Q3 2020 Stonex Group Inc Earnings Call
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I would now like to hand, the conference over to your speakers Tonexx CFO Bill Dunaway, Sir the floor is yours.
Good morning, welcome to our earnings conference call for our fiscal third quarter ended June Thirtyth 2020.
After the market closed yesterday, we issued a press release reporting our results for our third fiscal quarter 2020.
This release is available on our website at Www Dot So next dot com as well as a slide presentation, which we refer to on this call and our discussions of our quarterly results and year to date results.
You'll need to find them onto the live webcast in order to view the presentation. The presentation and an archived webcast will also be available on our website after the call's conclusion.
Before getting underway, we're required to advise you and all participants should note. The following discussion should be taken in conjunction with the most recent financial statements and notes there too as well as the most recent annual report on form 10-K. Subsequent quarterly reports on form 10-Q, one other reports filed with the FCC My Stornext group Inc. and gain capital Holdings.
Right.
This discussion may contain forward looking statements within the meaning of section 20, Sevena The Securities Act of 1933.
Section 21 ear the Securities Exchange Act of 1934.
These forward looking statements involve known and unknown risks and uncertainties, which are detailed in our filings with the FCC.
Although the company believes that its forward looking statements are based upon reasonable assumptions regarding its business and future market conditions. There can be no assurances that the companys actual result, well not differ materially for many results expressed or implied by the company's forward looking statement.
Company undertakes no obligation to publicly update or revise any forward looking statements, whether as a result of new information future events or otherwise.
Readers are cautioned that any forward looking statements are not guarantees of future performance.
With that I will now turn the call overshot O'connor the company CEO.
Thanks, Bill good morning, everyone and thanks for joining all fiscal 2023rd quarter earnings call.
Are you and your families all healthy.
Our thoughts and sympathies continued to be with everyone, who have lost loved ones and also to the millions who have lost livelihoods and businesses and this pandemic.
We remain in the midst of unprecedented times.
Which in my opinion will continue for much longer than most people expect and probably well into 2021.
They're often while the hot how health crisis May then a base it will be left with the economic aftermath to deal with both the damage inflicted on the economy as well as how we normalize off the side much fiscal and monetary stimulus.
This is a global event that will have significant and major global economic and social repercussions some of which have started to play out but many of which are unclear at this time I.
I believe that there's a rough road ahead of us and a large number of businesses big and small we'll have to deal with liquidity and perhaps even solvency issues and many industries are getting disrupted and re format to permanently.
Many ways the future is being pulled forward into an accelerated fashion and a week businesses without demonstrable value add to clients and without strong capital support on the ability to adapt and change well be in for a difficult time.
I continue to remain confident that we will navigate our way through this tomorrow, and we will find ourselves into stronger position when we're.
Achieved the new normal whatever that looks like.
To repeat what I said last quarter, I think I'll focus on providing durable and value added services to our clients I'll focus on capital and book value and I'll common sense and robust approach to risk management will stand us in good stead.
I also believe that the recently closed acquisition of gain enhances our ability to compete in the current environment.
As we said last five at the onset to the Cobot crisis, we adopted a symbol full point plan, which we continue to execute on.
Well I'd want to keep all about employees and they family safe. We are still 90% tend to work from home environment I'm not sure. This is going to change in any material way anytime soon.
We have managed to operate seamlessly in this environment and at this stage seen no degrading up our business either in the ability to say about clients or operationally in risk wise that said I did not believe that Oh I do believe that our business is better suited to the collaborative environment of an office.
But to continue to support Toplines without assuming major risk I'm proud to say that we supported our clients even in the most volatile of times and I believe this was not just by our clients and we'll see long term benefits as a result.
Three reduce our rest can take a defensive position to ensure a highest possible levels of liquidity and allow us to continue to appropriately service appliance and lastly provide risk management support topline. So they have a full appreciation of the risks they are taking and make prudent decisions as a result.
Moving onto the financial results for the quota, we obviously benefited from dramatically increased volatility, especially in securities both equities and fixed income markets as well as in the precious metals, particularly at the start of the quarter.
We saw a gradual returned to a somewhat more normal situation in the last two months of the quota.
The overall positive impact of volatility was somewhat offset by the rapid decline in interest rates on our customer float which was fully evident for the quarter.
Net operating revenues were 227 million up 38% from a year ago, but down 7% from a record in Q2.
Against this.
Total expenses were 24% largely due to variable compensation driver driving net income up 125% to 36.6 million just 7% below our record.
In Q2.
If he asked was $1.87 not a diluted basis up 67.
68%, which resulted in an ROI, we rounded to 22%.
The last two strong quotas also impacted the yesterday pair it with net operating revenues up 34% and total expenses up 26%, resulting in a 59% increase in net earnings diluted EPS was $4 71, Anoro, we for the nine month period was 19.2% ROI.
On tangible equity increasingly the market convention for financial services companies would be higher by several percentage points.
Before I move onto some segment highlights I'd like to briefly touch on the gain results, which are reported two weeks ago. The last set of quarterly results for gain as a Standalone company.
As you know we announced that this transaction closed on July 31st and we have Glenn Stevens the CEO on the coal who will present, an overview of their results in the second.
The game business has had an incredible Ron breaking all of their prior records over the last two quotas in the second quarter that produced net revenue of $101 million with net income of 14.3 million on our share count that would equate to an incremental EPS of around 75 cents.
Some highlights on the started I suppose this.
For the.
As for the prior quarter Q2, the big stand up with our security segments with revenues up 66% set a record hundred 23 million and segment income up 529% too.
30 segment again this quarter our largest.
This was driven by strong volume increases in both equity and fixed income although revenue capture declined in equities, while it increase on the fixed income side.
Nicole commodities was up 167% and segment income up 625% to 31.6 million.
This result was driven by precious metals with a 13% increase in volumes, but a large 288% increase in revenue capture due to market dislocation.
Commercial hedging operating revenues decreased 25%.
Segment income decreased 35%.
Due in large part to a strong performance recorded a year ago due to weather events in the AG markets as well as low volatility in the current quarter one of the few areas, where we actually experienced lower volatility.
Peering and execution operating revenues declined 13% and think segment income declined 69%, primarily due to a decline in interest rates as well as a bad debt charge.
Global payments operating revenues declined 5% and segment income.
It was down 6% over the back of 11% increase in volume, but a 16% decline in lower revenue capture.
Well that would be providing more details on these segments later.
As for the gain transaction.
Well as part of the gang transaction, we were successful in issuing a $350 million five yeah.
Next in phosphates coupon bond into the institutional market, which was the first for us.
This was no easy task given the market dislocation and volatility as well as the fact that were first time issue that is fairly unique with very few direct comparable.
We ended up with a high quality older book.
Which was well oversubscribed and the bond has since traded up strongly.
This is a big step in our company's progression and we will now have access to institutional capital and hopefully at better rates in future.
As I mentioned earlier, we pay close the gang transaction and I've already made progress on integration by combining trading flows in certain products as well as aligning our governance structure. There was a lucky yet to do but I'm very happy with the progress thus far.
Okay calls to action is accretive on every level, we now have a much larger more diversified client base, a broader product offering to better serve our clients and enhanced earnings power and liquidity.
The increase scale and resilience that this acquisition brings stands us in good stead to take advantage of the current market dislocation and image even stronger much like we did after the financial crisis.
With that I'll now hand, you over to Glenn Stevens, the CEO of gain to give you a brief overview of their recent financial results Glenn.
Thanks, Sean.
So did you have two slides here that I'll use as a reference for some of our updated financials from their most recent quarter as Sean said as an independent company, but just to give a little bit more information as a background here Sean mentioned, we had another strong quarter for our Q2, even after what <unk> what was that stand.
Record quarter for us in Q1, and given the prevailing environment of heightened activity and volatility in so many different markets.
Clearly that translated into our customers being able to trade a lot different markets and trade at high levels would overall volume levels being higher activity per customer being higher on and most importantly, pardon me being able to attract and onboard new customers as we look as you look towards the future. So.
On slide four there I'm just a summary second quarter review our net revenue for Q2 was 101 million that was compared to a little over 75 million on for the prior quarter. In 19 net income was 14.3 million compared to net income of <unk> point 9 million for the same period the year before.
Adjusted EBITDA of 28.9 million compared to 13 million QQ of 19 important takeaway there is the operating leverage its exhibiting our business that when we are able to scale the business Oh fixed cost and don't travel along and where you really able to.
Illustrate the operating leverage with much higher net income and EBITDA as it goes up in terms of the overall volatility again, that's a big driver for our customers can be more heavily engaged we did see ball continue in lots of different product types, whether it be metals, ur energys or currencies or or equity indices for example, not answer.
What we call HBV or average daily Valley volume of 9.1 billion was up all 28% compared to the prior and our RPM or revenue per million of 150 is on the higher side and represents the opportunity of being able to capture a bigger portion.
The bid offer spreads.
Throughout market, making activities and most importantly, as I said, if you look at the three month three month active accounts increased 34% to 93000, that's a quarterly record for us and it's the ability to number one attract new customers number to onboard them convert them into trading customers and number three.
Being able to retain them. So the combination was three or just what sets you up your business to go forward as markets progress on the next slide on slide five there just just for charts that show the new direct accounts on the upper left.
You can see the outsized increase there because even after a record Q1 for US we rolled in the Q2, you can see on engagement on the retail sector with customers really wanting to trade in so many different markets globally for us because we operate in all the major markets globally.
And then to the upper right. There is direct volume proactive got also maintained its high levels and that's going to be across a broader active account base. So hence you're going to have some lower numbers. There number one because it wasn't as volatile in Q2 was as was in Q1, but also you're going against going across Asia.
Water base. The other thing on the trailing three month activities are also important had looked at that on the direct business. That's the Blue bar you can see that continues to to increase on that on a trailing basis and to get to new highs for us.
Which is great means that those customers are staying in the fall and as you add new accounts and new active accounts have those retention on the older ones.
It's really important and finally, what should be label just volume on the on the on the right lower their chart you can see volumes holding up really well for Q2 as well, even though we had slightly lower levels of overall volatility again compared to Q1, not surprising I think a before I hand it back.
Over the Bill I think what's key here is that we're looking forward to be able to leverage the vast financial echo system that stornext provides and be able to get more products and services to our customers, which across the board enhances the diversification for customers to be more sticky so to be more active in more markets and ultimate ultimately that.
Attract even more new customers. So I think that's a complementary business not this brings is really has really African situation for us.
So so with that I'll I'll turn it over to build to continue on thanks.
Thank you Glen.
I'll be starting with slide number seven which shows our performance over the last five fiscal quarters.
As shown we called it the record performance in immediately preceding quarter with another strong performance in our fiscal third quarter with net income of 36.69 or return of equity of 21.9% and diluted earnings per share of $1.87 for the quarter and $4.71 for the year to date period, which exceeds our diluted earnings per share.
$4.39 for all of fiscal 2019.
Moving on to slide number eight which represents a bridge between operating revenues for the third quarter of last year to the current period operating revenues were $322.6 million under current period up 39.2 million or 14% over the prior year.
As Sean noted the quarterly performance was driven by our securities and physical commodities segment.
Primarily driven by continued hiding periods of volatility and client activity due to the colder 19 pandemic.
Partially offsetting this was the headwinds of the global economic slowdown and the resulting reduced client hedging activity in our commercial hedging segment.
Well as the effect of the drop in short term interest rate, which drove reduced operating revenues in both our commercial hedging into a larger extended Rcs segment.
Our security segment, Ed 48.8 million or 66% in operating revenues versus the prior year within the segment equity capital markets more than doubled its revenues, adding 36.9 million on an 83% increase in volumes, that's six weeks and increasing the revenue per thousand Donlins grade.
Debt capital markets also had a strong quarter, adding 13 million, an operating revenues versus the prior year spread widening 22% versus the prior year in volumes growing 8%.
Physical commodities increase operating revenues, 24, and a half million or 167% versus the prior year to a record 39.2 million.
This is primarily driven by a 24.1 million dollar increase in precious metals operating revenues as the global precious metals market dislocation, Google widening of spreads and an increase in premiums on physically delivered contracts.
Yeah no. Prior year period include the two and half million dollar unrealized losses on derivative positions held against precious metals inventory carried a lower crawford market in our non broker dealer subsidiaries.
In addition, our physical lag in energy business added 400000, operator operating revenue to 7.6 million in the current period.
However, similar to what happens from time to time in our precious metals business. The current period operating revenues and physical Haggen energy were tempered by a 2.4 million dollar unrealized loss on derivatives position, probably gets energy and inventory carried at the lower cost or net realizable value.
Operating revenues in our commercial hedging segment.
Declined 21.3 million versus the prior year to 65.1 billion.
Exchange traded revenues declined 14% versus a strong prior year period, which had been aided by weather related volatility in domestic grain market.
Oh Tc volume revenues.
Decreased 32% versus the prior year <unk> increase in HCC volumes is more than offset by 35% decline and average revenue per contract primarily in South American grain markets, which had a strong prior year quarter.
Also contributing to the decline in this segment was a $5.2 million decline in interest income. Despite a 24% increase in average client equity to 1.1 billion as a result of the sharp decline in short term interest rate.
Lower short term interest, resulting drove a 10 million dollar decline in our clearing and execution services segment 68.9 million in the current period.
Most interest rate sensitive segment. This segment saw 7.6 million declined in interest income to 1.7 million and fee income related to clients sweep balances in our correspondent clearing business declined 2.9 million to 800000.
Our being a positive note average client equity increased 86% think 1.9 billion.
FDIC sweep balances increased 64% the 1.3 billion, an exchange traded volumes increased 32% as compared to the prior year.
Finally operating revenues in our global payments segment declined 1.5 million for 27.4 million and current period as an 11% increasing the number of payments made with more than offset by 16% decline and the average revenue per paid.
Increased the number of payments is driven by expansion of the payment flow from recently Onboarded commercial banking client.
However declined in the number of larger merger and acquisition payments commercial banking clients.
The global economic slowdown drove the decline in the revenue per payment.
The next slide number nine represent the bridge from 2019 third quarter pretax income of 21.6 million to pretax income of 49 million in the current period.
The significant operating revenue growth in or security segment led to a 43.4 million dollar increase in segment income versus the prior year.
Non variable direct expenses in the segment increased 3 million versus the prior year. As a result continued build out of several recent initiatives in variable compensation increased as a percentage of operating revenues as compared to the prior year due to strong performance this quarter and adjustments made to the compensation structure and portions of the segment to increase the variable component of compensation.
And well commensurately, reducing the fixed component.
In addition, physical commodities added 17 in happening in that segment income versus the prior year off the back back of record level of operating revenues.
Partially offsetting these gains are commercial hedging segment increased.
Segment income decline kind of that million as result of decline in operating revenues, which was partially offset by half a million dollar decline in non variable expenses and a million dollars favorable change in bad debt due to net recoveries and 600000 for the current quarter.
See segment income declined 8.2 million versus the prior year as the result of the decline in operating revenues as well over 202.4 million dollar increase in bad debts, and our exchange traded business.
Global payment segment income declined 1.1 million, primarily due to the decline in operating revenue.
Finally, the net cost in unallocated overhead increased 13.79 versus the prior year distributors, partially a result of a 2.4 million dollar variance versus the prior year it mark to market value of exchange stock held for clearing purposes.
In addition, variable compensation and benefits increased 2.8 million versus the prior year as a result of improved overall company performance versus the prior year.
Fixed compensation and benefits increased 2 million as a result of increasing headcount in several administrator departments, including Nike compliance and accounting.
Finally, the remaining variances related to the increase in professional fees, primarily related to recent acquisitions, including gain capital holding an increase in amortization of purchased intangible assets related to acquisitions closed during the fiscal year as one of the incremental costs of the acquired businesses.
Slide number 10 shows the interest and fee income on or investment of client funds in exchange traded futures and options businesses as well as client balances held in our correspondent clearing and independent wealth management business.
As noted on this slide the effect of the transactions over the last 12 months, it's caused a significant decline in our earnings on these balances, which have declined by 14.2 million versus the prior year to 2.4 million as our yield on these balances declined 214 basis points to 23 basis points in the current period.
Moving on to slide number 11, our quarterly financial dashboard I'll just highlight a couple of items of note variable expenses represented 61.1% of our total expenses for the quarter well above our target of keeping more than 50% of our total it's not variable in nature.
We reported net income of 36.69 in the third quarter, which brings our net income for the trailing 12 month to 119.4 million.
The quarterly results yield the 21.9% return on equity well above our stated target of 15%.
Our total assets increased 23% versus the prior year, primarily due to the strong growth in client balances.
Finally in closing out the review of the quarterly results our book value per share increased $5, an 84 cents to close out quarter at $35.56.
Next I'll move on to discuss in the year to date result for to slide number 12 year to date operating revenues were up 147 million or 18% to 966.2 million in the current fiscal year.
All segments of our businesses reported increase in operating revenues as compared to the prior year to date period with the exception of clearing and execution services.
Largest increase was their security segment, which added 106.2 million driven by strong growth in both equity and debt capital markets, particularly during the period of heightened volatility in our second and third fiscal quarter.
Our physical commodities segment ended 34, and a half million versus the prior year to day period, that's precious metals operating revenues more than doubled versus the prior year spreads widen due to covert 19 related market dislocation as well as the result of the acquisition of point invest in the third quarter fiscal 2018.
Operating revenues in our commercial hedging segment increased 9.7 million versus the prior year, primarily driven by 20% increase in both PC revenues as a result of strong performance in energy markets as well as modest growth in exchange traded revenues.
These gains were partially offset by 9.4 million decline in interest income.
Our global payments segment added 2.2 million in operating revenue, while CES operating revenues declined 6.4 million versus the prior year to date period.
See a segment operating revenues declined primarily as a result of the 12 and a half million dollar decline in interest income to 16.8 million.
Moving on to slide number 13 pre tax income increased 49.9 million to 126.8 million for the current year to date period, all segments increased segment income versus the prior year, except for our clearing and execution services segment, which declined 10.1 billion.
The largest increase was in our security segment, which added $70.7 million segment income driven by strong operating revenue growth noted on the previous slide in operating revenues.
Strictly offset by add partially offset by an 11.7 million dollar increase non variable direct expenses and an increase in variable compensation as a percentage of revenue.
Our physical commodities segment added 21 million and segment income versus the prior year. It is a note that the prior year include the $2.4 million recovery on the bad debt.
Paul.
Commercial hedging added 3.3 million segment income and global payments added 600000 versus prior year.
Finally, the net cost and I am allocated overhead increased 35.6 million versus the prior year.
5.4 million in the variance was related to the GMP bargain purchase realized in the prior year to date period.
In addition, this change was partially the result of a 4.4 million dollar variance versus the prior year in the mark to market value of the exchange stock held for clearing purposes.
Compensation and benefits increased 15.29 of which 8.1 million represent an increase in variable compensation due to improved company performance professional fees increased 3.1 million, it's fair to the prior year, primarily related to acquisitions made during fiscal 2020.
I will finish up with a review of the final dumped a year to date dashboard.
Variable expenses are above our internal target of exceeding 50% of total revenues coming in at 60.6.
Total expenses net income was 92.2 million to the current year to date period, 59% increase over the prior year to date period and the return on equity for the year to date period is 19.2%, which is above our internal target of 15%.
With that I would like to turn it back to Sean to wrap up.
Thanks Bill.
I think our financial results. We have produced during this unusual in difficult period validate our business model, our philosophy around adding value to clients and how we manage risk the upcoming holders will not mission to be easy and we'll have to navigate through a variety of risks and market dislocations, we will remain vigilant to the cautious but I'm optimistic.
Well, a much stronger and bigger than before.
Well the future environment, maybe challenging for us with low volatility and low interest rates I'm certain that there'll be a reordering of our industry and opportunities to pickup valuable clients people and businesses that will allow us to increase market share and also the value of our franchise.
We believe that the gain acquisition will be strongly accretive in every sense financially strategically with the intellectual assets to enhance our strategy to become the best in class financial platform connecting clients to the global markets across asset classes and offering vertically integrated execution and clearing.
Also very pleased as you've probably noticed if rebranded ourselves statistics. It's good to find me have a pronounced double name that folks may actually remember this a name carries forward. The foundation established by sole stone in 1924, where he became one of the found the exchange members in Chicago to today.
He is growing financial services firm. This was a big task, but it was very well received by both our clients and colleagues.
I'd like lastly, just to thank the entire study next team which now.
Counts 3000 people around the world.
For the amazing commitment to our clients willingness to embrace the challenges we dealing with head on amazing performance well done every one operator, we are ready to take any questions if they're already.
Certainly and at this time I would like to remind everyone. If you do have any questions. Please press star one on your telephone I can that star one and we'll pause for just a moment.
Yes.
Your first question will come from a line of Russell Mollen with 19 capital. Please go ahead with your question.
Hey, how are you doing.
Good rested how are you.
Good.
I'm a question here for I guess, you or may be Glenn here.
On the.
Table here in the second table of the gain results.
Yeah upper right sharp direct volume per active accounts.
Can you just kind of how this fraud I'm not sure I follow that chart.
Maybe just with that just help me understand.
You get a customer retail client.
What's kind of the profile that CLI and how much are they putting into there now.
They are how much dollar amounts are trading that kind of thing.
Well, Glenn I think Thats for you definitely.
Yes [laughter].
Absolutely so Russell I'll try to address what you're saying you can get an answer for you. So the direct volume per active account in that respect just when it says numerator denominator, putting the number of active accounts of these aren't just onboard account DDIC seem to customers there.
Asking active over the previous three months.
Divided by the total volume what's going to drive that is a combination of volatility in certain markets. So keep in mind that we service over 140000 customers.
In various markets. So in some markets like the U.S. will will provide.
Forex trading in other markets like the UK or an angel will provide cfd trading which means other markets like equities metals Energy's interest rates, what have you, so depending on which which of those markets and moving that will drive how much volume per each client. So if you have a environment for example nightmare.
See equity indices move and Energy's move.
And currencies move then you end up with customers of ours that have access to all those markets, creating pull those markets. If it's concentrated on a particular market when it might just show up for example of countries and moving in the U.S., but again I would it's an important measure for us to show how the activity is per customer now.
In the case of the chart here, you'll notice a big spike on the upper left for new direct accounts, where we had it we had a lot of onboarding because a lot of customers are engaging you know if you're following along in the retail side, it's not just with gain but a lot of other providers are seeing an uptick in people.
During the markets and training their accounts on in a self directed way. So we participated not.
Newfound phenomena as well so you see that pretty material jump up in Q2 20 versus Q1, that's new customers coming onboard so part of that would show a slightly lower direct volume per account because you getting even bigger numbers of customers and when I mentioned and my and my add there during the call.
So was that fight able to plugged into the old older products and services that Stornext already had we want to actually increase those numbers, because we can give them more products or whether its cash equities or physical metals or other types of services that stornext already has that's an echo system you ought to be able to leverage now the same customer have access to more.
Our services.
I hope that answers your question.
Yeah. So.
That said.
Somewhere around.
Ill.
Five or $6 million that's.
Notional value, that's going to be a notional value per customer and again, it's it's an average. So you haven't if you have a customer with $5000 or $500000 them. Their notional is going to do is going to vary and that notional is going to change a little bit based on the product mix. So they're trading notional amounts of gold the versus no.
Funnel amounts of.
The dollar yen, then that'll move that as well, it's more important to look at the trends and look at kind of the the aggregate.
Number if you will.
And the.
Like those amounts are really bad guys I.
I don't understand this.
Not familiar with the business.
So being on the retail.
Side.
Customer base, so the amount of.
Leverage or margin and the currency or commodity that you know is offered in the industry or that you offerings what type of level.
Turning in dollar guarantee that much.
Capital that's right yeah.
Keep in mind, a couple of things number one it varies from a product the product and based on based on the underlying requirements from exchanges and such and also based on the volatility of each product. So if you look at.
You look at the volatility for example in Tech stocks, you might have a move of 2%, 5%, 10%, whereas if you look at a moving up in a major currency pair you might have a 1% move to present, so right now you're going to have commensurate volatility, which means commensurate leveraged provided and a lot of that's going to be driven by the local regular.
You should in each area as a company we line up very well with stone actions.
Kind of approach towards risk management, which is gonna be on the kind of careful and can you.
Conservative side, so we're going to start say well within all the kind of regulatory guidelines and touch on that one and so what I'll say is that.
Had a really longstanding history as a company in terms of managing risk in terms of.
Managing customer exposure this way, but a lot of its probably created just on that philosophy of giving customers access to the markets, but but not creating situation.
You know, it's kind of under leverage and so in this case.
The answer your question really depends on the product mix and so as I said generally speaking currencies and provide more notional leverage and for example, if you were trading just to just give an example, fewer trading the kind of notional S&P contract.
That that's going to give you more leverage than trading a single stock right because generally speaking.
I see Sox kind of has the potential for a much larger move intra day than the S&P wood and so so in those cases the notional.
For the required leverage you'd get more notional want trading in S&P, cfd equivalent or future than you would and on the single on a single stock.
Hey, wrestled maybe if I could chime in because I think I know, we normally in Colombia. So when when we looked at the gain business you know they they basically look very much in like the future side of our business, which is probably where we provide customers. The most leverage right versus you bought I guess, you got cash equities on the one answer.
Side, you've got Reg tea, which is sort of 50% margin somewhere in the middle and then you've got futures, which just as I kind of a blunt.
Number it's sort of 5% off the notional is kind of your initial margin. So you know again sort of at that end of the spectrum. They certainly will provide slightly more aggressive margin coal you know the most stable currency pass because as Glenn said that move that much. So you can maybe give like more like a three.
Percent margin.
And you know they but they tend to sort of be leveraged clients. The other thing. That's interesting to note is you know they do a lot overseas as a form of Cfds and see if these I think have sort of a bad sort of.
Reputation generically, but when you actually really look at what the Cfds off they are just really reconstructing what price on the futures market.
If you're doing a cfd on gold always see if the older index. What gain is really doing is replicating how an index would trade on a futures market and just doing that in the same format full retail customers. So basically all of these guys are trading so the futures type products broadly.
They not mom and Pops, because I don't think get on mom and Pops I'd like to trade that these customers of gain really sort of stopped at <unk> active investors to professional investors and.
On a leverage basis as you see there that trading somewhere between six and $8 million, but that you know the higher end up games business trades multiples of that I mean, you know tends to be maybe 10% to 20%. It's 80 20 rule, but they will try at much higher numbers.
So it's an active traders market, it's sort of a professional traders market and it's really sort of a future style business if that makes sense to you.
It does I appreciate that added color. Thank you.
Anything else Russell.
I don't think so solid solid okay.
What it says crazy world out there.
So while it's even crazier, we sitting in Westchester with no power and we're going to be out for a week as what they tell I guess, it's crazy over here as well.
[laughter] anyhow and operate any other questions.
Do you have a question from the line of Raj Sharma with B. Riley. Please go ahead with your question.
Yes. Thank you for taking my question. So congrats on the grade acquisition and and the excellent fit to the overall still next platform.
So when we model E two stone that.
Just trying to understand how it plays and maybe this is a question for Glenn high.
Hey, rash eat all hi.
I'm gay vision.
Do you think the new account growth at game is.
He is all from coding or is it.
Because of.
Would it is all the new account growth last year.
How much of that would you attribute to cobiz volatility and.
And how much.
How should we look at it going forward and then I've got a few other questions.
Shown okay for me to take that person Yeah go ahead.
Yeah, So so hi, Raj and I know you've done work on us and it's good to hear here you. So a couple of things on the one hand, a lot of our organic work on on boarding on platforms on making the journey easier for customers.
The way we try to measure each initiative is to look.
No it's quite simply look at the trailing three months six months one year. After an initiative is installed. So for example, we recently put into new Onboarding tool that makes it a heck of a lot easier for customers literally are able to get their account sorted in seconds or minutes instead of hours and age. So so the hard part happens when.
You look at that over three months.
Because you put in this clearly material change in the customer journey and you said, it's a clear improvement and you look at let's just say it goes up 15% and you say great that that new front door, we put into the store totally made a difference where it gets challenging though is that in that particular three months that followed you had a huge jump.
In volatility and just general awareness of markets and so if you look you said you know cold. So when you asked the question I'm not trying to not answer it but I'm, saying is yes, we made a bunch of changes in the last year to make our engagement with customers and our ability to onboard them much much easier that said you.
Look at the volatility and across the board, we've never had a better market environment because it wasn't just a singular market. It wasn't just cost currencies moving wasn't just metals. It wasnt just energy it wasn't just equity indices. It was all of them and so on one hand, clearly the environment with so many different markets be engaging or.
Interesting the customers definitely helped and number two there does appear to be kind of a mental shift with individuals you're not you're seeing it again, you're seeing it at other and other peers, you're seeing in other providers interactive brokers Robin Hood whatever across the board that that customers are more engaged and and they want to trade. So so that's.
Definitely we're a beneficiary of that as well the last piece of this though is that when you have a bunch of improvements and then you layered them in you know which are the ones that have the most lasting effect right you have to wait the dust to settle a little bit. So we have to look at a year's worth with high spikes like Q1, Q2, and let's say markets a more normal watch.
If you will on or rest of the mean over the next six months to a year, you say well how how much of that benefit did we retain because now in more normal markets. We do have all these improvements and we should see a baseline increased year over year, but when you had this much kind of aberrational activity, it's hard to know gtns, because we made it so easy to do.
Well again or is it also because these are incredibly enticing market. It's a combination the book However, the last piece I mentioned, which isn't in your model is if you look at all the products. Its don't exercise that stuff. We didnt have access right before so that's going to be a step function for us to say Oh now when a customer says Gee.
Really have some interest in physical gold instead of saying well learn let us know how you make out now we say hang on what's helping with that so so that's good that's the next journey here of all these work streams and always integration opportunity is to say, how do we plug into that and how do we make that part of the customer engagement with game because we can bring all these new services and products today.
So thats, yes, that's that's great. So so basically you know.
We've got quite a model.
Model into this so in that now clearly that are going to be benefits. So for example, a year ago.
You know use the gain used to talk a lot about hey, we can do 30% to 35% EBITDA margins by 2021, right with higher revenues and a relatively flat overhead resulting in a much higher earnings now is that is that still sort of the you I mean outside of the benefit from so next that didnt lots of data.
The way to look at the business.
Scaling the business by design that doesn't go away I mean, I mean, the operating leverage that's inherent in our model being able to have an underlying basis from technology and and capability. If you will to scale number of customers to service them to onboard them, we don't have to add new new compliance and customer service.
And admin staff every time, we had another 10 clients.
Hard part of getting an extra 10 clients and then just have all the revenue and profitability that flows from that because very little moves on the underlying expense days. So so yes that operating leverage stays intact and arguably as you add more products into it you're bringing more customers for different reasons, but this but the underlying.
King Foundation, the business doesn't have to scale with meaning the expenses on it you are able to just scale the business using technology and if we have other products to add would you just means were more enticing across the board.
Got it and just one last question.
So when when you look at the results you know first half of game.
How much of that you think we're in total improvements versus what's versus cobot and the high.
Yeah, and I'm not trying to not answer your question, except that I. Unfortunately, the best way to tell is to be compare like we like periods I and again, we know it's both right because clearly see and parts of the funnel when we look when we look at that.
What we'd like to call the journey from the customer and you say hey, what percentage of new applications will be improved approved and how quickly and how quickly do they get funded and things like that that's not going to old be attributed to cold. It. However, clearly when you have markets that are moving in the very enticing market to get involved in brushes varies.
Low volatility sideways trading market in some cases customers will be motivated to be more self serving and say oh that didn't work I'll Resubmit Oh, you need me that you need me to change my I'd, they've got to meet again compliant I'll go hustle and do it when they are not feel like I'll get around to it the right now I'm going to have lunch and so you have.
We will look like for like a period, and then say Oh look at that improvement. However, we're clearly seeing operational improvements at different points in the journey. So we know that working to what extent ask your question.
The best way to do it is to look back and compare similar type period, and then you can kind of isolate the benefit.
I mean, I guess Raj had at a very simple level, what I would say as you know, we really can't control the macro sort of cycle right right that we can't anyway through a big macro cycle, what we can control and I think there. So the thesis of this investment is two things we can become operationally easier.
Deal with and that gives us a competitive advantage and we can offer more diverse product set than our competitors and if we do both of those things right. We should do better more market share no matter, what the kind of macro environment. So.
The things, we trying to solve for all become as efficient doesn't mean kind operationally and have the best product suite out there relative to the peer group and if we do that right.
We should get more market share and I'm no matter, whether we having a quiet period or busy period right. So that that's I guess, how I would think about it got it got it. Thank you think that helps thank you I'll take it off.
Okay.
Operator to anyone else.
No other questions at this time.
Okay, well once again I'd like to thank everyone really exciting time for us with gain now closed we see this as transformational and you know in the current market environment I think not only a great transaction for us with lots of in commercial rationale.
But I think in the current environment environment positions us extremely well.
You know to come out of the back end of this much stronger much more diversified with much greater earnings power, So really exciting time for us.
Lots of work ahead.
Obviously lots of unforeseen twists and turns ahead I'm show with the markets.
But we feel very confident and very excited so thanks, all stay safe and enjoy the rest of summer.
Thank you. Thank you again for joining US today. This does conclude the conference you may now disconnect.
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