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 2025 Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded August 5, 2025. 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 interim report for the second quarter of 2025 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 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 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. I'm pleased to share with you that Q2 was another record quarter for TASE across all of our business lines and core activities. Our revenues saw a significant increase of 29% from the same quarter last year, and our adjusted EBITDA increased 56%, bringing our adjusted EBITDA margin to 52.6%. Our adjusted net profit soared by 73% compared to the same quarter last year. The results reflect the continued implementation of TASE's strategic plan and the ongoing growth potential of the Israeli capital market. Yehuda Ben-Ezra, our CFO, will discuss the financial statements in detail later in this call. During H1 2025, Israel continued to display social and economic resilience through the ongoing October 7 war and became even stronger during the recent 12-day war with Iran. Throughout this challenging period for the country, TASE has continued to operate and run our markets as usual. The cumulative return of our equity market of 8% throughout this period is truly impressive. The leading indices produced record-breaking returns in H1 2025 with the TA-35 and TA-90 indices topping the global return table with gains of 23.5% and 25.5%, respectively, compared to gains of 4.5% and 6.2% in the Dow Jones and S&P 500 indices, respectively. This positive and exceptional trend was also evident in the sectoral indices with the financial sector indices leading the charge, the TA-Banks5 Index rose by 45% and the TA Insurance Index climbed 77%. This strong performance continues the positive trend we witnessed in H2 2024. At the end of Q2 2025, TASE's equity market cap reached ILS 1.7 trillion, 21% higher than the market cap at year-end 2024. Equity average daily trading volumes hit a new all-time high with a 40% jump and totaled ILS 3 billion at the end of H1 2025 compared to ILS 2.1 billion in H2 2024. This major increase was driven by significant net inflows of funds from foreign investors of ILS 9.5 billion and an increase in activity by domestic institutional and retail investors in our equity market. The foreign net inflows were more than double the amount of net inflows from foreign investors in the same period of 2024 of about ILS 3.9 billion. We continue seeing the Israeli retail segment showing increased interest in the local capital market. And following on from the strong growth in 2024, there was a further increase in the opening of new trading accounts in H1 2025. The growth in the number of new accounts led to the retail segment injecting ILS 8.4 billion into the equity market during H1 2025, more than twice as much as in H2 2024 when the inflow of funds amounted to ILS 3.5 billion. The retail segment's participation in the Israeli capital market is still relatively low compared to the part it plays in most other leading countries capital markets. We continue to identify this segment as having a significant growth potential, the realization of which will make a major contribution to the future growth of the Israeli capital market. There was a resurgence in the IPO market in H1 2025 with 9 new companies completing an IPO that together raised over ILS 1.5 billion. This was almost twice the number of companies that completed an IPO in the whole of 2024. The IPOs continued in July, and we believe that we will see more new companies making issuances on TASE in the coming months. In the corporate bond market, corporate issuance totaled ILS 74 billion compared to ILS 57 billion raised in H2 2024. Government issuance in the first half totaled ILS 85.7 billion compared with ILS 90.4 billion in H2 2024. We continue to implement our strategic plan, which includes, among other things, enhancing the liquidity of the companies listed on TASE. On the last earnings call, we announced that Bank Hapoalim has joined our tailor-made market making program. Since then, 2 leading market makers have been selected for Bank Hapoalim's program, which began operating on June 10. We are already working with additional companies that are expected to join the tailor-made market-making program in the near future. In addition, I'm pleased to report that on August 10, we will commence the new order type Trading-At-Last, TAL, in which orders are to be executed at the closing price. In line with leading global exchanges, this will allow trades to take place at the securities closing price for several minutes after the closing auction phase. I'm pleased to share that earlier today, the Minister of Finance approved the regulation for moving to a Monday to Friday trading week, which will officially take effect on January 5, 2026. Also, we launched at the end of July as part of our preparation towards transitioning to Monday to Friday trading, a better version of the AI-powered software that translates company reports into English. Initially, the reports of companies included in the TA-125 index will be translated, which will enable global investors to receive company information in English at the same time as their Israeli counterparts. Finally, I would like to inform you that in June, the TASE Board of Directors authorized us to examine strategic measures with regard to our index business including a partial or full sale or a strategic partnership with a leading international index operator or other global financial institutions. The indices AUM at the end of Q2 2025 amounted to ILS 121 billion and revenues in H1 2025 amounted to ILS 14.4 million. We have chosen the leading investment bank, Jefferies, to accompany us through the examination process and to assist us in identifying international entities suitable for such a transaction. In conclusion, our financial and operating performance in Q2 2025 point to the resilience of TASE, which rests on the strong foundation of the Israeli economy even during this challenging period. We continue to develop and enhance the local capital market and remain focused on achieving the goals outlined in our strategic plan. And now I'd like to hand over to Mr. Yehuda Ben-Ezra, who will continue with a review of the second quarter results.

Thank you, Ittai. TASE posted strong financial results for Q2 2025 and first half of 2025. These record results once again in all our business lines and core activities. These results underscore the solid foundation of the Israeli economy and reflect the continued confidence of both local and global investors in Israel's economy and capital market. Some of the main financial metrics are shown in Slide 4. Our revenues displayed substantial growth of 29% for the quarter and hit a new record totaling ILS 136.1 million. Our adjusted EBITDA at ILS 71.6 million also set a new record, bringing our adjusted EBITDA margin to a record 52.6%. Our adjusted net profit increased to a new record of ILS 44.4 million, a 73% record increase over the same quarter last year. I will continue with Slide 11, which shows some of the key highlights from our results for the first half of 2025. Our total revenues amounted to ILS 267.1 million, a 25% increase compared to the same period last year. Our adjusted EBITDA totaled ILS 133.5 million, representing a 41% increase over the same period last year. Our adjusted EBITDA margin significantly improved to 50% compared to 44.2% in the same period last year. Our adjusted net profit totaled ILS 81.2 million compared to ILS 53.5 million in the same period last year, a significant 52% increase. I will continue with Slide 6, which shows some of the key highlights from our results for the second quarter. Revenue totaled ILS 136.1 million compared to ILS 105.1 million in the same quarter last year, an increase of 29% with growth evident across all activities. Our revenues from the non-transactional services were up 1% to reach 64% of total revenues. Expenses totaled ILS 80.7 million compared to ILS 74.8 million in the same quarter last year, an increase of 8%. The increase in expenses is due mainly to higher computer and communication expenses and depreciation and amortization expenses. Adjusted EBITDA totaled ILS 71.6 million compared to ILS 45.8 million in the same quarter last year, an increase of 56%. The increase is due mainly to the higher revenues. Net profit amounted to ILS 43.6 million compared to ILS 24.3 million in the same quarter last year, an increase of 18%. The increase is due mainly to an increase in revenue from services, net of the increase in cost and tax expenses. Our basic EPS reached a new high of ILS 0.478, increasing by a record 82% compared to the same quarter last year. I will continue with Slide 7. We can take a deeper look into our revenues in Q2 2025. Revenue from trading and clearing commissions increased by 26% compared to the same quarter last year and totaled ILS 49.1 million. The increase is due mainly to higher trading volumes, mainly in net equities, derivatives and mutual fund units. The increase was partially offset by a reduction in the effective commission rate, mainly on equities and mutual fund units. Revenues from listing fees and annual levies increased by 16% compared to the same quarter last year and totaled ILS 25.1 million. The increase is due mainly to revenue from annual levies as a result of the increase in the number of companies and funds paying an annual levy. In addition, revenues from listing fees were also higher due to the increase in the volume raised. Revenue from clearing house services increased by 62% compared to the same quarter last year and totaled ILS 35.2 million. The increase is mainly due to higher revenues from clearing house services to members, especially following the completion of regulation measures in relation to the OTC transaction. Other factors resulting in the increase were the higher custodian fees as a result of the increase in the value of the assets that are held in the custodianship and the updating of the custodian fees price list. Revenue from data distribution and connectivity services increased by 19% compared to the same quarter last year and totaled ILS 26.3 million. The increase is due to an increase in revenue from our authorization to use the TASE indices and from higher data distribution revenues from business and private customers in Israel and abroad. I will continue with Slide 10, which shows some of our Q2 2025 expenses. Employee benefit expenses increased by 2% compared to the same quarter last year, totaling ILS 40.1 million. The increase is mainly due to higher salaries and an increase in variable compensation, which has reached the maximum level set in the collective agreement. Computer and communication expenses increased by 19% and totaled ILS 12.5 million. The increase results mainly from an increase in the maintenance cost of new computer system and license. Marketing expenses increased by 25% compared to the same quarter last year and totaled ILS 0.8 million. Most of the increase is mainly due to the timing of campaigns. Other operating expenses increased by 56% and totaled ILS 1.6 million. Most of the increase is due to higher clearing expenses and expenses with the respect to a market-making program. Depreciation and amortization expenses increased by 8% compared to the same quarter last year and totaled ILS 15.2 million. The increase is due mainly to new projects and new investment in software and license. Net financing income totaled ILS 12 million compared to financing income of ILS 2 million in the same quarter last year. The decrease is due mainly to a decrease in the balance of deposits and the volatility of the shekel-U.S. dollar exchange rate and was partially offset by gains from marketable securities. Let's go now to Slide 16, where we can review our financial position at the end of Q2 2025. Our equity totaled ILS 584.4 million. Our adjusted equity includes deferred income from listing fees and represented 74% of the adjusted balance sheet, excluding open derivatives position balances. We had ILS 377.1 million in cash and investment in financial assets. The balance of bank loan totaled ILS 112.3 million. The surplus equity over regulatory requirements totaled ILS 449 million compared to ILS 627 million at the end of 2024. The surplus liquidity over regulatory requirements totaled ILS 157 million compared to ILS 172 million at the end of 2024. The decrease in surplus equity and liquidity is mainly due to the ILS 202.4 million used for the buyback of the company's shares in the first quarter. I will continue with Slide 17, where we can review our Q2 cash flow highlights. Cash flow from investing activities resulted in negative cash flow of ILS 11.9 million compared to negative cash flow of ILS 9.5 million in the same quarter last year. The increase is due mainly to an increase in investment in property and equipment. Cash flow from financing activities resulted in negative cash flow of ILS 13.1 million compared to negative cash flow of ILS 14.8 million in the same quarter last year. This change is due to the repayment of a bank loan in an amount of ILS 1.7 million. Debt free cash flows increased by ILS 42 million compared to the same quarter last year and totaled ILS 50.3 million. The increase was due mainly to the increase in the EBITDA. 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.

I guess to start, the index announcement in terms of exploring potential options. Just for some background and context, I guess, why now? Obviously, this is a business that's been growing a few, has potential to grow. But curious as to the partnership and the things you mentioned in terms of exploring the timing and as I said, kind of why now?

Dan, with respect to the timing, clearly, the index has been growing. And as you mentioned, we see a huge potential ahead of us. But we also see that with respect to global participation, there are plenty of people that want to invest in our indices, but being a company from Israel, we don't have a global distribution platform. So I'm very positive that if we can come up with a structure in which, let's say, that every investor in the U.S. using his mobile for trading can buy TA-125 index, we can get massive inflows into our market. We have been seeing especially throughout the past year, 1.5 years that because of the strong economic data of the State of Israel and the fact that we started late with respect to the AUM that we have in our indices and the resilience of the people, et cetera, there are more and more people that want to get exposure that want to invest in TASE equities. So I would say that we know that there are global players that have in their systems, a proper distribution channels that by definition, we can get a much broader distribution. On top of it, I think we did many positive things in building our business, and we continue to do so. But scaling up, we know that there are certain ways in which you should continue to scale up the business. For example, is a BMR regulation, a regulation that is specific to running index. And once you comply with the BMR, you can also get more institution investing in your indices. So I think as part of growing the business, by the way, not only in the index, but also in the index, this mechanism and exercise by definition, will give us a very positive look at what are the best alternative for us to continue to grow the business. And as I pointed out, we may come up with a transaction. We may do a strategic collaboration. And maybe also eventually after doing the whole process, we can decide not to do anything and to continue with what we do eternally. We are very open-minded about the process and about the outcome that will be eventually. So it's a bunch of reasons why we think now it's a good timing for us to do so.

That makes sense. And then just wanted to get your thoughts around the potential or the pending changes around the days of trading from going to Monday to Friday. And what you think that may have as an impact on volumes to start as the transition occurs. Obviously, you're hoping to get more institutional or foreign flows as a result. But I guess, do you anticipate any kind of step changes or changes in the kind of near term that might be negative or positive as that happens?

Yes. So actually, from today, it's not pending. It's formal that we will move to the Monday to Friday, and it will start on January 5, 2026. I think that as part of everything that is going and the continued interest, I believe that next year, once we will be Monday to Friday, we'll have a better chance of entering the MSCI Europe Index. If that happens, clearly, that's a big potential for our market, both of the passive inflows that will come into our market and also the active funds that, by definition, will have exposure because there will be the passive inflow. By the way, this also has some linkage to the examination that we are doing with respect to our index because if that happens, clearly, the valuation that we'll have on our index will have a positive impact. So I think that -- and hopefully, also in terms of, I would say, the outlook of the state of Israel, things will be more positive, so to speak. So it will also give us a positive trend in applying and hopefully being part of MSCI Europe. So we can't really identify now what will be the impact. Overall, Sunday has been good trading days for us. But we know that by speaking from global investors, all of them, 100% of them were in favor of doing the change to Friday. I think that even if it's not in the short term, I believe that in the medium, long term, it will have a positive impact of the international flows that will come into our market.