Q3 2022 TMX Group Ltd Earnings Call
Good morning, ladies and gentlemen, and welcome to the T. M X Group Limited Q3, 2022 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.
A reminder, that this call is being recorded today Thursday October 27 2022.
I would now like to turn the conference over to Paul Malcolmson. Please go ahead Sir.
Thank you Michelle and good morning, everyone I hope that you and all your families are staying well.
For joining us this morning for the third quarter 2022 conference call for <unk> 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 I refer you to the risk factors contained in our press release and reports filed with <unk>.
<unk> authorities with that I'd like to turn the call over to John .
Well, thank you Paul and good morning, and thanks to everyone for dialing into the call today to discuss our G. M X group's financial results for the third quarter and the first nine months of 2022.
Now this morning, we are actually coming to you from our offices here in Montreal and to kick off I'd like to thank the whole team here in Montreal for hosting US This week and for their continued and phenomenal contributions to the overall success of TNX.
And that will David and join Us in a few minutes to take you through the third quarter results in more detail. My comments. This morning will really focus on Tms group's performance. During the first nine months of 2020 to providing an update on our key growth initiatives and the progress we are making in Tms efforts here in Canada and around the world to address the priority needs of stakeholders.
Cross side, there are diverse and dynamic ecosystem.
Now it almost goes without saying that its been a turbulent and profoundly challenging year for financial markets and for a wide range of industries and businesses around the world.
Macro economic conditions geopolitical events shocks to the global supply chain rising interest rates and an elevated inflation concerns have had a negative effect on capital markets activity and stifled economic growth.
And we recognize the challenges to businesses actually take a back seat to the challenges for people and the communities in which we operate the war in Ukraine, the lasting pandemic effects. The dramatic rise in the cost of living all continue to impact People's lives around the world and our thoughts are with those that are most effective.
But we all continue to look forward to the future with optimism and hope.
So turning now to the performance for the company for the first nine months of the year overall <unk> continues to deliver positive results. Despite the decreased capital markets activity when compared to 2021.
And including lower capital raising among our listed issuer client base and lower equity trading volumes.
<unk> reported revenue of $842 5 million for the first nine months of the year, a 16% increase from the same period in 2021 due to higher revenue from capital formation global solutions, and insights and analytics and derivatives trading and clearing.
Our increased revenue included $98 million in revenue from box consolidated in January 2022, and $27 4 million in revenue from ASD, Canada acquired in August 2021.
The increase was partially offset by lower equities and fixed income trading and clearing revenues due to lower trading volumes on Toronto stock Exchange T. S X venture exchange and Alpha.
Excluding revenue from the consolidation of box and last year's acquisitions revenue was down slightly 1% from the first nine months of 2021.
And on an adjusted basis diluted earnings per share was $5.38 in the first nine months, a 1% increase from 2021.
Our total operating expenses increased 24% compared to last year or 4% when excluding expenses related to box ASD, Canada and trade signal.
Now looking back on 2021. This was a banner year for Canada's public markets and a record setter in terms of some of <unk> key performance measures, including deal, making activity and new listings on our equity markets.
And it helps to frame the context for our results for the first nine months of this very different year.
T Amex's diverse business model has again generated positive results in the face of persistent and multifaceted challenges.
And we remain committed to executing our adaptive long term strategy no matter, what the market's throw our way.
So moving now to our business areas.
Revenue from capital formation in the first nine months of 2022 was $199 7 million a 5% increase from last year, reflecting the inclusion of revenue from AFC, Canada and higher revenue from sustained listing fees.
Partially offsetting this year over year increase was lower revenue from additional listing fees due to a decrease in a number of financing transactions in dollars raised on both T. S X and T S X venture.
Capital raising conditions in 2022 for our issuer clients here in Canada and markets around the world have been weakened by inflation concerns rising interest rates and increased volatility.
And again the context is important.
Because from a global and a competitive perspective, the truth is that even in difficult conditions. We continue to stack up very well next to our peers, thus far into 2022.
Despite being the 10th largest market in the world to Amex exchanges ranked number two in new listings and number one in new international listings amongst global exchanges through June 30th According to data from the World Federation of exchanges.
And that pipeline for new issuers remains strong.
T S X and T. S X venture business development teams are directly engaged with the dealmaking community and the Gopal and go public prospects in all sectors and we are confident the companies currently on the sidelines will come to market as conditions normalize.
And as always at all times, we're focused on the global expansion of our listings franchise.
We are in active and targeted areas around the world, including the U S Europe , and South America, and specifically in regions with financing gaps that Canada's capital markets can address and growth companies that fit the profile of our markets.
Last month, we added a full time presence in Dallas and we are currently on a six city roadshow focused on establishing new U S based founders and <unk> venture exchange is signature capital pool Company program.
We are teaming up with a number of our capital markets partners on this initiative aimed at connecting Canadian Dealmakers with U S private companies and introducing USD the mail dealmakers to establish CPC founders.
The CPC program is the number one vehicle for new venture listings to enter a market.
And effective at the beginning of last year, we made a number of changes designed to enhance this program by increasing flexibility, reducing regulatory burden and improving the overall value proposition.
These changes have been well received and the results from it are impressive since these changes came to effect on January one 'twenty 'twenty. One we've added 145, new capital pool companies, including 57, new <unk> through the first month nine months of this year, despite the capital raising headwinds.
Along with our efforts to promote our two tiered growth platform beyond our borders. We're also taking important steps to ensure candidates public markets remain the most viable efficient path for success for emerging companies in the future.
And as such this summer we launched T. S X ventures venture forward initiative and initiative designed to find collaborative ways to strengthen Canada's public venture market.
As with all of our stakeholder engagements it starts with active listening and the program kicked off with a survey of our broader venture community to help us zero in on the current challenges friction points and barriers to success.
And the response to this first phase of venture forward has been tremendous.
With feedback from over 500 constituents, including entrepreneurs investors, finding Sears lawyers and advisors.
This type of feedback is invaluable to <unk> as we work to push the evolution of our marketplace, helping to fuel positive changes that we can implement at the exchange level, but also to inform our advocacy efforts with regulators and policymakers.
And as we analyze the findings now we would intend to publish the highlights including priority areas for improvement and plans by that plan next steps by the end of next year.
Now turning to derivatives.
Excluding box revenue from derivatives trading and clearing was $106 8 million in the first nine months of 2022.
A 2% increase from last year, driven by a 13% increase in revenue from <unk> due to higher repo dealer activity and fee changes.
The increase was partially offset by a 2% decrease in revenue from the Montreal exchange, reflecting termination fees related to a market, making program and a retroactive client billing credits as well as impacts from product and client mix.
Total volume increased 3% over the first nine months of 2022, and we're encouraged by the continued strong growth in the open interest this year up 21% as of September 30th compared to that same point of last year.
And that wall, while volatility was the prevailing factor in the day to day equities and fixed income markets in the first nine months of this year.
Investors increasingly turn to derivatives instruments do we actively manage risk in their portfolios.
Through nine months volumes traded in equity options on Amex grew 20% over 2021 led by increased trading in the energy and financial sectors by both institutional and retail investors.
Volumes in ETF trading led by the broader index as well as energy and financials were 32% of higher overall compared to the first nine months of last year and July M X actually reached a new record in open interest in ETF contracts contracts of $4 3 million contracts.
Trading index Futures has also been an area of strong growth in 2022 up 17% and total volume versus the first nine months of 2021.
And activity in Mx's recently added government of Canada Bond futures contracts continues to grow as these new products gain traction with global investors volume traded was up 34% in the C. G F or five year contract and a 169% and the C. G Z or two year contract compared with the first nine months of two.
'twenty one.
And last March month marked at one year anniversary of a significant milestone in our global expansion efforts the launch of trading on Asia Pacific hours, and the availability of Amex products. During these business hours.
Cross global investment hubs to help attract liquidity into our market over the long term.
Now trading in the overall extended hour session. During the first nine months of 2022 made up approximately 5% of Amex daily total daily trading volumes.
But it is important to note that the volume trends in core products have often mirrored what we've seen domestically.
Strong growth in activity in bond and index futures somewhat offset by lower trading and the backs our signature short term interest rate contract due to volatility and uncertainty in the short term rate environment.
Now the anniversary of the extended hours coincided with the Tms business development campaign in both Sydney and Melbourne, Australia.
Promoting Canada as a premier investment for pension funds and investment managers in the APAC region, including the Australian Super invent Superfund industry.
Our first in person visit a number of years, Canada story was extremely well received in our meetings our engagements in our events and it should come as no surprise our capital marks its markets are alike. In many important ways, Canada and Australia are both globally recognized leaders in natural resources and mining in fact, we currently list twenty-two.
<unk> companies on T S X and T S X venture mostly in the mining sector.
And while each of our economies as pronounced strength in traditional sectors are countries are also home to some of the best and brightest technology talent in the world and a new wave of tech entrepreneurs.
So we look forward to continuing to build our relationships, there and exploring future opportunities for Canada's markets and <unk> in the region and around the world.
Now moving now to trade Port <unk>.
Revenue in the first nine months of the year was $116 6 million or <unk>.
4% increase from 2021 or 13% in common currency pound Sterling.
Higher revenue was driven by a 17% increase in trader subscribers annual price adjustments and consultancy revenue.
And Trey ports core network, featuring a depth of trading tools insights and solutions continues to provide value and quite valuable client support through the sustained period of volatility thus far in 2022.
And demand has continued to grow as new market participants seek access to execution venues and clearinghouses across key power and natural gas markets trade Port has added more than 50, new clients in the last 12 months in core and new growth areas of the business.
Freeport has also made progress on our global diversification strategy pursuing opportunities to move into new asset classes and geographies.
And we've seen some traders aggregated in North American markets for the first time and increased engagement from U S market participants as they actively seek to access European power and gas markets.
And we continue to work closely with <unk> on developing the voluntary climate marketplace and building liquidity in the physical voluntary carbon market we.
We added several newbuild clients for the T V C M platform during the third quarter.
Now in closing my remarks today I want to acknowledge a very proud milestone for us.
Earlier this week, we celebrated the 117th anniversary of Toronto stock exchange.
And the history of T. S X is closely linked with the formative steps of our country.
Many of the companies that built Canada's infrastructure Railways manufacturing resource exploration communications raise the capital to run their business via Toronto stock exchange.
And Canadian companies continue to make history.
Our in connect air interconnected ecosystem helps pave the way for homegrown and increasingly global corporate success stories across a range of sectors from oil and gas and mining to financial services and technology.
This is a powerful and proven diverse and ever evolving growth engine.
And while we're proud of our history, we are continuously driven to make markets better we never lose sight of the importance Tms rule has at the center of the market and what public markets mean to the country's ecosystem the economy and the people in our communities from coast to coast.
<unk> is committed to working with our vast group of stakeholders and help push the evolution of our capital markets ecosystem and to ensure we maintain our competitive edge in the future.
It's a responsibility that we all embrace.
And with that I want us to securely. Thank our people for bringing T. M. <unk> corporate purpose to life and the work they do everyday striving to make markets better and empower bold ideas with that let me turn the call over to David.
Thank you John and good morning, everyone.
Our third quarter results continue to demonstrate our resiliency in these challenging conditions.
Overall revenue grew by 16%, including increases across all of our business segments Rev.
Revenue, excluding the Boston options exchange a box for short, which we consolidated on January <unk> of this year.
And ASP, Canada, which we acquired on August 12, 2021 remained unchanged compared with last year.
Cost increases this quarter came in well below the current rate of inflation in Canada with operating expenses, excluding box in ASD, Canada up 5% compared with Q3 of 2021 year.
Year to date, when compared to the same nine months period, a year ago, our costs, excluding box ASD, Canada and trade signal were up 4%, reflecting our continued cost discipline.
We reported an increase of 7% and our diluted earnings per share and our adjusted diluted earnings per share. This quarter driven by increased income from operations of $15 7 million from Q3 of last year.
This reflects an increase in revenue of 38 million, partially offset by an increase in operating expenses of $22 3 million.
Turning now to our businesses all of our segments continued to deliver year over year increases in revenue and I'll start with the business segments and saw the largest year over year increases.
Revenue in derivatives trading and clearing grew by 88% this quarter compared to Q3 of 2021, driven by the consolidation of boxes revenue of $30 5 million included in this segment this year.
Volumes on box increased by 44% compared to Q3 of last year and boxes market share in equity options grew two 7% up 2% from Q3 of last year.
Derivatives trading and clearing revenue excluding box was down 4% in the quarter, primarily driven by a one time reduction in revenue of approximately $4 7 million related to the five year government of Canada bond futures market, making termination fees and retroactive client billing credit.
These are partially offset by a 6% volume increase this quarter in the Montreal exchange and positive impact on trading fees on the heels of the pricing changes for our S&P TSA 60 index standard futures or S X F for short which came into effect in January 2022.
And an 11% increase in revenue from CDC due to higher volumes increased repo dealer activity and interest rate derivatives clearing fee changes, which also came into effect in January of this year.
Turning now to capital formation revenue grew by 4% this quarter, primarily due to the inclusion of revenue from a S T, Canada, which increased by approximately $6 3 million, excluding Asti, Canada revenue revenue in the quarter decreased 7% and capital formation, primarily driven by lower additional listing fees.
Reflecting a decrease in both the total number of financings and total financing dollars raised on T. S X and T. S X venture as well as a decrease in initial listing fees the.
The decrease in initial that the decrease in additional listing fees resulted from a decrease of 18% and the number of transactions billed below the maximum fee, partially offset by an increase of 4% and the number of transactions billed at the maximum listing fee of $250000 this quarter versus Q3 of last year.
Sustaining fees increased by 4%, reflecting an increase in the market capitalization of issuers at the end of last year over the prior year other issuer services, excluding ASD, Canada increased by 13% in the third quarter compared to last year, driven by higher net interest income and partially offset by lower trends.
The agent fees in corporate Trust revenue.
Revenue from our equities and fixed income trading and clearing segment was up 4% in the quarter within this segment equities and fixed income trading revenue increased 9% compared with Q3 of last year. Despite an 8% decline in the overall volumes of securities traded on our equity marketplaces, our results reflect reflect.
Both a favorable mix among our trading venues and a favorable product mix within tier six in addition to the impact of price changes and continuous trading for securities with the share price below a dollar which came into effect in April earlier this year.
While trading volumes on T. S X securities increased by 9% in the quarter volume on T. S X venture exchange and TSS Elfa exchange decreased by 36, and 22% respectively. When we compare it with Q3 of last year, which is why overall volumes of securities traded on our equities marketplaces was down 8%.
However, we saw gains in our combined market share this quarter, which was up 1% for T. S X N T. S X venture listed issues and up 6% in all listed issues in Canada compared to last year.
On the fixed income trading side revenue increased versus the third quarter of last year, reflecting higher activity in government of Canada bonds and swaps revenue from our Cts business was down one by 1%, reflecting lower issuer services and corporate action revenue, partially offset by higher revenue from custodial fees and standby liquidity.
Cities compared with the third quarter of last year.
Revenue in our global solutions insights and analytics segment was up 2% over Q3 of last year with an increase from Tms data links slightly offset by a decrease from trade for it.
Revenue from <unk> was down 1% in Canadian dollars, though up 11% in pound Sterling due to the unfavorable FX impact of $4 5 million or 11% increase in pound Sterling was driven by a 16% increase in trader subscribers and annual price adjustments.
Revenue in our <unk> data links business, including co location grew 5% driven by an increase in data feeds co location benchmark indices and the impact of a 2022 price adjustments, partially offset by decreases in revenue from lower usage based quotes there was a favorable FX.
Impact of approximately 0.9 million from a stronger U S. Dollar this quarter compared to Q3 of last year.
The average number of professional market data subscriptions for T. S X and T. S X venture products decreased by 3% in the quarter compared with last year, where subscriptions on the Montreal exchange were up 4%.
Turning to our expenses operating expenses in the third quarter increased by 18% compared to Q3 of last year.
Included in this increase are the costs associated with box, which we now consolidate as well as a S. T. Canada. These costs include ASD Kennedy integration costs amortization of acquired intangibles for ASD, Canada and box and costs associated with the transition services agreement with <unk> all of which in aggregate was up was higher by approximately.
<unk> $16 6 million in Q3 of this year.
Excluding the aggregate amount of the expenses associated with box and ASD, Canada. This translates into a year over year increase of 5% in operating expenses compared with Q3 of last year.
The higher expenses reflected higher head count and payroll costs as well as increased expenses for travel and entertainment and it costs related to software licensing server cloud and professional services.
These increases in costs were partially offset by lower short term employee incentive plan costs and lower legal and consulting fees.
Our integration of Asti, Canada continues to progress smoothly.
We continue to expect total revenue and expense synergies of approximately $10 million, which will be substantially achieved by the end of 2024.
By the end of this year, we expect total revenue and expense synergies to reach at least $3 5 million for the nine months ended September 30 of this year, we have realized approximately $2 7 million of those synergies.
As we approach the end of our 16 month integration efforts related to a S. T. Canada by December 31st of this year, we have lowered our estimation of the total costs by 2 million to approximately $18 million.
Transitional services agreement with <unk> for the 12 months period from August 13th last year to August 12th of this year completed on schedule and ahead of budget looking.
Looking at our results sequentially revenue decreased by $16 8 million from the second to third quarter of this year.
This was due first to a decrease in capital formation revenue, primarily driven by lower additional listing fees and other issuer services revenue second a decrease in equities and fixed income trading revenue and third a decrease in derivatives trading and clearing revenue excluding box, which was primarily driven by a one time.
Reduction in revenue related to the five year government of Canada bond futures market, making termination fees and a retroactive retroactive client billing credit I referred to earlier.
And finally, lower GSI, a revenue due to the decline of the sterling compared to the Canadian dollar.
Operating expenses in Q3, this year were down $3 6 million or 2% from Q2 of 'twenty. Two sorry from Q3 of 2022 Q2 of 2022, reflecting a decrease of $1 4 million relating to a S. T. Kennedy integration costs and 0.6 million in TSA costs in Q3.
Compared with Q2 of this year.
There were also decreases in revenue related expenses director fees and consulting fees. These were partially offset by increases in head count and payroll costs technology spending and legal fees.
Turning to our balance sheet and the nine months, leading up to September of this year. We spent $73 7 million repurchasing 555000 of our common shares under our normal course issuer bid program.
A debt to adjusted EBITDA ratio was one seven times at the end of the quarter and we also held over $480 million in cash and marketable securities at the end of the quarter, which was about $275 million in excess of the $205 million with target to attain for regulatory and credit facility purposes.
Last night, our board approved a quarterly dividend of <unk> 83 cents per common share payable on November 24th to shareholders of record as of November 10th.
In the third quarter, we paid out 49% of our adjusted earnings per share, which is within our target payout ratio of 40% to 50%.
That now concludes my formal remarks, and I'd like to not turn the call back to pull for Q&A.
Thank you David Michelle could you. Please outline the process for the question and answer session.
Thank you Sir.
Ladies and gentlemen, we will now begin the question and answer session.
If you would like to ask a question. Please press star followed by the number one on your telephone keypad.
Your question has been answered and you would like to withdraw please press star followed by the number too.
Please standby for your first question.
Your first question will come from Nik Priebe of CIBC capital markets. Please go ahead.
Okay, Hi, good morning.
Earlier this month, President Biden had instructed the attorney general and the.
Secretary area of health and human services to review the classification of candidates under the controlled substances Act. So I just wanted to revisit that.
In this scenario, where candidates where eventually be scheduled and legalized at the federal level can you remind us of the stance that you took towards listing cannabis companies with U S assets and maybe just help confirm that that event could make those companies eligible for a <unk> listing.
And then secondly, if that were to happen do you feel that you would be able to appeal many of those issuers away from some of the smaller listings venues that they migrated to.
Well thanks, Nick that's a great question that kick off with is I like the global context, you put it in.
So I will as a part of the reminder, remind folks that we we've been active in the sector of the entire time and we actually do list some of the largest cannabis companies in the world like canopy and others.
Our licensed health, Canada cannabis providers.
Certainly the analysis would be that if the U S was to deregister. This is a schedule in there Carter.
That that would pave the way for listing on global exchanges, there would be some technicalities, we would need to work through because it really is the challenge of the laws that affect things like anti money laundering cross border financial transactions that we would need to get confirmation on for both ourselves and for the participants of our ecosystem that rely on us to.
The companies.
So those are both important pieces, but the general expectation is we would see that as positive towards being able to lift more of these companies within PSX and T. S adventure.
In regards to their business development efforts, that's actually something we do actively in general across all sectors. So we do look at companies that are listed on other marketplaces and as they grow and expand and they actually meet the conditions for listings on T. S. Extra T. S X venture be it a regulatory condition like this or even if it's a condition in terms of size or scope of their business.
We do active business development with them. So when they are ready to raise capital again, we can transition them over to a T. S. Extra T. Asics venture listing for their future growth, so that would be absolutely consistent with our existing practices.
Okay. That's good color. Thank you and then.
Second question, just with respect to trade Port are you able to give us your real time read on the general health of Freeport clients and maybe your outlook for subscriber growth in the context of ongoing dislocation in European energy markets like D C.
<unk> and that subscriber base is at risk over the next 12 months.
We certainly see it as a risk, but not a material risk and if you see the impact of.
The volatility in the market, it's been a net positive for the trade port business, because <unk> is really the one place where egg where trader can get the full access to the depth of liquidity on multiple venues and that's been.
Been a strength in terms of adding as I said earlier, it's kind of 50, new clients over the year. This year now that being said we have had we have had a broker termination in terms of their own health.
And so there were some broker you'll see that in the stats in terms of kind of the broker subscribers numbers that are down slightly in the quarter that was an offset.
And that definitely is a health piece, but we don't look through.
To the health of the actual individual participants because if you remember we're not we're not a clearing house. So we're not looking to their balance sheet or to their to their overall cash flow pieces like that.
So I'd say that the business has held up fairly well and that the organizations that have weathered. This continue to do so with success.
And then with a trade port subscription because it's so critical to the nature of their business.
I'd like to think of it as kind of a last thing that goes in terms of the things that they need to run their businesses. So it is certainly a risk it's something that keeps us up at night, but in terms of material impact for the business going forward, we don't see a concern there.
Yes, Okay. That's very helpful. That's it for me I'll re queue. Thank you.
Thanks, Nick.
Your next question comes from MTN, Ric Clark of BMO capital markets. Please go ahead.
Thank you and good morning.
Good morning, it's Andrew.
Doctors experience meaningful market share gains in recent quarters.
Could you share a few details on whats been driving this trend and more broadly how how this box differentiate itself from <unk>.
Exchanges owned by larger U S operators, such as the the NYSE and NASDAQ.
It's going to be simplistic for me to say that it is really around client experience and client engagement, but it essentially is the box model the box design.
<unk> has been worked closely with key order per order providing clients to meet their needs. So we've got clients that are strong supporters of box that are adding more business to it as as we demonstrate through box that it actually can meet their trading needs and so you're seeing market share expansion, both in the continuum, creating activity and all.
Also quite candidly even in the the trade floor facility that box launched a couple of years ago, which provides the opportunity for more complex trading.
So that's that's.
A couple of pieces there. It really is focused on those unique client needs and I think it's actually a testament to the box team that because the smaller more nimble. They can focus on unique client needs to provide that superior service and that's why we're seeing the response in terms of more trade flow go into it.
As it relates to pricing the capture rate at box declined in Q3 and in a period, where the market share improve improve materially.
Is there a correlation between pricing and market share at box.
Hi, attendants as David Arnold here, it's primarily client mix just depends on the volume and different clients have different client pricing. So.
As we've said before we don't actively manage on the day to day affairs of the Boston options exchange.
It's a technical accounting consolidation, so theres independent management independent Board.
But.
As we talked him when we analyze the results this quarter, it's really driven by client mix.
Alright, so I assume there would be.
It would be a performance volume performance incentive.
I wouldn't say, it's a volume performance incentive it's primarily client mix and just depending on which clients trade, which parts of the volume drives the revenue number and capture rates.
Much like we see on the Montreal exchange as well.
Understood.
On <unk>, it's been a year since closing.
Could you share.
How the integration process is going where the business has delivered on the synergies and where you see potential for improvement.
Yes, I think you're referring to our acquisition of the <unk>, Canada business and when we merged it with our Tia six Amtrust business, where our team express business. So this is one of those.
Rod moments for US we we've demonstrated yet again and then ability to acquire an asset at good value. But then also integrated expeditiously of items, we're down to the final stretch here and we've got two more remaining cost kind of synergy pieces to handle this.
<unk>, which is the.
Migration of all of our a S. T candidate employees to our team ex employee offices in Toronto, and Montreal, and we hope to have that done by December 31st.
The benefit for us by by getting this done obviously is is higher.
<unk> and or our revenue synergies as we mentioned we've declared that we're going to beat our original estimate of $8 million buyback $2 million and in addition, we've been able to through the acceleration of our program of record more synergies. This year than we had originally anticipated net eight 8 million analysis.
A proud moment for us it's a it is really one of those things that gives us confidence as we look at other opportunities too.
<unk> businesses and requirement.
Great. Thank you for your comments.
Your next question comes from Geoff Kwan of RBC capital markets. Please go ahead.
Hi, Good morning, I just had.
Question on box.
Net profit margin I mean, I think it's.
Stayed pretty.
Consistent so far this year on a quarterly basis kind of mid fifties to low sixty's is that the case.
Our Q4 performance or is there some sort of seasonality because I think you've talked about before and it's partly a fixed cost business.
Yeah, very much like the rest of like similar to the Montreal exchange or other parts of T M ex BOL.
<unk> operates from a largely fixed cost platform.
And we don't actually I know youre able to construct it but we don't actually disclose specific margins with box side is a privately held company and some of that would be proprietary but your assumptions in terms of how to think about the leverage in the business are exactly right.
Okay.
Next question just on.
Kind of how you're thinking about expenses in the current market environment.
In terms of the puts and takes stuff like.
Net inflation impacts on compensation hiring appetite.
Are you managing the expenses, maybe a little bit more closely just in light of again the current market environment.
Hi, Jeff It said, it's David.
It's pretty much it.
Same old it said, we've done a really good job this year as we've done throughout the history of our business of managing our expenses too.
Below the rate of inflation right and so this year running at around 4% for the first nine months and is is.
In our view really good testament to our discipline.
As we look forward to next year, it's going to be a bit challenging.
We are starting to see some vendors due to either supply chain or their own cost of human capital or raw materials and talk to us about percentage increases that are a little higher than we would like.
That's part of our opportunity to manage with them either extending term and finding other ways to negotiate better terms or maybe even suspend some services so and.
We're busy forecasting and budgeting for next year, it's one of the things that we're paying a lot of attention to.
Because as you would appreciate right our ability to pass it all on in terms of price increases to our clients is more limited so.
That's the perfect I'll give you a judgment Anthony Yeah, I want to make sure I had a couple of points there because.
We are as David said, we were continued management costs very disciplined but we are not looking to do is to restructure pulled back the business is performing well and we are still in a position where we're positioning the organization for future growth.
And so that's a real important piece, it's different and it is a market where hiring.
Takes more time, it can be more challenging given the tightness of the labor market.
But we are actively looking for investment opportunities to grow the franchise. So it will be very disciplined in terms of containing those kind of core operating costs.
But but do not be surprised if we look to invest if we can accelerate growth and we can explain to you where it's going to come from.
Okay. That's helpful and just one last question just any update.
Kind of like the M&A environment.
And asking prices, becoming more reasonable that sort of thing.
Yes, actually we are starting to see that and we're actually seeing assets that we engaged on in the past that are coming back and then we're getting new opportunities to engage with so similar to as we've talked in the past where we are looking at.
At investment opportunities, primarily in the spaces of of data data analytics things that we can both expand or tuck into data links or trade port and also services that we can support our issuer base with folks.
The strategic lens that we're looking at things in.
Haven't changed.
Certainly, we're getting better dialogue with potential sellers on on valuation that makes sense and any of this is the we'll call. It the silver lining in terms of the interest rate environment is at that kind of easy free money that's been in private equity for so long has gotten more expensive.
So that is leading for.
More constructive discussions on things we can do so we do have active dialogue, but.
Anything we execute on is got to be fit with the strategy accelerate the business and added valuation that makes sense or providing value for our shareholders at the same time. So so none of those metrics will change.
Great. Thank you.
Your next question comes from James <unk> of National Bank. Please go ahead.
Yes, hi, good morning.
Good morning, Jim.
First the first question is just in terms of some of the pricing initiatives that that could be coming down the pipe.
Some other recent conferences, you've been talking about things around.
Listings fee schedules and just wondering if you had any color around timing or magnitude or anything you can share on that front at this point.
Yeah. So.
Not going to be able to share timing or magnitude because those are they're commercially sensitive in terms of until we actually move through the process and have the ability to inform clients, but we'll confirm for you that is active and ongoing and be able to expect to share more with you probably later this year.
Okay, Great and then the second question is just around that trade ports expansion into North America.
Had some conversations a few months ago, and just wanted to get a refresher as to how that progresses unfolding both in Canada and in the U S.
Yeah, it's actually continuing to unfold quite well I mean, we're still in the early stages of that development, but in terms of the revenue that we're generating out of the U S operations I don't sure. If we've shared this with you before Jane but we.
When we started doing this we're doing kind of a million pound a year in terms of run rate revenue, that's more like four or five now.
It's both a combination of kind of what I'll call on the ground operations in North America, but also providing access for north American clients to get engaged and involved in the European trade.
We're getting rolled out in terms of the screen and trader penetration with our partnership with nodal that's been a key piece of the building block, but we've also got at least two new liquidity provider participants now engaged in the platform.
A as a broker who is going to bring more oil trading and we're working on that actually buildup with them now and we've also got another broker that will bring other types of energy across the sector power and gas and we've got one of our first hedge funds.
Signed up to trade with us in North America, So that that building block piece is gathering steam our business development efforts, which is led by Brenda Cunningham is is bearing fruit and this is a piece that we do believe is going to be part of our long term growth success for the franchise, but I always want to caution people that it's it's hard.
Two to give a lot of update quarter to quarter. Because these are long term builds but we're pretty positive about what we're seeing so far.
Great. Thank you very much.
Ladies and gentlemen, once again, if he would like to ask a question. Please press star one at this time.
Your next question will come from Graham Ryding of TD Securities. Please go ahead.
Hi, good morning.
Morning Graham.
Just staying with trade port.
Seeing total subscriber growth.
Slightly year to date, but then trader subscriber growth is quite strong why the why the divergence there.
Yes that was what I was alluding to that a bit little earlier on so the divergence there has to do with really two distinct activities with respect to some of the broker clients. So as I said in my earlier remarks, we've actually added 50, new clients. This year to the platform in terms of trader clients are assumed continuing to see that trader adoption trader expansion.
I mean, I think as we've talked about in the past when we get new clients often when we renew those clients as they expand their seat counts in usage through their shop. So that's all been very positive.
The offsetting piece in terms of the kind of the venue subscribers is two pieces. We did have a broker consolidate one of their desk. So you have operated multiple desks in the same sector and chose to consolidate one that was basically a technical reduction in terms of the number of subscriber counts in that space and we did have as I indicated earlier you want <unk>.
With an insolvency challenge. So we did have a broker client that left the platform and there were some count there that went away so.
In both cases, none of those were actually material revenue impacts for us and.
And really reflects some of the challenges in the European energy marketplace that we've talked to them and some of that dislocation.
But the real strength and why we've always indicated the the biggest indicator of revenue growth is the trader subscribers you can see that that adoption continues to be really really strong.
Okay.
Understood jumping to trust.
Total TSA Trust revenue I think was down 3 million quarter over quarter.
Despite the fact that we've seen interest rates continue to push off which I thought would've sort of supported higher margin income. So maybe you can just.
Talk through what is what the puts and takes are there.
Yes, it's.
Graham It's David it's it's a normal story for us when you look at Q3 versus Q2.
Effectively what's what's happening is it's the seasonality a lot of activity in.
Q2 for Agm's and the like and then obviously a slight slowdown in Q3.
And how sensitive is trust revenue to serve more transactional based activity as opposed to.
Much of it would be fairly consistent and recurring.
Yeah. So on the transfer agency side of it it's recurring right as you would typically expect but.
When it comes to some of the corporate actions and those obviously are sensitive to what you see happening in the capital markets Arena right. So there is a knock on effect in and obviously if there is.
Less initial am listings of Ipos that obviously translates into a little less transactional activity for the trust John you want to add anything.
I'm going to give you some kind of guideposts here and use these as more of general indicators, because it will depend on the year and the activity levels and certainly this is a year, where corporate action activity is down versus the previous year, just like it is with financing, but in general above prior to when we acquired ASD, Canada about 40 ish percent of our T. S extra revenue would be that recurring revenue.
New subscription based revenue the remainder would be more transactional in one of the additional benefits of moving into ASD, Canada with the larger client bases with larger actual recurring revenue contracts is that we've actually moved that metric from about 40% to more like 60% and so that was part of the deliberate kind of up scaling of the.
We can serve that they actually get into stickier revenues. So that's that's been the trend as we get this integrated that we're moving from about 40% recurring to 60% in that business.
Okay. That's helpful.
David on the on the synergies that you're you've increased your target for the ASP I guess.
What's driving the higher synergy forecast and are you seeing any revenue synergies yet.
So we typically don't split out the two but what is driving the higher forecast for this year is more expense synergies, primarily driven by some of the real estate consolidation activities that we've been able to accelerate.
And yet more of the revenue synergies are in the in the tail end of the the window, leaving towards 'twenty 'twenty four.
Hopefully that gives you enough grant.
Yes, and one last if I could just any visibility on what sustaining fees could look like next year.
Assuming that this level of market cap with maybe where are we where we finished the year at.
Yeah, you've got a number of competing factors in there and we're looking at the same thing at the same time, so your market capitalization and the senior market on average I think our in total are down about 8% year over year.
Which would have an impact on it.
It's going to be a question of the mix in terms of how many of those are actually already at the cap versus how many are not and that's something that we will look to closer to the end of the year, but as Jim indicated.
Indicated earlier this is something that we are looking at for potential price changes for next year.
That could potentially work to offset some of that impact should market capitalizations remain where they are so this this is something we will certainly be able to give you much better guidance on in the next quarter.
Okay. That's it for me thank you.
At this time there are no more questions from the phone lines I would like to turn the conference back to your hosts for closing remarks.
Thanks, Michelle and thank you everyone for tuning 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 and safe everyone.
Ladies and gentlemen, this does conclude your conference call for this morning, we would like to thank everyone for participating and you may now disconnect your lines.
Okay.
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Sure.
Okay.