Ladies and gentlemen, thank you for standing by. Welcome to The Tel Aviv Stock Exchange Q3 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 November 29th, 2022. The recording will be publicly available on TASE's website. With us online today are Mr. Ittai Ben-Zeev, CEO, and Yehuda Ben Ezra, CFO. Before I turn the call over to Mr.
Itai 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 second quarter of 2022, in which full and precise information is presented and may contain, inter alia, forward-looking statements in accordance to Section 32A to Securities Law 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/en. Mr. Ben-Zeev, would you like to begin?
Thank you. Good evening, Israel time, everyone, thank you for joining us today. I'm happy to host you in our earnings call, I would like to apologize for the delay. We ended another strong quarter with a continued organic growth, an increase in revenues across all of the TASE areas of activity, and a 34% increase in EBITDA compared with the same quarter last year. Our CFO will later give you a detailed review of the financial statements. Despite the storms and high volatility in global markets, TASE is continuing to maintain stability and resilience compared to the world's leading stock exchanges, with an increase of almost 30% in trading volumes compared to last year, reaching a daily average of ILS 2.4 billion since the beginning of the year.
We see increased investments by foreign investors in shares on TASE with ILS 12.6 billion net in January to August 2022, further to ILS 13 billion net in the entire 2021. I would like to update you about the TASE strategic plan for 2023-2027, which we published in October. The plan compromises four key objectives, enhancing the TASE international profile and drawing foreign investors, development of direct activity with end customers, considering the setting up of a platform for the trading and clearing of digital assets. The new platform will be based on innovative technologies, blockchain, DLT, and considering sale of technological services and solutions to foreign stock exchanges. We believe that the strategic plan will increase revenue CAGR by 10%-12% over the next five years as a result of organic growth in our activity.
We intend to promote a restructuring that will support the implementation of the strategic plan. This will include a structure similar to other stock exchanges around the world of a holding company, under which various subsidiaries will operate that will be set up to implement the plan's objectives. I would like to note that as part of the examinations that we performed in relation to the restructuring, we have received an opinion from a corporate law expert professor. According to the opinion, the demutualization law determines that the historic TASE members are not entitled to receive for their shares as a dividend in a sale or otherwise any amount exceeding the value of their share in the equity of TASE from 2015.
The maximum consideration that the historical shareholders members may receive upon the sale of those shares must be adjusted for all the dividends that have been and that will actually be distributed by TASE up to the sale of the shares. In accordance with the law, the maximum consideration receivable by the historical TASE members that hold the shares is ILS 508 per share. To date, pursuant to that opinion, the consideration is ILS 4.59 per share in dividend-adjusted values. The difference between the share price of those shares once they are sold and the dividend-adjusted price will be transferred to TASE as was written in the law.
As to TASE share buyback, as part of the first plan that has already been completed, TASE acquired shares for a total of ILS 30.4 million in average price of approximately ILS 16.4 per share. The TASE board of directors approved to the execution of an additional buyback program of up to ILS 36 million over a period of up to six months, commencing on December 1st, 2022. As you may remember, in our last call, I indicated that the Israel Securities Authority gave its approval for the cancellation of the cap on fees in respect of OTC transactions effective October 2022. This will enable us to execute a significant reform in all matters pertaining to OTC transactions.
Concurrently with the petition filed with the High Court of Justice against the Israel Securities Authority, we recently received approval for an increase in fees payable for the use of TASE indices. We withdrew the petition against the Israel Securities Authority. The increase in tariffs shall come into effect at the years of 2023 and 2024. We believe that based on the current use of the TASE indices and the volume of assets managed within this framework, the full implementation of the new tariff is expected to increase the revenue of TASE from the indices activity by an estimated annual amount of approximately ILS 8 million in 2023, and by an estimated annual amount of approximately ILS 16 million in 2024 and thereafter, compared to revenue of approximately ILS 3 million in 2021.
Now I will give the floor to the TASE new CFO, Yehuda Ben Ezra, who started his new role this month. I wish him every success in this role. Yehuda will now give you a review of the financial statements for the third quarter of 2022.
Thank you, Ittai. Good evening, everyone, and thank you for joining us today. I'm very pleased to participate in our earnings call. This is my first earnings call as CFO of TASE. I'm happy to join the management of TASE. Some words about myself. I have 20 years of experience as a CFO in public and private companies. I'm a CPA in Israel and hold an MBA degree. Now let's move to the results. In the third quarter, TASE strong performance continued. This was the third consecutive quarter with over ILS 86 million in revenues. In addition, the adjusted EBITDA margin reached 36%, as I will show in detail in the upcoming slides. I will begin with slide number four, which shows some of the key highlights from our results of the third quarter.
Our revenues for the third quarter of 2022 increased by 50% compared to the third quarter of 2021 and amounted to ILS 86 million. Adjusted EBITDA for the third quarter of 2022 totaled ILS 30.5 million compared to ILS 22.8 million in the third quarter of 2021, an increase of 34%. Financing expense in the third quarter of 2022 totaled ILS 4.1 million compared to the financing income of [one point million shekel] in the third quarter of 2021. The shift to financing expenses this quarter resulted from a negative return of approximately 2.2% on the company's investment compared to a positive return of approximately 1% in the corresponding quarter last year.
Tax expenses net in the third quarter of 2022 totaled to ILS 4.4 million compared to ILS 2.7 million in the corresponding quarter last year. Increase in effective tax rate was due to the reduction in the fair value of the company's investment in government bonds with deferred taxes were not created. The adjusted net profit amounted to ILS 8.8 million, a decrease of 10% compared to the corresponding quarter last year. At the same time, the operating profit increased by 64% compared to the corresponding quarter last year. I'll move to the revenue and debt. After going off over the highlights of our financial results, let's take a deeper look at the composition of our revenue and expenses. Let's go now to slide number five.
Our revenues from trading and clearing commissions increased by 16% compared to the third quarter of 2021, and totaled to ILS 33.4 million. The increase between the third quarter of 2022 and that of 2021 resulted from higher share trading volumes, which contributed 9% to the T-bills, which contributed 3%, and to the increase in the value of the creation in the mutual funds, which contributed 3%. Another contribution factor was an increase in the number of trading days this quarter compared to the corresponding quarter last year, which increased revenue by 9%. Increase was partially offset by reduction in the effective commission rate, primarily in the shares in mutual funds. Our revenues from listing fees and annual levies increased by 18% compared to the third quarter of 2021, and totaled ILS 19.9 million.
9% of the increase resulted from listing fees and 8% resulted from annual levies as a result of an increase in the number of companies and funds. 2% of the increase in revenue is due to an increase in revenue from examinations fees. Our revenues from the Clearing Houses services increased by 9%, totaling ILS 17.3 million. The increase resulted from existing services rendered by the Clearing House members. Our revenues from data distribution and connectivity services increased by 11% compared to the corresponding quarter of 2021, and totaled ILS 14.4 million. 6% of the increase is due to the distribution of trading derivatives at the outside of Israel as a result of the increase in the volume of activity and the updating of the prices in the second quarter of 2022.
2% of the increase resulted from rise in the revenue from connectivity services, and 2% of the increase is from sale of information through TASE API services. Now let's move to the expenses. I will discuss our expenses in the first quarter of 2022. Please go to slide number six. In the first quarter of 2022, our adjusted expenses totaled ILS 68.7 million, excluding expenses for share-based payment in the amount of ILS 0.1 million compared to this ILS 64.3 million in the corresponding quarter of the previous year, an increase of 7% year-over-year. Most of the increase is due to rise in the marketing expenses and computer and communication expenses. The expenses related to the employee benefits decreased by 3% and totaled ILS 34.3 million.
The decreases in the expenses mainly results from an increase in the capitalization of the expenses for software development for internal use. Computer and communication expenses increased by 15% compared to the corresponding quarter of the previous year and totaled ILS 7.3 million. Most of the increase in the expenses due to a new technological services and rise in the license expenses. Marketing expenses increased by 151% compared to the corresponding quarter of the previous year and totaled to ILS 4.3 million. The increase is a result of the timing of marketing campaign for digital media and traditional media. The depreciation and amortization expenses increased by 8% compared to the corresponding quarter of the previous year, and totaled ILS 13.1 million. The increase is mainly due to the upgrading of infrastructure and launching a new product.
The net financing expenses totaled ILS 4.1 million compared to a net financing income of ILS 1.8 million. The shift to the financing expenses resulted from a negative return of 2.2% on the company's investment in market of the Israeli government bonds. Now, I would like to review our financial position highlights. We will move to the balance sheet, s lide number seven. As of September 30, 2022, our equity totals to ILS 668 million and comprising 77% of the balance sheet, excluding open derivatives position balance from our clearing house activity. In addition, we have approximately ILS 373 million in cash and investment financial assets. We don't have any financial debt. We have ILS 143 million surplus liquidity and ILS 303 million surplus capital above the regulatory requirement.
In addition, the board of directors pre-approved in its meeting today an update methodology concerning the capital and liquidity requirements, according to which a required level will be calculated, which is based on the general framework of the banking supervision, with the adjustment necessary for the activity of TASE, regulatory and the clearing houses. The board of directors also approved a safe harbor to serve as an additional layer for handling stress scenarios and is the discretion of the board of directors. The effect of the implication of the methodology on the company, had it been approved on the reporting date, would have been ILS 101 million increase in surplus liquidity and ILS 293 million increase in the surplus capital. With that, I will 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.
Thanks. Good evening, gentlemen. I guess to start, if, Ittai, you could expand upon the legal opinion you gave. I guess that's a separate third-party opinion around what your shareholders are able to monetize their stakes at or... Just so I understand, how does this turn into legal form? Ultimately, what is the process that you're thinking about going forward to get this into fruition?
Sure. Hi, Dan. As you know, since the demutualization and the IPO and everything that took place in the company, we have approximately 18% of outstanding equity that is being kept by the historic members. Almost all of them are banks. We had all kinds of discussions with them, as you know, in the past year or so to try and find a solution because we actually have an economic value, because according to the wording in the law, given the price is way above ILS 508, the full difference once they sell the shares will be part of our cash balance and can be used for IT.
On top of that, in terms of our liquidity, we have a amount of shares that the shareholders, they don't care about the share price because they don't enjoy the increase in the share price. Obviously this is not a healthy situation. At the end of the day, the banks decided to remain their position even though it makes no economic sense, because you can argue that in the past they had dividends once we were distributing dividends, but we are no longer doing that, and we are doing buyback, so it makes no sense to keep the shares. As part of all of the work that we are doing in preparation for the restructuring of the company.
By setting a new co, it's very obvious that for regular shareholders, nothing will change because they will own the same amount of shares in a new co that will have the same assets, even though it will be through a different group of companies, but nothing will be different. With the banks, it's a different story because the wording in the law basically said that they are a different type of shareholders because of the original cape of the 508. There is a question if what is the meaning of that change? Okay. One, is it something that should be perceived as a forced sale according to the wording of the law? Secondly, to which price you need to adjust it.
We took one of the most famous professor in corporate law in Israel that have gone through all of the protocols in the Israeli parliament and all of the history, he submitted to our board of directors a legal opinion saying that by even though the language of the law is not clear enough, the way he interprets the language is that dividends that the company already gave to the shareholders because of the unique situation of the banks, those dividends needs to be adjusted. Meaning the price for them is no longer ILS 508, but it's ILS 5.459. If in the future the company decides to pay dividends, then the ILS 4.59 will be adjusted below to the amount of dividend that will be distributed.
What we are saying is that if the banks decide to sell the shares tomorrow or at any time in the future, the reference number is no longer ILS 508, but currently is ILS 5.59, excuse me, ILS 4.59. Also we think that according to what we are seeing, that once we do the restructuring, there is a good chance that the banks eventually will have to sell the majority of the stake in the exchange because of it. Is it clear? I know that this is tricky. I know this is tricky.
I understand your opinion of it. I get that, I guess. Who actually decides whether they have to sell? Is this the regulators now, it's in their hands to ultimately come up with the decision? Is it the courts? Who? I understand this is a legal opinion. This is what you've gotten, the board and your recommendation. In terms of turning it into action, what is the next step?
I guess that in the next few months, once we progress on the restructuring, giving the legal opinions that we have, the bank will try to oppose it because I guess they will say that they have different legal opinion. It will come down to either the court or regulator or maybe legislation, it depends how it plays out, that will need to decide, you know, what will be the outcome of it.
Okay. Okay. Understood. Wanted to also clarify the revenue increases you mentioned as a result of the pricing changes for the index business. The ILS 8 million in 2023, and I believe the ILS 6 million in 2024, is that based upon current asset levels in the business, or is that assuming growth, or is it basically applying to current, where everything sits today, just what the new prices would be?
Yeah. The ILS 8 million and the ILS 16 million on top of the ILS 3 million, is based on the current AUM that we have. We haven't factored in any growth whatsoever. It's only on the current numbers and assets that we have today. Obviously, this is the estimate that we have now. Obviously, those numbers can change either way.
Understood. That means that there's a multi-step process in the implement. There's more fees go up initially, but keep going up if you're assuming the same asset levels then. Correct?
I mean, you know, for example, we can now start tailor-made indices, and this is something that we weren't allowed to do. It's very difficult to estimate, you know. What will be the outcome?
What will be the outcome? I think, you know, that, you know, part of the incremental in the revenues and in the margin and everything, I think it's an extremely important step for the development of TASE as a franchise, because, you know, we give a lot of product and services, and we help the capital markets. What we do should be priced adequately. If you run a business of ILS 80 billion and your direct revenues are ILS 3 million, it makes no sense. I think it's a very important, because we have other elements of our business that we think that some of them are mispriced for historical reasons. As I commented about the strategic plan, you know, we see strong organic growth ahead of us.
We have been launching plenty of services and products in the past few years. We intend to continue to do so. We think that part of us, making the exchange an important, marketplace for Israel, pricing is also something that we are giving a lot of thought of how and what is the best way to execute.
Understood. I guess as you think about the revenue CAGRs that you laid out there for the next five years, you were growing at a similar rate or even some cases better since, you know, becoming a public company without pricing. As you think about those growth rates in the future or looking ahead, how much of that growth is ascribed to potential price increases?
Well, a part of that growth is just simply the fact that we have a very strong pipeline for the next few years for new services and products. You know, for example, look at the data. You know, we have been coming out with data premium products for the past year. We have a lot to do. By definition, each new product comes with a new fee. A part of just our belief that what we have been doing will bring more activity and more velocity in our market, that at the end of the day will bring more revenues. On top of it, we know that we'll have more services and products that will be with new fees. It's not like we priced like a big one-time change in our tariffs. Okay?
It may happen over time because it's a question of many factors. The 10%-12%, this is purely on hard work and bringing new services and products and continue to do what we have been doing in the past few years.
Understood. pricing would be in addition to that?
Well, it's a question of how you define pricing, okay? Some of the pricing, you know, is embedded once we come up with new products.
Right. Yes, I meant I'm sorry, from existing services and products. If you were to change pricing, that would be additive to those numbers.
Yes, it's dependable. Let's put it this way, dependable.
Okay.
Means some of it has to do with fees because some of the things that we do, you know, every new change comes with a fee. It's also a question of how you examine it.
Okay. Okay. In terms of the authorization, I think you said ILS 36 million for six months. What, why the short time periods and the how did you come up with ILS 36 million, you know, for six months, I believe you said?
Yeah.
Just curious about the dialogue with the board about the dollar amount and the time period.
I mean, we saw that, you know, we wanna be consistent because last time it was six months and up to ILS 36 million. Basically the same amount and the same length. Also because, you know, we do it as a safe harbor, meaning that when you do it as a safe harbor, you can't change it. If you go longer and things may change, it can be problematic to change it. We felt to continue, you know, with the same terms, you know, obviously not the same pricing because the share is trading differently, will make sense giving the fact that, you know, we have a strong balance sheet, we have no debt, and we believe in the company and where it should be.
Understood. Okay. Just in terms of the quarter, the sequential changes in the Clearing House revenues, I assume it's just kind of asset levels being lower. If you think about it...
Exactly.
Okay. Anything else in the revenue there that we should be that's noteworthy in the quarter?
That was the issue, what you just said.
Exactly.
Okay. Similar question on data. You know, that also declined modestly sequentially. What anything there to note?
Nothing in particular. I mean, you know, we have the Israeli market, we have the international market. I said we see increased activity by international investors. We believe that it will continue given the fact that, you know, the exchange obviously being mutual for many years hasn't really expanded its distribution channels. This is what we have been doing in the past few years. I think on the data, we feel pretty safe that we still have plenty of room to grow, still many products to launch. Obviously, you know, from time to time there can be, you know, some behaviors because what's happening in the market.
Yes, of course.
Overall, you know, we believe that the trend will continue to be positive.
Understood. The index revenues that you cited earlier, that will show up in this, that distribution of trading into the data line, correct?
Yes.
Yes. Yes. You're right.
Since the beginning of 2023.
Right. Just on expenses, just thinking about next year, and a growth rate, I know you've said, you know, on these calls several times that you do not anticipate the, you know, the fee increase for the negotiation with your employees to be higher than what it's been. Can you talk just broadly about expenses for next year and how you're thinking about the growth rate of the overall expense base, and you can separate out compensation from, you know, kind of other things as well?
I mean, we are still, you know, working on our plans for 2023. You know, currently we don't see any material change. Okay? It's not like we have plans to enter a big project that will change all of the expenses. We will continue to run the expenses very tight. You know, we want, you know... The 10%-12% doesn't mean that the expenses will also, you know, will grow to match that. We still don't know, you know, what will be the exact numbers for next year.
Okay. Is in terms of like meaningful, you know, spend or initiatives?
Yeah.
There's nothing that's being planned or contemplated. It should be more similar to what we've seen here of more recently.
Exactly. Exactly.
Okay.
Exactly.
All right. Well, I think that's all my questions. I appreciate you taking the time to answer them.
Thank you very much, 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. Thank you. This concludes the Tel Aviv Stock Exchange Q3 results conference call. Thank you for your participation. You may go ahead and disconnect.