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TMX Group Ltd
Symbol C : X
Shares Issued 55,776,489
Close 2018-11-08 C$ 82.18
Recent Sedar Documents

TMX Group earns $57.5-million in Q3 2018

2018-11-08 20:29 ET - News Release

Mr. Lou Eccleston reports

TMX GROUP LIMITED REPORTS RESULTS FOR Q3/18

TMX Group Ltd. has released its results for the third quarter ended Sept. 30, 2018.

Commenting on the third quarter of 2018 and looking ahead, Lou Eccleston, Chief Executive Officer of TMX Group, said:

"TMX has continued to evolve into a globally diversified business and, as our operating results for this past quarter and thus far in 2018 demonstrate, we are positioned to achieve long-term growth. Our strong performance in the third quarter was driven by growth across all business areas, led by Trayport and equities, derivatives and fixed income trading and clearing. TMX's business model yielded strong results and increased returns for shareholders throughout the first nine months of the year, while we continued to execute on our strategy to deliver long-term profitable growth. As we look to the future, we remain in continuous pursuit of innovative solutions across the markets we serve and firmly committed to meeting the evolving needs of our global client base."

Commenting on operating performance in the third quarter of 2018, John McKenzie, Chief Financial Officer of TMX Group, said:

"We were very pleased to report revenue growth of 27% reflecting strength across all segments of our business. Our year over year organic revenue growth was 8% in the third quarter excluding Trayport, which experienced 10% year over year revenue growth in its core subscriber business. We also delivered strong earnings performance with $1.02 in diluted earnings per share, up 10% over last year and adjusted diluted earnings per share of $1.19, up 12% over Q3/17. This earnings growth was also driven by continued, disciplined expense management, again demonstrating the leverage in our business model"

RESULTS OF OPERATIONS

Sale of NGX and Shorcan Energy - discontinued operations

On December 14, 2017, we completed the sale of NGX and Shorcan Energy Brokers Inc (Shorcan Energy). TMX Group has classified the sale of NGX and Shorcan Energy as discontinued operations. Prior to the sale, the operations of NGX and Shorcan Energy entirely comprised of the Energy Trading and Clearing operating segment and a small portion of the Global Solutions, Insights and Analytics operating segment.

The classification of discontinued operations occurred at December 14, 2017 which is the date of disposal of the operations. Accordingly, TMX Group has re-presented the comparative consolidated income statements to show the discontinued operations separately from continuing operations.

Three Months Ended September 30, 2018 Compared with Three Months Ended September 30, 2017

The information below reflects the financial statements of TMX Group for the quarter ended September 30, 2018 (Q3/18) compared with the quarter ended September 30, 2017 (Q3/17).

(in millions of dollars, except per share amounts)          Q3/18 Q3/17 $ increase% increase
Revenue                                                     $192.8$152.0  $40.8      27%    
Operating expenses                                          106.3  84.4    21.9      26%    
Income from operations 1                                     86.5  67.6    18.9      28%    
Net income                                                   57.5  51.9    5.6       11%    
                                                                                            
Earnings per share before discontinued operations 2                                         
Basic                                                        1.03  0.85    0.18      21%    
Diluted                                                      1.02  0.85    0.17      20%    
Earnings per share 3                                                                        
Basic                                                        1.03  0.94    0.09      10%    
Diluted                                                      1.02  0.93    0.09      10%    
Adjusted Earnings per share before discontinued operations 4                                
Basic                                                        1.20  0.97    0.23      24%    
Diluted                                                      1.19  0.97    0.22      23%    
Adjusted Earnings per share 5                                                               
Basic                                                        1.20  1.07    0.13      12%    
Diluted                                                      1.19  1.06    0.13      12%    
                                                                                            
Cash flows from operating activities                        100.4  63.4    37.0      58%    

Net income

Net income in Q3/18 was $57.5 million, or $1.03 per common share on a basic and $1.02 on a diluted basis, compared with a net income of $51.9 million, or $0.94 per common share on a basic and $0.93 on a diluted basis, for Q3/17. The increase in net income in Q3/18 reflected higher revenue from Global Solutions, Insights and Analytics (GSIA), which included $27.9 million related to Trayport (acquired December 14, 2017), as well as higher revenue from all segments. The increase in revenue was partially offset by higher operating expenses, which included $18.7 million related to Trayport as well as higher employee performance incentive plan costs ($3.6 million, or 5 cents per basic and diluted share compared with Q3/17).

The overall increase in diluted earnings per share was partially offset by the impact from an increase in the number of weighted-average common shares outstanding in Q3/18 compared with Q3/17 and higher net finance costs. In addition, the basic and diluted earnings per share in Q3/17 includes net income related to NGX and Shorcan Energy (sold December 14, 2017).

1See discussion under the heading Additional IFRS Financial Measures.

2Earnings per share before discontinued operations is based on income before income from discontinued operations, net of tax.

3Earnings per share information is based on net income.

Adjusted Earnings per Share and Adjusted Earnings per Share before discontinued operations 6

Adjusted diluted earnings per share before discontinued operations increased by 23% from $0.97 in Q3/17 to $1.19 in Q3/18. The increase in adjusted diluted earnings per share before discontinued operations reflected higher revenue from Global Solutions, Insights and Analytics (GSIA), which included $27.9 million related to Trayport (acquired December 14, 2017). The increase in revenue was partially offset by higher operating expenses, which included $18.7 million related to Trayport as well as higher employee performance incentive plan costs ($3.6 million, or 5 cents per basic and diluted share compared with Q3/17).

The increase in adjusted diluted earnings per share before discontinued operations was partially offset by the impact from an increase in the number of weighted-average common shares outstanding in Q3/18 compared with Q3/17 and higher net finance costs.

7Earnings per share before discontinued operations is based on income before income from discontinued operations, net of tax.

9Earnings per share before discontinued operations is based on income before income from discontinued operations, net of tax.

10Includes costs related to the agreement to acquire Trayport and divest NGX and Shorcan Energy.

Revenue

Revenue was $192.8 million in Q3/18, up $40.8 million or 27% compared with $152.0 million in Q3/17 largely attributable to an increase in Global Solutions, Insights and Analytics revenue reflecting the inclusion of revenue from Trayport (acquired December 14, 2017) of $27.9 million. With increased revenue in all other segments of our business, our organic revenue growth in Q3/18 was 8% (based on revenue of $192.8 million less Trayport revenue of $27.9 million for Q3/18, and revenue of $152.0 million for Q3/17).

Operating expenses

Operating expenses in Q3/18 were $106.3 million, up $21.9 million or 26%, from $84.4 million in Q3/17. There were increased costs related to Trayport (acquired December 14, 2017) of $18.7 million as well as higher employee performance incentive plan costs ($3.6 million, or 5 cents per basic and diluted share compared with Q3/17).

Summary of Cash Flows

In Q3/18, Cash flows from operating activities increased reflecting higher income from operations (excluding depreciation and amortization) compared with Q3/17. There was also an increase in cash related to trade and other receivables, and prepaid expenses as well as trade and other payables.

In Q3/18, Cash flows used in financing activities increased from Q3/17 primarily due to a higher net reduction in Commercial Paper outstanding and an increase in dividends paid to equity holders, somewhat offset by higher proceeds from exercised options.

In Q3/18, there was an increase in Cash flows used in investing activities compared with Q3/17. There was an increase in the net purchase of marketable securities as well as an increase in additions to premises and equipment and intangible assets in Q3/18 compared with Q3/17.

Nine months ended September 30, 2018 Compared with Nine months ended September 30, 2017

The information below reflects the financial statements of TMX Group for the nine months ended September 30, 2018 compared with the nine months ended September 30, 2017

                      (in millions of dollars, except per share amounts) 
 
                      Nine months ended September 30, 2018Nine months ended September 30, 2018
Revenue                                  $609.5                              $498.2
Operating expenses                       337.5                               269.8
Income from operations13                 272.0                               228.4
Net income                               216.2                               165.7

Earnings per share - before
discontinued operations14
Basic                                     3.89                                2.74
Diluted                                   3.86                                2.72
Earnings per share15
Basic                                     3.89                                3.00
Diluted                                   3.86                                2.97
Adjusted Earnings per share
before discontinued operations
Basic                                     3.88                                3.18
Diluted                                   3.84                                3.16
Adjusted Earnings per share16
Basic                                     3.88                                3.47
Diluted                                   3.84                                3.44

Cash flows from operating activities     278.7                               217.2

Net income

Net income in the nine months ended September 30, 2018 was $216.2 million, or $3.89 per common share on a basic basis and $3.86 per common share on a diluted basis, compared with a net income of $165.7 million, or $3.00 per common share on a basic and $2.97 on a diluted basis, for the nine months ended September 30, 2017. The increase in net income in the nine months ended September 30, 2018 included a before and after tax gain on the sale of TMX FTSE, of $26.8 million and higher revenue across each segment of our business, which included $83.2 million (including $83.1 million in GSIA, and $0.1 million in Other) related to Trayport (acquired December 14, 2017). The increase was partially offset by higher operating expenses, including $55.8 million related to Trayport, a commodity tax provision of $7.6 million before tax (10 cents per basic and diluted share), and a lease termination payment of $4.5 million before tax (6 cents per basic and diluted share).

There was a decrease in income tax expense, which reduced our effective tax rate, relating to realizing and utilizing a capital loss, increasing net income. This capital loss was applied to eliminate income tax otherwise payable of $3.8 million on the sale of our interest in TMX FTSE in Q2/18 and reduce income tax of $8.0 million on our sale of NGX in 2017. Also, the non-taxable portion of the capital gain on the sale of our interest in TMX FTSE resulted in a tax benefit of approximately $3.3 million.

The overall increase in diluted earnings per share was partially offset by the unfavorable impact on basic and diluted earnings per share from an increase in the number of weighted-average common shares outstanding in the nine months ended September 30, 2018 compared with the nine months ended September 30, 2017, and higher net finance costs. In addition, the basic and diluted earnings per share in the same period last year includes net income related to NGX and Shorcan Energy (sold December 14, 2017).

14Earnings per share before discontinued operations is based on income before income from discontinued operations, net of tax.

15Earnings per share information is based on net income.

Adjusted Earnings per Share and Adjusted Earnings per Share before discontinued operations17

Adjusted diluted earnings per share before discontinued operations increased by 22% from $3.16 in the nine months ended September 30, 2017 to $3.84 in the nine months ended September 30, 2018. The increase in adjusted diluted earnings per share before discontinued operations reflected higher revenue which included $83.2 million (including $83.1 million in GSIA, and $0.1 million in Other) related to Trayport (acquired December 14, 2017). The increase in revenue was partially offset by higher operating expenses which included $55.8 million related to Trayport, and a lease termination payment of $4.5 million (6 cents per basic and diluted share). The increase in adjusted diluted earnings per share before discontinued operations was partially offset by the impact from an increase in the number of weighted-average common shares outstanding in the nine months ended September 30, 2018 compared with the nine months ended September 30, 2017, and higher net finance costs.

Revenue

Revenue was $609.5 million in the nine months ended September 30, 2018, up $111.3 million or 22% compared with $498.2 million in the nine months ended September 30, 2017. There was an increase in Global Solutions, Insights and Analytics revenue reflecting $83.1 million revenue from Trayport (acquired on December 14, 2017), partially offset by $8.6 million decrease in revenue from TMX Atrium (sold on April 30, 2017). There were also increases in Capital Formation, Equities and Fixed Income Trading, CDS, and Derivatives Trading and Clearing revenue. Other revenue increased primarily due to the impact from recognizing net foreign exchange gains mainly on U.S. dollar net monetary assets in the nine months ended September 30, 2018 compared with net foreign exchange losses in the nine months ended September 30, 2017. Our organic revenue growth for the nine months ended September 30, 2018 was up 7% compared with the same period last year (based on revenue of $609.5 million less Trayport revenue of $83.2 million for the nine months ended September 30, 2018, and revenue of $498.2 million less TMX Atrium revenue of $8.6 million for the same period last year).

Operating expenses

Operating expenses in the nine months ended September 30, 2018 were $337.5 million, up $67.7 million or 25%, from $269.8 million in the nine months ended September 30, 2017. There were increased costs related to Trayport (acquired December 14, 2017) of $55.8 million, a commodity tax provision of $7.6 million (10 cents per basic and diluted share), an increase in severance costs of approximately $4.0 million related to organizational changes, higher employee performance incentive plan costs, and a lease termination payment of $4.5 million (6 cents per basic and diluted share). The increases were offset partially by reduced costs related to TMX Atrium (sold on April 30, 2017) of approximately $9.4 million.

Summary of Cash Flows

In the nine months ended September 30, 2018, Cash flows from operating activities increased reflecting higher income from operations (excluding depreciation and amortization) compared with the nine months ended September 30, 2017. There was also an increase in cash related to trade and other payables partially offset by an increase in income taxes paid.

In the nine months ended September 30, 2018, Cash flows used in financing activities increased from the nine months ended September 30, 2017, primarily due to a higher net reduction in Commercial Paper outstanding of $361.4 million offset by an increase in cash of $200.0 million from the issuance of our Series E Debentures.

In the nine months ended September 30, 2018, Cash flows from investing activities were higher than in the nine months ended September 30, 2017 when we used cash in investing activities. We received higher proceeds on the sale of our stake in TMX FTSE in Q2/18 than on the sale of TMX Atrium in Q2/17. In addition, there was an increase in dividends received. This increase in cash flow was somewhat offset by the increase in cash used in the net purchase of marketable securities as well as an increase in additions to premises and equipment and 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 Q3/18 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 Q3/18 unaudited condensed consolidated interim financial statements, MD&A and the contents of this press release were approved.

CONSOLIDATED FINANCIAL STATEMENTS

Our Q3/18 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 QUARTERLY MATERIALS

TMX Group has filed its Q3/18 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 (416) 947-4277 or by e-mail at TMXshareholder@tmx.com.

About TMX Group (TSX:X)

TMX Group's key subsidiaries operate cash and derivative markets and clearinghouses for multiple asset classes including equities, and fixed income. Toronto Stock Exchange, TSX Venture Exchange, TSX Alpha Exchange, The Canadian Depository for Securities, Montreal Exchange, Canadian Derivatives Clearing Corporation, Trayport, and other TMX Group companies 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 (Montreal, Calgary, Vancouver, and New York), as well as in key international markets including London, Beijing and Singapore.

Teleconference / Audio Webcast

TMX Group will host a teleconference / audio webcast to discuss the financial results for Q3/18.

Time: 8:00 a.m. - 9:00 a.m. ET on Friday, November 9, 2018.

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 5998745.

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