in terms of participant readiness. But quickly, I actually like to take a moment to thank our industry stakeholders for working closely together with us on these transformative initiatives and for their ongoing partnership in making our markets better. Now, moving on to capital formation. Revenue was $60.6 million, a 5% decrease from Q1 of 2023, reflecting lower revenue from additional listing fees due to a decrease in the number of financing transactions, despite an increase in total dollars raised on the Toronto Stock Exchange. and a decrease in the financing transaction on dollars raised on the TSX Venture Exchange. And while difficult conditions have impacted capital markets activity, not just here in Canada, but across world markets, we are seeing important wins in our ecosystem and compelling evidence that the spirit of entrepreneurship endures. And we are confident that as confidence returns to Canada markets, activity is due to pick up. It is not a question of will it, it's a question of when it. Among our 55 new listings in the quarter, which included 31 new listings on the TSX Venture Exchange, were four companies who uplisted or graduated from other domestic markets to our ecosystem during the quarter, including HyperCharge Networks, an electric vehicle supply equipment company breaking into the rapidly growing EV charging market with a simple and efficient charging solution, and ATHA Energy, a Canadian mineral company engaged in the acquisition, exploration, and development of uranium assets in the pursuit of a clean energy future. Together, TSX and TSX-V are proven means to access a broad range of global investors and a viable pathway to sustainable long-term growth. Vital Hub is another great example of the power of our two-tiered ecosystem. The company went public on TSX Venture Exchange in 2016. through a qualifying transaction via our signature capital pool company program, and then graduated to the Toronto Stock Exchange in 2021. Vital Hub has sustained growth over the last five years and closed a $40 million financing last month. And as always, our teams are closely connected to the listed issuers and prospect communities, and we're working to bring the next great companies to the market. And as we continue to work with ETF providers to support the ongoing strong growth of that industry as well, 14 new ETFs from 11 different providers listed on TSX in the first quarter, representing a dynamic range of investments, including thematics and factors, as well as commodities and income-oriented ETFs. And overall, TMX business model has continued to prove resilient. And this is largely a reflection of the intrinsic and enduring strength of Canadian markets. our markets more than measure up to markets around the world. But measuring up is a continuous pursuit. And in any competition, we strongly believe that winning is a worthy ambition. Canada has what it takes to be an economic powerhouse, rich natural resources, a highly educated workforce, and a healthy spirit of innovation, investment, and entrepreneurship. And we need to continue to create the conditions for sustained success. TMX is a vocal and engaged advocate, at all levels of government in this country for measures to unlock the flow of capital and create the environment that investors look for, regulatory certainty and clear, globally competitive incentives for entrepreneurs, workers and investors to share in the success of Canadian companies. And while we have seen some signs of progress and evidence that our voice is being heard, we have a good deal of work ahead of us, specifically to help policymakers better understand the scope of the impact of their decisions which have on crucial components of our ecosystem. In the recent federal budget announcement, the government indicated that they will explore the expansion of Canada's signature R&D support program to include public companies. This is a welcome and encouraging development on a key recommendation we have pursuing for a number of years. And it is an important step forward. However, at the same time, we share the concerns of many across Canada's business and investment community about the unintended consequences from the announced increase in the capital gains tax inclusion rate. This increase will add another disincentive to investing in Canada at a time where we need to be focused on attracting talent, capital, and competing for global investment flows. We need to collectively find new ways to incent risk-taking, measures which could include an expansion of the provenly effective mechanism flow-through share program, as we have suggested, rather than imposing stricter limits on rewards. So our ask is simple, for governments to take a pause, to engage directly with representatives from the industry most affected, and to gain a better understanding of the impact of what is essentially a 33% tax increase on investing activity. And then work with us all towards viable alternatives and mitigants. Now in closing today, I want to re-emphasize TMX's pledge to serve stakeholders across our marketplace, around the world, with excellence and integrity. Our people are clear-eyed and united in our commitment to the enduring success of our capital markets ecosystems and in pursuit of TMX's long-term strategic financial and transformational objectives. With that, let me pass the call over to David. Thank you.