Q4 2024 TMX Group Ltd Earnings Call
Hope you enjoyed the Music.
Speaker Change: Good morning, ladies and gentlemen, and welcome to the TMX Group Limited Q4 2024 Financial Results Conference Call.
At this time, all lines are in a listen-only mode.
Speaker Change: Following the presentation, we will conduct a question and answer session.
Speaker Change: If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on Tuesday, February 4, 2025.
Speaker Change: Thank you and good morning everyone. Thanks for joining us today and taking time away from economic and tariff updates this morning to discuss the 2024 fourth quarter results for TMX Group.
Speaker Change: We announced our results for yet another outstanding quarter yesterday, and copies of our press release and MD&A are available on TMX.com under Investor Relations.
Speaker Change: This morning we have with us John McKenzie, our Chief Executive Officer, and David Arnold, our Chief Financial Officer.
Speaker Change: Following the opening remarks, we will have a question and answer session.
Before we begin, let's cover our forward-looking legal disclosure.
Speaker Change: Certain statements made during this call may relate to future events and expectations and constitute forward-looking information within the meaning of the Canadian Securities Law. Actual results may differ materially from these expectations and additional information is contained in our press release and periodic reports that we have filed with the regulatory authorities.
Now I will turn the call over to John.
John Mckenzie: Well thanks Amin, and good morning everyone. Thank you all for joining our call today. And as disclosed in last night's Q4 press release and annual financial statements, and as Amin just mentioned, TMX delivered fantastic results in 2024.
John Mckenzie: capping off a year of pronounced growth in key components of our business, significant accomplishments across our evolving enterprise, and important progress on our growth initiatives.
John Mckenzie: In 2024, TMX delivered four consecutive quarters of year-over-year growth in revenue and adjusted earnings per share, highlighting the deep strength of our diverse portfolio of interconnected assets
John Mckenzie: The benefits of adhering to a consistent long-term growth strategy and the ability of our passionate and dedicated TMX team to deliver
Now, turn to our results for the year.
John Mckenzie: Strong growth was highlighted by double-digit increases from TMX trade port and derivatives trading and clearing, as well as higher revenue from equities and fixed income trading and clearing.
John Mckenzie: Revenue gains were partially offset by lower revenue from capital formation excluding revenue from news file, which was acquired in August of 2024.
John Mckenzie: Organic revenue, excluding TMX Vetify, Index Research, and Newsfile, increased 10% and adjusted diluted earnings per share increased 16% from 2023.
Speaker Change: total operating expenses increased compared to last year reflecting the inclusion of expenses related to recent acquisitions and David's going to take a closer look at expenses in his remarks to follow
Now moving to our business areas.
Speaker Change: Overall revenue from GSIA increased 44% from 2023 or 11% excluding TMX VetiFY.
Speaker Change: It was an outstanding year for TMX Trayport, a major contributor to our success in 2024, and TMX's fastest-growing business area.
Speaker Change: Revenue increased 22% compared to 2023, or 17% in pound sterling, driven by a 25% increase in total licensees, as well as annual price adjustments and higher revenue from data and analytics products.
Speaker Change: Since its acquisition in 2017, TMX's trade port annual revenues have doubled while accelerating our long-term strategy of increasing our global footprint and increasing the proportion of revenue derived from recurring sources.
Speaker Change: TMX Trayport's winning strategy is based on an innovative client-first mindset.
and a commitment to serving participant needs as they evolve.
Speaker Change: Our core jewel network provides essential connectivity and a suite of innovative and adaptive tools, insights and capabilities to the global energy market ecosystem.
Speaker Change: The network has grown to include more than 370 trading firms, 9,700 total licensees,
for end-users, and applications, and over 27,000 network connections.
Speaker Change: TMX Tradeport clients now span over 40 different countries, including the biggest names in the global energy and commodity trading.
Speaker Change: Now, staying with GSIA, TMX Vetify's revenue was 18 percent higher in U.S. dollars when compared to 2023 prior to acquisition.
Speaker Change: TMX Vetify plays an important role in the ETF product life cycle, deploying customized digital capabilities and expertise from product ideation to index design and prototyping through ETF launch and beyond.
Speaker Change: And growth in 2024 was primarily driven by higher indexing revenue, reflecting organic growth in assets under management, and revenue from 2023 acquisitions, such as RoboGlobal and EQM Indices, as well as index research, which we acquired in late October.
Speaker Change: Overall, TMX Vetify revenue increased also as a result of higher revenue from events, including our marquee annual exchange conference.
Speaker Change: Exchange is an essential forum for gathering feedback from stakeholders on new index design and input on enhancements to existing indices.
Speaker Change: The 2025 edition for Exchange is fast approaching, set for March 23rd in Las Vegas.
Speaker Change: Moving forward, TMXVetify continues to seek out strategic opportunities to expand product offerings, data and index solutions, across new asset classes and geographies.
Speaker Change: Now turning now to capital formation. Revenue increased 2% when compared to 2023, largely due to the inclusion of revenue from Newsfile and partially offset by lower revenue from additional listing fees as market conditions remain challenging throughout the year.
Speaker Change: Our Capital Formation Strategy is focusing on strengthening our two-tiered ecosystem.
Speaker Change: Our business development team has built a powerful and growing pipeline of private companies around the world that we work closely with in preparation for joining our markets.
Speaker Change: And it's great to see a homegrown Canadian business seize the opportunity to get a good deal done and choose the public path for growth. And it's also an encouraging sign that as conditions normalize, we can see more deals come to market.
Speaker Change: Now, as we detailed at Investor Day, we aren't waiting for the game to come to us. Our team is focused on building beyond Canada's borders, beyond corporates, and beyond listings.
Speaker Change: More than 50% of the companies in our pipeline are from outside of Canada, and while a range of sectors are represented, approximately 60% are from the innovation sector.
Speaker Change: Our recent success in Australia stands as compelling evidence that the work we've done to raise global awareness of the unique TSX-TSX Venture Value proposition is paying off.
Speaker Change: In 2023, we added a full-time presence in Australia, and our efforts to promote Canada's markets and establish connections between local dealmakers and our ecosystem has led to a number of ASX listings joining our market in the last couple of months.
Speaker Change: including Paladin Energy, a uranium production company with a $3 billion market cap, and Firefly Metals, a copper-gold company with a market cap of $500 million, both listed on TSX in December.
Speaker Change: And we're continuously looking for strategic opportunities to leverage our proven expertise and help expand that ecosystem.
Speaker Change: In October, TSX-V and TSX signed an MOU with B3 in Brazil to explore Brazilian-based solutions to create public company market opportunities for investors and entrepreneurs, with a focus on mining, energy and renewable energy industries.
Speaker Change: Now looking beyond corporates, next month marks an important milestone. It's the 35th anniversary of the ETF, which was invented right here at the Toronto Stock Exchange.
and 2024 was a record-breaking year for TSX's ETF franchise.
Speaker Change: Net inflows reached $75.5 billion, beating the annual record set in 2021 by more than 30%.
Speaker Change: We welcomed 127 new ETFs to the market, topping the previous record of 126 in 2020, and assets under management for TSX listed ETFs surpassed $500 billion for the first time in history.
Speaker Change: And beyond listings we continue to seek out innovative solutions to serve the needs of TSX and TSX Venture issuers as well as private companies.
Speaker Change: Revenue from other issuer services which includes TSX Trust increased 7% year over year largely due to the inclusion of 5.5 million from NewsFile, a news dissemination and regulatory filing provider which we acquired in August.
Speaker Change: Now I'd like to turn to our derivatives business, which has been an area of sustained growth, momentum, and key product expansion in 2024.
Speaker Change: Revenue from derivatives trading and clearing, excluding box, increased 17% year-over-year, including a 12% increase in MX revenue, driven by higher volumes, and a 29% increase in revenue from CDCC, as a result of positive impact of both pricing changes and overall higher clearing volumes.
Speaker Change: In a year of policy uncertainty around interest rates, with considerable implications across asset classes, participants continue to turn to MX's tailored suite of derivative products to balance their portfolios and mitigate risk.
Speaker Change: Key 2024 MX highlights include 13% year-over-year growth in overall volumes.
29% higher volumes in interest rate products.
41% higher volumes and ETF options.
Speaker Change: And overall open interest was 51% higher at December 31st when compared to the end of the previous year.
Speaker Change: The year also marked the increase in adoption of Canada's new benchmark rate, CORA.
Speaker Change: The CRA is now the established product for hedging the Canadian dollar short-term rate with over 1 million contracts in open interest as of December 31st.
So 2024 really was a tremendous year for TMX.
Speaker Change: Marked by strong performances across our diversified global business and by game-changing advances in our long-term strategy to push the evolution of our organization to meet the needs of a rapidly growing global client base.
Speaker Change: and the impressive achievements are 2024 are a source of shared pride in the organization and power elbow evidence of a sound enterprise strategy
But candidly, they are now last year's achievements.
and our focus is squarely on the future.
Speaker Change: and I'm happy to report that 2025 is off to a great start in terms of our key initiatives.
Speaker Change: Two weeks ago marked the successful launch of AlphaXUS, our new equity ATS venue, aimed at improving execution performance for the U.S. broker-dealer community. And while it's still early days, the response from participants thus far has been very positive.
Speaker Change: and our post-trade modernization project is on track for the end of March as scheduled pending industry readiness and regulatory approvals.
Speaker Change: We are very encouraged by the successful completion of the client testing phases.
Speaker Change: The Complex CDS Modernization Project has been a journey, and so I'd like to share my sincere thanks to our team here across the Clearing and Technology Divisions for their ongoing dedication and hard work in seeing the project through, and to our industry partners for stepping up to work alongside of us.
Speaker Change: Now before I finish my comments today and pass the call over to David for much deeper dive on Q4, I'd like to turn briefly to a responsibility that we take very seriously at TMX, key to executing our growth strategy and fulfilling our role in serving clients and stakeholders with excellence.
Speaker Change: and that is our important role as a capital markets advocate.
Speaker Change: Our purpose is to make markets better and empower bold ideas. It's a unified enterprise commitment rooted in a proud history and focused on ensuring a viable future.
Speaker Change: From a front row seat for more than 170 years, we have seen the best of Canadian innovation, ingenuity, and entrepreneurship.
Speaker Change: And we are committed to clients and stakeholders across this broad financial ecosystem and to all Canadians, to champion growth by promoting measures to create a business environment that supports investment in Canadian companies.
Speaker Change: Now, it's not lost on everyone that Canada faces threats of tariffs and other measures of economic force from a new U.S. administration, and while the leadership and direction of Canada and our federal government is yet to be determined.
Speaker Change: So more than ever, we need policy makers to deliver a clear vision and a workable strategy to raise Canada's game and seize the opportunity to become a much more formidable global player.
Speaker Change: Not just to fend off short-term challenges like terrorists, but to set us on the right path for the long term.
Speaker Change: Canada must be seen at home and throughout the world as a great place to do business and invest.
Efficient and transparent processes for permits and approvals.
Speaker Change: and we will take every opportunity to continue to raise these critical issues.
Speaker Change: More than 20 years ago, the Canadian economy was characterized as an emerging Northern Tiger, and we believe it's time to reawaken that tiger.
Speaker Change: So in closing, I want to thank all of our employees for their continued dedication to TMX.
Speaker Change: Our impressive track record of performance and legacy of innovation and industry leadership is driven by the work of our people that is put in every single day to serve our markets with excellence.
Speaker Change: We have a lot to live up to and a lot of work to do, but I am most excited about the opportunities in front of us. And with that, let me pass it over to you, David. Thank you.
David Arnold: Thank you, John, and good morning, everyone. I'm pleased to review our strong financial results for the fourth quarter of 2024, which demonstrates robust growth across our business segments and successful continued execution of our long-term growth strategy.
David Arnold: We delivered $393.3 million of revenue in the fourth quarter, representing a 30% increase compared to Q4 of 2023, and generated positive operating leverage of 8%.
Notably, we achieved 17% organic revenue growth.
David Arnold: excluding the impact of recent acquisitions. This is nothing short of an outstanding result.
David Arnold: Our diluted earnings per share was 58 cents, representing an increase of 87 percent compared with 31 cents in Q4 of last year.
David Arnold: The substantial increase in reported diluted earnings per share included a gain of $0.16 per share related to net foreign exchange gains on U.S. dollar-denominated intercompany loans in Q4 of 2024, which we account for as part of our net finance costs.
David Arnold: Notwithstanding, our adjusted diluted earnings per share increased 30% from Q4 of last year, reflecting 41% of 53 million higher income from operations, partially offset by higher interest expense.
David Arnold: Turning now to our businesses, and as I typically do, I will start with the segments that had the largest year-over-year increases.
David Arnold: Revenue in our Global Solutions, Insights and Analytics segment, or GSIA for short, grew 48% in the fourth quarter.
reflecting 37.4 million from the inclusion of TMX Vatify.
David Arnold: 1.7 million, of which relates to index research, which was acquired on October 15th of 2024. Excluding TMX, VETIFY, and index research, revenue grew by 14% over the same period, driven by strong growth from TMX Trayport.
David Arnold: So let's now discuss the three businesses that drove the impressive GSIA results in Q4 of 2024.
David Arnold: Starting with TMX Trayport, revenue increased 26% in Canadian dollars or 19% in pound sterling this quarter, primarily driven by a 25% increase in total licensees.
David Arnold: The impact from annual price adjustments, incremental revenue from data analytics, and other trader products.
David Arnold: TMX Trayport ended the fourth quarter with annual recurring revenue of 236 million Canadian dollars, or over 131 million in pound sterling.
David Arnold: which represents a 14% growth in average recurring revenue for the quarter on an annualized basis.
David Arnold: Revenue in TMX Vetify was up 21% in Canadian dollars or 18% in U.S. dollars this quarter, compared to the same period last year prior to the acquisition.
David Arnold: The increase continues to be driven by higher indexing revenue, reflecting organic growth in assets under management, as well as higher analytics revenue, partially offset by lower revenue from digital distribution.
David Arnold: TMX verifies assets under management continue to show robust growth ending the year at 51.9 billion US dollars including 12.2 billion from the inclusion of index research
David Arnold: TMX verifies AUM excluding index research grew 5% sequentially and 21% compared with last year.
David Arnold: Turning now to TMX Data Links. Revenue in the business grew 3% this quarter, reflecting higher revenue from data feeds, inside products, benchmark and indices, and co-location.
David Arnold: In addition, there was a positive impact from the price adjustments implemented earlier in 2024 and a favorable foreign exchange impact of 1.4 million due to a stronger US dollar.
David Arnold: Partially offsetting the growth was lower subscriber and usage-based revenue due to a client-specific reduction in enterprise agreement renewals that occurred in Q2, which we have spoken about in prior quarters.
Turning now to derivatives trading and clearing.
David Arnold: The increase in clearing revenue was driven by higher clearing volumes and the impact of pricing changes which came into effect earlier in 2024.
David Arnold: Revenue from Box increased 34% in Canadian dollars, or 30% in US dollars. This quarter driven by a higher rate per contract reflecting favorable product mix, as well as a 5% increase in volumes.
David Arnold: Turning now to capital formation. Revenue in the segment grew 15% in the quarter, including 3.8 million of revenue from Newsfile, which was acquired in August.
David Arnold: Excluding News File, revenue in this segment was up 9% compared with Q4 of last year.
David Arnold: Reflecting higher net interest income from higher balances, including corporate actions this quarter, as well as higher additional listing fees driven by increases in both the number of financings and total financing dollars raised on TSX Venture Exchange.
partially offset by decreases on TSX.
David Arnold: on the heels of double-digit gains in both trading volume and value compared to last year and compared with Q3 of 2024.
David Arnold: Trading volumes were up 15% on TSX, 30% on TSX Venture Exchange, and 14% on Alpha Exchange.
David Arnold: Our combined equities trading market share for TSX and TSXV listed issues was approximately 63% this quarter, unchanged from Q4 of last year.
David Arnold: Now, on the fixed income trading side, revenue increased this quarter, primarily reflecting increased activity in Government of Canada bonds, driven by a more active interest rate environment.
David Arnold: The increase in clearing was driven by high issue event management fees, partially offset by higher rebates.
Turning now to our expenses.
David Arnold: On a reported basis, our operating expenses increased by 22% in Q4, which fueled our 30% revenue growth I spoke of earlier. The expense increase was driven by the following items.
David Arnold: First, we incurred $31.6 million of additional expenses related to new acquisitions, namely $15.1 million of operating expenses related to TMX Verify, News File, and Index Research.
David Arnold: 11.7 million related to the amortization of 2024 acquired intangibles as well as a 3.5 million accrual for deferred contingent payments related to news file and index research and finally 1.3 million of higher integration costs
David Arnold: Second, we incurred 2.3 million higher expenses in the fourth quarter related to our build-out of AlphaX US.
David Arnold: Third, we incurred $1.3 million to true up a provision related to one of our facilities acquired in a past transaction.
David Arnold: And lastly, partially offsetting these increases were approximately 5.7 million lower strategic realignment costs, as well as 4.8 million lower acquisition and related costs when compared to Q4 a year ago.
David Arnold: So, excluding these items, our operating expenses increased by approximately 9% on a comparable basis.
David Arnold: driven by increased employee performance incentive plan costs, higher severance, increased cost related to software and license subscriptions, higher legal fees, and increased investments in projects.
David Arnold: Now, looking at our results sequentially, we reported a revenue increase of $39.5 million from the third quarter, reflecting increases in all of our operating segments. Revenue growth in our GSIA segment reflected the inclusion of index research and organic growth across TMX Verify, TMX Trayport, and TMX DataLinks.
David Arnold: Capital formation revenue increased sequentially reflecting both higher net interest income revenue from higher balances and stronger financing activity compared with Q3.
David Arnold: Revenue increases from derivatives trading and clearing as well as equities and fixed income trading and clearing were driven by higher trading volumes.
David Arnold: Operating expenses in Q4 increased 13.8 million or 7% on a reported basis from Q3, primarily reflecting the following items.
David Arnold: First, we incurred approximately $5.6 million of additional expenses related to new acquisitions including operating expenses, accrual of deferred contingent payments and integration costs, net of lower transaction and related costs.
David Arnold: Second, we incurred $1.5 million higher expenses in the fourth quarter related to AlphaX US.
David Arnold: Third, was the 1.3 million true-up related to a provision related to one of our acquired facilities which I mentioned earlier. And lastly, partially offsetting these increases was lower employee performance incentive plan costs.
David Arnold: Now looking ahead to 2025, we expect to continue investing in growth while remaining focused on delivering positive operating leverage on a full year basis.
David Arnold: On the balance sheet front, our debt to adjusted EBITDA ratio as of December 31st was 2.7 times, down approximately 0.9 times compared to March 31st following the close of our acquisition of Vedify.
David Arnold: Our ability to complete the acquisitions of NewsFile and Index Research this year, while delivering on our deleveraging plan post the acquisition of Verify, is a testament to the free cash flow generating capacity of our franchise.
David Arnold: Net of excess cash, our leverage was 2.4 times, which is 0.8 times lower compared to the end of the first quarter.
David Arnold: In the fourth quarter, a $300 million Series D debentures matured and were repaid with a combination of cash and commercial paper.
David Arnold: We continue to make positive progress on our three key transformational measures in 2024, reflecting organic growth and strategic acquisitions made in 2024 to accelerate our strategy.
David Arnold: Our recurring revenue as a percentage of total revenue was 55% up 2%.
David Arnold: Global Solutions Insights and Analytics revenue as a percentage of total revenue was 41% and up 6% compared to a year ago.
David Arnold: and revenue outside of Canada was 50%, up 9% from a year ago, in line with our transformational objective for this measure to be at 50% or greater.
David Arnold: Lastly, I am pleased to announce that last night our board approved a 5% increase in our quarterly dividend to 20 cents per common share, payable on March 7th to shareholders of record as of February 21st.
David Arnold: This represents a 42% dividend payout ratio in the fourth quarter and positions our last 12 months payout ratio at exactly 45%, squarely within our target payout ratio of 40 to 50%.
David Arnold: That now concludes my formal remarks. I'd like to turn the call back to Amin for our Q&A period. Thank you, David. Ludi, would you please outline the process for the Q&A session?
Speaker Change: Ladies and gentlemen, we will now begin the question and answer session. To ask a question, you may press star followed by the number 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star 2.
Speaker Change: And your first question comes from the line of Etienne Ricord with BMO Capital Markets. Please go ahead.
Speaker Change: Okay, thank you and good morning to circle back on growth in lights and seas at Trayport.
Speaker Change: John, could you please help frame how much of the recent growth comes from existing clients adding subscribers to to the Trayport platform and how much comes from the addition of new firms?
Speaker Change: as you expand in new asset classes and geographies. Thank you.
Speaker Change: Hi Etienne, it's David. Let me actually take the beginning of the question because it's quite detailed and I'm going to hand it to John afterwards for some macro comments on Trayport.
John: So, as you know, Etienne, we have a lot of contracts with Trayport licensees that are multi-year, right? So not every agreement comes up for renewal each year. And so this year, as in most, given the average tenure, roughly, you know, 15 to 20 percent, maybe as high as 25 percent will come up for renewal. So to give you a good indication, that's kind of a good benchmark for what kind of drove it. We had renewals coming this year.
John: roughly in that sub a third of the portfolio and then for most of those Renewals that occurred this year and many of those clients decided to you know go deeper within the wallet with us by increasing into like either premium products like you know our
Data and Analytics product, and or charting and analytics.
John: or algorithmic trading. So that kind of is what drove the most of the increase this year. It's an existing client base. And then there was, to a lesser extent, new client acquisitions as well this year.
Speaker Change: Yeah, and that's the piece that I wanted to close on, because the new client acquisitions, whenever you do them in the year, they're not a huge contributor to the number of subscribers in a year, but they're a base to build on, as David said, as those clients renew. So we did have, continue to have new client sign-ons, and those are both in Europe, but also in the global regions we're working and expanding into.
Amin Mousavian
Okay, very helpful. And David, you've talked in the past.
Speaker Change: about targeting expense growth near the inflation rate. So two questions for you. The first is, could you please remind us how much of the expenses are fixed?
versus variable.
And second, how do you think about incremental margins?
Speaker Change: relative to your current margin run rate of let's call it 55 percent.
to the extent we see more capital formation.
Speaker Change: It's a great question Etienne, so let me start off with dealing with a little bit of the expense base and then I'll talk a little bit about the fixed versus variable.
Speaker Change: As you see from our disclosures, at least half of our expenses are human capital. It's the team members that help fuel the growth at TMX. So long story short is the inflation, there's really two components. The part that is driving wage inflation, which will be different from what we see, let's say, driving SG&A, which would be typically the CPI inflation.
Speaker Change: But then there's also a large component which is technology-based, right? And so that is also driven by what's going on in the technology marketplace.
Speaker Change: which, dare I say, tends to also have a slightly different rate of inflation. So, it's a blend of all of those.
Speaker Change: But what I would say is that looking at, you know, where CPI is headed in Canada right now, it's...
It's in that kind of 2%-ish range.
Speaker Change: But when we look at wage inflation, it's closer to 3% to 4%, right? So that's kind of where I would indicate, and then obviously you factor in what's happening with technology prices, which is maybe a little bit higher. All is to say, it kind of blends in more closely towards that 4% kind of range.
Speaker Change: In terms of fixed cost versus variable, we don't really disclose that at the end, but what I can tell you is greater than 50% is fixed cost base in the TMX cost base, which is really why we're able to generate such operating leverage as revenue increases.
Speaker Change: and the back of your question you talked about things like you know the growth in capital formation as capital formation returns and the nice piece around that is that we've built that business to be very scalable now
Speaker Change: So, through a number of investments throughout the years, we've built in new technology, the ability to create workflow that's automated, that allows us to scale up for more transactions with very little variable add.
Speaker Change: is, you know, always keep in mind that there's quite a bit in that organic expense growth.
Speaker Change: that are actually tied to the success of the organization throughout the year. So there's a piece around FX and there's a translation of that in the revenue as well, but there's a big piece also around incentives.
Speaker Change: And you'll see more of this when we go out with the Management Circular in a month or so because the two biggest pieces of our incentive programs are really driven by the overperformance in the organization. So our short-term incentive plan pool is over 100% given the performance for the year and also our restricted share units which benchmark TMX performance against
Speaker Change: the Canadian Composite, I believe for the ones that are three years old now, the total shareholder return average annual is over 13%.
basis points higher than the benchmark.
Speaker Change: And so that does have an impact in the in-year expenses because we can't hedge those things. But they also baseline back out for the next year. And so just something to keep in mind when you're both looking back and looking forward.
The high-class problem as you would frame it, Chuck.
Speaker Change: and John. Thank you very much. Yes, I would say that's a high class problem. I'm happy to have that problem more often. Thank you.
David Arnold, Amin Mousavian
Speaker Change: Next question comes from the line of Benjamin Budish with Barclays. Please go ahead.
Benjamin Budish: Hi, good morning and thanks for taking the question. Maybe first just circling back on TrayPort, curious, a couple of the dynamics in the quarter, I think ARR was flat sequentially, grew a little bit slower than overall revenues. I'm just curious if you could unpack maybe how we should think about that. And then as you think about the key drivers for 2025, how might it look different versus what you sort of described in 2024, customers going deeper with wallets. So to what degree do you expect to see more of that in 2025, more international expansion, what are the key drivers there?
Speaker Change: Right, so, I mean, for the first part of your question, I would never read too much in the quarter-to-quarter piece. We always guide not to, because there can be some lumpiness in terms of when new users come on, timeframe of those contracts coming in, new clients coming in that are in early stage, things like that. So you really need to blend that over the long term.
Speaker Change: To your second point, the growth drivers from 2024 continue into 2025. We're going to be continuing to add new clients, new products, new geographies. All those programs are well underway. The only thing I'd say that in terms of kind of a step change between the last couple years and next year is
Speaker Change: Got it. Helpful. Maybe one other revenue question. I'd love to get a better understanding of what drove the sort of big pick up in other issue of services. I know you called out corporate actions, higher cash balances and rates, but it seemed like it was a lot more than I think we had all anticipated outside of the kind of typical seasonality, which I think usually benefits Q2. So I'm just curious, how do we think about that run reading into next year? Anything else sort of unusual going on in this quarter specifically? Thank you.
Speaker Change: Well, you've got the news file piece already, and that would be an additive, and that wasn't there in the past, but the really interesting piece, and this is...
Speaker Change: This is going to take some experience for us to get better at predicting in the future, but in the net interest income, and you'll see this in the results, it would deviate from what you would expect it just from what the rates would do.
Speaker Change: And the reason being is as we continue to add clients and trust and clients that we have or clients we acquire Enter into corporate action activity, you know, these are things like M&A activities things like that where we can act as trustee That's business that we compete for and that we win
Speaker Change: and so what we had is above average corporate action driven activity in the quarter that led to higher net interest income revenue that's you know in the temporary balances but it's a business that we are going after so the the nice piece as we continue to build the trust business and expand the client base is we've got the opportunities to win more mandates
Speaker Change: So there will be some deviation between just being predictable on rates. It's going to be both rates, but also what we're able to drive in new corporate action activity. And we had some really good ones in the quarter, so a real kudos to the team for actually winning that business.
Speaker Change: That continues to improve over time as our transfer agency market share also continues to grow. This was actually the first quarter where when you look at transfer agency on number of clients, we actually hit number one in Canada for the first time where we are the number one transfer agent for clients in Canada. And that's a bigger client base now that we can provide other services across like trust mandates or other things as well that we are continuing to do like employee plan tools and things like that. So it's a good new story.
and Amin Mousavian.
Okay, understood. Thank you so much, John.
Speaker Change: And your next question comes from the line of Nick Preeb with CIBC Capital Markets, please go ahead.
Nick Preeb: Okay, thanks. I just wanted to start with a question on Betafi. So if I back out the contribution from index research, there was still pretty good sequential step-up in revenue contribution on a constant currency basis for the quarter. I think I calculated close to 10% sequentially, which is a bit more than I would have anticipated given the performance of AMLP in the broader equity markets. Are you able to help us just kind of break that down a little bit more to understand the drivers of that organic growth sequentially in the
Speaker Change: and David Arnold, Amin Mousavian. So we're all driving to that number as part of trying to deepen the effort to be able to create more indices in more sectors in more geographies. So it is part of a deliberate strategy. You should expect that to be the kind of indicator of the type of performance we're expecting from the franchise going forward. And even on that benchmark product that you talked about, the AML pre-product has a lot of potential, particularly in 2025. When you think about conditions that can support a product like that, you know, a midstream energy product, very much rate-sensitive.
and David Arnold, Amin Mousavian.
Speaker Change: Okay and then just stepping back in light of the volatility associated with the Canadian dollar can you just remind us roughly what percentage of enterprise-wide revenue and expenses would be US dollar denominated?
David Arnold: Nick, it's David. We don't disclose that, but you can get a good perspective if you look at our investor brochure. So roughly 50% of our data links revenue is built in US dollars.
Speaker Change: obviously with the launch of Alpha X US that will that's obviously a small number but it will it'll grow over time and then obviously you've got Trayport which is Pound Sterling but it does actually have a couple of clients in the US
Yeah.
Speaker Change: and then the Boston Options Exchange, obviously, which is consolidating our results, would drive that too. That would give you the best proxy if you were to add those numbers up together.
Speaker Change: Yeah, okay, fair enough. All right, that's it for me, I'll pass the line. Thank you.
Speaker Change: Thank you. And once again, if you would like to ask a question, please press star 1.
Speaker Change: Your next question comes from the line of Graham Riding with TD Securities. Please go ahead.
Graham Riding: Hi, good morning. I'm just wondering if I could go back to the trade port just given the
Speaker Change: The growth rate continues to build there. How much of that growth do you feel is coming from, you know, traction with bringing on new clients versus expanding with existing clients? And then furthermore, how much of that growth is still
Graham Riding: largely being derived from that European market as opposed to some of the newer markets that you're pushing into. Can you give us any color on that?
Thank you.
All right.
Graham Riding: Yeah, I could try to give you a bit more color, but I mean commercially We don't we don't disclose that kind of breakdown in terms of the the client components because we are growing in all those areas But the piece I would add that we didn't talk about earlier on is we are out Performing and outgrowing in those added services
Graham Riding: And so the pieces that David talked about, like data, analytics, the extra solutions that we provide across the franchise.
Graham Riding: are growing on even a faster pace than the average and so that's actually over contributing to the success and that's been part of our strategy is you know when to build a very strong network of clients as we add additional premium services we know we're selling those to our existing client base so that's part of that over contribution to growth
Amin Mousavian
Graham Riding: And the other services, what would that represent today as a sort of percentage of trade port revenue versus maybe where you were a year or two years ago?
Graham Riding: It's relatively small, Graham, so it's it's a contributor but it's relatively small and as John said is it's it kind of is lumpy and it depends on which new clients being onboarded what do we need to do to bring them on so it's a factor but it's it's not the material one that I'd worry about.
Graham Riding: And then when you look at your sort of addressable market in Europe and other areas how
confident are you that you can sustain
Speaker Change: You know, I think your licensee number is up 25% year over year. Is that a sustainable level or was this an outsized year?
Speaker Change: Okay, well, I'm not going to commit to 20 plus percent licensing year over year. I'm not going to fall back on our long-term guidance around double-digit for the overall revenue because it will come from different ways.
Speaker Change: But in terms of addressable market, we are continuing to grow both in Europe and abroad. So the European market, the addressable market actually continues to grow.
and David Arnold. Thank you.
Speaker Change: Okay, understood. Jumping to your U.S. equities initiative, I guess just what's the initial focus here to as you sort of get it off the ground?
Speaker Change: And my second part of the question would just be, are there some potential benefits here for your Canadian equities business at all? Just thinking, you know, as you invest and build out this equity trading platform, is there anything you can import or share back into your Canadian equities business?
Speaker Change: Yeah, I mean those are two really good questions, so thank you for that. So first of all, you know, I got to give a lot of credit to the team. The ability to bring this market from ideation to actually execution in essentially less than 18 months is probably record timing in the exchange and capital markets world, so really impressive in terms of from ideation to launch. And we had a very successful launch this month. And so the early pieces was really about...
Speaker Change: Solidifying the platform, understanding the client experience, you know, tweaking, getting any initial, you know, challenges out of the system, and that's been going very well. And so we are already getting strong early volume coming through the system of the clients that have signed up and already executing on. And that's a really important first step, because if you want to bifurcate kind of the client landscape, there are ones that will be early adopters to try a new marketplace out, and there will be ones that will wait to see the liquidity there before they do that. And we are already getting early stage liquidity.
Speaker Change: Transaction's getting completed and improved execution for clients So the the promise of what we were putting together for that marketplace is already being Demonstrated even though we're only a couple weeks into it and so kudos to the team for that
Speaker Change: The second piece to your question, kind of round about the reversed importation of what we're building, is, in some cases, very much a testbed for new technology for us. It's using kind of the combination of the best components of various...
Speaker Change: the trading systems we've built over the years, be it our derivatives platform, our equity platform, and also now a, you know, an outpost-based cloud delivery solution. So we're using the best of breeds of multiple things we've done into a new execution, and all that learning is learning that's going to be back into our roadmap for how we modernize and continue to upgrade the platforms that we use to drive the Canadian market.
Speaker Change: So the nice thing is it allows us to test things out in a lower risk environment because there's not as much volume going through it as when you do it for a full market execution.
Speaker Change: In both cases, you know, the team is actually hitting it out of the park in terms of what we delivered here both from the early execution in the US, but also from delivering a new platform that we're going to be able to build upon.
Okay, great. I will recue. Thank you.
Speaker Change: And your next question comes from the line of Aravinda Kalapathige with Kanakor, January. Please go ahead.
Speaker Change: Good morning. Thanks for taking my questions and congrats on the quarter. I just wanted to go back to Verify for a second. Good to see it kind of closed strongly in Q4. As you look to 2025, maybe, John, just talk a little bit about sort of the incremental synergies that are available. I mean, a year in, how much of sort of the potential synergies you were hoping for were you able to and is there more left as you think about sort of cross-selling into Canadian clients, etc?
Speaker Change: and then maybe sort of highlight some of the other milestones given that you have index research now. What are you hoping to kind of achieve with VETIFY beyond obviously the, you know, the novel growth in the indexing business that you talked about?
Speaker Change: yeah and to be candid the the growth that we were talking about is it's the output of what we're trying to achieve
Speaker Change: What we're trying to achieve is to be able to provide a deeper and broader service to a client base that we have today and a client base we're looking to expand upon.
Speaker Change: And so when you think about the services that we're offering within that community and the integration of services
Speaker Change: We're allowing ourselves to do much more for an ETF manufacturer than we could in the past. And that's actually part of that upside revenue integration. So we, you know, we actually now have multiple Canadian ETF manufacturers that we are helping to market their products through distribution tools.
Speaker Change: That hadn't happened in the past. That's the type of and the nature of the revenue synergies we were talking about. So we've got net new deals in terms of supporting Canadian manufacturers on distributing their platform. We're continuing to add new indices where we're working on custom index creation for manufacturers both in Canada and the U.S. That's part of that lift and we'll continue to build out on the suite of indices.
Speaker Change: When you think about an ad like Index Research, it really helped us do a couple of things, which it gave us capabilities in broader asset classes.
in International Benchmarks.
Speaker Change: but also the ability to really serve in the same time zone a European community.
Speaker Change: And so that is part of the area we're looking to build out in terms of serving European ETF manufacturers. And this is really strong capability and a really entrepreneurial team to help us do that as an integrated part of that trade port solution. So the nice thing about this is we've got lots of untapped potential still as we build this in terms of what we can do with all parts of our franchise. And so it's almost like the question of where you pick your priorities to go first.
Speaker Change: Now, in the near term, we are looking to do more, and so that's the piece I'll leave you with on this is, you know, we've got with both, as a minority investor in Vettisfy before we did it, and as a full owner, we've done multiple acquisitions of new capabilities to expand the platform out. We have got a, you know, essentially a pipeline of other ideas we're looking at to continue to do that in 2025 and beyond, so there will be other things coming that we're working
Speaker Change: Okay, thank you. And just lastly, you know, as you look at your balance sheet, I mean, you continue to de-lever, and if you kind of play that out.
Speaker Change: you know, excluding sort of the excess cash will be below 2x towards the end of the current year. Maybe just an update on the M&A landscape, what are you seeing, how reasonable are the valuations, any areas of
Speaker Change: of interest that that we should kind of keep an eye on as we look to sort of track your movements there.
Speaker Change: But regardless of our leverage position, you should expect us to remain disciplined in terms of we will execute things when they are strategic, we have the ability to accelerate them, and there's a value proposition that makes sense for shareholders. I'd say that what we are seeing globally is that there is transactions to do and there has been a...
Speaker Change: for lack of a better word a pullback from some of the real premium values that we were seeing in the market a couple years ago things you know 20 and 30 times revenue that didn't make any sense I think that expectations come off
Speaker Change: and certainly that we're in a marketplace that's got a lot more uncertainty in it. It makes it more challenging for people to command those premium valuations.
Speaker Change: But I do want to recognize one thing and you know when I am sensitive to
Speaker Change: There is a short-term challenge around currency. It makes it a bit more difficult to do things in foreign currencies with Canadian dollars. So we'll have to be thoughtful about ensuring again that investor value proposition makes sense.
Speaker Change: when we're making those kind of transactions. So I'd say that nothing changes. What you've seen from us in the past couple of years in terms of the type of ambition we've got, the types of things we're looking at, the strategic fit to them are all continuing and we've got full support from our board to keep doing it.
Amin Mousavian
Thank you.
Thank you and we do have a follow-up
Speaker Change: Hi, just on the clearing revenue from CDS, I think it was up 6% quarter over quarter, 5% year over year, what are the pieces driving that? Is that largely just equity fixed income?
Speaker Change: volume growth or are you seeing any contributions there from some of the new initiatives that you flagged at the at the investor day?
Speaker Change: Yeah, I mean it's primarily volume driven. Those new initiatives that are in market but the ability for them to really start to take off comes once we launch the the modernization program because that's actually got a lot of the capabilities to really facilitate them. So you'll start to see more of that contribution from the new products once we go live with PTM which again we continue to target around the end of this quarter.
Understood. Okay, that's it for me. Thank you.
Speaker Change: Thank you and I'm showing no further questions at this time. I would like to start back to Amin Mousavian for closing remarks.
Speaker Change: Thank you everyone for joining our call today. If you have any further questions, contact information for Investor Relations as well as media is in our press release, and we'll be more than happy to get back to you. Until next time, goodbye.
Speaker Change: Thank you, presenters. Ladies and gentlemen, this concludes today's conference call. Thank you all for participating. You may now disconnect. Have a great day, everyone.