TMX Group Limited Reports Results for the Second Quarter 2015

  • Revenue of $178.7 million in Q2/15 versus $182.3 million in Q2/14
  • Diluted earnings per share of 51 cents in Q2/15 versus a diluted loss of 49 cents in Q2/14
  • Adjusted diluted earnings per share of 93 cents in Q2/15 compared with $1.01 in Q2/14
  • Adjusted diluted earnings per share of 93 cents in Q2/15 excludes 14 cents per share of amortization of intangibles related to acquisitions, 13 cents per share for tax adjustment relating to the Alberta corporate tax rate change and 15 cents per share for strategic realignment expenses and non-cash impairment charges

TORONTO, Aug. 5, 2015 /CNW/ - TMX Group Limited [TSX: X] ("TMX Group") today announced results for the second quarter ended June 30, 2015.

Commenting on the last several months and future plans, Lou Eccleston, Chief Executive Officer of TMX Group, said:

"The steps we have taken to date this year mark the beginning of a strategic transformation for TMX Group focused on addressing major challenges we face today in this macro-economic environment, and positioning our company for profitable growth.  We completed our strategic review, identified core and non-core businesses, began to execute on that rationalization, launched our first new North American market solution, announced the appointment of a new executive position to lead the reorganization of our technology and operations to drive efficiencies and productivity and hired a new executive from outside TMX Group to initiate creative growth plans in our equity trading and listings business.  We are keenly focused on the areas of greatest need for our clients and the markets we serve, and our energy will be spent working to increase the value of the services we provide and our return to shareholders."

Michael Ptasznik, Chief Financial Officer of TMX Group, said:

"Revenue from Canadian derivatives trading and information services increased during Q2/15; however, the increases were more than offset by declines in revenue from issuer services, cash markets trading and BOX.  We continued to benefit from a stronger U.S dollar relative to the Canadian dollar in the second quarter.  Operating expenses increased by 4% as we incurred expenses related to our strategic realignment process, including costs related to severance and professional fees.  We continued to defer some initiative spending in the first half of 2015 while we completed our strategic review process."

SUMMARY OF FINANCIAL INFORMATION

Non-IFRS Financial Measures

Adjusted earnings per share and adjusted diluted earnings per share provided for the quarters and six months ended June 30, 2015 and June 30, 2014 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 intangible assets related to acquisitions, increase in deferred income tax liabilities resulting from the change in Alberta corporate income tax rate effective July 1, 2015, strategic realignment expenses, Maple Transaction and integration costs, credit facility refinancing expenses and non-cash impairment charges related to BOX Market LLC (BOX) (net of non-controlling interests or NCI) and other assets.  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.

THREE MONTHS ENDED JUNE 30, 2015 COMPARED WITH THREE MONTHS ENDED JUNE 30, 2014

The information below reflects the financial statements of TMX Group for the quarter ended June 30, 2015 (Q2/15) compared with the quarter ended June 30, 2014 (Q2/14), except as otherwise indicated.














(in millions of dollars, except per share amounts)
(unaudited)


Q2/15



Q2/14




$ increase/
(decrease)



% increase/
(decrease)

Revenue


$

178.7



$

182.3



$

(3.6)



(2)%

Operating expenses



115.5




111.0




4.5



4%

Income from operations



63.2




71.3




(8.1)



(11)%

Net income (loss) attributable to TMX Group shareholders



27.6




(26.4)




54.0



205%

Earnings (Loss) per share1
















Basic



0.51




(0.49)




1.00



204%


Diluted



0.51




(0.49)




1.00



204%

Adjusted Earnings per share2
















Basic



0.93




1.01




(0.08)



(8)%


Diluted



0.93




1.01




(0.08)



(8)%

Cash flows from operating activities



83.2




90.9




(7.7)



(8)%

____________________________________________
1 Earnings per share information is based on net income attributable to TMX Group shareholders.
2 See discussion under the heading Non-IFRS Financial Measures.

Net income (loss) attributable to TMX Group shareholders

Net income attributable to TMX Group shareholders was $27.6 million, or 51 cents per common share on a basic and diluted basis, an increase of 205% and 204%, respectively compared with net loss of $26.4 million, or 49 cents per common share on a basic and diluted basis, in Q2/14.  In Q2/14 we recognized non-cash impairment charges related to BOX and other assets as well as credit facility refinancing expenses, which resulted in a net loss for the quarter.  The net impact on TMX Group shareholders of the impairment charge related to BOX and other assets was $71.3 million, or $1.31 per common share on a basic and diluted basis. 

During Q2/15, the Alberta corporate income tax rate increased from 10% to 12%, effective July 1, 2015.  As a result of this change, there was a net increase in the value of deferred income tax liabilities and a corresponding non-cash net increase in deferred income tax expense of $7.1 million for Q2/15, which reduced net income by $7.1 million, or 13 cents per common share on a basic and diluted basis. 

Excluding the impact of impairment charges in Q2/14, net income attributable to TMX Group shareholders decreased in Q2/15 compared with Q2/14.  The decline was partially attributable to decreases in revenue from issuer services, cash markets trading and BOX, partially offset by increases in revenue from Canadian derivatives trading and information services.  The decline was also due to higher operating costs attributable to strategic realignment expenses (see table below).  These strategic realignment expenses included a charge related to severance and professional fees related to the strategic review process.  In addition, we recorded Impairment charges related to Equicom Group Inc. (Equicom) and ir2020, LLC (ir2020):












Q2/15

(in millions of dollars, except per share amounts)
(unaudited)



Pre-tax Amount



Basic and Diluted Earnings
Per Share Impact3

Compensation and benefits expenses



$


2.1



$

0.03

General and administration expenses




1.3



0.02

Strategic realignment expenses before impairment charges




3.4



0.05

Impairment charges




5.9



0.10

Strategic realignment expenses and impairment charges



$


9.3



$

0.15

Adjusted Earnings per Share4 Reconciliation for Q2/15 and Q2/14

The following is a reconciliation of earnings (loss) per share3 to adjusted earnings per share4:









Q2/15



Q2/14

(unaudited)


Basic



Diluted



Basic



Diluted

Earnings (Loss) per share3


$

0.51



$

0.51



$

(0.49)



$

(0.49)

Adjustment related to:

















Amortization of intangibles related to acquisitions



0.14




0.14




0.13




0.13


Increase in deferred income tax liabilities resulting
from the change in Alberta corporate income tax
rate effective July 1, 2015



0.13




0.13








Strategic realignment expenses



0.05




0.05








Non-cash impairment charges related to BOX
(net of NCI) and other assets



0.10




0.10




1.31




1.31


Maple Transaction and integration costs









0.01




0.01


Credit facility refinancing expenses









0.05




0.05

Adjusted earnings per share4



0.93




0.93




1.01




1.01

Weighted average number of common shares
outstanding



54,334,302




54,360,059




54,208,535




54,258,075

The decrease in adjusted earnings per share4 to 93 cents in Q2/15 from $1.01 in Q2/14 reflects lower revenue from issuer services, cash markets trading and BOX, partially offset by increases in revenue from Canadian derivatives trading and information services.  There was also an increase in operating costs related to the microwave network business of Strike Technologies Services (acquired October 31, 2014) as well as higher costs to support Razor Risk Technologies Limited's (Razor Risk's) business somewhat offset by lower General and administration expenses.

Revenue

Revenue was $178.7 million in Q2/15, down $3.6 million or 2% compared with $182.3 million in Q2/14.  There were decreases in revenue from issuer services, cash markets trading and BOX, partially offset by increases in revenue from Canadian derivatives trading and information services.

Operating expenses

Operating expenses in Q2/15 were $115.5 million, up $4.5 million or 4% from $111.0 million in Q2/14.  The increase reflected strategic realignment expenses of $3.4 million.  These strategic realignment expenses included a charge of $2.1 million (3 cents per basic and diluted share) related to severance and $1.3 million (2 cents per basic and diluted share) for professional fees related to the strategic review process.  We deferred some initiative spending in Q2/15 while we completed the strategic review process.

During Q2/15, we also incurred additional costs related to the microwave network business of Strike Technologies Services (acquired October 31, 2014), and to support Razor Risk's business.

_________________________________
3 Earnings per share information is based on net income attributable to TMX Group shareholders.
4 See discussion under the heading Non-IFRS Financial Measures.

SIX MONTHS ENDED JUNE 30, 2015 COMPARED WITH SIX MONTHS ENDED JUNE 30, 2014

The information below reflects the financial statements of TMX Group for the six months ended June 30, 2015 (1H/15) compared with the six months ended June 30, 2014 (1H/14), except as otherwise indicated.













(in millions of dollars, except per share amounts)
(unaudited)


1H/15



1H/14




$ increase/
(decrease)



% increase/
(decrease)

Revenue


$

364.0



$

364.4



$

(0.4)



—%

Operating expenses



233.5




215.8




17.7



8%

Income from operations



130.5




148.6




(18.1)



(12)%

Net income attributable to TMX Group shareholders



70.2




20.0




50.2



251%

Earnings per share5
















Basic



1.29




0.37




0.92



249%


Diluted



1.29




0.37




0.92



249%

Adjusted Earnings per share6
















Basic



1.92




2.06




(0.14)



(7)%


Diluted



1.92




2.05




(0.13)



(6)%

Cash flows from operating activities



134.1




122.2




11.9



10%

Net income attributable to TMX Group shareholders

Net income attributable to TMX Group shareholders was $70.2 million, or $1.29 per common share on a basic and diluted basis, an increase of 251% and 249%, respectively compared with net income of $20.0 million, or 37 cents per common share on a basic and diluted basis, in 1H/14.  In 1H/14 we recognized non-cash impairment charges related to BOX and other assets as well as credit facility refinancing expenses, which resulted in a net loss for the quarter.  The net impact on TMX Group shareholders of the impairment charge related to BOX and other assets was $71.3 million, or $1.32 per common share on a basic and $1.31 on a diluted basis. 

During 1H/15, the Alberta corporate income tax rate increased from 10% to 12%, effective July 1, 2015.  As a result of this change, there was a net increase in the value of deferred income tax liabilities and a corresponding non-cash net increase in deferred income tax expense of $7.1 million for 1H/15, which reduced net income by $7.1 million, or 13 cents per common share on a basic and diluted basis. 

Excluding the impact of impairment charges in 1H/14, net income attributable to TMX Group shareholders decreased in 1H/15 compared with 1H/14.  The decline was partially attributable to decreases in revenue from issuer services, cash markets trading and BOX, largely offset by increases in revenue from Canadian derivatives trading, information services and Razor Risk.  The decline was also due to higher operating costs attributable to strategic realignment expenses (see table below).  These strategic realignment expenses included a charge related to severance and professional fees related to the strategic review process.  In addition, we recorded Impairment charges related to Equicom and ir2020:

_________________________________
5 Earnings per share information is based on net income attributable to TMX Group shareholders.
6 See discussion under the heading Non-IFRS Financial Measures.








1H/15

(in millions of dollars, except per share amounts)
(unaudited)



Pre-tax Amount



Basic and Diluted Earnings
Per Share Impact7

Compensation and benefits expenses



$


7.0



$

0.09

General and administration expenses





3.1




0.04

Strategic realignment expenses before impairment charges





10.1




0.13

Impairment charges





5.9




0.10

Strategic realignment expenses and impairment charges



$


16.0



$

0.23

Adjusted Earnings per Share Reconciliation8 for 1H/15 and 1H/14

The following is a reconciliation of earnings per share7 to adjusted earnings per share8:









1H/15



1H/14

(unaudited)


Basic



Diluted



Basic



Diluted

Earnings per share7


$

1.29



$

1.29



$

0.37



$

0.37

Adjustment related to:

















Amortization of intangibles related to acquisitions



0.27




0.27




0.26




0.26


Increase in deferred income tax liabilities resulting
from the change in Alberta corporate income tax
rate effective July 1, 2015



0.13




0.13








Strategic realignment expenses



0.13




0.13








Non-cash impairment charges related to BOX
(net of NCI) and other assets



0.10




0.10




1.32




1.31


Maple Transaction and integration costs









0.06




0.06


Credit facility refinancing expenses









0.05




0.05

Adjusted earnings per share8



1.92




1.92



$

2.06



$

2.05

Weighted average number of common shares
outstanding



54,328,496




54,379,727




54,176,992




54,275,527

The decrease in adjusted earnings per share9 to $1.92 in 1H/15 from $2.05 in 1H/14 reflects lower revenue from issuer services, cash markets trading and BOX, largely offset by increases in revenue from Canadian derivatives trading, information services and Razor Risk.  There was also an increase in operating costs related to the microwave network business of Strike Technologies Services (acquired October 31, 2014) as well as higher costs to support Razor Risk's business somewhat offset by lower General and administration expenses.

Revenue

Revenue was $364.0 million in 1H/15, down $0.4 million compared with $364.4 million in 1H/14.  There were decreases in revenue from issuer services, cash markets trading and BOX, largely offset by increases in revenue from Canadian derivatives trading, information services and Razor Risk. 

_________________________________
7 Earnings per share information is based on net income attributable to TMX Group shareholders.
8 See discussion under the heading Non-IFRS Financial Measures.
9 See discussion under the heading Non-IFRS Financial Measures.

Operating Expenses

Operating expenses in 1H/15 were $233.5 million, up $17.7 million or 8% from $215.8 million in 1H/14.   Operating expenses were higher reflecting strategic realignment expenses of $10.1 million.  These strategic realignment expenses included a charge of $7.0 million (9 cents per basic and diluted share) related to severance and $3.1 million (4 cents per basic and diluted share) for professional fees related to the strategic review process. We deferred some initiative spending in 1H/15 while we completed the strategic review process.

During 1H/15, we also incurred additional costs related to the microwave network business of Strike Technologies Services (acquired October 31, 2014), and to support Razor Risk's business.

Financial Statements Governance Practice

The Finance & Audit Committee of the Board of Directors of TMX Group reviewed this press release as well as the Q2/15 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 Q2/15 financial statements, MD&A and the contents of this press release were approved.

Condensed Consolidated Interim Financial Statements

Our Q2/15 financial statements are prepared in accordance with IFRS as issued by the IASB, are in compliance with IAS 34, Interim Financial Reporting, 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 Q2/15 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, factors relating to stock, derivatives and energy exchanges and clearing houses and the business, strategic goals and priorities, market condition, pricing, proposed technology and other initiatives, 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 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; failure to implement our strategies; regulatory constraints; constraints imposed by our level of indebtedness; risks of litigation or regulatory proceedings; dependence on adequate numbers of customers; failure to develop, market or gain acceptance of new products; 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; 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), 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 & 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 2014 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, TMX Select, Alpha Group, The Canadian Depository for Securities, Montréal Exchange, Canadian Derivatives Clearing Corporation, NGX, BOX Options Exchange, Shorcan, Shorcan Energy Brokers 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, Boston and Chicago) as well as in London, Beijing, Singapore and Sydney. For more information about TMX Group, visit our website at http://www.tmx.com. Follow TMX Group on Twitter at https://twitter.com/tmxgroup.

Teleconference / Audio Webcast

TMX Group will host a teleconference / audio webcast to discuss the financial results for Q2/15.

Time: 8:00 a.m. - 9:00 a.m. ET on Thursday, August 6 2015.

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 80550651.

SOURCE TMX Group Inc.

For further information: Shane Quinn, Senior Manager, Corporate Communications & Public Affairs, TMX Group, 416-947-4609, shane.quinn@tmx.com; Paul Malcolmson, Director, Investor Relations, TMX Group, 416-947-4317, paul.malcolmson@tmx.com


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