Q3 2023 StoneX Group Inc Earnings Call
Yeah.
Okay.
Good day, and thank you for standing by and welcome to the Stone Ex Group, Inc. Q3 fiscal year 'twenty three earnings 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.
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Please be advised that today's conference is being recorded.
I would now like to hand, the conference over to your Speaker today Bill Dunaway. Please go ahead.
Good morning, My name is built on a way welcome to the earnings conference call for our third quarter ended June 32023.
After the market closed yesterday, we issued a press release reporting our results for our third fiscal quarter of 2023.
This release is available on our website at Www Dot <unk> dot com as well as the slide presentation, which we'll refer to on this call in our discussions of our quarterly and our year to date results.
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 thereto as.
As well as the Form 10-Q filed with the SEC.
This discussion may contain forward looking statements within the meaning of section 27, a of the Securities Act of 1933 as amended and section 21 E of the Securities Exchange Act of 1034 as amended.
These forward looking statements involve known and unknown risks and uncertainties, which are detailed in our filings with the SEC.
Although the company believes that its forward looking statements are based upon reasonable assumptions regarding its business and future market conditions. There can be no assurances that the company's actual results will not differ materially from any results expressed or implied by the companys forward looking statements.
Company undertakes no obligation to publicly update or revise any forward looking statements, whether as a result of new information future events or otherwise.
Readers are cautioned that any forward looking statements are not guarantees of future performance with that I'll now turn it over to Sean O'connor the company's CEO .
Thanks, Bill good morning, everyone and thanks for joining our earnings call.
In the third quarter of fiscal 2023, we saw solid transactional volumes as well as revenue growth across almost all of our products. Despite volatility generally moderating versus the prior period.
Interest earnings on our client float increased significantly.
Due to our capturing higher market rates that prevailed during this period.
In aggregate. These results produced our strongest financial results ever with a $3 25 diluted EPS and a 23, 1% ROE on tangible equity.
We believe that our results for the quarter and indeed for the year to date are significant positive outliers in our industry as they have been for some years now.
Turning to slide three of the earnings deck, which compares quarterly operating revenues by product versus a year ago.
Operating revenues were up a strong 47% in aggregate for the quarter and up 40% for the year to date, despite the generally more subdued market conditions.
Aggregate revenues were up 10% versus the immediately preceding quarter.
Listed derivatives revenue was up a slight 1% despite a decrease in volumes of 5% while revenue capture was up 9%.
Revenues were down 3% versus the preceding Q2.
OTC derivative revenue was up 43% versus a year ago and up 24% versus the immediately preceding quarter with volume surging, 46% and revenue capture down slightly.
Physical commodities revenues were up a strong 59% versus a year ago and up 50% versus Q2 due to better results in AG and energy as well as the addition of CDI, which was acquired in Q1 of this year.
Securities revenues were up 76%. Although this is inflated due to the gross up of much higher interest revenue in our fixed income business.
There's also the fed rate increases as was the case last quarter. This was a tough quarter for the equities business with lower volatility.
The fixed income group turned in another strong result.
Overall adv across the securities business was up 33%, although revenue capture declined 43%, reflecting both tougher market conditions in equities as well as our continued push into lower margin products.
Global payments had another strong quarter with revenues up 23% versus a year ago and up 9% versus Q2 volumes.
Volumes were down 2%, but revenue capture was up 21%.
Our FX and Cfd revenue was down 17% largely due to tougher market condition patients be exceptionally positive conditions in the prior year quarter.
Which resulted in volumes being down 20%.
Revenue capture was up 5% versus the prior year and represented a 49%.
The increase over the immediately preceding quarter.
This resulted in a 17% increase in FX cfd revenues versus the immediately preceding quarter.
Interest and fee income on client balances was $92 2 million up 329% from a year ago as we realize the impact of cumulative interest rate increases, although the aggregate client flow to reduced 3% and now stands at an aggregate $7 7 billion.
This reduction in client float was realized on the FDIC sweep balances.
Larger retail securities clients moved into higher yielding deposits.
Versus the immediately preceding quarter interest earnings on our client side was down 11% and the aggregate slides balances declined 10%.
Moving on to slide four which shows the same data for the trailing 12 months over this longer period and despite more challenging comparisons now coming to bear we realized strong revenue growth across all products, except listed derivatives, which was flat and FX cfd, which were down 16% we have generally.
The increase in volumes across the board while revenue capture has been more challenging generally with lower volatility.
Turning to slide five and a summary of our third quarter and trailing 12 months results. We recorded operating revenues of $776 9 million up 47% versus the prior year and up 10% from the preceding quarter.
Our operating revenues were boosted by interest both on our client flows and also interest that is embedded in our fixed income trading as I mentioned earlier.
Net operating revenue, which nets off interest expense as well as introducing broker commissions and carrying costs was up 17% versus a year ago.
Total compensation and other expenses were up 13% for the quarter with variable comp variable compensation up 5% and fixed compensation up 23%.
Versus the immediately preceding quarter fixed compensation, excluding the retirement and reorganization charges recognized in the immediately preceding quarter was unchanged at $96 1 million.
We reported a $69 5 million in net income and $3 25 in diluted EPS for the quarter, while adjusted net income, which excludes acquisition related items was a record $71 8 million for the quarter.
Our ROE is 21, 6% on stated book value and $23 one on tangible book value.
Our average price yield on our client float was 397.
Basis points for the quarter versus 379 basis points for the immediately prior quarter.
Book value per share closed the quarter at.
64 $64 nine.
Up 24% versus a year ago and increased $3 77 during the quarter again, this quarter and larger than our EPS due to positive changes in other comprehensive income.
Looking at the summary for the trailing 12 months operating revenues were a record $2 7 billion.
Up 42% over the prior trailing 12 month period net.
Net income was $240 1 million up 48%.
Diluted EPS was $11 31 for the trailing 12 months up 44%.
ROE was 22% despite our equity increasing 48% over the last two years.
Turning now to slide six our segment summary, just to touch on the highlights before it gets into more detail.
For the quarter segment operating revenue was up 46% and segment income was up 22%.
Our commercial segment was up 61% and segment income off the back of a 48% increase in operating revenues with strong performance on the OTC products.
And physical commodity side.
Versus the immediately preceding quarter segment revenues were up 15% and segment income was up 14%.
Our institutional segment saw an 82% increase in revenues by the 5% reduction in segment income.
Disparity between these two numbers is caused by the revenue increase being driven by the interest carry on for the fixed income side as well as higher interest paid on our client float.
As mentioned earlier, the equities business had a tough quarter, while fixed income had a non liquid result, as did our institutional FX the.
The listed derivatives business and securities clearing were boosted by interest and fee income.
Versus the preceding quarter segment revenue was up 5% and segment income was down 19%.
Retail was much improved from Q2, but with continued challenged market conditions, especially when compared to the exceptional results a year ago.
Operating revenue was down 16% versus a year ago, but up 16% versus the preceding quarter.
Segment income was down 35% from a year ago, but up 258% from Q2.
Global payments revenue was up 20% and segment income was up 16% versus the prior quarter.
Versus the preceding quarter revenue was up 7% and segment income was up 80% largely due to the reorganization charges recorded in the prior quarter.
For the trailing 12 months, we had double digit growth in segment operating revenue and segment income with the exception of retail which was down.
As we have said repeatedly we take a long term view and how we manage the company and how we grow our franchise.
As such we believe that the best way to gauge our results and progress is to look at longer term performance such as trailing 12 months rather than specific quarters taken in isolation.
Turning now to slide seven which they've thought about trailing 12 months performance over the last nine quarters.
These numbers have been adjusted for the accounting treatment related to the gain in CDI acquisition as disclosed in our prior filings and which appear in the reconciliation provided in the appendix of the earnings deck.
On the left hand side, the bars represent our trailing 12 months operating revenues for the last nine quarters.
As you can see this has been a smooth and strongly upward trend as we have steadily expanded the footprint and capabilities are.
Trailing 12 months operating revenues are up $1 1 billion over this period for a 29% CAGR.
Our adjusted pre tax income likewise has grown significantly at a 33% compound annual growth rate.
On the right hand side, you can see our adjusted net income and the Baas, which is up $104 million over the two years for 37% CAGR.
And the dotted line on the right hand side represents our ROE, which has remained above our 15% target even though our capital has grown by 48% over this period.
With that I'll hand, you over to Bill Dunaway for a more detailed discussion of the financial results over to you Bill.
Thanks, Sean.
I'll be starting on slide number eight which summarizes our consolidated income statement for the third quarter of fiscal 'twenty three.
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.
On the expense side transaction based clearing expenses declined 11% to $66 $7 million in the current period, principally due to lower fees and the equity ADR space and global payments as well as the decline in FX Cfd enlisted derivative volumes.
Introducing broker commissions decreased five or increased 5% to $43 4 million in the current period, principally due to increased activity in our commercial segment in both enlisted derivatives as well as the result of the CDI acquisition, which was effective October 31 2022.
Interest expense increased $187 9 million versus the prior year, principally as a result of $144 9 million increase in interest expense related to our institutional fixed income business and a $31 6 million increase in interest paid on client balances.
Both of these were result of a significant increase in short term interest rates.
Interest expense on corporate funding increased $4 2 million versus the prior year also as a result of an increase in the short term interest rates as well as an increase in average borrowings.
Variable compensation increased $6 6 million versus the prior year due to the increase in net operating revenues and represented 30% of net operating revenues in the current period compared to 33% of net operating revenues in the prior year period.
Fixed compensation increased $17 $8 million versus the prior year due to a 14% increase in head count, resulting from the expansion of our capabilities among our business lines as well as in support areas to facilitate this business growth the effect of the annual merit increases and a $1 $9 million increase in share based compensation as <unk>.
Impaired to the prior year.
Other fixed expenses increased $6 8 million as compared to the prior year and $2 1 million versus the immediately preceding quarter.
As compared to the prior year trading systems and market information increased $3 4 million travel and business development increased $1 3 million and depreciation and amortization increased $2 1 million due to incremental depreciation related to internally developed software as well as higher amortization of intangibles that we acquired.
Bad debt expense net of recoveries increased $7 million to $6 3 million in the current period versus the $700000 recovery in the prior year period.
This increase was principally related to increase in bad debt expense in our physical AG and energy retail FX, and Cfd and financial AG and energy businesses.
Net income for the third quarter of fiscal 2023 was $69 5 million, which represents a 42% increase versus $49 1 million in the prior year and is at 67% increase versus the immediately preceding quarter.
Moving on to slide number nine I'll provide some information on our operating segments. Our commercial segment added $82 5 million in operating revenues versus the prior year at $32 6 million when compared to the immediately preceding quarter.
The increase over the prior year was driven by a $39 million increase in operating revenues from physical transactions due to increased activity in biodiesel feedstocks and the acquisition of CDI as well as a $21 $7 million increase in OTC derivative operating revenues, most notably in Brazilian markets.
In addition interest earned on client balances increased $23 6 million as a result of a significant increase in short term interest rates.
Average client equity declined 30% versus the prior year as the prior year period as one with elevated margin requirements. Following the Russian invasion of Ukraine.
Fixed compensation and benefits increased $3 million versus the prior year and other fixed expenses increased $2 1 million, including increases in non trading technology and support travel and business development and depreciation and amortization.
Bad debt expense increased $5 4 million as compared to the prior year period.
Segment income was $117 million for the period, an increase over the prior year period and preceding quarter of 61% and 14% respectively.
Moving on to slide number 10 operating revenues in our institutional segment increased $172 million versus the prior year.
Primarily driven by $117 $9 million increase in securities operating revenues compared to the prior year as a result of a 33% increase in the average daily volume of security transactions as well as the increase in interest rates.
The increase in Securities Adv was driven by increase in client volumes in both equity and fixed income markets.
Interest and fee income earned on client balances increased $47 1 million versus the prior year as a result of an increase in short term rates as well as a 30% increase in average client equity.
This is strictly this was partially offset by a 32% decline in average money market and FDIC sweep client balances versus the prior year.
And fee income and client balances was down $2 $7 million versus the immediately preceding quarter as the decline in average client equity and money market FDIC client balances more than offset the increase in short term rates.
The rise in short term interest rates drove a $182 $9 million increase in interest expense versus the prior year interest expense related to fixed income trading and securities lending activities increased $144 9 million and $5 7 million, respectively as compared to the prior year, while interest paid to clients increased $28 1 million.
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Segment income declined 5% to $45 1 million in the current period as a result of the $6 $1 million decrease in net operating revenues as well as a $9 $6 million increase in non variable expenses.
Including a $2 4 million increase in fixed comp and benefits of $1 $7 million increase in professional fees and $800000 increase in trade systems and market information and a half a million dollar increase in travel and business development.
These negative variances were partially offset by $13 $1 million decline in variable compensation as compared to the prior year.
Segment income declined $10 $7 million versus the immediately preceding quarter.
Primarily as a result of a 25% decline in FX Cfd average daily volumes, which was partially offset by a 7% increase in rate per million as compared to the prior year.
The current period, however showed a nice improvement over the immediately preceding quarter with retail segment operating revenues, increasing $12 9 million.
Segment income declined 35% to $17 2 million in the current period, primarily as a result of the decline in operating revenues, which was partially offset by a $2 $3 million decline in non variable direct expenses.
Segment income increased $12 4 million versus the immediately preceding quarter.
Closing out the segment discussion on the next slide operating revenues and global payments increased $8 9 million versus the prior year driven by a 21% increase in the rate per million as compared to the prior year segment income increased 16% to $28 six in the current period as a result of the growth in operating revenues, which was partially offset.
By a $3 $3 million increase in fixed compensation.
As we continue to build out our payment capabilities.
Segment income increased $12 7 million or 80% versus the immediately preceding quarter as the preceding quarter included $10 million and reorganization and retirement costs.
Moving on to slide 13, which represents a bridge between operating revenues for the third quarter of the last year to the current period across our operating segments. Overall operating revenues were $776 9 million in the current period up $248 1 million or 47% over the prior year.
This variance is primarily covered in the segment discussion I just walked through so I'll move onto the next slide number 14, which represents a bridge from 2022 third quarter pre tax income of $70 9 million to pretax income of $94 $5 million in the current period.
The negative variance in unallocated overhead of $13 2 million was primarily driven by a $9 $4 million increase in fixed compensation and benefits as a result of the buildout of our compliance and it functions to support our continued business growth as well as incremental costs associated associated with the acquisition of CDI.
In addition variable compensation increased $3 2 million as a result of increased improved company performance and additional head count.
Finally, moving on to slide number 15, which depicts our interest and fee income earned on client balances by quarter as well as the table shows the annualized interest rate sensitivity for a change in short term rates.
Interest and fee income net of interest paid to clients in the effective interest rate swaps increased $24 6 million to $43 9 million in the current period.
As compared to $19 3 million in the prior year.
This represents a $10 $7 million decline from the immediately preceding quarter, primarily driven by a decline in average client equity and money market FDIC sweep balances.
As noted in the table, we estimate a 100 basis point change in the short term interest rates either up or down would result in a change to net income by $17 million or <unk> 82 per share on an annualized basis.
With that I'd like to pass it back over to Sean.
Thanks, Bill, let's move onto the final slide number 16.
Equating to a 22% ROE unstated book.
Our performance is viewed through a slightly longer term loans, such as trailing 12 months over the last two years, which evens out quarterly anomalies. Our results continued to show strong upward trajectory growing our revenues at a 29% compound annual growth rate and our adjusted earnings at a 37% compound annual growth rate.
While trading conditions moderated with generally lower volatility, we believe that outgrowing and diverse business and multiple earning drivers will continue to drive growth and to deliver shareholder value.
We continue to see growth in client trading volumes, and new client acquisitions across our products and across our client segments, which again validates our business model and not growing relevance in our markets.
Continue to invest in our financial ecosystem, expanding our products our capabilities are not kind of it.
We have a unique and broad financial ecosystem with a very large addressable market in front of us.
Operator, let's open the line and see if we have any questions at this point.
Thank you we will now conduct the question and answer session. As a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced.
To withdraw your question. Please press star one again.
Please standby, while we compile the Q&A roster.
Okay.
Our first question comes from Yehuda will of Blackbird financial.
Hi, great quarter.
And just have two questions.
The first is can you give us a picture of how much you're spending on growing stone ex one in marketing and infrastructure.
And two do you feel any pressure to pay higher interest rates on client flow.
Our risk.
Thank you okay.
Thanks for the questions I appreciate it so dealing with the interest rate question first.
I guess, the last two or three quarters as interest rates have ratcheted up above 335%. We started to hear from most of our clients, but they they wanted to see some of that interest moved over to them.
So that has happened gradually I don't.
Think we've seen any greater push in the last quarter that we did in the previous quarter.
At the moment I think we are paying out on average about a cross.
A variety of client basis.
Different pay offs, but on balance I think it's about 40% bonus.
The nominal interest rate, we pay offs.
So I think thats pretty much stabilized.
On our FDIC sweep.
We haven't really changed our interest rates there.
Which is we still capture the vast majority of the interest on that suite. We have lost some of the larger clients, who had large cash balances and moved into treasuries.
But the bulk.
Bulk of the remainder of the clients are not FDIC sweep have relatively small balances.
Not easy for them to go buy treasuries or move some money around because the balances are relatively small so.
So that's the biggest impact I think we have seen is on the FDIC sweep and that started happening probably six to nine months ago.
We are not spending material amounts of money marketing it at this point.
You should see them as slow incremental moves Nox.
Things, where we're going to flip the switch and Youll see the needle move immediately.
I believe over time, though that will be critically important for our growth and we are very optimistic.
I hope so for these digital initiatives, including Fedex one so.
It's rolling out slowly we starting to see subtraction.
We are adding features to that and you should see that start to ramp up.
And at a moderate rate over time is how I would think about it does that answer your questions.
Yes. Thank you.
Okay. Thank you.
Thank you Juan one moment for our next question.
Okay.
Okay. Our next question comes from Daniel Fannon of Jefferies LLC.
Thanks, Good morning, Sharonville Hope, you're wondering hey, Dan how are you doing.
Good thank you.
I wanted to just chat about the environment because volumes and activity frankly, your revenues have been strong for an extended period of time and so as you look at like the health of your markets. The health of your customers I know, it's very hard to predict volumes, but just wanted to get a sense of how youre thinking about sustainability and maybe.
Yes, I mean, I don't want to get too far into the realm of prognostication on the financial markets because.
So many cross currents and unknown at the moment.
But what I would say is I think what our financial results are showing is.
It has definitely been a moderation in the heightened volatility we saw sort of the two years over COVID-19, that's definitely flattening out.
<unk> seen that being reflected in the industry broadly.
I think you're seeing it being reflected in our numbers in particularly in the revenue capture numbers, we starting to see for the first time in two years some of those revenue capture your numbers sort of.
Either being down slightly or not growing if you go back sort of the last eight quarters every one of those charts. Our revenue capture was high and our volume was high.
I definitely think we seeing.
Volatility more subdued volatility showing up with tougher.
Revenue captured.
Numbers.
On the other side, we are still seeing broadly growth in volumes.
And I think that's really sort of gaining market share continuously.
I do think there is probably.
Generically I think volume in the industry is probably starting to flatten as well.
Tougher market conditions in the sort of all the excitement of Covid and all of that dislocation sort of in the rearview mirror now I think it's become a sort of a more stable.
Market Thats, probably not showing the sort of industry growth you've seen before but despite that we are putting up numbers that show.
I think we still feel good about our transactional revenue growing.
I don't think we go into.
Grow like we did in the two years during Covid.
<unk> was up 40%.
But I think theres a lot of market share out there for us to guests and we continue to see banks.
Pushing clients Alpha.
There is the next wave of.
Additional capital requirements at the banks are going to have to deal with and we've just seen this movie now for 15 years that banks are continuously recalibrating, which of the clients on the trading side, they want to keep and.
The capital requirements for all kind of business is not very friendly for banks you know the Basel III requirements on great if you're holding collateral.
I think banks are not having to put even more capital up I think all of that bodes well for us in gaining market share. So.
I think we feel pretty good about that environment on the transactional side.
All of that can change very quickly if you have a bump in volatility and there were a number of things that you could throw out there that would argue for that you've got an election coming up you've got.
Unbelievable set of political devices.
It could go badly.
You've got <unk>.
Precedent level update issuance by the U S government.
Fitch downgrade I mean, all of these things could inject some volatility in the market.
Happens you're going to see.
Sort of above trend growth because that of course will boost revenue capture that'll goes volumes, but absent anything else I think we sort of see a steady path for us to grow our volumes.
At an industry level, and then tack on some market share gains I would say.
Then outside of the transactional side that you sort of take the view on inflation because interest is a big component of our bottom line.
And sort of take a view on where you think interest rates may settle.
I think the market is generally as far as I can see.
Got it wrong.
They have continuously.
Estimated the fed's results here.
And as the fed.
Kind of just pushed through and has got rates to a level that I don't think anyone thought they would be 12 to 18 months ago and I think there is now starting to be a growing consensus that it may be higher for longer.
If you go back 12 to 18 months ago thought we'd be seeing rate cut spot now and that doesn't seem to be happening. So.
Obviously these things are open to.
What's your views on how you see things panning out, but it feels to me that we're still in a pretty good environment for first time, so anyway I hope I answered your question lots of rambling, but you got.
No no that's helpful. I appreciate the color.
<unk>.
Just on that the other thing I would just the other thing I would just like to add just looking at our core to that I mean I.
In a funny way I mean, we have this exceptional quarter, but when I look at our business really wasn't firing on all cylinders.
We had a we had a really good results on the commercial side largely driven by OTC trading that largely is driven in Brazil physical business on the renewable side.
Our retail business.
Is struggling versus a year ago, but sort of improved versus the quarter before.
Our payments business steady upward trajectory. So that's good but our institutional business was really challenged and.
If I look at that we still have only got two of our four sectors segments that we are doing well and the other two were doing so well and yet we still are produced.
Our record results.
I think and maybe we never going to see every cylinder in our business firing all at one time, but we certainly didn't see EBIT exceptional market conditions. We didnt see every one of our business is firing at the same time, what we did see is a very good interest rate environment, obviously so.
I still think there is upside for us if we can get some of these other businesses do we what do we think they can do right.
Okay.
Just on the interest rate side and looking at slide 15.
Balances coming down is that just the lower margin requirements.
Some of the clearinghouses are just.
And then.
As you think about.
Rates keep rising.
Sure.
It was asked just briefly I think in that other question, but we shouldnt.
The sensitivity table here implies about rates going up and down and what that means for EPS, but.
Are you assuming the same kind of pass through or are you assuming changes in pass through as the rate dynamic shifts.
Sure well built and tell you what his assumptions are on that let me answer the first part of your question. So.
In terms of.
The interest rates.
Numbers, there and sort of declines and so on.
Thank you.
The aggregate decline in our client float.
The biggest and most impactful portion of that was the FDIC sweep.
And we have to.
Sort of think about the calculus do we up our payouts to all our clients.
To the level, where we keep the marginal clients or do we sort of keep it where it is and maybe lose some of those large marginal clients who have the flexibility to go buy treasuries in our calculus was unless you're going to push the rates.
Way pretty close to the T Bill rates.
That's what it's going to take to keep that marginal clients. So we are probably better off letting some of those marginal clients trade out of the FDIC sweep. So we lost about 300 million.
Of the FDIC sweep, which is a very lucrative part of our client float the remainder of our FDIC.
Majority of it or a collection of very small individual balances so the propensity or the ability for those clients to move that cash out is probably pretty limited and it's not impactful to each of them individually, but obviously impactful for us in the aggregate.
The other side on the sort of derivatives collateral side.
I think we had.
Those funds went very impactful for us because we had very high payouts to those clients because the funds were in the one hundreds of millions of dollars individually and.
And there was a lot of trading volume so.
We were able to pay back a lot of those funds lets look at our desired return. So those funds have left but on the margin went as impactful on us sort of interest retention. So I think that's really what's happened I mean, obviously if.
Volatility remained subdued and.
Generally exceed collateral levels move down by the exchanges, we will see that impact.
But I think it was more of a two things I mentioned Bill maybe you want to just touch on sort of how do we think about <unk>.
Payouts and variables up and down.
Sure Yes.
Just to Echo Shawn's point, certainly on that commercial side, we saw earlier in the quarter.
Particularly the AG markets, the margin requirements fall off but with volatility coming into harvest.
We did kind of see them start to pick back up later in the quarter of June but.
The big Delta as Sean pointed out of the institutional and the FDIC side.
Assumptions on the sensitivity, yes, they are kind of we adjust those we tweak those on a quarter by quarter basis, Dan, but not not sizable but its pretty much right on there as far as retention right around what we're retaining right now as far as clients.
Paying out to clients and how much we're retaining and we wouldn't anticipate.
At this point that going.
Paying out much more than we are now I think we're pretty close to the high watermark on what we pay to clients and we would actually potentially see.
Maybe that improve a little bit we have some as we've talked in the past we have some interest rate swaps on that we lagged into early in the cycle of this uptick in interest rates that those are going to some of those are going to start to roll off some of those are at lower rates than obviously current market environment and so we would actually anticipate probably probably having a little bit more.
Incremental margin on a go forward basis, but right now theyre kind of they are kind of level set what we're seeing currently.
Okay No that's helpful.
And just on the expenses and the outlook with revenue growth.
As always growth in the variable component, but as you look at the.
Kind of.
Are you guys kind of next year fiscal <unk> or just kind of a broader kind of investment spend is there any trajectory thats different than what we've been seeing as you think about your planning and or projects that might be coming online or otherwise rolling off that maybe theres a little bit of benefit.
Good question, Dan because we are heading into our budget and planning cycle as we.
We speak.
So we've obviously seen a cost ramp up significantly during the Covid is.
Part of that was just this massive increase in volumes, we saw a significant increase in.
Clients footprints market share all of those things and.
And there was a pretty big lifting off spend so if you look backwards at the trajectory. It was it was sort of at the same ratio as our faith and he was going up.
I think we were.
We had some deficit that we had to catch up in <unk>.
In the area of certain of the support areas.
I think we feel we have backfill that now and I think you could take on a fair amount of future growth without any significant investments in certain areas.
And we are pushing hard to to try and get our costs.
I think we spend a lot of money, we've put a lot of infrastructure, we've invested a lot of stuff and if anything I would like to see that trajectory flattens.
And I think there is some scope for us to sort of re prioritize maybe think about.
Reallocating spend.
Rather than just adding so that's sort of the view from management at the moment is we need to push harder at the moment and sort of make sure. We set ourselves up I think we've made all the investments we need to I don't think theres going to be any massive reduction in investments, but I certainly would like to see the trajectory flattened significantly from where it's been over the last two years.
And I guess I would just add there there Dan.
We're subject to the same kind of market events that everyone else's. So we're going to do everything we can but I mean, there is going to be there.
Still that inflationary pressure.
Make some of the third party costs difficult to maintain but just we have to up our game about adherence to.
Who were paying and what we're paying and make sure. It's the right number but.
There is certainly some pressure there.
Yeah.
Okay.
That answer your question Dan.
Sorry, lastly, just on <unk>.
M&A and the environment and kind of.
Valuations, maybe we're coming in maybe not so much now or just curious about the dialogue and or prospects as you think about capital deployment and potential inorganic opportunities today.
I would say, we've seen a little bit more activity and re engaging more with potential opportunities.
I think you've asked this question prior I would say.
18 months ago, we werent looking at much at all so I would definitely say that the cadence has increased.
Our hit rate is extremely low because we like to be very disciplined around this.
Good to see that they are more opportunities when the opportunities are generally speaking at more reasonable prices.
That may not be the prices we like.
Hey, Bob.
So I think it's certainly getting into an environment, where there may be an opportunity down the line yet to find some small bolt on type acquisitions.
On a separate but related matter I think what we are seeing.
Is a lot of talent acquisition, and I would say that.
Al.
I guess I'll.
Planning conversations with with.
Some some really nice people not significant numbers, but I think.
Teams and individuals that will make the difference. So I think that's part of what we do is sort of business as usual, but I think that environment has become more positive for us since we've become better known in the market.
And some of these people off.
Telling us that.
I sort of noticed starting next month.
I'm happy I'm at a big bank liked it there.
I was thinking about joining you guys and I sort of spoke to all of our investors and I've got incredible reviews on how great <unk> and I had no idea. So now we're really going to come with you guys. So it's great. When you hear that and we're starting to hear that a lot from people. So I would just add that in itself as well.
That's helpful. So I think that's it for me thanks for taking all my questions.
Daniel Thank you Doug.
Okay, operator, do we have any other questions lined up.
<unk> no further questions at this time, so I'll go and turn the conference back to <unk> for closing comments.
Okay, well thanks, everyone. Thanks for your attention I wish everyone enjoy the rest of the summer and also just a shout out to the.
Very talented and amazing team at <unk> continues to deliver phenomenal results for all our shareholders. So so well done team great performance.
Thanks, everyone, we'll see you in the fall.
Yes.
Thanks, everyone.
Okay. This concludes today's conference call. Thank you for participating you may now disconnect.
Okay.
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Okay.
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Yes.
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