DoorDash Q1 2023 Earnings Call Transcript

Quartr
Provided by Quartr
May 2, 2023

There are 9 speakers on the call.

Operator

Good day, ladies and gentlemen, and welcome to the TMX Group Limited Q1 2023 Financial Results Conference Call. This call is being recorded on Tuesday, May 2, 2023. I would now like to turn your conference over to Amin Mesavian. Please go ahead.

Speaker 1

Thank you, Michelle, and good morning, everyone. I hope you're all doing well and enjoying the longer spring days. Thanks for joining us this morning to discuss the 2023 Q1 results for TMX Group. As you know, we announced our results late yesterday, and copies of our press release and MD and A are available on tmx.com under Investor Relations. This morning, we have with us John Mackenzie, our Chief Executive Officer and David Arnold, our Chief Financial Officer.

Speaker 1

Following the opening remarks, we will have a question and answer session. Before we begin, I would like to remind you that certain statements made in this call may relate to future events and Information concerning factors that could cause actual results to differ from forward looking information is contained in our press release and in periodic reports that we have filed with the regulatory authorities. And with that, I turn the call over to John.

Speaker 2

Well, thanks, Amin, and good morning, everyone. Thank you for dialing into the call today to discuss TMX Group's financial results for the Q1 of 2023. And to everyone listening in this morning, I want to wish you the very best of health to you and your families. Now it is a busy day for us here at the TMX. Following the call today, we are holding our Annual and Special Shareholders Meeting this afternoon.

Speaker 2

Today's AGM, our 21st as a public company, will be a hybrid meeting and I'd like to personally welcome any shareholders that are interested to join us in person at the new TMX market center for the meeting this afternoon. Now as we announced in March, we are preparing for a transition in Board leadership and I will talk a little bit more about that at the conclusion of my remarks today. Now before we get into the details of our performance in the 1st 3 months of 2023, I want to reinforce TMX's commitment. Through every reported period and amidst all market conditions, we are working to build TMX stronger, more capable and more responsive. It requires an adaptive and innovative mindset.

Speaker 2

And the truth is for all business, even one with a proud 170 plus year track record, Change is the only constant. But importantly, what doesn't change is our commitment to our purpose to make markets better and empower bold ideas. And we continue to make progress in key enterprise initiatives to accelerate TMX's ongoing evolution to better serve our growing client base and broad range of stakeholders here in Canada and around the world. Now turning now to our performance. TMX's 1st quarter results are excellent with solid revenue growth compared to the same period last year, highlighted by significant momentum in some key areas despite the And as our purpose propels us forward, TMX continues to benefit from a stress tested diversified business model and our Q1 results once again reflect the value of maintaining that long term view.

Speaker 2

TMX reported record revenue of over $299,100,000 a 4% increase from Q1 of last year, driven by double digit growth and revenue from Global Solutions Insights and Analytics, including both TMX DataLink and Trayport and Derivatives Trading and Clearing, excluding Box. Increased revenue was partially offset by lower revenue from equities and fixed income trading due to lower trading volumes on Toronto Stock Exchange, TSX Venture Exchange and Alpha and lower capital raising activity on TSX and TSX Venture. On an adjusted basis, Q1 diluted earnings per share was $1.85 a 2% increase from Q1 2022. Total reported operating expenses increased by 10% compared to Q1 last year, but sequentially just 3% when compared to Q4 of 2022. And David will take a closer look at these expenses in his remarks to follow.

Speaker 2

Moving now to our business areas. Starting with Global Solutions Insights Analytics or GSIA. Revenue from GSIA was $102,600,000 A 14% increase from Q1 2022, reflecting higher revenue from TMX Datalinks, our Information Services division and Trayport, our connectivity platform for European Wholesale Energy Markets. TMX Datalinq's revenues was $56,800,000 in the 1st quarter, An increase of 16% from last year due to higher revenue from data feeds, benchmark and indices, colocation, analytics and price adjustments as well

Speaker 3

as a

Speaker 2

favorable FX impact from a stronger U. S. Dollar. And we continue to focus our strategic expansion opportunities for TMX Q1 revenue included $1,700,000 from Wall Street Horizon, a Boston based provider of global corporate event datasets that we acquired in November 2022. And in February of this year, we acquired SigmaLogic, a U.

Speaker 2

S. Fintech firm providing advanced analytics and portfolio tools to the wealth management industry. And while the revenue contribution was modest in Q1, just over 10 days ago, we completed the next step of our strategy with the sale of SignalLogic to Vetify. As you will recall, earlier this year, we made a strategic investment in Vetify, a global indices and ETF service provider, which includes a commercial agreement. And this latest deal made in exchange for common equity of Edify builds on that initial investment and enhances the value of our partnership as we work together to bring more client centric Index and benchmark products into Canada.

Speaker 2

Momentum here is important with enterprise wide implications. Much of TMX's future success will be determined by our ability to build on our expertise and strengthen our capabilities to meet the needs of the modern market. And for TMX Datalinks, our strategy is focused on ways to extract more value from our existing assets and the pursuit of essential innovation. Now moving to Trayport. Revenue grew 12% or 14% in common currency pound sterling compared to Q1 2022, driven by a 9% increase in trader subscribers and annual price adjustments.

Speaker 2

Trayport's Core JUUL Network continues to support energy market participants navigating some severe market volatility with customized client focused trading tools, insights and Solutions. And that interconnected ecosystem of participants, execution venues and clearinghouses across world power and natural gas markets continues to grow. Since the beginning of 2022, Trayport has added more than 60 new clients in core and new growth areas. And beyond the strong core growth, Trayport continues to pursue its global diversification strategy seeking out opportunities in new asset classes as well as new geographies. Now turning to derivatives.

Speaker 2

Excluding Box, revenue from derivatives trading and chlorine was $43,800,000 in Q1, up 14% from Q1 of last year, driven by a 13% increase in revenue from MX and a 15% increase in revenue from CDCC due to higher volumes traded and cleared. MX total volumes increased 15% compared to Q1 2022 and overall open interest grew substantially year over year, up 22% at March 30 and compared to the end of Q1 of the last year. MX's recent growth highlights the value of TMX balanced diversified business model. And while volatility had had a negative impact on activity in the equity and fixed income markets during the Q1, investors were very active in trading our key derivatives products. Overall, the interest rate product line performed extremely well with volume up 19% over the 1st 3 months of 2022.

Speaker 2

And some other key highlights included 122 percent growth in ETF option volumes, highlighted by increased activity from institutional investors, Trading the broader index, financials, REIT and crypto sectors and pronounced growth in the short term interest rate products year over year. Bakkt's volumes traded were up 29% and volumes in the CGZ, MX's new 2 year Government of Canada bond future Contract was up 113%. Looking to the future, Canada's primary interest rate benchmark is about to change. By next year, most of the world's jurisdictions, including Canada, will have fully transitioned from IBOR to a new risk free alternative benchmark. Preparing for the industry transition from SEDAR to the Canadian Overnight Repo Rate Average or CORA Ahead of the scheduled succession date in June 2024 is a key priority for the team at MX.

Speaker 2

And we're working hard to ensure a smooth transition from our signature Bax contract to the new 3 month Cora Futures or CRA contract. Volumes traded in CRA Reached an average daily volume of approximately 10,000 contracts in Q1 2023. Now turning to capital formation. It is no surprise that global macroeconomic factors, including sustained high interest rates, concern over inflation and increased volatility, weakened the capital raising environment in the Q1 of the year. Revenue from capital formation in Q1 2023 was $63,500,000 A 1% decrease from last year, reflecting lower revenue from additional listing fees due to a lower number of financing transactions on Toronto Stock Exchange and a decrease in dollars raised on both TSX and the TSX Venture Exchange.

Speaker 2

Despite the impacts of these worldwide environmental challenges, Our public market ecosystem remains resilient and we are seeing positive signs within the deal making community that markets are poised for a rebound as conditions normalize. And while the slowdown in financing activity during the Q1 had a negative impact on our results and the number of new listings on TSX and TSX V decreased year over year, Canada's markets remain the number one growth platform in the world for small to medium sized enterprises. And it's important to measure our performance versus those global peers. We stack up extremely well. In fact, our exchanges ranked 2nd among global peers by the number of new listings during the 1st 3 months of the year and third, by the number of new international listings.

Speaker 2

New listings during the quarter included some notable success stories from across our unique 2 tiered ecosystem. In March, we welcomed SP Strategic Acquisition Corp, a new capital pool company created by diversified investment managed firm, Sterling Partners to the TSX Venture Exchange. And what's notable is that this marks the 1st Chicago based CPC in the history of our program. In February, Lumine Group, a spin out from Constellation Software listed on TSX Venture, one of the largest venture tech issuers ever. And Lithium Royalty raised $150,000,000 in its IPO on the Toronto Stock Exchange.

Speaker 2

The company is focused on mineral properties around the world Now revenue from other Issuer Services was $24,300,000 in Q1, A 42% increase compared to Q1 of 2022, reflecting strong growth in our TSX Trust business, driven by higher net interest income and slightly offset by lower transfer agent fees. TSX Trust's enhanced product suite and client service capability following the successful integration of ASC Canada has enhanced our position in a highly competitive market. Now finally, I'd like to provide an update on an important long term initiative, our post trade modernization program. Now earlier this year, Canada's regulators in conjunction with the U. S.

Speaker 2

SEC announced the adoption of T Plus 1, a reduction in the standard settlement cycle from 2 days to one day with an expected implementation date in May 2024. And while our post trade modernization program is well on track for implementation this fall, After careful consideration and with consultation with our participants, we have decided to defer delivery from late 2023 to late 2024 to allow for the industry to seamlessly transition to T Plus One settlement in a timeframe that aligns with regulatory requirements. I personally would like to thank our participants for partnering with us and testing and developing with us thus far and for their continued commitment towards this future implementation. In David's comments later, he will share the impacts on this deferral. But before I turn to David, I want to thank our people here in Canada and around the world For their continued and unwavering commitment to serving our clients and our markets with excellence and for bringing TMX's corporate purpose to life in their work every day.

Speaker 2

Now as I mentioned a few months ago at the outset, this afternoon's AGM marks an important milestone for TMX. Pending the results of a shareholder vote, We expect to welcome Luc Bertrand as the new Chair of TMX Group's Board of Directors, the 3rd in our 20 plus year history as a public company. Luke has been a Board member for more than 10 years and a friend for much, much longer. And I look forward to continuing to work with And the entire Board as we strive to build on this institution's impressive track record and advance our long term growth strategy. And then finally, on behalf of our entire senior management team and the company as a whole, I want to sincerely thank Chuck Winograd for his exemplary service to the company as Board Chair over the past 11 years.

Speaker 2

So much of the world has changed since the Maple transaction in 2012. And during Chuck's tenure with the Board, TMX has grown into a world leader. We have expanded our global presence, sharpened our focus on serving stakeholders and clients and advanced our long term growth strategy. TMX has also navigated through complex challenges over the years And we have taken important steps to strengthen the organization's culture while defining our new purpose. Chuck's expertise, guidance and insight have been major assets to the company and to me personally through this period of pronounced growth.

Speaker 2

And as we continue to build on TMX's success, His legacy of leadership will endure. And with that, let me pass the call to David. Thank you.

Speaker 4

Thank you, John, and good morning, everyone. We had an excellent start to 2023 with record revenue of $299,100,000 in the first quarter, A 4% growth year over year on a reported basis. Revenue was up 6% compared to the Q1 last year When we exclude SigmaLogic, which we acquired the balance of the shares on February 16 this quarter. Wall Street Horizon, which we acquired on November 9 last year and Box, which as you will recall, we started consolidation accounting based on our voting interest Increasing to 51.4 percent and economic interest of 47.9% on January 3 last year. Since John spoke to the highlights on all of our top line and business performance this quarter when compared to last year, I will be brief in my remarks when comparing to last year's Q1 and we're rather focused on how we have performed sequentially, That is to say versus Q4 of last year.

Speaker 4

Our revenue increase versus Q1 of last year was driven by double digit growth and Global Solutions Insights and Analytics for both Trayport and TMX Datalinks as well as a double digit growth in our Derivatives Trading and Clearing segment, excluding Box and finally double digit growth in our TSX Trust business. This was partially offset by lower listings revenue due to both Lower initial and additional listings fees, lower equities and fixed income trading and lower box revenue. While our reported diluted earnings per share is down when compared to Q1 of last year, this is solely attributable to the gain we recorded in Q1 last year resulting from the revaluation of our interest in Box after we obtained voting control on January 3 last year. So looking through that, Our adjusted diluted earnings per share increased by 2% to $1.85 this quarter, reflecting higher adjusted net income attributable to equity Holders of TMX Group of 900,000 and a lower share count. Taking a closer look at our expenses.

Speaker 4

As mentioned earlier, operating expenses in the Q1 increased 10% compared to Q1 of last year. Operating expenses Excluding an increase of $3,300,000 related to SigmaLogic, Wall Street Horizon and transaction related costs, As well as Q1 20 22's AST integration cost of $1,200,000 were up 8% compared Q1 of last year. The higher expenses reflected higher costs related to Box, increases for Employee short term performance incentive plan costs, which are reset to target at the start of each year. Unfavorable FX impact leading to higher expenses due to a stronger U. S.

Speaker 4

Dollar and higher travel and entertainment costs due to travel restrictions still being in place this time last year. Excluding these expense items, which are driven by factors beyond business activity, operating expenses increased by 5% in the Q1 compared to last year driven by 3 main factors. 1st, higher headcount and payroll costs, Related revenue related expenses that were higher and higher IT operating costs. The vast majority of our higher headcount relates Investing in additional headcount in Trayport and TSX Trust, both of which are high growth businesses, justifying the investment in additional resources And the balance is primarily in our other businesses to support growth with a minority related to our corporate functions who support our businesses as they grow. Turning now to comparing our results on a sequential basis.

Speaker 4

Revenue increased $23,400,000 or 8% from Q4 of 2022 to Q1 of 2023, driven by increases across all of our business segments with the largest increases From Equities Trading Equities and Fixed Income Trading, Derivatives Trading and Clearing and Global Solutions Insights and Analytics. Revenue in our Equities and Fixed Income Trading segment increased 14% in the quarter compared with Q4 of 2022. This increase was driven by higher fixed income trading revenue and a 4% increase in the overall volumes of securities traded on our equities marketplace. Trading volumes of TSX and TSX Venture both increased by 5%. Moving to our derivatives trading and clearing segment.

Speaker 4

Revenue grew by 13% this quarter compared to Q4 of last year, driven by a 21% increase in MX trading volumes, which peaked mid March. In addition to higher volumes, both MX and CDCC revenue benefited from pricing changes, which were effective January of this year. Revenue in Global Solutions, Insights and Analytics was up 10% this quarter compared to Q4 of last year, With increases from both Trayport and TMX Datalinks, revenue from Trayport was up 12% in Canadian dollars or 10% in pound sterling. The increase in pound sterling was primarily driven by 9% increase in trader subscribers and annual price adjustments. Revenue in our TMX Datalinks business, including co location, grew by 8%, driven by increases in data feeds, colocation and the impact of 2023's price adjustments and just under $1,000,000 related to our Wall Street Horizon and SigmaLogic Acquisitions.

Speaker 4

Operating expenses increased $4,600,000 or 3% from Q4 of 2022. Excluding the expenses from SigmaLogic, Wall Street Horizon, transaction related costs and $4,000,000 in AST integration costs in Q4 of last year, Expenses were up 5% from last quarter. To make an apples to apples comparison, we look to 4 items that might typically drive these quarterly variances, namely seasonality impacts, short term incentive compensation plan expenses, fluctuations in the FX rate and box expense changes. So starting with our first item, seasonality changes. The most notable seasonal impact is that payroll taxes always trend higher in Q1.

Speaker 4

In addition, we reset our short term incentive compensation plan accrual rates based on performance. As you would have seen from our annual disclosures, our final scorecard percentage was 68% for 2022 and is trending higher in Q1 of this year. Finally, we have higher trayport and box expenses in Canadian dollars, primarily driven by the stronger pound sterling This is Canadian dollar on the Trayport front. Excluding the quarter over quarter impact of these items, our expenses were actually down 1% from Q4 as evidenced by a normal course disciplined approach to manage our expenses, while continuing to invest for long term growth. Moving on to changes in the post trade modernization project.

Speaker 4

As a result of the acceleration of the implementation of T Plus1 to May 28, 2024 and recognizing that it is a market priority, we'll be entering a slowdown period until after the industry transition. We are currently targeting a revised launch in Q4 of 2024, while being mindful That this timing may change if there is a significant industry wide delay in the implementation of the move to T Plus One settlement. We will continue to provide updates on timing as the project progresses. However, as we have indicated in our MD and A, We're now anticipating incurring between $130,000,000 to $140,000,000 in total capital expenditures related to our CDS modernization project, which is up from our previously disclosed estimates of between $125,000,000 to $135,000,000 in total capital expenditures. Turning to our balance sheet.

Speaker 4

In the Q1 of 2023, we spent $12,700,000 repurchasing 94,400 of our common shares under our normal course issuer bid program. Our debt to adjusted EBITDA ratio was 2 times at the end of the quarter, up from 1.6 times at the end of Q4 as we acquired our 21% interest in VERIFI, which we funded through existing cash and commercial paper. $7,000,000 in excess of $175,000,000 we target to retain for regulatory and credit facility purposes. Our effective tax rate of approximately 27% for Q1 is up 1% from Q1 of last year, after adjusting for the non taxable gain from consolidation accounting of Box recorded in Q1 of last year. The primary driver is due to an increase in the UK corporate income tax rate from 19% to 25%, which will be effective April 1 this year.

Speaker 4

However, with the blended tax rate being applied as is the U. K. Requirement for corporations with a debt December 31 year end, It is as if it is effective for us on January 1. Last night, our Board approved a quarterly dividend of $0.87 per common share payable on June 2 to shareholders of record as of May 19. In the Q1, we paid out 47% of our adjusted earnings per share, which is above the midpoint of our target payout ratio of 40% to 50%.

Speaker 4

And now I'd like to turn the call back to Amin.

Speaker 1

Thank you, David. Michelle, could you please outline the process for the question and answer session?

Operator

You will hear a 3 tone prompt acknowledging your request. The first question comes from Nick Prieb of CIBC Capital Markets. Please go ahead.

Speaker 5

Okay. Thanks for the question. My first question relates to pricing power across the platform. Are there any areas or business units You've identified where you might have some flexibility to introduce pricing changes this year?

Speaker 2

Yes, Nick, it's a good question and good morning. What we're doing with respect to pricing is twofold, which one is every part of our franchise, every part of the business we are constantly looking at and as part of our strategic review is What's the value equation, the value you provide to clients? How do we compare competitively both domestically and globally? And where there are opportunities or changes or even risks where we want to make adjustments to? So that's the fundamental piece in terms of running our business in terms of driving growth in the core business through both that, but also product roadmap, Product delivery, expanding the sales pipeline, things like that.

Speaker 2

So it is only one factor in terms of those growth pieces. Now with that to the crux of your question, There are certainly areas we've talked about Trayport in the past. We basically build CPI indirectly there On an annual basis, you're seeing some of that flow through this year already. We have got the approval on the rest of our Datalinks business for Basically, what we call half CPI, so we've got the ability to make changes there. But we also want to be very respectful of our position there And so that we are not a burden on the client base in terms of our pricing structure.

Speaker 2

We'll also continue to look at other parts of the franchise as well. So we do look at the trading opportunities, we do look at listings, you understand that we made changes on both TSX and TSX Venture earlier this year, But that doesn't preclude us from making other changes within the structure because what we don't do is do kind of a one size couple of percentage point across the board. We look to be very strategic in terms of the price structure as to where there's opportunity. So I know I'm not giving you anything specific there because everything is Done based on a strategy going forward and as we do have things that we can bring to market, we'll make them public at the time.

Speaker 5

Yes. Okay. That's good color. And then you've been quite active on the corporate development front lately. Are you able to update us on your outlook regarding the M and A pipeline and what that might look like today?

Speaker 2

You're getting me 2 in a row on crystal ball questions, Nick. Yes, I appreciate that. So I think that the types of The best way I would give you guidance is to look at the things we've done over the last couple of years as really good indicators of the sectors that we're looking at, The nature of the businesses and the nature of the economics of those businesses. So continuing to expand in our GSIA suite in terms of More analytics, data sets, ability to drive more subscription based services through that, Expanding the use of our own data and broader products, global distribution around those products are all features and the types of businesses we're looking at. Similarly, with the acquisition and the full integration of AST, which we complete competed over a year ago and the integration last year, That gives us a much deeper set of services for issuers.

Speaker 2

We're always looking at other ways to deepen that relationship and provide a broader suite of products to the clients to enhance the value proposition with TMX. So those are 2 really good areas of the types of spaces that we continue to focus on because they advance the strategy And they advanced those areas of the strategy that we've talked about of being those high growth areas. We are looking at other assets all through the franchise, But they are all again tied to the ability to grow the strategy. The other piece I'll add to you with that is, you've seen us do things as large as Trayport And as small as a minority investment in Ventrix, and those are both good guideposts that we are looking at both small businesses that we can tuck in and scale And larger deals that could be more transformational.

Speaker 5

Yes. Okay. That's good. That's all I had. Thank you.

Operator

Thank you. The next question comes from Etienne Ricard of BMO Capital. Please go ahead.

Speaker 6

Thank you and good morning. Good morning, Azim. Hi. The Montreal Exchange volumes on the 2 year Government of Canada bond futures Picked up significantly as you noted in your remarks. At what point do you believe volumes could become self sustaining And as a result, remove introductory incentives?

Speaker 2

The guidepost I'd give you, Again, these are commercial arrangements with our market making clients, but the guidepost I give you is if you look at the experience we had with the 5 year And the level of sustained liquidity that we enjoyed in the 5 year product when we made the decision with the clients To exit that market management arrangement, it's a really good indicator of how we think about other future products like the 2 year and the 30 as well.

Speaker 6

Okay, understood. And Vetify closed on the acquisition of an index provider focused on AI, robotics and healthcare last month. What's the potential for collaboration on the Index front between TMX and Vetify as it relates to your innovation sector listings?

Speaker 2

Yes, it's very high. The whole thesis of our investment in Vetify was actually along with the partnership agreement that we built together to create indices based on our datasets, our relationships, things like that using their capabilities. So the acquisition that you referred For the benefit of everyone else on the call is an acquisition of an organization or a business called Robo Global that actually does exactly you said Focuses on indices in the AI space and related spaces. It was actually an acquisition that was intended upon And by our investment into Vetify in the 1st place when we put capital in it, it was to actually fund this kind of continued growth in Vetify and it expands The set of assets and capabilities that we can bring to bear on the partnership as well. Now we're still very early days in that partnership, but our teams are already collaborating on what I'll call that priority list of the benchmark opportunities that we can build together.

Speaker 2

You would have noticed as well and both David and I talked about it, The smaller transaction that we did with SigmaLogic and this is the ETF analytics business that we've done with SigmaLogic, ETF logically was again part of that intention. So we already owned a little under 50% of this business. The opportunity to acquire the remainder came available and with our partnership with Vetify, the best home for that business is actually within Vetify, which has Extensive and expansive ETF capabilities and this is very complementary to what we can do there. So the best thing for us to do is to acquire the rest of that business, Roll it into Vetify for a larger stake and really serve the clients better in a combined platform. So you're right on the you hit the nail around the head.

Speaker 2

This is all about what We can do together to expand services to clients.

Speaker 6

Very helpful. Thank you.

Operator

Thank you. The next question comes from Geoff Kwan of RBC Capital Markets. Please go ahead.

Speaker 7

Good morning. Just expanding on the question on the Montreal Exchange, with the trading volumes overall Being strong in Q1 this year, you talked about last year, the volumes being subdued just because of the substantial increase in interest rates, That the volumes would likely improve once we saw the bit more stability predictably around the Central Bank interest rates. So in that context, do you see what the volumes in Q1 2023 as being, call it, relatively normal? Were there seasonal or other factors that you think might explain The jump that we saw in Q1.

Speaker 2

Yes, I think the it actually was nice to see that actually Come to fruition, so that the guidance that we were giving last year was not hope and it was actually based on our experience in the market. So I appreciate you raising that. When you've got periods of unconstructive volatility in interest rates and by what I mean by that is when you've got really a question mark Around what central banks will do with rates. It's very it's more difficult for short term traders to trade in those products like the Bacs product and even the future CRA product that we're bringing to the market. So that volatility last year was expected, that step down was expected.

Speaker 2

And when rates stabilized In the Q1 and there was a view that rates would stay at this level, you saw traders come back in the product. Now you are seeing some Pull back of that as we get into April and Q2, because again, on the collapse of some of those banks in the U. S, Some concerns around both future inflation, but also potential recession concerns. There is again volatility around rate expectations Plus and minus and that does bring some of those short term traders out of the market again. So I think for the next period, I think you can expect to be for this Product, particularly short term products to be a bit more volatile given that level of uncertainty in the marketplace.

Speaker 7

And just my second question was on the equity trading side on the call, the revenue per share traded. It seems like it's been steadily increasing over Past couple of years. I know you've made some changes on the product front and a little bit on the pricing, but just wondering from your perspective like what would be the key drivers that seem to be driving that? And do you see anything that would give you a little bit further benefit as we look out over the next few quarters?

Speaker 2

Yes, it's primarily driven by product and the product mix. So as we've been if you recall, the work we did to create a stronger market On closed product, a little over a year ago, we're seeing volume grow in the close. The close is a premium product. The expansion of our dark order trading, Which has been a growth area for us. Again, those are premium products.

Speaker 2

So, even over the same levels of volume, you're getting more premium kind of revenue per share. And so that is actually part of the strategy. That's a deliberate approach in terms of building the business. And as we've launched the consultation on 2 net new markets, Which you have seen, which is Alpha Prime, Alpha Dark, these are again all about providing premium features to Traders that want better execution quality, want to be able to do larger transactions, want to see the broader speed bumps To take away some of the electronic trading out of those executions. So a lot of the roadmap going forward again is around bringing more premium product to the market That solves problems for our clients and those clients are willing to pay a premium over the basic execution fees that you'd see in the open market.

Speaker 2

And so that's a deliberate strategy and you're seeing that play out in the average rates.

Speaker 7

Okay. Thank you.

Operator

Thank you. The next question comes from Graham Ryding. Please go ahead.

Speaker 3

Hi, good morning. The share of equity accounted investments, I think that's where your Medify Proceeds would come through. I thought it might have deposited this quarter just given the size of that acquisition. So maybe you could just Give us some color on if this is an expected run rate or if there is any noise or anything there sort of weighing on that line item.

Speaker 4

Hi, Graham, it's David. Yes, there's a little bit of noise. So as we had mentioned when we made the acquisition, Just to give people a size and scope and remembering that Verify is a private company, so our ability to provide in-depth Details is quite limited. But what I can share is it's a business that is as we disclosed when we acquired it, that's much It's the size and scale of Trayport, with a similar kind of margin profile, especially when we look at these businesses, which are technology based or database businesses, It's all about the EBITDA contribution and very similar to Trayport when we acquired it. But as you know, Verify is a high growth business.

Speaker 4

And as a result, there's obviously lots of acquisitions they're making. So their amortization would naturally be a higher number And then you may be expecting a stable or more mature business. And then the second thing is the business has been primarily funded through debt. So its net income contribution is less than obviously the EBITDA contribution. So that's being picked up there.

Speaker 4

The good news is, As we've made our investment, it's given the ability for the Verify management team to look at their capital structure. I would expect a little bit more noise in the Q2, but as we get to the 3rd and the 4th quarter, I think we'll be in a better position to talk a little bit about what a more steady run rate is For us to pick up on that account line. Remembering as well that on that account line is Ventrix as well, a much smaller investment, Just in terms of sheer magnitude and dollar impact, and that's what I would refer to as an early stage Technology business obviously has a very different profile, let's say, to Verify and then maybe a more mature business. Does that help, Graeme, at least in terms of how you might think about it?

Speaker 3

Yes, that's helpful. Should we expect it to be trending positively Q3 forward? Or Is that amortization still going to be enough to weigh on

Speaker 4

Yes. So Amortization will be amortization and funding costs will be with these businesses for a long period of time. But the noise that I'm between a Q1 and a Q2 because if they make an acquisition in a quarter, they're going to have transaction costs. And as you would Expect right if we made 100 percent acquisition at TMX, we would adjust for it as we normally do. We Close it in terms of our adjusted numbers.

Speaker 4

When we pick up our percentage share of a minority investment, we don't make any adjustments So that's really what I'm referring to, Graham, is if they have M and A activity in the quarter that could cause some lumpiness. But definitely as we get to Q3 and Q4, I expect that account line to trend far more positively.

Speaker 3

Okay. That makes sense. And then just on the Datalinks side

Speaker 8

of your

Speaker 3

business, Very strong growth this quarter. I think it was 9% if you exclude acquisitions and FX. Maybe you can just give us some color how much of that 9% Some of the price increases that you brought in this year and how much was just growth otherwise?

Speaker 4

Yes. So it's myself, Graeme. I would say the pricing increases were less than half. The real primary drivers over here are Business volume, obviously, as you know, we build a lot of our international clients in U. S.

Speaker 4

Dollars, so we had a benefit from that. So But the short answer is this pricing is not the majority of this increase. It's core operations and organic growth Added obviously by the acquisition of Wall Street Horizon and SigmaLogic during the quarter. Obviously, subsequently, we've now sold our SigmaLogic stake To verify, but the Wall Street Horizon acquisition is really paying a lot of dividends. In fact, it's well ahead of all of our business case metrics And that's also contributing to the top line growth for Datalinx.

Speaker 4

Anything to add to John?

Speaker 2

Yes. Not to pile on too much, but given the Blue Jays had a phenomenal April, I can't help but take the opportunity to take the baseball reference here. This is a business where, it's not home runs. We're actually hitting single after single after single. So you've got a whole list of different product growth areas that are contributing to that 9% you talked to.

Speaker 2

So as David said, less than half of that's coming from pricing. We're getting growth from the index and benchmark piece. We're getting growth from colocation from the expansion of feeds. The addition of new bundled products that Michelle's team has delivered. And so it really is that sequence of continuing to innovate, add products, sell products that gives us singles and singles, singles and pushes the runs over the line.

Speaker 2

And that's the way we've built the strategy and that's why we were confident last year to advance the guidance around this business that this was going to be a strong growth business going forward And then not that kind of 1% to 2% that we had in history.

Speaker 3

So mid single digits, is that your revised guidance for this line? Can you remind me?

Speaker 4

So we refer to the Datalinks business in our investor brochure as strong growth, which would be 5 plus.

Speaker 3

Okay. That's it for me. Thank you.

Operator

Thank you. The next question comes from Jaeme Glone of National Helane, please go ahead.

Speaker 8

Thank you. Good morning. Maybe just to follow-up on the last question around Wall Street Horizons. You said it's running ahead of Your expected metrics and so $1,700,000 in this quarter, Is that a fairly representative quarter? Are there any sort of like one time items in there, seasonality?

Speaker 8

How should we think about Wall Street Horizons contributing In the upcoming quarters?

Speaker 2

I'd say representative, but growing. So it's very much subscription based. So no really one time things that are distorting that and it is a business we expect to continue to grow. So that's a baseline you can build off of.

Speaker 8

Okay, great. Next question or my first question was going to be around interest income and this kind of hits in a couple of areas For the business, TSX Trust obviously benefiting from higher interest rates and net interest income, but so did CDS. And so the question is for both of those businesses, are you able to break out the contribution from, let's call it, net interest income

Speaker 2

Let me start with the Trust piece and because the CDS piece is actually fairly limited. I'll leave that one for David afterwards. As we said in the notes and the guidance that we gave, The growth in trust, which is essentially the other services, was really about net interest income growth. So it's really quite representative and out for that the actual transaction related pieces of Trust would have been slightly down in the quarter, Which should not be surprising because the trust business, I'd say, it's about kind of 60% recurring run rate and kind of 40% transactional. So very much like capital formation In a quarter where you've got limited market activity, not as much M and A activity, not as much corporate financing, there's limited trust transactional activity.

Speaker 2

So that being a little softer year over year, the bulk of that growth was all the net interest income piece. You want to talk to the CDS piece, David?

Speaker 4

Yes. So on the CDS piece, it's less than $1,000,000 honestly, James. So The more noticeable and meaningful impact of interest rate rises is going to be seen in the trust business as John has indicated.

Speaker 8

Yes. Okay, great. And then last one for me, just thinking about the debt maturity schedule here, we have $250,000,000 in October. You got the $200,000,000 of CP now. What's the strategy around those, I guess, that maturity coming up and then The CP.

Speaker 4

So it's a great question, James. So let me handle the CP. As you know, obviously, on a quarterly basis, We generate enough free cash flow for us to make a meaningful downward tick or at least down payment in Reducing the commercial paper as we head towards the end of Q3, which as you say, a Series B debenture is coming up for redemption. So we're spending a lot of time as you can expect James. So we focus on what's going on in the interest rate market, not just because It drives our derivatives franchise and some of our other businesses as you alluded to trust and CDS, but also because it drives our decisions on our capital structure, Right.

Speaker 4

So we haven't made any decisions yet. We continue to look at refinancing options. And the backdrop of it is 2 things. 1 is, where do we see short and long term rates going as we near that point? And do we see an opportunity for us to either early refinance or do it as we head towards The end of Q3 when the debenture comes due.

Speaker 4

But in addition, it's to an earlier question, it depends on what the Capital resource needs are for us in terms of M and A activity or inorganic growth. So depending on those factors, You could see us continuing to pay down the commercial paper and simply refinance the long term debt with Commercial paper or any kind of short term borrowing or if rates are in our view at a position where we might want to lock in both for duration And rate, we might refinance it. So stay tuned in the space with the overall backdrop is what will our capital deployment needs be in terms of Any possible M and A activity.

Speaker 8

Yes, understood. And just to clarify, I think you David in your prepared remarks talked about excess cash Being was it $50,000,000 or $150,000,000

Speaker 4

No. We hold excess cash in of $175,000,000 And I'm just going to look at my remarks, so I don't misquote myself. It is Which was $257,000,000 in excess of the $175,000,000 we target to retain for regulatory purposes. So $257,000,000 in excess.

Speaker 8

In excess?

Speaker 1

Yes.

Speaker 8

Okay. So you could use that to repay some of the maturities or CP as well, I suppose. Is that fair or no?

Speaker 4

That is fair. But it also, as I said, at the backdrop is what would our other Deployment needs be as the earlier question was, I think Nick asked the question about our M and A pipeline. And as John said, it is It's robust. So it all depends.

Speaker 8

Understood. Thank you very much.

Speaker 4

You're welcome.

Operator

Thank you. There are no further questions at this time. Please continue with closing remarks.

Speaker 1

Thank you, everyone, for listening in today, and we look forward to connecting with you throughout this year as we make progress on our strategic priorities. As John mentioned earlier, our annual and special meeting of shareholders will be taking place today in a hybrid format at 2 p. M. If you have any further questions, contact information for media and Investor Relations is in our press release and we would be happy to get back to you. Until next time.

Speaker 1

Goodbye. And I'm just going

Speaker 4

to close it by congratulating you, Amin. That was your first analyst call in your new role. So congratulations. Thank you.

Operator

Ladies and gentlemen, this does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines.

Powered by Quartr
Earnings Conference Call
DoorDash Q1 2023
00:00 / 00:00