TMX Group Limited (X) Earnings Call Transcript & Summary

All right. Good afternoon, everyone. Welcome to our -- one of our last sessions of the day in this room. I'm Ben Budish, Barclays analyst covering the U.S. brokers, asset managers and exchanges. And for our next session here, we've got David Arnold, CFO of TMX Group, David, thanks so much for being with us.

Pleasure. Thanks for having me.

Maybe just to kind of kick things off, talking about the broader macro environment and your capital formation business. How are you seeing activity within that business? What's the outlook for the rest of the year and next year as far as you can see it now given the current pipeline for potential financing activity?

So Ben, it's interesting. I mean, there's green shoots is probably the best way to describe it. We're seeing some signs of a turnaround. But it's early days. From a TSX perspective, we've got about 78 IPOs year-to-date versus roughly 70 a year ago at the same time. So definitely better. But let's be honest, last year was definitely a low point globally for IPOs. Starting to see some pickup as well on secondary financing, so that's probably another good sign. But really, the pipeline is as robust as it's ever been. I mean, our pipeline right now, Ben, is just topping out around 2,000 companies at various stages of the IPO kind of cycle. So it looks good, but early days.

Got it. So the pipeline, at your Investor Day, you talked your international opportunity, I think you mentioned 150-plus new listings since 2018 from the U.S., Europe, Israel, Australia. So maybe you could talk a little bit about how that looks in the current pipeline and maybe high level longer term, how do you see that opportunity unfolding in terms of new geographies and gaining scale within existing regions?

So yes, the 250 since 2018 is an important step. I look at another one, which is the life to date, it's roughly around 230 international listings. So -- and those come from various different geographies, right? We have boots on the ground in areas where we know that we can win. So for example, we have boots on the ground in Australia, large mining, oil and gas kind of infrastructure there. We also have boots on the ground in various parts of the U.S., Israel as well with the start-up nation. As you know, historically, the exchanges was known as one that was weighted more heavily towards mining, et cetera. During the pandemic, we actually saw the first time where our innovation sector, so technology and so forth, was actually larger than mining. And so that's why we have individuals in parts of the U.S. like Palo Alto, but also individuals in the start-up nation, Israel, Tel Aviv.

Got it. Maybe staying within the Capital Formation business. So you recently acquired Newsfile, a Canadian-owned news dissemination and regulatory filing provider. Can you just talk a bit about more about what this business is, how it fits into the broader TMX business?

Yes, absolutely, Ben. So one of the things that we're really focused on in our capital formation business is building out what we refer to as other issuer services. And if one rewinds just not too long ago, we acquired AST Canada to really bolster our trust and transfer agency business. And that's on our other issuer services line because providing services to both public and private companies is part of the strategy. So Newsfile was one very similar. It's a really neat company. It's one that we had curated a relationship with the principles over a number of years. And it's a perfect fit for us. It's got 1,700 clients, 1,100 of which are listed companies and issuers, but 600 of which are private. And so that adds to not just the IPO pipeline, but the other services. And I think that the play with this business is a -- it's a revenue and growth play as opposed to a cost and a synergy play.

Interesting. Well, the other big piece of your other issuer services is the trust business. How do you think about medium-term growth here? You mentioned AST. Where are we in terms of the synergy potential or opportunity? And to what degree are new relationships they are dependent on the IPO market?

So a couple of parts to that question. So the first one is we classify our businesses into either market growth, strong growth, or high growth. And strong growth will be 5-plus percent. Market growth is grow as the market goes, and high growth would be high single to double digits. So the trust business for us is one that we classify as a high-growth business. And that is absolutely what we've seen in the track record of the business since not only preacquiring AST Canada but since the acquisition. The acquisition and integration is pretty much done. What we're really focused on right now is modernization, right? Modernization of tools and technology, be far more responsive to our clients' needs. It's a business where most of what we do at TMX is what I would refer to as B2B. But in this part of the business, there is a bit of a B2C, right, because a lot of the shareholders are like consumers that are calling in to a help desk, I didn't get my dividend, this share transfer, can you help me trace it and so forth. So being really good at client service for that segment is fundamentally important for the business. So we're doing some really innovative things there. We love what's happening with some of the artificial intelligence and machine learning because we think we can do it there, too. But the last part of your question, Ben, was, how is this tied to kind of the listings and the IPO activity? And there's no doubt that through the last 18, 24 months with this kind of global slowdown, if you will, in IPO activity, that's stifled the pipeline for us winning new transfer agency mandates. But as that comes back, that puts us at the front of the queue for it. Because the business is well diversified, Ben, we've been able to benefit from high interest rates through the cycle. So while the kind of IPO flow that drives the custodial activity has been lower, the interest income has kind of offset that.

Got it. So I think the pipeline, what the next few years could look like if that sort of comes to fruition, maybe in an interest rate neutral environment, if you could help out a lazy sell-side analyst, like how does that translate into a pickup in growth of the trust business, or assuming it should?

Yes, it should. I mean, so one of the statistics we look at internally is our market share is in the low 30s. Number 1 in the marketplace is Computershare, right, slightly ahead of us. But we are winning more than 50% of the mandates that we bid on, right? So that tells you that we're gaining market share in the marketplace. And I think as the IPO activity comes back, that bodes really, really well for us for winning those mandates. But the tough thing is being someone's transfer agent is a very sticky part of the business, right? And so winning on new IPOs, we're front of the queue, which is great. But on existing public company mandates, it's a tough slog. So what we do is we focus on the ancillary businesses, maybe employee share purchase plan, maybe helping them with some trust mandates so that the only thing that's left at the end is the custodial. And so then we can actually win that at the end.

Right. makes sense. Let's move over to the trading and clearing business. So on the trading side, you're in the process of building out a U.S. ATS. So maybe a little bit of background here. I think you're basing this on your alpha Ex tech in Canada. So what's unique about that exchange and why pursue the opportunity in the U.S. where competition is already quite intense on the trading side?

Yes. And so in the interest of time, I'll really summarize it, right? We launched Alpha Ex in Canada. It's been very well received. We didn't launch it in a laboratory where we came up with an idea. This was really client-driven. It was listening to a lot of our clients, Ben, who had said, we need help on better order execution and routing. So the solution is really geared towards that. We have 40 participants sending active order flow daily through the environment. And that then spurred on the discussion with those clients about, we're in the U.S., we love the features, the functionality of Alpha Ex, can we do something in the U.S.? And that kind of led us towards Alpha Ex U.S., which is kind of the U.S. ATS you talked during your question.

Got it. So for that build specifically, I think you've already laid out your expected 2024 OpEx and CapEx related to the project. How should that trend in 2025? And then how do you think about what the revenue potential looks like? How do you think about your ROI framework? Can you weave into what's going on in Canada and translate that into U.S.? And how do you think about those pieces?

So a couple of those pieces I can't get into because it's competitive information and time will tell. But even a 0.5% or 1% market share in the U.S. is really meaningful for us as we build it out. Obviously, we have disclosed that we are in the build phase right now, so we're spending on OpEx. And there's a limited amount that we can capitalize because we're in that build stage. But what we are able to disclose is that we have received FINRA approval. We're now in the SEC approval part of the chapter. The development is going really, really well. We have a number of participants who've actually committed, both verbally and on a piece of paper. So we actually got some agreements that we're papering so that when we do receive final approval, we're ready to go and launch literally within 30 to 60 days of receiving kind of approval.

And just so for us to all kind of know and understand, when an exchange like that launches, what do you think the initial sort of benchmarks are? How long before it achieves sufficient liquidity? At what point can you determine success/failure? What do you think the next first 6 to 12 months look like?

Yes. So typically -- and it will be -- as John and I have discussed many times, we will know within the first 2 to 3 years whether or not this is going to gain enough meaningful traction for us. We will have a few KPIs that we look at internally that will really drive us. But the secret source for us here, Ben, is that this is a bit of a win-win for us, right, because we've had a unique opportunity to develop next-gen matching engine technology on the top of the cloud so that we can actually port that back to Canada down the road. So if we're successful in the U.S. and we port it back to Canada, that's the win-win. If we're not successful in the U.S., we can still port it back to Canada, which is the other win.

Makes sense. So you're entering the U.S. markets, but there's some U.S. competitors entering the Canadian markets. How do you think about competitors in the Canadian exchange space? You have pretty deep competitive moats. There's yet another U.S. exchange, which has already acquired a Canadian property, but they'll kind of be undergoing a tech migration next year. How do you think about sort of protecting what you have because I think it's fairly well understood, your moat is quite deep there. But it's a high-quality competitor moving in, so how do you...

Yes, absolutely. And so -- and the high-quality competitor that's moving in is Cboe bought NEO, which has a match in our property as well. And we're actually excited about that because it brings a little bit more rigor to the marketplace, right? So we love the fact that NASDAQ with its high standards, operate in our marketplace, too. Our market share has been anywhere between 60% and 65%, and we're very happy with that. We wouldn't want to see it go lower, but we also don't have a vision of moving it even higher, right? It's healthy to have some competition in our space. I think the interesting thing will be, are there additional plans and innovations that our competitors bring to market? And how quickly can we react to those? We have a few of our own innovation projects on the go, too. So having a competitive environment for us is actually quite healthy.

All right. Maybe kind of a separate question. Can you maybe unpack what you're doing in terms of post-trade services? There was some talk about this at your recent Investor Day. And then in terms of the impact of TMX, how do you think about the timing, magnitude of any contribution to overall growth?

Yes. So that's a great question, Ben, because historically, our post-trade businesses have been considered and operated by other owners in other jurisdictions, there's somewhat of a utility, right? We've actually challenged our teams and they've risen to that challenge by how can we actually make post-trade growth engine, right? And it's a bit of a rallying cry internally, which is post-trade can be a growth engine. And so the first thing we did is we had a number of conversations with our clients. And one of the key ones that came out in the Canadian marketplace is collateral management, right? So earlier this year, we launched a product called CCMS, which is a Canadian Collateral Management System. It's in partnership with Clearstream, and it's been so well received. It is truly innovative, and it really helps people in the space manage their collateral. So it was something that each institution would need to build on their own and maintain. Now we'll actually be able to provide that service to be part of it. In addition, we've actually launched another product literally at the end of the first half of the year called SGC, which has Secured General Collateral moats. Also well received. Once again, meeting a need of what's needed in the marketplace. So we have a few others that are not yet live, so we won't talk about them. But we are challenging the teams, Ben, to make post trade a growth engine. And so stay tuned in this space.

Got it. Maybe moving on to derivatives. So let's start with your longer-term outlook. In the U.S., there's a bit of an investor worry that lower rates could be a headwind for at least the interest rate futures trading business. How do you see this playing out in Canada where a similar kind of outlook is expected?

So it's very interesting, right? Rate volatility is really positive for the interest -- for the derivative and especially the interest rate derivatives side of the equation. But what I find most interesting is when the volatility is a major surprise to the market participants, right? Folks are expecting a rate hike of 25 basis points and Central Bank does 50. Or there are folks expecting a rate decline and there's nothing. And so that causes a little bit of volatility. But if you look behind what's going on in the marketplace, Ben, we've had 10% volume growth in the derivative complex over the last 10 years, that's the CAGR. So volume is actually really driving a lot of what's going on in the complex list of pricing. And so as interest rates move, I think the volumes will continue to show this historical trend of growth. We recently just launched the CORRA product in Canada on the short-end side of the curve. So that's also driving a lot of interest and volume.

Got it. Speaking of CORRA, now that the BAX CORRA transition is largely complete, you've got the CGF contract initiatives rolling off, I think it was in July, this happened or at some point...

June. 30th of June.

So how do you think about pricing as a driver? Maybe tactically, what should we think about near term? And then longer term, how do you think about balancing pricing versus other drivers of organic growth?

Yes. And so for those that aren't as familiar with it, right, there's really 3 parts to how we generate revenue in the derivative side. The first is actually the pricing, which is really the smallest part. It's a highly competitive market. It is regulated. And so the place where we've really benefited is by driving volume, right? And average daily volumes of 100,000 plus already on the CORRA product, which was literally just launched, shows just how robust and liquid that market is. I think what's very, very interesting in this space is really unpacking whether or not you can take a market-making regime or program off, like you touched on the 5-year, because liquidity is what drives that marketplace. And so when we put it in for the 5-year, we really got to a point where the volume was sustainable that enabled us to retire it. That drives a revenue per trade in uplift for us. However, on others when we put it on, it drives revenue per trade down risk. But those 2 will sense it much like we did in the 5-year.

What about on the options side? I think we spent more time talking about the rates feature side because of the pricing dynamics there. But maybe just touch high level on options. In the U.S., it's definitely been a kind of bigger long-term growth story across the exchange space. What are you seeing in Canada in terms of options? To what extent is retail like potentially a driver? What's your kind of outlook?

There's a big distinction between the Canadian retail investor and the U.S. retail investor. And there's also a little bit of a regulatory component to it as well, Ben. So in Canada, for a financial adviser to put their clients into retail options requires certain level of accreditation, not just by the adviser but also at his stations and accreditation for the investor. Less so the case in the U.S. So that's why we see quite a difference in the playing field. There is more interest in it, but I don't see it becoming the biggest growth driver.

Makes sense. Let's move on to your data business now. So starting with VettaFi, maybe beginning with the industrial logic for the deal. So VettaFi is mostly a non-Canadian index manufacturer. So how does it fit into TMX? Where do you see the obvious synergy opportunities?

So let me start with the synergy opportunities first, right? When we announced the VettaFi acquisition, our focus then was on growing revenue, right? And so there isn't a cost synergy play with TMX VettaFi, it's purely about accelerating growth. On a pro forma basis, this year is around 16% year-over-year pro forma, and it's classified as one of our high growth businesses, which is high single to double digits. So we will continue to accelerate that with TMX VettaFi. A couple of the revenue synergy opportunities is TMX VettaFi doesn't do a lot of business in Canada yet. So that's an opportunity for us. But more importantly is TMX VettaFi has other jurisdictions that it can grow into, too. And with TMX behind TMX VettaFi, we actually have the ability to do that. We have relationships because of Trayport in the U.K. and in Europe, so we can actually bring some of that to the market. But the actual rationale for that, getting into the business was very interesting. We had a number of clients, Ben, who approached us and said they would like to build a customer bespoke index, right? And we have a long-standing relationship with S&P. They do our S&P TSX 60, the composite index, et cetera. So a lot of these client requests for bespoke indices wasn't quite in the wheelhouse of what S&P would like to serve. We saw this as a great opportunity. So we're kind of serving that end of the market and VettaFi is a perfect fit for it. We started off trying to build it. Very, very quickly, we've got to introduce to the team at VettaFi and we roll forward the clock 18 months, and now they're part of the TMX family.

All right. Last quarter, you gave us some enhanced disclosures around AUM revenues. It was quite telling. Can you talk a bit about how the pricing works there? It seems like perhaps some parts of the business, at least from a fee rate on AUM come on at premium versus discount pricing. What are the puts and takes there? How should we think about, as we're all trying to kind of build our own models of what we believe to be the passive ETFs, how should we be thinking about the various pieces?

So the short answer is over 2/3 of the business roughly is coming from index and benchmark business, right, which is very much driven by a basis points trailer on assets under management, right? So that's kind of the key. But you do touch on it, Ben, which is index relationships are not priced equally, right? They are price dependent on a number of factors. So that really drives a difficulty for individuals to look at it's not like an average rate you can just apply it to the entire portfolio because as AUM grow, it might be in a higher-yielding index or AUMs might grow in lower-yielding indices. So that's always a challenge. But -- so for me internally, I spend a lot of time with the team over there, and I'm focused on what's the spread like across the board. But for simple kind of index switches, we're talking a handful of basis points, right? It's very, very small. But as you move into more premium ones, it gets a little higher. The second part of the business is digital distribution and analytics, right? That's the next biggest part of the business. And then the last part of the business -- and that's a lot of subscription-based, ad-based, click-based through revenue. But then what we do have is our exchange conference, which we did touch on, and that's roughly about $6 million a year of revenue. And so that kind of breaks down the pie for you, but it's really about the index and benchmark right now. Our focus, though, is growing our digital distribution and analytics business at a higher rate than we're growing the index and benchmark business, but that's going to take a lot of time.

Got it. Can you unpack that a little bit? So the customer base there, I would assume it's asset managers, advisers, those who want more insights around ETFs. And then can you talk a little bit how -- maybe kind of 2 separate questions, but talk a little bit about how the revenues work across the rest of that business. Is it simply subscription for data, clicks on ads? The conference, I think it's pretty straightforward. But what does the kind of growth algorithm look like in that point?

Yes. So underlying the digital distribution analytics business is a couple of web properties that we maintain. So ETFDB, ETFTrends.com. These are very, very important assets for us because, a, we have users that have logged in. We know exactly what they're looking at. There's a lot of search data there in terms of, I'm researching ETFs in this space. That actually helps then funnel in information flow to the ETF manufacturers. A lot of searches for this. We don't have anything -- and that kind of creates a bit of an ideation cycle. The methodology around the pricing is something we don't disclose in that space. But you touched on it, right? It's click-based, subscription-based and a couple of other ancillary mechanisms.

One last question on VettaFi just because it's something that comes up a lot with investors, particularly those who are used to tracking the asset management business. So any comments you can share on flows into the underlying products or at least your thoughts around disclosing the flows? It's a piece that feels like investors still want. Totally understand why you haven't kind of disclosed them yet. And of course, the incremental disclosure is helpful, but it's probably the -- one of the most frequent questions that comes up, hey, I track the flows across all these funds over here. What about VettaFi? What are your thoughts there?

So what we -- and we can take it offline as well, but for everyone listening, there's actually a line of sight to the AUM for all of VettaFi's clients. What isn't disclosed is what the AUM basis point rate is per client, right? So it is pretty easy to see exactly how the flows are moving and how the AUM is growing. It's either price appreciation or it's inflows, right? So those are really the 2. And a lot of that information is publicly available. But what isn't available is the final piece so that one can actually do the math. Because then you would literally be able to predict the revenue in that segment. Well, not 2/3 of it.

John, I said it -- or David, I'm sorry. I said it before, I'm a lazy sell-side analyst for all the help I can get. But I understand.

You got to try. You've got to try, too.

I've got to try. Okay. Perhaps moving on to Trayport. So one of the questions that comes up with VettaFi is can they replicate what they did with Trayport. Trayport's growth algorithm accelerated after you acquired the asset some years ago, and it's been one of the best performers of the business. So let's just start with that. What did you do right here that perhaps was not being done by the predecessor owners?

So the short answer is, can we do at VettaFi what we did with Trayport? And the short answer is yes, okay? Trayport when we acquired it was a low to mid-single-digit grower. We put it into our high-growth category. It is -- which is high singles to doubles. Trayport is growing double digits given since we've acquired it, right? And we did that. We've obviously had various different tactics and strategies across Trayport to actually drive that growth. And we will do the same with VettaFi. So what are those tactics. One is we focus very, very much on expanding the kind of asset classes in Trayport, right? We will look to do the same with TMX VettaFi. We already have a joint sales team with our Datalinx business, really side-by-side, approaching clients on various different parts of their needs. In addition, we're actually looking at different geographies. It's something that we started doing at Trayport. Looking at the same thing with TMX VettaFi. And leveraging geographies that we're already in as we touched on when we did capital formation, right? So some of those geographies, we have a right to play. And then last but not least is staying really, really focused on the pricing, which is what we did at Trayport.

Got it. So for Trayport, in particular, you've seen some very strong recent growth in new licenses. Similar question, like what have been the key drivers? Like what is causing all these new seats, new sign-ups?

Yes. So a lot of what you're seeing right now is a combination of new clients, new trading houses. One of the statistics I look at regularly is just how many new trading firms have signed up to Trayport because that is a trigger of new revenue, Ben, but also a harbinger of future revenue because a lot of the new trading houses when they join the natural gas and energy space, they'll take maybe 10 or 15 seats but they might have a desk that's got 40 traders, right, because they're focused on other things. When they come to renew, that's when they might go for 30 or 40. So the second part of why we saw such good licensee growth is, every year, we have roughly between 25% and 30% of our clients renewing on their enterprise site licenses. And this year, we saw a major uplift on a whole host that renewed in the first half of the year. And that's really just deepening, right? A lot of them had read only licenses. They're now going for read and right licenses and so forth. And that's why you saw the uplift.

Can you impact that first part, new trading firms? Are these firms that are moving away from a competitor? Are they firms that are like big trading firms that are saying, we rate futures, we trade options, trajectories. We'd like to trade energy also. Like what were they doing last year now they're Trayport?

So it's a bit of both, but a lot more of the latter, right? So a trading firm that might be trading in a host of other products that now see that there's a market-making opportunity for themselves in natural gas and energy in Europe. And therefore, if they want to be in that space and they want price transparency of those derivatives, you have to get a Trayport subscription.

Interesting. You mentioned Europe. At your Investor Day, you talked about Asia as a very sizable growth opportunity. And you've been talking about the U.S. for some time as well. So similar kind of theme of question, what's the process for growing in these regions? And do you think you can replicate the success you see in Europe? It doesn't seem like there's many alternatives in the U.S. as there is elsewhere. So maybe another question would be what is the competitor in the U.S.? Where are these firms coming from, the newer ones, on the top line?

Correct. So it's very interesting, right, because Japan, which is part of the Asia expansion, and the North American expansion for Trayport, they're very different, right, Ben. I think for us in Asia, it's going through a process of deregulation. And so it's important that, that plays out. And we already have on the Trayport screen the Japan, Korea marker. But as more comes into the deregulated kind of fray, you'll see more lining up on the Trayport screen. What will be very interesting is as we penetrate into Japan, it will be displacing what folks had traditionally done either on the telephone or had done using an in-house developed kind of solution as opposed to there being someone else who's providing that service. Much the same when we're talking about in the U.S., right? So it's one of these ones where both the Japan and the North American plans are block by block. John unfortunately couldn't be here today, but John's a big baseball fan, and it's a lot of singles and not a lot of doubles and triples or home runs.

Understood. Maybe last question on Trayport. How do you think about the product set? There's obviously a lot of growth in terms of adding new licensees, new seats. What about upsell opportunities? What are you seeing in terms of uptake, where you are selling? And then how do you think about product development, either in terms of new assets in the platform or new like analytics capabilities that you may be able to add?

Yes. So we've added a couple of features and functionalities over the last few years, Ben. So the first one was charting and analytics. We've noticed from a lot of our clients' usage data that folks were downloading data into Excel so they could run their charts and do the analytics they wanted to do. We had an opportunity to purchase a company, integrate it directly into the Trayport platform, and it's a premium add-on service. So that's one of the ones we're referring to. The other one is other than the trading, right? A lot of folks wanted an API so that could use them to fuel their algorithmic trading engines. And we said, well, why don't we just build it directly into the dual platforms that you can subscribe to that service. You don't need to do any in-house software development, you can use our tool. So that's kind of the genesis for those. We're working on messaging, which is really, really cool, like chat. And I often use kind of the analogy of Trayport is to natural gas and energy in Europe, what Bloomberg is to fixed income. And as we know, if people are Bloomberg users, the chat and messaging functionality is highly sought of. So we're looking to replicate that in that -- in our environment. And there are a few other things that the team are working on as we fix a couple of our dual platform in structure projects, which will hopefully be done first quarter of next year.

Understood. Maybe moving over to Datalinx real quick. So maybe talk about what you've been seeing here. I think revenues have been kind of flattish over the last several quarters, growth has been decelerating after a bit of a step function increase to kind of like the mid- to high $50 million per quarter range last year. What's kind of been happening over the last, like 18 months? What gets revenues going again?

Yes. So what effectively gets revenues going in Datalinx is feeds, subscribers and price, right? So those are effectively the 3. Price is regulated over there, but we do have a half CPI or half of consumer price index kind of pricing protocol that kind of helps you set the framework as to what drives it. What's been very, very interesting in the Datalinx business is, last year, we saw incredible demand and uptake for subscribers and for feeds. And that really helped drive as well as we did get some reasonable pricing increases last year. That growth last year really outperform our long-term guidance, right? Because the long-term guidance for Datalinx is strong growth, which is kind of like 5-plus percent. So last year was an outperformer. This year is a little slower. But we're going into budgeting season right now and forecasting for 2025. So I was actually on a call earlier today with our team at Datalinx. We've got some really neat ideas on what they want to do. So I'm very, very confident that they can deliver on their strong growth profile. And time will tell whether or not I think that, that business is ready for an upgrade.

All right. I look forward to it in the next MD&A as well. Okay. Maybe moving to capital allocation. So M&A has been a key part of the story. A lot of small tuck-ins, some bigger deals as well. How do you think about M&A? Clearly, with VettaFi having happened more recently, it seems like anything near term might be more on the smaller side. But maybe digging high level, any parts of the business do you think could be reinforced with M&A? Anything where it's more obvious that really makes sense to sort of accelerate by buying rather than building organically?

Yes. So you touched on a good point there. So let me answer the last part of the question first. Are there any parts of the business that can benefit. Ben, I think all of our parts of our business can. But it's not M&A for the sake of M&A, right? So we have a strategy to grow all of the parts of our business. And we're very comfortable growing organically, growing through our own build strategy. We're happy to also partner, as we've done in a couple of instances. And then we're also very happy to pivot to a buy strategy if the timing is right and the price is right. So it's kind of across the spectrum. You touched on a little bit about our capacity, Ben, right? We've just completed an acquisition. We funded it entirely through cash and debt. We're in the process of our deleveraging plan, but we still have incredible balance sheet capacity, right? If we were to run ourselves up to just shy of 4x levered today, that would be about $1 billion of capacity that we actually have for acquisitions. So there's enough that we have there. But the things that we've been doing lately like Newsfile, right, are small niche tuck-ins. And I would envisage us doing a few more of those before I get to my end of 2025 kind of deleveraging plan. But if we saw the right asset and it helped accelerate the strategy, Ben, we would not shy away from it.

And then just in terms of financing, you mentioned VettaFi was paid for with debt and cash. How do you think about the use of stock versus cash? Anything in particular about that acquisition?

Yes. So I mean, obviously, the use of cash and debt is cheaper than issuing stock at the end of the day. But our share price has performed really well since the acquisition. So it becomes a more powerful, meaningful currency. So we're open to it. We would need to look at the merits of the acquisition. I'd need to look at the accretion dilution factor of it, too, exactly what the demand is for some equity. And really, do I need it, right? And if I do then benefit an avenue that we'll look for, we're not, not open to it.

Understood. Maybe moving back to the income statement. So we talked a little bit about OpEx growth related to the ATS. Maybe OpEx growth more high level, how do you think about OpEx growth as we think about potentially slowing inflation, but also balancing that some newer initiatives? What -- I know you're not going to guide 2025 just yet. Again, can't blame me for asking. But how do you think about sort of the longer-term trajectory there, the use of OpEx versus CapEx, that sort of thing?

Yes. So I -- we've continued to focus on growing our expenses kind of in line with the rate of inflation in the normal kind of course. But obviously, this year, as you know, we're building the U.S. ATS out, right? That requires an additional organic investment. And that anywhere from -- depending if you're using our reported or adjusted numbers is 1.5% to 2% of kind of an OpEx lift, right? So you've got to adjust for that. We've got a lot of M&A activity that we've ingested, right? So not too long as though we bought Wall Street Horizons, you got to adjust for that. Now we've just acquired Newsfile. Previously, we just acquired VettaFi. So if you look through all of that, Ben, as I head into 2025, I'd like to see it in that kind of no higher than 5%, right, is kind of where I would love to be. But I'm going through the budgeting cycle right now, right? And so when we get through the fourth quarter, kind of the dust settles, I'd be much better able to kind of indicate where I think 2025 will be. But my going-in assumption right now is, can I do it at sub-5% is really the going plan.

Understood. One other kind of high-level topic that's come up across a lot of my chats, not just exchanges but across asset managers and others has been AI. How do you think about the use of AI internally either as a cost saver, as a revenue driver? And any other kind of high level thoughts on implications for the exchange business in general?

So the first part of your question, and [ Terry ] was speaking just before and I heard you said at CME, they got like 6 or 7 kind of super users that are testing it out. We're on the Google productivity suite. We are using the Google generative AI functionality in our productivity suite on many, many users right now, not 5 or 6. It's a sizable chunk. I've been using it myself personally, and it is remarkable what it can do to be a productivity-enhancing tool. So I see that, and I see us less so around how much cost we can take out, but how much more throughput we can get through it, right? So our team right now are exploring what we can do on testing. We have a lot of tech code in our organization. Often when we make changes, we have 15 scenarios of test use cases we'll come up with, and humans have to go and do those 15 test cases. With generative AI and using the artificial intelligence kind of knowledge right now, we can actually test for thousands of use cases, right, and do it -- so we can cover a bigger waterfront in a shorter period of time. So I see a lot of that happening in our technology organization. Then the other thing I really think that we can do is leverage it, as I touched on earlier, in our client-facing part of the trust business. A lot of the workflow that our call center agents need to do, the quicker they can get it done and things can be prompted to them using generative AI, I think, is going to help us in that business. So stay tuned. I'm not sure whether it be a revenue enhancing opportunity for us yet. We've got a couple of neat ideas, the teams. We've done a few, what we refer to as internal [ hecathons ]. They kind of come up with some neat concepts and ideas, but we're still pressure testing that. So nothing to report on, but it's here to stay, and it's a meaningful technology for us to embrace.

Maybe one last technology question with our last minute here. Just in terms of cloud utilization. Again, we've heard some of your exchange peers talk about like very specific partnerships with big hyperscalers. Where are you on your cloud journey at TMX? And similarly, what benefits you're expecting over, say, the next several years?

Yes. So we are very, very far down that cloud journey. We haven't made any big announcements about it. We work with pretty much all of the cloud providers. But what we did, and this goes back several years ago, is we moved our entire productivity suite to the cloud. So we are a Google shop soup to nuts in the productivity suite. So Gmail right through Google Docs, Google Sheets, you name it. And that -- so that is all in the cloud right now. Our entire ERP environment is also in the cloud. So we're a Workday client, both for HR and for financials. So our ledger, the whole 9 yards is all in the cloud. So everything in the ecosystem other than kind of what I would call the core matching engine and trading technology is in the cloud already for us at TMX. What we are thinking about is, how can we actually work with these cloud providers and we're talking to a number of the big players right now to help us with our data centers, right, and actually moving some of that to the cloud. So that continues to be an exploratory part of the business. But nothing to announce, and we will probably just go about doing it as opposed to maybe announcing it.

Understood. With that, we're out of time. David, thank you so much for being with us. Pleasure to have you.

Thanks, Ben. It was a pleasure. Thank you, sir.

Take care. See you.