X TMX Group Limited

• Revenue of $252.0 million, up 14% from $220.3 million in Q1/20
  
  
• Diluted earnings per share of $1.70, up 37% from $1.24 in Q1/20
  
  
• Adjusted diluted earnings per share of $1.88, up 23% over $1.53 in Q1/20
  
  
• Increased quarterly dividend by 7 cents per common share, up 10% to 77 cents per common share

TORONTO, May 11, 2021 /CNW/ - TMX Group Limited (TSX: X) ("TMX Group") today announced results for the first quarter ended March 31, 2021.

Commenting on the first three months of the year, John McKenzie,  Chief Executive Officer of TMX Group, said:

"TMX's strong performance in the first quarter reflects significant contributions from across our business and robust capital markets activity, including a 122% increase in financing dollars raised by Toronto Stock Exchange and TSX Venture Exchange issuers, and record overall equities trading volumes, up 50% from the first quarter of last year. In collaboration with our clients and stakeholders, we continued to build on TMX's history of innovation during the quarter, with the launch of the world's first publicly-listed Bitcoin and Ether ETFs. We look to the future with optimism, powered by the efforts of our dedicated people, as we strive to meet the rapidly-evolving needs of the modern marketplace and execute against our long-term global growth strategy."

Commenting on TMX Group's performance in the first quarter of 2021, Frank DiLiso, interim Chief Financial Officer of TMX Group, said:

"We delivered another strong quarter with revenue growth of 14% driven by continued strength in our capital formation and equities and fixed income trading and clearing businesses, reflecting a surge in market activity compared with the first three months of 2020.  Diluted earnings per share of $1.70 was up 37% over last year, and adjusted diluted earnings per share of $1.88 was up 23% over Q1/20.  Our performance in the first quarter reflects the continued strength of our diversified business model.  During the first quarter, we also financed $250 million of debentures at attractive interest rates and announced a renewal to our share repurchase program."

RESULTS OF OPERATIONS

Non-IFRS Financial Measures

Adjusted earnings per share, adjusted diluted earnings per share and adjusted net income are non-IFRS measures and do not have standardized meanings prescribed by IFRS and are, therefore, unlikely to be comparable to similar measures presented by other companies.  We present adjusted earnings per share, adjusted diluted earnings per share, and adjusted net income to indicate ongoing financial performance from period to period, exclusive of a number of adjustments.  These adjustments include amortization of intangibles related to acquisitions, increase in deferred income tax liabilities relating to a change in the U.K tax rate, and transaction related costs. Management uses these measures, and excludes certain items, because it believes doing so results in a more effective analysis of underlying operating and financial performance, including, in some cases, our ability to generate cash.  Excluding these items also enables comparability across periods.  The exclusion of certain items does not imply that they are non-recurring or not useful to investors. 

Quarter ended March 31, 2021 (Q1/21) Compared with Quarter ended March 31, 2020 (Q1/20)

The information below reflects the financial statements of TMX Group for Q1/21 compared with Q1/20.  Certain comparative information has been reclassified in order to conform with the financial presentation adopted in the current year.

Net Income and Earnings per Share

Net income in Q1/21 was $96.4 million, or $1.71 per common share on a basic and $1.70 per common share on a diluted basis, compared with a net income of $70.1 million, or $1.25 per common share on a basic and $1.24 on a diluted basis, for Q1/20.  The increase in net income reflected an increase in income from operations of $21.7 million.   The increase in income from operations from Q1/20 to Q1/21 was driven by an increase in revenue of $31.7 million, offset by an increase in operating expenses of $10.0 million driven by an approximately $5.1 million increase in short term employee performance incentive plan costs and sales commissions.  The increase in operating expenses also included approximately $0.6 million (1 cent per basic and diluted share) in transaction related costs related to the proposed AST Canada transaction in Q1/21.  There was also an increase in our share of income from BOX in Q1/21, and an increase in deferred income tax liabilities relating to change in U.K. tax rate that increased income tax expenses in Q1/20, partially offset by higher net finance costs.

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¹ See discussion under the heading "Non-IFRS Financial Measures".
² See discussion under the heading "Non-IFRS Financial Measures".

Adjusted Earnings per Share³ Reconciliation for Q1/21 and Q1/20

The following is a reconciliation of earnings per share to adjusted earnings per share:

Adjusted diluted earnings per share increased by 23% from $1.53 in Q1/20 to $1.88 in Q1/21 largely driven by increased revenue, partially offset by higher operating expenses.  There was also an increase in our share of income from BOX partially offset by higher net finance costs.

Adjusted Net Income⁶ Reconciliation for Q1/21 and Q1/20

The following is a reconciliation of net income to adjusted net income:

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³ See discussion under the heading "Non-IFRS Financial Measures".
⁴ Includes costs related to the AST Canada transaction in Q1/21. Please refer to "Initiatives and Accomplishments" in the Q1/21 MD&A for more details.
⁵ See discussion under the heading "Non-IFRS Financial Measures".
⁶ See discussion under the heading "Non-IFRS Financial Measures".
⁷ Includes costs related to the AST Canada transaction in Q1/21. Please refer to "Initiatives and Accomplishments" in the Q1/21 MD&A for more details.
⁸ See discussion under the heading "Non-IFRS Financial Measures".

Adjusted net income increased by 22% from $87.0 million in Q1/20 to $106.4 million in Q1/21 largely driven by increased revenue, partially offset by higher operating expenses.  There was also an increase in our share of income from BOX partially offset by higher net finance costs.

Revenue

Revenue was $252.0 million in Q1/21, up $31.7 million or 14% from $220.3 million in Q1/20 attributable to increases in revenue from Capital Formation, Equities and Fixed Income Trading and Clearing as well as Global Solutions, Insights and Analytics partially offset by decreases in Derivatives Trading and Clearing and Other revenue.

Operating expenses

Operating expenses in Q1/21 were $119.3 million, up $10.0 million or 9%, from $109.3 million in Q1/20.  The increase reflected higher costs related to our short term employee performance incentive plan and sales commissions of approximately $5.1 million, increased severance costs of approximately $1.2 million, higher headcount and payroll costs, increased software licensing, information security and information technology professional services expenses.  In addition, we incurred $0.6 million (1 cent per basic and diluted share) in total transaction related costs related to the proposed AST Canada transaction.

The increases were somewhat offset by a decline in long term employee performance incentive plan costs, travel and entertainment expenses, legal fees and marketing costs.

Additional Information

Income tax expense and effective tax rate                                  

Excluding adjustments, primarily related to the items noted below, the effective tax rate would have been approximately 26% for  Q1/20. 

• In Q1/20, there was an increase in deferred income tax liabilities and a corresponding increase in income tax expense of $7.4 million relating to the U.K. corporate income tax rate. In Q1/20, it was announced that the U.K. corporate income tax rate would not decline as previously anticipated; therefore, we were required to revalue deferred income tax liabilities related to acquired intangible assets.

FINANCIAL STATEMENTS GOVERNANCE PRACTICE

The Finance & Audit Committee of the Board of Directors of TMX Group (Board) reviewed this press release as well as the Q1/21 unaudited condensed consolidated interim financial statements and related Management's Discussion and Analysis (MD&A) and recommended they be approved by the Board of Directors.  Following review by the full Board, the Q1/21 unaudited condensed consolidated interim financial statements, MD&A and the contents of this press release were approved.

CONSOLIDATED FINANCIAL STATEMENTS

Our Q1/21 unaudited condensed consolidated interim financial statements are prepared in accordance with IFRS and are reported in Canadian dollars unless otherwise indicated. Financial measures contained in the MD&A and this press release are based on financial statements prepared in accordance with IFRS, unless otherwise specified and are in Canadian dollars unless otherwise indicated. 

ACCESS TO MATERIALS

TMX Group has filed its Q1/21 unaudited condensed consolidated interim financial statements and MD&A with Canadian securities regulators. This press release should be read together with our Q1/21 unaudited condensed consolidated interim financial statements and MD&A.  These documents may be accessed through www.sedar.com, or on the TMX Group website at www.tmx.com.  We are not incorporating information contained on the website in this press release.  In addition, copies of these documents will be available upon request, at no cost, by contacting TMX Group Investor Relations by phone at (416) 947-4277 or by e-mail at TMXshareholder@tmx.com.

CAUTION REGARDING FORWARD-LOOKING INFORMATION

This press release of TMX Group contains "forward-looking information" (as defined in applicable Canadian securities legislation) that is based on expectations, assumptions, estimates, projections and other factors that management believes to be relevant as of the date of this press release. Often, but not always, such forward-looking information can be identified by the use of forward-looking words such as "plans," "expects," "is expected," "budget," "scheduled," "targeted," "estimates," "forecasts," "intends," "anticipates," "believes," or variations or the negatives of such words and phrases or statements that certain actions, events or results "may," "could," "would," "might," or "will" be taken, occur or be achieved or not be taken, occur or be achieved. Forward-looking information, by its nature, requires us to make assumptions and is subject to significant risks and uncertainties which may give rise to the possibility that our expectations or conclusions will not prove to be accurate and that our assumptions may not be correct.

Examples of forward-looking information in this press release include, but are not limited to, growth objectives; our target dividend payout ratio; the ability of TMX Group to de-leverage and the timing thereof; the modernization of clearing platforms, including the expected cash expenditures related to the modernization of our clearing platforms and the timing of the modernization; other statements related to cost reductions; the impact of the market capitalization of TSX and TSXV issuers overall (from 2020 to 2021) on TMX Group's revenue; future changes to TMX Group's anticipated statutory income tax rate for 2021; factors relating to stock, and derivatives exchanges and clearing houses and the business, strategic goals and priorities, market conditions, pricing, proposed technology and other business initiatives and the timing and implementation thereof, the proposed timing for the completion of the acquisition of AST Canada, including the ability to obtain the required regulatory approvals and financing required to complete this acquisition, the composition of AST Canada's client base and the products and services it will provide, the anticipated benefits and synergies of the AST Canada acquisition, including the expected impact on TMX Group's earnings and adjusted earnings per share and the timing thereof, financial results or financial condition, operations and prospects of TMX Group which are subject to significant risks and uncertainties.

These risks include, but are not limited to: competition from other exchanges or marketplaces, including alternative trading systems and new technologies, on a national and international basis; dependence on the economy of Canada; adverse effects on our results caused by global economic conditions (including COVID-19) or uncertainties including changes in business cycles that impact our sector; failure to retain and attract qualified personnel; geopolitical and other factors which could cause business interruption (including COVID-19); dependence on information technology; vulnerability of our networks and third party service providers to security risks, including cyber-attacks; failure to properly identify or implement our strategies; regulatory constraints; constraints imposed by our level of indebtedness, risks of litigation or other proceedings; dependence on adequate numbers of customers; failure to develop, market or gain acceptance of new products; failure to close and effectively integrate acquisitions to achieve planned economics, or divest underperforming businesses; currency risk; adverse effect of new business activities; adverse effects from business divestitures; not being able to meet cash requirements because of our holding company structure and restrictions on paying dividends; dependence on third-party suppliers and service providers; dependence of trading operations on a small number of clients; risks associated with our clearing operations; challenges related to international expansion; restrictions on ownership of TMX Group common shares; inability to protect our intellectual property; adverse effect of a systemic market event on certain of our businesses; risks associated with the credit of customers; cost structures being largely fixed; the failure to realize cost reductions in the amount or the time frame anticipated; dependence on market activity that cannot be controlled; the regulatory constraints that apply to the business of TMX Group and its regulated subsidiaries, costs of on exchange clearing and depository services, trading volumes (which could be higher or lower than estimated) and revenues; future levels of revenues being lower than expected or costs being higher than expected.

Forward-looking information is based on a number of assumptions which may prove to be incorrect, including, but not limited to, assumptions in connection with the ability of TMX Group to successfully compete against global and regional marketplaces; business and economic conditions generally; exchange rates (including estimates of exchange rates from Canadian dollars to the U.S. dollar or GBP), commodities prices, the level of trading and activity on markets, and particularly the level of trading in TMX Group's key products; business development and marketing and sales activity; the continued availability of financing on appropriate terms for future project, including the acquisition of AST Canada; the amount of revenue and  cost synergies resulting from the AST Canada acquisition; productivity at TMX Group, as well as that of TMX Group's competitors; market competition; research and development activities; the successful introduction and client acceptance of new products; successful introduction of various technology assets and capabilities; the impact on TMX Group and its customers of various regulations; TMX Group's ongoing relations with its employees; and the extent of any labour, equipment or other disruptions at any of its operations of any significance other than any planned maintenance or similar shutdowns.

In addition to the assumptions outlined above, forward looking information related to long term revenue cumulative average annual growth rate (CAGR) objectives, and long term adjusted earnings per share CAGR objectives are based on assumptions that include, but not limited to:

• TMX Group's success in achieving growth initiatives and business objectives;
  
  
• continued investment in growth businesses and in transformation initiatives including next generation post-trade systems;
  
  
• no significant changes to our effective tax rate, recurring revenue, and number of shares outstanding;
  
  
• moderate levels of market volatility;
  
  
• level of listings, trading, and clearing consistent with historical activity;
  
  
• economic growth consistent with historical activity;
  
  
• no significant changes in regulations;
  
  
• continued disciplined expense management across our business;
  
  
• continued re-prioritization of investment towards enterprise solutions and new capabilities;
  
  
• free cash flow generation consistent with historical run rate; and
  
  
• a limited impact from the COVID-19 pandemic on our plans to grow our business over the long term including on the ability of our listed issuers to raise capital.

While we anticipate that subsequent events and developments may cause our views to change, we have no intention to update this forward-looking information, except as required by applicable securities law. This forward-looking information should not be relied upon as representing our views as of any date subsequent to the date of this press release.  We have attempted to identify important factors that could cause actual actions, events or results to differ materially from those current expectations described in forward-looking information.  However, there may be other factors that cause actions, events or results not to be as anticipated, estimated or intended and that could cause actual actions, events or results to differ materially from current expectations.  There can be no assurance that forward-looking information will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements.  Accordingly, readers should not place undue reliance on forward-looking information.  These factors are not intended to represent a complete list of the factors that could affect us. A description of the above-mentioned items is contained in the section "Enterprise Risk Management" of our 2020 Annual MD&A which is incorporated by reference into our Q1/21 MD&A.

About TMX Group (TSX:X)

TMX Group operates global markets, and builds digital communities and analytic solutions that facilitate the funding, growth and success of businesses, traders and investors. TMX Group's key operations include Toronto Stock Exchange, TSX Venture Exchange, TSX Alpha Exchange, The Canadian Depository for Securities, Montréal Exchange, Canadian Derivatives Clearing Corporation, and Trayport which provide listing markets, trading markets, clearing facilities, depository services, technology solutions, data products and other services to the global financial community. TMX Group is headquartered in Toronto and operates offices across North America (Montréal, Calgary, Vancouver and New York), as well as in key international markets including London and Singapore. For more information about TMX Group, visit our website at www.tmx.com. Follow TMX Group on Twitter: @TMXGroup.

Teleconference / Audio Webcast

TMX Group will host a teleconference / audio webcast to discuss the financial results for Q1/21.

Time: 8:00 a.m. - 9:00 a.m. ET on Wednesday, May 12, 2021.

To teleconference participants: Please call the following number at least 15 minutes prior to the start of the event.

The audio webcast of the conference call will also be available on TMX Group's website at www.tmx.com, under Investor Relations.

Teleconference Number: 647-427-7450 or 1-888-231-8191

Audio Replay: 416-849-0833 or 1-855-859-2056

The pass code for the replay is 5772578.

SOURCE TMX Group Limited