TMX Group Limited Reports Results for Q3/18

• Diluted earnings per share of $1.02, up 10%, or 20% before discontinued operations, from Q3/17
• Adjusted diluted earnings per share of $1.19 up 12%, or 23% before discontinued operations over Q3/17
• Revenue of $192.8 million, up 27%, including 8% organic revenue growth, compared with Q3/17
• Cash flows from operating activities of $100.4 million, up 58% over Q3/17

TORONTO, Nov. 8, 2018 /CNW/ - TMX Group Limited [TSX:X] ("TMX Group") today announced results for the third quarter ended September 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

Non-IFRS Financial Measures

Adjusted earnings per share, adjusted diluted earnings per share, adjusted earnings per share before discontinued operations, and adjusted diluted earnings per share before discontinued operations 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, adjusted earnings per share before discontinued operations, and adjusted diluted earnings per share before discontinued operations 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, increase in deferred income tax assets resulting from capital loss carryback, write-off of deferred income tax assets, net income tax recovery on gain on sale of Natural Gas Exchange Inc. (NGX), gain on sale of interest in TMX FTSE, commodity tax provision, 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.

Additional IFRS Measure

Income from operations before acquisition costs and 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 measures should not be considered in isolation.

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).

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).

Adjusted Earnings per Share and Adjusted Earnings per Share before discontinued operations⁶

Reconciliation for Q3/18 and Q3/17

The following is a reconciliation of earnings per share before discontinued operations⁷ to adjusted earnings per share⁸:

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.

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

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).

Adjusted Earnings per Share and Adjusted Earnings per Share before discontinued operations¹⁷   
Reconciliation for Nine months ended September 30, 2018 and Nine months ended September 30, 2017

The following is a reconciliation of earnings per share before discontinued operations¹⁸  to adjusted earnings per share¹⁹:

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.

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, the ability of TMX Group to de-leverage and the timing thereof; TMX Group's business integration initiative including the integration of clearing platforms, including the expected cash expenditures related to the integration of our clearing platforms and the anticipated cost savings resulting from this initiative and the timing of the integration and the anticipated savings; other statements related to cost reductions and strategic realignment expenses;  the impact of changes to each of our equity trading fees, market data fees, additional listing fees on TMX Group's revenue; the impact of the increase of market capitalization of TSX and TSXV issuers overall (from 2016 to 2017) net of changes to sustaining fees on TMX Group's revenue;  TMX Group's anticipated statutory income tax rate for 2018;  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, including the Trayport acquisition, 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.

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 2017 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, and fixed income. Toronto Stock Exchange, TSX Venture Exchange, TSX Alpha Exchange, The Canadian Depository for Securities, Montréal 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 (Montréal, Calgary, Vancouver, and New York), as well as in key international markets including London, Beijing and Singapore. For more information about TMX Group, visit our website at https://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 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.

SOURCE TMX Group Limited

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