All right. Good afternoon, everyone. Welcome to our, one of our last sessions of the day in this room. I'm Ben Budish, Barclays analyst, covering the U.S. brokers, asset managers, and exchanges. And for our, next session here, we've got David Arnold, CFO of TMX Group. David, thank you so much for being with us.
Pleasure. Thanks for having me.
Maybe just to kind of kick things off, talking about the broader macro environment in your capital formation business, you know, how are you seeing activity within that business? What's the outlook for the rest of the year and next year, as far as you can see it now, giving the current pipeline for potential financing activity?
Ben, it's interesting. I mean, there's green shoots is probably the best way to describe it. We're seeing some signs of a turnaround, but at 30 days. From a TSX perspective, we've got about 78 IPOs year to date versus roughly 70 a year ago, the same time. So definitely better. But let's be honest, last year was definitely a low point globally for IPOs. I'm starting to see some pickup as well on secondary financings, so that's probably another good sign. But really, the pipeline is as robust as it's ever been. I mean, our pipeline right now, Ben, is just topping out around 2,000 companies at various stages of the IPO kind of cycle. So it looks good, but 30 days.
Got it, so the pipeline, you know, at your Investor Day, you talked about your international opportunity. I think you mentioned a hundred and fifty plus new listings since 2018 from the U.S., Europe, Israel, Australia, so maybe you could talk a little bit about how that looks in the current pipeline and maybe high level, longer term, how do you see that opportunity unfolding in terms of, you know, new geographies and, you know, gaining scale within existing regions?
The, yeah, the 250 since 2018 is an important stat. I look at another one, which is, you know, the life to date is roughly around 230 international listings. And those come from various different geographies, right? We have boots on the ground in areas where we know that we can win. For example, we have boots on the ground in Australia, large mining, oil and gas kind of infrastructure there. We also have boots on the ground in various parts of the U.S., Israel as well, with the Startup Nation . As you know, historically, the exchanges was known as one that was weighted more heavily towards mining, et cetera.
During the pandemic, we actually saw the first time where our innovation sector, so technology and so forth, was actually larger than mining. And so that's why we have individuals in parts of the U.S., like Palo Alto, but also individuals in the Startup Nation , Israel, and Tel Aviv.
Got it. Are you staying within the capital formation business? So you recently acquired Newsfile, a Canadian-owned news dissemination and regulatory filing provider. Can you just talk a bit more about what this business is, how it fits into the broader TMX business?
Yeah, absolutely, Ben. So one of the things that we're really focused on in our capital formation business is building out what we refer to as other issuer services. And if one rewinds, just not too long ago, we acquired AST Canada to really bolster our trust and transfer agency business. And that's on our other issuer services line, because providing services to both public and private companies is part of the strategy. So Newsfile was one very similar. It's a really neat company. It's one that we had curated a relationship with the principals over a number of years, and it's a perfect fit for us. It's got 1,700 clients, 1,100 of which are listed companies and issuers, but 600 of which are privates. And so that adds to not just the IPO pipeline, but the other services.
I think that the play with this business is a. It's a revenue and growth play, as opposed to a cost and a synergy play.
Interesting. Well, the other big piece of your other issuer services is the trust business.
Right.
You know, how do you think about medium-term growth here? You mentioned AST. Where are we in terms of the synergy potential or opportunity? You know, to what degree are new relationships there dependent on the IPO market?
A couple of parts to that question. The first one is, you know, we classify our businesses into either market growth, strong growth, or high growth. Strong growth would be 5+% . Market growth is grow as the market grows, and high growth would be high singles or, you know, high singles to double digits. The trust business for us is one that we classify as a high-growth business, and that is absolutely what we've seen in the track record of the business since not only pre-acquiring AST Canada, but since the acquisition. The acquisition and integration is pretty much done. What we're really focused on right now is modernization, right? Modernization of tools and technology, be far more responsive to our clients' needs.
It's a business where most of what we do at TMX is what I would refer to as B2B, but in this part of the business, there is a bit of a B2C, right? Because a lot of the shareholders are like consumers that are calling in to a help desk. "You know, I didn't get my dividend. You know, this share transfer, can you help me trace it?" And so forth. So being really good at client service for that segment is fundamentally important for the business. So we're doing some really innovative things there. We love what's happening with some of the artificial intelligence and machine learning, because we think we can do it there, too. But the last part of your question then, was how does this tie to kind of the listings and the IPO activity?
There's no doubt that through the last 18-24 months, with this kind of global slowdown, if you will, in IPO activity, that's stifled the pipeline for us winning new, you know, transfer agency mandates. As it comes back, that puts us at the front of the queue for it. Because the business is well diversified, Ben, we've been able to benefit from higher interest rates through the cycle. While the kind of IPO flow that drives the custodial activity has been lower, the interest income has kind of offset that.
Got it. So as I think through the pipeline, what the next few years could look like if that sort of comes to fruition, maybe in an interest rate neutral environment, you could help out a lazy sell-side analyst. Like, how does that translate into, you know, a pickup in growth of the trust business? We're assuming it should.
Yeah, it should. I mean, so one of the statistics we look at internally is our market share is in the low thirties. Number one in the marketplace is Computershare, right? Slightly ahead of us, but we are winning more than 50% of the mandates that we bid on, right? So that tells you that we're gaining market share in the marketplace. And I think as the IPO activity comes back, that bodes really, really well for us for winning those mandates. But the tough thing is, you know, being someone's transfer agent is a very sticky part of a business, right? And so winning on new IPOs, we're front of the queue, which is great, but on existing public company mandates, it's a tough slog.
So, what we do is we focus on the ancillary businesses, maybe employee share purchase plan, maybe helping them with some, like, you know, trust mandates, so that the only thing that's left at the end is the custodial, and so then we can actually win that at the end.
Makes sense. Let's move over to the trading and clearing business. So on the trading side, you're in the process of building out a U.S. ATS. So maybe a little bit of the background here. You know, I think you're basing this on your Alpha-X tech in Canada. So what's unique about that exchange, and why pursue the opportunity in the U.S., where competition is already quite intense on the trading side?
Yeah, and so in the interest of time, I'll really summarize it, right? We launched Alpha-X in Canada. It's been very well received. We didn't launch it in a laboratory where we came up with an idea. This was really client driven. It was listening to a lot of our clients then who had said, "We need help on better order execution and routing," so the solution is really geared towards that. We have forty participants sending active order flow daily through the environment. And that then spurred on the discussion with those clients about, we're in the U.S., we love the features, the functionality of Alpha-X , can we do something in the U.S. ? And that kind of led us towards Alpha-X U.S. , which is kind of the U.S. ATS you tapped on in your question.
Got it. So for that build, specifically, I think you've already laid out your expected 2024 OpEx and CapEx related to the project. How should that trend into 2025? And then how do you think about what the revenue potential looks like? How do you think about your ROI framework? Can you read into what's going on in Canada and translate that into U.S., and how do you think about those pieces?
So a couple of those pieces I can't get into because it's competitive information, and time will tell. But, you know, even 0.5%-1% market share in the U.S. is really meaningful for us as we build it out. Obviously, we have disclosed that we're in the build phase right now, so we're spending on OpEx, and there's limited amount that we can capitalize because we're in that, you know, build stage. But what we are able to disclose is that we have received FINRA approval, we're now in the SEC approval part of the chapter. The development is going really, really well. We have a number of participants who've actually committed, both verbally and on a piece of paper.
So we actually got some agreements that we're papering, so that when we do receive final approval, we're ready to go and launch, literally within 30-60 days of receiving kind of approval.
Just so you know, for us to all kind of know and understand, when an exchange like that launches, what do you think the initial sort of, you know, benchmarks are? How long before it achieves sufficient liquidity? You know, at what point can you determine success, failure? What do you think the next first six to 12 months look like?
Yeah. So typically, and, you know, it'll be, as John and I have discussed many times, we will know within the first two to three years whether or not this is going to gain enough meaningful traction for us. We will have a few KPIs that we look at internally that will really drive us. But the secret sauce for us here, Ben, is that this is a bit of a win-win for us, right? Because we've had a unique opportunity to develop next gen matching engine technology on the front, on the top of the cloud. So we can actually port that back to Canada down the road. So if we're successful in the U.S. and we port it back to Canada, that's the win-win.
If we're not successful in the U.S. , we can still port it back to Canada, which is the other win.
Makes sense. So you're entering the U.S. markets, but there's some U.S. competitors entering the Canadian markets. You know, how do you think about competitors in the Canadian exchange space? You know, you have pretty deep competitive moats. There's yet another U.S. exchange, which has already acquired a Canadian property, but they'll kind of be undergoing a tech migration next year. You know, how do you think about sort of protecting what you have? Because I think it's fairly well understood your moat is quite deep there, but, you know, it's a high-quality competitor moving in, so how do you-
Absolutely. And so, you know, the high quality competitor that's moving in is, you know, Cboe bought NEO, which has a matching engine property as well. And we're actually excited about that because it brings a little bit more rigor to the marketplace, right? So we love the fact that Nasdaq with its high standards operates in our marketplace too. Our market share has been anywhere between 60% and 65%, and we're very happy with that. We wouldn't want to see it go lower, but we also don't have a vision of moving it even higher, right? It's healthy to have some competition in our space. I think the interesting thing will be, are there additional plans and innovations that our competitors bring to market? And how quickly can we react to those?
We have a few of our own innovation projects on the go, too. So having a competitive environment for us is actually quite healthy.
All right. Maybe kind of separate question: Can you maybe unpack what you're doing in terms of post-trade services? There was some, you know, talk about this at your recent Investor Day. Then in terms of the impact of TMX, you know, how do you think about the timing, magnitude of any contribution to overall growth?
Yeah, so that's a great question, Ben, because, you know, historically, our post-trade businesses have been considered and operated by other owners in other jurisdictions as somewhat of a utility, right? We've actually challenged our teams, and they've risen to that challenge by, how can we actually make post-trade a growth engine, right? And it's a bit of a rallying cry internally, which is post-trade can be a growth engine. And so the first thing we did is we had a number of conversations with our clients, and one of the key ones that came out in the Canadian marketplace is collateral management, right? So earlier this year, we launched a product called CCMS, which is a Canadian Collateral Management System. It's in partnership with Clearstream, and it's been so well received.
It is, it is truly innovative, and it really helps people in the space manage their collateral. So it was something that each institution would need to build on their own and maintain. Now we're actually be able to provide that service and be part of it. In addition, we've actually launched another product, literally at the end of the first half of the year, called SGC, which is Secured General Collateral Notes. Also well received, once again, meeting a need of what's needed in the marketplace. So we have a few others that are not yet live, so we won't talk about them, but we are challenging the teams, Ben, to make post-trade a growth engine. And so stay tuned in this space.
Got it. Maybe moving on to derivatives. So let's start with your longer-term outlook. You know, in the U.S., there's a bit of an investor worry that lower rates could be a headwind for at least the interest rate futures trading business. You know, how do you see this playing out in Canada, where, you know, a similar kind of outlook is expected?
So it's very interesting, right? You know, rate volatility is really positive for the interest for the derivative and especially the interest rate derivative side of the equation. But what I find most interesting is when the volatility is a major surprise to the market participants, right? Folks are expecting a rate hike of 25 basis points, and a central bank does 50, or folks expecting a rate decline, and there's nothing. And so that causes a little bit of volatility. But if you look behind what's going on in the marketplace, Ben, like, we've had 10% of volume growth in the derivative complex over the last 10 years. That's the CAGR. So volume is actually really driving a lot of what's going on in the complex, less so pricing.
And so as interest rates move, I think the volumes will continue to show this historical trend of growth. We recently just launched the CORRA product in Canada on the short-end side of the curve, so that's also driving a lot of interest and volume.
Got it. Well, speaking of CORRA, you know, now that the BAX CORRA transition is largely complete, you've got CGF contract initiatives rolling off. I think it was in July, this happened, or-
Yeah.
at some point in Q3.
Q3, yeah.
So how do you think about pricing as a driver? Maybe tactically, what should we think about near term, and then longer term, how do you think about balancing pricing versus, you know, other drivers of organic growth?
Yeah, and so for those that are, that aren't as familiar with it, right, there's really three parts to how we generate revenue in the derivatives side. The first is actually the pricing, which is really the smallest part. It's a highly competitive market. It is regulated, and so the place where we've really benefited is by driving volume, right? And, you know, average daily volumes of, you know, a hundred thousand plus already on the CORRA product, which was literally just launched, shows just how robust that and liquid that market is. I think what's very interesting in this space is really unpacking, you know, whether or not you can take a market-making regime or program off, like you touched on the five-year, because liquidity is what drives that marketplace.
When we put it in for the five-year, we really got to a point where the volume was sustainable. That enabled us to retire it. That drives a revenue per trade an uplift for us. However, on others, where we put it on, it drives a revenue per trade downdraft. Those two will transition much like we did in the five-year.
Got it. What about on the options side? I think we spend more time talking about the rates future side because of the, you know, the pricing dynamics there. But maybe just touch high level on options. In the U.S. , it's definitely been a kind of big, bigger, long-term growth story across the exchange space. You know, what are you seeing in Canada in terms of options? You know, to what extent is retail like, you know, potentially a driver? You know-
Yeah
... what, what's your kind of, you know-
There, there's a big distinction between the Canadian retail investor and the U.S. retail investor, and there's also a little bit of a regulatory component to it as well, Ben. So, you know, in Canada, for a financial advisor to, you know, put their client into retail options, requires a certain level of accreditation, not just by the advisor, but also attestations and accreditation for the investor. Less so the case in the U.S. So that's why we see quite a difference in the playing field. There is more interest in it, but I don't see it becoming the biggest growth driver.
Makes sense. Let's move on to your data business now. So starting with VettaFi, maybe beginning with the industrial logic for the deal. So VettaFi is mostly a non-Canadian index manufacturer, so how does it fit into TMX? Where do you see the obvious, synergy opportunities?
So let me start with the synergy opportunities first, right? When we announced the VettaFi acquisition, our focus then was on growing revenue, right? And so there isn't a cost synergy play with TMX VettaFi. It's purely about accelerating growth. On a pro forma basis, this year is around 16%, year-over-year pro forma, and it's classified as one of our high-growth businesses, which is high single digits to double digits. So we will continue to accelerate that with TMX VettaFi. A couple of the revenue synergy opportunities is TMX VettaFi doesn't do a lot of business in Canada yet, so that's an opportunity for us. But more importantly is TMX VettaFi has other jurisdictions that it can grow into, too. And with TMX, you know, behind TMX VettaFi, we actually have the ability to do that.
We have relationships because of Trayport in the U.K. and in Europe, so we can actually bring some of that to the market. But the actual rationale for that, the getting into the business was very interesting. We had a number of clients, Ben, who approached us and said they would like to build a custom or bespoke index, right, and we have a long-standing relationship with S&P. They do our S&P/TSX 60, the composite index, et cetera, so a lot of these client requests for bespoke indices wasn't quite in the wheelhouse of what S&P would like to serve. We saw it as a great opportunity, so we're kind of serving that end of the market, and VettaFi is a perfect fit for it.
We started off trying to build it, very, very quickly we got introduced to the team at VettaFi, and we roll forward the clock eighteen months, and now they're part of the TMX family.
... All right. You know, last quarter you gave us some enhanced disclosures around AUM revenues. It was quite telling. Can you talk a bit about how the pricing works there? It seems like perhaps, you know, some parts of the business, at least from a fee rate on AUM, you know, come on at premium versus discount pricing. You know, what are the puts and takes there?
Yeah.
How should we think about, you know, as we're all trying to kind of build our own models of what we believe to be the, the passive ETFs, how, how should we be thinking about-
Okay
the various pieces?
So, the short answer is, over two-thirds of the business, roughly, is coming from index and benchmark business, right? Which is very much driven by a basis points trailer on assets under management, right? So that's kind of the key. But you do touch on it then, which is, index relationships are not priced equally, right? They are priced dependent on number of factors. So that really drives a difficulty for individuals to look at. You know, it's not like an average rate you can just apply to the entire portfolio, because as AUM grow, it might be in a higher yielding index, or, AUMs might grow in lower yielding indices. So that's always a challenge.
But so for me, internally, I spend a lot of time with the team over there, and I'm focused on what's the spread like across the board. But for simple kind of, you know, index switches, we're talking, you know, a handful of basis points, right? It's very, very small. But as you move into more premium ones, it gets, you know, a little higher. The second part of the business is digital distribution and analytics, right? So that's the next biggest part of the business. And then the last part of the business, and that's a lot of subscription-based, and ad-based, click-based through revenue. But then what we do have is our exchange conference, which you did touch on, and that's roughly about CAD 6 million a year of revenue.
And so that kind of breaks down the pie for you, but it's really about the index and benchmark right now. Our focus, though, is growing our digital and distribution and analytics business at a higher rate than we're growing the index and benchmark business, but that's gonna take a lot of time.
Got it. Look, can you unpack that a little bit then?
Yeah.
The customer base there, I would assume, it's asset managers, advisors, those who want more insights around, you know, ETFs. And then can you talk a little bit how... Maybe kind of two separate questions, but talk a little bit about how the revenues work across the rest of that business. Is it simply subscription for data, clicks on ads? The conference, I think, is pretty straightforward.
Yeah.
But what does the kind of growth algorithm look like in that part?
Yeah. So underlying the digital distribution analytics business is a couple of web properties that we maintain, so ETFdb.com, etftrends.com. These are very, very important assets for us because A, we have users that have logged in, we know exactly what they're looking at. There's a lot of search data there in terms of, you know, I'm researching ETFs in this space. That actually helps then funnel an information flow to the ETF manufacturers. A lot of searches for this, we don't have anything list, you know, and that kind of creates a bit of an ideation cycle. The methodology around the pricing is something we don't disclose, you know, in that space, but you touched on it, right? It's click-based, subscription-based, and a couple of other ancillary mechanisms.
One last question on VettaFi, just 'cause it's something that comes up a lot with investors, particularly those who are used to tracking the asset management business. So any comments you can share on, you know, flows into the underlying products, or at least your thoughts around, you know, disclosing the flows. It's a piece that feels like investors still want... Totally understand why you haven't kind of disclosed them yet. And of course, the incremental disclosure is helpful, but it's probably one of the most frequent conversations, you know, questions that comes up. "Hey, I track the flows across all these funds over here. What about VettaFi?
Right.
you know, what are your thoughts there?
And we can take it offline as well, but for everyone listening, there's actually line of sight to the AUM for all of VettaFi's clients. What isn't disclosed is what the AUM basis point rate is per client, right? So it is pretty easy to see exactly how the flows are moving and how the AUM is growing. You know, it's either price appreciation or it's inflows, right? So those are really the two. And a lot of that information is publicly available, but what isn't available is the final piece, so that one can actually do the math. 'Cause then you would literally be able to predict the revenue in that segment, so not two-thirds of it.
John, I said it, or David, I'm sorry. I said it before, I'm a lazy sell-side analyst, for all the help I can get.
Not a problem.
I understand.
You gotta try. You gotta try, too.
Gotta try.
Yeah.
Okay, perhaps moving on to Trayport. So it's funny, one of the questions that comes up with VettaFi is, you know, can they replicate what they did with Trayport? Trayport's growth algorithm accelerated after you acquired the asset some years ago, and it's been, you know, one of the best performers of the business. So let's just start with that. What did you do right here that perhaps wasn't-
Yeah
being done by the, you know, the predecessor owners?
So the short answer is, can we do with VettaFi what we did with Trayport? And the short answer is yes. Okay? You know, Trayport, when we acquired it, was a low to mid-single digit grower. We put it into our high growth category. It is, which is, you know, high singles to doubles. Trayport has grown double digits ever since we've acquired it, right? And we did that, you know, we've obviously had various different tactics and strategies across Trayport to actually drive that growth, and we will do the same with VettaFi. So what are those tactics? One is, we focus very, very much on expanding the kind of asset classes in Trayport, right? We will look to do the same with TMX VettaFi.
We already have a joint sales team with our Datalinx business, really, you know, side by side, approaching clients on various different parts of their needs. In addition, we're actually looking at different geographies. It's something that we started doing in Trayport, looking at the same thing with TMX VettaFi, and leveraging geographies that we're already in, as we touched on when we did capital formation, right? So some of those geographies, we have a right to play. And then last but not least, is you know, staying really, really focused on the pricing, which is what we did at Trayport, too.
Got it. So for Trayport, in particular, you've seen some very strong recent growth in new licensees. Similar question, like what have been the key drivers? Like what's causing all these new seats, new sign-ups?
Yeah. So a lot of what you're seeing right now is a combination of new clients, new trading houses. You know, one of the statistics I look at regularly is just how many new trading firms have signed up to Trayport. Because that is a trigger of new revenue, Ben, but also a harbinger of future revenue. Because a lot of the new trading houses, when they join the natural gas and energy space, they'll take maybe 10 or 15 seats, but they might have a desk that's got 40 traders, right? Because they're focused on other things. When they come to renew, that's when they might go for 30 or 40.
So the second part of why we saw such good licensee growth is, every year we have roughly between 25% and 30% of our clients renewing on their enterprise site licenses, and this year we saw major uplift on a whole host that renewed in the first half of the year. And that's really just deepening, right? A lot of them had read-only licenses, they're now going for read and write licenses and so forth, and that's why you saw the uplift.
Can you unpack that first part? New trading firms-
Yeah.
Are these firms that are moving away from a competitor? Are they firms that are, like, big trading firms that are saying, "We trade rate futures, we trade options, we trade equities, we'd like to trade energy also?" Like where... What were they doing last year, now they're-
Right.
Now they're Trayport?
So it's a bit of both, but a lot more of the latter, right? So, you know, a trading firm that might be trading in, a host of other products, that now see that there's a market-making opportunity for themselves in natural gas and energy in Europe. And therefore, if they want to be in that space, and they want price transparency of those derivatives, you have to get a Trayport subscription.
Interesting. You mentioned Europe. At your Investor Day, you talked about Asia as a very sizable growth opportunity, and you've been talking about the U.S. for some time as well. So, you know, similar kind of theme of question, you know, what's the process for growing in these regions? And do you think you can replicate the success you've seen in Europe? It doesn't seem like there's many alternatives in the U.S. as there is elsewhere, so, you know, and maybe another question would be, what is the competitor in the U.S.?
Yeah.
You know, where are these firms coming from, you know, the newer ones on the platform?
Correct. So it's very interesting, right? Because, you know, Japan, which is part of the Asia expansion and the North American expansion for Trayport, they're very different, right, Ben? So I think for us, in Asia, it's going through a process of deregulation, and so it's important that that plays out. And you know, we already have on the Trayport screen, the Japan-Korea Marker. But as more comes into the deregulated kind of fray, you'll see more lining up on the Trayport screen.
What will be very interesting is as we penetrate into Japan, it'll be displacing what folks had traditionally done, either on the telephone or had done, you know, using an in-house developed kind of solution, as opposed to there being someone else who's providing that service. Much the same when we're talking about in the U.S., right? So it's one of these ones where, you know, both the Japan and the North American plans are block by block. John, unfortunately, couldn't be here today, but John's a big baseball fan, and it's a lot of singles and not a lot of doubles and triples or home runs.
Understood. Maybe last question on Trayport. You know, how do you think about the products that, You know, there's obviously a lot of growth in terms of adding new licensees, new seats. What about upsell opportunities? You know, what are you seeing in terms of uptake, where you are selling, and then how do you think about product development, either in terms of new assets on the platform or new, like, analytics capabilities, that you may be able to add?
Yeah. So we've added a couple of features and functionalities over the last few years, Ben. So the first one was charting and analytics. We'd noticed from a lot of our clients' usage data, that folks were downloading data into Excel, so that they could run their charts and do the analytics they wanted to do. We had an opportunity to purchase a company, integrate it directly into the Trayport platform, and it's a premium add-on service. So that's one of the ones we're referring to. The other one is algorithmic trading, right? A lot of folks wanted APIs they could use to fuel their algorithmic trading engines. And we said, "Well, why don't we just build it directly into the Trayport platform so that you can subscribe to that service? You don't need to do any in-house software development.
You can use our tool." So that's kind of the genesis for those. We're working on messaging, which is really, really cool, like chat. You know, and I often use kind of the analogy of, you know, Trayport is to natural gas and energy in Europe, what Bloomberg is to fixed income. And as we know, if, if people are Bloomberg users, the chat and messaging functionality is highly sought after. So we're looking to replicate that in our environment. And there are a few other things that the team are working on, as we fix a couple of our dual platform infrastructure projects, which will hopefully be done first quarter of next year.
Understood. Maybe we'll go to Datalinx real quick. So maybe talk about what you've been seeing here. I think revenues have been kind of flattish over the last several quarters. Growth has been decelerating after a bit of a step function increase to kind of like the mid- to high-CAD 50 million per quarter range last year. What's kind of been happening over the last, like, 18 months? What gets revenues going again?
Yeah. So, so what effectively gets revenues going in, in Datalinx is, feeds, subscribers, and price. Right? So those are effectively the three. Price is regulated over there, but we do have a half CPI, or half a consumer price index, kind of, pricing, protocol. That kind of helps you set the framework as to what drives it. What's been very, very interesting in the Datalinx business is, last year we saw incredible demand and uptake, both for subscribers and for feeds, and that really helped drive, as well as we did get some reasonable pricing increases last year. That drove last year to really outperform our long-term guidance, right? Because the long-term guidance for Datalinx is strong growth, which is a kind of like 5% plus. So last year was an outperformer.
This year is a little slower, but we're going into budgeting season right now and forecasting for 2025. So, I was actually on a call earlier today with our team at Datalinx . They've got some really neat ideas of what they want to do.... So, I'm very, very confident that they can deliver on their strong growth profile. And, you know, time will tell whether or not I think the debt business is ready for an upgrade.
All right. Look forward to it in the next MD&A as well.
Yeah. Yeah.
Okay, maybe moving to capital allocation. So M&A has been a key part of the story, a lot of small tuck-ins, some bigger deals, as well. You know, how, how do you think about M&A? You know, clearly, with VettaFi having happened more recently, it seems like anything near term might be more on the smaller side, but maybe, you know, thinking high level, any parts of the business do you think could be reinforced with M&A? Anything where it's more, you know, more obvious that it would make sense to sort of accelerate by buying rather than building organically?
Yeah. So you've touched on a good point there. So let me answer the last part of the question first. Are there any parts of the business that can benefit? Then I think all of our parts of our business can, but it's not M&A for the sake of M&A, right? So we have a strategy to grow all of the parts of our business, and we're very comfortable growing organically, growing through our own build strategy. We're happy to also partner, as we've done in a couple of instances, and then we're also very happy to pivot to a buy strategy if the timing is right and the price is right. So it's kind of, you know, across the spectrum. You touched on a little bit about our capacity, Ben, right? You know, we've just completed an acquisition.
We financed it entirely through cash and debt. We're in the process of our de-leveraging plan, but we still have incredible balance sheet capacity, right? You know, if we were to run ourselves up to just shy of four times leverage today, that would be about CAD 1 billion of capacity that we actually have for acquisition. So there's enough that we have there. But the things that we've been doing lately, like Newsfile, right? Are small niche tuck-ins. And I would envisage us doing a few more of those, you know, before I get to my end of twenty twenty-five kind of de-leveraging plan. But if we saw the right asset and it helped accelerate the strategy, then we would not shy away from it.
And then just in terms of financing, you mentioned, VettaFi was-
Yeah
... was paid for with debt and cash. How do you think about the use of stock versus cash? Anything in particular about that acquisition?
Yeah. So I mean, you know, obviously, the use of cash and debt is cheaper than issuing stock at the end of the day. But, you know, our share price has performed really well since the acquisition, so it becomes a more powerful, meaningful currency. So we're open to it. We would need to look at the merits of the acquisition. I'd need to look at the accretion dilution factor of the two. Exactly, you know, what the demand is, you know, for some equity, and really, do I need it, right? And if I do, then it's an avenue that we'll explore. We're not not open to it.
Understood. Maybe moving back to the income statement. So, we talked a little bit about OpEx growth related to the ATS, maybe-
Yeah
... OpEx growth, more high level. You know, how do you think about OpEx growth as we think about potentially slowing inflation, but also balancing that with some newer initiatives? What? You know, I know you're not gonna guide 2025 just yet. Again, can't blame you for asking.
No.
But how do you think about sort of the longer-term trajectory there, the use of OpEx versus CapEx, that sort of thing?
Yeah. So, you know, we've continued to focus on, you know, growing our expenses kind of in line with the rate of inflation in the normal kind of course. But obviously, this year, as you know, we're building the U.S. ATS out, right? That requires an additional organic investment, and that anywhere from, depending on if you're using our reported or adjusted numbers, is 1.5%-2% of kind of an OpEx lift, right? So you've got to adjust for that. But we've got a lot of M&A activity that we've ingested, right? So not too long ago, we bought Wall Street Horizons. You've got to adjust for that. Now, we've just acquired Newsfile. Previously, we just acquired VettaFi.
So if you look through all of that, then as I head into twenty twenty-five, I'd like to see it in that kind of no higher than 5%, right? Is kind of where I would love to be. But I'm going through the budgeting cycle right now, right? And so when we get through the fourth quarter, kind of, you know, the dust settles, I'll be much better able to kind of indicate where I think twenty twenty-five will be. But my going-in assumption right now is, you know, can I do it at sub-5%, is really the going plan.
Understood. Now, one other kind of high-level topic that's come up across a lot of my chats, not just exchanges, but across, you know, asset managers and others, has been AI. You know, how do you think about the use of AI internally, either as a cost saver, as a revenue driver, and any other kind of high-level thoughts on implications for, you know, the exchange business in general?
So the first part of your question, and Terry was speaking just before, and I heard you said that, you know, CME, they've got like six or seven kind of, you know, super users that are testing it out. You know, we're on the Google productivity suite. We are using the Google generative AI functionality in our productivity suite on many users right now, not five or six. It's a sizable chunk. I've been using it myself personally, and it is remarkable what it can do to be a productivity-enhancing tool. So I see that, and I see us less so around how much cost we can take out, but how much more throughput we can get through it, right?
So our team right now are exploring what we can do on testing. We have a lot of tech code in our organization. Often, when we make changes, we have, you know, 15 scenarios of test use cases we'll come up with, and humans have to go and do those 15 test cases. With generative AI and using the artificial intelligence kind of knowledge right now, we can actually test for thousands of use cases, right? And do it much, so we can cover a bigger waterfront in a shorter period of time. So I see a lot of that happening in our technology organization. Then the other thing I really think that we can do is leverage it, as I touched on earlier, in our client-facing part of the trust business, right?
A lot of the workflow that our call center agents need to do, the quicker they can get it done and things can be prompted to them using generative AI, I think is gonna help us in that business. So stay tuned. I'm not sure whether it'd be a revenue-enhancing opportunity for us yet. We've got a couple of neat ideas, the teams. We've done a few, what we refer to as internal hackathons, that kind of come up with some neat concepts and ideas, but we're still pressure testing that. So nothing to report on, but it's here to stay, and it's a meaningful technology for us to embrace.
Maybe one last technology question with our last minute here. Just in terms of, you know, cloud utilization, again, we've heard some of your exchange peers-
Yeah
... talk about, like, very specific, you know, partnerships with big hyperscalers. You know, where are you on your cloud journey at TMX? And similarly, you know, what benefits are you expecting over, say, the next, you know, several years?
Yeah. So we are very, very far down that cloud journey. We haven't made any big announcements about it. We work with pretty much all of the cloud providers. But what we did, and this goes back several years ago, is we moved our entire productivity suite to the cloud. So we are a Google shop, soup to nuts, in the productivity suite, so Gmail, right through Google Docs, Google Sheets, you name it. And that, so that is all in the cloud right now. Our entire ERP environment is also in the cloud, so we're a Workday client, both for HR and for financial. So our ledger, the whole nine yards, is all in the cloud.
So everything in the ecosystem, other than kind of what I'd call the core matching engine and trading technology, is in the cloud already for us at TMX. What we are thinking about is, you know, how can we actually work with these cloud providers? And we're talking to a number of the big players right now to help us with our data centers, right? And actually moving some of that to the cloud. So that continues to be an exploratory part of the business, but nothing to announce, and we will probably just go about doing it as opposed to maybe announcing it.
Understood.
Yeah.
With that, we're out of time. David, thank you so much for being with us. Pleasure to have you.
Thanks, Ben. It was a pleasure. Thank you, sir.