Q4 2021 Stonex Group Inc Earnings Call

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[music].

Good day, and thank you for standing by and welcome to the Sterling Next Group, Inc. Q4 fiscal year 2021 earnings Conference call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During the session you will need to press star one.

Your telephone.

Please be advised that today's conference is being recorded if you require any further assistance. Please press star zero I would now like to hand, the conference over to your Speaker today, Bill Dunaway, Chief Financial Officer. Please go ahead.

Good morning, My name is Bill Dunaway welcome to our earnings conference call for our fourth quarter ended September 32021.

After the market closed yesterday, we issued a press release reporting our results for our fourth fiscal quarter of 2021. This release is available.

Available on our website at Www Dot stone ex dot com as well as a slide presentation, which we'll refer to on this call in our discussions of our quarterly and fiscal year 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.

Before getting underway, we're required to advise you and all participants should note that the following discussion should be taken in conjunction with the most recent financial statements and notes there too as well as the Form 10-K filed with the SEC. This.

This discussion may contain forward looking statements within the meaning of section 27, a of the Securities Act of $19 33, and section 21 E of the Securities Exchange Act of $19 34.

These forward looking statements involve known and unknown risks and uncertainties.

Detailed in our filings with the SEC.

Although the company believes its 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 by the companys forward looking statements.

The company undertakes no obligation to publicly update or revise any forward looking statements, whether 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.

Thanks, Paul Good morning, everyone and thanks for joining our fiscal 2021 for the earnings call.

In Q4, our results were below our expectations and our long term ROE target during the September quarter market conditions were less beneficial than in prior quarters with generally less although volatility title within a year ago or even earlier in the fiscal year.

As most of you know we have always taken a long term view and how we manage the company and continue to grow our franchise and Osp's to see that our annual results were obtained very close to our long term Roe target of 15%.

Sure.

Before I get into a discussion of the quarterly results I want to note since we all.

Wrapping up fiscal 2021 that last year's fiscal results included significant nonrecurring gain on our acquisition of gain capital holdings adjusting for the impact of that both last fiscal year and the current yesterday's results. We saw core operating performance in fiscal 2021 with adjusted Inc.

Of $124 3 million up 25% and an adjusted ROE of 14, 9% for the year.

So starting with the earnings deck and starting on slide four.

Comparing operating revenues and product metrics against the prior quarter.

Operating revenues overall were up 14% for the quarter versus a year ago with increases in all product areas versus a year ago with OTC derivatives being stand out with an increase of 52%.

Basketball better commodity markets versus a year ago.

This operating revenue growth was driven by increased volumes across the board, which speak to enhance client engagement. Although it should be noted that the year ago quarter wasn't a particularly strong one for us either.

Volume increases were offset by reduced revenue capture, especially in securities and FX and Cfd is where market volatility declined.

On average our client float both enlisted derivatives and securities hearing experienced strong growth up 25% and 21% respectively. Due to both higher client volumes as well as market share gains and in aggregate now stands at $5 8 billion up 10% from a year ago and up slightly from the immediately preceding.

In the quarter.

Interest earnings were actually up this quarter versus a year ago due to higher client balances and we also now comparing against post COVID-19 interest rate environments.

Turning to slide five.

And looking at revenue on product metrics for the full fiscal year operating revenues were up 28% versus a year ago, partially due to the gain acquisition.

Number.

They were double digit increases in revenues across the board a really good result, given that we're comparing against the exceptional 2020 results, where we experienced heightened volumes volatility as a tailwind.

Strong volume increases across the board, except for listed derivatives, which were down slightly again speaks to enhance client engagement.

Volume increases were offset by reduced revenue capture especially in securities when market volatility declined with lower volatility post the COVID-19 disruption.

Also notable is the increase in revenue capture in our listed derivatives business. Some of this increase was due to relatively more volume for our higher margin commercial sector.

Institutional listed derivatives almost competitive product increased its revenue capture by 18% as an actively repriced offering to institutional clients more on this later.

Average client float both enlisted derivatives and securities clearing experienced strong growth up 39% and 30%.

The interest in fee earnings were down significantly as the prior year incorporated a period prior to the fed action to reduce interest rates.

Turning now to slide six and a summary of our earnings as reported and on an adjusted basis of removing the accounting impact of the August 2020 acquisition Okay.

We recorded operating revenues of $390 1 million up 14% versus the prior year.

Aggregate cost of about 12% for the quarter largely due to gain and the associated overheads that were only included for two or three months in the prior year quarter as well as recent investments in technology and support functions to both foster future growth and support the franchise we've built.

As compared to the immediately prior quarter overall operating revenues were down 10% or $41 million, which drove the decline in pre tax income.

Largest declines on a versus the preceding quarter, when securities, which was down 18% to $25 million and OTC derivatives down, 50% or $15 3 million off with very good performance in the prior quarter Mr.

Mr derivatives were down 12%.

These declines were offset by modest gains in global payments and FX cfd and physical contracts.

Net earnings were $7 3 million and diluted EPS of <unk> 36.

Both down significantly versus a year ago due largely to the accounting treatment of the gain acquisition mentioned earlier.

On adjusted basis, excluding the nonrecurring accounting treatments of gain.

Earnings were up 55%, although aro he was still below our target that only four 3%.

Looking at the summary for the fiscal year operating revenues were $1 7 billion up 28% and a new record the acquisition of gain being a significant contributor contributor to this.

Net income was $116 3 million down 31%. However, adjusted net income was $124 3 million up 25% and a new record for our core operating results for fiscal year.

Our reported diluted EPS was $5.74, although the current year adjustments related to the gain acquisition reduced diluted EPS by approximately <unk> 40 cents.

And reduced the prior year EPS by $3 50 line.

After consideration of these EPS adjustments, our adjusted EPS for the 2021 year would have been $6 14.

<unk> was $5 <unk> for 2020, an increase of 23%.

Our reported ROE was 13, 9% and on an adjusted basis was 14, 9% for the fiscal year.

Although our interest earnings on the float may seem immaterial in the context of overall operating revenues. This number dropped straight to the bottom line.

We estimate that a 100 basis points increase in short term interest rates potentially at $27 million or $1 38 to net income.

Reflecting on our 2021 results, we have always managed our business for the long term rather than for quarterly results and we believe that shareholders should look at this the same way and look at our financial performance through cycles.

Looking at our adjusted results, which best reflects the earnings of the company I'm extremely pleased with our 2021 performance.

52% more capital than we had two years ago, and we have deployed it effectively it around our target Roe.

And we have significantly grown both the scale and diversity of our client footprint.

We have delivered 28% topline revenue growth and on an adjusted basis, 25% earnings growth against a very challenging 2020 comparison would be enjoyed significant volatility tailwind.

We have delivered this growth without any increase in our share count other than small options activity. Although we did take on some high priced high yield debt to fund the gain acquisition.

The gain retail platform delivered on its first your expectations. Both in terms of revenues and cost synergies, although as anticipated. The results were volatile with most of the bottom line is being delivered in Q2 and much more modest net contributions in the other quarters of the year.

In addition, higher interest expense related to the high yield notes exacerbates, a corky earnings volatility this fiscal year, but this is not going to say I think given how we run our business and how we focus on long term results.

Turning to slide seven.

Which is our segment summary, and just to briefly touch on the highlights of the whole, but we'll get into more detail.

Aggregates segment operating revenues were up 15% for the quarter and segment income up 8% for the quarter.

That said on a sequential basis operating revenues were down 11% and segment income was down 26%.

The standouts were all commercial segment, which had operating revenues up 23% and segment income up 29% and global payments operating revenue up 18% and segment income up 11%.

Retail share is good.

Growth in the operating revenue, although segment income was down 34% versus a year ago.

For the year overall, we saw strong growth in both operating revenue and segment income across the board.

Very pleasing to see that especially given the tough comparable period.

With that I'll now hand, you back to Bill Dunaway for a more detailed discussion bill.

Yeah.

Thank you Sean.

Starting with slide number eight which shows our consolidated income statement for the fourth quarter.

Our fiscal 'twenty, one Sean covered many of the consolidated highlights for the quarter. So I'll just highlight a few and then move on to our segment discussion.

Transaction based clearing expenses were up 13% to $64 4 million in the current period, primarily related to the increase in lifted derivative operating revenues in our commercial segment higher costs in our equity capital markets business as well as a full three months of costs of the gain business acquired effective August 1st 2020.

Introducing broker commissions were up 17% to $39 $7 million in the current period, primarily as a result of the incremental cost of gain as well as the increased activity in independent wealth management enlisted derivatives.

Interest expense increased $4 $1 million versus the prior year, primarily due to higher average borrowings on short term financing facilities of our subsidiaries and an increase in securities lending activities.

Interest expense on corporate funding decreased $4 6 million versus the prior year, primarily as a result of the prior year period, including a $4 4 million of bridge financing fees related to the issuance of our secured senior secured notes used for the gain acquisition.

Variable compensation increased $3 9 million versus the prior year and represented 32% of net operating revenues comparable to 36% of net operating revenues in the prior year period.

The decrease in variable compensation as a percentage of net operating revenues was principally related to lower back office and administrative incentives versus the prior year period as they are impacted by overall company performance.

Fixed compensation increased $13 8 million versus the prior year with the growth principally related to salary and benefit cost of increased head count along with an incremental month of gain employees compensation.

Additionally, fixed compensation in the current periods includes $1 6 million in severance costs. The prior year period included 400000 in San Fran costs.

Other fixed expenses increased $16 6 million versus the prior year, principally driven by an incremental month of expense attributable to the acquisition of gain most notably among market information selling and marketing costs and amortization, including 900000 and incremental amortization of intangibles acquired.

In addition, other fixed expenses increased versus the prior year as a result of increase in non trading technology costs professional fees travel and business development and depreciation of internally developed software.

Bad debts, and impairments declined $5 $8 million versus the prior year bad debt expense was relatively flat versus the prior year with the current purion seen client deficit the $6 $7 million, primarily within the physical AG and energy business versus the prior year, which included climbed up to the $6 8 million, probably with primarily within the physical AG and energy and <unk>.

<unk> futures and options businesses.

The prior year period also include the nonrecurring impairment charge of $5 7 million of capitalized developed software related to the trading system considered to be duplicative following the acquisition of gain.

As noted by Sean on Slide number six the prior year quarterly results included 80, $881 $8 million gain on acquisition. The current quarter includes some modest losses related to the disposal of some fixed assets.

We recorded an income tax benefit of $2 4 million for the fiscal fourth.

The fourth quarter of fiscal 2021, despite having pre tax income of $4 9 million for the quarter.

This was the result of a couple of things first of all there was a $1 8 million deferred tax asset remeasurement related to future corporate tax increases in the U K and secondly, due to a change in worldwide income mix for the full fiscal year versus what was projected at the end of the third quarter, our effective tax rate for the full fiscal year declined 25, 1%.

Percent is compared to 27, 8% that was projected at the end of the third quarter.

Net income for the fourth quarter of fiscal 2021 was $7 3 million and represented 91% decrease over the prior year and a 79% decrease over the immediately preceding quarter.

Finally, we closed out the quarter with net asset value per share of <unk> $45 60 per share as compared to $39 61, a year ago.

Moving on to slide number nine I'll provide some information on our operating segments. The commercial segment added $24 9 million in operating revenues versus the prior year.

Within this segment listed derivative operating revenues increased $10 $5 million versus the prior year as a result of a 23% increase in the average rate per contract and a 4% increase in contract values driven by increased commodity volatility and customer mix.

OTC derivative operating revenues were $34 5 million for the quarter, which was up $11 9 million versus the prior year, primarily as a result of a 40% increase in OTC derivative volumes driven by increased volatility in agricultural and energy markets.

OTC derivative operating revenues declined $15 2 million versus the immediately preceding third quarter of 2021, which was the primary driver of the overall decline in operating revenues as compared to the third quarter in the commercial segment.

Operating revenues from physical transactions declined 900000, primarily as compared to the.

Prior year period, primarily as a result of a $10 $6 million decline in precious metals revenues, which was partially offset by $6 $8 million increase in physical AG and energy commodity revenues.

Operating revenues in physical contracts for the current period included 400000 unrealized loss on derivative positions held against physical inventories carried at the lower of cost or market. While the prior year quarter included a $2 8 million unrealized loss of a similar nature.

Finally interest on client balances increased $3 million versus the prior year, principally due to the 61% increase in average client equity as well as an increase in interest charges to customers on certain margin balances.

Total non variable expenses increased $3 3 million versus the prior year, primarily as a result of an increase in bad debt expense market information and professional fees.

Segment income was $44 1 million for the period, an increase over the prior year period and preceding quarter, a 29% and 27% respectively.

Moving on to slide number 10, our institutional segment added $2 1 million in operating revenues versus the prior year, primarily driven by a $6 $3 million increase in securities revenues as a result of an 81% increase in the average daily volume of Securities transactions, which was partially offset by a 41% decline in securities rate per million.

The decline in rate per million was primarily a result of the prior year quarter benefiting from wider spreads due to heightened volatility driven in part by the Covid pandemic.

Lifted derivative operating revenues declined $3 4 million as an 11% decline in the rate per contract more than offset a 1% increase in volumes.

Interest and fee income on client balances balances modestly increased 100000 versus the prior year due to a 7% increase in average client balances versus the prior year.

Segment income increased 9% to $24 4 million in the current period, primarily as a result of a $7 million decline in bad debts and impairments and the increase in operating revenues, which was partially offset by a $2 $7 million increase in variable compensation and a $500000 increase in fixed expenses.

Segment income declined $22 1 million versus the immediately preceding third quarter, which benefited from strong performance in our securities businesses.

Moving onto the next slide operating revenues in our retail segment added $17 9 million versus the prior year, which was primarily driven by an $8 $9 million increase in FX and cfd revenues from the gain acquisition.

Our retail physical precious metals business and independent wealth management business has added $3 $8 million and $5 million in operating revenues, respectively versus the prior year.

The increase in variable compensation and benefits in non variable direct expenses was driven by the acquisition of gain.

Segment income declined $6 1 million versus the prior year, primarily as a result of a decline in profitability in the acquired business gain business.

Segment income increased $5 9 million versus the immediately preceding quarter, primarily as a result of the increase in operating revenues.

Closing out the segment discussion on the next slide operating revenues and global payments added $5 2 million versus the prior year driven by a 29% increase in the average daily volume. Despite a 9% decrease in 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.

Non variable expenses increased $1 $3 million is primarily related to the expansion of our payment offerings.

Segment income increased 11% to $18 4 million in the current period and represented a 9% decline versus the immediately preceding third quarter.

Moving on to slide number 13, which represents a bridge between operating revenues for the fourth quarter of last year to the current period across all of our operating segments. Overall operating revenues were $390 1 million in the current period up $48 million or 14% over the prior year.

I'll cover the changes in operating revenues for our segments. However, the $2 $1 million decline in revenues and unallocated overhead is primarily related to a negative variance in foreign currency gains and losses and declining value of the exchange stock held for clearing purposes.

The next slide number 14 represents a bridge from 2024th quarter pre tax income of $79 9 million to pre tax income of $4 9 million in the current period.

The negative variance nothing allocated overheads of $82 5 million as a result of the acquisition gain noted earlier the operator operating revenue variance noted on the previous slide as well as the increase in unallocated expenses, primarily related to the acquisition of gain the severance expense noted earlier, an increase in non trading technology and support.

The buildout of our support platforms and the amortization of intangibles acquired in the gain acquisition.

Finally, moving on to slide number 15, which depicts our average invested client balances and associated earnings by quarters. So what is it.

Which shows the annualized interest cost interest rate sensitivity for a change in short term interest rates as noted at the bottom of the table 100 basis point increase in short term interest rates. We estimate would increase net income by $27 3 million or approximately $1 38 per share based upon current client balances.

With that I would like to turn it back to Sean for strategy discussion.

Thanks, Bill turning to slide 16, which summarizes the high level strategic objective that Madison. This is focused on.

Most of these projects are unchanged and ongoing but given that this year and I thought a more detailed update on progress would be useful.

First building our ecosystem, we wanted to stay relevant to our clients, both existing and new clients by adding new products and services and creating the best financial ecosystem to connect them to the global financial markets.

There are two large product areas or maybe even growing financial ecosystems that will focusing more attention on both all driven by increased client interest as we mentioned last time crypto currency remains a hot topic in a growing market, we actively support our institutional and retail clients by facilitating trading.

A growing number of crypto related products, such as listed derivatives as well as publicly listed Etfs bitcoin exchanges and other market participants.

This is a growing revenue source for us and we want to remain relevant to our clients by ensuring we provide access to this growing ecosystem as well as providing market intelligence around the space. We're looking at various collaboration and partnerships arrangement to extend our crypto offering to our retail clients. We also are pleased to counter some of the new ETF entrants.

Our current clients.

Secondly, carbon trading is another growing market propelled by global ESG initiatives, we are exploring ways to better assist and leverage our client relationships in the space that I spoke a little bit about that last time.

ESG is also providing new and interesting market opportunities for us certain base metals are fundamental for the electric car industry and biodiesel is a priority for the green energy initiatives. These.

These initiatives to impact markets. We are currently active in and provide us significant opportunities to assist our clients to take better advantage.

During the year, we also found ways to give our clients access to list the derivative market in China that were not previously available to them.

We continue to grow our product offering and fixed income, adding teams and product expertise.

Okay.

During 2021, we acquired a small largely dormant but fully licensed U S payment services company.

We have now completed the regulatory change of control process and will soon be able to offer off 28000 commercial clients in some of our nearly 400000 retail clients.

Mobile payment services, we aim to have a payments capability on all our digital platforms, which will provide simplicity and ease of use for all our clients.

In 2022, we are looking for ways to expand our payments licensing to facilitate that similar approach in Brazil, which we see as a large potential market for us.

We are a customer centric business that we need to consistently work at growing our customer footprint into new markets and expanding market share, where we have existing customers and look to serve new customer segments and channels.

Have all the capabilities to service customers of all types and they have a large addressable market in front of us with very low market penetration, which we currently estimate the single basis points range.

Platform I, just mentioned will allow us to attract new and smaller commercial clients is to meet looking for a simple integrated solution to hit hedge currency exposure and then makes the underlying payments.

We have successfully expanded our wholesale precious metals business into the U S. With the addition of a small but very experienced team in California. We will look to further solidify. This with addition of a digital retail capability using our <unk> platform, which has been very successful in Europe.

We have rolled out a number of electronic trading applications by equity market, making business. These are not only fully automated but we have always done on the desk, but provide clients with additional capabilities and transparency when executing their orders.

We are now actively rolling out our retail self directed platform into the EU, which opens up a big new market for us on the retail side and is gathering momentum.

Lastly, we also have state of the internal digital marketing capability of <unk>, which.

Which we acquired with the gain acquisition.

Capability spanning the design and execution of digital marketing strategies as well as the ongoing analytics to measure and optimize results. This is a proven and talented group that drives that retail platform revenue and increasingly we will look to scale and grow our other client areas as they become more digitized platform based.

In terms of digitizing our business. We have mentioned this on a number of calls over the last few years and I thought it might be good to provide some more detail around this.

Over the last three to four years, we've made pretty significant investments in technology to create a more efficient and scalable technology stack internally, a foundation and a pre requisite prerequisite for us being able to service clients digitally.

We have decided to use industry standard systems of record for all our key product areas. As this was the most cost effective and scalable way design.

Designing and creating an enterprise solution would have been cost and time prohibits it.

However, this led to slow next having nearly 20 systems of record Macquarie point to point connections with all of our support systems as well as all of our client placing platforms. This was not scalable or efficient and also inhibits flexibility and agility as well as growth into new products and capabilities.

Our approach to address these shortcomings was to create that data lake.

All data from the various systems of record would reside and be normalized for the various bits of data could be aggregated seamlessly.

This is a concept that many financial firms have laid out, but it's not easy to deliver on each system is different data fields and pads and so normalizing large amounts of data can be difficult.

After many years, we have now reached the point, where all data Lake comprises the majority of our systems of record.

This now allows us to have various support areas and client facing applications to be able to connect to only one place and get all the data. They need we now have real validation of the success of this approach.

Example, our risk team cannot access all client activity across the organization different products different locations and different legal entities.

It has the capability to view the profitability ability of each clients across the both the risk profile as well as the specific capital requirements.

This has been instrumental in us being able to be more granular in how we priced client business, especially in the lower margin institutional derivative business. This is one of the reasons you can see better pricing being achieved in this product segment.

These are just two examples.

But we are really pleased to see the increase in payments.

The application applications now being delivered as a result of the data Lake.

This is a key foundational step and allows all of our support areas and client platforms to have one connection to access all data. This eliminates the need for multiple point to point connections and it provides a much more flexible and agile systems architecture.

In addition, we have been working for some time to create a flexible open architecture API approach to our systems in Frankfurt. This will allow us to combine access to systems and products to client facing platforms and modular inefficient what <unk>.

Combined with a data lake this will allow us to create very flexible platform for specific client types, giving them access to the products and capabilities they need.

This has also been a long term project, but again, we are now seeing validation through the increased cadence of delivery.

We're about to launch our internal pilots will start next one which will be a self directed multi asset trading platform, allowing clients to trade equities, both passive options as well as Mr. Derivatives to U S. Clients. We will then look to as foreign exchange rate the full menu.

Seamlessly brings together three different regulatory environments and related products for our clients.

This is currently a desktop application, but once validated we will then use the same apis to create the digit probation for the self directed at mobile retail platform. Okay and objective we set up at the time of the gain acquisition, which will be transformational to the offering here in the U S.

And summer next year, we will be rolling out cash equities of the retail platform outside of the U S, which again will transform the gain platform from.

From just cft's too and investment offerings.

Some of them next year.

Sorry.

We developed one of the leading OTC derivatives and structured product platforms over the last few years, taking some of our most complex products and making them easy to access understand design and then execute all electronically.

We have validated this with a pilot launch and we'll know more aggressively be launching this to existing clients and even more broadly to showcase new and potential clients our unique capabilities.

We have launched our new base metals trading system, which allows clients to more easily track dispositions in excess pricing we plan to roll this out to all clients see and enabled direct execution over this platform, thereby totally automating this business.

We're also looking to provide electronic trading access to active clients, where we can internalize the flow and offer them equal or better pricing than offered on the exchanges, we have a growing ecosystem and increase flow in oil products and now have the ability to leverage this for our clients benefit.

So as you can gather there is a lot going on with Digitization. We are firmly of the belief that electronic trading and the digitization of client platforms is a key requisite for continued growth.

This should not only allow us to become.

To acquire global market share and addressable market, but should also provide scalability and margin expansion.

<unk> not all of our businesses can or should be digitized and we have some of our clients that will continue to demand and pay for a high touch service.

Even the areas of our business, where we can become more digitized we will always strive to provide high great support and service to all of our clients.

Finally, our business is supported by capital and we need to underpin our growth with internally generated capital resources, and where appropriate access to capital markets in a disciplined manner.

The most important thing we can do is to continue to create a capital runway for continued growth. This is why we are focused on Roe.

It is interesting to note that 10 years ago, we had less than $300 million in shareholders' equity and roughly the same number of shares outstanding as we do now over this 10 year period, we have tripled our shareholder funds acquired 15 businesses and significantly expanded our client footprint all financed organically from retained earnings.

And the unbelievable power of compounding.

During this growth we have largely achieved our ROE targets, certainly not every year or every quarter, but on average over the period, it's pretty close.

This has happened despite the investments we've made in technology and infrastructure the cost of developing new capabilities and despite low interest rates for periods of time.

Keeping our ROE target will continue to be our north star and we believe that as we digitize our platforms and gain scale that op margins and ROE, we should start to increase.

As mentioned earlier the high yield issues to acquire gain was price in the middle of Covid with the added complication of slow next being a first time issuer.

It was priced at 39% and as such has added a lot of cost against which we acquired gain which is exacerbated the volatility of our overall earnings since we have seen during this year.

We have the ability to call the entire high yield issue in June 2022, the second anniversary of the issue.

As mentioned last time, we extended the maturity of our Holdco bank facilities until August 2022, which generally lines up with the high yield call dates.

Will allow us to strategically reassess.

Capital structure in June 2022 to take advantage of the most optimal combination of debt and bank funding as well as hopefully drive down the cost of this capital pretty significantly.

Yeah.

Moving on to slide 17.

<unk> is the high level kpis by which we manage all targets on the right hand side you can see that we are generally in line with most of our targets.

Despite.

A challenging quarter.

Yeah.

Moving on to the next slide.

Which shows our customer growth and again all of those lines pointing upwards.

As mentioned earlier, our highest priority is to better serve our existing customers and for our footprint, which drives every aspect of our business.

The slides can provide some context around that.

Yeah.

Finally, let's move to slide number 19.

The current quarter was somewhat disappointing and below our long term expectations. However, we have always managed our business for the long term and our annual results were in line with expectations.

When compared on an adjusted basis, which excludes the acquisition accounting for gain last year. Our core operating results were up significantly against the tough comparison in 2020 when volatility provide some tail winds.

We achieved record operating revenues of $1 72.

The 8% and record adjusted net income of 124 million up 25% with an adjusted ROE of 14, 9%.

We are extremely proud of our long term track record over the last 19 years, we have compiled the operating revenue at 36% compound per annum and shareholder capital at 73% per annum.

We believe that this triple track record as having said Pos in that industry.

Indeed over the last two years, we have continued to continue to grow operating revenue in capital at some of the rates.

Because the last two years, our shareholder capital has grown by more than 50% and we have managed to continue to deploy that increased capital near our target returns.

So it made a large acquisition with gain significantly expanded our footprint client reach and product offerings without issuing any stock. Although this has required us to take on some pack price decks, which has added some volatility to our quarterly earnings as mentioned earlier, we will be focusing on this in the upcoming year looking to restructure and optimize a bit.

Sure once we can call the high yield notes.

We've also made large investments in technology over the last four to five years I believe that would not have the foundations in place to accelerate the digitization of our business.

<unk> infrastructure has been built and.

Immediate connectivity had access throughout all of our many operating systems.

Record and allow us to instantly view real time 360 degree engagement with our clients in all products in jurisdictions. We have adopted an open architecture, which now allows us to provide clients with digital access to most of our products and capabilities on one platform, which can be customized by client type and channel.

The acquisition of gain has provided us with leading internal digital marketing capabilities to leverage these capabilities.

This year, we will see a number of digital platforms launched which will more tightly integrate offered by client type and make it more engaging for clients to interact with our financial ecosystem.

The next phase will be to actively and aggressively market. These platforms to further accelerate our growth with the scalability that technology provides to increase margins and overall profitability.

We have a unique and comprehensive financial ecosystem with a very large addressable market in front of us.

While we have good market share in certain niche segments of the market lots of white space remains in areas, where we already have client relationships and demonstrable capability and we need now need to monetize these opportunities in.

In aggregate, we believe that we maybe have single basis points of market share of our total addressable market.

We believe that with the technology investments, we have made to date. The early validation there all the growing client base that has what it needs. We can fulfill the growing awareness of <unk> and the unique finance she'll ecosystem. We also make this a very exciting phase of the study next story.

One thing, we'll always be constant for the next team will continue to dedicate ourselves to better serve our growing client footprint around the world by providing them with the best ecosystem in service to access global financial markets.

The executive team and I are extremely proud of the talented team will continue to propel us to new heights.

And with that operator, we are ready to take questions.

Okay.

As a reminder, task a question you will need to press star one on your telephone.

Drawing your question press the pound key please standby, while we compile the Q&A roster.

Our first question comes from the line of Dan Fannon from Jefferies. Your line is now open.

Thanks, Good morning, gentlemen.

I wanted to say that.

Hi.

First I know you've mentioned in the securities business the RPM.

Decline year over year.

Lower volatility, but it has been.

Declining for several quarters now this is the lowest this quarter was.

The lowest since.

As far back as we can see so just if you could give a little bit more color on kind of what was going on in that business and how we should think about that on our own.

On a more normalized basis.

Okay, obviously highly dependent on market conditions on volatility on the flow we see.

So it's hard to sort of be very prescriptive in terms of.

Given your guidance going forward, but I think what we can say it was.

The revenue capture was very elevated last year sort of way above mean, and I would say the last quarter was probably below where we'd like to see it. So we're going to probably narrowly in the subway between those two ranges I would think over time.

I think we are also looking to expand our offering.

And we moving from.

Some of the niche areas like.

The foreign Securities, where we have very large market share and drive decent rate per million to maybe going into some new areas, where we probably going to see a lower rate per million. So thats could skew. The overall result, but we should see in aggregate more more revenue and more segment income as a result, so as we start to digitize it.

As I mentioned that we start getting into some of the white space.

Leveraging some of our client relationships.

And what we've just been doing for the last year, that's going to have some impact on rate per million. So it's going to be a tough thing to track I think.

So I.

I don't know if I can give you any better guidance than that but I would say for our core areas of the business. We've been in historically I would say this quarter is probably below trend last quarter was above trend.

Our entering some more areas, which are probably going to be slightly more competitive.

Okay. That's helpful and then.

Just on expenses and understand the year over year comparisons associated with gain but even the sequential pick up in some of the fixed cost.

I was hoping to get a little bit more color on kind of the investment you mentioned you don't want them.

A lot of the new initiatives some of the digital invest.

Investments you've been making for several years, so a little bit of context around this quarter. If there was anything one time outside of the bad debt, but other parts of the business of other other things and then as you think about next year, the budget and how youre thinking about growth rates of kind of the fixed costs.

Is there is there an acceleration in that spend or or any context, there would be helpful.

Okay, well I'll start and then maybe bill can follow up with you.

Any comments he has.

We've got a couple of sort of push factors on us yet.

So the first thing is you know our business is obviously expanding significantly I mean, when you grow your revenues, 50% over two years. So when you see big growth rates year on year.

Have to backfill some of that growth is making sure you've got the right infrastructure in place and we tend to see the revenue and sort of fill in fill in behind that so.

It was a little bit I guess.

Construction that we have to catch up on generally because of all the growth that happened over the last two years.

So I think there's a bit of that.

There has been a.

Fairly significant technology spend over the last three or four years, which I mentioned, which I think to be honest hasnt moved much in the way of incremental revenue or scalability, thus far but we're pretty excited that we now starting to see real validation on that so I think we will start to see a payoff for that.

I think the third factor.

As you know things like Brexit and the change in great Dilatory environment also put a lot of cost push on your business and.

Brexit was not insignificant as well of all the changes we've seen over the last two years in Europe. So we've had to in some instances.

The increase overhead compliance.

We can make the oversight and so on as a result of that so those are the three pushes we facing.

We've just completed our sort of budgets and planning exercise.

And our Q4 run rate is.

Really bakes in a lot of all of those increases we anticipate for the next year. So we do anticipate some flattening off now after some pretty big increases in spend I mean, we saw some synergies captured from gain and then we saw some offsets for some of the new stuff, we're doing and some of the.

I guess the infrastructure that we have to fill in some of the some of the regulatory changes, but I would say our exit run rate of fixed cost.

I would not anticipate seeing a major increase.

On a go forward basis, I mean single digits, maybe unless there's some other major change right either an acquisition some rich electric change or some massive expansion into new products when your capabilities.

You got any comments on that.

Yes.

Just a few points down I guess.

<unk> pointed out during my portion of the script there was about $1 6 million in severance costs that we had here.

In the fourth quarter.

Which excuse that run rate a little bit.

Also about a half a million dollars worth of kind of contingent consideration for from one of the smaller acquisitions that flowed through the Q4, which we wouldn't we.

We wouldn't expect to see that on a go forward basis.

And overall kind of professional fees were up Q3 to Q4 versus Q3.

A good portion of that probably a million million and a half of it is just increased audit fees that kind of come through as the work is.

We get through the audit period here in Q4, we tend to see Q4 being higher so overall the fee on.

On a year to date basis is probably about where it will be but you see kind of a spike in this.

In the Q4 results versus.

Kind of where you see lower.

Lower work being done in Q2 Q3.

And then probably the only other.

Point, there is just kind of selling selling and marketing, which was up $1 million versus versus Q3.

But some you know some of that flexes, a little bit, particularly with the gain business.

As they deploy them.

The marketing dollars I think it was a little higher than what our run rate has been historically.

Prior three quarters of the fiscal year. So you know probably certainly leveling off on that aspect.

Okay, Great that's helpful and then.

Last one and thanks for taking all my questions is just given we're two months into the quarter, maybe if you could characterize the current environment, we've had a little bit more volatility in recent weeks in and maybe just some of the initiatives that you've talked about which I know are much longer term, but maybe some context around kind of how the first fiscal quarter.

Trending and.

At this point.

Just sorry, I was on mute that wants to chip in on costs I guess, one thing that.

We will start to become noticeable on our cost is.

As we spend more on technology.

What we tend to find is lowest cost or much more fixed relative to the legacy <unk> mix of variable and fixed right because we're not paying high payouts to two brokers and relationship people, but we now spending more money on technology. So we are going to see a shift to a little bit more and it'll be incremental over time.

From here.

More of a fixed cost model, but obviously the flip side of that is it's much more scalable right. So if you start getting some real scalability your incremental margins on that growth are much higher than they would be for our legacy business. Because you don't have those payoffs to deal with so just something to be aware of I don't think it's not going to see it moving.

Needle quickly, but I think thats a trend we see in that business not particularly since we acquired gain.

Yeah.

Yes. It does thank you.

Okay.

Well you know our business can move very quickly.

The markets are.

Can move.

Day to day month to month, and you never quite know week.

Until you at the end of the quarter, but I would say generally speaking this is a more positive environment for us right now.

I didn't want to.

And in my formal remarks on the environment, obviously amused at Covid is not great right now, but I think what that does say to US is we still have a long way from normalization here.

It feels like Covid is going to have sort of a lull path towards some sort of normal for us and then you're still left to deal with sort of the fed's normalization of its position in the market and I think both of those things are going to provide.

Periodic bouts of volatility, which can be very good for us. So I think it's generally a pretty positive environment that doesn't mean it'll be positive every quarter.

But I think.

We see that as a pretty good environment for us and Theres also with all the talk around inflation.

There is some real talk now that interest rates.

I'm going to start being pushed up sometime soon and obviously that has a pretty dramatic effect on our bottom line. So I think the environment for us is setting up well.

As I said, it's hard to know quarter to quarter, how how that's going to play out.

Im pretty bullish about the environment, we are facing in.

The current market is better for us.

Okay. Thank you.

Alright.

Any other questions operator.

At this time I'm showing no further question.

Alright, well thanks, everyone.

Joining the holidays, we will be speaking to you I guess.

So thanks Bye bye.

This concludes today's conference call. Thank you for participating you may now disconnect.

[music].

[music].

Good day and thank you for standing by welcome to the Sterling Next Group, Inc. Q4 fiscal year 2021 earnings Conference call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During the session you will need to press star one on.

Your telephone.

Please be advised that today's conference is being recorded if you require any further assistance. Please press star zero I would now like to hand, the conference over to your Speaker today, Bill Dunaway, Chief Financial Officer. Please go ahead.

Good morning, My name is Bill Dunaway welcome to our earnings conference call for our fourth quarter ended September 32021.

After the market closed yesterday, we issued a press release reporting our results for our fourth fiscal quarter of 2021.

It is available on our website at Www Dot stone ex dot com as well as a slide presentation, which we'll refer to on this call in our discussions of our quarterly and fiscal year results you.

You'll 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.

Before getting underway, we're required to advise you and all participants should note that the following discussion should be taken in conjunction with the most recent financial statements and notes there too as well as the Form 10-K filed with the SEC. This discussion may contain forward looking statements within the meaning of 'twenty section 27, a of the Securities Act of $19 33 and section.

21 E of the Securities Exchange Act of $19 34.

These forward looking statements involve known and unknown risks and uncertainties.

Detailed in our filings with the SEC.

Although the company believes its 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 by the companys forward looking statements.

The company undertakes no obligation to publicly update or revise any forward looking statements, whether a result of new information future events or otherwise.

They 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.

Thanks, Paul Good morning, everyone and thanks for joining our fiscal 2021 fourth quarter earnings call.

In Q4, our results were below our expectations and our long term ROE target during the September quarter market conditions were less beneficial than in prior quarters with generally less although volatility tailwind than a year ago or even earlier in the fiscal year.

As most of you know we have always taken a long term view and how we manage the company has continued to grow our franchise and I was pleased to see that our annual results were obtained very close to our long term Roe target.

Sure.

Before I get into a discussion of the quarterly results I want to note since we all rapid.

Wrapping up fiscal 2021 that last year's fiscal results included significant nonrecurring gain on our acquisition of gain capital holdings adjusting for the impact of that both last fiscal year and the current yesterday's results. We saw core operating performance in fiscal 2021 with adjusted Inc.

Of $124 3 million up 25% and an adjusted ROE of 14, 9% for the year.

So starting with the earnings deck and starting on slide four.

Comparing operating revenues and product metrics against the prior quarter.

Operating revenues overall were up 14% for the quarter versus a year ago with increases in all product areas. Most of the year ago with OTC derivatives being stand out with an increase of 52% of the basketball better commodity markets versus a year ago.

This operating revenue growth was driven by increased volumes across the board, which speak to enhance client engagement. Although it should be noted that the year ago quarter wasn't a particularly strong one for us either.

Volume increases were offset by reduced revenue capture, especially in securities and FX, and Cfd where market volatility declined.

On average our client float both enlisted derivatives and securities hearing experienced strong growth up 25% and 21% respectively. Due to both higher client volumes as well as market share gains and in aggregate now stands at $5 8 million up 10% from a year ago and up slightly from the immediately preceding.

Linked quarter.

Interest earnings were actually up this quarter versus a year ago due to higher client balances and we also now comparing against post COVID-19 interest rate environments.

Turning to slide five.

And looking at revenue our product metrics for the full fiscal year operating revenues were up 28% versus a year ago, partially due to the gain acquisition.

Number.

They were double digit increases in revenues across the board a really good result, given that we're comparing against the exceptional 2020 results, where we experienced heightened volumes volatility as a tailwind.

Strong volume increases across the board, except for listed derivatives, which were down slightly.

Gain speaks to enhance client engagements.

Volume increases were offset by reduced revenue capture especially in securities.

Market volatility declined with lower volatility post the COVID-19 disruption.

Also notable is the increase in revenue capture in our listed derivatives business. Some of this increase was due to relatively more volume for our higher margin commercial sector.

Institutional listed derivatives are most competitive product increased its revenue capture by 18% as we actively repriced offering to institutional clients more on this later.

Our average client float both enlisted derivatives and securities clearing experienced strong growth of 9% and 30%.

I have an interest in fee earnings were down significantly as the prior year incorporated a period prior to the fed action to reduce interest rates.

Turning now to slide six and a summary of our earnings as reported and on an adjusted basis of removing the accounting impact of the August 2020 acquisition Okay.

We recorded operating revenues of $390 1 billion up 14% versus the prior year.

Aggregate cost of about 12% for the quarter largely due to gain and the associated overheads that were only included for two or three months in the prior year quarter as well as recent investments in technology and support functions to both foster future growth and support the franchise we have built.

As compared to the immediately prior quarter overall operating revenues were down 10% or $41 million, which drove the decline in pre tax income.

Largest declines on a versus the preceding quarter, when securities, which was down 18% to $25 million and OTC derivatives down, 30% or $15 3 million. Okay very good performance in the prior quarter list.

Mr derivatives were down 12%.

These declines were offset by modest gains in global payments and FX cfd and physical contracts.

Net earnings were $7 3 million and diluted EPS of <unk> 36.

Both down significantly versus a year ago due largely to the accounting treatment of the gain acquisition mentioned earlier.

On adjusted basis, excluding the nonrecurring accounting treatments of gay quarterly earnings were up 65%, Although Roy was still below our target that only four 3%.

So again the summary for the fiscal year, our operating revenues were $1 7 billion up 28% and a new record the acquisition of gain being a significant countries that contribute.

Should be sent to this.

Net income was $116 3 million down 31%. However, adjusted net income was $124 3 million up 25% and a new record for our core operating results for our fiscal year.

Our reported diluted EPS was $5.74, although the current year adjustments related to the gain acquisition reduced diluted EPS by approximately <unk> 40.

And reduced the prior year EPS by $3 50 line.

After consideration of these EPS adjustments, our adjusted EPS for the 2021 year would have been $6 14.

Versus $5 <unk> for 2020, an increase of 23%.

Our reported ROE was 13, 9% and on an adjusted basis was 14, 9% for the fiscal year.

Although our interest earnings on the float may seem immaterial in the context of overall operating revenues. This number dropped straight to the bottom line.

We estimate that a 100 basis points increase in short term interest rates potentially adds $27 million or $1 38 to net income.

Reflecting on our 2021 results, we have always managed our business for the long term rather than for quarterly results and we believe that shareholders should look the same way and look at our financial performance through cycles.

At our adjusted results, which best reflects the core earnings of the company I am extremely pleased with our 2021 performance, whereas 52% more capital than we have two years ago, and we have deployed that effectively it around our target Roe.

And we have significantly grown both the scale and diversity of our client footprint we.

We have delivered 28% topline revenue growth and on an adjusted basis, 25% earnings growth against a very challenging 2020 comparison, when we enjoyed significant volatility tailwind.

We have delivered this growth without any increase in our share count the other than small options activity. Although we did take on some high priced high yield debt to fund the gain acquisition.

The gain retail platform delivered on its first your expectations. Both in terms of revenues and cost synergies, although as anticipated. The results were volatile with most of the bottom line is being delivered in Q2 and much more modest net contributions in the other quarters of the year.

In addition, higher interest expense related to the high yield notes exacerbates a quarterly earnings volatility. This fiscal year. However, this is knock them certainly given how we run our business and how we focus on long term results.

Turning to slide seven.

Okay.

Which is our segment summary, and just to briefly touch on the highlights of the whole, but we'll get into more detail.

Aggregates segment operating revenues were up 15% for the quarter and segment income up 8% for the quarter.

That said on a sequential basis operating revenues were down 11% and segment income was down 26%.

The standout where our commercial segment, which had operating revenues up 23% and segment income up 29% and global payments operating revenue up 18% and segment income up 11%.

Retail share is good.

Growth in the operating revenue, although segment income was down 34% versus a year ago.

For the year overall, we saw strong growth in both operating revenue and segment income across the board.

Every pleasing to see that especially given the tough comparable period.

With that I'll now hand, you back to Bill Dunaway for a more detailed discussion bill.

Thank you Sean.

I'll be starting with slide number eight which shows our consolidated income statement for the fourth quarter.

Fiscal 'twenty, one Sean covered many of the consolidated highlights for the quarter. So I'll just to highlight a few and then move on to our segment discussion.

Transaction based clearing expenses were up 13% to $64 4 million in the current period, primarily related to the increase in lifted derivative operating revenues in our commercial segment higher costs in our equity capital markets business as well as a full three months of costs of the gain business acquired effective August one 2020.

Introducing broker commissions were up 17% to $39 $7 million in the current period, primarily as a result of the incremental cost of gain as well as the increased activity in independent wealth management enlisted derivatives.

Interest expense increased $4 $1 million versus the prior year, primarily due to higher average borrowings on short term financing facilities of our subsidiaries and an increase in securities lending activities.

Interest expense on corporate funding decreased $4 6 million versus the prior year, primarily as a result of the prior year period, including a $4 4 million of bridge financing fees related to the issuance of our secured senior secured notes used for the gain acquisition.

Variable compensation increased $3 $9 million versus the prior year and represented 32% of net operating revenues comparable to 36% of net operating revenues in the prior year period.

The decrease in variable compensation as a percentage of net operating revenues was principally related to lower back office and administrative incentives versus the prior year period as they are impacted by overall company performance.

Fixed compensation increased $13 $8 million versus the prior year with the growth principally related to salary and benefit cost of increased head count along with an incremental month of gain employees compensation.

Additionally, fixed compensation in the current periods includes $1 6 million in severance costs. The prior year period included 400000 in San Fran costs.

Other fixed expenses increased $16 6 million versus the prior year, principally driven by an incremental month of expense attributable to the acquisition of gain most notably among market information selling and marketing costs and amortization, including 900000 and incremental amortization of intangibles acquired.

In addition, other fixed expenses increased versus the prior year as a result of increase in non trading technology costs professional fees travel and business development and depreciation of internally developed software.

Bad debts, and impairments declined $5 8 million versus the prior year bad debt expense was relatively flat versus the prior year with the current purion seen client deficit the $6 $7 million, primarily within the physical AG and energy business versus the prior year, which included climbed up to the $6 8 million, probably with primarily within the physical AG and energy in institutional.

Futures and options businesses.

The prior year period also include the nonrecurring impairment charge of $5 7 million of capitalized developed software related to the trading system considered to be duplicative following the acquisition of gain.

As noted by Sean on Slide number six the prior year quarterly results included 80, $881 $8 million gain on acquisition that.

Current quarter includes some modest losses related to the disposal of some fixed assets.

We recorded an income tax benefit of $2 4 million for the fiscal.

Fourth quarter of fiscal 2021, despite having pre tax income of $4 9 million for the quarter.

This was the result of a couple of things first of all there was a $1 8 million deferred tax asset remeasurement related to future corporate tax increases in the U K and secondly, due to a change in worldwide income mix for the full fiscal year versus what was projected at the end of the third quarter, our effective tax rate for the full fiscal year declined 25 one.

Percent as compared to 27, 8% that was projected at the end of the third quarter.

Net income for the fourth quarter of fiscal 2021 was $7 3 million and represented 91% decrease over the prior year and a 79% decrease over the immediately preceding quarter.

Finally, we closed out the quarter with net asset value per share of <unk> $45 60 per share as compared to $39 61, a year ago.

Moving on to slide number nine I'll provide some information on our operating segments. The commercial segment added $24 9 million in operating revenues versus the prior year.

Within this segment listed derivative operating revenues increased $10 $5 million versus the prior year as a result of a 23% increase in the average rate per contract and a 4% increase in contract values driven by increased commodity volatility and customer mix.

OTC derivative operating revenues were $34 5 million for the quarter, which was up $11 9 million versus the prior year, primarily as a result of a 40% increase in OTC derivative volumes driven by increased volatility in agricultural and energy markets.

OTC derivative operating revenues declined $15 $2 million versus the immediately preceding third quarter of 2021, which was the primary driver of the overall decline in operating revenues as compared to the third quarter in the commercial segment.

Operating revenues from physical transactions declined 900000, primarily as compared to the.

Prior year period, primarily as a result of a $10 $6 million decline in precious metals revenues, which was partially offset by $6 $8 million increase in physical AG and energy commodity revenues.

Operating revenues in physical contracts for the current period included 400000 unrealized loss on derivative positions held against physical inventories carried at the lower of cost or market. While the prior year quarter included a $2 8 million unrealized loss of a similar nature.

Finally interest on client balances increased $3 million versus the prior year, principally due to the 61% increase in average client equity as well as an increase in interest charges to customers on certain margin balances.

Total non variable expenses increased $3 $3 million versus the prior year, primarily as a result of an increase in bad debt expense market information and professional fees.

Segment income was $44 1 million for the period, an increase over the prior year period and preceding quarter, a 29% and 27% respectively.

Moving on to slide number 10, our institutional segment added $2 1 million in operating revenues versus the prior year, primarily driven by a $6 $3 million increase in securities revenues as a result of an 81% increase in the average daily volume of Securities transactions, which was partially offset by a 41% decline in securities rate per million.

The decline in rate per million was primarily a result of the prior year quarter benefiting from wider spreads due to heightened volatility driven in part by the Covid pandemic.

Listed derivative operating revenues declined $3 4 million as an 11% decline in the rate per contract more than offset a 1% increase in volumes.

Interest and fee income on client balances balances modestly increased 100000 versus the prior year due to a 7% increase in average client balances versus the prior year.

Segment income increased 9% to $24 4 million in the current period, primarily as a result of a $7 million decline in bad debts and impairments and the increase in operating revenues, which was partially offset by a $2 $7 million increase in variable compensation and a $500000 increase in fixed expenses.

Segment income declined $22 1 million versus the immediately preceding third quarter, which benefited from strong performance in our securities businesses.

Moving onto the next slide operating revenues in our retail segment added $17 9 million versus the prior year, which was primarily driven by an $8 $9 million increase in FX and cfd revenues from the gain acquisition.

Our retail physical precious metals business and independent wealth management businesses added $3 8 million and $5 million in operating revenues, respectively versus the prior year.

The increase in variable compensation and benefits in non variable direct expenses was driven by the acquisition of gain.

Segment income declined $6 1 million versus the prior year, primarily as a result of a decline in profitability in the acquired business gain business.

Segment income increased $5 9 million versus the immediately preceding quarter, primarily as a result of the increase in operating revenues.

Closing out the segment discussion on the next slide operating revenues and global payments added $5 $2 million versus the prior year driven by a 29% increase in the average daily volume. Despite a 9% decrease in 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.

Non variable expenses increased $1 3 million and is primarily related to the expansion of our payment offerings.

Segment income increased 11% to $18 4 million in the current period and represented a 9% decline versus the immediately preceding third quarter.

Moving on to slide number 13, which represents a bridge between operating revenues for the fourth quarter of last year to the current period across all of our operating segments. Overall operating revenues were $390 1 million in the current period up $48 million or 14% over the prior year.

I've covered the changes in operating revenues for our segments. However, the $2 $1 million decline in revenues and unallocated overhead is primarily related to a negative variance in foreign currency gains and losses and declining value of the exchange stock held for clearing purposes.

The next slide number 14 represents the bridge from 2024th quarter pre tax income of $79 9 million to pre tax income of $4 9 million in the current period.

The negative variance nothing allocated overheads of $82 5 million as a result of the acquisition gain noted earlier the operator operating revenue variance noted on the previous slide as well as the increase in unallocated expenses, primarily related to the acquisition of gain the severance expense noted earlier, an increase in non trading technology and support.

The build out of our support platforms and the amortization of intangibles acquired in the gain acquisition.

Finally, moving on to slide number 15, which depicts our average invested client balances and associated earnings by quarters. So what is it.

Table, which shows the annualized interest cost interest rate sensitivity for a change in short term interest rates as noted at the bottom of the table 100 basis point increase in short term interest rates. We estimate would increase net income by $27 3 million or approximately $1 38 per share based upon current client balances.

With that I would like to turn it back to Sean for strategy discussion.

Thanks, Bill turning to slide 16, which summarizes the high level strategic objectives that management is focused on.

Most of these projects are unchanged and ongoing but given that this year and I thought a more detailed update on progress would be useful.

First building our ecosystem, we wanted to stay relevant to our clients, both existing and new clients by adding new products and services and creating the best financial ecosystem.

And then to the global financial markets.

There are two large product areas or maybe even growing financial ecosystems that will focusing more attention on both are driven by increased client interest as we mentioned last time crypto currency remains a hot topic in a growing market, we actively support our institutional and retail clients by facilitating trading.

And a growing number of crypto related products, such as listed derivatives as well as publicly listed Etfs bitcoin exchanges and other market participants.

This is a growing revenue source for us and we want to remain relevant to our clients by ensuring we provide access to this growing ecosystem as well as providing market intelligence around the space.

We are looking at various collaboration and partnerships arrangement to extend our crypto offering to our retail clients.

We're also pleased to accomplish some of the new ETF entrants amongst our peer and clients.

Secondly, carbon trading is another growing market propelled by global ESG initiatives, we are exploring ways to better assist and leverage our client relationships in the space that I spoke a little bit about that last time.

ESG is also providing new and interesting market opportunities for us certain base metals.

With electric car industry, and biodiesel is a priority for the green energy initiatives.

These initiatives to impact markets. We are currently active in and provide us significant opportunities to assist our clients to take better advantage.

During the year, we also found ways to give our clients access to list the derivative market in China that were not previously available to them.

We continue to grow our product offering and fixed income, adding teams and product expertise consistently.

During 2021, we acquired a small largely dormant but fully licensed U S payment services company.

We have now completed the regulatory change of control process and will soon be able to offer up 28000 commercial clients and some of our nearly 400000 retail clients are unmatched mobile payment services, we have.

I just have a payments capability on all our digital platforms, which will provide simplicity and ease of use for all our clients.

In 2022, we are looking for ways to expand our payments licensing to facilitate that similar approach in Brazil, which we see as a large potential market for us.

We are a customer centric business and we need to consistently work at growing our customer footprint into new markets and expanding market share because we have existing customers and look to serve new customer segments and channels.

Have all the capabilities to service customers of all types and have a large addressable market in front of us with very low market penetration, which we currently estimate the single basis points range.

The payments platform I've, just mentioned will allow us to attract new and smaller commercial clients. It's a neat looking for a simple integrated solution to hedge currency exposure and then make the underlying payments.

We have successfully expanded our wholesale precious metals business into the U S. With the addition of a small but very experienced even in California. We will look to further solidify. This with addition of a digital retail capability using our <unk> platform, which has been very successful in Europe.

We have rolled out a number of electronic trading applications by equity market, making business. These are not only fully automated what we've always done on the desk, but provide clients with additional capabilities and transparency when executing their orders.

We are now actively rolling out our retail self directed platform into the EU, which opens up a big new market for us on the retail side and is gathering momentum.

Lastly, we also have state of the internal digital marketing capability of <unk>, which.

Which we acquired with the gain acquisition.

<unk> ability spanned the design and execution of digital marketing strategies as well as the ongoing analytics to measure and optimize results. This is a proven and talented group that drives the retail platform revenue and increasingly we will look to scale and grow our other client areas as they become more digitized platform based.

In terms of digitizing our business. We have mentioned this on a number of calls over the last few years and I thought it might be good to provide some more detail around this.

Over the last three to four years, and we've made pretty significant investments in technology to create a more efficient and scalable technology stack internally that foundation in the pre requisite prerequisite for us being able to service clients digitally.

We have decided to use industry standard systems of record for all our key product areas. As this was the most cost effective and scalable way design.

Designing and creating an enterprise solution would have been cost and time prohibits it.

However, this led to slow next having nearly 20 systems of record requiring point to point connections with all of our support systems as well as all of our clients place in platforms. This is not scalable or efficient and also inhibits flexibility and agility as well as growth into new products and capabilities.

Our approach to address these shortcomings was to create that data lake.

All data from the various systems of record would reside and be normalized for the various bits of data could be aggregated seamlessly.

This is a constant and many financial firms have laid out, but it's not easy to deliver on each system is different data fields and pads and so normalizing large amounts of data can be difficult.

After many years, we have now reached the point, where our data Lake comprises the majority of our system is a breakthrough this.

This now allows us to have various support areas and client facing applications to be able to connect the only one place.

And get all the data they need we now have real validation of the success of this approach.

For example, our risk team cannot access all client activity across the organization different products different locations and different legal entities.

It also has the capability to view the profitability of the ability of each clients across the both the risk profile as well as the specific capital requirements.

This has been instrumental in us being able to be more granular in how we private client business, especially in the lower margin institutional derivative business. This is one of the reasons you can see better pricing being achieved in this product segment.

These are just two examples.

But we are really pleased to see the increasing payments of other application applications now being deliberate as a result of the data Lake.

This is a key foundational step and allows all our support areas and offline platforms have one connection to access all data. This eliminates the need for multiple point to point connections and it provides a much more flexible and agile systems architecture.

In addition, we have been working for some time to create a flexible open architecture API approach to our system. So Frankfurt. This will allow us to combine access to systems and products declined pricing platform's modular inefficient way combined with the data link this will allow us to create very flexible platform for specific.

Client types, giving them access to the products and capabilities they need this.

This has also been a long term project, but again, we are now seeing validation through the increased cadence of delivery.

We're about to launch our internal pilot will start next one which will be a self directed multi asset trading platform, allowing clients to trade equities, both cash and options as well as the Mr derivatives to U S clients we.

We will then look to as foreign exchange rate the full menu.

Seamlessly brings together three different regulatory environments and related products for our clients. This is currently a desktop application, but once validated we will then use the same apis to create the digital probation for the self directed at mobile retail platform, Okay and objective we set up at the time of the gain acquisition, which will be transformational to.

The offering here in the U S.

And summer next year, we will be rolling out cash equities of the retail platform outside of the U S, which again will transform the gain platform from.

From just CSD and investment offerings.

Some of them next year.

Sorry.

Develop one of the leading OTC derivatives and structured product platforms over the last few years, taking some of our most complex products and making them easy to access understand design and then execute all electronically.

We have validated this was a pilot launch and we'll know more aggressively be launching this to existing clients and even more broadly to showcase new and potential clients our unique capabilities.

We have launched a new base metals trading system, which allows clients to more easily track their positions and access pricing and plan to roll this out to all clients see and enabled direct execution over this platform, thereby totally automating this business.

We're also looking to provide electronic trading access to active clients, where we can internalize the flow and offer them equal or better pricing and offered on the exchanges, we have a growing ecosystem and increase flow in oil products and now have the ability to leverage this for our clients benefit.

So as you can gather there is a lot going on with Digitization. We are firmly of the belief that electronic trading and the digitization of client platforms.

Key requisite for continued growth this.

This should not only allow us to become.

To acquire global market share in our addressable market, but should also provide scalability and margin expansion.

<unk> not all of our businesses can or should be digitized and we have some of our clients that will continue to demand and pay for a high touch service.

Even the areas of our business, where we can become more digitized we will always strive to provide high great support and service to all of our clients.

Finally, our businesses supported by capital and we need to underpin our growth with internally generated capital resources, and where appropriate access to capital markets in a disciplined manner.

The most important thing we can do is to continue to create a capital runway for continued growth. This is why we are focused on Roe.

It is interesting to note that 10 years ago, we had less than $300 million in shareholders' equity and roughly the same number of shares outstanding as we do now over this 10 year period, we have tripled our shareholder funds acquired 15 businesses and significantly expanded our client footprint all financed organically from retained earnings.

Unbelievable power of compounding.

During this growth we have largely achieved our ROE targets, certainly not every year or every quarter, but on average over the period, it's pretty close.

This has happened despite the investments we've made the technology and infrastructure the cost of developing new capabilities and despite low interest rates for periods of time.

Keeping our ROE target will continue to be our north star and we believe that as we digitize our platforms and gain scale that helped margins and ROE you should start to increase.

As mentioned earlier the high yield issue to acquire gain was price in the middle of Covid with the added complication of slow next being a first time issuer. The desk was priced at 39% and as such has added a lot of fixed cost against which we acquired gain which is exacerbated the volatility of our overall earnings as we have seen during this year.

We have the ability to call the entire high yield issue in June 2022, the second year anniversary of the issue.

As mentioned last time, we extended the maturity of our Holdco bank facilities until August 2022, which generally lines up with the high yield call date.

This will allow us to strategically reassess our capital structure in June 2022 to take advantage of the most optimal combination of debt and bank funding as well as hopefully drive down the cost of this capital fairly significantly.

Moving on to slide 17, which is the high level kpis by which we manage our targets on the right hand side you can see that we are generally in line with most of our targets.

Despite.

A challenging quarter.

Okay.

Moving on to the next slide.

Which shows our customer growth and again all of those lines pointing upwards.

As mentioned earlier, our highest priority is to better serve our existing customers and for our footprint, which drive every aspect of our business and I think the slides provide some context around that.

Finally, let's move to slide number 19.

Okay.

The current quarter was somewhat disappointing and below our long term expectations. However, we have always managed our business for the long term and our annual results were in line with expectations.

When compared on an adjusted basis, which excludes the acquisition accounting for gain last year. Our core operating results were up significantly against the tough comparison in 2020 when volatility provide some tailwind.

We achieved record operating revenues of $1 7 billion up 28% and record adjusted net income of $124 million up 25% with an adjusted ROE of 14, 9%.

We are extremely proud of our long term track record over the last 19 years, we have compiled operating revenue at 36% compound per annum and shareholder capital at 73% per annum.

We believe that this travel track record is unsurpassed in our industry.

Indeed over the last two years, we have continued to grow operating revenue in capital at some of the rates.

Because the last two years, our shareholder capital has grown by more than 50% and we have managed to continue to deploy that increased capital near our target returns.

We've made a large acquisition with gain significantly expanded our footprint client reach and product offerings without issuing any stock. Although this has required us to take on some bank price decks, which has added some volatility to our quarterly earnings as mentioned earlier, we will be focusing on this in the upcoming year looking to restructure and optimize a bit <unk>.

Sure once we can call the high yield notes.

We've also made large investments in technology over the last four to five years I believe that we would not have the foundations in place to accelerate the digitization of our business.

Internal infrastructure has been built.

Media connectivity and access throughout all of our many operating systems.

And allow us to instantly view real time 360 degree engagement with our clients in all products in jurisdictions. We have adopted an open architecture, which now allows us to provide clients with digital access to most of our products and capabilities on one platform, which can be customized by client type and channel.

The acquisition of gain has provided us with leading internal digital marketing capabilities to leverage these capabilities.

This year, we will see a number of digital platforms launched which will more tightly integrate offered by client type and make it more engaging for clients to interact with our financial ecosystem.

The next phase will be to actively and aggressively market. These platforms to further accelerate our growth with the scalability that technology provides to increase margins and overall profitability.

We have a unique and comprehensive financial ecosystem with a very large addressable market in front of us.

While we have good market share in certain niche segments of the market lots of white space areas, we really have client relationships and demonstrable capability and we need now need to monetize these opportunities in.

In aggregate, we believe that we may be have single basis points of market share of our total addressable market.

We believe that with the technology investments, we have made to date. The early validation thereof. The growing client base that has brought it needs. We can fulfill the growing awareness of <unk> and the unique finance show ecosystem. We also make this a very exciting phase of the <unk> story.

One thing we will always be constant for the next team will continue to dedicate ourselves to better serving our growing client footprint around the world by providing them with the best ecosystem in service to access global financial markets.

The executive team and I are extremely proud of the talented team will continue to propel us to new heights.

And with that operator, we are ready to take questions.

Okay.

As a reminder to ask a question you will need to press star one on your telephone.

Draw your question press the pound key please standby, while we compile the Q&A Rochelle.

Our first question comes from the line of Dan Fannon from Jefferies. Your line is now open.

Thanks, Good morning, gentlemen.

I wanted to pay that.

Hi.

First I know you've mentioned in the securities business due to RPM.

Decline year over year.

Lower volatility, but it's been declining for several quarters. Now this is the lowest this quarter was.

The lowest since.

As far back as we can see so just if you could give a little bit more color on kind of what was going on in that business and how we should think about that on a I don't know on a more normalized basis.

Okay, obviously highly dependent on market conditions.

Volatility on the flow we see.

So it's hard to sort of be very prescriptive in terms of.

Given your guidance going forward, but I think what we can say it was.

The revenue capture was very elevated last year sort of way above mean, and I would say the last quarter was probably below where we'd like to see it. So we're going to probably narrow in some way between those two ranges I would think over time.

I think we are also looking to expand our offering.

And we moving from sort of some of the niche areas like.

The foreign Securities, where we have very large market share and drive decent rate per million to maybe going into some new areas, where we probably going to see a lower rate per million. So thats could skew. The overall result, but we should see in aggregate more more revenue and more segment income as a result, so as we start to digitize.

I mentioned that we start getting into some of the white space.

Leveraging some of our client relationships.

And what you've just been doing for the last year, that's going to have some impact on the rate per million. So it's going to be a tough thing to track I think for that reason so.

I don't know if I can give you any better than that but I would say for our core areas of the business. We've been in historically I would say this quarter is probably below trend last quarter was above trend, but we are entering some more areas, which are probably going to be slightly more competitive.

Okay. That's helpful.

And then just on expenses and understand the year over year comparisons associated with gain but even the sequential pick up in some of the fixed cost.

I was hoping to get a little bit more color on kind of the investment you mentioned.

A lot of the new initiatives some of the digital invest.

Investments you've been making for several years, so a little bit of context around this quarter. If there was anything one time outside of the bad debt, but other parts of the business of other other things and then as you think about next year, the budget and how youre thinking about growth rates of kind of the fixed costs.

Is there is there an acceleration in that band or <unk> or any context, there would be helpful.

Okay, well I'll start and then maybe bill can follow up with you.

Any comments he has.

We've got a couple of sort of push factors on us here.

So the first thing is you know our business is obviously expanding significantly I mean, when you grow your revenues, 50% over two years. So when you see big growth rates year on year.

Have to backfill some of that growth with making sure you've got the right infrastructure in place and we tend to see the revenue and sort of fill in fill in behind that so that was a little bit I guess of infrastructure that we have to catch up on generally because of all the growth that happened over the last few years.

So I think there's a bit of that.

There has been a.

Fairly significant technology spend over the last three or four years, which I mentioned, which I think to be honest hasnt moved much in the way of incremental revenue or scalability, thus far but we're pretty excited that we now starting to see real validation on that so I think we will start to see a payoff.

And then I think the third factor.

Is it things like Brexit and the change in great Dilatory environment also put a lot of cost push on your business Brexit.

Brexit was not insignificant as well of all the changes we've seen over the last two years in Europe. So we have to in some instances.

The increase overhead compliance.

Regulatory oversight and so on as a result of that so those are the three pushes.

We are facing.

We've just completed our sort of budgets and planning exercise.

And our Q4 run rate is.

Really bakes in a lot of all of those increases we anticipate for the next year. So we do anticipate some flattening off now after some pretty big increases in spend I mean, we saw some synergies captured from day and then we saw some offsets for some of the new stuff, we're doing and some of the.

I guess the infrastructure that we have to fill in some of the summer peak.

Regulatory changes, but I would say our exit run rate of fixed cost.

I would not anticipate seeing a major increase.

On a go forward basis, I mean single digits, maybe unless theres. Some other major change right either an acquisition some refractory change or some massive expansion into new products new capabilities.

You got any comments on that.

Yes.

Just a few points Dan I guess.

Pointed out during my portion of the script there was about $1 6 million in severance costs that we had here.

In the fourth quarter.

Which skews that run rate a little bit there.

There's also about a half a million dollar worth of kind of contingent consideration for from one of the smaller acquisitions that flowed through the Q4, which we wouldn't we wouldn't expect to see that on a go forward basis.

And overall kind of professional fees.

Were up Q3 to Q4 versus Q3.

Good portion of that probably a million million and a half of it is just increased audit fees that kind of come through as the work is.

We get through the audit period here in Q4, we tend to see Q4 being higher so overall the fee.

On a year to date basis is probably about where it will be but you see kind of a spike in this.

In the Q4 results versus kind of where you see lower.

Lower work being done in Q2 Q3.

And then probably the only other.

Point, there is just kind of selling it selling and marketing, which was up $1 million versus versus Q3.

But some of that flexes, a little bit, particularly with the gain business.

As they deploy the.

The marketing dollars I think it was a little higher than what our run rate has been historically.

The prior three quarters of the fiscal year. So you know.

Probably certainly leveling off on that aspect.

Okay, Great that's helpful and then.

Last one and thanks for taking all my questions is just given we're two months into the quarter, maybe if you could characterize the current environment, we've had a little bit more volatility in recent weeks.

And maybe just some of the initiatives that you've talked about which I know are much longer term, but maybe some context around it.

How the first fiscal quarter is trending in.

At this point.

Just sorry, I was on mute I wanted to chip in on costs I guess, one thing that.

We will start to become noticeable on our cost is.

As we spend more on technology.

What we tend to find is those costs or.

A much more fixed relative to the legacy <unk> mix of variable and fixed right because we're not paying high pay ups too to brokers and relationship people, but we now spending more money on technology. So we are going to see a shift to a little bit more and it will be incremental over time from here.

More of a fixed cost model, but obviously the flip side of that is it's much more scalable right. So if you start getting some real scalability your incremental margins on that growth are much higher than they would be for our legacy business. Because you don't have those payoffs to deal with so just.

Something to be aware of I don't think it's not going to see it move the needle quickly, but I think thats a trend we see in our business not particularly since we acquired gain.

Yes.

Yes that does thank you.

Yes.

Well.

Our business can move very quickly.

Markets.

Can move.

Day to day month to month, and you never quite know week.

At the end of the quarter, but I would say generally speaking.

As a more positive environment for us right now.

I didn't want to.

Pine in my formal remarks on the environment obviously.

Hughes at Covid is not great right now, but I think what that does say to US is we still have a long way from normalization here.

It feels like Covid is going to have sort of a long path towards some sort of endemic normal for us and then you're still left to deal with sort of the fed's normalization of its position in the market and I think both of those things are going to provide.

Periodic bouts of volatility, which can be very good for us. So I think it's generally a pretty positive environment that doesn't mean it will be positive every quarter.

But I think.

We see that as a pretty good environment for us and Theres also with all the talk around inflation.

There is some real tone now that interest rates.

I'm going to start being pushed up sometime soon and obviously that has a pretty dramatic effect on our bottom line. So I think the environment for us is setting up well.

As I said, it's hard to know quarter to quarter, how how that's going to play out.

Im pretty bullish about the environment, we are facing and I think the current market is better for us.

Okay. Thank you.

Alright.

Any other questions operator.

At this time I'm showing no further question.

Alright, well thanks, everyone.

Joining the holidays, we will be speaking to you I guess.

Thanks Bye bye.

This concludes today's conference call. Thank you for participating you may now disconnect.