The Tel-Aviv Stock Exchange Ltd. (TASE) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by. Welcome to the Tel-Aviv Stock Exchange Q2 2024 Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded, August 7, 2024. The recording will be publicly available on TASE's website. With us on the line today are Mr. Ittai Ben-Zeev, CEO; and Mr. Yehuda Ben-Ezra, CFO. Before I turn the call over to Mr. Ittai Ben-Zeev, I would like to remind everyone that this conference is not a substitute for reviewing the company's annual financial statements, quarterly financial statements and the interim report of the second quarter of 2024, in which full and precise information is presented and may contain inter alia forward-looking statements in accordance to Section 32A to securities law 1968. In addition to IFRS reporting, we might mention certain financial measures that do not conform to generally accepted accounting principles. Such non-GAAP measures are not intended in any manner to serve as a substitute for our financial results. However, we believe that they provide additional insight for better understanding of our business performance. Reconciliations between these non-GAAP measures and the most comparable related GAAP measures are included in the tables that can be found in our earnings press release and in the slide presentation accompanying this call. Both can be accessed on the English MAYA site and in the Investor Relations portion of our website at ir.tase.co.il/en. Mr. Ben-Zeev, would you like to begin?

Good evening, Israel time, everyone, and thank you for joining us today. I'm happy to host you in our earnings call. We conclude Q2 2024 with strong performance in all TASE core activities and further organic growth, with this all being against the backdrop of the October 7 war. We have witnessed significant growth in our quarterly revenues, which are up 13% on the same quarter last year and a 29% increase in adjusted EBITDA. Our EBITDA margin rose to 44% and adjusted net profit also increased. Yehuda Ben-Ezra, our CFO, will discuss the financial statements in detail later in this call. Despite the country still being in the midst of the world, the TA-125 Index rose by 3.5% in H1 2024, similar to the 3.8% increase in the Dow Jones Index and compared to the 14.5% jump in the S&P 500, and rising prices was also evident in most sectoral indices, particularly the TA Retail Index that rose by 13% and the high-tech company indices, the TA Technology Index and the TA Global BlueTech Index, which rose by 10% and 9%, respectively compared to the NASDAQ 100 Index, which rose by 17% during the same period. The equity market cap at the end of the H1 2024 was ILS 1,087 billion, 3% higher than the market cap at the end of 2023, with this resulting from the rise in the TASE equities indices. Compared to 2023, H1 2024 trading volumes in the main trading channels increased significantly. Trading volumes in equities were 8% higher than the average daily trading volume for all of 2023, an average ILS 2.1 billion a day. Trading on the bond market average daily volume of ILS 4.5 billion, 15% more than in 2023. The rise in trading volumes stemmed mainly from government shekel bonds where the average trading volume amounted to ILS 2.3 billion compared to an average of ILS 1.9 billion in 2023. The average daily volume in corporate bonds reached ILS 1.2 billion, a 14% increase compared to 2023. CPI-linked government bonds also recorded greater trading volume with a daily average of ILS 1 billion, 1% higher than the average daily volume in 2023. The average daily volume in corporate bonds reached ILS 1.1 billion, a 12% increase compared to 2023. Trading volumes in Israel government T-bills were also higher, averaging ILS 1.7 billion daily, 19% more than the average daily volume in 2023. In the mutual fund market, the average daily turnover of creation and redemption rose to ILS 1.8 billion, 28% higher than the average turnover in 2023. The market cap of the mutual fund at the end of H1 2024 was ILS 375 billion, 14% higher than the market cap at the end of 2023 with this resulting from acquisition of mutual funds and an increase in the value of the fund's assets on TASE. During H1 2024, 3 companies completed an IPO on TASE compared to just 1 IPO in all of 2023. In light of the ongoing October 7 war and the increase in the cumulative deficit, the Ministry of Finance continued to raise debt in Q2 2024 and issued bonds totaling ILS 124.4 billion in the whole of the first half of 2024 compared to ILS 76.7 million in the second half of 2023. ILS 95.7 billion of the total issuance were raised on case. We continue to work on implementing the strategic plan to strengthen international activity. As I noted in our last conference call, we published for the first time in cooperation with the Israel Securities Authority and the Bank of Israel, a call for public comments in relation to the transition to trading on Friday as is the standards throughout the world. We received very positive feedback from investors in Israel and abroad, and we are currently examining all the responses received in order to reach the most fitting solution, both for international investors and for the Israeli capital market. We believe that aligning our trading days with the rest of the world will help to increase accessibility for international investors and to increase their presence in the Israeli market. It is worth noting here, the fruitful cooperation we have with the regulators who are working with us to promote the Israeli capital market, particularly at this time and under the current circumstances. I'm pleased to be able to report that the Ministry of Committee for Legislation approved the securitization law in mid-July which will allow securitization transactions to be conducted in Israel for the first time, similar to the customary global standards. The measure is still expected to be passed by the Knesset, and we hope to be able to see this market development during 2025. Once more, the Israel Securities Authority recently approved the launch of new fixed date money market funds that will guarantee the public a return in advance, with this being in parallel with the already existing money market funds. This development will enlarge the range of investment products intended for the Israeli public. In addition, we continue working to introduce the number of new brokerage members in the Israeli capital markets. And in this context, I would like to note that at the end of May, Altshuler Shaham trade began to operate as a member of TASE and as a member of the TASE Clearing House. We are continuing to invest and develop the exclusive indices market. And in June, we launched new indices for the first time with [indiscernible], the largest ETF company in Israel. We continue to develop new indices so as to increase the range of products intended for the general public. And in mid-July, we announced an additional launch of 6 new equity and bond indices, some of which are intended to further taste cooperation with the various manufacturers. We will carry on investing and working to a larger product range as part of our strategic plan to enhance and develop the Israeli capital market as well as to expand our cooperation in developing and marketing unique indices for specific customers. In conclusion, the Q2 financial statements show that even during this time of war, we are witnessing the importance and resilience of TASE within the Israeli economy. We intend to continue working toward growing TASE and making it more accessible to the world to keep on investing in infrastructure and technological developments for new products, and to carry on striving to work to achieve the goals we have set for ourselves in accordance with our strategic plan for the coming years. And now I would like to hand over to Mr. Yehuda Ben-Ezra, who will continue with a review of the Q2 results.

Thank you, Ittai. As Ittai mentioned earlier, despite the complex situation in Israel faces again, posted strong financial results for Q2 2024. Some of the main financial metrics are shown on Slide #4. Our revenues for the quarter amounted to ILS 105.1 million, increasing by a record 7% compared to the corresponding quarter last year. Adjusted EBITDA [third ] by 29% to a total of ILS 45.8 million, while the adjusted EBITDA margin also improved significantly from 38.3% to 43.6%. Our adjusted net profit experienced substantial growth of 26% and increased to ILS 25.7 billion. I will continue with Slide #10, which shows some of the key highlights for our results for the first half of 2024. In the first half of 2024, we continued to post strong financial results. Total revenue amounted to ILS 213.4 million, an 11% increase compared to the corresponding period last year. Adjusted EBITDA totaled ILS 29.4 million, representing a 19% increase over the corresponding period last year. The adjusted EBITDA margin significantly improved to 44.2% compared to 41% in the corresponding period last year. Adjusted net profit totaled ILS 53.5 million compared to ILS 46.5 million, the corresponding period last year, a significant increase of 15%. I will continue with Slide #6, which shows some of the key highlights from our results for the second quarter. Revenue amounted to ILS 105.1 million compared to ILS 92.9 million. The corresponding quarter last year, a 7% increase which was evident across all operations. Our revenue from non-transactional services increased by 1% to 63% of the total revenues. Adjusted expenses totaled ILS 73.4 million compared to ILS 70.9 million in the corresponding quarter of last year, and 3% increase. The increased in expenses due mainly to employee benefit expenses and to computer and communication expenses. Adjusted EBITDA totaled ILS 45.8 million compared to ILS 35.6 million in the corresponding quarter last year, an increase of 29%. The increase is due to higher revenues. The adjusted EBITDA margin improved and rose to 40.6% compared to 38.2% corresponding quarter last year. Financing income totaled ILS 2 million compared to financing income of ILS 3.6 million in corresponding quarter last year, a 50% -- 45% decrease. The decrease is due mainly to financing expenses in connection with the bank loan taken at the end of 2023. Adjusted net profit amounted to ILS 25.7 million compared to ILS 20.4 million in the corresponding quarter last year, 26% increase. The increase is due mainly to higher revenue from services, [indiscernible] the increase in cost and [indiscernible]. Now let's go to Slide #7, which -- where we can take a deeper look at the composition of our revenue in Q2 2024. Revenues from trading and clearing commissions increased by 9% compared to the corresponding quarter last year and totaled ILS 38.8 million. The increase is mainly due an increase in the volume of mutual fund units and an increase in the trading volume of T-bills., which were offset by the lower number of trading days in quarter, a reduction of the effective commission rate. Revenue from listing fees and annual levies increased by 8% compared to the corresponding quarter last year and totaled ILS 21.7 million. 5% of the increase arose from annual levies, while additional 3% is for higher listing fees revenues. Revenues for Clearing House services. Increased by 17% compared to corresponding quarter last year and totaled ILS 21.5 million. 6$ of the increase is due to an increase in revenue from Clearing House services to companies and funds, while a further 4% of the increase is due to Clearing House Services to members. The remaining 3% of the increase is due to the rise in the value of the assets held in the custodianship. Revenue from data distribution and connectivity services, increased by 27% compared to the corresponding quarter last year and totaled ILS 22.1 million, 19% of the increase was due to updating the index usage price list, but a further 5% of the increases resulted from higher revenues from data distribution business and private customers. The remaining 3% of the increase is due to higher revenues from connectivity services. I would like now to discuss our Q2 2024 expenses. So please refer to Slide #9. Employee benefit expenses increased by 6% compared to the corresponding quarter last year and totaled ILS 39.3 million. Increase in these expenses due mainly to increase in variable compensation and the non-utilization of vacation days. Computer and communication expenses, increased by 17% and totaled ILS 10.5 million. The increase is due to mainly additional expenses with respect to the license and maintenance of new systems and to increase in manpower projects. Marketing expenses decreased by 73% compared to the corresponding quarter last year and totaled ILS 0.7 million. The expenses in the quarter include the cost of new campaigns launched at the end of the quarter as compared to the compared launched in the corresponding quarter last year. Depreciation and amortization expenses incurred by 8% compared to the corresponding quarter last year totaled ILS 14.1 million. The increase is due mainly to the upgrade of infrastructure and the launch of new products. Financing income totaled ILS 2 million compared to financing income of ILS 3.6 million in the corresponding quarter last year. Although our financing income for Q2 2024 increased due to interest income on deposits. Our financing expenses increased as a result of bank loan ticket at the end of 2023. Taken together, this resulted in a decrease in the net financing income. I would like now to review our financial position highlights at the end of Q2 2024, as shown in Slide #14. Our equity totaled ILS 659 million and comprised 70% of the balance sheet, excluding [ operative derivatives position ], balance and total deferred income for listing fees. We had ILS 479 million in cash and investment in financial assets. The balance of bank loan totaled ILS 124.9 million. The surplus equity of regulatory requirement at the end of Q2 2024, totaled ILS 569 million compared to ILS 318 million at the end of 2022. The increase in the surplus equity is entirely due to the ILS 242 million in the proceeds from the sale arrangement shares. The consideration received by TASE was carried directly to equity and it is being invested in TASE technological infrastructure. The surplus liquidity of the regulatory requirement at the end of Q2 2024 totaled ILS 115 million compared to ILS 145 million at the end of 2023. I would like now to go to Slide #15 to review our cash flow highlights in Q2 2024. Cash flow for financing activities resulted in negative cash flow of ILS 14.8 million compared to negative cash flow of ILS 104.4 million in corresponding quarter last year. The decrease in negative cash flow is due mainly to payment for the acquisition of treasury shares in the postponing quarter last year. Cash flow from investing activities resulted in negative cash flow of ILS 9.5 million compared to negative cash flow of ILS 12 million corresponding quarter last year. The increase is due mainly to the lower investment in property and equipment. TASE free cash flow in the second quarter were similar to those in the corresponding quarter last year and totaled ILS 17.9 million. And with that, I will return the call to our moderator to conduct the Q&A.

[Operator Instructions] The first question is from Dan Fannon of Jefferies.

This is actually Rick Roy on for Dan, and congratulations on another great quarter. And just with that, I wanted to start off with the Clearing House. I saw the notice on the updating of the pricing list and the incremental sort of revenue addition based off the 630 AUM levels. I was wondering if you could provide some additional context on how you and/or the consultants cut came up with these new pricing levels? And to what extent is it in line with the global pure set?

Well, we took a global consultant who had a lot of data of plenty of Clearing House and exchanges worldwide, and they did a very thorough analysis in what they think is the right benchmark. Because, as you know, most markets are different from one another. What we've come after an internal discussion and what we publish will still be lower than the benchmark in the world, but we thought that giving the players that we have in the Israeli market and giving all of the circumstances, this will be the right balance so to speak. And as we disclosed on July 18, we basically open it up for comments. We will conclude all of the comments in the next few days, and then we'll come back to our Board, and we'll see how we can progress I think that overall, being mutual for many years. It is very typical that in certain the fee schedule is what is common knowledge in other market. We have invested in the past few years on services, on products to make the Israeli capital markets more resilient and more deep. And part of this progress is we want to make sure that we are receiving revenues that we should receive.

Could you maybe -- sorry, continue.

Yes, go ahead, Rick.

I was going to say if you can maybe comment on in terms of the gap between the global peer set. Are you able to comment whether or not you closed maybe half that length to where your pricing list is versus maybe the global peer average or any sort of estimation around that?

It's very difficult to say after this change is concluded what will be the gap. There will be still a gap. But it's like a valuation of a company when it's still private, right? You go to 10 different people and you get 10 different answers, and you have the range. So I can tell you in terms of the range, still it will be lower than global benchmark. But the way we see it, at least we are narrowing the gap between us and the global benchmark. So this is the way we see it. So I don't have an exact number what will be the gap after this process is open. .

Understood. Then maybe moving on to the launch of the futures market, which should be on September 1, if I'm not mistaken. I understand that it should be on 3 indices. Just I was wondering if you had more detail on the rollout of future indices and products and product proliferation in general. And then following that, do you plan -- are you offering incentives to members on the exchange to increase utilization of this new market?

Yes. So we have invested in the past few years in our derivatives market, both on the IT and on the marketing side. I have to say that even though the Israeli institutions are active in future in the U.S. and other markets. When it comes to the Israeli market, they are active in options, and it's not like the added demand that we will create a future market. We thought this is a very important move also to get global investors active in our derivatives market, and hopefully, along the way that some of the Israeli players will be active in this market as well. As part of launching this future market, we do intend to have all kind of progress of market making, volume rebate and other schemes that are very common in other markets. It's very difficult for us to estimate what will be the actual traction. In the future, we don't know, for example, how many players will switch their activity from the option market to the future market or maybe they will do more transactions on top of what they do in terms of the option. But as far as we see, we want to be in a place that everything that you are equated with other global arena, you will find in the Israeli market. So we will have all of the right value proposition. And we will be launching also market-making schemes to boost also the liquidity not only in our derivatives market, but also in our underlying assets in the equity market. This is clearly something that we put a lot of focus currently in our market.

And those rebates on the nonderivatives transactions, those would be incremental to anything you have now? And if so, are you able to quantify maybe an impact to commissions on some of the larger asset classes from that?

Well, everything that we talk about and we plan to do is on top of things that we have. And once we publish a program, we also publish the costs that associated the proper. For example, what we did this year with the derivatives market, after investing in IT. And after coming up with program that is basically incentivized people to do more trades, we also change the multiples. So in a way some of the future revenue that we are getting by reducing the multipart, we give to the market to boost more liquidity and to get more traction. So in a way, this is the correlation that we are trying to achieve. .

Understood. Yes, the smaller bite size is to makes sense for expanding the base on that.

Right.

And then maybe moving on for -- you mentioned the onboarding of a new member in the quarter. Do you have comments on the outlook for new and/or remote members prospectively?

Well, we've increased in the past few years, the members that we have on the exchange. This particular member is a relatively large investment half because we have various types in terms of size. So we already have a decent amount of existing clients. So it's up to him to decide how much he invest in marketing in order to get more traction. But clearly, we are having dialogues with more potential newcomers to our market, both locally and international. We are still far away of being a mature market with respect to all of the players that can be active and can be membered. And as I stated in the past, I think that it will take us probably 2, 3, 4 years before we'll be in a place that we are mature in terms of having all of the relevant players active in our market.

Understood. But I guess perhaps just for the second half of the year, are there any names or maybe scripters, whether a bank member or a nonbank member or foreign member that you could disclose or perhaps not?

Not currently, but it cannot be banks member because all of the banks are members. So it can be only [indiscernible].

Understood. I appreciate the correction there. And then maybe moving on from that on to the financials with spending in general. I would say with -- do you have any changes to your outlook for spending more broadly for the second half of the year? And then maybe taking a step down more specifically marketing expenses were light relative to what our expectations were, but also saw the commentary on a new marketing campaign in the quarter. So just wondering, are these dollars, obviously, in an environment where it's probably not as conducive to be marketing. Are these being reinvested elsewhere in the organization? Or should we expect perhaps an acceleration of marketing and/or other expenses in the second half of the year? Or as the ongoing conflict evolves?

So in terms of the marketing in the second half 2024, the marketing expense will be higher than what it was in the first 6 months, but it will be, of course, in line with our budget and what we believe we want to do. Bear in mind that clearly, what's happening in Israel is causing volatility, encouraging people to trade in bonds and equity. And we have invested also in our digital, and we've come up with a tool that [indiscernible] basically gives people give the real some elements that they cannot get it in other platforms in Israel. So it's important for us to approach the public in Israel and showing what it can get and utilize on what we have. And clearly, this is something that we've been hearing in the past couple of years from the public in Israel saying, we want you to be more approachable and we want your assistance in talking. By the way, it can be with more research, it can be with AI product solution, it can be across the board. And in terms of a broader aspect, we don't see any change on the expense side, with respect to what's happening in Israel and regardless of what's happening in Israel. In terms of our business, plan and execution. Everything is in line, and there will be no, I would say, best surprises in that respect.

[Operator Instructions] There are no further questions at this time. Thank you for your participation. This concludes the Tel-Aviv Stock Exchange Q2 2024 Results Conference Call. You may go ahead and disconnect.