And thank you for standing by. Welcome to the Tel Aviv Stock Exchange Q2 2021 Results Conference Call. All participants are present in a listen only mode. Following management's formal presentation, instructions will be given for the question and answer session. As a reminder, this conference is being recorded August 11, 2021.
The recording will be publicly available on the TAEZ website. With us on the line today are Mr. Itay Ben Zev, CEO and Mr. Yehuda van der Walde, CFO. Before I turn the call over to Mr.
Itay Benzaev, 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 Q2 of 2021, in which full and precise information is presented and may contain intralia forward looking statements in accordance to Section 32A Securities Law 1968. In addition to IFRS reporting, we might mention certain financial measures that do not conform to generally accepted accounting principles, such as 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 table that can be found in our earnings press release and in the slide presentation accompanying this call. Both are accessed on the English Maya site and in the Investor Relations portion of our website at ir.tayes.co.il ian.
Mr. Benzaev, would you like to begin?
Yes, thank you. Good evening, Israel time, everyone, and thank you for joining us today. I'm happy to host you in our earnings call. We are seeing the fruits of our hard work towards the evolution of our core business. Since the wave Of IPOs in the 90s in Israel, we have not seen such a surge in the number of new companies Listing on taste.
What began in 2020 as a trend on the backdrop of the global crisis It's proving to be a steady and sustainable cause. Since the beginning of 2021, We had 75 new Israeli companies listed on TAFE, primarily from the technology sector, Including 7 R and D Partnerships and 35 High-tech Companies. All in all, a total of ILS 17,000,000,000 was raised in the first half of twenty twenty one, more than 3 times the amount raised in the same period last year and similarly to the amount raised In the full year 2020, in our core business, we are reaping the benefits From the variety of new services and products that we have launched, including marketing activities, Which I'm proud to report have achieved growth in our key indicators, most notably Non transactional revenues, which accounted for 63% of total revenues The public's interest in TAFE and the increased trading volumes were met by more innovative, advanced And upgraded stock exchange in line with the three main goals of our strategic plan, Reflecting the Israeli economy in TAFE, enhancing marketability and liquidity and expanding the range of services and products By introducing more advanced technological infrastructure, we are now ready To set in motion our strategic plans for the coming years and seriously consider putting the funds that we have accumulated To good use in investments and M and A that will not only optimize our balance sheet structure, but will also support our further growth into other channels.
Progress is the name of the game. TACE As home of the Israeli economy and a hub for innovation companies is attracting great interest, Both locally and internationally, more than 100 companies carried out IPOs on TAFE Since the beginning of 2020, representing 20% Of all public companies on CAFE. The new companies changed the mix of listed companies With new subsectors such as Renewable Energy, FoodTech, Robotics and 3 d Comfortably nestled under the high-tech mother sector. And as the market opens up to global investments, Bookbuilding becomes the IPO of choice, accounting for 92% of the total IPO proceeds In the period, Taste took another big step towards the global market. And for the first time, We had the first dual listing from Singapore, Sering Technologies.
The diversification of the listed companies And our global reach created a deeper and more mature market that had a positive effect On the taste indices, which enjoyed significant growth since the beginning of the year. They also allowed us to launch new indices To accommodate the growing demand for a greater variety of indices and the creation of dedicated sectoral and niche indices. In the past quarter, we launched TA dual listing and TA retail indices, And we upgraded the insurance shares and convertibles index. TACE dedicates Substantial resources into the development of new indices prior to their launch. Nevertheless, at the end of the day, investments are translated into numbers.
Therefore, We will be looking into the cost of investment in our indices in management's upcoming strategy discussions to ensure cost effectiveness. Within this framework and as part of the strategic plan, I would like to inform you that the Israel Securities Authority staff and the representatives of the company We've held multiple discussions on TAEFE scheme for the acquisition of shares from TAEFE's Mandeville. We discussed various alternatives for the advancement of the scheme, but regrettably, the discussions have not been fruitful And were terminated for the time being. Finally, as I mentioned earlier, TACE intends To look into various alternatives for optimal use of its cash surplus, including the opportunities of strategic acquisitions And now I would like to hand the stage over to Mr. Van der Walzer, who will continue with a review of the 2nd quarter results.
Thank you, Ittai. Good evening, everyone, and thank you for joining us today. I am very pleased to participate in our earnings call. I will start with a brief update on the current COVID-nineteen status in Israel. Due to the extensive and successful vaccination campaign, there was a respite from COVID-nineteen and most of the Restrictions were lifted during the Q2 of 2021.
Unfortunately, with the appearance of delta variant towards the end of the second quarter, The mobility rates are increasing and restrictions are being reinstated as we speak. A new campaign for a third vaccination has started, which will hopefully help regain control of the pandemic. If mobility is short in term and Does not entail the imposition of additional restrictions. No material adverse effect on the Israeli economy is expected. As to our results, in the Q2 of 2021, we had the highest revenues ever, as I will show in details in the upcoming slides.
During the Q2 of 2021, we reached an agreement with the Israeli Ministry of Finance to settle our claim Regarding unpaid listing fees from previous years. In addition, the agreement includes the listing fee payment terms for the next 5 years starting from the beginning of 2021, regardless of the amount the Ministry of Finance will issue during that time. The revenue from the settlement amounts to ILS3.8 million and was fully recognized as other revenue. The revenue from new payments terms during the Q2 of 2021 amounted to ILS1.6 million And is recognized as revenue from listing fees and levies. This includes revenue of NIS 0.7 million from the Q1 of 2000 I will begin with Slide 4, please, which shows some of the key highlights from our results for the Q2.
Our revenues for the Q2 of 2021 increased by 15% Compared to the Q2 of 2020 and amounted to ILS 84,600,000. Excluding the impact Revenues from the claim settlement with the Ministry of Finance, the revenues for the Q2 amounted to ILS80.8 million, Shekel, an increase of 10% compared to the corresponding quarter of 2020. Adjusted EBITDA for the Q2 of 2021 totaled ILS 26,200,000 compared to 21,000,000 in the Q2 of 2020, an increase of 25%. Financing income in the Q2 of 2021 totaled ILS1.3 million compared to the financing income Of shekel 3,500,000 in the Q2 of 2020, a decrease of 62%. In the Q2 of 2020, the financing income reflects the recovery in government bonds prices following the sharp decline In the Q1 of 2020 as a result of the outbreak of COVID-nineteen, the adjusted net profit amounted After going over the highlights of our financial results, let's take a deeper look at the composition of our revenues and expenses.
Let's go to Slide 5. Our revenues from trading and clearing commission decreased by 2% compared to the Q2 of 2020 In total, NIS 31,600,000. The decrease between the Q2 of 2020 And that of 2021 resulted from a 9% decrease of the trading volume on taste Compared to the extremely high trading volume in the Q2 of 2020 following the COVID-nineteen outbreak And was partially offset by an increase of 7% resulting from more trading days in this quarter. Our revenues from listing fees and annual levies increased by 24% compared to the Q2 of 2020 And totaled ILS 18,300,000. 13% of the increase resulted from revenue recognition in respect of listing fees due to the increased Number of IPOs and from the new agreement with the Ministry of Finance, 6% of the increase resulted from examination fees In light of the growth in number of newly listed companies, 5% of the increase resulted from annual levies.
Our revenues from the clearinghouse services increased by 20%, totaling NIS16,900,000. 11% of the increase was from custodian fees, 6% of the increase was from existing services rendered by the Clearing House members and listed companies, 3% of the increase was from new services. Our revenues from distribution of data and connectivity services Increased by 8% compared to the corresponding quarter of 2020 and totaled ILS 13,200,000, 4% of the increase resulted from data distribution to overseas customers, 2% of the increase resulted from derivative data 2% of the increase resulted from connectivity services. I will now discuss our expenses in the Q2 of 2020. Please go to Slide 6.
In the Q2 of 2021, our adjusted expenses totaled ILS70,200,000 Compared to NIS 63,500,000 in the corresponding quarter of the previous year, an increase of 10% year over year. The expenses related to employee benefits increased by 10% and totaled NIS37.9 million. The increase And the expenses mainly results from the annual salary update and an increase in headcount and overtime. Computer and communication expenses increased by 7% compared to the corresponding quarter of the previous year and totaled NIS 7,300,000. The increase is a result of operation costs of newly added computer systems.
Marketing expenses increased by 40% compared to the corresponding quarter of the previous year and totaled NIS 5.6 The increase is a result of timing of marketing campaign launches. In the second quarter, there was Marketing campaign that amounted to ILS3,800,000 compared to ILS2,500,000 in the corresponding quarter of 2020. Depreciation and amortization expenses increased by 7% compared to the corresponding quarter of the previous year And total NIS 11,800,000. The increase in depreciation and amortization expenses is due to the launch of the Central Blockchain Securities Lending Platform in the Q4 of 2020. I would now like to review our financial position highlights.
Please go to Slide 7. As of June 30, 2021, our equity totaled NIS 638,000,000 and comprises 73% of the balance sheet, Excluding open derivative position balances from our planned house activity. In addition, we have approximately NIS 360,000,000 Shekel in cash and investment in financial assets. We don't have any financial debt. We have ILS 127,000,000 Shekel excess liquidity and shekel290,000,000 shekel excess capital above our regulatory requirements.
The excess liquidity decreased by 9% since the beginning of 2021, mainly as a result of dividend distribution of Before I turn the call back to our moderator, please be advised that due to the upcoming Jewish holidays In the Q3 of 2021, there will only be 50 trading days. In the Q4 of 2021, there will be 65 trading days. Please take this into account in your revenue estimates as of the second half of twenty twenty one. And with that, I will turn the call back to our moderator to conduct the Q and A.
Thank you. Ladies and gentlemen, at this time, we will begin the question and answer session. Your questions will be pulled in the order they are received. Please stand by while we poll for your questions. The first question It's from Dan Fannon of Jefferies.
Please go ahead.
Thanks and good evening, gentlemen. My first question is for Ittai. You mentioned kind of looking at the capital base and Thinking about the optimal capital structure and then potential M and A and other uses. So I guess if you could give us a framework of what your view of The appropriate kind of capital structure is for your firm. And then within the context of M and A, what are some of the areas that You would be looking at as potential uses for inorganic growth.
Yes. Hi, Dan. We feel very comfortable with our growing growth, but we think that given our strong capital balance And also the fact that we see progress in all of our core activities in the exchange, plus the fact that we are Finishing this year our 5 year strategy, we started in our management to discuss Our strategy for the coming years, and I guess that in the coming months, we believe that we should Spend some time in exploring M and A opportunities. We don't have a specific, I would say a specific segment that we're going to focus, but we think that we should do a full cycle process In order to make sure that we are not missing any good opportunities, and I guess that in probably 3, 4 months, then we will conclude together with our Board of Directors the new strategy and then we'll be able to give The numbers that we feel comfortable about the percentage of our cash to our balance sheet, debt, etcetera.
Okay. So is that something that would coincide with year end or is that next quarter just generally the framework Or I should say the time period for which this evaluation is going on will be when?
In the next few months.
Okay. And then shifting just to kind of the momentum in the business in the listing Jing side, you've updated us previously just in terms of the backlog. And I know you gave us the statistics of what has Actually happens so far this year, but as you look at kind of the second half of this year, how are things
Well, with regards of dual listing, As you know, none of the large cap Israeli tech companies that trade on Wall Street have done dual listing. Obviously, we speak with some of those companies. I believe that At some time, it will happen, but obviously, we don't know. We feel very comfortable with the value proposition that we present. I think that for some of those companies, when I look at the lockup situation, etcetera, When you look at the market cap and you compare it to the Israeli market in New York, it's not perceived to be a big company, but in case it is perceived to be A big company.
And as I stated before, I think that once the first two companies will do it, the rest will follow. With regards of new IPOs in our market, there are still dozens of Private companies that want to do IPO, the perception has changed in Israel. But on the same time, we feel that With regards to valuation and also the Israeli institutions' appetite, partly because of what's happening in New York that is Affecting the Israeli market. So the market doesn't have the same appetite as it had a few months ago. But with regards of numbers, we know that there are still dozens of draft prospectus That want to become a public company's own taste.
That's right, Alfa. You know, I want to add that the Q3 since of the Jewish holidays In the summer, it's supposed to be intended that the number of the IPOs will be lower than in the second or the Q1. So That's something that is scheduled and we know that it will be part of the What will happen during July, we had a good month. So I hope that after the Jewish holidays, the pipeline and would be started To achieve us new IPOs that companies that will start raising Again,
September, most of the days are Jewish holidays. Yes. That's what Yudha, In this presentation, we referred with regards to the trading days in the Q3 opposed to the Q4.
Right, right. Okay. And then just on the marketing and the outreach that you highlighted in your prepared remarks, The expense is was obviously has increased here. And is the 2Q kind of marketing level something that you view as Sustainable or was that a bit outsized or how should we think about the trajectory from here?
Well, I think, Dan, that after a couple of years that we started to invest In marketing, we are very confident that it really helped our brand in Israel. I mean, we keep hearing from new companies That what we have been doing with the Soccer League in Israel and with some of the digital campaign and TV campaign Really help them. And also on the retail side, we see some brokers Investing in advertisement on the radio, on the television, things that we've never seen in the past. We I would say that part of the strategic discussions that we're going to have that will touch base many things, One of them will be our marketing scheme going forward. To me, it's quite obvious that we should continue to invest because we see good results out of it, But we need to think it over what will be the right amount for the years to come.
But it's not a one time event If you look at on a yearly basis.
Obviously, you've been the increased marketing has been happening for some time, but there was a meaningful step up. Is this But as we think about the rest of this year, the 5,500,000 shekels, is
that No.
Actually, never mind. I'm sorry, I'm reading the wrong sorry. But I understood on the marketing campaign.
We won't have In the second half, we won't have the same number in marketing expense like we had in the first half of twenty twenty one.
Understood. Okay. And then just on the growth, I wanted to make sure I understood The one time items, obviously, I understand the other revenue, but was there also a benefit in Either the listings or the clearinghouse fees, just thinking about sequential growth from here, if there was I think I heard Some component that was maybe a pull forward of 1st quarter fees. I just want to make sure I understood that right.
We have 3 parts of the agreement. One is about the past, the NIS 3,800,000 that is for Previous years that we it's in our other revenue And the terms for the upcoming 5 years is that for Listing of government bonds that using in the lending pool of the government is We collect yearly ILS 1,100,000 and we recognize it Every quarter, 25% of it on the straight line basis. And we have the issue the amount that we Get on quarterly basis that's for issuing Government bonds and that it's on a yearly basis, It's about NIS 2,100,000. So it's about NIS 500,000 every quarter. So On constant basis, we have for the 5 years NIS 0.8 million Listing fees that we recognize in our revenue and after the 1st 5 years, we have for another 6 years Every quarter that we recognize revenue of NIS 5,000,000.
So the all amounts that we received during the 5 years from the government is ILS 29,000,000 for issuing government bonds.
Okay. And so
it's also in details in the note in our press release Note 4.2.
Okay. I will check that out. But just to clarify then, sequentially, There is no one there was no one time item given the 5 year duration of that agreement. Additional growth, you can growth can occur post from the 2Q levels that you reported?
In the Q2, we had the impact that because the agreement is for the beginning Of the year, so the listing fees that the revenue recognized during the Q2 is one it was NIS 1,600,000, it's including the revenue for the Q1 of this year because the agreement is Beginning for the beginning of 2021, we only signed it on May. So we Recognize it during the Q2, this number.
Okay. Okay. Understood. And if we think about kind of the Some of the I guess, just want to get back to the plan and update from what you guys originally mapped out. I guess going on 5 years ago, you have had next Q2PON several growth initiatives that are in various stages.
Just in terms of expectations of what we should assume to get from you, will it be As the areas of internal investment and growth that you're going to outline kind of the buckets and where those dollars of Investment maybe, I would assume, mostly inorganic, but also potential I'm sorry, mostly organic, but With the potential for inorganic opportunities along with it?
Yes. What you just mentioned, we completely agree with it.
Okay. Okay. And just so we think about the market data in the quarter, the non transactional revenues And aggregate obviously grew quite nicely. If I saw correctly, the number of data terminals actually went down Sequentially, but the revenues went up. So was there some type of audit or change within the number of terminals that were outstanding as you in terms of the numbers you give?
The impact that you see is between That the private customer, the Israeli private customer used less this quarter Data, so the numbers decrease in this segment, but we intend to launch more services during the Q1 and we that after the ISA approved them, so In other areas, so we will continue to see the growth in the data sector.
And then, lastly, you mentioned that the discussions stalled with some of the Existing shareholders, so I guess what can we expect? Is there a time period to reengage? Or how do we think about going forward Or is it a stalemate for some period of time? Or any what is the plan of action?
What we mentioned that the discussions with the IFA, Not with the banks, because in order for us to structure a transaction with Israeli banks, They want to know that the regulator will not oppose any structure that we have in mind. And as we and as I stated here and also in our quarterly reports, we've had multiple discussions With all kind of ideas, but at the end of the day, it was impossible To move forward, so this is why right now it's irrelevant on our side.
Okay. All right. Well, I think that's all my questions. Thank you.
Great. Thank you very much,
Please stand by while we poll for more questions. The next question is from Shay Sinamo of Menken Partners. Please go ahead.
Hi, Itzhai. It's Shane Sinimore from Manico Partners. How are you?
I'm very well, Shane. How are you?
Very well. I just wondered if you could maybe spend a few more minutes talking about what the longer term implications of the Growth in our listings franchise, how that plays out, because obviously we've won a lot of new listings in the last Year or more that we don't necessarily see the economic effects of that straight away. Could you just sort of walk through How that translates into future revenue and earnings?
Yes, sure.
Hi. This is Yehuda. And we expect to a question like that. And Because of that, we add to our press release an appendix that it's in Page 26 that including the forecast of the recognition of income from listings. So for now, from We have for the 4th upcoming quarter, we recognized ILS 22,000,000 For the listing that we had until now, until the end of June.
And on top of that, we need to remember that we have the Annually, NIS 3,200,000 that we have from the government bonds that we'll And you can see also the figures for the other two years that we also give there that it's about 17,000,000 in the 2nd year and ILS 14,000,000 in the 3rd year Of revenue that we will recognize in our profit and loss. And in total, we have a backlog of income that's more than NIS100 1,000,000, including the government Agreement, it's about ILS130 1,000,000 in total. Only mode.
And Itau, how do you feel about what the sort of forward order book for new listings is for the next year?
Well, I think that With regards of private companies, we still have plenty of companies, not only from the tech side, But from also other segments, and I think this is one of our strengths as an exchange that we have a very diverse mixture Public companies, but as I mentioned before, the valuation in New York also have some effect On the Israeli institutions and also the fact that we've never had actually such a year of new listing. So we feel that the Israeli institutions are now more hesitant In entering new IPOs, we have to remember that because they run 2,500,000,000,000, some of the IPOs, if you look at $100,000,000 $200,000,000 IPO, it's a relatively Small company for our Israeli institutions. I actually believe that It brings an opportunity to our market because we have a lot of accredited investors, but we don't have the proper Distribution channels to those clients, and we started to see that some of the IPOs that we are getting are not only from the Large institutions, but also from the family office and accredited investors. And I sure hope so That more of them will be more active in the next IPOs that will come.
I think that a major change happened in the Israeli market. If a few years ago, new companies were not Looking to become a public company in taste, now that's the main theme. And as we all know in the business model of the changes, once a company becomes public, it generates to the revenues in different areas of the exchange, And this is exactly what we plan to do and execute in the next years to come.
So can I ask the obviously we've done very well in growing our equity new IPO business, because that's obviously picked up dramatically? But globally, the bond markets are booming as well, particularly high yield and junk bond issuance. But it looks like while our bond business is Improving, it hasn't improved at the same rate that our equity business has. Are there things we can do To try to ensure that our fixed income business also continues to grow?
Well, We've already had a good bond market in the exchange. Our main issue was the equity side. We also are seeing corporate do you want to say something, Guido?
Yes. I will start with the government bonds that the government bonds raised last year about NIS160 1,000,000,000 In the stock exchange and from the beginning of this year, approximately NIS90 1,000,000,000 in the stock exchange. So in total, we have a government board that's trading on the stock exchange that it's NIS 670,000,000,000 In the corporate market, there was a shifting that companies raised money So secondary issuing, so 65% of the issuing Of raising money in shares was from secondary companies that trading on the stock exchange during this year. And On July, we have a great month that many companies that didn't raise during the last The previous year's raised and we had ILS 11,500,000,000 raised during July, so only in corporate bonds. Yes, corporate bonds.
Azrieli and Elbit and Electricity government company, so it depends of the appetite and that the government Starts to slow down the raising of government bonds. So for the institutions, there is more space to Raise money from the Public companies instead with higher rates than Substitute to the government bonds.
And on top of it, we will put focus on the on our derivatives market. We believe that Given the fact that our underlying assets of the shares is becoming more lucrative, it should Some of which turns out also to our derivatives market, and this is one of the issues that we will discuss in our management discussions. I would say as a whole, Shane, that we still believe that like we did the first ever global equity Offering in taste and 4 or 5 other companies did it afterwards. We believe that a global debt offering It's also something that one of large corporations worldwide can basically Leverage our capabilities and get the right exposure to our Israeli institutions that have a lot of money, But also the COVID is also playing a part because it put on hold some of the Ideas and even though you can speak with everyone through digital platform, it's not the same like when you meet in person people.
There are no further questions at this time. This concludes the Tel Aviv Stock Exchange Q2 2021 Results Conference Call. Thank you for your participation. You may go ahead and disconnect.