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 2026 Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded August 4, 2026. The recording will be publicly available on TASE's website. With us on the line today are Mr. Ittai Ben-Zeev, CEO; and Mr. Alon Solar, 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 2026, 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. We concluded the second quarter of 2026 with record results across all TASE's core business lines and activities with revenue growth surging 36% year-on-year. We have seen our adjusted EBITDA jump by 60%, pushing our adjusted EBITDA margin up to 61.8%. TASE's adjusted net profit was up 82% year-on-year. The results reflect the continued implementation of TASE's strategic plan and the growth potential of the Israeli capital market with this being achieved despite Israel still having to cope with a multi-front war this quarter. Alon Solar, our CFO, will discuss the financial statements in detail later in this call. The first half of 2026 was characterized by high volatility against the backdrop of security developments in Israel and trends in the global markets. After a strong start to the year, supported by optimism surrounding regional developments and the possibility of expanding the Abraham Accords, a market correction occurred in June following reports of a possible agreement between the U.S.A. and Iran. Notwithstanding the correction, TASE closed out the first half of the year, showing positive returns, outperforming many of the world's leading markets. The TA-35 and the TA-125 indices posted gains of 12% and 9.5%, respectively, while the TA-90 Index rose by 0.3%. TASE's equity market cap was valued at ILS 2.7 trillion at the end of Q2 compared to ILS 1.5 trillion at the end of the corresponding quarter last year. Alongside the performance of the indices, we continue to see significant growth in trading activity. The average daily trading volume in the equities market reached to a new record of ILS 5.7 billion, up 65% on 2025 and 158% on 2024. We are still seeing the positive impact of the switch to Friday trading. Since the beginning of the year, the average daily volume on Friday has been ILS 4.6 billion compared to only ILS 1.6 billion on Sundays in 2025. At the same time, the international share of trading has increased from 12.5% on Sundays in 2025 to 41% on Friday since the beginning of 2026. Moreover, on May 7, when the half yearly index update took place, the highest daily trading volume in TASE's history was recorded amounting to ILS 24.5 billion. Three weeks later, on May 29, another record was set when turnover reached ILS 15.8 billion following the MSCI index review. This took place on a Friday, which, as you will recall, is a short trading day. The increase in investments in TASE indices, combined with the sharp increase in trading volumes are what led to the high trading volumes on those days, and they clearly illustrate the depth of the market, the high level of liquidity and the growing interest of local and international investors in the Israeli capital market. The IPO market also continues to be strong. During the first half of the year, 15 companies performed IPOs, raising ILS 6.1 billion compared to 9 companies in the same period last year that raised ILS 1.5 billion. In addition, 3 new companies have dual listed on TASE, including cyber giant Palo Alto, which will join the TA-35 and TA-125 flagship indices from August 6. This is an important milestone, and we believe that Palo Alto's joining position us as an attractive market for investments and will lead to more companies dual listing on TASE as well as to additional new companies applying to perform IPOs on TASE. The bond market also continued to be active with 12 new companies joining our bond market with ILS 6.8 billion in bond issuance while the whole business sector of the corporate bond market raised a total amount of ILS 117 billion. At the same time, the Ministry of Finance raised a further ILS 89 billion on TASE through government bonds in the first half of 2026, up from ILS 85.7 billion in the same period last year as well as raising $6 billion on the international markets. The bond market trading volumes also increased in the first half of 2026 and the daily average rose by 31.4% to ILS 5.9 billion compared to an average daily trading volume of ILS 4.5 billion in the same period last year. At the same time, we have continued implementing our strategic plan to strengthen international activity. Over the past few months, we have organized several events for TASE-listed company CEOs from various sectors for a series of meetings with international investors in the U.S. and London, and we are planning to organize additional events in the second half of the year. The growth in demand from international traders and investors has also led us to expand our co-location infrastructure. In addition, we continue to work on increasing the number of new trading firms on the Israeli capital markets. And in this regard, I would like to note that in July, we received a new request for a TASE membership from a local applicant who will join the 25 TASE members currently operating on TASE. We are also in constant contact with international traders who are considering becoming TASE members. As part of our efforts to further expand the retail investor base, and to make the capital market more accessible to the public, we are intending to shortly launch a new application, which for the first time, includes free access to real-time trading data for all securities traded on TASE and smart money data that will allow investors to gain insights into the market activities of the institutional, international and private investors. We believe that this move will increase transparency, expand the circle of active investors and provide access to information and tools that were previously available primarily to professional entities. The app will be available free of charge in Hebrew and English. At the same time, we continue to work on enhancing the liquidity and marketability of TASE companies. To date, 9 companies have already joined our tailor-made program. And recently, Bank Hapoalim, which a year ago was the first company to join the program, opted to extend its participation in the program for a further year. We are seeing that the program is positioning itself as a significant tool for bolstering liquidity and expanding the base of international and domestic investors in the Israeli capital market. We have also continued to develop new products for the market. And during the second quarter, we launched 6 new equity indices. We consider the development of new indices to be an important growth engine, which allows us to expand the range of investment options for the benefit of the public and provides responses to the changing needs of local and international investors with the aim of refining and developing the Israeli capital market as well as expanding collaboration in the development and marketing of unique indices intended for specific customers. One of the measures we took to refine the local capital market was to engage a market maker for the first time to trade in the shekel government bonds linked to the dollar and euro, which are issued by the State of Israel abroad and are also traded simultaneously on TASE. I would now like to inform you that for the first time since we became a public company, we have launched an employee option plan together with the Workers Union that replaces the uniform cash grant for the years 2026 to 2028. The move reduces the cash-based compensation component and reinforces the connection between the interest of employees and those of shareholders. The options were allocated at an exercise price of ILS 164 per share with maturity being spread over 3 years. This is an important move that expresses our commitment to creating long-term value and retaining human capital. Following management's previous update that it intended to evaluate a share buyback program, today, the Board approved a program of up to ILS 150 million, which gives us the flexibility to repurchase shares in any amount up to the program ceiling from time to time through the end of 2026. The buyback will be funded from TASE's own resources and are expected to take place mainly through off-exchange and block transactions. The program is not being conducted under a safe harbor framework. In conclusion, the second quarter strong financial statements emphasize the resilience and stability of the Israeli capital market that stands on the solid foundation of the Israeli economy even during uncertain times. Along with further capital market development, we continue to implement our strategic plan, which includes expanding our product range and enhancing accessibility for local and international investors. In doing so, we strengthened TASE's position not only as a key financial institution in Israel, but also as a leading player in the international arena. And now I'd like to hand over to Mr. Alon Solar, our CFO, who will continue with a review of the second quarter results.

Thank you, Ittai. As Ittai has already mentioned, TASE's outstanding second quarter financial results are the ultimate testament to a highly successful first half of 2026 with the company delivering record revenues across all lines of business. Once again, throughout the first half of 2026, including the second quarter, TASE demonstrated remarkable resilience even as Israel faced an extended multi-front conflict. I will continue with Slide 6, which shows some of the key highlights from our results for the second quarter of 2026. Our revenues reached a new high of ILS 185.4 million, increasing by 36% compared to the same quarter last year. Adjusted EBITDA improved significantly by 60% to ILS 114.5 million, while the adjusted EBITDA margin also improving from 52.6% to 61.8%. Adjusted net profit displayed substantial growth of 82% and increased to a new record of ILS 80.8 million. Our basic EPS reached a new high of ILS 0.842, increasing by 76% compared to the same quarter last year. Some of the key highlights from our results for the first half of 2026. Our revenues reached a new high of ILS 368.7 million, increasing by a record 38% compared to the same period last year. Adjusted EBITDA improved significantly by 72% to a record ILS 230.1 million, while the adjusted EBITDA margin also improved from 50% to 62.4%. Our adjusted net profit displayed substantial growth of 96%, increasing to a new record of ILS 158.9 million. Let's move on to Slide 7, which shows some of the key highlights from our results for the second quarter. Revenues amounted to ILS 185.4 million compared to ILS 136.1 million in the same quarter last year, an increase of 36%. This is our highest quarterly revenues since TASE IPO and growth was evident across all operations. Costs totaled ILS 88.4 million compared to ILS 80.7 million in the same quarter last year, an increase of 10%. The increase was due mainly to the increase in employee benefit expenses, share-based payment expenses and other operating expenses. Adjusted EBITDA totaled ILS 114.5 million compared to ILS 71.6 million in the same quarter last year, an increase of 60%. The increase is due mainly to the higher revenues. Net profit amounted to ILS 78.9 million compared to ILS 43.6 million in the same quarter last year, an increase of 81%. The increase is due mainly to the increase of revenues -- revenue from services, which was partially offset by an increase in costs and tax expense. Moving on to Slide 9, we can take a deeper look in for the second quarter revenues. Revenues from trading and clearing commissions despite there being 3 less trading days in the second quarter of this year, revenues increased by 37% compared to the same quarter last year and totaled ILS 67.4 million. The increase is mainly due to the higher trading volumes in shares and bonds and in the volume of creations and redemptions of mutual fund units. Revenues from listing fees and annual levies increased by 13% compared to the same quarter last year and totaled ILS 28.3 million. The increase is due to revenues from annual levies mainly as a result of the increase in the number of companies and funds. In addition, revenues from listing fees and examination fees were also higher. Revenues from clearing house services increased by 67% compared to the same quarter last year and totaled ILS 58.6 million. The increase is due to higher revenues from services to members, mainly as a result of the higher volume of activities and due to an increase in revenue from custodian fees as a result of the increase in the value of the assets that are held in custodianship and an increase in the average commission rate. Revenues from data distribution and connectivity services increased by 15% compared to the same quarter last year and totaled ILS 30.2 million. The increase is mainly due to higher revenues from TASE index licenses and data distribution from business customers in Israel. I will continue with Slide 12, which relates to some of our second quarter expenses. Employee benefit expenses increased by 14% compared to the same quarter last year and totaled ILS 45.8 million. The increase is mainly due to an increase in payroll expenses and vacation provision. Computer and communication expenses decreased by 8% to ILS 11.5 million. The decrease results mainly due to fewer additions with respect to the licensing and maintenance of new systems. Other operating expenses increased by 91% to ILS 3 million. Most of the increase is due to expenses with respect to market-making programs. Net financing income totaled ILS 4.1 million compared to financing income of ILS 1.2 million in the same quarter last year. The increase is due mainly to an increase in gains on marketable securities and decrease in interest expenses on the loan and a decrease in expenses as a result of currency changes. And let's now go on to Slide #19, where we can review our financial position at the end of the first half of 2026. Our equity totaled ILS 665 million. Our adjusted equity, which includes deferred income from listing fees, represents 78% of the adjusted balance sheet, excluding open derivative position balances. We held ILS 494 million in cash and marketable securities. The balance of the bank loan totaled ILS 68.8 million. Our surplus equity over regulatory requirements totaled ILS 562 million compared to ILS 550 million at the end of 2025. The increase in the surplus equity is mainly due to the profit recognized in this period, which was partly offset by a dividend paid in March 2026 in an amount of ILS 144.8 million. The surplus liquidity over regulatory requirements totaled ILS 322 million compared to ILS 310 million at the end of 2025. Lastly, let's look at Slide 20, where we can review the second quarter cash flow highlights. Cash flow from investing activities resulted in negative cash flows of ILS 13.9 million compared to a negative cash flow of ILS 11.9 million in the same quarter last year. The increase is due mainly to larger investment in equipment and intangible assets and in marketable securities. Cash flows from financing activities resulted in a negative cash flow of ILS 13.2 million, similar to the same quarter last year. TASE's free cash flow increased by ILS 45.3 million compared to the same quarter last year and totaled ILS 95.6 million. The increase was mainly due to the increase in the EBITDA. In conclusion, TASE's strong performance in the first half and second quarter of 2026 demonstrates its solid foundation as well as the fundamental resilience and growth potential of the Israeli economy. 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, Ittai, maybe to start, you've had a solid first half of the year in terms of new issuance. Maybe talk about the outlook for kind of IPOs. You said there were 3 new dual listings, and I think you also mentioned some ongoing conversations. So maybe talk about that as well in terms of the potential for the dual listing opportunity as you think about the second half of the year.

Dan, sure. So with respect to the IPOs, what we've seen in the past few weeks that because of the market volatility, there's more negotiation and some of the IPOs close out in a lower valuation than the company wanted when they started the process. So put aside the valuation in terms of the number of the pipeline, it still remains strong. We still have various companies from various sectors that intend to do an IPO, of course, assuming market conditions, et cetera. And with respect to the dual listed, clearly, Palo Alto attracted a lot of attention. We've never had so many discussions with companies about dual listing like we are having in the past few months. There is an issue that certain companies have dual class of shares when they trade in New York. And in Israel, it's not possible to actually list your shares if you don't have one class. This is something that the ISA, our regulator, has been pushing within the Israeli parliament. But eventually, even the intention was to make the legislation pass. So actually dual listed companies can dual-list the shares in TASE eventually, it didn't go through. And now we have to wait for a few months once there will be an election and a new government. And then hopefully, the ISA will be able to make it happen. And apart of it, we still have other companies that have only one set of shares that are evaluating the opportunity. So we don't have an exact estimate that we can give of how many companies will do it. But I would say that since -- since we started our journey, we are in the best position that we've ever been. And we -- and I also think that given what is happening in the past year in New York, what it takes for a tech company to do an IPO, we see more and more global banks that are discussing with private tech companies, the possibility of doing a global offering on TASE like we did. And I think that it's only a question of time before there will be some tech companies that will try this element because you need to have now like $500 million ARR if you want to do an IPO in New York, plus we have a more liquid and more international activity in our market. So overall, as you know, you can't really timing what exactly will happen. But I would say that the outlook is positive in that respect.

Great. Yes, that's very helpful. And then just on the clearinghouse revenues, which continue to be quite strong and obviously, market levels and balances have been helpful. But as you think about the go forward, as you anniversary the change in pricing, how should we think about growth in that stream of revenues as we think about the second half and into '27?

Yes. So we still have another step-up in the pricing that will go into effect in January 2027. But apart of that, I will say that doing the transition from mutual to a for-profit takes time. And I think that it took us a few years basically to make sure that everything that is settled and cleared in Israel will be in global standard like the global clearinghouse. And I think with all of the changes and the reforms and products that we did, we basically -- now we are in a position that you can't bypass anything that we offer, which is very similar to other clearing houses. So when you put it into respect to more trading and also the fact that AUM is increasing, you get overall the increase in fees that you see in our report.

Got it. And then a couple of other things that you disclosed on the call. So could you -- the share grants for the employees, so I want to make sure I understand, I guess, what is the -- from an expense perspective for compensation now that you're giving shares instead of maybe cash bonuses, how should we think about the math of what that means from a growth in compensation going forward?

Well, there is no growth in compensation because we have the agreement with the employees, which is until the end of 2028. With respect to that agreement, we had a clause that said that as long as the company is making enough profit, the employees are eligible to get salaries. But when you calculate the salaries, 85% of it is in discretion of management and 15% is actually uniform is fixed. And on top of it, you have the maximum cap, which we are already in, and this is part of the operational leverage that we see. So the agreement that we've signed with the union on that matter says that basically '26, '27, '28, instead of the cash component, there is an option component that has been granted to the employees. So it's actually a switch.

Okay. So it's a switch from cash to options. And so from a reporting perspective, there's no difference?

Come again, Dan. I didn't hear the last sentence.