TMX Group Limited Reports Results for First Quarter Q1/19

• Revenue of $197.5 million, compared with $207.2 million in Q1/18
  
  
• Operating expenses of $107.3 million, compared with $111.5 million in Q1/18
  
  
• Diluted earnings per share of $1.09, compared with $1.13 in Q1/18
  
  
• Adjusted diluted earnings per share of $1.30 compared with $1.33 Q1/18
  
  
• Adjusted diluted earnings per share of $1.30 in Q1/19 excludes 17 cents per share of amortization of intangibles related to acquisitions and 4 cents per share for strategic re-alignment expenses.

TORONTO, May 9, 2019 /CNW/ - TMX Group Limited [TSX:X] ("TMX Group") today announced results for the first quarter ended March 31, 2019.

Commenting on Q1/19 and the company's outlook, Lou Eccleston, Chief Executive Officer of TMX Group, said:

"TMX continued to derive significant benefits from our diverse portfolio of assets and revenue streams during the first quarter of the year, while maintaining momentum in our global growth strategy. Looking ahead, TMX's client-first vision is firmly in focus as we pursue technology-savvy solutions to help our clients gain a competitive edge every day while striving to deliver long-term, profitable growth for our shareholders."

Commenting on operating performance in Q1/19, John McKenzie, Chief Financial Officer of TMX Group, said:

"Our Q1/19 results reflect the impact of challenging market conditions while highlighting the strength and resiliency of TMX's streamlined operating model. While slower capital markets activity impacted the performance of our equities listings and trading businesses, we saw strong performances in our core Trayport and derivatives trading and clearing businesses. We also benefited from a disciplined  approach to cost management, as operating expenses declined by 4% compared with Q1/18."

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, strategic re-alignment expenses, transaction related costs, and additional tax expense on gain on sale of NGX and Shorcan Energy.  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.

Three Months Ended March 31, 2019 Compared with Three Months Ended March 31, 2018

The information below reflects the financial statements of TMX Group for the quarter ended March 31, 2019 compared with the quarter ended March 31, 2018.

(in millions of dollars, except per share amounts)	Q1/19	Q1/18	$ increase / (decrease)	% increase / (decrease)
Revenue	$197.5	$207.2	$(9.7)	(5)%
Operating expenses	107.3	111.5	(4.2)	(4)%
Income from operations	90.2	95.7	(5.5)	(6)%
Net income	61.2	63.1	(1.9)	(3%)
Adjusted net income^1	73.1	74.1	(1.0)	(1%)
Earnings per share
Basic	1.10	1.14	(0.04)	(4%)
Diluted	1.09	1.13	(0.04)	(4%)
Adjusted Earnings per share^2
Basic	1.31	1.34	(0.03)	(2%)
Diluted	1.30	1.33	(0.03)	(2%)
Cash flows from operating activities	52.5	58.6	(6.1)	(10)%

Net income

Net income in Q1/19 was $61.2 million, or $1.10 per common share on a basic and $1.09 on a diluted basis, compared with a net income of $63.1 million, or $1.14 per common share on a basic and $1.13 on a diluted basis, for Q1/18. The decrease in net income in Q1/19 reflected lower revenue from Capital Formation and Equities and Fixed Income Trading. The decrease in revenue was partially offset by lower operating expenses in Q1/19 compared with Q1/18.  There was also lower income tax expense in Q1/19 compared with Q1/18 which included $1.2 million of additional income tax expense on gain on sale of NGX and Shorcan Energy.

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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 Q1/19 and Q1/18

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

	Q1/19		Q1/18
(unaudited)	Basic	Diluted	Basic	Diluted
Earnings per share	$1.10	$1.09	$1.14	$1.13
Adjustments related to:
Amortization of intangibles related to acquisitions	0.17	0.17	0.17	0.17
Strategic re-alignment expenses^4	0.04	0.04	—	—
Transaction related costs^5	—	—	0.00	0.00
Additional income tax expense on gain on sale of NGX and Shorcan Energy	—	—	0.02	0.02
Adjusted earnings per share	$1.31	$1.30	$1.34	$1.33
Weighted average number of common shares outstanding	55,841,359	56,224,525	55,444,523	55,903,336

Adjusted Net Income⁶ Reconciliation for Q1/19 and Q1/18

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

(in millions of dollars) (unaudited)	Q1/19	Q1/18	$ increase / (decrease)	% increase / (decrease)
Net income	$61.2	$63.1	($1.9)	(3%)
Adjustments related to:
Amortization of intangibles related to acquisitions	9.5	9.6	(0.1)	(1%)
Strategic re-alignment expenses	2.4	—	2.4	n/a
Transaction related costs	—	0.2	(0.2)	(100%)
Additional income tax expense on gain on sale of NGX and Shorcan Energy	—	1.2	(1.2)	(100%)
Adjusted net income	$73.1	$74.1	($1.0)	(1%)

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³ See discussion under the heading Non-IFRS Financial Measures.

⁴  Includes costs related to organizational changes that are expected to generate annual savings starting in Q2/19. Please refer to "Initiatives and Accomplishments - Strategic re-alignment" in the Q1/19 Management's Discussion and Analysis (MD&A) for more details.

⁵  Includes costs related to the integration of Trayport.

⁶  See discussion under the heading Non-IFRS Financial Measures.

Adjusted diluted earnings per share decreased by 2% from $1.33 in Q1/18 to $1.30 in Q1/19.  The decrease in adjusted diluted earnings per share reflected lower revenue in Capital Formation and Equities and Fixed Income Trading.  The decrease in revenue was partially offset by lower operating expenses in Q1/19 compared with Q1/18.  Adjusted diluted earnings per share was also impacted by an increase in the number of weighted-average common shares outstanding in Q1/19 compared with Q1/18.

Adjusted net income decreased by 1% from $74.1 million in Q1/18 to $73.1 million in Q1/19.  The decrease reflected lower revenue partially offset by lower operating expenses.

Revenue

(in millions of dollars)	Q1/19	Q1/18	$ increase / (decrease)	% increase / (decrease)
Capital Formation	$41.8	$50.4	$(8.6)	(17)%
Equities and Fixed Income Trading and Clearing	48.5	51.1	(2.6)	(5)%
Derivatives Trading and Clearing	32.6	31.3	1.3	4%
Global Solutions, Insights and Analytics	74.6	72.7	1.9	3%
Other	—	1.7	(1.7)	(100%)
	$197.5	$207.2	$(9.7)	(5)%

Revenue was $197.5 million in Q1/19, down $9.7 million or 5% compared with $207.2 million in Q1/18 largely attributable to decreases in Capital Formation revenue, reflecting reduced additional listing fee revenue, and lower Equities and Fixed Income Trading revenue as well as  lower Other revenue.  These decreases were partially offset by increases in Derivatives Trading and Clearing revenue driven by higher volumes, and Global Solutions, Insights and Analytics revenue driven by Trayport.

Operating expenses

(in millions of dollars)	Q1/19	Q1/18	$ increase / (decrease)	% increase / (decrease)
Compensation and benefits	$53.0	$57.7	$(4.7)	(8)%
Information and trading systems	12.5	12.6	(0.1)	(1)%
Selling, general and administration	18.2	23.9	(5.7)	(24)%
Depreciation and amortization	20.3	17.3	3.0	17%
Strategic re-alignment expenses	3.3	—	3.3	n/a
	$107.3	$111.5	$(4.2)	(4)%

Operating expenses in Q1/19 were $107.3 million, down $4.2 million or 4%, from $111.5 million in Q1/18. There were decreased costs related to Contigo (sold November 30, 2018) of $1.8 million as well as lower costs related to our employee performance incentive plan, severance, and occupancy partially offset by strategic re-alignment expenses incurred in Q1/19.

Strategic re-alignment expenses

(in millions of dollars, except per share amounts)	Q1/19		Q1/18
	Pre-tax Amount	Basic and Diluted Earnings per Share impact	Pre-tax Amount	Basic and Diluted Earnings per Share Impact
	$3.3	$0.04	—	—

• Strategic re-alignment expenses for Q1/19 was $3.3 million related to organizational changes we made in our post-trade business, elimination of centralized innovation product development unit, and changes to our enterprise risk approach (see INITIATIVES AND ACCOMPLISHMENTS - Strategic re-alignment in our Q1/19 MD&A).

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 Q1/19 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 Q1/19 unaudited condensed consolidated interim financial statements, MD&A and the contents of this press release were approved.

CONSOLIDATED FINANCIAL STATEMENTS

Our Q1/19 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 Q1/19 unaudited condensed consolidated interim 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 [phone] or by e-mail at [e-mail].

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 anticipated cost savings resulting from this initiative and the timing of the modernization and the anticipated savings; other statements related to cost reductions; the impact of the decrease of market capitalization of TSX and TSXV issuers overall (from 2017 to 2018) net of changes to sustaining fees on TMX Group's revenue; anticipated increases to strategic re-alignment costs as a result of organizational changes, expected cost savings resulting from this initiative, and the timing thereof; TMX Group's anticipated statutory income tax rate for 2019;  factors relating to stock, and derivatives 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; 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 British pound sterling), 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.

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; and
• free cash flow generation consistent with historical run rate.

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 2018 Annual 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 Q1/19.

Time: 8:00 a.m. - 9:00 a.m. ET on Friday, May 10, 2019.

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 4888312.

SOURCE TMX Group Limited

For further information: Catherine Kee, Manager, Corporate Communications, TMX Group, 416-814-8834, [e-mail]; Amanda Tang, Senior Manager, Investor Relations. TMX Group, 416-947-4787, [e-mail]

Related Links

www.tmx.com