TMX Group Limited (X) Earnings Call Transcript & Summary

All right. Good afternoon, everybody. It's almost 2:00. We'd like to start right on time if it's at all possible. All right. Thank you very much. Thank you all for coming. Good afternoon, again, ladies and gentlemen, my name is Luc Bertrand. I am the Chair of the Board of Directors of the TMX Group. [Foreign Language] As prescribed by our bylaws, I will preside Chair of this Annual and Special Meeting of the TMX Group. Joining me on the podium today are John McKenzie, the Chief Executive Officer; David Arnold, the Chief Financial Officer; and Cheryl Graden, the Corporation's Chief Legal Enterprise Corporate Affairs Officer and Corporate Secretary. Also joining me are most of my fellow directors, members of senior management and our auditor, KPMG. We are delighted to welcome some of you today in person, and we also welcome those of you joining us virtually by webcast. Thank you for your interest in the affairs of our corporation and your corporation for that matter. I am also pleased to welcome many employees of the company, most of whom are shareholders of the TMX Group. I would like to begin by acknowledging that the land on which TMX Group operates in Toronto is a traditional territory of many nations, including the Mississauga of the Credit, the Anishinaa, the Chippewa, the Haudenosaunee, the Wyandot people. All these people of course at one time or another were here, an organization with a national footprint, and operation across the country like the TMX. We are indeed very grateful for the rich indigenous history, traditions and contributions that they have made to Canada. I now formally call the meeting to order. And with the consent of the meeting, I request that Cheryl Graden, act Secretary of the meeting and to respond to any questions during the meeting regarding procedural matters. Good to go, Cheryl?

Yes. Thank you.

Thank you. All right. You can't proceed though because your counsel tells you too. Our goal is to ensure that shareholders joining us virtually are able to participate fully in the meeting. Shareholders and proxy holders who have logged into the TSX Trust web platform with their control numbers or their meeting access numbers may ask questions during the meeting by clicking on ask a question button displayed on their screens and following the instructions to submit them in writing. Our Corporate Secretary, Cheryl Graden, will receive all the questions submitted. I encourage you to submit your questions as early as possible so that we may address them at the right moment during the meeting. We would ask that anyone present in the meeting here today who wishes to speak do so through one of the microphones that are available so that the participants who are on the Internet can hear you. We would ask that questions or comments, whether submitted online or in-person related to matters currently before the meeting, and we will do our best to respond to all your questions, of course. If there are any questions pertinent to the meeting matters that are unanswered this afternoon due to some time constraint or other, management will post answers to a representative set of such questions online. Members of the media are permitted to attend this meeting. However, they may not participate in the meeting. Following the meeting, members of the media may reach out to Shane Quinn, who is our Vice President Corporate Communications and Brand Reputation or to Catherine Kee, who is our Senior Manager of Corporate Communications and Media Relations, for any questions that they may have for John McKenzie or David Arnold. Pursuant to a resolution of the Board, I appoint TSX Trust Company by its representative, Steven Nguyen to act as scrutineer of the meeting. The scrutineer will report on the number of voting shares represented in person or by proxy at this meeting and will compute the votes on the ballots taken. Before proceeding further, I would like to say a few words about the shareholders who have signed and delivered proxies for the meeting. Only registered shareholders who held shares on March 6, 2024, and those persons appointed as proxies for the shareholders are entitled to vote and participate at the meeting. Any shareholder or proxy holder who is present in person has not yet registered his or her attendance with TSX Trust Company, please do so now. Representatives of TSX Trust Company, the corporation's registrar and transfer agent are outside the room and have a list of shareholders as of March 6, 2024. Registered shareholders and duly appointed proxy holders who have logged into the TSX Trust web platform with their control numbers or their meeting access numbers and who have not voted and wish to vote during the meeting may vote live throughout the meeting until voting is closed. The matters to be dealt with at this meeting includes: first, the reappointment of the corporation's auditor; secondly, the election of directors for the coming year; and finally, the approval on an advisory basis of our approach to executive compensation. All these matters have been set out in the notice of Annual and Special Meeting and in the management information circular made available to all shareholders well in advance of the meeting today. Before we begin the formal part of our agenda, I would like to take a few moments to reflect on the past year for the TMX. TMX delivered positive results in 2023 and made a meaningful progress in advancing the company's key initiatives. In a period of significant challenges for the financial industry as well as business and economies around the world, TMX's success reflects a diverse and resilient business model and the efficacy of a long-term global strategy. I want to thank our partners across our stakeholder community for partnering with the TMX to ensure that our markets remain the best in the world and able to perform their vital function in generating economic opportunity and growth. I also want to take a moment to acknowledge a special milestone for one of the TMX's core businesses and most prominent brands and it's also a source of great pride for me personally. In 2024, we will be marking -- or we are marking the 150th anniversary of the Montreal Exchange. TMX is intertwined with the evolution of the financial industry in the city of Montreal and Canada's capital markets. A legacy of market leadership innovation endures as TMX continues to evolve and diversify to better serve participants and invest around the world. [Foreign Language] In a year marked by solid performance and key operational highlights, TMX achieved an important milestone in advancing our growth strategy in 2023 with the acquisition of VettaFi, which is a U.S.-based indexing digital distribution, analytics and thought leadership company. In addition to TMX VettaFi, it brings a leading platform in a large and growing market to TMX's information business and a team of proven talent to our employee base. I want to welcome all of the TMX VettaFi people attending in person, or online this afternoon for their first annual meeting as TMX employees. 2023 was also a year of important progress in our sustainability efforts. I have a problem with that word, sustainability, that's a problem being bilingual. TMX approach to sustainability recognizes in addition to our business objectives, our responsibilities as corporate citizens. In 2023, we refined our strategy in an effort to create closer alignment between the needs of our clients and stakeholders, our business and the broader operating environment. Our detailed strategy is included in this year's sustainability report as well as an update to our ED&I program as we work to foster a more equitable diverse and inclusive workplace. And our indigenous reconciliation journey also continues. Notably, in November, TMX Group achieved Phase 2 of the Canadian Council for Aboriginal Business Progressive Aboriginal Relations or the acronym is PAR certification program. As we look to the future, our senior management team remains focused on ensuring our markets remain vibrant, adaptive and resilient to the benefit of our broad group of stakeholders. While an eventful and impactful period for the company, 2023 also marked my first year as TMX Chair. And I would like to thank my fellow directors for their help in ensuring a smooth transition and for their ongoing [ council ] and there dedication to the company. In particular, I wish to thank Kevin Sullivan and acknowledge also Kevin's work. He is retiring from the Board this year. Kevin, thank you for your work, for your steadfast commitment to the TMX Group and our stakeholder community and for your valuable contribution to the Board over the years. You want to stand up, Kevin. In closing, on behalf of the entire board, I want recognize the efforts of our TMX's excellent senior management team led by John McKenzie, and thank all of our employees for delivering on their commitment to serve our markets with excellence and integrity. I also want to thank our clients across this powerful interconnected network of entrepreneurs and investors, participants in industry professionals for their patronage and for their business. And finally, I wish to express my appreciation to you, TMX shareholders and stakeholders for your ongoing confidence in the board. We are most enthusiastic about TMX's future, how the strategic steps we took during 2023 to accelerate the company's evolution and the investments we made in our burgeoning global information business, which will position our markets for success in the long term. Thank you. Now I'll ask to John McKenzie to say a few words.

Thank you, Luc. Hello, and good afternoon, everyone. I really appreciate you all being here. And to those of you here in the TMX Market Center today in Toronto, those people participating in the webcast today, thank you for your attendance and your interest in today's shareholder meeting. On behalf of all of us at TMX, I want to wish everyone here and out there a fantastic spring season, which I swear was a lot more beautiful this morning when we first put our notes together for the meeting today. [Foreign Language] Now my comments today, I want to take you through a few of the key performance highlights from last year and provide you with a high-level update on our latest reporting period, which we released Q1 earnings just last night. And I will say, as we were talking before the meeting that this is actually our 22nd AGM as a public company. I don't believe we've done one before where we hit an all-time record stock price on the day of the meeting. So congratulations to everyone on that today. It does make it easier meeting for us to have. TMX's 2023 was marked by a number of significant accomplishments across our business and tremendous progress in advancing our long-term growth strategy. And capped off as Luc said, with a game-changing acquisition, which we closed on the first business day of 2024. And our positive results are no accident. Our sustained growth during '23 and through another solid quarter of 2024 reflects the power of a global enterprise that we have built over time, deep, diverse and resilient business model. And candidly, it all starts with our people. We have a talented and dedicated team with an always-on commitment to seeking out strategic opportunities to move at the pace of the market. Accordingly, 2023 is already shrinking in the distance behind us, and our eyes are turned towards the road ahead. And 2024 is off to a very promising start. So let me turn now to TMX's performance. We reported full year revenue last year of $1.19 billion, a 7% increase from 2022 driven by double-digit growth from the Global Solutions, Insights and Analytics, or GSIA, segment, which includes TMX Trayport and TMX Datalinx as well as higher revenues from derivatives trading and clearing, excluding BOX. And in the face of persistent challenges across much of our operating environment throughout 2023, we reported 4 consecutive quarters of year-over-year revenue growth. Increased revenues was partially offset by the impact of lower capital raising activity in our listings businesses, as well as decreased revenue from equity and fixed income trading as a result of lower trading volumes on Toronto Stock Exchange, TSX Venture Exchange and Alpha. Now moving to some of the highlights from our business areas. Revenue from GSIA increased 16% from 2022, driven by TMX Trayport and TMX Datalinx. And simply put, 2023 was simply an outstanding year for GSIA, our fastest-growing segment and has been a driving force on our overall success. TMX Trayport's revenue grew 23% compared to 22% or 17% in pound sterling. And we continue to build on TMX Trayport's success in connecting energy traders to premier execution venues and clearing houses across world power and natural gas markets. Our TMX Trayport growth strategy is focused on expanding the reach of that proven expertise and pursuing opportunities to support the growth and demand for quantitative and automated trading approaches in existing and new markets. And our growth momentum continued through the first quarter of 2024, with revenue increasing 21% compared to Q1 of last year or 16% in pound sterling. And big wins in the quarter included existing clients expanding their usage and new clients signing on, including large European energy utilities, including 11 new trading firms. Now in TMX Datalinx, revenue increased by 11% in 2023 as the team continued to build on its broad suite of multi-asset class data and analytics solutions. And look for ways to solve challenges and create competitive advantages for our clients. Further to our global benchmark and industry strategy, TMX played an important role in Canada's transition to a new commercial interest rate, participating in the creation and delivery of the new term CORRA benchmark. This new transaction-based and risk-free benchmark gives industry participants complete transparency on both the data sources, core futures traded on the Montreal Exchange and the methodology used to arrive at its rates. And in reporting on last night's results, TMX Datalinx grew a further 4% year-over-year, largely due to higher revenue from benchmark and indices, including the new term CORRA benchmark. Now I mentioned earlier the game changer. So in January this year, we completed the acquisition of VettaFi, a U.S.-based indexing, digital distribution, analytics and thought leadership company and a leading platform in a large growing market. Now TMX VettaFi, the business includes an index calculation engine that provides data on more than 300 global indices. A large number of international clients who stand to benefit from access to TMX content now. And advanced digital distribution capabilities to effectively amplify an ETF issuer's ability to reach a network of advisers. The addition of TMX VettaFi creates value for our clients, strengthening our ability to meet the needs of the indexing and ETF community all around the world. And as we articulated back in December when we announced this deal, it fits squarely within TMX's strategic, financial and transformational objectives, which David will talk more about in his discussion of our financial results. Now February marked TMX VettaFi's premier annual event, a 3-day conference called Exchange. This year's addition was a major success with close to 2,000 conference attendees from across the ETF and financial service industry. And the feedback our team received was overwhelmingly positive. In addition, Exchange also provided immediate evidence as to how the addition of TMX VettaFi strengthens our connections to this important client base. The event served as a powerful networking opportunity for our various business development teams, including listings, trading, TMX Datalinx, it has a whole of the enterprise effect. And our experience working together from the time of TMX's initial investment in early 2023, really gave us a strong indication of the caliber of the talent and the opportunities in front of us in this newly formed team. And I hope you can hear it in this -- the tone of my voice, the smile on my face, but we are extremely excited about the future and what this team has done as part of TMX so far. Now as I turn towards our derivatives business and as we celebrate the 150th anniversary of the Montreal Exchange, derivatives trading and clearing revenue, excluding BOX, grew by 13% year-over-year. MX total volume were 15% compared to 2022 in a complex macro environment with continued inflationary pressure and central bank activity. The overall MX performance highlights included higher volumes and interest rate products, ETF options and equity options trading when compared to 2022. And we have seen significant progress in recent MX product development initiatives, including exceptional growth in our 3-month CRA contract. The CRA contract surpassed [ backs ] and volumes traded and open interest during the fourth quarter of 2023 and set a new record in the first quarter of 2024 with more than 93,000 contracts traded. It is now established as the product of reference for short-term rate management as the industry prepares for the transition from CDOR to the Canadian Overnight Repo Average Rate or CORRA planned just for next month. In the first quarter of 2024, derivatives trading and clearing revenues, including BOX did decrease by 3% year-over-year. And this was really due to an unfavorable product mix with a 3% overall decrease in volumes traded. We remain encouraged though by the continued upward momentum in some of our key product areas and overall liquidity remains strong. Open interest, a key leading indicator for growth in the business at March 31 was up 16% higher than the same date last year. I'd like to talk a bit about capital formation. And certainly, capital formation has been an area that the marketplace has been very challenged over the last year or so. Although though, 2023 revenue still was $268.2 million and was a 3% increase from 2022. And now this really reflected higher revenue from TSX Trust. And it was partially offset by the lower revenue from additional listing fees due to decreasing -- the decreased number of financing transactions and dollars raised on the Toronto Stock Exchange and a decrease in total financing dollars raised on TSX Venture Exchange. 2023 was an extremely challenging year for many of our listed clients and prospects here in Canada and around the world. Those macroeconomic factors including a high interest rate environment, the inflationary pressure has had a negative impact on capital raising conditions. But despite these conditions, 2023 features some important success stories and competitive wins for our unique 2-tiered ecosystem, and we continue to build on its track record for facilitating growth. We had 12 companies graduate from TSX Venture to TSX during 2023, adding another $4.3 billion in market capitalization to our senior market. We also work on more than a dozen uplistings, or graduations from other marketplaces to our market in 2023, adding another $5.6 billion in market cap to the Toronto Stock Exchange. And from the time that Toronto Stock Exchange invented the ETF prototype in 1990, we've worked closely with providers to bring unique investment opportunities to a broad retail audience in support of growth in the industry. If you were here this morning, you would have seen Harvest ETFs open market today with 3 new ETFs just recently listed on Toronto Stock Exchange. And today, we have close to 1,000 ETFs listed from 41 providers, including 114 new ETF listings in 2023 and representing more than $433 billion in assets under management. And this industry continues to expand. Net new fund flows in Canadian ETFs totaled $38.4 billion in '23 and really more impressive when you compare that to the outflows of $57 billion from the Canadian mutual fund industry. So our TMX business model has proven resilient and resilient over time and is largely a reflection of the intrinsic and enduring strength of Canadian markets. Canada has what it takes to be an economic powerhouse. We have rich natural resources, a highly educated workforce. We've got a healthy spirit of innovation, entrepreneurship, willingness to invest, but we need to always be creating the conditions for that sustained success. And defining that we is very important to me and who is the we. All capital market stakeholders, the financial services industry, market operators, participants, regulators and policymakers together have a shared responsibility to all Canadians to make this country a great investment. TMX will continue to be 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, clear globally competitive incentives for entrepreneurs, workers and investors and the opportunity to share in the success of great Canadian companies. And we have seen some progress and evidence that our voice is becoming to be heard. Just recently, if you look to the budget, we saw that policymakers started to understand the importance of our small-cap ecosystem, with notice that they would look to expand R&D tax credits to small public companies. This is a really encouraging development, and is a key recommendation that we have been working on for years with policymakers. And it is a small step forward. However, at the same time, we share the concerns of many of Canada's business community and investment community around the announced increased to the capital gains tax inclusion rate, as this will add another disincentive to investing in Canada, at a time where we all need to be laser-focused on attracting capital and competing for global investment flows. We need to be collectively finding ways to incentivize risk-taking, measures which we could include an expanding and proven and effective mechanism, the flow-through share program, as we have suggested, rather than imposing stricter limits on rewards. So our simple ask is for the government to take a pause, to engage directly with representatives from the industry that are most effective -- affected and to gain a better understanding of the impacts of a material tax hike and the unintended consequences and work with us towards viable alternatives. Now the last piece I'd like to update you on our progress on a shareholder led initiative that Luc spoke a bit about in his notes. We undertook in 2021 to improve indigenous relations and inclusion at TMX. As Luc mentioned, last year, we completed Phase 2 of the Canadian Council for Aboriginal Business, or CCABs, Progressive Aboriginal Relations Certificate program. Over the past 3 years, we have made important progress on our company's reconciliation journey and always stressing the need to prioritize action over words. We're here to make impacts, not to make statements. In October, we were extremely proud to host the first ever TSX indigenous Investor Day here at this market center. For TMX, connecting entrepreneurs and growing businesses to potential investors is a fundamental core function. It's what we do every day. And so this event marked an especially important milestone as we were able to bring a range of decision makers together to discuss strategies for growing indigenous-led businesses to the benefit of these businesses and investors as well as the broader community and ultimately all Canadians. In late in 2023, we were able to demonstrate with our partners VettaFi by building an index for power certified companies like us that companies that engage in indigenous reconciliation actually outperformed the broad market. Canada's markets have an outstanding track record for helping visionary entrepreneurs and early-stage business, raise growth capital, enabling investors to participate in that growth. And TMX, we are committed to build on that track record, enabling more efficient access to underrepresented groups and emerging industries like this long into the future. So in closing today, I do want to acknowledge that the exemplary effort of our people, TMX has operated for 172 years at the center of the market here in Canada at the heart of our nation's economy and the leading exchange in the exchange industry. It's a history that we were very proudly -- and as we continue to move to diversify and expand our footprint and reach new clients around the world, we continue to be driven by our purpose here to make markets better, to empower bold ideas. So my sincere thanks to all the employees for their commitment to the organization and to serving our global client base with excellence every day. It really is my privilege to get up here and come every day and to work with the team that is so passionate and talented for what we do. I'd like to actually echo one of the remark from Luc, it always fortunate for a CEO to be able to work with the Board that is not only supportive and encouraging but it builds trust that makes this job easier to do as well every day. And with that, Kevin, as you retire, and I'll thank you, not just for your participation, but for the personal mentoring, challenge, leadership along the way. My thanks to you, Kevin. And with that, thank you very much, Luc.

Thank you, John. We now return to the business to be conducted at this meeting. All proxies will be voted as instructed by the shareholders. Only the proxy holders and registered shareholders present in person or attending this meeting virtually who have not voted or who have previously returned a proxy and now wish to change their instructions and vote differently need to complete a physical or online ballot as applicable. If you are attending this meeting in person ballots for each matter were provided to -- by the scrutineer to all registered shareholders and proxy holders when you register. If you did not receive ballots upon registration, please raise your hand, and the scrutineer will provide them to you now. To complete your ballots, if you are in favor of the motion, mark an X in the box opposite to the words For. If you are against the motion or wish to withhold your vote on a motion, mark an X in the box opposite the words Against or Withhold, as the case may be. Please sign your name, and if you are a proxy holder, indicate the name of the shareholder for whom you are a proxy and confirm the number of voting shares that you or your ballot represents. The ballots will be collected by the scrutineer following the last motion. If you are attending this meeting virtually and have logged into TSX Trust web platform with a control number or a meeting access number, you may vote by clicking on the applicable voting option. Your vote will be automatically submitted to TSX Trust or our scrutineer, after click on your choice. Votes may be changed up to the time voting is closed. If you do not choose For, Withhold or Against as applicable and if you have not previously submitted a proxy, your vote will not be recorded, and you will be regarded as having abstained from voting. At this time, I ask TSX Trust officials to officially open the online polls. The result of the ballots will be tabulated by the scrutineer announced prior to the conclusion of the meeting. Unless requested, I will not repeat these voting instructions for each motion. A simple majority of the cast votes or the votes cast, I'm sorry, in person or by proxy will constitute approval of all matters voted on at the meeting. To make the best time -- the use of time, we've asked 2 employees, shareholders of the corporation, [ Michelle Tran ] and Nina Bai to move and second all motions. I will call on them at the moment at the appropriate time. I understand a quorum is present, so I propose to commence the business of the meeting while the scrutineer prepares report on attendance. The notice calling this meeting and the Management Information Circular have been made available to all shareholders of the corporation entitled to vote to the directors of the corporation and to the corporation's auditor. The Corporate Secretary has filed with me proof of service of the notice of meeting, which is available for inspection. The last Annual Meeting and Special Meeting of Shareholders for the corporation was held on May 2, 2023. The minutes of that meeting are available for review by any shareholder. I will now request a motion that these minutes be taken as read. Cheryl, are there any online questions related to the motion that the minutes of the last annual meeting and special meeting of shareholders of the corporation be taken as read?

No, we haven't received any questions.

Thank you. We will now proceed with the vote. All those in favor, please, signify by raising their hands. [Voting]

Any contrary, Cheryl, are there any line -- objections online to the motion?

No, none.

Everybody agrees here. Great. I declare the motion carried. I will now call upon the secretary to present the scrutineer's report on attendance.

The scrutineer reports that there are 315 registered shareholders or proxy holders present and holding or representing 238,744,410 shares or 86.18% of the issued and outstanding shares on March 6, 2024, the record date of the meeting. According to the bylaws of the corporation, the quorum is present. The written report will be delivered to you at the end of the meeting.

Thank you. Based on the scrutineer's report, I declare a quorum to be present. I therefore declare the meeting to be regularly constituted for the transaction of business. The next item of business is to consider the audited consolidated financial statements of the corporation for the year ended member 31, 2023, and accompanying notes, together with the auditor's report and the management statement, all contained in the corporation's annual report mailed to those shareholders who requested a copy prior to this meeting. The Board of Directors has approved the audited consolidated financial statements, and I now place them before the meeting for consideration. David Arnold, the corporation's Chief Financial Officer, will present the highlights of the financial statements later in this meeting. Are there any questions related to the annual financial statements?

No, none.

No questions online either and no questions here. Great. The first item of business is the appointment of the auditor. For the current year, I will ask for a motion appointing KPMG LLP and the auditor of the corporation at the remuneration to be fixed by the board of directors until the next Annual Meeting of Shareholders and for a seconder of this motion.

I move to appoint KPMG LLP as auditor of the corporation until the next Annual Meeting of Shareholders and authorize the Board of Directors to fix the remuneration of KPMG LLP.

Thank you, Michelle.

I second the motion.

Thank you. Thank you, Nina. You have heard the motion. Is there any discussion? Cheryl?

No questions.

No questions online either. Please mark your ballots on the motion to appoint KPMG LLP. The physical ballot on the appointment of KPMG is the purple ballot. We need more time, or we're good?

We're okay.

We're okay? Okay. We will now proceed with the election of directors. The number of directors to be elected has been set at 11 by the Board. All 11 of the recommended nominees have been approved by the Board of Directors and have consented to stand for election to the Board. Additional information about the recommended nominees is contained in the Management Information Circular. Our director qualification policy provides that an uncontested election of directors, any nominee who receives a greater number of votes withheld, then votes for will tender his or her resignation to the Board promptly following our annual meeting. I would ask each nominee who is present to stand when his or her name is announced. I now declare the meeting open for nominations.

I have the pleasure of nominating the following 11 individuals as directors of the corporation to hold office until the next Annual Meeting of Shareholders or until their successors are duly elected or appointed. The individuals are Luc Bertrand, Nicolas Darveau-Garneau, Martine Irman, Moe Kermani, William Linton, Audrey Mascarenhas, John McKenzie, Monique Mercier, Claude Tessier, Eric Wetlaufer and Ava Yaskiel.

I second the motion.

Thank you. Does any shareholder or a proxy holder wish to make a further nomination? Cheryl, anybody online?

No.

No? We're good. Since there are no further nominations, I declare the nominations closed. 11 persons have been nominated as director and are 11 directors to be elected. Please mark your ballots on the election of the directors in the manner indicated at the meeting. The physical ballot on the election of the directors is the white ballot. [Voting]