Q3 2021 TMX Group Ltd Earnings Call
Good morning, ladies and gentlemen, and welcome to <unk> Group Limited Q3, 2021 financial results Conference call.
At this time all lines are in a listen only mode. Following the presentation, we will conduct a question and answer session.
If at any time during this call you require immediate assistance. Please press star zero for the operator.
This call is being recorded on Tuesday November 19, 2021, and I would like to turn the conference over to Paul Malcolmson. Please go ahead.
Thank you operator, and good morning, everyone I hope that you and all of your families are staying well and safe. Thank.
Thank you for joining us this morning for the third quarter 2021 conference call for TMS Group as you know, we announced our results late yesterday and a copy of our press release is available on <unk> Dot com under Investor Relations.
This morning, we have with US John Mckenzie, our Chief Executive Officer, and David Arnold, Our Chief Financial Officer.
Following opening remarks, we will have a question and answer session before we start I want to remind you that certain statements made on today's call may be considered forward looking.
Refer you to the risk factors contained in our press release and reports that we have filed with regulatory authorities with that I'd like to turn the call over to John.
Well, thank you Paul and thank you everyone for dialing in today to discuss <unk> group's financial performance for the third quarter and the first nine months of 2021.
And first on behalf of all of US at Tms I do want to wish the very best of health to everyone listening this morning I'm.
I'm happy to report today that I'm actually transmitting to you from the Tms headquarters here in Toronto and that the transition to back to office for Tms Boys is underway here, Ontario, and in our offices across the country and around the world.
<unk> our trade Port office in London has served as our pilot project as they've been now back in the office for some time.
And while our return to the office is voluntary and many of our employees continue to work from home. During this early stage. It is very encouraging to finally reached a point, where we can safely resume a work from office life and personally I am grateful for the opportunity to interact with some of our people within the Tms environment walk, our hauls and offices once again and get those face.
Face interactions.
We also have a brand new space to explore here as well the Tms market Center at 120 Adelaide Street West in Toronto.
Our state of the art event destination in broadcast facility and it stands a prominent new Toronto business landmark and a fresh distinctive presence at the core of the city's financial district ready to be discovered.
Two weeks ago, we held our first in person market open ceremony in the new Tms market Center welcoming Q4, Inc to Toronto stock exchange and our market open ceremony is a proud longstanding tradition the ability for us now do that safely and host for our clients with the exchange to celebrate important milestones in their company's history and to kickoff.
New trading day is a clear sign of our progress and returned to normal.
Now as Paul mentioned, we announced results for the third quarter and the first nine months of 2021 last night.
And David will walk you through the third quarter numbers in a few moments in more detail, but I'm going to focus my comments. This morning on providing context as we reflect on the year to date through September 30th specifically Tnx's performance for the first nine months of 2021.
Secondly, some key accomplishments and significant progress we have made in executing our long term growth strategy as we strive to continue to make our markets better and also importantly, how the shifting market dynamics over the past few years have served to reshape our client offerings in meaningful ways, while also helping to inform our perspective as we move through the last.
Weeks of the year and beyond.
Now turning now to our results for the first nine months of the year.
Revenue was $728 million, an increase of 13% from the first nine months of 2020.
And diluted earnings per share grew 21% or 20% on an adjusted basis compared with the same period in 2020 and continuing the pace of our strongest year on record.
Tms is positive performance for the first nine months reflects significant contributions from across our diverse franchise, including capital formation derivatives trading and clearing and Shreveport.
Total operating expenses increased 5% from the first nine months of 2020, largely due to the inclusion of expenses related to ASC, Canada, including transaction and integration costs.
The increase in expenses also reflects higher head count and payroll costs higher costs related to our short term employee incentive plan and increased severance as compared to year ago.
Now turning to our business areas revenue for capital formation was $195 million at.
An increase of 38% from the first nine months of 2020, largely driven by an increase in the number of issuer financing and financing dollars raised on Toronto stock exchange and <unk> venture exchange and higher initial listing fees.
Our issuers raised a combined total of $43 3 billion, a 50% increase over the first nine months of last year and more than the total raised during the entirety of 2020.
Our largest sectors technology and mining continued to lead the way in terms of financing dollars technology issuers raised more than $11 4 billion in the first nine months and 86% increase over the same period last year and 42% higher than the full year record set just last year as well.
Companies in the mining sector raised almost 8 billion or 45% increase year over year.
And Tms is unique to tiered ecosystem continues to serve as an effective proving ground for businesses in all sectors pursue the next steps in their growth trajectory.
TSS venture graduated 27 companies to Toronto stock exchange through September 30th more than any full year since 2011.
The graduate companies represent a broad range of industries, including technology clean Tech consumer products and services mining and life Sciences.
And despite a normal slower pace during the summer months overall 2021 has been a very robust year for Ipos, we welcomed 38, corporate ipos to Toronto stock exchange and <unk> venture exchange in the first nine months of the year more than any full year since 2012.
And over the past few weeks, we've seen activity pick up significantly, particularly in tech ipos with Copper-leaf.
<unk> propel holdings in Q4, all launching since the end of September.
In total we've had 309 new listings year to date, excluding those graduates through September 30th at 44% increase from last year.
And as we pause to examine the impact of market conditions and short term trends on the ipos financing and levels of overall going public activity in our business. It's always important to consider the effects. These developments have on the complexion of our markets over the long term.
The rise of the innovation economy in this country over the past decade has helped to change the face of our equity markets and redefine what an investment in Canada means.
The influx of great companies and visionary entrepreneurs builds our ecosystem stronger growing and diversifying our stock lift to the benefit of investors here in Canada, and all around the world and.
Global investors are increasingly turning into our story and seeking exposure to these Canadian markets.
According to the latest data from Statscan through August net inflows into Canada, equities, where 28 billion on pace to reach the highest levels since 2017.
And today candidate presents a powerful globally competitive value proposition.
And we need to continuously strive to create the conditions for that enduring success.
To support the businesses at the foundation of this vital ecosystem to ensure that today's wins are indicative of long term sustainable trend and not just an anomaly.
Now turning now to derivatives rare.
Revenue from trading and clearing was $104 3 million up 9% from the first nine months of 2020, including an 11% increase in revenue from the Montreal exchange and <unk>.
Mx's total volumes increased 24% compared to the same period of last year.
And the revenue growth, while somewhat offset by lower revenue per contract due to a change in product mix and incentives designed to build long term sustainable liquidity.
Performance over the first nine months included strength in some of Mx's signature products as well as developing growth areas.
Average daily volume in the Bax contract candidates benchmarks short term interest rate futures product was up 12% in the first nine months compared to last year. Following the recent resurgence in global demand to deploy and manage risk.
Single share futures continued to gain significant traction with domestic and international clients with 65% growth in average daily volumes compared to the first nine months of 2020.
And equity options were up 34% year to date compared to the same period last year with energy sector names spring increased interest and activity for both institutional and retail traders.
Across the board overall open interest was up 46% at September 32021 from last year, a strong indication of volumes to come.
In the month of September almost <unk> also marked another important milestone achievement in Montreal Exchange's proud history of innovation and the next phase of our globalization strategy. The successful launch of trading on Asia Pacific hours.
Extended trading hours sinks us to the world's premier financial centers, enabling sophisticated modern investors in all time zones to trade Canada.
Acute cross market trading strategies and manage exposure on their time.
Running our derivatives markets for 20 plus hours a day is no small feat.
And the extended hours Asia Pacific initiative is the culmination of a ton of hard work by our teams in partnership with our stakeholders, including clients as well as regulators and government officials here in Canada, Hong Kong and elsewhere in Asia.
In the weeks and months that led up to this launch we've seen strong engagement from investors and participants in the region.
And while we are very much still in the early days. The initial response to the launch has been very positive with average volumes over 6000 contracts during the new session.
Now combined Amex's European and Asia Pacific and extended hours accounted for approximately 6% of total volumes during the first nine months of 2021.
Now moving on to trade port we.
We are pleased to report double digit growth with revenue of $111 7 million, a 10% increase compared to the first nine months of 2020.
Growth was driven by a 7% increase in the average number of subscribers and also included $1 3 million of revenue from trade signal.
Wired in June trade single provides advanced analytics and charging capabilities to our clients.
And as the world emerges from pandemic conditions, and economic recovery gains momentum global energy markets are clearly in a state of flux.
Gas supply shortages have driven a dramatic surge in energy prices across Europe and around the world.
And <unk> product suite tailored to meet the data and analytic needs of traders portfolio managers and analysts is as vital as ever providing opportunities for clients with analytics and insights to make informed decisions and to pursue their short and long term strategies now in closing my comments as we move to the final weeks of 2020.
One I want to thank our teams across Tms and in every facet of our business for continuing to deliver for our clients through this busy and challenging year.
Our people have demonstrated time and again their commitment to serving clients across our businesses throughout the market ecosystem around the world with excellence and along with the stress test of the ability to adapt to whatever the market throws our way while continuing to push us forward.
And with that we are so excited that a new group of high performing professionals to our ranks.
In August we completed the acquisition of ASD, Canada, a leading provider of transfer agency corporate trust and related services and our indicate integration is fully underway.
This acquisition represents an exciting addition to our TSS trust offering and our capital formation business more broadly.
Broadening out the range of services and solutions that we provide to listed issuers.
Also on the people front I am delighted to share news that we have named Michelle trend the new President of Tms data links effective November one a.
A well respected Tms veteran who I've had the privilege of working with for the past 20 years, who is highly regarded by your colleagues and across our client community Michelle's mandate is to lead the growth market development and commercialization of <unk> data solutions.
Our ongoing focus will be on client centric innovation to lead the strategic direction of the business, including the pursuit of additional revenue opportunities, resulting from new client offerings potential partnerships and expanding global sales.
And with that let me turn the call over to David.
Thank you John and good morning, everyone.
And coming to you from our offices in Toronto after working remotely since joining <unk> in June this year.
Let's turn now to our financial results.
Q3 was another strong quarter with 11% revenue growth and 11% diluted earnings per share growth.
They were revenue increases from capital formation derivatives trading and clearing.
Mobile solutions insights and analytics or GSI as we refer to it internally and Cvs, partially offset by lower equities and fixed income trading revenue.
Operating expenses increased 14% over Q3 2020.
Mainly driven by costs related to our acquisition of ESG, Canada.
Which was acquired on August 12 of this year.
As well as an increased investment in various growth areas of our business.
Organic revenue growth was 9% this quarter and operating expenses, excluding ASC, Canada were up 8%.
Diluted earnings per share grew 11% in.
And adjusted diluted earnings per share grew by 12% in the quarter, reflecting the higher revenue, partially offset by higher expenses, reflecting increased investment in growth areas of our business.
In Q3 last year. It was a $1 3 million reduction in a commodity tax provision or two cents per basic and diluted share.
In Q3 of this year.
Integration costs related to ASC, Canada of $600000 or one cent per basic and diluted share in.
In addition, there were higher net finance costs and higher income tax expense, partially offset by an increase in our share of net income from the Boston options exchange in Q3 of this year compared with Q3 of last year.
Turning now to revenue revenue in capital formation grew by 20% in Q3, including approximately $5 1 million of revenue related to our recently acquired <unk>, Canada business.
Revenue growth in capital formation, excluding ASC, Canada was 10% primarily driven by higher initial listing fees this quarter compared with Q3 of last year.
Sustaining listing fees also increased in the third quarter, reflecting an increase in the market capitalization of issuers at December 31, 2020, as well as an increase in new listings in the first nine months of this year.
These increases were partially offset by lower additional listing fee revenue on PSX and PSX venture.
<unk> two decreases in both the total number of financings and total financing dollars raised.
The decrease in PSX reflected a 16% decrease in the number of transactions billed at the maximum listing fee of 250000.
Partially offset by a 5% increase in the number of transactions billed below the maximum fee when compared to Q3 of last year.
Derivatives trading and clearing revenue grew by 32% from Q3 last year Q3 of this year.
And as John just mentioned in his remarks, while volumes on Amex increased by 62% compared to last year. It was lower revenue per contract, reflecting both a change in client and product mix.
This quarter there was an increase in high volume traders, which resulted in lower revenue per contract.
In addition, the volume increase was partially driven by contracts with lower yields including share futures, which made up 15% of total volumes this quarter compared with 7% in Q3 last year.
Revenue in our global solutions insights and analytics segment was up 7% over Q3 last year with increases from both trade port and traditional data business revenue from <unk> was up 11% in Canadian dollars or 12% in pound Sterling.
The increase was driven by 8% growth in total subscribers in Q3, compared with Q3 of last year.
Revenue in our traditional data business grew by 4% driven by increases in professional and non professional subscribers usage based quotes co location.
<unk> marks and indices.
The average number of professional market data subscriptions for PSX and PSX venture.
Products grew by 6% this quarter compared with last year.
And the Montreal exchange subscriptions were also up by 6%.
The higher revenue was partially offset by an unfavorable impact of approximately $1 1 billion on a stronger Canadian dollar relative to the U S. Dollar over Q3 of last year.
Revenue from CBS was up 10% this quarter, reflecting higher depository event management international as well as clearing and settlement revenue.
Paired with Q3 of last year.
The increases in revenue were partially offset by higher client rebates.
The revenue increases were partially offset by equities and fixed income trading revenue, which decreased 9% compared with Q3 of last year.
This decrease was driven by an 18% decline in the overall volumes of securities traded on our equities market equities marketplaces.
<unk> volumes on TSA securities decreased 13% in the quarter, while volumes in <unk> ex venture and PSX Elsa decreased by 33% respectively.
There was also a decrease in fixed income trading revenue, reflecting lower activity in swaps and government of Canada bonds this quarter.
These decreases were partially offset by higher yields on all our equity marketplaces, compared with Q3 of last year.
Turning now to our expenses operating expenses this quarter increased by 14% compared to Q3 of last year.
There were approximately $7 5 million of expenses in Q3 relating to ASC, Canada, including $1 1 million of acquisition and related costs.
700000.
Dollars related to the transitional services agreement with ASC $600000 relating to integration costs and $500000 related to amortization of acquired intangibles.
Operating expenses, excluding ASC, Canada increased by 8% this quarter compared with Q3 of last year.
The higher expenses reflected higher head count and payroll costs increased short term employee incentive plan costs higher legal fees as well as increased bad debt expenses and recoverable expenses.
There was also a $1 3 million reduction in commodity tax provision in Q3 of last year.
These increases in costs were partially offset by acquisition and related cost related to ASC, Canada announced in Q3 of last year for $1 4 million.
Sequentially revenue increased $13 7 million or 6% from Q2 to Q3 of this year.
Primarily attributable to lower revenue and capital formation equities and fixed income trading and clearing derivatives trading and clearing partially offset by higher revenue from global solutions insights and analytics.
Operating expenses sequentially increased $9 8 million or 9% from Q2, reflecting higher short term employee incentive performance can costs of $2 5 million higher long term incentive plan costs of $1 7 million and increased head count and payroll costs of $1 $3 million.
There was also approximately $7 5 million of expenses included relating to ASD, Canada as mentioned earlier.
These increases in operating expenses were partially offset by lower director fees decreased severance and bad debt expenses from last quarter to this quarter.
It was also a $1 $8 million decrease in expenses largely relating to a release of the provision for restoration costs of our data center, which we spoke about in Q2 of this year.
Commenting on our balance sheet. This quarter, we spent $18 3 million repurchasing 140000 common shares under our normal course issuer bid program.
Our debt to adjusted EBITDA ratio was one eight times at the end of the quarter and.
And we also held almost $338 million in cash and marketable securities at the end of the quarter.
Which is about $173 million in excess of $165 million, we target to retain for regulatory and credit facility purposes.
In early October Dvr's Morningstar, a credit rating agency.
Reiterated a single a high rating on our debentures.
One low rating on our commercial paper and.
And most notably changed out trend from stable to positive.
Yesterday, our board approved a quarterly dividend of <unk> 77 per common share payable on December 10 to shareholders of record as of November 26.
At 49% of our adjusted earnings per share. This is at the high end of our target payout ratio of 40% to 50%.
Now I'd like to take the chance to turn the call back to Paul.
Thanks, David Operator could you. Please outline the process for the question and answer session.
Thank you, Sir ladies and gentlemen, if you do have a question. Please press star followed by one on your Touchtone phone you will then hear a three ton prompt acknowledging your request and if you would like to withdraw your question simply press Star followed by two and if you're using a speaker phone. We do ask that you. Please lift the handset before pressing.
Please go ahead and press Star one now if you do have a question.
And your first question.
Nick Priebe at CIBC capital markets. Please go ahead.
Okay. Thanks.
Have a pair of questions. This morning related to the derivatives business.
I think as you pointed out there are some forthcoming changes to the ownership structure of the.
Boston options exchange that is going to trigger.
Consolidation of that business for financial reporting purposes.
I was wondering if you can just explain what's happening with the ownership of that business with respect to what prompted the change and just whether there are any implications other than the accounting treatment for that investment.
Hi, Nick its David Arnold <unk> good morning.
So I'll try and summarize it as best as I can Nick.
This is all public in a SEC filing which is pending approval.
No.
While this is a pending approval I'm going to basically talk to it as though it is approved.
You think about it what the document basically explains as two of the existing shareholders in the Boston options exchange and we're selling their interest in the Boston options exchange.
<unk> management team and the board have a right of first refusal to purchase those.
And have elected that auction.
As a result of electing that auction and those shares will be purchased by the corporation at the Boston options Exchange and then there'll be canceled.
So doing.
At all of the remaining shareholders increase will.
We'll receive a corresponding proportionate increase in both the equity interest as well as the voting interest, but here is where the trick comes in or the nuance Nick.
There is a.
Part of the agreement that basically says.
No broker dealer owned more than 20% of the exchange.
In this case one of the participants is a broker dealer would be exceeding the 20% as a result, their proportionate share of voting rights. So not equity interest that voting rights disproportionately allocated to everyone else, which would effectively move.
Voting interests from the current 46 point.
2% to a voting interest as a member of 70, 143%, thereby enabling us to exercise voting control at the board.
Which then puts us into a consolidation situation much like we were prior to 2016.
Nick I know there was a lot to digest does that get at kind of answering your question.
So that's good context thats very helpful helps helpful.
Any further questions Nick.
Thank you next question will be from <unk> at BMO capital markets. Please go ahead.
Thank you and good morning.
On closing the ESG, Canada deal.
Could you comment on initial integration work and.
Also your expectations for scaling both revenue and cost synergies by 2025.
Yes. Thank you that's a great question. So this is as you can imagine we're very excited to get this transaction completed and get the ASP team integrated in the integration work is actually well underway. So it really forms a number of areas. So that we can bring an integrated approach to their client base. So it is around integrating technology.
Utilizing systems that we actually acquire from ASC across both PSX Trust as well.
Building, the new client contact capability to really upscale the level of service that clients are getting when they use the.
The combined Tms extra the nasty.
So all of that is well underway in terms of the upside and Thats, what we really bought thus far was the ability to grow we do see that the capabilities that we get both the technology or the call center capability.
Our our connectivity with the issuers will allow us to grow this combined business at a fast rate.
Now, we can actually call on larger clients than we could have with just <unk> because we have a broader set of capabilities to bring to bear one of the things I also remind you of is actually we've talked about this in the past around PSX Trust, but this is more meaningful with the ASP business. We brought in there is a portion of this business that is sensitive to interest rates.
Because as we hold cash on behalf of clients. There is a net interest spread that the organization can earn what we are holding cash for trust activity corporate actions things like that.
And the acquisition and the numbers Youre seeing in the acquisition is based on a virtually zero rate environment. So there's two factors in terms of the growth we see going forward as I talked about we do see the potential of acquiring more clients and continuing to grow the client base and achieving that revenue upside, but also as we see a growth in a normalization of interest rates.
A substantial potential for the ASC business, we've acquired to see material meaningful revenue coming from that interest rate spread.
Historically in the past that that could be as high as $10 million on top of the 40 plus million in terms of revenue acquired so hopefully that gives you a couple of context in terms of how we are thinking about some of the growth potential in it.
Okay great.
<unk> trading rigs.
Regarding the new market on close facility.
Could you share details as to the initial market reception.
What percentage of your volumes are now trading at the close of market.
And so the initial market reception has been very good and a variety of that we actually we did this all on the basis of consultation with the market itself. So we let a process that was integrated with with clients regulators.
In other market stakeholders to determine what was going to be the best model for bringing a modernization to the moc functionality to Canada, and so that rollout has been exactly as expected by the street I think you'd see that the street feedback is that that rollout was also a very smooth and very little hiccup in terms of the settlement process now in terms of.
How much volumes going through that Paul I don't have that off hand, I don't know if you've got that available or if we can do that as a follow up later on.
I don't have it right here, but we will do it as a follow up and get back to you later.
Okay. Thank you.
On the expense front.
This is maybe a more strategic question, but I mean, <unk> set a track record for.
Containing.
Expense growth in the low single digits now looking ahead.
We keep hearing about the tightness of the labor market, especially in technology do you believe.
You can continue.
Achieving low single digit operating expense growth.
Yes that is such a good question and it's such a prescient question given the challenges. So when you think about the cost pressures going forward. It certainly it is around.
Technology contracts.
Finance.
Inflationary pressures, there and certainly that as you say like a very tight labor market and so we're seeing more challenges around labor, particularly in some of the areas of our business where that labor is in high demand technology development cyber very much also with our capital formation space. The professional services like the lawyers and accountants that helped bring companies to market.
That being said our approach to expense discipline is unchanged. So we do target to continue to do that we do challenge our team members to identify savings opportunities to redeploy in terms of growth.
And we would still continue to target that type of.
Expense growth in the near term that's more in line with inflation, but certainly.
Certainly if youre gearing that up in terms of looking at 2022 being.
More inflationary pressure than we've seen in previous years, I think thats a reasonable assumption.
Great. Thank you for your comments.
Thank you next question will be from Geoff Kwan of RBC capital markets. Please go ahead.
Hi, good morning.
Jeff.
I wanted to go back to the change in ownership on box.
Is it the customers that are leaving.
Like how much market share or like how much of the trading volumes would they have been on box and is there anything you're able to say as to as to why they decided to.
Sell their stake.
Hey, Jeff, It's David Arnold Chair so.
The volume contribution is de Minimis in two zero they were.
<unk> and <unk>.
Very small minority members so.
So then I am speculating it was non strategic for them.
And something that they just felt there was a.
A stranded asset that they needed to account for.
And basically.
Rid themselves of some of that effort so.
And that's basically.
The bottom line.
They did offer it to an existing member and that existing member needed to bring it to the board and to management for us to exercise the right of first refusal so.
Hopefully that gives you enough, but I would not expect this.
Transaction, if it's approved to impact the volumes and the Boston options exchange at all.
What it has been is very important to note is that they've been out of the options business for years.
Folks that are selling so really really small.
And the things that are driving our volume as you can imagine Jeff is just the market activity in the U S. On an auction volumes as opposed to these two particular members sitting down the interest.
Okay. Thanks, and then on the Montreal exchange.
Made the reference to the high volume traders.
Any impact can you talk about like what.
Percentage of the volumes they were in the quarter and where that might have compared to a year ago.
So I don't have the percentage handy for me I don't know Paul do you have that.
No we can certainly get back to you on that bill.
Yes.
I mean as you can expect Jeff I mean, it's all about.
And the products and the trades and are they at the high end of the margin or the low end of our margin.
The high volume of high frequency traders are obviously at the low end of the margin.
And then just my last question was on the G&A G&A expense there was a reference to kind of higher legal and bad debt expense just in.
Anything any sort of color around that.
Year over year variance.
Yes so.
If you look at SG&A.
It's not complicated Jeff, but I got to just walk you through it to make sure that you're flying.
Basically the first thing is looking at Q3 of last year, we need to adjust for the $1 3 million in the commodity tax provision that we reduced so think of last year's number is more like $17. Two and then if you look at this year's number the 21 for you back at ASP and the related acquisition costs as well so.
You're kind of at an 18 point for normalized number and then as you say the difference over the areas some legal costs and some bad debt expenses that the bad debt expense is that just normal course with that.
Lyons of ours that unfortunately.
Delisting.
Insolvent and obviously, we write offs the announce.
The legal is just a normal course, there's no litigation there its normal course corporate development activity as we look at your various growth initiatives.
Okay, great. Thank you.
Thank you next question will be from Graham Ryding of TD Securities. Please go ahead.
Hi, good morning.
Good morning, Greg.
Maybe you could start with your balance sheet.
For over a year now I think you've remained well below that.
Two times debt to EBITDA and I think your target still is two to three times.
Is that just a reflection excuse me.
Collection of you being disciplined around assessing acquisition opportunities or are you comfortable at this level. This level of leverage should we maybe think about this as sort of the new the.
The new run rate of the new the new level that you are that you operate.
Yes.
Regardless of the kind of historical direction of rates I think I've always guided hey, guys had kind of two times is kind of the kind of target operating level.
So we are below that but we are absolutely comfortable with the balance sheet position gives us a very strong position to pursue those inorganic opportunities been fairly active in the market in terms of the things that we've been looking at our discipline.
Is good there.
But I do believe that the.
The balance sheet strength, we've got both in terms of cash on hand, and the ability to to.
To lever up to do a larger transaction puts us in a good place to compete for things. So so not a concern at all just gives us more flexibility.
Okay understood.
Perhaps just the pipeline for Ipos and capital formation, both PSX and venture.
What's your sort of visibility like is it reasonable to expect that.
See some normalization of this area in 2022, just given the strength that we saw.
Well this year.
No thats actually hard to say because the strength is continuing.
So we had some abatement in the in the activity kind of through the summer, but that's normal and potentially a bit of market fatigue in terms of the number of deals that we are getting financed but the activity in the fall has continued to be really strong and the pipeline of new deals.
It remains full.
I always have to take the opportunity again to thank the staff here because I don't think people recognize how much work it goes to bringing these deals over the line.
And just to give you a bit more context, I mean, we said it in the commentary earlier on there is 38 corporate ipos that have been done to date through three quarters. We did four more in the month of October.
I compare that to the 19 years ago. When we went public ourselves there were four ipos that entire year.
So this is a very strong pace and the deals are getting well financed and well subscribed and so that pipeline remains robust.
I can't predict what 2022 will bear.
The pieces I will remind people of is that the overall issuer base in terms of our client base is now substantially larger than it was a year ago and in fact, if you look at the five year trend. It's grown every year in the last five years in terms of the number of issuers. So that's a larger base of issuers, it's going to drive higher sustaining fees. It's a bigger base of issuers that can do subsequent additional financing.
<unk> as well so.
Even if you saw some pullback in the actual IPO market, you've got a bigger base of clients that are continuing to finance and pay and sustaining fees at the same time.
Yes, it's a fair point.
In terms of your data subscribers had been pretty strong in 2021, I think you are up 6%.
This quarter year over year or close to my numbers might be off.
Traditionally that's been an area that's been actually I thought fairly mature and stagnant in terms of growth. So is there any color you can provide in terms of is it international subscribers or the new channels that you're penetrating what's driving the growth.
Data subscribers.
It's yes and yes.
Not to be I think the acuity. So there is there is.
More demand because the the volume growth in the business the retail interest the number of clients come onboard we've actually brought in some net new data clients as well I don't have the names offhand, Paul I believe you've got those ones in terms of new.
New distributors that are carrying our data both domestically and abroad, and then certainly with our expansion.
In terms of the continued use in Europe and the expansion in Asian time zone that drives, particularly demand for IMAX subscriptions.
And then some of those users we will look to for equity subscriptions as well in terms of the datasets are getting so you are seeing a combination of demand from multiple locations as we expand the franchise.
Okay. That's it for me thank you.
Thank you next question will be from James <unk> of National Bank Financial. Please go ahead.
Yes, thanks, good morning.
Morning, Jim wanted to dig into the Asps revenue.
So.
I think around the acquisition or was disclosed ESG last 12 months' revenues were around the $46 million Mark now its around 39 million Mark you talked about interest rates.
That explain the entire call it $7 million decline in last 12 months revenues or were there any other factors that would have been at play.
That's the major impact to the the rest of the core revenues were as expected for us.
Okay.
As we're looking at interest rates potentially normalizing what should we be looking at the three month yields for ASP or.
Or is it some other part of the curve.
Yes, what we're going to have to get deeper into the business to give you better guidance on that it's certainly more in terms of the short term rates that are driving it because it generally its short term holdings of cash.
But as we get more closer into that I expect this is an area where in the future, we'll actually be able to give you more direction and more sensitivities around it.
What I would guide you Jamie.
Compared to the <unk> business and the size of clients, we haven't PSX trust the Asps client base.
Much higher cash.
Clients than what we've had so it is substantially.
<unk> impact than what you would've seen with us with PSX Trust in the past.
Okay, great on that front.
On the on trade port side, good to see the subscriber growth continuing in Q3 is there.
Is there anything you can tell us about.
Me about October and post Q3 around how our subscribers.
Our our handling the European gas prices are there any impacts as a result of them.
What's going on there and are we still seeing good momentum in that business.
So James David Yes, we are seeing good momentum early signals in through Q3 and now into October.
October there for example, we added 10 net new clients in Q3.
So it continues to be robust, but yes, youre right I mean, the energy crisis.
Europe is definitely seeing more volume going on exchange and obviously that's.
Less advantageous for us in <unk>, but we continue to see strong client momentum and continued engagement. So.
We will weather the energy crisis storm and as you know the market dislocation and other kind of factors actually really good for our business.
Okay, great that sounds good.
Barely positive.
On the on the Asian hours front.
Early days, but.
Our market structure group action of its about some decent results. So far is there anything you can call us about activity in the Asian hours for the for the Amex.
Well Youre exactly right. It is very early so we're actually quite happy to see that early level of activity.
It's fairly limited penetration in terms of new clients coming on yet so a lot of that is proprietary trading dealer trading.
And we are still at the very beginning of actually getting the kind of the investable real money coming into it. So that's the potential for the upside.
When we think about some of the different regions and they're one of the pieces I always point to for folks.
Think about the Australia market, which we are doing more marketing into.
They need to invest outside of Australia. So they are in terms of their pension assets. They are aware, Canada was 20 years ago, where two thirds of their assets are domestic and theyre looking to internationalize more of them. So the potential that the demand that comes out of the region is very positive.
So all indicators are that this is going to be a meaningful expansion for us Jamie I'll remind you the targets that we've talked to people in the past that up and running between Europe and Asia, we see the potential for 15% to 30% of our flow coming out of those two times on so that continues to be the expectation.
Okay, that's great.
And last one for me just in terms of.
Yeah.
I guess announcement about Michelle trend it seems like a pretty positive.
Development. There is there anything you can say about the departure of.
Sarah Ryerson.
As it relates to that promotion.
No Sara Sara actually chose to leave us to take on different types of opportunities. So not in the same sector that we're in today.
But I do want to comment are creeping up a little bit more on michelle's promotion.
Because we have actually had some really strong candidates both internally and externally for the role.
What sets Michelle apart and what is the what makes me excited about the future of that business is coming to the table with a real plan for where she sees the opportunity for growth.
And as you remember our historical guidance around our businesses.
Market data was more of a of a steady state business and as opposed to one of our growth drivers. We are really seeing more potential to unlock more growth in this business be it from subscribers enhanced products enhanced pricing opportunities and Michel brings that experience to the table in a plan that's ready to go so I'm very excited about having Michelle on the role she is an X.
<unk> in this space knows the client base in this in the street really well and we will hit the ground running.
Great. That's it for me thank you.
Thank you.
Reminder, please press star one on your Touchtone phone, if you would like to ask a question.
And your next question will be from Brian Bedell Deutsche Bank. Please go ahead.
Great. Thanks, good morning folks.
Most of my questions were asked and answered, but maybe just to follow up on a couple of them back to Trey port.
Just in terms of.
As we move into the winter months in Europe. If we can if you can somehow parse what you think the traction will be from the organic efforts that youre, making the headway that youre, making with.
Bringing on more.
It's traded trading subscribers and rolling out joule to more trading desks versus the environment.
That.
Debt that we could be and if there is a lot more energy volatility.
Well again I'm going to reiterate the comments that David making energy volatility is actually strong for trade port because volatility, particularly when it's volatility combined with.
High volumes.
That type of dislocation just brings more traders more active engagement into the marketplace and if you think about the problem. The core problem that trade port solve is aggregating all of those different venues into a single screen. So that the traders can actually work across the marketplaces. So that becomes just more important when there is this type of market disruption.
And we saw that.
About two years ago, when we saw the oil shock of the other direction.
So we saw oil trader and oil pricing bottoming out and the trade port screen just became more important for clients. So in this case, where you've got price volatility and price spikes.
Just add to the demand for the product. So we think it's.
Positive for US we never wanted to your.
Dislocation like that because it's going to be a lot of strain on some of the users in there but in terms of the demand we would expect that it would increase the demand for the product.
And then how about for rolling out tools to more trading desk, you have already been pretty successful with that but.
Just in thinking about that outlook over the next two quarters.
Yes, I mean, that's exactly I mean, I can't I can't give forward guidance on that but it's that demand for more trading desks to trade in these types of products as the floater demand in terms of deploying dual to more traders and that can be net new clients as David talked about the 10, new clients, who signed but also shops that are already with freeport expanding their usage of it and then.
When they renew with us they renew at higher rates for more subscribers.
Okay, Great and then maybe just on back to Amex just on the revenue capture sequentially. There was an obviously an improvement.
We move into the fourth quarter, obviously, it depends on mix of products, but if you could maybe just give some insight in terms of.
How you think the extended hours.
May influence that plus any incentives that you're offering.
Obviously the mix of active traders is always a wildcard, but if we stay at this level.
Maybe just some view.
View on how we should think about that revenue capture into fourth quarter on IMAX.
So Jamie good question.
<unk> summarized the variables really well I understand the business.
But early stage volumes as we published in our October report, which just cannot do you have a day.
<unk> continuing that upward momentum that we saw towards the.
The back end of Q3 so.
Volumes continue to be robust it will boil down to obviously mix.
Depends on the volume and the highest grade products within the lowest grade products.
But right now the momentum that we saw at the end of Q3's continuing into Q4, so that is a very positive sign.
Yeah, let me I'm going to build on David's comment is all indicators would be linked to the commentary from either the folks that are following the financial markets The bank of Canada Governor.
We are looking at a period of increased volatility in rates not decrease so anticipation of rate increases more volatility across the yield curve. All of those are positive wins in terms of tailwind to actually continue to build in the products like the 10 year the backs the two year product that we recently.
<unk>.
The 30 year that we're working on so a lot of strong tailwind in Q4 for the rates complex and those tend to be premium priced products.
Okay, Great that's great color. Thank you.
Yes.
Thank you.
And at this time, we have no other questions. Please proceed with closing comments.
Well. Thank you everyone for listening in today, if you have any further questions to contact information for media as well as for Investor Relations is in our press release and we'd be happy to get back to you stay well everybody.
Thank you ladies and gentlemen, this does conclude your conference call for today. Once again, thank you for attending and at this time, we do ask that you. Please disconnect your lines.
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Yes.
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