TMX Group Limited

Good morning, ladies and gentlemen, and welcome to the TMX Group Limited Q2 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 Thursday, August 1, 2024. I would now like to turn the conference over to Amin Lesabian, Vice President, Investor Relations and Treasury at TMX Group. Please go ahead.

Thank you and good morning, everyone. Live from New York, it's Thursday morning. We're hosting today's call from our TMX Verify office in New York. Thanks for joining us to discuss the 2024 second quarter results for TMX Group. We announced our results for another strong quarter 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, 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.

Thanks, Amin, and good morning, everyone. Thank you all for joining us today to discuss TMX Group's financial results for the second quarter and the first half of 2024. And as Amin said, we are set up here for the very first time in the Vetify office in Manhattan. It's certainly been great to be here and engage with all the team, and it's a clear indicator of our growing global presence. Now, before we turn to business, on behalf of all of us in TMX, and particularly with regards to our teams in both Calgary and Edmonton, I do want to send out a quick message of support from all of us to those that have been impacted by the devastating wildfires this summer in Alberta. We are so very grateful for the efforts of those on the front lines who are working to provide the essential relief needed and the resources to people affected. Our thoughts are with you. Next, I'd also like to thank all of you, particularly, who took the time to attend either in person or virtually our 2024 Investor Day Accelerating Growth last month at the TMX Market Centre in Toronto. Now, based on the caliber of the conversations that we had in the room, our interactions with many of you, and the feedback received by the IR team, this was a big success, and particularly the exceptionally strong level of engagement from all of you, our analysts and investors. Candidly, we drive a ton of value from your informed and thought-provoking questions, and I want to thank you again for bringing your A-games to TMX's Investor Day. And for those that haven't, I would encourage all of you to watch the event. You can review the recorded webcast on InvestorDay.TMX.com. Now, in executing against that plan, TMX delivered excellent results for the second quarter and the first six months of 2024, highlighted by strong performances across the franchise. We will go deeper into the year-over-year analysis in a few moments, but I want to start by emphasizing TMX's core winning traits that fuel our success. One, a dynamic high-performance business model made up of complementary assets built to perform and endure. Two, a strong balance sheet to enable growth acceleration via acquisitions like the recent additions of ASD Canada and TMX Vetify. Three, a proven strategy and a track record of strategic execution. Four, which is underpinned by leading-edge technology and our winningness trait in TMX's most powerful asset, number five, our people. Our people are driven by a unified purpose to make markets better and empower bold ideas. At Investor Day, we also introduced new concepts. an internal rallying cry in a lens which we see the landscape evolving in front of us, TM2X. And with a little bit of history here, it took us 14 years to build the business from generating 500 million in revenue to over 1 billion. And now we set our objective on doubling that number, doubling to 2 billion, but doing it twice as fast. And any successful strategy is about making good choices. We have a powerful and resilient core business that is growing. And in pursuit of our TM2X objective, We are focused squarely on four key priority areas to leverage the strong foundation and accelerate our growth trajectory. Listings and beyond, beyond traders, and beyond market data, and getting beyond our borders. And we're well on our way. Our results for the first six months of 2024 stand as compelling evidence of the strategy in action. Overall revenue increased 18% from the first half of 2023 due to the inclusion of $69.9 million from TMX Vetify, following the close of the acquisition on January 2nd, and increased revenues from TMX Tradeport, derivatives trading and clearing, equities and fixed income trading, and clearing. And these year-over-year revenue gains were only offset by a modest shortfall in capital formation. Organic revenue, excluding TMX Fedify, increased 6% year-over-year, and diluted earnings per share on an adjusted basis increased 8% from the first six months of last year. And while total operating expenses increased from the first half of 2023 as well, this is largely due to the inclusion of TMX Ventify. And David will take a closer look at these expenses in his remarks to follow. Now, moving on to our business areas. I want to start with a crucial core element, not only of TMX's global franchise, but of Canada's economy, and that is capital formation, featuring our listing businesses on the Toronto Stock Exchange and TSX Venture Exchange. Revenue was $138.4 million. a 4% decrease from the first six months of 2023, reflecting lower revenue from additional listing fees due to a decrease in the number of financing transactions and dollars raised on the TSX Venture Exchange, but partially offset by an increase in the transactions and dollars raised on Toronto Stock Exchange. And now while global macroeconomic factors have created challenging capital market conditions over the last two and a half years, we are seeing important signs of recovery and upward momentum within our ecosystem. particularly in the second quarter of the year. In fact, June was the strongest financing month yet, with just under $4 billion raised on TSX and TSX Venture. And we have seen really encouraging signs from the mining sector, which is rebounding from financing lows last year to over 50% of the financing dollars raised on both exchanges this year were raised by mining issuers. And while new mining listings, particularly larger IPOs, have yet to return to average levels, The industry consensus is that the continued reduction of interest rates may just be the catalyst that we've needed. And sometimes one big deal can also act as a spark. In June, Paladin Energy, a Western Australia-based uranium producer, announced the $1.14 billion acquisition of Fission Uranium Corp. and announced its intention to list on the TSX. This deal is expected to close in September of this year. The first half of the year also featured positive signs in the technology sector. Overall financings were $417 million, which is a 228% increase from the first half of last year. Some of the new listing highlights include a diverse range of senior and junior companies. Sprott Physical Copper Trust, a $151 million IPO by Sprott Asset Management, joined the Toronto Stock Exchange in June. And Nations Royalty Corporation listed on TSX Venture in June. This is the largest majority Indigenous-owned public company in the world. specializing in Indigenous-owned royalties and revenue streams in precious metals and critical minerals, oil and gas, and renewable energy. We continue to make important progress in expanding our listing franchise beyond Canada, with now over 230 international companies calling TSX or TSX Venture home. Our team is promoting the benefits of our unique two-tiered ecosystem around the world, and we've built a well-defined pipeline of private companies that we are nurturing and preparing for our markets. It's part of our global growth plan, and 55% of the companies in our pipeline are international, and roughly 60% are technology companies. Recent new international entrants to our market include AugMega Metals, an ASX-listed mining company which recently added a TSX Venture listing to raise its profile in North America and expand its access to capital, and Chicane Capital II, a CPC, or capital pool company, that completed an IPO on the TSX Venture Exchange. Chicane is a unique partnership between a Chicago dealmaker and Forefront Capital, an established Canadian CPC group. And looking beyond the corporates, it was a very strong first half of the year for exchange-traded funds, with 67 new ETFs from 18 different providers listing on the TSX, from thematics to factors and commodities to income-oriented funds. And with the addition of TMX Vetify, we have bolstered our ability to service the needs of the industry with a new suite of solutions, including digital distribution and profile services. TMX is more embedded and invested in the enduring success of the ETF industry than ever. Revenue from our GSIA segment in the first half of 2024 increased 44% from 2023, or 10% if you exclude TMX Vetify. TMX Vetify's revenue was 24% higher in US dollars compared to the same period last year prior to acquisitions. And year-over-year growth was primarily driven by higher indexing revenue, reflecting organic growth in assets under management, and revenue from Robo Global and EQM indices, which were acquired in 2023. TMX Zedify revenue also reported higher revenues related to events, which included their flagship annual exchange conference in February. From the announcement of the deal late last year, we've been clear in framing how the addition of TMX Zedify accelerates TMX's strategic financial and transformational objectives. increasing the proportion of revenue derived from recurring sources, which totaled 55% in the first half compared to 53% last year, adding to our fastest growing business area, and increasing our global footprint, with 49% of TMX's total first half revenue derived from outside of Canada up from 41% in 2023. But the most exciting prospect of all is what it means for our clients. TMX Vetify strengthens our ability to serve the needs of the indexing and the ETF community, an important and growing client base here in Canada and around the world. And TMX Vetify supports clients throughout the entire ETF product lifecycle, using digital properties and tools to gather user behavior, intelligence to inform ETF issue and client needs, applying the expertise of our index team in various sectors and thematics to assist with index design and prototyping, then supporting the ETF launch with data analytics and campaigns through our various web properties, webcasts, and symposia. And from the launch, TMX Zettify helps support product growth, providing sales lead lists for asset managers using our digital distribution tools, digital marketing, and continued product awareness and education of the Exchange Conference. Now turning to another important part of GSA and a key driver of enterprise growth, TMX Trayport continued to deliver strong results through the first half of the year. Revenue grew 19% compared to the first half of last year, or 16% in pound sterling, driven by a 24% increase in total licenses, annual price adjustments, and higher revenue from data analytics and other trader products. DMX Trayfort's powerful core dual network continues to grow, augmenting tools, insights, and analytic capabilities to enhance the overall experience for the energy market client participants. We have over 9,000 licensees, the end-user applications that utilize our technology, and over 26,000 connections to venues. Now getting beyond that core, TMX Trayport is pursuing opportunities to leverage its proven expertise in modernizing markets to new asset classes and new geographies, aligning our strategy to capitalize on emerging trends, including new markets. TMX Trayport's hybrid solution is ideal for markets looking to evolve from paper and telephone, including the Japanese power market. We estimate that this market to be the size of the German and French markets combined, where over 30% of Tradeport licensees are active. In data and analytics, clients are increasingly seeking out data analytics to support their businesses. The acquisitions of TradeSignal and Visotech advanced the strategy for us, and today our data and analytics segment represents over 11% of Tradeport revenue and fast growing. And on technology, TMX Tradeport continues to invest in the core technology, including a major architecture project over the next two years that will support the long-term growth of our subscriber base in both core and new markets. Now, turning to derivatives, derivatives trading and clearing revenue, excluding box, increased 8% year-over-year. This increase was driven by 1% higher revenue from MX due to an 8% increase in overall volume in the first half of 2024, somewhat offset, though, by product mix and introductory incentives. Revenue from CDCC increased 22% due to the positive impact of pricing changes which came into effect on January 2024 and higher clearing and repo volumes. Investors continue to turn to our derivative markets in the first six months of the year, resulting in higher activity and increased liquidity across many of MX's key products. Some of the key MX year-over-year highlights include a 23% higher volume in interest rate products compared to last year, 5% growth in ETF options, 5% higher volumes in single-share futures, and a record period for our Government of Canada bond future products. Specifically, volumes in our two, our five, and our 10-year contracts grew by 65%, 31%, and 13% respectively compared to the first half of last year. And in addition to all this, we had a 17% increase in overall open interest at June 30th compared to the same time last year. The first half of the year also marked the end of the CEDAW era, and the industry transitioned to the Canadian Overnight Repo Rate Average, or CORA. The BAC's contract was retired in June, and the new three-month CORA Futures Contract, or CRA, is now established as the product of reference for short-term interest rate derivatives management. Trading in the CRA continued to gain momentum, reaching nearly 1 million contracts in open interest mid-year, and with growing trading activity and extended hours. 2024 has been a tremendous year also for TMX's post-trade business, CDS and CDCC, and this has been marked by significant progress in several key initiatives in partnership with our stakeholders across Canada's capital markets and exciting new products launched in the service to service the evolving needs of our clients. On April 30th, we launched the Canadian Collateral Management Service, or CCMS, a collaboration with Clearstream that is modernizing Canada's funding markets and providing the first tri-party repo capability in the country. Our teams continue to work to innovate and push the evolution of markets to create efficiencies and competitive advantage for our clients. On June 10th, the CDCC announced the launch of SGC Notes, an innovative money market instrument designed to meet the institutional investor demand for bankers' acceptances following the CEDAW cessation on June 24th. SGC Notes are linked to the same highly rated Canadian bank credit exposures as BAs. but are secured with a basket of high-quality debt securities. The program is in its early days, but unique in the world. An asset-backed service offered through a regulated central counterparty clearinghouse, and we are excited about the prospects of the future expansion into other marketplaces. Now, I'd like to take a moment to thank our client participants for the collaboration, particularly closely with us and our post-trade team, to ensure that we hit a critical milestone in May. And this was the successful transition of Canada's market to T plus one settlement. the reduction of standard settlement from two days to one day. As with so many of TMX's efforts to make markets better, transformational steps of this magnitude cannot be taken alone, and we are grateful for the continued partnership of our entire stakeholder community. Similarly, as we move forward, our post-trade modernization program is on track for implementation, pending industry readiness, and we began the initial participant testing phase in mid-July, and we'll look to go live in the first quarter of 2025. Now in closing, TMX's first half of the year was marked by strong performances across the business, important milestone achievements, and continued momentum in our key growth initiatives. It is a testament to the intrinsic power of the enterprise and the benefits of staying true to our long-term strategy. And over time, TMX has sustained growth through dramatic shifts in market dynamics, and we've risen to every challenge. And now we are poised and determined to pick up the pace to accelerate that growth. We do have the right model. We've got the right strategy, the financial capacity, the right technology, and most importantly, the right people to get it done. And with that, I'll pass the call over to David. Thank you.