Q2 2021 Stonex Group Inc Earnings Call
[music].
Ladies and gentlemen, thank you for standing by and welcome to the store next second quarter earnings Conference call. Please note the.
For today's call is being recorded.
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After the speaker's presentation, there will be a question and answer session.
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I would now like you had the conference over to your speaker for today, Bill Dunaway Company's CFO Bill the floor is yours.
Good morning, My name is built on the way welcome to our earnings conference call for the second quarter ended March 31 2021.
After the market closed yesterday, we issued a press release reporting our results for our second fiscal quarter of 2021.
This release is available on our website at Www Dot stone ex Dot com is.
As well as the slide show presentation, we will refer to on this call in our discussions of our quarterly results.
You will need to sign on to the live webcast in order to view the presentation. The presentation and an archive of the webcast will also be available on our website. After the call's conclusion the.
Before getting underway, we're required to advise you and all participants should note.
For the following discussion should be taken in conjunction with the most recent financial statements and notes thereto as well as the form 10-Q filed with the SEC. This discussion may contain forward looking statements within the meaning of section 27, a of the Securities Act of $19 33, and section 20 <unk> of Securities Exchange Act of $19 30 for.
These forward looking statements involve known and unknown risks and uncertainties, which are detailed in our filings with the SEC. Although the company believes that the forward looking statements are based upon reasonable assumptions regarding its business and future market conditions. There can be no assurances the company's actual results will not differ materially from any results expressed or implied with.
The company's forward looking statements the company.
<unk> 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'll now turn the call over to Sean O'connor the company's CEO.
Sean.
Thanks, Bill good morning, everyone and thanks for joining our second quarter earnings call.
In the second quarter, we reported very strong results across the board. Despite me as the euro interest rates a lot of flying the flight we.
We handily beat the prior record quarter, where we benefited from unprecedented market volatility due to the onset of COVID-19.
Trailing 12 months of results almost the very strong of a company that's driving the capabilities expanded the slide footprints gained market share and has made significant progress of the integration of the day transaction.
Turning to the market during the March quarter of the market environment was part of it.
For us with point of equity markets.
Increased volatility in many of the commodity markets, including compound, which hit multiyear highs.
So turning to the slide deck and starting on slide four.
Dealing with product results and the key metrics and the.
The key takeaway he asked me to manage the increased operating revenues, 29% in aggregate despite comparing against last year's exceptional results with volume spikes and volatility of market dislocation increased revenue capture all of you for the onset of COVID-19.
Operating revenue increased in all product areas, except the OTC derivatives.
Volumes are up across the board, except for a list of derivatives, where we saw enlarge the flying from the institutional segments.
The decline again against the very strong prior year quarter.
Revenue capture was down in the OTC derivatives as well as securities.
Largely to the low end market volatility versus the prior year quarter.
The notable exception here was listed derivatives, where revenue capture increased as a result of the change in the business mix as well as index.
Our successful effort to re price at lower margin the institutional business upwards because of the decline in interest rates.
Securities was the gain of standouts with average daily volume up 34%, although partially offset by a 7% decline in revenue capture.
All of the FX and Cfd revenues were up significantly due to the addition of games.
Which was not in court, which was not in the comparable quarter last year.
<unk> had a very good quarter of.
Global payments operating revenues of about 14% due to increases in both volume and revenue capture.
Physical trading wasn't getting very strong largely in precious metals, which continued to have very positive market conditions as well of on the AG of biodiesel side.
Average client flows both of them.
The derivative side of the securities clearing side of the experience strong growth up 56, and 42% respectively.
Due to both higher client volumes as well as market share gains and in aggregates uplift now stands at $5 2 billion.
Only 10% from the immediately prior quarter. Unfortunately, the strong growth in balances was more than offset by a significantly lower interest rates, leading to a 62% decline in interest and fee income on these client balances.
Looking at the immediately prior quarter of overall revenues of about 24 per say its on the particular basis and up across all products, the exact global payments, which was down marginally.
The derivatives of operating revenues of about 6% of OTC derivatives of 45% securities of up 25% and global payments down 2%.
FX and Cfd is were up 25% and physical contracts of 108%.
Even the interest revenue was up on a consecutive basis due to the increase of the client flipped over.
Overall, a very strong performance compared to the immediately prior Q1.
Turning now to slide five the summary of our earnings.
Total operating revenues.
$471 4 million up 29% for the quarter.
Aggregate cost of 38 per cent for the quarter.
Primarily related to the addition of <unk> as well as increased incentive compensation due to better performance.
Net earnings were $55 3 million up 41% and diluted EPS was $2 73.
<unk> 37 per cent.
ROE was an exceptional 26, 7% and this despite a much larger capital base than we had a year ago.
There were a number of notable items of the game this quarter, although in aggregate they were insignificant.
<unk> had a very good quarter and on an incremental basis, including the related financing couple of the high yield notes. This acquisition is now accretive to earnings and only the second full quarter.
Looking at guidance on a consecutive basis versus Q1 of fiscal 2021.
EPS versus the Q1 number which adjusted number off of $1 43 was up 91%.
ROE was 26, 7% versus the adjusted 14, 5% in the immediately preceding quarter.
Yeah.
Turning now to slide six quarterly performance trends, we think the best way to evaluate the results is by looking at the longer term performance, which.
It shows how our business from Forbes through short term market cycles, I would like to point set up that the attached chart includes only out of the Gaslog.
Not the adjusted the Q1 EPS within our estimate was $1 43, and the Q4 of 2020 number includes the purchase accounting of gain which largely reflects the 2020 earnings that accrued to the starting of channels.
The trailing 12 month ROE, which encompasses the last eight quarters results.
Italy climb from 14%, which was just below our long term target of 15% to the car.
Current 24%.
It's worth noting that eight quarters ago of shareholder equity was 552 million and sort of has grown over 50% of the last two years, making the ROE targets more challenging in absolute terms.
Our trailing 12 months GAAP diluted EPS is currently $9 of 48 cents.
And if you annualize that yesterday's performance again, just using the GAAP numbers is $7 62.
Turning to slide seven the segment summary, just to touch on a few highlights of the full bill gets into more detail.
I was pleased to see once the guy that despite the challenging comparison period all of our client segments of weapons tens of segment operating revenue as well as segment income up arrows across the page.
On a quarterly basis, the standouts of the commercial client segment for the segment income up 73% and retail up 357% as gain was included in the top of that has had a very good quarter.
On the trailing 12 month basis institutional was the standout for the segment income of about 60% and of course guidance for the reasons mentioned earlier.
I'll now hand side of it to both underway for a discussion of the financial results in more detail bill over to you.
Yeah.
Thanks, Sean.
Starting on slide.
Number eight which shows our consolidated income statement for the second quarter of fiscal 2021.
Sean covered many of the consolidated the highlights for the quarter. So I'll just highlight a few and then move on the segment discussion.
Transaction based clearing expenses were up 17% to $74 8 million in the current period, primarily related to the increased volumes of equity capital markets and the incremental cost of the of gain which was partially offset by lower listed derivatives volumes introducing broker commissions were up 38% of $40 8 million in the current period, primarily as the.
Result of the incremental cost of the gain plus increased activity in our independent wealth management business.
Interest expense, which is related primarily related to our fixed income securities lending and physical commodity activities declined $16 7 million versus the prior year, primarily as a result of the decline in short term interest rates, which was partially offset by increased borrowings in our physical business.
Interest expense on corporate funding increased $8 3 million versus the prior year, primarily as a result of the senior secured note issuance in the third quarter of fiscal 2020 related to the gain acquisition.
Variable compensation increased $23 4 million versus the prior year and represented 32% of net operating revenues, while they represented 34% of net operating revenues in the prior year period. The increase in variable compensation was the lady because of the growth in operating revenues versus the prior year period.
Fixed compensation increased $24 9 million versus the prior year with the growth in related related to acquisitions completed subsequent to the end of the prior year quarter increased head count related to strategic initiatives, which Sean touched on in his comments as well as growth in support of areas to support these initiatives.
Other fixed expenses increased $25 $8 million versus the prior year with $23 million of increase being related to acquisitions completed subsequent to the prior year.
Bad debt expense declined $3 $5 million versus the prior year net.
Net income for the second quarter of fiscal 2021 was $55 3 million and represented the 41% increase over the prior year and the 184% increase over the immediately preceding quarter.
Finally, we closed out the quarter with the net asset value per share of <unk> $43 48 per share as compared to $33 75, a year ago.
Moving on to slide number nine.
Some more information of our operating segments. The commercial segment added $18 1 million in operating revenues versus the prior year.
Within the segment listed derivative operating revenues increased $4 6 million versus the prior year as a result of the 23% increase in the average rate per contract.
Volume declined by 7% versus the prior year, despite strong growth in AG related volumes as the prior year quarter benefited from strong volumes in <unk> markets due to volatility related to the onset of the COVID-19 pandemic.
At the onset of the pandemic in the prior year also led to record OTC revenues and thus, while we had a strong quarter and OTC products was $35 1 million of operating revenues. This was down $9 3 million versus the prior year record quarter the.
The current period, however represents of $11 million increase over the immediately preceding first quarter of 2021.
Operating revenues from physical transactions increased $24 2 million, primarily as a result of strong customer demand for precious metals and to a lesser extent in biodiesel feedstock markets of.
Operating revenues in physical contracts for the current period included $2 4 million net gain recognized on the sale of inventories carried at the lower of cost of net.
At the end of the preceding quarter.
Finally interest earned on client balances declined $1 9 million versus the prior year due to a sharp.
Term interest rates, which was partially offset by 86% increase in average client equity.
Total non variable expenses declined $2 $5 million versus the prior year, primarily as a result of the decline in bad debt expense.
Segment income was $55 6 million for the period, an increase over the prior year in the preceding quarter of 33% and 73% respectively.
Moving on to slide number 10, our institutional segment added $5 9 million in operating revenues versus the prior year, primarily driven by a $24 $8 million increase in securities revenues as a result of of 34% increase from the average daily volume of security transactions, driven by our expanded product offering and continued market volatility.
Operating revenues from listed derivatives for relatively flat with the prior year period down $1 6 million of sharp decline in volumes from the strong pandemic led quarter of year ago was mostly offset by a repricing of customers in this business, which led to a 29% increase in the rate per contract.
Interest and fee income on client balances declined $7 3 million versus the prior year due to sharply lower interest rates. However, the average client balances increased 37% versus the prior year.
Segment income increased 1% the $52 million in the current period, while adding $7 2 million versus the immediately preceding quarter.
Moving on to the next slide operating revenues in our retail segment added $74 million versus the prior year, which was primarily driven by a $71 2 million dollar increase in FX in the Cfd revenue just from the gain acquisition.
As Sean mentioned, our retail precious metals business had a record quarter, adding one 5 million in operating revenues versus the prior year the IB.
Increase in variable compensation and benefits and non variable direct expenses was driven by the acquisition of gain.
Segment income increased $25 million versus the prior year and $14 $1 million versus the preceding quarter.
Closing out the segment discussion on the next slide operating revenues and global payments added $4 1 million versus the prior year driven by an 8% increase in both the average daily volume and the rate per million earned as compared to the prior year.
This growth was driven by increased activity from our NGL clients as well as continued growth in our client base.
Operating revenues declined modestly from first quarter levels as the first quarter typically benefits from the cyclical activity of NGO clients around the holidays and related to the end of the calendar year.
Non variable expenses increased 900000 and is primarily related to the acquisition of Xerox.
Segment income increased 13% of $19 4 million in the current period.
Moving on to slide number 13, which represents the bridge between operating revenues for the second quarter of last year to the current period across our operating segments. Overall operating revenues were $471 4 million in the current period up $104 six of 29% over the prior year.
I've covered the changes in operating revenues for our segments. However of the increase in revenues and unallocated overhead is primarily related to of $3 $1 million net gain on the revaluation of the UK based subsidiaries of gain which was partially offset by $1 $2 million loss on derivative positions the entered into to temporarily hedge our exposure to the British pound in these entities.
We consolidated the majority of the operations of these getting the entities into our U K affiliate during the quarter and closed out our derivative positions as our U K affiliate as the U S dollar based entity.
The next slide number 14 represents a bridge from 2022nd quarter pre tax income of $56 1 million a record at the time that pre tax income of $76 3 million in the current period.
The negative variance known unallocated overhead of $21 $5 million is net of the positive operating revenue noted before on the previous slide and includes the $8 $5 million increase in fixed compensation, including $3 $7 million related to acquisitions closed subsequent to the end of the prior year period.
And finally of $7 $1 million increase in other expenses, including an incremental $5 $8 million related to other acquisitions.
With that I would like to turn to Sean for Australia discussion.
Okay. Thanks, Bill I think you'll also notice that we included the slide in there which was requested by many of you showing of floats and.
The sensitivity to interest rates on slide 15.
I think that's self explanatory so let's move on to slide 16.
This summarizes the high level strategic update objectives that management is and has been focused the bottom.
And will allow us the capture the opportunity we see before us.
The similar to the slightly shy of last time, so I won't go through it very quickly firstly, we want the continued to build that ecosystem, we want to stay relevant to our clients existing of new clients by adding products and services for reacting the best financial ecosystem to connect them for the global market.
We are customer centric business and we need to consistently work at growing our customer footprint into new markets and expanding market share, where we have existing customers and looking to serve new cut the customer segments and channels guidance provided us access into the retail self directed trading market, which is significant in growth we have all of the case.
Abilities of service customers of all types and have a large addressable market in front of us with very low market penetration currently.
We will not achieve the necessary growth in scale and as we better enhance technology to digitize offering.
This will not only enhance customer engagement and increased scalability and the increased modules. This requires the rethink of our processes front the back which has been underway for some years, but has now accelerated from the C acquisition Okay.
And then lastly, our businesses supported by capital and we need to underpin our growth was internally generated capital resources, and where appropriate access the capital markets in a disciplined manner.
Moving onto slide 17, each of our products and segments has a larger number of projects in flight to address each of the strategic objectives. The <unk>.
So the city has not changed from the last call and we will take some quarters to deliver to our customers. We are pleased with the cadence of progress on all fronts.
And our injecting as much of entities the completion of these objectives as possible.
Just a couple of initiatives the highlights here.
Over the last year, we have transformed our equity market, making business into more of in the electronic offerings for our clients.
<unk> is focused on long list of OTC ideas and we are seeing.
Increased efficiency of client engagements as a result, we are.
Now of using what we have learnt to start expanding our electronic offering into related segments, where we believe we can leverage off of decades long client relationships with the retail brokers in the U S as well as our technology assets. This will be a thoughtful and careful rollout, but if successful could deliver meaningful incremental revenues for us.
Just two years ago, we acquired a small outflow trading business as part of our prime brokerage offering to the building at the time outsource trading has become a growing market generally and our business has performed exceptionally well revenues here are up 204% from a year ago and up 104% from the immediately.
Q1 quarter, we are of great team and are well positioned in the growing segment of the market of 10.
The key solutions to all of institutional clients.
Overall, the prime brokerage business seems to be gathering momentum.
On the fixed income side as you mentioned that the number of previous calls we have significantly expanded our products and capabilities for the last two years.
We have recently started to expand the presence of the primary issuance in the mortgage agency in municipals market, which adds value it broadens our client relationships.
About a year ago, we have recruited a small team to support our growing precious metals franchise, both of the wholesale volume capability as well as the digital retail offering of appointed based here in the U S, where we had almost no market share.
We create we recruited the small of an experienced team based in Santa Monica and they have hit the ground running and have already surpassed the first year's budget.
On the retail side, we have the number of big initiatives in place, which are all progressing well gain.
<unk> has the leading digital marketing capability, which is at the core of the digital platform continuously driving new clients to their platforms.
For the last couple of quarters gain has restructured those cases on the T by insourcing colored rather than using outsourced vendors from agencies. This has had a material impact on the efficiency of the marketing spend which is down around 30% in absolute terms, while retaining effectiveness and adding new accounts that should lead to significant financial the impact on the.
The business overall.
Increasingly looking to leverage the states of the market seen more broadly throughout our business as we continue to digitize. The legacy <unk> business. This has started with a point invest business and is already showing benefits.
The most significant projects of the retail side is adding of cash equities capability to the game platform globally.
This is the big projects that will take some time to deliver fundamentally repositioned the business, providing a broader and more attractive value proposition for lots of clients globally.
We continue to develop of corporate payments platform.
Hope that in the next months, we can start a small beta rollouts of our existing commercial clients in both the U S and Europe.
You want the bolt on notice that we announced that we acquired.
Equity stake in the minority broke the Tigris.
We are very excited to partner with Cynthia Dibartolo, who has an extremely impressive background in the financing markets and as the leader in the minority and women out of brokerage space. We expect we are excited about pocketing, the Cynthia and her team to grow our respective businesses.
We have always believed that we do very well by doing good there should be and the excellent example of that as we leverage our capabilities and products with Synthes patents the team.
We have always thought of ourselves to a very high standard by playing by the rules of treating all of our stakeholders hold the fairly creating opportunities for all our employees and rewarding them on the merits.
Doing the right thing of the easy thing EBIT window of what is watching.
Many of you may be aware about global payments business, which started by saving the NGO and charitable space, we provided transparency of cost efficiency to the OPEC international payments World and in many cases disrupted that market and so doing over the last 10 or more yes, we of safety the Ngls and charities 100.
Of millions of dollars in fees and foreign exchange costs, while at the same time building of our industry, leading payments capability in over 170 countries. Another example of doing well by doing good.
Yeah.
Some of you probably saw the announcement yesterday that style of X has become a member of the London stock exchange equities market, making business generate significant volumes of orders analogy names for my existing relationships and will be better able to provide executions of our clients and also potentially internalizing trading spreads currently paid.
The way to add the LSE member firms, we are always looking for ways to better monetize our client flow and better service our clients both of which will positively impact our margins.
Moving onto the slide 18, our quarterly dashboard that shows how we've been doing business the high level Kpis, we have established.
We worked very hard to keep as much of our cost base variable in nature of linked to revenue and instead of doing protect up all the block.
As you can see we have easily met the target. Although the ratio has has worsened a bit. This is in large part due to both the acquisition of gain and the ongoing digitization of our business, which leads to a higher proportion of fixed costs. Although these cost of very scalable and less variable compensation to brokers and salespeople.
So total compensation is right at our target level of 40% of operating revenue and of.
Of course of the most important kpis for the rest of the borrower and.
And we have significantly exceeded our long term target for the quarter, but for the trailing 12 months as well.
Moving to slide 19 shows across the book growth over the last three years as mentioned earlier, our highest priority is to better serve our existing customers and to grow our footprint. This is what drives every aspect of our business. The slide is intended to provide some context of data points around the progress.
It should be noted that not every client is equal in terms of revenue potential.
But the important thing is we are attracting customers and growing the footprint, that's not only drives our revenue, but as validation of our approach our strategy in the platform we've built with.
We've got Sydney continues to see consolidation in the industry, especially from banks, but he has of the U S and the UK as they refocus on larger clients.
Lastly, an update on the getting the integration that the synergies we have largely completed all of the legal entity rationalization.
U K, Singapore, and Australia, all merged with the local spot index the entities and all of that remains of any consequence is the merger of the guidance swap dealer, which is likely to happen to the current quarter.
As we reported last time, we have largely integrated all of the support functions, which are operating well there has been a good injection of new talent from gain and this should not be on the estimated and in many instances of support areas are not headed up by guidance folks.
We remain broadly in line with our cost synergies of having wavelengths over 17 million of annualized we have also realized capital synergies and in fact have exceeded.
The 100 million targets in the hat.
And of closer to $150 million, which exceeded our expectations at the time of the transaction.
We now turn our efforts for the longer term cost synergies such as the consolidation of the premises leases Randall consolidation of data centers renegotiation of duplicate the vendor contracts as these reviews.
The most exciting part of the transaction is the integration of products capabilities and trading flow. This will take some time to fully realize that we have already seen some good and easy wins and a lot more to achieve as we consolidate flow it suddenly and better realized more spread capture internally and less hedging costs.
Given the secular growth in the south director of segments of the financing markets. We are not looking to offer an expanded product and capability sets of the retail client base, having started investing now in the future growth of the retail platform the.
The most success significant initiatives. He has the pulled out of the cash equities offering for the city index platform after which we'll then pivot into the site in the U S.
In addition, we are revamping of the gate open E Cry platform for institutional investors and answer all of that obviously, but the enhanced product capabilities. So we feel pretty good about progress that has been achieved thus far and if anything we have become more excited about the potential and opportunity we have in front of us.
Moving onto the final slide.
The number 20.
Yes.
To close.
Record results Roe of 27% for the quarter and 25% of the trailing 12 months.
We really believe our business has been transformed over the last two years with shareholder funds.
Bonds and operating revenue up 50% plus an entirely new customer segment.
Continued growth in client activity and on boarding.
<unk> continued to see strong on boarding.
That has happened continuously through the COVID-19 period, and continue to see that even today.
The strong client engagements I think that's evidenced by our volumes and the increased float we continue to expand our products and capabilities some of which I touched on the Elliot.
And we have made good progress on leveraging our capabilities into the current trading platform.
We continue to digitize the legacy index business, we now have a number of platforms and new platforms in flight.
And.
Continue to make good progress on both of the gain the integration and navigating with COVID-19 just dealing on the COVID-19 issue. It seems like we finally moving out of the pandemic to relatively normal situation at least in the use of the U K and Singapore and perhaps the Europe of the rest of the world maybe six to 12 months behind.
The debt.
In some ways things may never be the same and we've all learned how to adapt and survive and even thrive in non instance.
We are actively now returning to an office environment, which I strongly believe is the best format for our business as fast as the team culture and collaboration which allows us to better serve our customers and allows our people, especially the junior folks to lead the growth.
I'll stop there operator.
For the line and see if we have any questions.
Thank you at this time, if you would like to ask the question. Please press Star then the number one on your telephone keypad once again Thats star one on your telephone keypad.
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Thank you.
Our first question comes from the line of Dan Fannon of Jefferies. Your line is open.
Thanks, Good morning, gentlemen.
My first question is on the list of derivatives RPC.
Obviously came in a little bit better you mentioned a couple of things in terms of why that happened and one of which was.
Focused on improved pricing. So just curious about the sustainability of this level and some of the inputs that drove drove debt this quarter.
Okay, well welcome debt maybe stock.
And chip in the latest so I think there were two things going on the obviously, we saw on a relative basis with the client on the institutional side, which is a lower price offering versus the commercial side. So there was a little bit of a.
Sort of a business mix towards.
Higher price the product and then additionally, all of the institutional side, which you can clearly see with the institutional metrics. We have systematically been trying to re price some of our low price customers and that's not an easy thing to do these are tough conversations and I think we approach them with Canada to our clients.
I think that clients appreciate what we're doing so then we support them with the capital we support them with infrastructure and if in the aggregate not getting the right return that's not a good relationship for us and in the long term zone.
Nothing of and dwell for the hip either right. So so that was part of it.
<unk> of gone pretty well I think people realize that we trying to be fair and reasonable.
I would say, it's also quite hard at the moment to move accounts I think sort of pricing pressure has turned a little bit in favor of.
Of the clearing firms because we still think of lot of banks.
Sort of pushing out clients not of lot of people have the breadth of.
The market access that we have.
So obviously there is a market that you have to be competitive, but I think the prices have abated, a little bit in terms of sort of the people driving pricing downwards. So I think all of that speaks to this probably being okay for us.
And the sustainable I mean, you do have to be prepared at some level of book to compete for low price business.
Listen to walk away if necessary.
That hasn't happened with us so.
So I think I think the place for that.
They find the interest rates start to spike there may be kind of a review of the conversation right because of some of these kind of as they come back for us and say well hey on the economics have moved a little bit more when youll phase of it now so can we maybe rethink the the overall relationship. So I think theres the potential for that but I think that would be of sort of a high quality problem.
For us at that point.
I don't know if you have anything to add on that.
Sure I mean, the only other aspect that you didn't touch on Sean would be last year the <unk>.
Volumes on the London metals exchange of really quite high with the onset of the pandemic right. So if we just kind of isolate them their volumes down about 30% versus last year.
And a lot of that there is of spread component in the net.
<unk> business is a little different from the U S futures exchanges. So it was more high volume kind of lower RPC last year, which I would say is a bit of an anomaly.
And what it's been replaced with volume wise.
About half of that volume has been replaced with higher volumes in the U S AG markets.
We are of higher RPC just naturally.
And so with the.
For the kind of coordination of those two items kind of late is a component that led.
To the Ryzen RPC in addition to what Sean said, that's kind of the repricing on the the strength.
Futures and options business in the institutional segment of that makes sense.
Yes that makes sense, okay. Thank you and then.
A quick question on expenses.
Variable comp growing with the revenue and profitability makes sense, the fixed compensation seems to grow a bit faster than I would've expected.
So I think there were a few things you talked about in some of the comments around acquisitions that added. So I just want to make sure that this is a reasonable run rate or if there is seasonal stuff that makes this past quarter higher or just trying to think about the trajectory from hearing fixed compensation sure sure.
Dan Thanks, there was about.
I think we mentioned in the comments in the filing the about 1 million eight and severance.
It was in Q1, if you are looking at as compared to the immediately preceding Q1. It was in Q2 versus the immediately preceding Q1 sorry.
Which kind of drives that up a bit I would also say the there is some long term incentive increase of about $1 million to debt went up from Q1 to Q2 with much better performance kind of stated GAAP Roe basis.
<unk>.
All of wallets.
We consider it non variable because it doesn't necessarily flow of directly with the revenue as each quarter you do see increases when you when you see outsized performance.
And then the remainder.
Is mostly kind of the beginning of the calendar year reset with payroll taxes health kit.
I'm, sorry of payroll taxes retirement some.
The increases related to kind of paint paint time off accruals.
With the force with the fourth calendar quarter or first fiscal quarter for us.
Some of the write off of those balances that can't be carried over.
And then Youre starting of new here in the first calendar quarter, So I'd say in all.
Kind of benefits non.
Non share based benefits.
We're up about 7 million of little over $7 million kind of Q1 to Q2.
And I would say probably $4 million of that or so a little better than half of that is kind of just related to.
Kind of at the beginning of the calendar year.
Kind of I wouldn't call them abnormal because it happens every year, but those arent pickups, you see it in the first calendar quarter.
But I would expect them to go down.
With the retirement charges and payroll taxes.
The front office people meet.
Some of those limits that are on those expenses.
Okay that makes sense.
And then.
Just on the retail rollout.
As mentioned a few times throughout your prepared remarks, Sean So just to be clear. This is a offering that you're looking to start with city index of the retail platform in Europe, expanding kind of direct.
Equity capabilities that ultimately you think.
You will then push to the U S or just wanted to talk.
Talk about the timeline and kind of opportunity set you see with debt with that.
Okay. So.
I think one of the underlying sort of long term strategic thesis for us acquiring gain was to try and at all for the product capability set to the self directed platform and obviously that we're bringing in.
The self directed platform and a new customer segment for us so that those things are harder to do that and it sounds like but that's the plan.
And we've identified that the biggest part of that is to add more of a sort of the cash equities components.
Two the game platform.
It's kind of be rolled out in slightly different ways, just because of the regulatory differences between Europe and the rest of the world and the U S. The good news is in the U S. We obviously auto growth the dealer retail broker fee that we pay of equities, we do it all but it all happens in sort of different regulatory.
Entities in the UK, we've been probably do that a.
The little bit simply but on the flip side, we don't clear international Securities ourselves, having to do kind of a workaround debt. So long story short both of these projects are in flight.
In the U K and the U S.
And we'll have to see exactly how they sequence in.
But we are hoping that within the 12 month period or so that we will have rollouts in both markets of at least an initial offering.
And then we'll sort of it's the rate from there. So it's the big project. It's a project that I think we all think will fundamentally reposition both the gain and the base business and the allow us to compete.
Compete actively in the self directed space I think.
In the U S.
Not many people I know all of that.
On a retail self directed basis kind of off the futures equities, even potentially fixed income and foreign exchange and the.
That's all the desire to offset that both of the U S and in Europe.
So long story short.
At the old track just because the the capability set we have of the Reagan likes the environments of different in both jurisdictions, but we are pushing on both of them at the same time as currently we think we'll probably habit.
Launched first in Europe, and then in the U S, but that timing could change just depending on how things come together.
Answer your question debt.
Yes, no it does it does.
My final question is just on the M&A environment.
Currently I know you obviously, you've been very acquisitive over time, how would you characterize the kind of.
Our opportunity set today versus other periods and maybe how much time you guys of the management team are spending on those inorganic opportunities versus organic.
Yeah.
We obviously see a lot of stuff I mean people know us as a consolidator in the acquirer. So I think we sort of in the flow of the transactions if you like.
Typically we see anything from 50 to 100 of opportunities in the 12 month period.
I would say what's different now from my perspective, and maybe sort of the way, we think about things a little bit but.
You've got a lot of the potential targets, we would look at who have benefited from very buoyant market condition. So a lot of them off for them.
At peak revenue of peak earnings.
For a long time cycle right and then on top of that you see all of the craziness in the current markets, whether it be driven by spec so bit point of how some valuations of just accelerates it add.
A lot of these potential sellers are looking to put it.
Extremely high multiples on the sort of peak.
That's not going to be of trade, where you're going to be all of the other side of that.
So we tend to be very disciplined value bias.
The added lots of people, who are looking to monetize those.
That was kind of peak valuation levels and.
And some of them.
But I think we wanted to make sure we stay so the focused.
Focused and disciplined around the compounding of book value buying businesses. We believe we can add value to I mean, there's no point of us buying a fully priced assets paying.
Paying good money for it and not being able to make it better right because what's the point how do our shareholders benefit from that so I think we've just got to stay very focused though in the context of of that environment I would say, it's probably fairly unlikely we would do something meaningful until market conditions changed now that could change fast and.
No.
It's hard to know what you know.
The things will look like in six of 12 months, but certainly in this environment. It seems to be a seller's market a lot of buyers market if that makes sense.
Yes. It does thanks for taking all my questions.
Okay.
Operator, do we have any more questions.
Thank you once again, if you would like you asked the question. Please press Star then the number one on your telephone keypad.
Once again to ask a question please press star one.
Alright, it looks like we don't have any more questions. So let me just close by saying this has really been a tremendous in the perhaps transport transformational 18 months period for us starting with the gain transaction the COVID-19 effect, both on the constantly and all the markets.
Now, culminating with our first quarter revenue none.
None of this would have been impossible without the amazing folks at <unk> gain and the dedication and determination to serve our clients no matter of work really a great privilege to be part of this amazing company really excited about our trajectory of the nearly heading so.
Thank you for joining.
We will chat again in three months time and enjoy the summer of everyone. Thank you.
And again, ladies and gentlemen. This concludes today's conference call. Thank you for participating you may now disconnect from the great day.
Okay.
Yes.
Okay.
Okay.
The.
Okay.
Moving forward.
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As of late.
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