TMX Group Limited Reports Another Strong Quarter for Q1/17

  • Revenue of $186.1 million in Q1/17, up 5% compared with Q1/16

  • Diluted earnings per share of $0.85 in Q1/17, unchanged from Q1/16

  • Adjusted diluted earnings per share of $1.11 in Q1/17, up 11% compared with $1.00 per share in Q1/16

  • Cash flows from operating activities of $67.0 million in Q1/17, up 20% from $56.0 million in Q1/16

  • Increased quarterly dividend by 5 cents per common share, up 11%, to 50 cents per common share

TORONTO, May 9, 2017 /CNW/ - TMX Group Limited [TSX:X] ("TMX Group") today announced results for the first quarter ended March 31, 2017.

Commenting on Q1/17 and looking ahead, Lou Eccleston, Chief Executive Officer of TMX Group, said:

"The first quarter of 2017 represents another significant chapter in TMX's compelling growth story. Our positive results reflect the progress we have made in implementing a progressive organizational structure that enables us to proactively create advantages for clients across the markets we serve while continuing to deliver on our commitment to achieve profitable growth and generate increased value for shareholders. As we move further into the year and down our evolutionary path, TMX remains focused on leveraging our cross-business capabilities to fortify our value proposition, strengthen our competitive position and expand our global business."

Commenting on operating performance in Q1/17 and capital allocation, John McKenzie, Chief Financial Officer of TMX Group, said:

"We were very pleased with our strong financial performance in Q1/17.  With a 5% increase in revenue, which is 7% revenue growth when excluding the impacts from selling Razor Risk and de-consolidating BOX, we delivered another solid quarter driven by strength in the Capital Markets portion of our business. This revenue growth coupled with a 2% decline in operating expenses before strategic re-alignment expenses, contributed to 15% growth in income from operations before strategic re-alignment expenses and 11% growth in adjusted EPS, once again reflecting the leverage in our operating model."

"Our strong operating performance gave us confidence to support an 11% increase the quarterly dividend, following our commitment to target a payout ratio consistent with that of our domestic and international peers."

RESULTS OF OPERATIONS

Non-IFRS Financial Measures

Adjusted earnings per share and adjusted diluted earnings per share 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 and adjusted diluted earnings per share to indicate ongoing financial performance from period to period, exclusive of a number of adjustments.  These adjustments include amortization of intangibles related to acquisitions, non-cash impairment charges, write-off of deferred income tax assets and strategic re-alignment expenses.  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.

Additional IFRS Measures

Income from operations before strategic re-alignment expenses and income from operations are important indicators of TMX Group's ability to generate liquidity through operating cash flow to fund future working capital needs, service outstanding debts and fund future capital expenditures.  The intent of these performance measures is to provide additional useful information to investors and analysts; however, these measure should not be considered in isolation.

BOX (BOX Holdings)

In January 2015, BOX launched a program to incent subscribers to provide liquidity. In exchange for providing this liquidity and a nominal cash payment, subscribers received volume performance rights (VPRs), which are comprised of Class C units of BOX and an order flow commitment. The VPRs vest over 20 quarters of the 5-year order flow commitment period if minimum volume targets are achieved. If a subscriber fails to meet its minimum volume targets, its VPRs are available for reallocation to those subscribers that exceed their minimum volume targets, if any. Those VPRs may vest earlier. In September 2015, the VPR program was granted regulatory approval by the Securities Exchange Commission (SEC). Pursuant to the terms of the VPR program, subscribers became entitled to immediate economic participation in BOX for VPRs held.

As of July 1, 2016, we determined that we did not hold majority voting power on the board of directors as Class C units in certain vested VPRs became entitled to vote at board meetings.  As of this date, we no longer consolidated BOX as we ceased to hold the majority of voting power on the board of directors and exercise control.  As a result our financial results from July 1, 2016 forward do not include the results of BOX other than our share of BOX's net income (loss), which is reflected in Share of net income (loss) from equity accounted investees.  For periods prior to July 1, 2016 our financial results include the results from BOX on a consolidated basis.

Effective July 1, 2016, Derivatives revenue also includes revenue from licensing SOLA technology and providing other services to BOX.  This revenue was previously eliminated when BOX's operating results were consolidated in our financial statements.

Quarter Ended March 31, 2017 Compared with Quarter Ended March 31, 2016

The information below reflects the financial statements of TMX Group for the quarter ended March 31, 2017 compared with the quarter ended March 31, 2016.






(in millions of dollars, except per share amounts)

Q1/17

Q1/16

$ increase/

(decrease)

% increase/

(decrease)

Revenue

$186.1

$177.7

$8.4

5%

Operating expenses before strategic re-alignment expenses

104.7

106.7

(2.0)

(2)%

Income from operations before strategic re-alignment expenses1

81.4

71.0

10.4

15%

Strategic re-alignment expenses

0.0

1.3

(1.3)

(100)%

Income from operations2

81.4

69.7

11.7

17%

Net income attributable to TMX Group shareholders

47.3

46.3

1.0

2%






Earnings per share






Basic

0.86

0.85

0.01

1%


Diluted

0.85

0.85

0.00

0%

Adjusted Earnings per share3






Basic

1.12

1.00

0.12

12%


Diluted

1.11

1.00

0.11

11%






Cash flows from operating activities

67.0

56.0

11.0

20%

 

Net income attributable to TMX Group shareholders

Net income attributable to TMX Group shareholders in Q1/17 was $47.3 million, or $0.86 per common share on a basic basis and $0.85 per common share on a diluted basis, compared with a net income of $46.3 million, or $0.85 per common share on a basic and diluted basis, for Q1/16. The increase in net income in Q1/17 reflected higher revenue, lower operating expenses before strategic re-alignment expenses and lower strategic re-alignment expenses.  The increase was largely offset by a non-cash income tax adjustment of $2.9 million relating to the write off of deferred income tax assets and a non-cash impairment charge of $4.8 million, both amounts related to TMX Atrium.

________________________

1

See discussion under the heading "Additional IFRS Financial Measures" in the Q1 2017 MD&A.

2

See discussion under the heading "Additional IFRS Financial Measures" in the Q1 2017 MD&A.

3

See discussion under the heading "Non-IFRS Financial Measures" in the Q1 2017 MD&A.

 

Adjusted Earnings per Share Reconciliation for Q1/17 and Q1/16 4 

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







Q1/17

Q1/16

(unaudited)

Basic

Diluted

Basic

Diluted

Earnings per share

$0.86

$0.85

$0.85

$0.85

Adjustments related to:






Amortization of intangibles related to acquisitions

0.12

0.12

0.13

0.13


Strategic re-alignment expenses

0.02

0.02


Non-cash impairment charges

0.09

0.09


Write-off of deferred income tax assets

0.05

0.05

Adjusted earnings per share

$1.12

$1.11

$1.00

$1.00

Weighted average number of common shares outstanding

55,121,250

55,617,983

54,392,393

54,398,442

 

Adjusted diluted earnings per share increased by 11% from $1.00 in Q1/16 to $1.11 in Q1/17.  The increase in adjusted diluted earnings per share reflected higher revenue and lower operating expenses, before strategic re-alignment expenses, excluding amortization of intangibles related to acquisitions. In addition, we incurred lower net finance costs in Q1/17 compared with Q1/16. The increases were partially offset by the impact from an increase in the number of weighted-average common shares outstanding in Q1/17 compared with Q1/16.

_________________________

4

Adjusted earnings per shares is a non-IFRS measure. See discussion under the heading "Non-IFRS Financial Measures" in the Q1 2017 MD&A. Earnings per share information is based on net income attributable to TMX Group shareholders.

 

Revenue

In 2015, we undertook a strategic realignment of our operations and revised our reporting segments information for the year ended December 31, 2015. In Q4/16 we further revised operations and our reporting for our Efficient Markets operating segment.  This segment has been separated into Equities and Fixed Income Trading and Clearing and Energy Trading and Clearing.  Effective Q4/16, we now report revenue in the following categories:

  • Capital Formation

  • Equity and Fixed Income Trading and Clearing

  • Derivatives Trading and Clearing

  • Energy Trading and Clearing

  • Market Insights

  • Other (includes Market Solutions, which was previously reported with Efficient Markets)

Results for the quarter ended March 31, 2016 have been restated to conform to this new structure.






(in millions of dollars)

Q1/17

Q1/16

$ increase/
(decrease)

% increase/
(decrease)

Capital Formation

44.8

38.6

6.2

16%

Equities and Fixed Income Trading and Clearing

48.2

43.1

5.1

12%

Derivatives Trading and Clearing

28.1

31.5

(3.4)

(11)%

Energy Trading and Clearing

14.2

14.4

(0.2)

(1)%

Market Insights

51.0

51.7

(0.7)

(1)%

Other

(0.2)

(1.6)

1.4

88%


$186.1

$177.7

$8.4

5%

 

Revenue was $186.1 million in Q1/17, up $8.4 million or 5% compared with $177.7 million in Q1/16.  Excluding the $0.9 million impact of Razor Risk (sold December 31, 2016) and the $3.1 million impact from de-consolidating BOX (effective July 1, 2016), revenue in Q1/17 increased by 7% over Q1/16.  There were increases in Capital Formation, Equities and Fixed Income Trading and Clearing, and Other revenue, which were offset by a decline in Derivatives Trading and Clearing revenue. The increase in Other revenue was primarily due to recognizing lower net foreign exchange losses on U.S. dollar and other non-Canadian denominated net monetary assets in Q1/17 compared with Q1/16.  The net favourable impact from Q1/16 to Q1/17 was approximately $2.0 million.  Partially offsetting this, there was an unfavourable impact of approximately $1.5 million from a stronger Canadian dollar relative to other currencies, including the U.S. dollar, in Q1/17 versus Q1/16.  The net favourable impact of these two foreign exchange items was approximately $0.5 million.

Operating expenses before strategic re-alignment expenses






(in millions of dollars)

Q1/17

Q1/16

$ (decrease)

% (decrease)

Compensation and benefits

$51.5

52.5

$(1.0)

(2)%

Information and trading systems

18.0

18.1

(0.1)

(1)%

Selling, general and administration

20.3

20.5

(0.2)

(1)%

Depreciation and amortization

14.9

15.6

(0.7)

(4)%


$104.7

$106.7

$(2.0)

(2)%

 

Operating expenses before strategic re-alignment expenses in Q1/17 were $104.7 million, down $2.0 million or 2%, from $106.7 million in Q1/16.  There were lower overall headcount costs following our strategic re-alignment initiative, as well as reduced costs related to Razor Risk (sold December 31, 2016) of approximately $3.4 million. Effective July 1, 2016, we excluded operating expenses related to BOX when we ceased to consolidate BOX's results from operations, which were $4.4 million in Q1/16.  There was also a favourable impact from a stronger Canadian dollar relative to other currencies, including the U.S. dollar, in Q1/17 versus Q1/16.  The impact was approximately $0.6 million.  The decreases in costs were partially offset by approximately $4.7 million of higher employee performance incentive plan costs and increased severance costs (not included as part of strategic re-alignment expenses).  There was also one-time contract termination fees of $0.8 million in Information and trading systems in Q1/17.

Additional Information

Impairment charges






(in millions of dollars)

Q1/17

Q1/16

$ increase

% increase


$4.8

$0.0

$4.8

n/a

 

  • In Q1/17 we determined that the fair value of TMX Atrium was below its carrying value, resulting in impairment charges of $4.8 million relating to the write-down of goodwill. In February 2017, we entered into an agreement to sell TMX Atrium. The transaction closed on April 30, 2017. (see INITIATIVES AND ACCOMPLISHMENTS - Market Insights in the Q1 2017 Management's Discussion and Analysis), and no significant gain or loss on sale is anticipated for Q2/17.

Income tax expense and effective tax rate                         



Income Tax Expense (in millions of dollars)

Effective Tax Rate (%)

Q1/17

Q1/16

Q1/17

Q1/16

$23.7

$17.1

33%

27%

 

  • Excluding adjustments, primarily relating to the items noted below, the effective tax rate would have been approximately 27% for Q1/17.

  • In Q1/17, we wrote-down $2.9 million of deferred tax assets relating to TMX Atrium Wireless, which increased our effective tax rate and income tax expense.

  • In Q1/17, we incurred non-cash impairment charges of $4.8 million related to TMX Atrium, which also increased our effective tax rate for Q1/17.

FINANCIAL STATEMENTS GOVERNANCE PRACTICE

The Finance & Audit Committee of the Board of Directors of TMX Group reviewed this press release as well as the Q1/17 unaudited condensed consolidated 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 Q1/17 unaudited condensed consolidated financial statements, MD&A and the contents of this press release were approved.

CONSOLIDATED FINANCIAL STATEMENTS

Our Q1/17 unaudited condensed 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 QUARTERLY MATERIALS

TMX Group has filed its Q1/17 unaudited condensed consolidated financial statements and MD&A with Canadian securities regulators.  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, statements related to cost reductions, strategic realignment expenses and TMX Group's business integration initiative, factors relating to stock, derivatives and energy exchanges and clearing houses and the business, strategic goals and priorities, market conditions, pricing, proposed technology and other initiatives, financial results or financial condition, operations and prospects of TMX Group which are subject to significant risks and uncertainties. These risks include: 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 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; 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 effectively integrate acquisitions to achieve planned economics or divest under-performing businesses; currency risk; adverse effect of new business activities; 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 the U.S. dollar-Canadian dollar exchange rate), 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 projects; 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.

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 under the heading Risks and Uncertainties in the 2016 Annual MD&A.

About TMX Group (TSX:X)

TMX Group's key subsidiaries operate cash and derivative markets and clearinghouses for multiple asset classes including equities, fixed income and energy. Toronto Stock Exchange, TSX Venture Exchange, TSX Alpha Exchange, The Canadian Depository for Securities, Montréal Exchange, Canadian Derivatives Clearing Corporation, NGX, Shorcan, Shorcan Energy Brokers, AgriClear and other TMX Group companies provide listing markets, trading markets, clearing facilities, depository services, data products and other services to the global financial community. TMX Group is headquartered in Toronto and operates offices across Canada (Montréal, Calgary and Vancouver), in key U.S. markets (New York, Houston) as well as in London, Beijing and Singapore. For more information about TMX Group, visit our website at http://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 Q1/17.

Time: 8:00 a.m. - 9:00 a.m. ET on Wednesday, May 10, 2017

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 passcode for the replay is 1525799.

SOURCE Toronto Stock Exchange

For further information: Catherine Kee, Manager, Corporate Communications, TMX Group, 416-814-8834, catherine.kee@tmx.com; Amanda Tang, Manager, Investor Relations, TMX Group, 416-947- 4787, amanda.tang@tmx.com


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