TMX Group Limited Reports Results for Fourth Quarter of 2023

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Revenue of $301.5 million, up 9% from $275.7 million in Q4/22
Income tax expense decreased in Q4/22 related to a reversal of a prior year tax provision (7 cents), which drove a 16% decrease in diluted earnings per share of $0.31 in Q4/23 compared with $0.37 in Q4/22
Adjusted diluted earnings per share1 of $0.37, up 6% from $0.35 in Q4/22

TORONTO, Feb. 5, 2024 /CNW/ – TMX Group Limited (TSX:X) (“TMX Group”) today announced results for the fourth quarter ended December 31, 2023.

Commenting on the organization’s performance for 2023, John McKenzie, Chief Executive Officer of TMX Group, said:

“In a year of impressive performance milestones, we took definitive steps to strengthen TMX’s ability to deliver modern solutions to a growing global client base, highlighted by the acquisition of VettaFi, a U.S.-based indexing, digital distribution, and analytics company, completed last month. TMX reported record revenue in 2023, driven by double-digit gains from our Global Solutions, Insights and Analytics segment, including TMX Trayport and TMX Datalinx, and Derivatives Trading and Clearing, excluding BOX. The increases were partially offset by lower revenue from capital raising activity, and Equities and Fixed Income Trading, due to challenging market dynamics. Looking ahead, we are focused on executing TMX’s proven long-term growth strategy, and innovating across our diverse business to make markets better for stakeholders around the world.” 

Commenting on the performance in the fourth quarter of 2023, David Arnold, Chief Financial Officer of TMX Group, said:

“Overall revenue for the fourth quarter grew 9% year-over-year, driven by increases across all our key business areas. In addition to a demonstrated ability to deliver solid core business performance and increased cash flow, TMX remains firmly committed to investing for long-term growth. The strategic acquisition of VettaFi was funded with debt, and enabled by the strength of our balance sheet. TMX has a proven track record of de-leveraging following transactions and we are confident in our ability to achieve our targeted leverage range two years post-close, as planned.”

_________________________________

1 Adjusted diluted earnings per share is a non-GAAP ratio, see discussion under the heading “Non-GAAP Measures”.

RESULTS OF OPERATIONS2

Non-GAAP Measures

Adjusted net income is a non-GAAP measure3, and adjusted earnings per share, adjusted diluted earnings per share, and adjusted earnings per share CAGR are non-GAAP ratios4, and do not have standardized meanings prescribed by GAAP and are, therefore, unlikely to be comparable to similar measures presented by other companies.

Management uses these measures, and excludes certain items, because it believes doing so provides investors a more effective analysis of underlying operating and financial performance, including, in some cases, our ability to generate cash. Management also uses these measures to more effectively measure performance over time, and excluding these items increases comparability across periods. The exclusion of certain items does not imply that they are non-recurring or not useful to investors.

We present adjusted earnings per share, adjusted diluted earnings per share, and adjusted net income to indicate ongoing financial performance from period to period, exclusive of a number of adjustments as outlined under the headings “Adjusted Net Income attributable to equity holders of TMX Group and Adjusted Earnings Per Share Reconciliation for Q4/23 and Q4/22” and “Adjusted Net Income attributable to equity holders of TMX Group and Adjusted Earnings Per Share Reconciliation for 2023 and 2022”.

We have also presented long term adjusted EPS CAGR as a financial objective which is the growth rate in adjusted diluted earnings per share over time, exclusive of adjustments that impact the comparability of adjusted EPS from period to period, including those outlined under the headings “Adjusted Earnings Per Share Reconciliation for Q4/23 and Q4/22” and “Adjusted Net Income attributable to equity holders of TMX Group and Adjusted Earnings Per Share Reconciliation for 2023 and 2022”. The adjusted EPS CAGR is based on the assumptions outlined under the heading “Caution Regarding Forward Looking Information – Assumptions related to long term financial objectives”.

Similarly, we present the dividend payout ratio based on dividends paid divided by adjusted earnings per share as a measure of TMX Group’s ability to make dividend payments, exclusive of a number of adjustments as outlined under the heading “Adjusted Net Income attributable to equity holders of TMX Group and Adjusted Earnings Per Share Reconciliation for Q4/23 and Q4/22” and “Adjusted Net Income attributable to equity holders of TMX Group and Adjusted Earnings Per Share Reconciliation for 2023 and 2022”.

Debt to adjusted EBITDA ratio is a non-GAAP measure defined as total long term debt and debt maturing within one year divided by adjusted EBITDA. Adjusted EBITDA is calculated as net income excluding interest expense, income tax expense, depreciation and amortization, transaction related costs, integration costs, one-time income (loss), and other significant items that are not reflective of TMX Group’s underlying business operations.

_________________________________

2 TMX Group completed a five-for-one split of its common shares outstanding  (the Stock Split) effective at the close of business on June 13, 2023. All common share numbers and per share amounts in this release, including comparative figures, have been adjusted to reflect the Stock Split.

3 As defined in National Instrument 52-112 Non-GAAP and Other Financial Measures Disclosure.

4 As defined in National Instrument 52-112 Non-GAAP and Other Financial Measures Disclosure.

Quarter ended December 31, 2023 (Q4/23) Compared with Quarter ended December 31, 2022 (Q4/22)5

The information below reflects the financial statements of TMX Group for Q4/23 compared with Q4/22.

(in millions of dollars, except per
share amounts)

Q4/23   

Q4/22   

$ increase /
(decrease)

% increase /
(decrease)

Revenue

$301.5

$275.7

$25.8

9 %

Operating expenses

173.3

154.8

18.5

12 %

Income from operations

128.2

120.9

7.3

6 %

Net income attributable to equity
holders of TMX Group

84.4

102.2

(17.8)

(17) %

Adjusted net income attributable to
equity holders of TMX Group6

101.9

97.4

4.5

5 %

Earnings per share

Basic

0.31

0.37

(0.06)

(16) %

Diluted

0.31

0.37

(0.06)

(16) %

Adjusted Earnings per share7

Basic

0.37

0.35

0.02

6 %

Diluted

0.37

0.35

0.02

6 %

Cash flows from operating activities          

140.1

100.9

39.2

39 %

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5 TMX Group completed a five-for-one split of its common shares outstanding  (the Stock Split) effective at the close of business on June 13, 2023.  All common share numbers and per share amounts in this release, including comparative figures, have been adjusted to reflect the Stock Split.

6 Adjusted net income is a non-GAAP measure, see discussion under the heading “Non-GAAP Measures”.

7 Adjusted earnings per share is a non-GAAP ratio, see discussion under the heading “Non-GAAP Measures”.

Net Income attributable to equity holders of TMX Group and Earnings per Share

Net income attributable to equity holders of TMX Group in Q4/23 was $84.4 million, or $0.31 per common share on a basic and $0.30 on a diluted basis, compared with a net income attributable to equity holders of TMX Group of $102.2 million, or $0.37 per common share on a basic and diluted basis for Q4/22. The decrease in net income attributable to equity holders of TMX Group is largely due to an increase in income tax expense of $27.8 million in Q4/23, somewhat offset by an increase in Income from operations of $7.3 million. The increase in income from operations from Q4/22 to Q4/23 was driven by higher revenue of $25.8 million partially offset by an increase in operating expenses of $18.5 million. The increase in revenue from Q4/22 to Q4/23 reflects higher revenue from Global Solutions, Insights and Analytics, Derivatives Trading and Clearing, Equities and Fixed Income Trading and Clearing, and Listing fees.  Q4/23 revenue also included $0.8 million related to WSH (acquired November 9, 2022). The higher expenses included an increase of approximately $5.7 million related to strategic re-alignment8, $3.4 million related to BOX’s estimate of increased expenses for services provided by BOX Exchange LLC9, as well as approximately $5.5 million related to VettaFi (equity invested January 9, 2023, prior to acquisition of control January 2, 2024) and WSH (acquired November 9, 2022), of which $3.7 million related to acquisition and related expenses for  VettaFi and WSH, $0.4 million related to WSH’s amortization of acquired intangibles, and $0.2 million related to WSH integration costs. There were also higher expenses reflecting higher headcount and payroll costs, employee performance incentive plan costs, and increased legal and regulatory filing fees. Somewhat offsetting these increases was $4.0 million in integration costs related to AST Canada incurred in Q4/22.

_________________________________

8 For additional information, see discussion under the heading “Initiatives and Accomplishments – Strategic Re-Alignment” in our 2023 Annual MD&A.

9 BOX Exchange LLC is a national securities exchange registered with the Securities and Exchange Commission, and is responsible for regulating and monitoring activities of BOX Options Market LLC, to ensure compliance with BOX Exchange rules and U.S. federal securities laws. TMX has a 40% equity and a 20% voting interest in BOX Exchange LLC.

Adjusted Net Income attributable to equity holders of TMX Group10 and Adjusted Earnings per Share11 Reconciliation for Q4/23 and Q4/2212

The following tables present reconciliations of net income attributable to equity holders of TMX Group to adjusted net income attributable to equity holders of TMX Group and earnings per share to adjusted earnings per share. The financial results have been adjusted for the following:

The amortization expenses of intangible assets in Q4/22 and Q4/23 related to the 2012 Maple transaction (TSX, TSXV, MX, CDS, Alpha, Shorcan), TSX Trust, TMX Trayport (including VisoTech and Tradesignal), AST Canada, and BOX, and the amortization of intangibles related to WSH in Q4/23. These costs are a component of Depreciation and amortization expenses.
Acquisition and related costs in Q4/22 and Q4/23 related to VettaFi (equity-accounted on January 9, 2023 prior to the acquisition of control on January 2, 2024). Q4/22 includes acquisition related costs for WSH (acquired November 9, 2022). These costs are included in Selling, general and administration.
Fair value gain on contingent consideration, reflecting a reduction in the earn-out liability assumed as part of the WSH acquisition in Q4/23. The gain is included in Net Finance Costs.
Integration costs related to integrating the WSH acquisition in Q4/22 and Q4/23.  Q4/22 includes integration costs related to the AST Canada acquisition. These costs are included in Selling, general and administration, Depreciation and amortization, Compensation and benefits, and Information and trading systems.
Strategic re-alignment expenses related to organizational changes in Q4/23 are primarily included in Compensation and benefits in 2023.
In Q4/22, we reversed a prior year tax provision resulting in a decrease to income tax expense.

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10 Adjusted net income is a non-GAAP measure, see discussion under the heading “Non-GAAP Measures”.

11 Adjusted earnings per share is a non-GAAP ratio, see discussion under the heading “Non-GAAP Measures”.

12 TMX Group completed a five-for-one split of its common shares outstanding (the Stock Split) effective at the close of business on June 13, 2023.  All common share numbers and per share amounts in this release, including comparative figures, have been adjusted to reflect the Stock Split.

 

Pre-tax

Tax

After-tax

(in millions of dollars)
(unaudited)

Q4/23

Q4/22

Q4/23

Q4/22

Q4/23

Q4/22

$ increase /
(decrease)

% increase /
(decrease)

Net income attributable to equity                    
holders of TMX Group

$84.4

$102.2

($17.8)

(17) %

Adjustments related to:

Amortization of intangibles
related to acquisitions13

15.1

14.5

5.6

3.3

9.5

11.2

(1.7)

(15) %

Acquisition and related costs14

5.1

1.4

5.1

1.4

3.7

264 %

Integration costs15

0.4

4.1

0.1

1.1

0.3

3.0

(2.7)

(90) %

Strategic re-alignment expenses16

5.7

1.5

4.2

4.2

n/a

Fair value gain on contingent
consideration17

(1.6)

(1.6)

(1.6)

n/a

Reversal of a prior year tax
provision18

20.4

(20.4)

20.4

(100) %

Adjusted net income attributable to
equity holders of TMX Group19

$101.9

$97.4

$4.5

5 %

Adjusted net income attributable to equity holders of TMX Group increased by 5% from $97.4 million in Q4/22 to $101.9 million in Q4/23 largely driven by higher revenue and lower net finance costs, partially offset by higher operating expenses and higher income tax expense.

_________________________________

13 Includes amortization expense of acquired intangibles including BOX, AST Canada, and Tradesignal in Q4/22 and Q4/23 and WSH in Q4/23

14 Includes costs related to the acquisition of VettaFi (acquired January 2, 2024) in Q4/23, and costs related to the acquisition of WSH (acquired November 9, 2022) and other equity investments in Q4/22.

15 Q4/22 and Q4/23 includes costs related to the integration of WSH (acquired November 9, 2022). Q4/22 includes costs related to the integration of AST Canada (acquired August 12, 2021).

16 For additional information, see discussion under the heading “Initiatives and Accomplishments – Strategic Re-Alignment” in our 2023 Annual MD&A.

17 For additional information, see discussion under the heading “Additional Information – Net Finance Costs”.

18 Relates to a prior year tax reserve no longer required.

19 Adjusted net income is a non-GAAP measure, see discussion under the heading “Non-GAAP Measures”.

 

Q4/23

Q4/22

(unaudited)

Basic

Diluted

Basic

Diluted

Earnings per share attributable to equity holders of TMX Group          

$0.31

$0.31

$0.37

$0.37

Adjustments related to:

Amortization of intangibles related to acquisitions20

0.03

0.03

0.04

0.04

Acquisition and related costs21

0.02

0.02

0.01

0.01

Strategic re-alignment expenses22

0.02

0.02

Fair value gain on contingent consideration23

(0.01)

(0.01)

Reversal of a prior year tax provision24

(0.08)

(0.07)

Integration costs25

0.01

0.01

Adjusted earnings per share attributable to equity holders
of TMX Group26 27

$0.37

$0.37

$0.35

$0.35

Weighted average number of common shares outstanding

276,982,929

277,890,131

278,236,245

279,323,185

Adjusted diluted earnings per share increased by 2 cents from $0.35 in Q4/22 to $0.37 in Q4/23 reflecting an increase in income from operations, lower net finance costs, and a decrease in the number of weighted average common shares outstanding from Q4/22 to Q4/23. The increase in adjusted earnings per share was somewhat offset by higher income tax expenses.

_________________________________

20 Includes amortization expense of acquired intangibles including BOX, AST Canada, and Tradesignal in Q4/22 and Q4/23, and WSH in Q4/23.

21 Includes costs related to the acquisition of VettaFi (acquired January 2, 2024) in Q4/23, and costs related to the acquisition of WSH (acquired November 9, 2022) and other equity investments in Q4/22.

22 For additional information, see discussion under the heading “Initiatives and Accomplishments – Strategic Re-Alignment” in our 2023 Annual MD&A.

23 For additional information, see discussion under the heading “Additional Information – Net Finance Costs”.

24 Relates to a prior year tax reserve no longer required.

25 Q4/22 and Q4/23 includes costs related to the integration of WSH (acquired November 9, 2022). Q4/22 includes costs related to the integration of AST Canada (acquired August 12, 2021).

26 Adjusted earnings per share is a non-GAAP ratio, see discussion under the heading “Non-GAAP Measures”.

27 The reconciliations for Diluted adjusted EPS in Q4/23 and Q4/22 are presented without a rounding adjustment to ensure accuracy.

Revenue

(in millions of dollars)

Q4/23   

Q4/22   

$ increase /
(decrease)

% increase /
(decrease)

Capital Formation

$63.1

$61.5

$1.6

3 %

Equities and Fixed Income Trading and Clearing          

59.7

57.0

2.7

5 %

Derivatives Trading and Clearing

71.3

63.5

7.8

12 %

Global Solutions, Insights and Analytics

107.4

93.6

13.8

15 %

Other

0.0

0.1

(0.1)

(100) %

$301.5

$275.7

$25.8

9 %

Revenue was $301.5 million in Q4/23, up $25.8 million or 9% from $275.7 million in Q4/22 attributable to increases in revenue from Global Solutions, Insights and Analytics, Derivatives Trading and Clearing, Equities and Fixed Income Trading and Clearing, and Capital Formation. The increase in revenue from Q4/22 to Q4/23 included $0.8 million of revenue for WSH (acquired November 9, 2022). Excluding revenue from WSH, revenue was up 9% in Q4/23 compared to Q4/22.

Capital Formation

(in millions of dollars)

Q4/23   

Q4/22   

$ increase /
(decrease)

% increase /
(decrease)

Initial listing fees

$2.2

$3.2

$(1.0)

(31) %

Additional listing fees

17.0

14.0

3.0

21 %

Sustaining listing fees                    

19.8

20.1

(0.3)

(1) %

Other issuer services

24.1

24.2

(0.1)

0 %

$63.1

$61.5

$1.6

3 %

Initial listing fees in Q4/23 decreased from Q4/22 due to lower revenue in TSX and TSXV. We recognized $1.9 million in initial listing fees received in 2022 and 2023 in Q4/23 compared with $3.0 million in initial listing fees received in 2021 and 2022 in Q4/22.
Based on initial listing fees billed in 2023, the following amounts have been deferred to be recognized in Q1/24, Q2/24, Q3/24, and Q4/24: $1.6 million, $1.1 million, $0.6 million and $0.1 million respectively. Total initial listing fees revenue for future quarters will also depend on listing activity in those quarters.
Additional listing fees in Q4/23 increased compared to Q4/22 reflecting an increase in TSX revenue primarily from an 63% increase in the number of transactions billed at the maximum listing fee of $250,000 from Q4/22 to Q4/23, and an increase of 10% in the number of transactions billed below the maximum fee. There were also increases in the total number of financings on TSX.
Issuers listed on TSX and TSXV pay annual sustaining listing fees primarily based on their market capitalization at the end of the prior calendar year, subject to minimum and maximum fees. There was a decrease in sustaining listing fees on both TSX and TSXV from Q4/22 to Q4/23, reflecting a decrease in the market capitalization of issuers on TSX and TSXV at December 31, 2022 compared with December 31, 2021. This was somewhat offset by the price changes, as well as an increase in total number of listed issuers on TSX.
Other issuer services revenue, which mainly consists of TSX Trust, including AST Canada, was slightly lower in Q4/23 compared to Q4/22 primarily due to lower transfer agent fees, and lower net interest income mostly offset by higher corporate trust and other revenue.

Equities and Fixed Income Trading and Clearing

(in millions of dollars)

Q4/23   

Q4/22   

$ increase

% increase

Equities and fixed income trading                 

$28.8

$28.2

$0.6

2 %

Equities and fixed income clearing,
settlement, depository and other
services (CDS)

30.9

28.8

2.1

7 %

$59.7

$57.0

$2.7

5 %

Equities Trading revenue decreased in Q4/23 compared with Q4/22 driven by lower volumes partially offset by a favourable product mix. The overall volume of securities traded on our equities marketplaces decreased by 13% (30.0 billion securities in Q4/23 versus 34.6 billion securities in Q4/22). There was a decrease in volumes of 14% on TSX, 13% on TSXV, and 9% on Alpha in Q4/23 compared with Q4/22.
There was higher fixed income trading revenue from Q4/22 to Q4/23 reflecting increased activity in Government of Canada bonds and swaps.
CDS revenue increased from Q4/22 to Q4/23 mainly due to higher interest income on clearing funds which included a year to date re-class of approximately $0.7 million from finance income, event management fees, custodial and eligibility volumes, partially offset by lower exchange trading volumes.
Excluding intentional crosses, for TSX and TSXV listed issues, our combined domestic equities trading market share was approximately 63% in Q4/23, down 3% from approximately 66% from Q4/22. We only trade securities that are listed on TSX or TSXV.
Excluding intentional crosses, in all listed issues in Canada, our combined domestic equities trading market share was approximately 57% in Q4/23, down 2% from approximately 59% in Q4/22.

Derivatives Trading and Clearing

(in millions of dollars)                                 

Q4/23   

Q4/22   

$ increase

% increase

Derivatives Trading and Clearing
(excl. BOX)

$39.8

$36.0

$3.8

11 %

BOX

31.5

27.5

4.0

15 %

$71.3

$63.5

$7.8

12 %

Derivatives Trading and Clearing (excl. BOX)

The increase in revenue in Derivatives Trading and Clearing (excl. BOX) was driven by a 9% and 14% increase in MX and CDCC revenue respectively. The increase in MX revenue reflected an increase in volumes from Q4/22 to Q4/23 of 20% (45.4 million contracts traded in Q4/23 vs. 37.7 million contracts traded in Q4/22), as well as a positive impact from the pricing changes which came into effect January 2023, somewhat offset by an unfavourable product and client mix. The increase in CDCC revenue primarily reflected higher clearing volumes.

BOX

BOX revenue increased by 4.0 million or 15% in Q4/23 compared to Q4/22 driven by higher volumes. Volumes on BOX were up approximately 21% from Q4/22 to Q4/23 (200.8 million contracts traded in Q4/23 versus 165.8 million contracts traded in Q4/22), and BOX market share in equity options was 8% in Q4/23, up 1% from Q4/22. These increases were partially offset by lower rate per contract due to the implementation of a new pricing structure in Q3/23 which increased volumes and market share at lower yields.

The following table summarizes the BOX volume and the equity option market share since acquisition of control:

Q4/23  

Q3/23  

Q2/23  

Q1/23  

Q4/22  

Q3/22  

Q2/22  

Q1/22  

Volume (million contracts)

201

177

155

160

166

169

127

149

Market Share (equity options)          

8 %

7 %

6 %

6 %

7 %

7 %

6 %

6 %

Revenue (in millions of CAD)

$31.5

$28.7

$25.4

$27.7

$27.5

$30.6

$27.3

$33.0

Average CAD-USD FX rate

1.36

1.34

1.34

1.35

1.35

1.31

1.28

1.26

Revenue (in millions of USD)

$23.1

$21.4

$18.9

$20.5

$20.4

$23.4

$21.4

$26.1

Global Solutions, Insights and Analytics

(in millions of dollars)

Q4/23  

Q4/22  

$ increase  

% increase  

TMX Trayport

$50.4

$40.8

$9.6

24 %

TMX Datalinx including Co-location          

57.0

52.8

4.2

8 %

$107.4

$93.6

$13.8

15 %

The increase in Global Solutions, Insights and Analytics (GSIA) revenue in Q4/23 compared with Q4/22 was driven by a 24% increase from TMX Trayport, as well as an 8% increase from TMX Datalinx including Co-location. There was favourable FX impact from Canadian dollar relative to a stronger GBP on TMX Trayport revenue.

TMX Trayport

The following table summarizes the average number of TMX Trayport subscribers over the last eight quarters:

Q4/2023  

Q3/23  

Q2/23  

Q1/23  

Q4/22  

Q3/22  

Q2/22  

Q1/22  

Trader Subscribers

7,443

7,101

7,030

6,932

6,804

6,615

6,410

6,366

Total Subscribers

33,890

33,031

32,480

31,771

30,472

30,186

30,573

30,475

Revenue (in millions of CAD)          

$50.4

$49.0

$47.9

$45.8

$40.8

$37.4

$38.5

$40.8

Average CAD-GBP FX rate

1.70

1.69

1.70

1.65

1.62

1.53

1.59

1.68

Revenue (in millions of GBP)

£29.6

£29.0

£28.2

£27.8

£25.2

£24.4

£24.2

£24.3

Total Subscribers means all chargeable licenses of core TMX Trayport products in core customer segments including Traders, Brokers and Exchanges. Trader Subscribers are a subset of Total Subscribers. Trader Subscribers revenue represents over 50% of total TMX Trayport revenue.

Revenue from TMX Trayport increased by 24% from Q4/22 to Q4/23. In GBP, revenue from TMX Trayport was £29.6 million (based on CAD-GBP FX rate of 1.70) in Q4/23 up 17% over Q4/22. The increase in TMX Trayport revenue from Q4/22 to Q4/23 was primarily driven by a 9% increase in trader subscribers, annual price adjustments, revenue from data analytics and algorithmic trading products, and favourable FX impact of $2.3 million due to a stronger GBP compared to CAD.

TMX Datalinx including Co-location

Revenue from TMX Datalinx including Co-location increased by 8% from Q4/22 to Q4/23. The Q4/23 TMX Datalinx revenue included $0.8 million of revenue for WSH (acquired November 9, 2022). In addition, there were higher revenues related to increases in data feeds, co-location, enterprise agreement renewals, benchmarks and indices reflecting revenue from Term CORRA, and the impact of 2023 price adjustments in Q4/23 compared with Q4/22, partially offset by lower Datalinx Xpress true-up revenue.

The average number of professional market data subscriptions for TSX and TSXV products was down 5% in Q4/23 from Q4/22 (97,972 professional market data subscriptions in Q4/23 compared with 103,036 in Q4/22).
The average number of MX professional market data subscriptions was up 1% in Q4/23 compared with Q4/22 (21,250 MX professional market data subscriptions in Q4/23 compared with 20,961 in Q4/22).

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