TMX Group Ltd

TSX:X

Earnings Call Transcript 2019-Q1

[Operator]

Good morning. My name is Jacqueline, and I'll be your conference operator today. At this time, I would like to welcome everyone to the TMX Group First Quarter 2019 Analyst Conference Call. [Operator Instructions] Paul Malcolmson, you may begin your conference.

[Paul Malcolmson, Director of Investor Relations]

Thank you, Jacqueline, and good morning, everyone. Thank you for joining us this morning for the first quarter 2019 conference call for TMX Group. As you know, we announced our first quarter results last evening as well as our agreement to acquire VisoTech. The releases -- the press releases are available on our website under tmx.com. This morning, we have with us Lou Eccleston, our Chief Executive Officer; and John McKenzie, our Chief Financial Officer. Following opening remarks from Lou and John, we will have a question-and-answer session. Before we start, I just want to remind you that certain statements we make on the call today may be considered forward-looking, and I refer you to the risk factors outlined in today's press release as well as reports we will file with regulatory authorities. Now I'd like to turn the call over to Lou.

[Lou Eccleston, CEO & Director]

Thank you, Paul. Good morning, everyone, and thanks very much for dialing in this morning to our Q1 discussion. As Paul mentioned, last night, we reported results for the first quarter of 2019, and later today, we'll be hosting our annual shareholders meeting here in our new headquarters in Toronto.On Q1 -- our Q1 performance clearly illustrates how TMX has evolved as a business as well as the continued progress we have made in executing our long-term growth strategy and roadmap for growth, which we laid out last November. Looking closely at the first 3 months of the year, while overall revenue was lower when compared with our record set in Q1 of last year, we do see a continuation of the theme of Q4 of 2018 with TMX results once again reflecting the value of our deep and diverse portfolio of assets and the increasingly global nature of our business. Slow overall capital markets activity post challenges in the quarter, particularly in our capital formation and equities and fixed income trading businesses. Conditions were less than ideal for capital raising, which led to a decrease in terms of the number of financing transactions on Toronto Stock Exchange and lower transactions as well as lower dollars raised on TSX Venture Exchange during the quarter.Inside the numbers however, we continue to see encouraging signs. For example, TSX Trust, our corporate trust and transfer agency business, gained market share in the first quarter, increasing from 20% to 22%. And Canada continued to emerge as a leading global hub for innovation companies. In March, we celebrated a landmark innovation IPO as we welcomed Lightspeed, a leading point-of-sale software provider to Toronto Stock Exchange. Founded in 2005, and headquartered in Montréal, Lightspeed chose to pursue an exclusively Canadian listing. Their CEO is quoted saying they chose to list on TSX as a means to gain access to large global tech investors. Through all market conditions, our global strategy has helped to effect positive change in the way Canada's markets are perceived. TSX and TSXV are diverse and adaptive, they serve companies of all size and stage of maturity in all sectors, in traditional areas of strength and newly defined sectors, and the pipeline remains strong. Investors across the world continue to look to Canada as a good investment. According to the latest data from Statistics Canada, through February of 2019, foreign inflows into Canadian equities of $15.6 billion compared with $5.7 billion in the same period last year, which is an increase of 173%.And our global expansion efforts remain on track. In 2019, our business development teams are working to increase TMX's presence in targeted international regions and further strengthen our stock list. In April, we conducted roadshows in South America with stops in Peru and Brazil, [ catching ] the unique value proposition of Canada's equities markets and with that, represents for companies seeking access to capital to fund their growth. Later this month, we have similar campaigns set for California and Israel as we continue to work to attract international listings across multiple sectors and activate new pools of capital.Q1 2019 also featured continued momentum in TMX's global growth strategy with the strong performance of our Derivatives business, Montreal Exchange, where we have successfully expanded our trading hours to increase international participation, and Trayport, our London-based connectivity platform for European wholesale energy markets. Starting with Derivatives, our extended hours' initiative has been a success. With strong activity and expanded global participation. Early hours' volume accounted for 3% on average of MX's total daily volume in our core products in Q1. Based on the success of Phase 1 and increased client demand, earlier this year, MX expanded its extended trading hours' initiatives to include index features and the SXF, Canada's recognized benchmark equity index product. MX volumes were up 11% in Q1, with strong gains in our core products, which contributed to a similar increase in revenue from our core Derivatives Trading and Clearing business, excluding BOX-related items. We've seen strong performances from our Derivatives business in the past, but a quick comparative view of volume performance across the Derivatives industry is a real eye-opener in terms of differentiating MX from our North American peers. According to public data, MX's Q1 volume growth of 11% outperformed all major North American derivatives exchanges. In fact, on average, total volumes for the peer group were down 16% versus MX's 11% growth.Montreal Exchange has played a major part in TMX's evolution over the last 4-plus years from regional exchange operator to global client solutions provider. And MX continues its work with clients to push the Canadian derivatives marketplace into a leadership position on the global stage.Turning now to Trayport. Revenue from the core subscriber business was up 14% compared with Q1 of 2018, and that included an 8% increase in the number of total subscribers and a 12% increase year-over-year in trader subscribers and an increase of 6% in the average revenue per user compared with Q1 2018.As we set out in Investor Day, Trayport is looking to capitalize on emerging global energy trends to drive growth opportunities and to expand the current portfolio services offered to their existing client base. One of the 4 growth trends we identified and prioritized around is the globalization of natural gas market. In the first quarter, Trayport successfully seized on this developing market opportunity, and our platform supported record-setting volumes for clients trading in the European GAS and the Asian benchmark LNG contracts. If these markets continue to expand over time, the increased volumes alone could attract additional market participants and Trayport subscribers. The other global energy trend we've talked about that is driving a market structure change is the shift to renewable generation, which, alongside the globalization of gas, is driving increased volatility in the short-term power and gas market. In an effort to take even further advantage of these favorable trends, we're excited about another opportunity in the short-term markets. Yesterday, we announced an agreement to acquire VisoTech, based on Vienna, Austria. VisoTech is the operator of a leading European short-term energy trading platform. VisoTech will offer its customers advanced solutions for algorithmic trading in the European energy space, enabling clients to code their own algorithms or use as test custom algorithms. This is a big win for Trayport and it's an accelerator for their expansion. The acquisition of VisoTech immediately strengthens our offering with new solutions for short-term energy trading across power and gas, enhancing our customers' ability to respond to heightened volatility in these markets.VisoTech also adds algorithmic capabilities to the broader Trayport platform, augmenting the ways in which Trayport can support clients in building and executing trading strategies derived from ever-increasing amounts of data. Beyond the products and capabilities, this acquisition also brings a proven product development team with deep market knowledge and dynamic new skill sets to our product development team. The acquisition of VisoTech is highly aligned to TMX's strategic objectives as well, accelerating our organic growth by introducing new product offerings and expanding in new markets and it's consistent with our disciplined approach to M&A. Additionally, this will further increase the portion of our revenue derived from recurring sources, expand TMX's global footprint and adds talent and data mining and analytics to the team. Last but not least, we're excited to look across our multifaceted business to seek out potential opportunities to leverage VisoTech's capabilities around artificial intelligence and data science development.In addition to the globalization of gas markets and the shift to renewable generation, we continue to build out new capabilities to address the additional 2 growth trends for Trayport, and specifically, that's new data and analytics solutions, which provide clients the ability to mine critical data sets, that's scheduled for launch in Q3 of 2019; and the fourth was supporting broker expansion with new technology to offer hybrid trading capabilities and [ dual ] for brokers is being rolled out as we speak for broker customers.With that, I'll thank you for your attention, and I look forward to your questions and turn it over to John.

[John McKenzie, Senior VP & CFO]

Thank you, Lou, and good morning, everyone. We're pleased this morning to report another solid quarter with last night's earnings announcement and a positive start to the year. As Lou said, TMX's Q1 performance, once again, illustrates the value of our diversified resilient business model. While slower capital markets activity impacted the performance of our equity listings and trading businesses, resulting in a 5% decrease in our revenue compared to Q1 '18, we benefited from strength in our Global Solutions, Insight and Analytics business, our Derivatives business as well as from a disciplined approach to cost management as operating expenses declined by 4% as compared to last year. The net result was a decline in reported diluted EPS from $1.13 last year to $1.09 this year, and a slight decline in adjusted diluted EPS of 2% from $1.33 in 2018 to $1.30 this past quarter.Now as mentioned, Trayport, part of the GSIA segment, led the way in terms of performance with strong results in its core business. Year-over-year, revenue at Trayport was up 7% compared with the prior year and revenues in the core subscriber business excluding Contigo, which was sold last year, grew at 14%. As Lou mentioned, this all reflected in the strong growth in trader subscribers, up 12% over 2018 and in the 6% increase in the average rate per unit across all subscribers. Revenue in the balance of our GSIA business was essentially flat in the quarter. There was increased revenue from data feeds, audit recoveries, and FX, offset by the impact of the sale of our interest in TMX FTSE, and a slight decrease in our data subscriptions year-over-year. In Derivatives Trading and Clearing, we experienced a 4% increase in revenue. The revenue increase for MX and CDCC was in line with the 11% increase in volumes on MX, but somewhat offset by a decrease in revenue from BOX following the expiry of our agreement to provide SOLA technology. We are currently providing transitional services to BOX as we unwind that agreement. These revenue increases were more than offset by decreases in Capital Formation revenue and lower equities and fixed income and trading revenues. The decrease in Capital Formation revenue was largely driven by a 29% decline in additional listing fee revenue, reflecting a 21% decrease in the number of transactions built on TSX, and a decrease in the number of financing and total financing dollars raised on TSX Venture.The severe downturn in market values at the end of 2018 continued to contribute to less favorable conditions for capital raising in the quarter. TSX Trust was also down by about 17% due to lower margin income and reduced revenue from transfer agent fees. This was largely attributed to lower client balances and issuers' reduced capital markets activity in the quarter. The decline in equities and fixed income trading revenue in Q1 reflected a decrease in equities trading revenue driven by a 13% decline in overall volumes across our marketplaces. In addition, there was a decrease in fixed income trading revenue due to decreased activity in Government of Canada bonds. As I mentioned, operating expenses in Q1 were down about 4% from last year. There were decreased costs related to Contigo, sold last November, of $1.8 million as well as lower cost related to our employee performance incentive plan, severance and occupancy. These decreases were partially offset by strategic realignment expenses incurred in the quarter of $3.3 million.Now just to spend a minute on these particular costs, in the first quarter, we made a number of organizational changes to position the company for long-term success. As discussed in February, we made changes in our post trade business with the retirement of Glenn Goucher. Jay Rajarathinam, Chief Technology and Operations Officer of TMX Group, assumed the leadership of our post trade business as President, CDCC and CDS. Also in February, we made changes to our enterprise risk approach with an objective-centric focus enhancing the way we manage risk and operating our risk management department. Finally, in late March, we eliminated the central innovation product development unit and moved this function to our business areas in order to increase our focus on delivering client-centric solutions.In aggregate, these organizational changes are expected to generate an annual savings of approximately $1.8 million starting in Q2 this year. These efforts are intended to bring increased focus to modernizing our clearinghouses and enhancing client service, which should lead to a more efficient cost structure. There may be further strategical realignment expenses during 2019 as we implement other cost efficiencies across the business.Now looking at our results on a sequential basis, revenue was down 5% from Q4, reflecting decreases in Capital Formation as well as in our Trading and Clearing businesses, and partially offset by an increase in GSIA, driven by Trayport. Operating expenses were down 3% compared with Q4, reflecting a decrease of $1.1 million related to Contigo, lower employee performance incentive plan costs of $1.7 million, lower severance costs of $2.5 million and lower project spend of $2.5 million, in addition to lower information and trading systems spend of $2.5 million as well. Now these decreases were somewhat offset by increased payroll taxes of $3.5 million and then strategic realignment expenses of $3.3 million that I mentioned earlier. Income from operations decreased from Q4 to Q1 due to lower revenue and partially offset by these lower operating expenses.Now I want to spend a few minutes on the 2 items that we highlighted in our disclosure documents that impacted Q1 and will continue to impact future quarters. The first is IFRS 16 dealing with accounting for leases, for which there are extensive details in our Q1 MD&A. In summary, I want to highlight that no comparative information has been restated. The impact on our balance sheet was that we recognized about $95 million of right-of-use assets and approximately $103 million of lease liabilities. The difference between the right-of-use assets and lease liabilities is attributed to previously accrued lease payments. From a P&L perspective, IFRS 16 is essentially driving an increase in amortization expense and net finance costs, somewhat offset by a decrease in SG&A expense where we've previously recorded occupancy costs. The net impact of IFRS 16 on the P&L for Q1 was a reduction in net income of about $400,000.Now the second item relates to our ongoing project to modernize our clearinghouses. During 2017, we commenced work on this initiative for CDS and CDCC clearing and settlement businesses as well as our entitlement system. We separated this project into 2 phases. During Phase 1, we focused on CDCC risk management and expect to be live with this phase during Q2 this year. We spent $6.3 million up to the end of 2018 and $1.1 million this past quarter on capital expenditures. We expect to spend another $2 million to $3 million on CapEx in Q2 and Q3. And although it was contemplated initially to integrate the clearing and settlement platforms, we have determined that CDCC will continue to run on the SOLA platform going forward. And as previously anticipated, this phase of the project has no cost savings.Now Phase 2 of the project involves the replacement of other legacy systems at CDS including those related to clearing and settlement as well as an expanded scope to address entitlement payment systems. You may recall in March '17, we implemented an issuer services program that included a number of fee changes and anticipation in the investment that will be required to modernize the entitlement payment systems. We've spent $22.5 million up to the end of 2018 and $3.3 million this past quarter on CapEx related to Phase 2. And given the complex nature of this project, we will continue to provide updates on the estimates for capital expenditures, savings and timing throughout 2019.Now to quickly comment on our balance sheet, we reduced our commercial paper by about $20 million from the end of 2018, our leverage as defined by our debt to adjusted EBITDA ratio was 2.3x at March 31, 2019. Excluding the impact of the -- on EBITDA of the IFRS 16 change, the ratio would have been 2.4x. We also held about $189 million in cash and marketable securities at March 31, $19 million in excess of the $170 million we target to retain for regulatory and credit facility purposes.Last night, our board declared a quarterly dividend of $0.62 per common share to be paid on June 7 to shareholders of record on May 24. At 48%, this payout ratio is within the range of our domestic and international peers, and we are committed to monitoring that range and maintaining a payout ratio consistent with that of our peers over the long term. At this point, I will turn the call back to Paul for the question-and-answer session.

[Paul Malcolmson, Director of Investor Relations]

Thanks, John. Jacqueline, could you please outline the process for the question-and-answer session again.

[Operator]

[Operator Instructions] Your first question comes from Nik Priebe from BMO Capital Markets.

[Nikolaus Priebe, Analyst]

Just wanted to start with a -- just a question on the VisoTech acquisition. Just wondering if you could provide a little bit of clarity on how the revenue model will work on that one? Like, it sounds like you're planning to fold it into the Trayport platform. So will that be included as an additional feature that clients could elect to pay for? And would that be on a subscription basis?

[Lou Eccleston, CEO & Director]

Yes, that's exactly right. I mean, it will be completely integrated into the Trayport platform and think of it as an application, so it'll show up an additional revenue per user as well as additional revenues. So it'll be a product and it's a subscriber-based product. So it's literally a new application on the Trayport platform, a powerful one, but a new application, and we'll look to drive revenue per user with the VisoTech capabilities.

[Nikolaus Priebe, Analyst]

Got it. So the revenue model would be somewhat similar to the existing Trayport platform in the sense that you would have...

[Lou Eccleston, CEO & Director]

Yes, exactly the same. It will be a SaaS-based application and subscriber model.

[Nikolaus Priebe, Analyst]

Okay. Got it. And then I understand the terms of the transaction weren't disclosed, but just wondering can we assume that the acquisition would be funded by existing cash resources such that it wouldn't really have a material impact on the leverage ratio?

[John McKenzie, Senior VP & CFO]

Yes. That's exactly right.

[Nikolaus Priebe, Analyst]

Okay. Okay. And then just shifting gears. I did want to ask a question on -- looks like issuance activity in general, just seems to continue to be a bit late, more broadly speaking, despite the fact that equity markets have rebounded pretty strongly in the first part of this year. Just wondering if you could give us a bit of a read on the pipeline on that front, both on the IPO side? And whether you're seeing issuers start to evaluate secondary issuance activity given the improvement in market multiples?

[John McKenzie, Senior VP & CFO]

Yes. I mean let me start with a pipeline side. So as the pipeline reflects to the potential for IPOs, we're continuing to see a lot of strength in the pipeline and in areas of increases year-over-year in terms of what's in the pipeline for IPOs. In terms of the secondary question around how does that impact secondary financing activity? Unfortunately, that's not an area where we get a lot of outlook into because as you can imagine, companies keep that fairly close to their chest until they're ready to go and then often, what we'll see in the marketplace, I mean, the number of transactions that are done successfully, other companies who are waiting to finance will follow-on. So even though over the general kind of 4, 5 months, you'd see softness, you have seen spikes in there as well. We saw that in March, where we saw some successful transactions happen and other companies follow along. And we had good activity in March. So unfortunately, just the nature of secondary capital raising, we don't get tremendous visibility out more than a couple of weeks and that's been our experience in the past as well, but the experience being that when companies do go, companies that are waiting will follow on.

[Operator]

You're next question comes from Geoff Kwan from RBC Capital Markets.

[Geoffrey Kwan, Analyst]

My first question, Lou, you talked about the kind of capital formation, really did trips to South America and whatnot. Just wondering if you have handy the number of listings from non-Canadian domiciled or headquartered companies that would've listed on the TSX, I don't know, let's say, in 2018? And how that might have compared to 2017?

[Lou Eccleston, CEO & Director]

We're checking for you, Geoff. So what you got right, well, at the moment what I have in front of me, anyway, Geoff, is that we got today 225 international listings. And as you know, last year, was a record year for innovation listings, which is back to that, I think, pipeline question [ to develop my current financings ]. But I don't have the breakdown in front of me. We can certainly get that for you, but I don't have the breakdown in front of me. Overall, you got 225 international listings.

[Geoffrey Kwan, Analyst]

Okay. Perfect. And then on the compensation and benefits line in the quarter, I think you flagged there was about $2.5 million of severance in Q1 2019. Was that included in your adjusted EPS number? Or was that not included?

[John McKenzie, Senior VP & CFO]

So let me clarify that for you. In terms of when you look at the expenses and how they're broken down in the statements, the compensation and benefits, there is severance in there. It's limited. There's less than $1 million that you're actually seeing in a line. The majority of the severance and related costs that were related to our realignment are in a separate line on strategic realignment. That's the $3.3 million, that's separately disclosed and that's the amount that gets adjusted out.

[Geoffrey Kwan, Analyst]

Okay. So essentially, the severance -- your adjusted EPS was effectively adjusted for the severance that you guys flagged in the MD&A, is the right?

[John McKenzie, Senior VP & CFO]

Yes. For the $3.3 million of the strategic realignment component. Because there continues to be business as usual, severance that's in the compensation and benefits line. What we highlighted in the piece that was really restructuring related and that's the piece that we separately called out in the strategic realignment.

[Geoffrey Kwan, Analyst]

Okay. And then just what was actually reported as the comp and benefits expense in the quarter? Obviously, with different puts and takes, but would that be a relatively clean number when we think about, on a normalized basis and seasonality, and whatnot? Or were there other factors that we should be thinking about?

[John McKenzie, Senior VP & CFO]

Yes, Geoff, it's a pretty clean number. Just keep in mind in the first quarter of the year is where we see the payroll taxes increase. So roughly $3.5 million that's in there in terms of payroll taxes, that won't continue throughout the year, that'll wean off.

[Geoffrey Kwan, Analyst]

Right. Right. Exactly. And then similarly on the G&A line, I mean that was down quite a bit quarter-over-quarter. I know you guys flagged lower project and occupancy and stuff like that, but again, was that a relatively clean number? Or is there some sort of seasonality or other factors that we need to think about over the coming quarters?

[John McKenzie, Senior VP & CFO]

Yes. I mean it's also a clean number. The biggest change in there was the IFRS 16 change. So the taking out of the lease expense, which now goes into amortization, that G&A impact in the quarter, it was about $2.6 million, but had we continued to account for leases under the old way, G&A would've been $2.6 million higher.

[Operator]

You're next question comes from Paul Holden from CIBC.

[Paul David Holden]

First question I want to ask is on the restructuring that took place in Q1. I believe, based on prior messaging, we had kind of more reached the end of that phase of the transmission plan. So just wondering if anything has changed with respect to that thought process? Or if this is going to kind of be normal course issue for the business?

[Lou Eccleston, CEO & Director]

I think if you compare it to what we did in the past, the major transformation of our organization is and still remains complete. This is more of an evolution, really, Paul, in the sense that, as John described, there were particular things that you put in place as you evolve as a company like how we handled innovation and looked at new technologies, and we thought that really needed to be closer to the business. We felt we needed to get ready for the next phase of our modernization efforts on our post trade platforms and we thought we needed new skill sets, new talents and some new structures. So it's -- it doesn't change thinking other than the fact that we believe we've got to keep evolving the organization as things evolve and change. So you -- nothing like the magnitude that you saw back in 2016. So that still remains consistent. But I think we'll continue to evolve as we need to, but it hasn't changed our thinking or the plans we laid out.

[John McKenzie, Senior VP & CFO]

Yes. And I'll add to Lou's comments. You would have noted in my comments and also in the MD&A that we anticipate there could be further costs that we identify this year as strategic realignment. It's on the same themes of what we saw on the first quarter. So I don't expect any of those things to be material in terms of overall cost. And it's, specifically around a couple of areas for you to keep in mind. Obviously, the work we're doing in post trade is not done. We're still in the replanning phase and there could be some other components that come out as part of that program. And with the announcement that we have today around VisoTech, we'll take a look and make sure we've got the structure right for integrating that business into Trayport. But again, anything else we would see here, Paul, wouldn't be material.

[Paul David Holden]

Got it. Okay. That's helpful. So Lou, as part of your answer, you mentioned investments in technology, we're certainly seeing that flow through the CapEx line. Just wondering how we should think about it flowing through that information in trading systems expenses? Like it was flat year-over-year in this quarter, but is that something we should expect to trend higher over time given the investments you're making? Or is that more of a CapEx and amortization line item?

[John McKenzie, Senior VP & CFO]

Yes. It's more of a CapEx item and an amortization as those systems go live. And there is a component of that, that's also within our run rate. So we fund for some of that through the run rate of our people and resources in that project as well, so it's part our project spend. But the reason we're giving you that continued look in terms of the historical CapEx trend validation is that you can use it as a guide post in terms of those CapEx run rates going forward.

[Paul David Holden]

Got it. Okay. And then sort of continuing with that theme of the technology investments. From what I can put together on the modernization update on clearing, you spent roughly $33 million to date that compares to original expectation of $55 million to $6 million (sic) [ $60 million ]. So that part of it seems to be trending okay? And correct me if I'm wrong on that. Is really the uncertainty to -- with respect to when Phase 2 will be completed and maybe the ultimate cost savings associated with that?

[John McKenzie, Senior VP & CFO]

I mean certainly, we're getting closer to be able to put more definition around that. The Phase 2 piece is the more complicated program and the gap or the -- between what you can get in terms of off-the-shelf products and what are the needs of the clients and as we finalize those requirements, we're getting closer to what that looks like. But as we indicated earlier, we expect it to take longer than we originally thought and that would have an impact on cost, but at this point, we're not able to give an update yet.

[Paul David Holden]

Okay. Understand. And then final question from me on Montréal Exchange. So you highlighted that roughly 3% of total volumes are coming from extended trading hours. I mean my view on that might be a little different than you. It seems like a small number. And maybe it's just a small number because we're in early innings still. So maybe just walk us through your thought process in terms of how we get that to a larger number? And I think you've kind of talked about other markets you've looked at where extended trading hours or international volumes have kind of contributed to more like a 15% plus bump in volumes?

[Lou Eccleston, CEO & Director]

Well there's 2 components. One you mentioned, which is early innings, but the other one was a limited number of products at the start. And we only came with our core products and then as I mentioned, we've now added more products to it. So it's a combination of those 2 things, I think. And actually, we're pretty much where we thought we'd be at this point and even a bit ahead. So I think when you look at that trend, remember that trend was over the longer term. So that was over several years that you got to that 15% to 30% bump when you looked at peers. So, so far, for a limited number of products launched and amount of time out there, it's on track with what we thought we'd do.

[Operator]

And your next question comes from Jaeme Gloyn from National Bank Financial.

[Jaeme Gloyn, Analyst]

First question, just want to dive in to the expense lines here a little bit again. So following up on just questions around comp and benefits. So we did get higher payroll taxes at $2.5 million. You would strip that out. How should we think about growing comp and benefit? Is there anything else that's seasonal in here? I mean that's quite a bit lower than what you guided, let's say, after Q4, where it should have sort of popped up quarter-over-quarter? Just looking for a little bit more details around any other items that might've shown up in comp and benefits this quarter?

[John McKenzie, Senior VP & CFO]

Yes. The other piece, I'll guide you to is certainly, we noted the year-over-year impacts. I mean the sequential impacts around cost for our short-term incentive program. We talked to you, I think, last time and also at the Investor Day about what we target for performance over the long-term for the firm in terms of expectations of growth of mid-singles for the top line and double digits for the bottom line. Clearly, with the market activity in the first quarter, we're not at that target on a short-term basis in the quarter. So that impacts what we accrued for that incentive plan. And if you see -- and as we see things change over time and that performance recovers, you would expect to see changes in that expense as well.

[Jaeme Gloyn, Analyst]

Would you be able to just sort of give us the breakdown of -- we got, what, 2% to revenue growth year-over-year. If it was, let's say, 5%, what would've been the dollar increase impact on the accrual for that type of growth?

[John McKenzie, Senior VP & CFO]

Yes. Unfortunately, that's not something that we do disclose. It impacts compensation throughout the firm. So it's not something we'll be able to share you with, Jaeme.

[Jaeme Gloyn, Analyst]

Okay. And then again, around the G&A expenses. So let's say, $20.8 million on a clean basis, down considerably, year-over-year and quarter-over-quarter. Is this primarily related to the consolidation of the offices? And was there anything else in that quarter that would -- that would be set to sort of drive higher expenses in Q2, Q3, Q4?

[John McKenzie, Senior VP & CFO]

Yes. I mean other than that accounting change you talked about, it's consolidation of the premises. In Q1 of last year, we were running on in terms of duplicative preferences, because we were still doing the move and we were in our new space as well. So you're seeing the flow through of savings that started in Q3 last year.

[Jaeme Gloyn, Analyst]

Okay. So this sort of $21 million is a decent run rate level to think about OpEx growth?

[John McKenzie, Senior VP & CFO]

Except I'm going to guide you to the $18.2 million so that I respect the accounting change that we put in this quarter.

[Jaeme Gloyn, Analyst]

Yes. Fair enough. And when I think about OpEx growth, as it relates to the mid-single digit revenue target, what kind of operating leverage -- could you just refresh my memory, what kind of operating leverage are we looking for on a sort of run-rate basis?

[John McKenzie, Senior VP & CFO]

Sorry, can you just rephrase the question again, Jaeme?

[Jaeme Gloyn, Analyst]

Yes. Just what kind of operating leverage are we -- are you forecasting or are you targeting as it relates to the mid-single-digit revenue target?

[John McKenzie, Senior VP & CFO]

I mean essentially, we're looking at the bulk of the cost base being relatively fixed. There are elements in there that are variable in terms of some compensation -- some sales compensation and some elements around commission. The bulk of the cost base is relatively fixed, so we're looking at very high incremental margins.

[Jaeme Gloyn, Analyst]

Okay. So if I can summarize the OpEx performance this quarter, this is clean and stable and a good base to run off of?

[John McKenzie, Senior VP & CFO]

Yes. And reflects the discipline we've been continuing to impose in the organization.

[Jaeme Gloyn, Analyst]

Yes. So the next question I have -- or the second question I have is around the TSX Trust performance this quarter, down year-over-year, some volatility, I guess related to issues. Is it fair to -- when we're thinking about modeling TSX Trust to look at the issuance activity similar to the way we would look at initial and additional revenue line items as a driver?

[John McKenzie, Senior VP & CFO]

Yes. It's fair to think about it as a mix the way you think about the mix of activity in Capital Formation. So you've got the parts of Capital Formation like sustaining fees that are relatively flat quarter-over-quarter and much of some of the transfer rating activity within Trust is also run rate recurring as well. But there's an element of activity that's in trust very much like, as you said, additional transactions that will reflect market activity. And the 2 pieces are: financing transaction. So we're -- we will act as either transfer agent or trustee for a capital transaction, for a merger, for acquisition, for a capital raise, things like that and very much like the rest of the market. Without that activity, there isn't Trust activity there as well. The second piece, and we'll see more of this as the business grows and we can do more disclosure around it is, when you act for an organization on a capital transaction, there's a cash component and a cash balance that we hold on behalf of those clients, for an M&A transaction, things like that. Those cash balances, for which we generate net interest income revenue within that business, were down substantially in quarter. This is again reflecting the fact there was very little activity.

[Jaeme Gloyn, Analyst]

Okay. And would you be able to provide us the breakdown of, at least in this quarter or maybe for 2018, the breakdown between, let's say, recurring, versus market sensitive?

[John McKenzie, Senior VP & CFO]

Yes. Let's take that as a takeaway, Jaeme and see what we can do in terms of more transparency around the revenue basis there, so you can do a better job predicting going forward.

[Jaeme Gloyn, Analyst]

Okay, that would be great. And the last question just around the TSX Trust is, down this quarter, year-over-year. Would you still expect double-digit revenue growth for 2019 as previously sort of -- previously targeted?

[John McKenzie, Senior VP & CFO]

Oh, I think you put words in my mouth there. We certainly targeted double-digit revenue growth over the long term and I certainly wouldn't want to do a year-by-year prediction because of the impacts of market activity. But there's nothing changing in the fundamentals that would change our outlook for the long term in terms of that double-digit growth rate. And Lou reflected some of that in his comment around market share. So even despite the fact that it was a very challenging quarter in terms of activity, we saw market share increases in Trust from 20% to 22%. So we're continuing to win more business there.

[Operator]

[Operator Instructions] Your next question comes from Graham Ryding from TD Securities.

[Graham Ryding, Research Analyst of Financial Services]

The first question just, IFRS 16, it was roughly a $3 million swing from G&A into the depreciation and interest expense lines. Is that like a reasonable run rate going forward? I was expecting a little bit more of an impact, I'm not sure if that's necessary where that came from but...

[John McKenzie, Senior VP & CFO]

Yes. It's a reasonable indication of the quarters to come, yes.

[Graham Ryding, Research Analyst of Financial Services]

Okay. Great. My second question will be financing activity. Clearly, you're making progress on international as seen in the innovation sector, but that's -- you have to play the long game on that one to some extent I would think. When I think about near-term sort of listings activities, is the energy sector sort of the key piece here that we really need to see sentiment improve upon if we're going to see near-term listings activity pickup. How do you view that space?

[Lou Eccleston, CEO & Director]

Well, it's always going to be an important part. I mean the growth in innovation isn't at the expense of the energy, it should be on top of that. So it's certainly a factor. But on top of that, think about when we talk about -- when we talk about pipelines there's pipelines for IPOs and then there's what we'll call demand or sitting demand for financing. So when we talk about record numbers of innovation listings, 59 versus 41, on top of the resource franchise, eventually, those companies are going to finance. So you've actually got, and John talked about one, when that starts, usually others follow. So you've got a strong pipeline there too but we're not moving away from resources. The change in balance, resources today is I think about 20% of our listings. So it's already diversified. It's not like we rely solely on resources but it's always going to be an important component of our business.

[Graham Ryding, Research Analyst of Financial Services]

Understood. The Montréal Exchange, can you remind us what the new product plans you have in place? And what is the timing around that?

[John McKenzie, Senior VP & CFO]

The material one, as we came into this year was the relaunch of the 5s and 30s. So this is the 5-year government bond future and the 30-year government bond future, which completes the yield curve in addition to our short-term backs on our 10-year. Those products have now been relaunched with new market makers now. So if you look into -- and we did publish -- we have the stats on the -- I don't have them on me handy, but we do publish them. You'll see a substantial increase and open interest already on those new products. They are live in the market.

[Lou Eccleston, CEO & Director]

And just to add to that, quickly, Graham. I mean you also have the other products that have been launched are the single stock futures, demand grows there and futures on EPS, we've got demand growing there. So there's quite a few new things launched in the last year on MX.

[Graham Ryding, Research Analyst of Financial Services]

And for extended hours then, what's available today? And what are you looking to make available?

[John McKenzie, Senior VP & CFO]

So what's available today is strictly the backs, the short-term and the Canada government bonds, those are ones that we launched in the fall. And then the addition with the index future, which was just launched recently and certainly, that's where we're going to continue to look at as demand picks up what else we will put on the platform, but don't be surprised to see other large volume products like 5 and 30s be available at some point.

[Graham Ryding, Research Analyst of Financial Services]

Yes. Okay. That's where I was going. Okay. Perfect. And then my last question, you're no longer looking to integrate the CDCC with the CDS. It looks like -- is that going to potentially reduce cost savings as you sort of exit this initiative?

[John McKenzie, Senior VP & CFO]

Yes, it's a really good question. Let me talk a bit of context around the decision first to not do the integration. As we've been replanning the initiative, you'll see that there's 2 elements of scope change we noted in there. One is the inclusion in CDS of a replacement of the entitlement system. So we're actually doing 2 system upgrades within CDS, both the core clearing mainframe and the ancillary entitlement systems. When we looked at the project and we looked at the benefit both to TMX and to the clients of bringing in the CDCC clearing platform as well, the time it would take to do that, impact on the clients and the cost to execute, the cost/benefit wasn't there. And when you look at the growth plans that we have within the MX, and what we're trying to do around new products, potentially impairing our ability to do that with an elongated clearing infrastructure project wasn't worth potentially slowing down the revenue growth. And we don't have the same, really, challenge in terms of the technology. It operates on the day, being end-of-life. So the CDS technology is legacy, it's mainframe based, it's been there for 20 years. We don't have that challenge with the SOLA platform around CDCC. It's been recently upgraded from a hardware standpoint. So we can continue to operate that, allow it to continue to be a growth engine for the MX and focus the modernization path on CDS. Now whether or not that has an impact on the net savings down the road is something we'll update on later on. The largest component of cash savings we were anticipating was from decommissioning the mainframe systems around CDS and that's still the intention.

[Operator]

There are no further questions at this time. I'll turn the call back over to Paul Malcolmson.

[Paul Malcolmson, Director of Investor Relations]

Great. Thanks, Jacqueline. Thank you, everyone, for listening today. Just want to remind you as we mentioned, our annual and special meeting of shareholders is at 2:00 today at our headquarters in here in Toronto. Also the contact information for media as well as investor relations is in the press release and we'd be happy to take your questions through the day. Thank you, again, and have a great weekend.

[Operator]

This concludes today's conference call. You may now disconnect.