Gentlemen, thank you for standing by. Welcome to the Tel Aviv Stock Exchange Q1 2023 results conference call. All participants are at present in a listen-only mode. Following management's presentation, instructions will be given for the question-and-answer session. For operator assistance during the conference, please press star zero. As a reminder, this conference is being recorded May 23, 2023. The recording will be publicly available on TASE's website. With us online today are Mr. Ittai Ben-Zeev, CEO, and Mr. Yehuda Ben Ezra, CFO. Before I turn the call over to Mr. Ittai Ben-Zeev, I would like to remind everyone that this conference is not a substitute for reviewing the company's annual financial statements, quarterly financial statements, and interim report for the first quarter of 2023, in which full and precise information is presented and may contain, inter alia, forward-looking statements in accordance to Section 32A Securities Law in 1968.
In addition to IFRS reporting, we might mention certain financial measures that do not conform to generally accepted accounting principles. Such non-GAAP measures are not intended in any manner to serve as substitute for our financial results. However, we believe that they provide additional insight for better understanding of our business performance. Reconciliations between these non-GAAP measures and the most comparable related GAAP measures are included in tables that can be found in our earnings press release and in the slide presentation accompanying this call.
Both can be accessed on the English MAYA site and in the investor relations portion of our website at ir.tase.co.il/eng. Mr. Ben-Zeev, would you like to begin?
Good evening, Israel time, everyone, and thank you for joining us today. I'm happy to host you in our earning call. In the first quarter of 2023, we saw continued strong performance of our business and record financial results. I'm pleased to announce that our quarterly revenue crossed the ILS 100 million (New Israeli Sheqel) mark for the first time. We also achieved record net profit and adjusted EBITDA numbers of 25.5 million ILS (New Israeli Sheqel) and ILS 44 million (New Israeli Sheqel) , respectively, with adjusted EBITDA margin reaching a record 44%. Our CFO will discuss the financial statements in detail later. Market conditions in the first quarter of 2023 were characterized by elevated volatility and uncertainty. The challenging conditions included the impact of rising inflation and rising interest rates domestically and globally, and compounded by the political turmoil from the proposed judicial overhaul.
These conditions negatively impacted equity market valuations and volumes and resulted in a significant slowdown in IPO activity. In our fixed income market, we saw a significant increase in the trading volumes. Despite the challenging market conditions, we are able to maintain a well-balanced trading and clearing environment thanks to the breadth of products traded in our market, including shares, bonds, mutual funds, and Exchange-Traded Funds. We see signs of stabilization in our market with the judicial overhaul being put on hold in an effort to find national consensus. We are encouraged by S&P latest decision to reaffirm Israel rating outlook, which is a vote of confidence in the Israeli economy and an important boost to the Israeli capital market. As part of our strategic plan, we are committed to improving the liquidity in the market.
In 2017, we launched an all-new index methodology that gave companies an incentive to increase their free float by applying the free float brackets, which grant those companies that increase the free float rate a weight bonus in the index. As a result, since 2017 to date, we have seen sales by control groups increase with a corresponding rise in the free float, which to date stands at 63%.
Starting November 2023, we plan to launch a new equity index reform, which will provide public companies with a strong incentive to increase the liquidity of the shares through a number of actions, such as structure the IPO to maximize liquidity on the day after the IPO, increasing the free flow held by public liquidity providers such as mutual funds, portfolio managers, and retail investors, diversify and expand the base of long-term investors, and engage the services of primary dealers, all in alignment with the standard practice in leading global indices. The new reform will also exclude off-exchange transaction from the calculation of liquidity ratios and thus creating incentives to move such transactions on the exchange.
We believe that the new reform will increase the volume of assets that track TASE indices and will help to enhance trading liquidity in both the short and the long term, which would translate to greater trading volumes. We continue to move forward with Project Eden, the dedicated POC that we have recently announced in collaboration with the Ministry of Finance for the first-ever issuance of digital Israeli government bonds on a blockchain-based platform. We have joined forces with three leading global technology providers to develop the platform, including smart contract implementation and business process design. Next week, we will be holding a special event at TASE, during which we will run a live test on the platform together with the Office of the Accountant General at the Ministry of Finance and twelve leading local and international banks.
We believe that Project Eden is a first and important step in the development of the local digital assets arena and the exploration of innovative trading technologies with the ultimate goal of an advanced cutting-edge Israeli capital market. We are constantly working to strengthen TASE direct engagement with the public, and as part of what we are developing, the services and data products to support this goal. I am pleased to announce that we launch today the TASE+ smart portfolio that we have developed with leading fintech companies. It is an advanced smart tool for tracking shares in Israel and abroad that incorporates analysis and AI-based financial insights. This move will enable us, for the first time, to engage directly with the public and continue to develop advanced investment management tools for the benefit of the public.
We earned TASE+ as part of the launch of a new website that offers, among other things, a data store that supports digital payments. Our line of data products is also designed to encourage participation in the capital market, both by companies and by public, as a means to increase market liquidity. We continue to advance ESG activities, and I'm pleased to inform you that within this framework, we have donated an amount of ILS 300,000 (New Israeli Sheqel) towards the establishment of an impact investment fund for the training and placement of diverse populations in quality employment in collaboration with SFI, Social Finance Israel, a public benefit firm that implements models for solving social issues in Israel and develops the impact investment market in Israel.
We have also recently published an ESG questionnaire in English, which we developed in collaboration with Good Vision, an ESG advisory services firm that is designed to assist TASE-listed companies to develop their ESG activity in line with global standards and enjoy better exposure to international ESG rating firms and to a larger pool of local and international investors. Now, I would like to give you an update on TASE buyback plan that was approved in March 2022 in an amount of up to ILS 100 million (New Israeli Sheqel). Since the beginning of the buyback plan in May 2022, TASE repurchased 3.9 million shares for a total consideration close to ILS 66 million (New Israeli Sheqel) at an average price of ILS 17.1 per share. This concluded our previously authorized buyback plan.
TASE has excess liquidity of ILS 273 million (New Israeli Sheqel), strong financial statements, and organic growth, as also demonstrated this quarter. Taking into account the company's options for investing surplus funds, the returns they will generate, and the state of the Israeli capital market in recent times in general, and the company's share prices in the recent period, in particular, the company believes that the purchasing its own shares is a business opportunity that benefits shareholders and has the potential to increase the value alongside the improvement of financial indices. The Board of Directors authorized today to continue with the third buyback plan of up to ILS 34 million (New Israeli Sheqel) over a period of about six months.
The Board also authorized a special buyback plan of up to ILS 90 million (New Israeli Sheqel) until the end of June 2023, which is not subject to the prescribed restrictions and to the terms of the safe harbor protection. In conclusion, I am confident that TASE will maintain its growth momentum in the coming years, as clearly demonstrated by our financial statements for the first quarter. We will continue to pursue the goals that we have set in our multi-annual strategic plan. Now, I would like to hand over to Mr. Yehuda Ben Ezra, who will continue with the review of the Q1 results.
Thank you, Ittai. Good evening, everyone, thank you for joining us today. This quarter, TASE continue with the strong financial results. Our revenues totaled to ILS 100 million (New Israeli Sheqel), a new records in the TASE revenues. A new record in our adjusted EBITDA totaled to ILS 43.5 million (New Israeli Sheqel), and our adjusted net profit totaled to ILS 26.1 million (New Israeli Sheqel). I will begin with slide number five, which shows some of the key highlights from our results for the first quarter. Our revenue totaled to ILS 100 million (New Israeli Sheqel) compared to revenue of ILS 97.7 million (New Israeli Sheqel) in the corresponding quarter last year, an increase of 2%.
The increase in revenue is due mainly to the increased volume of the activity, excluding the non-recurring effect of an update to the estimated period of revenue recognition from listing fees recorded in the corresponding quarter of last year in the amount of ILS 4.2 million (New Israeli Sheqel), a 7% increase year-over-year. The adjusted EBITDA for the first quarter of 2023 totaled ILS 43.5 million (New Israeli Sheqel) compared to ILS 36.8 million (New Israeli Sheqel) in the first quarter of 2022, an increase of 18%. The adjusted EBITDA margin increased to 43.5% compared to 37.7% in the corresponding quarter. Financing incomes in the first quarter of 2023 totaled ILS 2.5 million (New Israeli Sheqel) compared to financing expenses of ILS 5.2 million (New Israeli Sheqel) in the first quarter of 2022.
The adjusted net profit increased significantly, amounted to ILS 26.1 million (New Israeli Sheqel) compared to ILS 14.9 million (New Israeli Sheqel) in the first quarter of 2022, an increase of 76%. After reviewing the highlights for our financial results, let's take a deeper look at the breakdown of our revenues and expenses. I will now discuss our revenue in the first quarter of 2023. Let's go to slide number seven. Our revenues from trading and clearing commissions increased by 6% compared to the corresponding quarter of 2022, totaled ILS 41.19 million (New Israeli Sheqel). The increase mainly results from the increase in the revenue from T-bills issuance and the cancellation of the maximum commission on OTC transactions, which contributed 9%. From increase in the revenue for mutual funds and corporate bonds resulted in a 2% increase in revenue.
This increase in revenue was partly offset by decrease in income from shares due to the reduced trading volumes, resulted in a 6% decrease in revenue compared to the corresponding quarter last year. Our revenues from listing fees and annual levies decreased by 18% compared to the first quarter of 2022 and totaled ILS 20.3 million (New Israeli Sheqel). The decrease in revenue from listing fees and levies is due to the updating of the estimate concerning the period of recognition of revenues from listing fees on shares and ETFs per IFRS 15 in the amount of ILS 4.3 million (New Israeli Sheqel) performed in the corresponding last year. Our revenue from clearinghouse services increased by 10%, totaling ILS 19.1 million (New Israeli Sheqel). 12% of the increase resulted from existing services rendered by the clearinghouse's members and listed companies.
That was partly offset by decrease of 4% in revenue from custodian fees resulted of the reduction in the value of assets that are held in the custodianship at the TASE Clearing House. Our revenue from distribution of data and connectivity services increased by 20% compared to the corresponding quarters of 2022. Totaled ILS 17.1 million (New Israeli Sheqel). 11% of the increase is due to the updating of the index usage price list, 3% of the increase is due to rise in the revenue from connectivity services. 3% of the increase is due to revenue from data terminals for customers outside Israel. I will now discuss our expenses in detail. Please go to slide number nine.
In the first quarter of 2023, our adjusted expenses totaled ILS 69.4 million (New Israeli Sheqel) compared to adjusted expenses of ILS 73.3 million (New Israeli Sheqel) in the corresponding quarter of previous year, a decrease of 5% year-over-year. The expenses related to the employee benefits decreased by 5% and totaled ILS 38.2 million (New Israeli Sheqel). The decrease in the expenses mainly results from a decrease in the variable compensation, vacation expenses, and due to the increase in capitalization of expenses for software development for internal use. Computer communication expenses increased by 32% compared to the corresponding quarter of the previous year and total ILS 9 million (New Israeli Sheqel). The increase resulted mainly from an increase in the maintenance cost of the new computer systems. Marketing expenses decreased by 85% compared to the corresponding quarter of the previous year and totaled ILS 0.9 million (New Israeli Sheqel).
The decrease is a result of the timing of marketing campaign. In the first quarter of 2022, the company launched new advertising campaigns at a total cost of ILS 3.9 million (New Israeli Sheqel). The depreciation amortization expenses increased by 3% compared to the corresponding quarters of the previous year and totaled ILS 12.9 million (New Israeli Sheqel). The increase is mainly due to the upgrading of infrastructures and launching of new products. The financing incomes in the first quarter of 2023 totaled ILS 2.5 million (New Israeli Sheqel) compared to financing expenses of ILS 5.2 million (New Israeli Sheqel) in the first quarter of 2022.
The transition of financing income this quarter resulted from a positive yield for approximately 0.5% on the company's investment, the market-based securities, as compared to a negative yield of approximately 2.5% in the corresponding quarters last year. In addition, the increase in the interest rate generated interest income on deposits in an amount of ILS 1.5 million (New Israeli Sheqel). Now I'll move to the balance sheet. Please go to slide number 11. As of March 31, our equity totals ILS 692.9 million (New Israeli Sheqel). The equity ratio, including the deferred income for listing fees and excluding open derivatives position balance from our clearing house activity, is 88% of the balance sheet. We have approximately ILS 401.6 million (New Israeli Sheqel) in cash and investment financial assets. We don't have any financial debt.
The excess capital at the end of the first quarter totals ILS 650 million (New Israeli Sheqel) compared to ILS 613 million (New Israeli Sheqel) at the end of 2022. The excess liquidity at the end of the first quarter totaled ILS 273 million (New Israeli Sheqel) compared to ILS 257 million (New Israeli Sheqel) at the end of 2022. The Board of Directors also approved a safety caution which serve as an additional layer for handling stress scenarios, and it is at the discretion of the Board of Directors. Let's move to the cash flow. Please go to slide number 12. TASE's free cash flow increased by ILS 5 million (New Israeli Sheqel) compared to the corresponding quarter of the previous year and totaled ILS 34.8 million (New Israeli Sheqel).
Operating performance contributed to the first quarter of 2023, cash flow of ILS 1 million (New Israeli Sheqel) and ILS 4.2 million (New Israeli Sheqel) from the decrease in investing activities is due to the timing of implementation of the group investment work plan in the quarters. With that, I return the call back to our moderator to conduct the Q&A.
Thank you. Ladies and gentlemen, at this time, we will begin the question-and-answer session. If you have a question, please press star one. If you wish to cancel your request, please press star two. If you are using speaker equipment, kindly lift the handset before pressing the numbers. Your questions will be pulled in the order they are received. Please stand by while we pull for your questions. The first question is from Dan Fannon of Jefferies. Please go ahead.
Hi, guys. thanks for taking my questions. I guess to start, if we could talk about the market data line. It looks like the index fees which you announced, I think, a few quarters ago in terms of the pricing change kicked in. just wanna see if that ILS 2.5 million (New Israeli Sheqel) run rate for the authorization for index usage is a good run rate, and maybe broadly the market data index revenue line, thinking about prospectively how we should think about maybe some of the growth from here.
Hi, Dan. In terms of the data, part of the increase is because of the index and the other part is because of the activity and the products and everything that we are conducting. Something around ILS 1.5 million (New Israeli Sheqel), it's an increase in the quarter because of the new pricing of the index. In terms of run rate, I just want to remind you, as we stated a few months ago, that starting 2024, it will be doubled. If the AUM remains the same, the ILS 1.5 million (New Israeli Sheqel) will be ILS 3 million (New Israeli Sheqel), starting 2024 and onwards.
Per quarter.
Per quarter, of course.
I'm sorry, the third quarter, is that what you said?
No, no. I'm saying each quarter and onwards because the ILS 1.5 million (New Israeli Sheqel).
Okay.
is like for the first quarter, so it's around ILS 6 million (New Israeli Sheqel) for the whole year.
Right. Right.
it's very, it's very important for me to emphasize that this is only part of the growth that we see and have.
Understood. Understood. Moving towards the clearinghouse revenues, which also continue to grow quite nicely, can you expand a bit upon, you know, how we should, you know, what's driving that, particularly on the clearinghouse services and, you know, potentially the prospects for that going forward?
As I said it, before, you know, we have invested a lot in the past few years in many new services and upgraded services. We have a lot of activity. Sometimes, you know, in terms of the AUM can impact negatively. Sometimes there can be also some timing issue because like toward the end of the year, if it falls on a weekend, some of the actions can be at the first day of the new year. In general, when we laid out in October our new strategic plan, part of the organic growth that we see ahead is based on our clearing and settlement services, which is combined of many actions and services that we apply. It does not consist on one or two big pillars. It's a combination of many things.
Okay. Understood. I just wanna clarify on the listings revenue, the accounting, the change in reporting, if I recall, that was more for first quarter last year. As we think about what you just reported, this is a reasonable run rate than assuming, you know, what happens with additional company share issuance, other things that can drive it. There, in terms of one-time accounting changes, was there anything in this quarter that impacted the revenues?
No. None. None. As you mentioned, what you said is very accurate.
Okay. Great. Moving to expenses, marketing, obviously very low this quarter versus what we've seen, and you talked about the timing of certain programs. I guess as we think about the remainder of this year, I believe marketing is expected to be down, but, you know, how should we think about the quarterly flow of those campaigns?
We just initiated this week a campaign of estimated amount of around ILS 1.5 million (New Israeli Sheqel), trying to taking advantage of the current situation in Israel and trying to tell the government to lower the tax on capital gains in order also to incentivize people to invest more in Israel rather than in outside of Israel. I think that, you know, bear in mind that, we have completely control obviously on the marketing expenses, and this is also part of the public attention and things that we believe that is valuable for us to push. We do plan to use this budget during the year, but obviously it's also a question of market conditions, politics, et cetera.
When you compare to the first quarter of last year, in the first quarter of last year and also the second quarter of last year, we still had the last sponsorship that we had for the Israeli Soccer League. It's also important to remember in comparison between the periods.
Understood. Is there a way to think about the budget for the full year that you're allocating versus the ILS 13 million (New Israeli Sheqel) you spent last year in terms of the reported marketing expense?
I said it on the last call that, you know, we estimate that we will not use more than what we used last year, the total budget.
Right. Okay. obviously ramping from what was abnormally low levels here in the first quarter.
Yes. Yes, that's correct.
Okay. Just moving to the buyback, you know, the authorization, both the continuation plus the special, for this quarter. Could you give us a framework of how you came up with the dollar amount to be executed by June 30th? If we kind of continue to think about this year, and how maybe the board is thinking about these type of special programs versus ongoing, and as we, you know, you're continuing to generate, you know, good cash flow building, you don't have other needs for that. Should we be thinking about, you know, buyback programs beyond the current time periods for those authorizations?
Well, the regular buyback, the third tranche is basically assuming it will take place, it will close the ILS 100 million (New Israeli Sheqel) that were announced last year. The special buyback plan that was approved, you should look at it as a one-time, not as something which is ongoing. We believe that the current conditions in Israel in general, and also with respect to our share price, create a very interesting opportunity for us to do a substantial transaction. The way we came up with the amount is basically we looked at like up to 5% of the outstanding equity of the company, which is around ILS 80 million (New Israeli Sheqel)-
ILS 80 million (New Israeli Sheqel).
ILS 80 million (New Israeli Sheqel) as of today. It's the ILS 90 million (New Israeli Sheqel) value came from there. Obviously, as you stated, in terms of our excess liquidity and statements, you know, we have no issue of investing those amount of money. We know our business better than we know other businesses. We believe that what happened in Israel in recent months had an impact on us, even though, you know, you see the business and you see the results. Given the liquidity of the share, you know, we thought it makes sense also to signal if there are substantial shareholders that are thinking for any reason whatsoever to sell a significant amount, so it will be best for us to actually to buy it.
The way they look at it is only as a one-time. It's not something that I'm talking about the special buyback. It's not something that I see, I see it as a recurring program.
Understood. That's helpful. Just broadly, as we think about the various revenue buckets, was there any other pricing changes in the quarter? As we think about run rate going forward, there might be, so we can contemplate that.
No. In the current quarter, we had no pricing changes. None.
Okay. Lastly, just in terms of the regulatory framework and the resolution around your oversight and the process for appointment and, you know, how to think about that time period, where does that currently sit?
We still do not have a new chair of the ISA, and we don't know when the new person will be appointed. It's very important for me to emphasize that we have a good working relationship with the ISA. We have a fruitful dialogue. We just got last week, a few approvals of certain initiatives and things that we've been waiting for. We see the business is ongoing. I believe that, you know, we even if a new chairperson is not being appointed in the next several weeks, I believe that we will still make things progress with the ISA.
Great. That's very helpful. Thanks for answering all my questions.
Always a pleasure, Dan.
If there are any additional questions, please press star one. If you wish to cancel your request, please press star two. Please stand by while we poll for more questions. There are no further questions at this time. This concludes the Tel Aviv Stock Exchange Q1 2023 results conference call. Thank you for your participation. You may go ahead and disconnect.