TMX Group Limited Reports Results for First Quarter 2020

• Revenue of $220.3 million, up 12% from $197.5 million in Q1/19
  
  
• Diluted earnings per share of $1.24, up 14% from $1.09 in Q1/19
  
  
• Adjusted diluted earnings per share of $1.53, up 18% from $1.30 in Q1/19
  
  
• Cash flows from operating activities of $79.0 million, up 50% from $52.5 million in Q1/19

TORONTO, May 11, 2020 /CNW/ - TMX Group Limited [TSX:X] ("TMX Group") today announced results for the first quarter ended March 31, 2020.

Commenting on the operational environment and the company's performance during the first quarter of 2020, John McKenzie, Interim Chief Executive Officer and Chief Financial Officer of TMX Group, said:

"TMX extends our sincere gratitude to healthcare workers and all of those across our communities who are providing essential services during the COVID-19 pandemic. While people across the world work to adapt to and endure the current crisis, the economic, social, and health impacts will be felt for months and years to come. We are inspired by the outpouring of support from across Canada's public and private sector in aid of the tremendous organizations helping our communities navigate through these challenging times. Canada's capital markets perform an important function, especially in times of crisis, by enabling the crucial flow of capital between businesses and investors. I want to thank all of our stakeholders across the markets we serve, including issuers and investors, government and regulators, for their partnership in helping TMX carry out our core mission in the public interest: to keep our markets up and running. On behalf of management and our Board of Directors, I want to also thank TMX employees for rising to the challenge to provide excellent service and continuity to our clients."

"Turning to our results," continued Mr. McKenzie, "TMX achieved strong earnings growth in the first quarter of 2020 compared to the first three months of 2019, reflecting high volatility and a surge in activity as markets reacted to the COVID-19 pandemic. Turbulent market conditions, particularly during the month of March drove higher volumes in our equities and derivatives trading and clearing businesses, which contributed to a 12% increase in revenue and 14% increase in earnings per share growth year over year. Revenue and earnings growth in the quarter were partially offset by a decrease in capital formation revenue as severe volatility had a negative impact on capital raising conditions. As we look into the future, despite prevailing uncertainty looming in our operating environment as the business world prepares to emerge from the COVID-19 pandemic, TMX remains firmly focused on serving our clients with excellence, providing our markets with continuity, and executing against our global growth strategy."

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 and  an increase in deferred income tax liabilities relating to a  change in the  U.K. tax rate.  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.

Quarter ended March 31, 2020 (Q1/20) Compared with Quarter ended March 31, 2019 (Q1/19)

The information below reflects the financial statements of TMX Group for Q1/20 compared with Q1/19.  Certain comparative information has been reclassified in order to conform with the financial presentation adopted in the current year.

(in millions of dollars, except per share amounts)	Q1/20	Q1/19	$ increase	% increase
Revenue	$220.3	$197.5	$22.8	12%
Operating expenses	109.3	107.3	2.0	2%
Income from operations	111.0	90.2	20.8	23%
Net income	70.1	61.2	8.9	15%
Adjusted net income^1	87.0	73.1	13.9	19%
Earnings per share
Basic	1.25	1.10	0.15	14%
Diluted	1.24	1.09	0.15	14%
Adjusted Earnings per share^2
Basic	1.55	1.31	0.24	18%
Diluted	1.53	1.30	0.23	18%
Cash flows from operating activities	79.0	52.5	26.5	50%

Net Income and Earnings per Share

Net income in Q1/20 was $70.1 million, or $1.25 per common share on a basic and $1.24 on a diluted basis, compared with a net income of $61.2 million, or $1.10 per common share on a basic and $1.09 on a diluted basis, for Q1/19.  The increase in net income and earnings per share was largely driven by an increase in revenue somewhat offset by an increase in operating expenses.  During Q1/20, there was a change in the expected U.K. corporate income tax rate.  This resulted in an increase in deferred income tax liabilities and a corresponding increase in income tax expense of $7.4 million, which reduced net income.  The increase in diluted earnings per share was also somewhat reduced by an increase in the number of weighted-average common shares outstanding in Q1/20 compared with Q1/19.

____________________________

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 Q1/20 and Q1/19

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

	Q1/20		Q1/19
(unaudited)	Basic	Diluted	Basic	Diluted
Earnings per share	$1.25	$1.24	$1.10	$1.09
Adjustments related to:
Amortization of intangibles related to acquisitions	0.17	0.16	0.17	0.17
Strategic re-alignment expenses^4	—	—	0.04	0.04
Increase in deferred income tax liabilities relating to change in U.K. tax rate	0.13	0.13	—	—
Adjusted earnings per share^5	$1.55	$1.53	$1.31	$1.30
Weighted average number of common shares outstanding	56,280,284	56,730,840	55,841,359	56,224,525

Adjusted diluted earnings per share increased by 18% from $1.30 in Q1/19 to $1.53 in Q1/20 largely driven by higher revenue, somewhat offset by higher operating expenses.  The increase in adjusted diluted earnings per share was somewhat reduced by an increase in the number of weighted-average common shares outstanding in Q1/20 compared with Q1/19.

____________________________

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

⁴ Please see "Strategic re-alignment expenses" in our Q1/20 MD&A for more details.  See discussion under the heading "Non-IFRS Financial Measures".

⁵ See discussion under the heading "Non-IFRS Financial Measures".

Adjusted Net Income⁶ Reconciliation for Q1/20 and Q1/19

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

(in millions of dollars) (unaudited)	Q1/20	Q1/19	$ increase / (decrease)	% increase / (decrease)
Net income	$70.1	$61.2	$8.9	15%
Adjustments related to:
Amortization of intangibles related to acquisitions	9.5	9.5	—	—%
Strategic re-alignment expenses^7	—	2.4	(2.4)	(100)%
Increase in deferred income tax liabilities relating to change in U.K. tax rate	7.4	—	7.4	n/a
Adjusted net income^8	$87.0	$73.1	$13.9	19%

Adjusted net income increased by 19% from $73.1 million in Q1/19 to $87.0 million in Q1/20 largely driven by higher revenue, somewhat offset by higher operating expenses.

____________________________

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

⁷ Please see "Strategic re-alignment expenses" in our Q1/20 MD&A for more details.  See discussion under the heading "Non-IFRS Financial Measures".

⁸ See discussion under the heading "Non-IFRS Financial Measures".

Revenue

(in millions of dollars)	Q1/20	Q1/19	$ increase / (decrease)	% increase / (decrease)
Capital Formation	$40.1	$41.8	$(1.7)	(4)%
Equities and Fixed Income Trading and Clearing	$58.2	48.5	9.7	20%
Derivatives Trading and Clearing	$40.5	32.6	7.9	24%
Global Solutions, Insights and Analytics	$79.8	74.6	5.2	7%
Other	$1.7	—	1.7	n/a
	$220.3	$197.5	$22.8	12%

Revenue was $220.3 million in Q1/20, up $22.8 million or 12% from $197.5 million in Q1/19 attributable to increases in revenue from Equities and Fixed Income Trading and Clearing, Derivatives Trading and Clearing, Trayport as well as Other revenue (including foreign exchange gains), slightly offset by a decrease in Capital Formation revenue.

Operating expenses

(in millions of dollars)	Q1/20	Q1/19	$ increase / (decrease)	% increase / (decrease)
Compensation and benefits	$56.2	$53.0	$3.2	6%
Information and trading systems	$12.7	12.5	0.2	2%
Selling, general and administration	$20.6	18.2	2.4	13%
Depreciation and amortization	$19.8	20.3	(0.5)	(2)%
Strategic re-alignment expenses	—	3.3	(3.3)	(100)%
	$109.3	$107.3	$2.0	2%

Operating expenses in Q1/20 were $109.3 million, up $2.0 million or 2%, from $107.3 million in Q1/19.  The increase in costs was partially due to higher employee performance incentive plan costs.  In addition, there was an increase in Selling, general and administration expenses related to projects and recoverable costs related to CDS's clearing operation.  There were also higher expenses related to VisoTech (acquired May 15, 2019). Offsetting these increases, there were Strategic re-alignment expenses of $3.3 million in Q1/19 with no similar costs in Q1/20 as well as a reduction in travel and entertainment costs from Q1/19 to Q1/20.

Additional Information

Income tax expense and effective tax rate                                  

Income Tax Expense (in millions of dollars)		Effective Tax Rate (%)
Q1/20	Q1/19	Q1/20	Q1/19
$34.3	$21.1	33%	26%

• Excluding the adjustment below, the effective tax rate would have been approximately 26% for Q1/20.
  
  
• In Q1/20, there was an increase in deferred income tax liabilities and a corresponding increase in income tax expense of $7.4 million relating to the U.K. corporate income tax rate. In Q1/20, it was announced that the U.K. corporate income tax rate would not decline as previously anticipated; therefore, we were required to revalue deferred income tax liabilities related to acquired 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 Q1/20 unaudited condensed consolidated interim financial statements and related Management's Discussion and Analysis (MD&A) and recommended they be approved by the Board.  Following review by the full Board, the Q1/20 unaudited condensed consolidated interim financial statements, MD&A and the contents of this press release were approved.

CONSOLIDATED FINANCIAL STATEMENTS

Our Q1/20 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 Q1/20 unaudited condensed consolidated interim financial statements and MD&A with Canadian securities regulators. This press release should be read together with our Q1/20 unaudited condensed consolidated interim financial statements and MD&A. 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 [email protected].

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; the expected impact of the VisoTech acquisition on TMX Group's results; the proposed relaunch of the Two-Year Government of Canada Bond Futures; 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 timing of the modernization; other statements related to cost reductions; the impact of the market capitalization of TSX and TSXV issuers overall (from 2019 to 2020) on TMX Group's revenue; future changes to TMX Group's anticipated statutory income tax rate for 2020; 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 (including COVID-19) 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 (including COVID-19); 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 underperforming 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 GBP), 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;
  
  
• free cash flow generation consistent with historical run rate; and
  
  
• a limited impact from the COVID-19 pandemic on our plans to grow our business over the long term including on the ability of our listed issuers to raise capital.

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 in the section "Enterprise Risk Management" of our 2019 Annual MD&A which is incorporated by reference into our Q1/20 MD&A, and also in the section "Update to Enterprise Risk Management" in our Q1/20 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 Q1/20.

Time: 8:00 a.m. - 9:00 a.m. ET on Tuesday, May 12, 2020.

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 4790669.

SOURCE TMX Group Limited

Catherine Kee, Senior Manager, Corporate Communications & Media Relations, TMX Group, 416-814-8834, [email protected]; Julie Park, Manager, Investor Relations, TMX Group, 437-341-6897, [email protected]