Q4 2022 TMX Group Ltd Earnings Call
And 'twenty two financial results conference call.
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Following the presentation, we will conduct a question and answer session.
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This call is being recorded on Tuesday February 7th 2023.
I would now like to turn the conference over to Paul Malcolmson, Vice President Enterprise sustainability and Investor Relations at T. M X group. Please go ahead Sir.
Well, thank you Michelle and good morning, everyone I hope that you and all of your families are staying well and safe.
Thank you for joining us this morning for the full year and fourth quarter 2022 conference call for Tms Group.
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 this John Mackinnon.
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Good morning, everyone. We understand that there was perhaps a technical issue. So we're just going to you.
Repeat apologize if there's a little bit of reputation that we do appreciate you joining us this morning.
As usual, we have with us John Mckenzie, our Chief Executive Officer, and David Arnold Our Chief Financial Officer, We will have a question and answer session. Following the opening remarks, and just a reminder, that certain statements that we make today might be considered forward looking and we refer you to the risk factors that are in our press release and also reports that we filed which relate to <unk>.
Tori authorities.
With that I will once again turn it over to John .
Thank you Paul and again, our apologies for the technical challenge to start off the day I'm going to wish everyone. A happy new year for a second time and so if it wasn't a good one to start already this morning, we hope it's better now and wishing you the best to you and your families in 2023.
So my comment this morning, we're going to focus on Tms group's performance in 2022, and some of the key strides we made during the year to accelerate our strategy and advance the evolution of our company to meet the needs of stakeholders throughout the capital markets ecosystem here in Canada and around the World and then David will join us to discuss our fourth quarter performance in detail in just a few moments.
So there's no secret 2022 was a tumultuous a difficult year for a broad spectrum of our client base and stakeholders across the markets that we serve geopolitical events and macroeconomic conditions, including sorry interest rates escalating inflationary pressures negatively impacted a wide range of industries and people across our communities.
These factors also had an adverse effect on capital markets activity and stifled economic growth.
And while some of these challenges persist into the early weeks of 2023, we do have good reason to be optimistic.
Over time, our ecosystem has proven resilient through all conditions in terms of the market cycle and world events and the fact that Kansas markets are the best in the world deepened diverse fair and transparent and innovative and responsive.
Want to take a moment to extend my sincere gratitude to all of our clients and stakeholders across the Globe Freaks York crucial contributions to this track record of success.
The partnership is the key enabler pushing the growth and continued evolution of Tms exchanges in venues and the broad ranges of services we provide.
Now turning to our performance <unk> delivered positive results in 2022 overall revenue grew year over year, despite decreased capital markets activity compared to our record setting 2021.
<unk> reported revenue of over $1 1 billion, a 14% increase from 2021 due to higher revenue from derivatives trading and clearing global solutions and insights, including trade port and Tms data links and capital formation.
The increased revenue included $118 5 million in revenue from box consolidate in January 2022 of which 52, 1% relates to a noncontrolling interest.
And reflected contributions from <unk> recent acquisitions, including $33 6 million in revenue from ASC, Canada inquired in August 2021.
$3 4 million in trade and from trade signal acquired in June 2022, and $1 million from Wall Street Horizon acquired in November of 2022.
Increased revenue was also partially offset by lower equities and fixed income trading and clearing revenue due to lower trading volumes on Toronto stock Exchange T. S X venture exchange and Alpha.
Excluding revenues from the consolidation of box and Rican acquisitions revenue was down slightly 2% from 2021.
On an adjusted basis 2022 diluted earnings per share was $7.13 in 2022, a slight increase from 2021.
And total operating expenses increased 21% to 20 compared to 2021, or a 4% increase including expense excluding expenses related to box ASD, Canada trade signal and Wall Street horizon.
Now in addition to environmental factors and adverse economic conditions historical context is important discussing Tms is 2022 results.
2021 was a record center and some of our key performance measures, including capital raising activity. Among our listed issuer client base on trial stock exchange MTS ex venture exchange.
In 2022 under extremely difficult circumstances, Tms is a deep and diverse business model performed extremely well in.
We made significant progress in executing our long term strategy to achieve sustainable growth and build stronger for the future.
Now moving to the individual business areas.
Revenue from capital formation in 2022 was $261 2 million, a 1% increase from last year, reflecting the inclusion of revenue from ASD, Canada and higher revenue from sustaining fees. The year over year increase was largely offset by lower revenue from additional listing fees due to a lower number of financing transactions and decrease.
In dollars raised on T S X and T S X venture.
Higher interest rates and inflationary pressures and increased volatility weaken those capital raising conditions in 2022 and.
Despite these challenges, though our public market ecosystem has again proven resilient and the entrepreneurial spirit of our issuers endures, while the number of new listings was down from near all time highs in 2020. One we continue to add new companies to our ecosystem and the number of listings has grown for a seventh consecutive year.
Although ipos garner all the headlines they are not the only way to join our markets. In fact, most companies choose a different vehicle to go public in Canada.
In 2022, we welcomed 257, new listings to our market via other means including 71 additions to T. S X venture exchanges signature capital Pool Company program.
This past year still ranks among the strongest on record since the program's exception and 1986 and.
And it stands is powerful evidence of the appeal of the program in all market conditions.
Overall C. P. CS accounted for 32% of New T. S X venture listings in the past 10 years.
And while these can still constitute smaller sized entry level transactions.
Mall companies grow into big companies.
And this is what sets cannabis markets apart, we do better than anywhere anyone anywhere else in the world.
T S X venture exchange is the foundation of our powerful two tiered marketplace and a proven growth accelerator in fact, 22% of the S&P T. S X composite index, our T S X venture graduates.
And we have embarked on a collaborative stakeholder driven initiatives to ensure the public venture market remains a key differentiator and a competitive advantage.
Venture forward kicked off in the summer of 2022 canvassing the interconnected community of entrepreneurs investors finance years lawyers and advisors to identify priority near and longer term marketplace challenges and.
And we plan to announce next steps in the first half of this year, including identifying priority areas, where we could work together with our stakeholders to effect positive change and potential tactics.
Now in all conditions, we continue our efforts to expand our global lithium franchise with business development cans campaigns targeting growth companies that fit the profile of our markets and regions throughout the world, including the U S Europe and South America.
Canada's markets are the 10th largest in the world by market capitalization, but T. S X N T. S X venture combined ranked number two in new listings and number two in new international listings amongst global exchanges through September 30th According to data from the World Federation of exchanges.
In addition to the solid performance relative to our peers and a tough year R. T. S X and T. S X entered teams remain closely engaged with the deal making community.
And we have a number of go public prospects companies across a range of sectors and our near term pipeline pointed poised to join our markets when conditions normalize.
And with that our long term pipeline for new shares remains extremely robust.
Now I'd like to turn the derivatives excluding.
Excluding box revenue from derivatives trading and clearing was $142 8 million in 2022 up slightly from 2021, driven by a 10% increase in revenue from C. D. C C due to higher repo dealer activity and fee changes.
The increase was partially offset by a 4% decrease in revenues from Montreal exchange, reflecting termination fees related to our market, making program and retroactive client billing credit as well as a slightly unfavorable product and client mix.
Volume of contracts traded on IMAX was up slightly compared with 2021 and overall open interest grew substantially in 2022 up 18% at December 31, compared to the end of 2021.
Investors continue to seek out derivative instruments to manage exposure in their portfolio through the turbulence of 2022.
While sustained volatility across equities and fixed income markets had a negative impact on volumes traded in sum of axis core products, including the Bax contract, we saw strong year over year growth and equity futures and options.
Some of those key highlights included 18% growth in volumes traded in equity options, reflecting increased activity from institutional and retail investors in the energy and financial sectors.
43% growth in volumes traded on ETF options are highlighted by record activity from institutional investors across broader index financials, and energy sectors and 14% growth in volumes traded in index futures.
We also saw significant growth momentum and Amex Amex's government of Canada bond future contracts during 2022 as they continue to gain and profile among global investors.
Volume increased 126% in the C G Z or the two year contract and 28% and the C. G F or five year bond contract when compared to 2021.
Now moving to global solutions insights and analytics our G. S. I E revenue was $360 1 million, a 4% increase from 2021, reflecting higher revenues from tree Board N T M X data links.
<unk> revenue grew 5% or 12% in common currency pound sterling when compared to 2021, driven by a 16% increase in trader subscribers and annual price adjustments.
Continued efforts to expand the depth of trading tools insights and solutions across the core Joule network has enabled tree port to provide essential support for angi market participants and navigating severe volatility.
Freeport added to its dynamic set of features and functionality in 2022 with the signing of a partnership agreement an acquisition of a minority interest Inventrix limited a cloud take a data technology company that offers a platform for data acquisition integration and business intelligence.
The <unk> solution has augmented the trading experience for its growing client base.
And to report has added more than 30, new clients in 2022, and core and new growth areas as new market entrants seek to connect to execution venues and clearinghouses across world power and natural gas markets.
[noise] Freeport's global diversification strategy also made continued progress in 2022.
Pursuing opportunities to move into new asset classes and geographies.
One example, the voluntary climate market, our collaboration with incubator <unk> launched last year to facilitate trading in the physical voluntary carbon market.
The T V. C. M platforms, author offers carbon offset projects from five of the leading offset registries, which are tradable with live bid and offer through tree forts joule platform.
And while still in the early stages of building this new market. We added several newbuild clients during the second half of the year and we are working alongside in Quebec to bring additional liquidity to platform in the future.
And same with GSI a revenue from Tms data links was $202 7 million an increase of 4% from 2021 due to revenue from data feeds co location analytics and price adjustments. These.
These increases were partially offset by lower revenue from usage based quotes benchmarks and indices.
As reported team X data links revenue included $1 million in revenue from Wall Street Horizon.
Boston based company, we acquired in November 2022.
This acquisition represents another step forward for the Tms data links team as we expand to enhance the content, we provide to clients around the world.
Wall Street Horizon is a leading provider of global corporate event datasets to traders portfolio managers and academics.
The company covers 9000 publicly traded companies worldwide offering information on more than 40 event types, including earning dates dividend dates option expiration dates and more.
T M X continues to pursue new ways to expand our information services business and to connect our global client base to the information they need to to make our competitive advantage.
So we kicked off 2023 with a strategic investment and verify holdings, which includes a new commercial agreement.
Verify as a U S based privately owned data and analytics indexing digital distribution and thought leadership company.
And Tms acquired approximately 21% of the common equity identify for 175 U S.
In U S dollars.
Our investment in and partnership with verify enables us to increase the depth and value of data driven insights we provide to clients enhance our digital capabilities and enrich our leading support for the ETF issuer community.
These recent initiatives initiatives and investments build on T. M access information assets and expertise to increase our global footprint and they accelerate our enterprise growth strategy.
And it is no surprise Tms is an innovation story with a proven track record and proud 170 year history at the forefront of industry progress.
And the expansion of our information business is the next step in the evolution of T M X and in executing our long term sustainable growth strategy.
Now in addition to all that we have a strong balance sheet.
We have smart dedicated people working together with a purpose to make markets better and empower bold ideas and we are committed to executing and seen it through.
And so in closing today I want to six yearly. Thank our people for brief for bringing Tms as corporate perfect to life in a way they do everyday.
And out one person in particular that I'd like to thank today and take a moment of acknowledgment for the contributions of an important member of our team and a familiar voice on these quarterly calls since Tms became a public company in 2002.
As many of you already know Paul Malcolmson, Tms as Vice President Enterprise sustainability in Investor Relations is retiring on March 1st.
Now it's hard to believe but this is paul's 81st and final quarter, leading our IR function. This is a record only rivaled by the number of times. He has run at Disneyworld over the same years.
Now at various times during his career T. M X. He has also had a hand in overseeing other corporate functions, including public relations government relations and sustainability.
And on behalf of the entire senior team and employees across the organization I want to thank you Paul for your dedication to T. M X your steadfast professionalism and sound judgment over the years and for your friendship for years, Paul and I sat side by sides and the organization plotting the future of where this company can be only to sit here today to see it come to fruition.
Paul leaves behind a very impressive 20 year legacy as a trusted and expert source of insight for many of you listening today as well as investors around the world and also leads our team well positioned with a legacy of the future and a strong IR team in place Paul Thank you very much.
And with that I will turn the call over to David.
Thank you John and good morning, everyone.
Our results for the fourth quarter reflect our commitment to continue investing for long term growth and our ability to effectively manage our business and challenging economic conditions revenue grew by 9% driven by the inclusion of revenue from box options market or box for short, which you consolidated on January 3rd of 2000.
22, and Wall Street Horizon, which we acquired on November nine of 2022.
Revenue, excluding box and Wall Street Horizon was down 3% in the quarter compared with an exceptional fourth quarter last year. When we had our highest Q4 revenue on record.
They were revenue increases from derivatives trading and clearing global solutions insights and analytics with GSI, a offset by decreases in capital formation, and equities and fixed income trading and clearing.
Excluding the aggregate amounts of expenses associated with box and Wall Street Horizon, our operating expenses increased by 3% compared with Q4 of 2021.
We reported an increase of 17% and our diluted earnings per share. This past quarter benefiting from a decrease in income tax expense compared to Q4 of 2021 from the reversal of a prior year tax provision as well as an increase in income from operations of $3 1 million compared with Q4 of 2021.
The $3 1 million increase includes 100% of income from operations of box of which 52.1% relates to noncontrolling interests. After deducting the 52.1% portion of box.
The noncontrolling interest in box our income from operations was down compared to last year and our adjusted diluted earnings per share decreased slightly by 2%.
Turning now to our businesses I'll start with those that we experienced revenue increases in the quarter Rev.
Revenue in derivatives trading and clearing grew by 67% this quarter compared to Q4 of 2021, driven by the consolidation of boxes revenue of $27 7 million included in the segment starting in Q1 of this year.
Volumes on box increased by 17% compared to Q4 of last year and boxes market share in equity options grew two 7%, which is up 1% from Q4 of 2021.
Derivatives trading and clearing revenue excluding box was down 6% in the quarter, primarily driven by 8% decreasing the Montreal exchange volumes this quarter, partially offset by positive impact on trading fees on the heels of pricing changes for I S. N. P. T. S X 60 index standard futures or S X F.
Which came into effect on January of this of last year, and 22, and a 2% increase in revenue from C. D. C. C. Due to an increase repo deed activity and interest rate derivatives clearing fee changes, which also came to effect in January of 2022.
Turning to our global solutions insights and analytics segment with GSA for short revenue was up 5% this quarter with increases from both trade Port and T. M X data links revenue from trade Port was up 5% in Canadian dollars or 11% in pound Sterling the increase in pound Sterling was primarily driven by 11th.
An increase in trader subscribers and annual price adjustments, partially offset by an unfavorable FX impact of $1 9 million.
Revenue in our Tms data links business, including co location grew 5% driven by increases in data feeds co location and the impact of 2020 twos price adjustments and 1 million related to Wall Street Horizon. We also benefited from a favorable FX impact of approximately 1.7.
Due to a stronger U S. Dollar this quarter compared with Q4 of 2021, partially offset by decreases in revenue from benchmarks and indices and usage based quotes.
In capital formation revenue in the quarter declined 8%, 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 N T S X venture as well as a decrease in initial listing fees.
The decrease in additional listing fees were driven by a decrease of 21% and the number of transactions billed below the maximum fee and a decrease of 58% in the number of transactions billed at the maximum listing fee of 250000 this quarter versus Q4 of 2021.
This decrease was partially offset by higher sustaining fees of 4%, reflecting an increase in the market capitalization of issuers at December 31, 2021 over the prior year, along with a 40% increase in T. S X Trust revenue in the fourth quarter, driven by higher net interest income and partially offset by lower transfer agent fees.
In corporate Trust revenue.
Revenue from equities and fixed income trading and clearing segment decreased 2% in the quarter compared with Q4 of 2021. This decrease was driven by 16% decline in the in the overall volumes of securities traded on equities marketplaces trading.
Trading volumes of T. S X decreased by 5% T S expansion exchange by 34% and Alpha by 31%. However, we saw gains in our combined market share this quarter, which was up 1% for T ethics and T. S X venture listed issues and up 4% and all listed issues in Canada compared to last year.
The decrease in revenue was were somewhat offset by a favorable mix amongst our trading venues and a favorable product mix within T. S X the impact of April's price change on continuous trading for securities with a price per share below a dollar and higher fixed income trading revenue, reflecting higher activity in swaps and repos in the quarter.
Revenue from our Cts business was up 1%, reflecting higher interest income on clearing funds and pass through liquidity fees, partially offset by lower special handling fees international revenue clearing fees on exchange traded volumes and lower depositary rib.
Turning to our expenses operating expenses in the fourth quarter increased by 14% compared to Q4 of last year include.
Included in this increase is approximately $13 9 million associated with box, which we now consolidate as well as wall Street Horizon, which we acquired in November of 2022. These costs include the amortization of acquired intangibles acquisition related costs and integration costs.
So excluding the aggregate amount of expenses associated with box and Wall Street Horizon Euro for your operating expense expenses increased 3% compared with Q4 of last year, the higher expenses reflected higher head count and payroll costs increased long term employee incentive plan cost increased operating cost.
And higher travel and entertainment expenses.
These increases in costs were partially offset by lower short term employee incentive plan costs of $6 4 million and lower legal and severance costs.
Our 16 months integration of a S. T. Canada was completed in December last year.
Total integration costs were $17 million down 1 million from last quarter's estimate of $18 million, which is down from our original estimate of $20 million, we realized synergies of approximately $3 9 million in 2022, which were up from my estimate of $3 5 million last quarter and our original estimate of $2 million.
We continue to expect total synergies of approximately $10 million to be substantially achieve by the end of 2024 and expect approximately 6 million to be achieved by the end of 2023.
The transaction had a positive impact on T M X group's adjusted earnings per share.
Looking at our results sequentially revenue decreased $4 8 million from the third quarter to fourth quarter of this year. This was driven by higher revenue in GSI a C. D S derivatives trading and clearing partially offset by lower revenue in capital formation.
Operating expenses increased $10 6 million or 7% from Q3, including an increase related to the acquisition of Wall Street Horizon on November 9th of 2022. They will also increases in technology operating expenses commodity taxes severance long term incentive performance plan costs and consulting and travel costs.
These were partially offset by lower short term incentive performance plan costs of $2 1 million and lower legal and charitable donations.
Turning to our balance sheet in the full year of 2022, we spent $74 3 million repurchasing 560000 of our common shares under our normal course issuer bid program.
Our debt to adjusted EBITDA ratio was one six times at the end of the quarter and we also held over $493 million in cash and marketable securities at the end of the quarter, which was about $318 million in excess of $175 million, we target to retain for regulatory and credit facility purposes.
Our board approved a quarterly dividend of 87 cents per common share payable on March 10th to shareholders of record as of February 24th. This is a 5% increased from Q3.
As John mentioned this marks pulls 81st quarter with the company as many of you know cole will be retiring at the end of the month.
While I've only had 20 months to get to know and work with Cole I Echo John's sentiments.
Wish Paul nothing, but the best in his retirement and look forward to hosting pull any family as well as our T. M ex colleagues as they close the market. Later this afternoon, which is a fitting way to celebrate both his career and contribution to T. M X.
So that concludes my formal remarks, and now for the last time I'd like to hand, the call back to Paul for Q&A.
Thank you David and thank you, both John and David for your very kind words, Michelle we'll turn it over to you just to outline the process for the question and answer session.
Thank you Sir.
Ladies and gentlemen, we will now begin the question and answer session.
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Your first question will come from Nik Priebe of CIBC capital markets. Please go ahead.
Okay. Thanks.
Good morning, everyone. Just now that you've presumably completed the year end budgeting process. Just wondering if you can update us on how you're thinking about managing expense growth in the year ahead is flat to low single digit growth still kind of a reasonable expectation.
Price wise.
Nick It's David and that would be correct and we normally target flat to below the rate of inflation. So.
That's the wildcard is the rate of inflation.
Okay very good.
And then is there anything incremental that you might be able to share on the debt refi investment just with respect to the.
The expected earnings impact when you fold it in.
Or how the valuation they are compared to say the previous fund raising round.
Yes, happy to and you're Youll understand Nick that I'm going to have to be a bit circumspect as my comments because this is a private company where 21% shareholder.
But in order to kind of give you a bit more sense of some of the guidance around it.
You know the size of the company is is not dissimilar to the size of trade port when we acquired it in terms of kind of both revenue size growth rates profitability. So it kind of gives you a sense of the size of the business.
Very strong performer in terms of index analytics ETF solutions. It's one of the things that we were attracted to it and we've been in discussions with them for for a while actually to find that right path forward and the importance in our in our program that we're doing with verify its a combination of the capital that we're putting in that's going to help accelerate some of the things that verify is doing.
To accelerate its growth, but also we noted the commercial partnership the long term agreement, we put together to really create net new index and benchmarking products for our broad client base and so the exciting piece here is it's both driving the growth of that investment, but also driving the growth of new products and revenues that we will share between us.
So we do expect this to be accretive even in the minority investment phase and with the ability to build revenue both in verify and in within our joint revenue offering which will impact our data links business going forward. So I hope that gives you a bit more guidance in terms of how we think about it but I hope you get from my tone, it's something that we're extremely excited about.
Understood Okay, no that helps clarify.
And then one just final question for me in the long term objectives that you outlined I noticed that the target leverage ratio had just been taken down maybe half a turn I think that's a bit lower than the range. You've talked about previously is the upper bound of that range. I think it was two and a half times, how you would define capacity to re lever the balance sheet to pursue.
Further M&A, if anything kind of transformational presented itself or or would there be appetite to exceed the high end of that range if necessary.
Nick It's David and yes, so the the one and a half to two and a half times is something that we have spoken about over.
Over the last several quarters and we put it into I invest to Russia, but we've updated it in the annual disclosures right. So it appears new but it's not that new but on your question about you know if the right acquisition were to present itself and there are many things that we look at all the time and our comfort level.
Would absolutely be to exceed the upper end of that range that range is really about.
Through the normal course, right, but if theres a transformational opportunity and we are very comfortable like we did with Trey port I'm going well north of three times and we have a proven track record of deleveraging very well at a time. So hopefully that gives you what you're looking for.
Yeah. That's helpful. Thanks very much.
I'll pass along.
Your next question will come from Geoff Kwan of RBC capital markets. Please go ahead.
Hi, Good morning, just following up on the on the bet. If I just was wondering your comment around accretion are you able to give any more insight in terms of is it.
Low mid high single digit even double digit accretion that you kind of.
You may be expecting over the next year.
Yeah, I mean, I can't give you much more guidance I'm really talking about EPS accretion because again. This is a 21% investments we wont be bringing the EBITDA into the organization into our statements and as we go forward with verifying we do more with them. We will look to see what we can provide in terms of additional disclosures, but Jeff Thats a limit I'm going to go to be able to show.
Today.
Okay. Just my other question was we've seen a number of other exchanges moving their business to the cloud just wondering if this is something that <unk> been looking into and if you were to go down that route.
But this could do for margins.
Jeff that's a great question.
One of the things I like about that question is I actually found that I'm going to be a bit pedantic I think Tms has done more to move into the cloud then make cloud announcements like some others have done.
We've actually been very active in terms of putting more core systems into the cloud over the number of years and a lot of our competitors. So for those who don't know we are actually fully cloud enabled and everything we do around productivity.
Flow counter.
Accounting systems HR systems projects. This was actually one of the reasons, we were able lease to move so effectively modus because we'd actually done that work in advance with a full cloud enabled solution on the front end for issuers called Tms links so all of our issuers actually connect with through a cloud solution for all their filing activity application activity and the workflow that surrounds it it's made the business substantial.
More scalable and particularly when you think about the activity. We had in 2021, which was record activity. We did that with existing resources. Because we were just able to scale the business in a way we werent in the past. In addition, we've got a cloud solution for our historical market data delivery and deep data analytics, both within T. M X data links and also recently, where we're deploying in Shreveport.
So what we've been doing is actually just going about our cloud strategy is as we actually modernize and bring new initiatives online we do it with a philosophy, we call cloud first.
What we haven't done is gone into a big Bang announcement with a single vendor for a long term commitment because we are still in the stage of looking at kind of who is the best of breed for each of these things that we're going to bring to bear but to actually to your point as we look forward. We are looking at how do you think about those bigger systems like trading and clearing and data Center management.
As those technologies evolve are we able to move those to cloud based solutions as well. So it's something we're going to continue to explore in the future, but that kind of gives you a lenses to where we are thinking it's it's cloud first and delivery and we've got multiple partners to do that.
No that's helpful and maybe if I can just add one extra question just based on your response there is like for what you have kind of moved to the cloud have you done any analysis in terms of how much that helped.
Helped margins and if you were able to move to your point trading clearing data center all that other stuff.
Potential for further financial impact.
Yeah, what I would say to you in each of those programs.
The business cases supported the investments in terms of the run rate, but in addition, the real pieces. It is the scalability that it gave us so.
So in each of those cases like the ability to do a deep data Lake program.
Without the cloud solution, you really can't do it in a way that's scalable for clients same thing with the work we're doing on issuers. It's made the business more scalable. So it reduces the amount of really variable cost in the organization as we grow. So that's that is the better way to think about it in terms of providing that long term scale and growth potential.
Okay, great. Thank you.
Your next question comes from Etienne Ricard of BMO capital markets. Please go ahead.
Good morning, and congrats Paul on.
On the introduction of Brava jet.
On the transformational objectives.
How will <unk> bridge the gap between the business today.
And your long term objectives from from organic and acquisition perspective.
Yeah.
So one of the I want to be clear in terms of when we put out. These objectives. These are not new objectives, we've actually been talking to the street about.
The the transformational objectives in terms of where we're trying to grow the business over the long term and that's why they are long term objectives of dome.
Wouldn't look to where are we at any point in time, but are we making progress against those components in terms of progressing into more data revenues more global revenues more subscription based services.
So even in 2022 if you normalize and looked at the business in terms of taking out the impacts of kind of box in or the acquisitions and what the organic business did you'll see that all of those numbers expanded and grew in terms of a long that glide path anywhere from 1% to three percentage points. So our organic strategy as we set with the organization and the.
<unk> at the end of last year.
Builds in the types of investments in growth initiatives to continue to drive more global revenue more data revenues more.
The sustaining recurring revenues very much like the the partnership we just talked about with verify which index and benchmark and is exactly in that sweet spot of delivering both global solutions and subscription and recurring in data revenues.
So we do believe that we've got an organic strategy to build there through the long term, but certainly inorganic moves even small ones like wall Street horizon that we did in Q4 are ways for us to accelerate and get there faster. So that's what we're trying to give more guidance in a more consistent way.
In terms of what that long term future looks like so that when you see the strategic moves that we make you can understand them in that context.
Understood.
Your long term objective for downlink is now 5% plus annual revenue growth.
Is an improvement from your prior objective for low single digit growth.
So I guess what is what is giving you improved confidence data links can achieve stronger growth potential.
Oh, the we've got a plan to deliver it so it's not just confidence.
We wouldn't put out that direction without knowing that we had a plan to deliver it so under the leadership of Michelle Tran and J roget, rather and we've been building a growth plan around data links you see the results in the last couple of years that we had some we've had track record already in 4% to 7% growth over that period, even in a very tough market in 2022 I might add.
And it's a combination of factors that helped give us the confidence that we can grow this business faster. So we do have some potential for pricing in there that we've actually been executing getting approved and bringing to market, we've been bringing new products to the table new bundled solutions, new analytic solutions on top of the pieces that we're doing around expansion with again things like Wall Street.
Horizon when I talk to my comments. This is an organization that does corporate action and event data for 9000 companies most of them are not Canadian.
And we actually have all of those datasets on 3000, plus Canadian issuers that we can build in their product and also a substantially longer larger global sales base to sell that product towards so in all of these pieces. We are looking at how we actually add more product and sell them globally to accelerate that and we've got a plan for that business. It gives us confidence that we.
<unk> can give you that direction.
And lastly on <unk> I.
Understand what are the benefits of the of the partnership is to launch New index products.
So could you please share the next steps in this regard and how would that be complementary.
To your current partnership with <unk>.
S&P.
Oh, that's a really good question. So that's a piece of fantastic partner on broad Big name Index and benchmark. So we've got a long term relationship with S&P for the T. S X S&P 60, those types of products.
Where we're really focusing here is in what I'll call, even more special products special indices.
Thematic if we're trying to do something special around a sector or creating a custom index for an ETF provider. This is the capabilities that identify brings to the table with us and our teams together are already working on.
What I'll call. The the pipeline of the products that were potentially going to bring to market that started immediately and we immediately put it into the objectives of our key people in terms of things that theyre looking to deliver with that partnership and so it's really that ability to go into the middle market of more custom product sector indices theme.
<unk> those types of things that this allows us to do and it's complementary to the relationship we have with S&P and similar the you know the partnership we're putting together a is also a long term relationship with it with verify similar to our S&P relationship.
Thank you very much.
Your next question comes from Graham Ryding of TD Securities. Please go ahead.
Mr. Ryan Your line is open for questions.
Sorry, I was on mute thank you Justin.
Just to follow up on the <unk>.
Just to be clear so any that you have a commercial agreement here, so anything incremental around new products or indices, how does that flow through does that will that come through in your GSI data line or will that still come through as sort of equity.
Equity ownership in <unk> and another entity.
Yes, Graham, it's David So and primarily the piece related to the commercial agreement that is for our account and will flow through our data links business. The GSI segment that because we also own a 21% stake in and verify will also on the income from associates pick up or 21% share after.
The tax of any of those benefits that they would record it.
Got it okay.
That helps.
Maybe I could start with trade port than just you know.
Could you just sort of give us some context here with.
Their volumes down 25% year over year, you're still seeing good growth of your subscribers.
Whereas this trading moving to that's not going through trade port.
Right now is it going to other markets around the U S or Asian.
LNG products that are not on the trading platform is that how the market is suggesting here.
No I mean, if you look at our kind of our market share of the trade flows going through has not materially changed. So this is more of a pullback in the overall market activity in those products Humira.
Remember that the prior year with substantially more volatile and had higher levels of trade activity. So that's that's all you're seeing is reflective of overall market activity.
But what youre seeing with trade port in terms of the subscriber growth and the new clients is that the solutions, just becoming even more valuable to the users throughout that network.
So is there any concern on your part here that if this volume decline persist.
Subscribers growth may start to wane somewhat.
Energy trading is shifting to.
Non European markets.
No I'd say, it's not a market shift is just maybe like markets move in cycles in terms of activity, but there's not a concern there are bigger concern was more around health of clients within the Shreveport community. When you had that level of volatility pricing impacts margin balance sheet impacts.
And we did see one client loss through 2022 on that basis, but nothing material. So that that would be our bigger concern would be watch runners around client health, but our clients continue to be in good shape.
Okay, and I think you're rolling through a 7% to 8% price increase in Shreveport.
For 2023, how does that compare to year CPI increase that was.
Baked into 2022.
So.
The increase in 2022 would have been in line with what the bank of England, I'm consumer price index movements.
Which was in the four ish range.
So that kind of gives you the delta year over year.
Okay.
Okay.
Jumping to box and a series of decline in your revenue yield from box. It just seem to be dropped down again quarter over quarter relative to the volumes, maybe just some commentary.
And what that's reflected.
Yes, Graham it's David it's the mix between them.
Electronic trading and or traded on the floor as you know a box has.
One of the few I am trading floors and pet style. So.
Say the revenue per contract is subject to fluctuations between the two.
Excuse me.
Got it and then one last if I could just it looks like the CSA is reviewing some market data.
Cost just pull through on the methodology used to gauge pricing for real time market data, but also just I think.
Possibly broadening its regulatory scope to other areas of market data can you just.
<unk> some sort of initial commentary your position here and the potential implications.
Of how this could impact your business.
Yes, I mean, this is something that the the CFA and the and the commissions within it had been looking at for years and years and years and if I'll remind people that we actually operate the information processor on behalf of the industry that pulls all the different markets together for that for the use of the clients.
One of the things that actually will be putting our submissions in there and providing substantial information and data with respect to market data structure and pricing in Canada and how it compares to the world. The initial report they will put out really only compared Canada to the U S, which is not a fair comparison, given the size of the U S market to Canada, if you take Canadian data rates and compare.
To anywhere else in the world beyond the U S. We are extremely competitive and we're going to be providing that information. The other piece. That's in there as they do actually now show what is the potential total cost to a user of combining all the different Canadian markets and what Youll find interesting and that is the the Tms piece is less than half of that total. Despite the fact that we are.
$65 to 67% of all the trade activity in our list of names plus 90, 495% top of book in terms of data quality for anything that trades in our markets.
So theres a lot of cost in the industry and it doesn't come from US. It comes from other venues and when you look to the recommendations that we've made in the past around what markets should actually be protected and required to be purchased from that threshold is likely too low and we're going to be making some market structure recommendations around that and also win win win venues, we're able to <unk>.
Rice and include the value of crosses in there.
It was probably a mistake because it allowed markets to actually pump pricing up beyond the value. They were provided to the industry. So we're going to be writing a very fulsome solution and recommendation. This in terms of how to prove it from a marketplace I don't believe that it's a challenge for T. M X in terms of the the market data, we provide because it's high value we continue to add more content.
And we are globally competitive and just the you know the response to that I would also give you is that we've had multiple price changes over the past year approved so it doesn't show an indication of a concern around Tms, particularly but there are opportunities to make the market structure and the cost for the industry more competitive and we would welcome.
Some of those changes we think it would be very good for our clients.
Okay. That's it for me thank you.
Ladies and gentlemen, once again, if you would like to ask a question. Please press star one at this time.
Your next question will come from James glowing of National Bank Financial. Please go ahead.
Yes.
Yeah. Thanks, I wanted to ask first just on the on the cost side. So looking at the Q4.
Results on the IP and the SG&A line, specifically was there.
Is there anything from a got true ups.
Nature in Q4 or should.
Should we look at that quarter.
Being consistent for our run rate in <unk>.
In 'twenty three.
Hi, Jamie said, David Yes, so when you look at Q3, you're right on the I T line as with many businesses.
Q4 for US is the end of the fiscal year, So lot more project wrap up activity.
So a little bit of that in there.
Obviously, you've you've noted it on SG&A and.
The material item between Q3 and Q4 is also the impact of the pound and the U S dollar strengthening.
That was about a million and a half because as you know we could we bring in and boxes operating expenses, which are primarily U S. Dollar and obviously trade ports, which are primarily pound sterling.
Okay, so a little bit of a step down into Q1 should be expected.
Maybe not maybe not that material back to let's say like the mid twenties.
Fair game I would say because you know in Q1, you're going to have.
Salary increases and things like that compensation and benefit resets in terms of payroll source deduction. So yes.
Net net you're probably going to see consistency between the two quarters, maybe a slight step up.
Okay great.
Shifting to capital formation in sustaining listing fees.
I'll give you this guidance you've already provided but as we think about.
The market cap of issuers at the end of the at the end of the year and some of the changes on pricing, where where do you see that shaking out in terms of the gross rate for sustaining listing fees in 'twenty three versus 22.
Okay.
Sorry, I think James we've indicated in the documents there that that impact I think is around 600000, when you take into account the change in the market cap of our listed issuers plus the increased pricing for the sustaining fee.
Maxim lumpy okay.
Sorry that was up 600, I just broke down down 600000.
Okay, great. Thank you.
And then shifting to the derivatives business has been a business that's targeting double digit revenue growth.
I guess it was back in 2018 for the targets.
It's been a bit challenging to achieve that.
I guess, both from a contracts traded on our point of view and then also from a capture rate point of view driving higher revenues higher.
I guess, what's going to give back what are the catalysts are that we should be thinking about that's going to get that business back up into.
The double digit growth range is it is it.
Simply likenesses of muted environment for grid, it's trading generally from a contract perspective.
Normalized or are there some other factors here.
There's a number of factors there and I will take.
Take the Liberty of correct me on one piece, Jamie that was you know 2021.
Was soft in terms of that erode activity, but the number of years before that was sustained at that growth rate that we've been talking to and the biggest challenge in 2021.
Was that the impact of market interest rates and central bank rate changes that were.
Hello.
Ladies and gentlemen, please standby do not disconnect your lines.
Okay.
Okay.
Okay.
I can take the market.
Yes.
You bet.
Hi, Michelle.
These are existing in the cloud.
Yeah.
Okay.
Gentlemen, this line is now open.
Thank you.
Okay.
Sorry can you hear us through there.
Yes, Sir this line is open now.
And Jamie are you there can you still hear me.
I can hear you. Thank you.
Alright, I'm going to first indicated that nowhere these teleconference in Texas connected to trading systems. So, let's just put that right on the table right now.
So I don't know how far I got into the derivative piece, but let me talk about the the pros going forward into 2023, so number one stable interest rate environment that means much more strength in the short term rate products like the backs, which were down kind of 30, 40% last year. She got market impacts there that are very good we've got growth in the new products. We have we've added which are not must.
Cure yet so more growth in the two year in the five year in the long government bond and that's a deliberate piece in terms of the pieces, we've talked in the past about rounding out the yield curve and also when you get stability in the central bank market, it's going to be easier for us to build in the international markets as we've been doing over the last couple of years. So the long term expectation of building.
Our international trade and our core products five 6% this year, but looking to more long term objectives and be more 15%. Those are pieces, we're going to continue to build out now when you take all those components. They give us a lot of confidence that we're going to be able to grow the contract volume and you know double digit plus and allowed to support for high single.
Low double digit growth rate in the revenue.
The other pieces in there that you are starting to see more of its things like strength in the CDC repo product, which we do provide some specifics as to specifics for that sustainable growth in that product, which actually falls through the revenue and there are more things that we're going to be doing in the future in terms of adding net new product, both trading and clearing and to continue to provide products.
To support the client need so those are all the pieces that give us confidence in terms of that continued strong growth rate.
Okay. Thank you.
No problem.
At this time there are no other questions. So I will turn the conference back to Paul Malcolmson for any closing remarks.
Well great. Thank you Michelle.
Back in January I told many of you that would be retiring from Tms at the end of this month and the details are unsuccessful plans would be shared on today's calls. So today I'm very pleased to announce that <unk> will be succeeding me as head of Investor Relations.
<unk> has been with <unk> for 12 years, having worked both in parts of our business as well as on our finance team.
Last year, he joined the Investor Relations team is well positioned to succeed me.
As you know Amanda today has been on a maternity leave and will be returning to <unk> towards the end of this coming summer.
Julie Park, I will now be dedicating 100% of her time to ESG and sustainability initiatives and reporting.
Finally, I want to welcome Neenah by to the IR team in the joint IR in December and previously supported both Cvs and CDC on the finance side.
In closing I do want to thank the countless investors and analysts that I have met and for making the last 20 years, such a real pleasure for me <unk> employees that might be listening in thank you. So much for always being there to get us the timely information that we needed for the street.
To John now as CEO and before that as CFO you could not have been more supportive of me as a colleague and a friend and certainly to our IR program.
And now David is following exactly that same vein as CFO . So thank you both for that.
Finally, I want to thank the IR team past and present many on this call had been around a while like me. So I want to mention the names that most of you will recognize Joanne Shane Christine.
Under Julie amine, Nina as well as some great insurance over the years and our securities lawyer Casper has always been there, giving us wise counsel for the entire run so thank you Catherine.
These amazing and talented people have made our IR program what it is today.
Now I know you will all really truly enjoy working with the IR team that it mean, we'll be leading with that I wish you every success in all of the very very best lets stay in touch and have a great day everyone.
Yes.
Ladies and gentlemen, this does conclude the conference call for this morning, we would like to thank everybody for their patience and participation and we ask that you. Please disconnect your lines.
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