Q1 2024 StoneX Group Inc Earnings Call
Operator: Transcribed by https://otter.ai Good day, and thank you for standing by. Welcome to the StoneX Group First Quarter Fiscal Year 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode.
Okay.
Jay and thank you for standing by welcome to the Stone ex group first quarter fiscal year 2024 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 you will need to press star one.
Operator: After the speaker's presentation, there will be a question and answer session. To ask a question, you will need to press star 11 on your telephone. You will then hear an automated message advising that your hand is raised.
One on your telephone you will then hear an automated message advising your hand, just raised to withdraw your question. Please press star one again, please be advised for today's conference is being recorded I would now like.
Operator: To withdraw your question, please press star 11 again. 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, CFO. Please go ahead.
I hand, the conference over to your Speaker today Bill Dunaway CFO. Please go ahead.
Bill Dunaway: Good morning. My name is Bill Dunaway. Welcome to our earnings conference call for the first quarter and December 31, 2023. After the market closed yesterday, we issued a press release reporting our results for the first fiscal quarter of 2024. This release is available on our website at www.stonex.com, as well as a slide presentation, which we will refer to on this call in our discussions of our quarterly results. The presentation and an archive of the webcast will also be available on our website after the call's conclusion.
Good morning, My name is Bill Dunaway welcome to our earnings conference call for our first quarter ended December 31 2023.
After the market closed yesterday, we issued a press release reporting our results for the first fiscal quarter of 2024.
This release is available on our website at Www Dot <unk> dot com as well as a slide presentation, which we'll refer to on this call in our discussions of our quarterly results.
<unk> and an archive of the webcast will also be available on our website after the call's conclusion.
Bill Dunaway: 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 well as the Form 10-Q filed with the SEC. This discussion may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 as amended and Section 21E of the Securities Exchange Act of 1934 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 company's forward-looking statements. The company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.
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-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 1934 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.
The company's forward looking statements.
The 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.
Bill Dunaway: Readers are cautioned that any forward-looking statements are not guarantees of future performance. With that, I will now turn the call over to Sean O'Connor, the company's CEO. Thanks, Bill. Good morning, everyone.
With that I will now turn the call over to Sean O'connor the company's CEO.
Thanks, Bill good morning, everyone and thanks for joining our fiscal 2020 full first quarter earnings call.
Sean O'Connor: And thanks for joining us for our fiscal 2024 first quarter earnings. The first quarter of Fiscal 24 was a strong result for us, with earnings up 30% and EPS up 28% when excluding the one-off acquisition gain we realised in the prior period. This represents a 20.5% ROE on tangible book and a 19.3% ROE on stated book. Both measures continue to be well ahead of our long-term 15% target.
The first quarter of fiscal 'twenty four was a strong result for us with earnings up 30% and EPS up 28% when excluding the one off acquisition gain we realized in the prior period.
This represents a 25% ROE on tangible book and a 19, 3%.
Or are we unstated book both.
<unk> continues to be well ahead of our long term 15% target.
We're pleased to see that our business continues to generate superior long term returns for our shareholders. Despite moderating market volatility.
Turning to slide three of the earnings deck, which compares quarterly operating revenues by product versus a year ago.
In aggregate operating revenues were up 20% with all products showing strong gains in revenues, except physical contracts, which was down 14%.
Sean O'Connor: We are pleased to see that our business continues to generate superior long-term returns for our shareholders despite moderating market volatility. Turning to slide three in the earnings deck, which compares quarterly operating revenues by product versus a year ago, In aggregate, operating revenues were up 20% with all products showing strong gains in revenues except physical contracts, which were down 14%. We experienced robust volume growth in listed and OTC derivatives, as well as security. Payments volumes were flat with the prior year, while FX and CFD volumes declined.
We experienced robust volume growth in listed and OTC derivatives as well as security.
Payments volumes were flat with the prior year while.
While FX and Cfd volumes declined on the revenue capture side. It was more of a mixed picture, reflecting a more normalized volatility environment.
Standout was our FX here the rate per million, which was up 73%.
A combination of strong results this quarter.
And a difficult trading environment to a year ago.
Securities related operating revenues were up 35%. Although this number is somewhat distorted due to much higher interest rates on our fixed income business.
Carried interest on a fixed income position is reflected in operating revenues, while the offsetting interest expense to finance these positions is not.
The rate per million numbers have been adjusted to reflect these offsetting expenses.
Security has continued its trend of strong increases in volumes and a decrease in revenue capture as we continued to continue to see strong growth in lower margin products.
Sean O'Connor: On the revenue capture side, it was more of a mixed picture, reflecting a more normalized volatility environment. The standout was our FXCFD rate per million, which was up 73% due to a combination of strong results this quarter and a difficult trading environment a year ago. Securities-related operating revenues were up 35%, although this number is somewhat distorted due to much higher interest rates and unfixed income. Carried interest on our fixed income positions is reflected in operating revenues while the offsetting interest expense to finance these positions is not. The rate per million numbers have been adjusted to reflect these offsetting expenses. Security has continued a trend of strong increases in volumes and a decrease in revenue capture as we continue to see strong growth in lower margin products. However, our aggregate client floats, including both listed derivative client equity and our FDIC sweep balances, declined 26% versus record levels experienced in the prior year.
Aggregate client floats, including both listed derivatives client equity.
And.
If the IC sweep balances declined 26% versus record levels experienced in the prior year.
Despite this interest and fee income on the slide balances increased 14% to 19, $898 4 million due to us capturing high interest rates in the current period.
Turning now to slide four and looking at the same data over the trailing 12 months.
We again see strong double digit growth across most of our products with the exception of listed derivatives, which was essentially unchanged.
FX Cfd revenues, which were down 9% versus the prior yet again.
Again securities related revenues were up significantly, but part of that is due to the carried interest components I just mentioned.
Volumes.
Which were up across the board, except for FX and Cfd is typically the most important indicator for us when it comes to measuring client engagements and market penetration revenue capture is largely a function of market conditions and again, we can see a mixed picture as market volatility retrace generally to lower levels as compared to the prior year.
Sean O'Connor: Despite this, interest and fee income on these client balances increased 14% to $98.4 million due to us capturing higher interest rates in the current period. Turning now to slide four and looking at the same data over the trailing 12. We again saw strong double-digit growth across most of our products, with the exception of listed derivatives, which were essentially unchanged, and FXCFP revenues, which were down 9% versus the prior year. Again, securities-related revenues were up significantly, but part of that is due to the carried interest component I just mentioned, volumes, which were up across the board except for FX and CFDs, which are typically the most important indicator for us when it comes Revenue capture is largely a function of market conditions, and here again, we can see a mixed picture as market volatility retraced generally to lower levels as compared to the prior year, in addition to a change in the product mix to lower-margin products on the security side, which I just mentioned.
In addition to.
Change in the product mix to lower margin products on the security side, which I just mentioned.
Turning to slide five and a summary of our first quarter and our trailing.
Trailing 12 months results.
We recorded operating revenues of 700, $784 2 million up 20% versus the prior year.
Our operating revenues are boosted by interest on our client flows and also the interest that is embedded in fixed income trading that I mentioned earlier.
Net operating revenues, which nets off interest expense as well as introducing broker commissions and clearing costs was up 10% versus a year ago and up 4% versus the immediately prior quarter.
Total compensation and other expenses were up 5% for the quarter.
With variable variable compensation up 3%, which is below the net operating revenue growth rate of 10%.
Okay fixed compensation and related costs increased 20% versus a year ago, but were down 2% compared to the immediately prior quarter.
Okay.
Adjusted net income, which excludes both the gain on acquisition I mentioned earlier as well as amortization expense of intangibles acquired was $70 million for the current period up 27% over last year and up 34% on the immediately preceding Q4.
We realised diluted EPS of $2 13, and an ROE of $19 three unstated book.
And our book has increased 56% over the last two years.
Sean O'Connor: Turning to slide 5 and a summary of our first quarter and our trailing 12-month results, we recorded operating revenues of $784.2 million, up 20% versus the prior year. Our operating revenues are boosted by interest on our client float and also the interest that is embedded in fixed income trading, as I mentioned earlier. Net operating revenues, which nets off interest expense as well as introducing broker commissions and clearing costs, were up 10% versus a year ago and up 4% versus the immediately prior quarter. Total compensation and other expenses were up 5% for the quarter, with variable compensation of 3% which is below the net operating revenue growth rate of 10%. Fixed compensation and related costs increased 20% versus a year ago, but we're down 2% compared to the immediately prior quarter. Adjusted net income, which excludes both the gain on acquisition I mentioned earlier, as well as amortization expense of intangibles acquired, was $70 million for the current period, up 27% over last year and up 34% over the immediately preceding Q4.
On a trailing 12 month basis operating revenues were up 52% versus the prior 12 month period and adjusted net income was $237 7 million up 5% during the prior 12 month period.
We ended the quarter with book value of $47 40.
<unk> $47 eight up 24% from a year ago.
Turning to slide six our segment summary, and just to touch on the highlights before bill gets into more details.
For the quarter segment operating revenues up 20% and segment income was up 25% with good growth across all of our client segments.
Our commercial cloud segment was up 5% in segment income off the back of a 9% increase in operating revenues on a sequential basis operating revenues were down 4% and segment income was down 1%.
Our institutional segment realized a 27% increase in operating revenues, which translated into a 5% increase in segment income.
Sequential basis operating revenues were up 2% and segment income was up 19%.
Retail was really the standout this quarter with operating revenues up 31% driven by much improved revenue capture you. So Elliot.
This growth in operating revenues combined with decline in fixed expenses led to $28 7 million in segment income for the current period versus a $4 2 million segment loss a year ago on a sequential basis operating revenues were relatively unchanged and segment income increased 2%.
In our payments segment operating revenues were up 9% and segment income was up 8% on a sequential basis revenues were up 12% and segment income was up eight.
Sean O'Connor: We realized diluted EPS of $2.13 and an ROE of 19.3 on Spaced Book, and our book has increased 56% over the last two years. On a trading 12-month basis, operating revenues were up 32% versus the prior 12-month period, and adjusted net income was $237.7 million, up 5% during the prior 12-month period. We ended the quarter with a book value of $47.08, up 24% from a year ago. Turning to slide six, our segment summary, and just to touch on the highlights before Bill gets into more detail.
On a trailing 12 month basis, we had good operating revenue gains for our commercial institutional payments segments, while the retail segment operating revenues declined 11%.
A similar result for segment income with commercial segment being the standout up 29% versus the prior year trailing 12 month period.
Turning to slide seven which sets out our trailing 12 month financial performance over the last nine quarters. These numbers have been adjusted for the accounting treatment related to the gain in CVI acquisitions as disclosed in our prior filings and which appear in the reconciliations provided in the appendix of this earnings call.
On the left hand side, the bars represent our trailing 12 months operating revenue over the last nine quarters. As you can see this has been a smooth and strongly upward trend as we have steadily expanded our footprint and capabilities.
Sean O'Connor: For the quarter, segment operating revenues were up 20%, and segment income was up 25%, with good growth across all of our client segments. Our commercial client segment was up 5% in segment income, off the back of a 9% increase in operating revenues. On a sequential basis, operating revenues were down 4%, and segment income was down 1%.
Our operating revenues are up 75% over this period for a 32% compound average growth rate.
Our adjusted pre tax likewise has grown significantly and represents a 34% CAGR.
On the right side, you can see our adjusted net income in the bars, which is up 68% over the last two years for a 29% CAGR.
The dotted line represents our ROE, which has remained well above our 15% target, even though capital has grown by 56% over this period.
Sean O'Connor: Our institutional segment realized a 27% increase in operating revenues, which translated into a 5% increase in segment income. On a sequential basis, operating revenues were up 2%, and segment income was up 19%. Retail was really the standout this quarter with operating revenues up 31% driven by much improved revenue capture, as you saw earlier. This growth in operating revenues combined with declines in fixed expenses led to $28.7 million in segment income for the current period versus a $4.2 million segment loss a year ago. On a sequential basis, operating revenues were relatively unchanged, and segment income increased 2%. In our payment segments, operating revenues were up 9%, and segment income was up 8%.
With that I'll hand, you back to Bill Dunaway for a discussion of the financial results Bill.
Thank you, Sean I'll be starting with slide number eight which summer summarizes our consolidated income statement for the first quarter of fiscal 2024.
Sean covered many of the consolidated highlights for the quarter. So I will just cover a few other points and then move on to our segment discussion.
Transaction based clearing expenses increased 10% to $74 3 million in the first quarter.
Fiscal 2024, as a result of the increase in listed derivative and securities volumes as compared to the prior year.
Introducing broker commissions increased 6% to $39 $1 million in the current period, principally due to increased activity in our commercial segment, both enlisted derivatives as well as a result of the CBI acquisition, which was effective October 31 2022.
Interest expense increased $81 $7 million versus the prior year, primarily as a result of the $75 $8 million increase in interest expense related to our institutional fixed income business as well as a $6 $7 million increase in interest expense related to securities lending activities.
Both of which were due to significant increase in short term interest rates and in addition in the case of the fixed income business increased volumes.
Despite the increase in short term rates interest rate the clients on deposits declined 200000 as compared to the prior year.
Declines in average client.
Sean O'Connor: On a sequential basis, revenues were up 12%, and segment income was up. On a trailing 12 month basis, we had good operating revenue gains for our commercial, institutional, and payment segments, while the retail segment operating revenues declined 11%. A similar result for segment income, with the commercial segment being the standout at 29% versus the prior year trailing 12-month period. Turning to slide 7, which sets out our trailing 12-month financial performance for the last nine quarters. These numbers have been adjusted for the accounting treatment related to the gain and CDI acquisitions as disclosed in our prior filings and which appear in the reconciliation provided in the appendix of this earnings day.
In addition.
<unk> interest expense on corporate funds declined $1 2 million versus the prior year as a result of lower average borrowings partially offset by higher interest rates.
Variable compensation increased $3 4 million versus the prior year and represented 29% of net operating revenues in the current period.
Compared to 31% of the net operating revenues in the prior year period.
This decline in variable compensation as a percentage of net operating revenues as a result of the increase in net interest and fee income earned on client balances as compared to the prior year.
This revenue is generally not included.
And variable compensation payouts as well as the increase in net operating revenues in our retail segment.
As an incrementally lower level of variable compensation associated with that.
Fixed compensation increased $15 7 million versus the prior year due to a 13% increase in head count, resulting from an expansion of our capabilities among our business lines as well as in support areas to facilitate this business growth and a $2 million increase in share based compensation as compared to the prior year.
Fixed compensation declined 2% versus the immediately preceding quarter.
Other fixed expenses declined $2 1 million as compared to the prior year and $5 1 million versus the immediately preceding quarter.
Bill Dunaway: On the left-hand side, the bars represent our trailing 12-month operating revenue over the last nine quarters. As you can see, this has been a smooth and strongly upward trend as we have steadily expanded our footprint and capability. Our operating revenues are up 75% over this period for a 32% compound average growth rate. Our adjusted pre-tax likewise has grown significantly and represents a 34% CAGR. On the right side, you can see our adjusted net income in the bars, which is up 68% over the last few years for a 29% carryover. The dotted line represents our ROE, which has remained well above our 15% target, even though our capital has grown by 56% over this period. With that, I'll now hand you back to Bill Dunaway for a discussion on the financial results. Bill?
That's compared to the prior year, selling and marketing and occupancy and equipment rental each decreased $1 2 million.
In addition, depreciation and amortization declined $1 5 million as compared to the prior year as certain intangible assets acquired have become fully amortized.
These declines were partially offset by a $2 $1 million increase in non trading technology and support.
We had favorable variances in bad debt net of recoveries of $1 million and $6 8 million versus the prior year and EMEA preceding quarters, respectively.
The decline versus the prior year was principally related to recoveries in our institutional segment, while the decline versus the immediately preceding quarter was a reduction in bad debt expense in our physical AG and energy business.
Net income for the first quarter of fiscal 2024 was $69 1 million, which represents a 10% decline versus the prior year.
However, as Sean noted the prior year included a $23 $5 million non taxable gain on the acquisition.
Net income net income increased 36% versus the immediately preceding quarter.
Moving on to slide number nine upfront some more information on our operating segments.
Our commercial segment added $16 million in operating revenues versus the prior year, However declined $9 1 million when compared to the immediately preceding quarter.
Bill Dunaway: Thanks, Sean. I'll be starting with slide number eight, which summarizes our consolidated income statement for the first quarter of fiscal 2020. Shawn covered many of the consolidated highlights for the quarter, so I will just cover a few other points and then move on to a segment discussion. Transaction-based clearing expenses increased 10% to $74.3 million in the first quarter of fiscal 2024 as a result of the increase in listed derivative and securities volumes as compared to the prior year.
The increase over the prior year is principally driven by $11 $1 million increase in interest earned on client balances as a result of the increase in short term interest rates, which was partially offset by a 20% decline in average client equity.
<unk> to the prior year.
The result of a decline in margin requirements driven by lower volatility.
In addition, operating revenue from listed and OTC derivatives increased $5 6 million and $2 million respectively.
As compared to the prior year, driven by higher client higher client contract volumes.
Increases were partially offset by a $3 1 million decline in operating revenues with physical transactions, primarily in our physical AG and energy business.
Fixed compensation and benefits increased $1 $8 million versus the prior year and 400000 versus the immediately preceding quarter.
Bill Dunaway: Introducing broker commissions increased 6% to $39.1 million in the current period, principally due to increased activity in our commercial segment, both in listed derivatives as well as a result of the CDI acquisition, which was effective on October 31st, 2022. Interest expense increased $81.7 million versus the prior year, primarily as a result of the $75.8 million increase in interest expense related to our institutional fixed income business, as well as a $6.7 million increase in interest expense related to securities lending activities, both of which were due to a significant increase in short-term interest rates and, in addition, in the case of the fixed income business, increased volumes. Despite the increase in short-term rates, interest paid to clients on deposit declined $200,000 as compared to the prior year due to declines in average client votes.
Other fixed expenses increased $5 $1 million versus the prior year and $3 3 million versus the immediately preceding quarter.
As compared to the prior year, we had increases in travel and business development professional fees, selling and marketing and depreciation and amortization.
We had a positive variance in bad debts net of recoveries of 600000 as compared to the prior year and $7 9 million as compared to the immediately preceding quarter with both of these variances driven by declines in bad debts, and our physical AG and energy business.
Segment income was $87 2 million for the period, an increase of 5% over the prior year, However, a 1% decline versus the immediately preceding quarter.
For the first time this quarter, we have started to allocate a portion of our corporate expenses to our four operating segments, including costs associated with compliance technology credit and risk human resources and occupancy.
We have provided this allocation in each of our segments for the current period and we'll continue to do so prospectively.
However, we have not calculated some reallocations for previously reported periods.
Bill Dunaway: In addition, interest expense on corporate funding declined $1.2 million versus the prior year as a result of lower average borrowings partially offset by higher interest rates. Variable compensation increased $3.4 million versus the prior year and represented 29% of net operating revenues in the current period, compared to 31% of net operating revenues in the prior year. This decline in variable compensation as a percentage of net operating revenues is a result of the increase in net interest and fee income earned on client balances as compared to the prior year, as this revenue is generally not included in variable compensation payouts, as well as the increase in net operating revenues in our retail segment, which has an incrementally lower level of variable compensation associated with it. Fixed compensation increased $15.7 million versus the prior year due to a 13% increase in head Fixed compensation declined by 2% versus the immediately preceding quarter.
For the current period this allocation of corporate costs for our commercial segment was $8 8 million.
Moving on to slide number 10 operating revenues in our institutional segment increased $92 2 million versus the prior year, primarily driven by an $86 million increase in securities operating revenues compared to the prior year as a result of a 47% increasingly average daily volume of security transactions as well as an increase in interest rate.
Sure.
The increase in Securities Adv was driven by an increase in client volumes in both equity and fixed income market.
As Sean mentioned earlier the increase in interest rates also led to a significant increase in securities related interest expense for the periods, which I will touch on momentarily.
Interest and fee income earned on client balances increased $1 $2 million versus the prior year as a result of the increase in short term interest rates, which was partially offset by 27% and 31% declines in average client equity and average money market and FDIC client suite panel with respectively.
First as the prior year.
Interest and fee income on client balance was down $4 million versus the immediately preceding quarter.
The rise in short term interest rates drove an 81 $8 million increase in interest expense versus the prior year interest expense related to fixed income trading and securities lending activities increased 75, eight and $6 7 million, respectively as compared to the prior year, while interest rate declines decreased $1 4 million.
Due to the due to the.
Line and client balances.
Segment income increased 5% to $65 2 million in the current period as a result of the $5 $4 million increase in net operating revenues of $1 million decline in other fixed expenses, primarily lower professional fees and non trading technology and support as well as a favorable variance in bad debt expense of 300000.
Bill Dunaway: Other fixed expenses declined $2.1 million as compared to the prior year and $5.1 million versus the immediately preceding quarter. Compared to the prior year, selling and marketing and occupancy and equipment rental each decreased $1.2 million. In addition, depreciation and amortization declined $1.5 million as compared to the prior year, as certain intangible assets acquired have become fully amortized.
Versus the prior year quarter.
This was partially offset by a $3 $7 million increase in fixed compensation and benefits.
Segment income increased $10 $2 million versus the immediately preceding quarter for the current period the allocation of corporate costs for our institutional segment was $12 8 million.
Moving on to the next slide operating revenues in our retail segment increased 22 point.
$22 million versus the prior year, driven by a $27 million increase in FX and Cfd revenues as a result of an 84% increase in rate per million as compared to the prior year.
Bill Dunaway: These declines were partially offset by a $2.1 million increase in non-trading technology and support. Additionally, we had favorable variances in bad debt net of recoveries of $1 million and $6.8 million versus the prior year and immediately preceding quarters, respectively. The decline versus the prior year was principally related to recoveries in our institutional segment, while the decline versus the immediately preceding quarter was a reduction in bad debt expense in our physical ag and energy business. Net income for the first quarter of fiscal 2024 was $69.1 million, which represents a 10% decline versus the prior year.
Operating revenues were relatively flat with the immediately preceding quarter.
Segment income was $28 7 million in the current period compared to a segment loss of $4 2 million in the prior year period.
This was a result of a 31% increase in operating revenues.
As well as the $2 $9 million decline in fixed compensation and benefits as well as a $6 $4 million decline in other fixed expenses as compared to the prior year.
The decline in fixed compensation was partially driven by FX hedge gains positions, we established the hedge compensation expense in some of our foreign jurisdictions.
The decline in other fixed expenses is driven by a $2 $3 million decline in selling and marketing as well as a $2 $7 million decline in depreciation and amortization.
Segment income increased 700000 versus the immediately preceding quarter for.
For the current period the allocation of corporate costs for our retail segment was $11 5 million.
Closing out the segment discussion on the next slide operating revenues in our payments segment increased $5 2 million versus the prior year driven by a 10% increase in the rate per million as compared to the prior year.
Segment income increased 8% to $35 million in the current period as a result of the growth in operating revenues, which was partially offset by a $1 $8 million increase in fixed compensation and a $900000 increase in other fixed expenses as compared to the prior year.
Segment income increased $2 7 million or 8% versus the immediately preceding quarter.
For the current period the allocation of corporate costs for our payments segment was $5 1 million.
Moving on to slide number 13, which represents a bridge between operating revenues for the first quarter of last year to the current period across our operating segments overall.
Overall operating revenues were $784 2 million in the current period up $129 four or 20% over the prior year.
This variance is primarily covered in our segment discussion I just walked through so I'll move onto the next slide number 14, which represents a bridge from our 2023 first quarter pre tax income of $95 6 million to.
Pre tax income of $95 $7 million in the current period.
The negative variance in corporate of $19 6 million was primarily driven by a $10 $7 million increase in fixed compensation and benefits as well as the $3 $9 million increase in variable compensation.
The increase in fixed compensation and benefits was primarily driven by a buildup of our compliance and other functional areas to support our continued business growth.
Finally, moving on to slide number 15, which depicts our interest and fee fees earned on client balances by quarter as well as a table, which shows the annualized interest rate sensitivity for a change in short term interest rates.
Interest and fee income net of interest paid to clients in the effective interest rate swaps increased $12 4 million to $62 $1 million in the current period.
As compared to $49 7 million in the prior year.
As noted in the table, we estimated 100 basis point change in short term interest rates either up or down will result in a change to net income by $15 3 million or <unk> 49 per share on an annualized basis.
Bill Dunaway: However, as Sean noted, the prior year included a $23.5 million non-taxable gain on acquisition. Net income increased 36% versus the immediately preceding quarter. Moving on to slide number 9, I'll provide some more information on our operating segments. Our commercial segment added $16 million in operating revenues versus the prior year. However, a decline of $9.1 million when compared to the immediately preceding quarter.
With that I would like to turn it back over to Sean.
Thanks, Bill and let's move to the final slide number 16.
We achieved very strong results in fiscal first quarter 2020 for delivering good growth across all of our segments and nearly all of our products despite moderating market volatility.
We delivered operating revenue of $784 2 million up 20% earnings of $69 1 million and diluted EPS of $2 13.
30% and 28% respectively. When excluding the one off acquisition acquisition gain we realized in the prior period. This represents a 25% ROE on tangible book and 19, 3% on stated book, both well ahead of our long term 15% target.
Bill Dunaway: The increase over the prior year was principally driven by a $11.1 million increase in interest earned on client balances as a result of the increase in short-term interest rates, which was partially offset by a 20% decline in average client equity as compared to the prior year as a result of a decline in margin requirements driven by lower volatility. In addition, operating revenue from listed and OTC derivatives increased $5.6 million and $2 million, respectively, as compared to the prior year, driven by higher client contract volumes. These increases were partially offset by a $3.1 million decline in operating revenues from physical transactions, primarily in our physical ag and energy business. Fixed compensation and benefits increased $1.8 million versus the prior year and $400,000 versus the immediately preceding quarter.
We are pleased to see that our business continues to generate long term superior returns for our shareholders. Despite moderating volatility, which demonstrates the multiple drivers of our results and the diversification of our business.
When 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 a strong upward trajectory growing operating revenues that a 32% CAGR and adjusted earnings at a 29% CAGR.
We continue to see strong growth in client trading volumes across most of our products in all client segments, which speaks to growth in our underlying client base and client engagement.
While we consider ourselves to be a 22 year old startup we have the privilege of being custodians of legacy businesses that we are leaders and innovators in our industry.
Bill Dunaway: Other fixed expenses increased $5.1 million versus the prior year and $3.3 million versus the immediately preceding quarter. As compared to the prior year, we had increases in travel and business development, professional fees, selling and marketing, and depreciation and amortization. We had a positive variance in bad debts, net of recoveries, of $600,000 as compared to the prior year and $7.9 million as compared to the immediately preceding quarter, with both of these variances driven by declines in bad debts in our physical ag and energy business.
We aim to continue and then hubs.
As we begin 2020 full fiscal year, we celebrate 100 year anniversary of our namesake legacy company sold stone and company.
It is remarkable that what started as a door to door AG wholesaler has since grown into a global financial franchise spanning over 80 offices across four continents.
This milestone is a powerful reflection of our unwavering commitment to our clients our disciplined approach to risk management.
Capital allocation and acquisitions and a perpetual focus on sustainable business growth.
Bill Dunaway: Segment income was $87.2 million for the period, an increase of 5% over the prior year, but a 1% decline versus the immediately preceding quarter. For the first time this quarter, we have started to allocate a portion of our corporate expenses to our four operating segments, including costs associated with compliance, technology, credit, and risk, human resources, and occupancy. We have provided this allocation in each of our segments for the current period and will continue to do so prospectively. However, we have not calculated summary allocations for previously reported periods.
Our long standing track record six standard, which we believe is largely unmatched in our industry. We recognize we are still far from realizing the full scope of opportunities and market share available to us I.
I would like to emphasize that the greatest asset of <unk> is our people. We have an extremely talented team that continues to deliver phenomenal value to our shareholders. A bubble, we embody a customer first mentality that permeates our business globally.
Operator, let's open the line for questions.
Thank you at this time, we will conduct a question and answer session. As a reminder to ask a question you will need to press star one one on your telephone and wait for your name to be announced to withdraw your question. Please press star one again.
Bill Dunaway: For the current period, this allocation of corporate costs for our commercial segment was $8.8 million. Moving on to slide number 10, operating revenues in our institutional segment increased $92.2 million versus the prior year, primarily driven by an $80.6 million increase in securities operating revenues compared to the prior year, as a result of a 47% increase in the average daily volume of security transactions, as well as an increase in interest rates. The increase in securities ADV was driven by an increase in client volumes in both equity and fixed income markets. As Sean mentioned earlier, the increase in interest rates also led to a significant increase in securities-related interest expense for the period, which I'll touch on momentarily. Interest and fee income earned on client balances increased $1.2 million versus the prior year, as a result of the increase in short-term interest rates, which was partially offset by 27% and 31% declines in average client equity and average money market and FDIC client suite balances, respectively, versus the prior year. However, interest and fee income on client balances was down $4 million versus the immediately preceding quarter.
One moment for our first question.
Our first question comes from Daniel Fannon with Jefferies. Your line is open.
Thanks, Good morning, John Good morning, Bill you guys are willing and Dan how are you.
Good thanks.
To start with.
We could.
The retail FX business.
The fee per million or RPM was record. So can you just talk about what's happening in that business.
Levels, probably not sustainable, but whats a reasonable outlook for.
Sure.
That number.
Okay.
Well the way we look at it internally is we have a rate per million revenue capture targets that we believe it is.
Somewhat sustainable through the cycles.
It depends obviously on two things it depends firstly on sort of market volatility and it also depends a little bit on the business mix. Obviously foreign exchange is a pretty big part of that business, but we've also tried indices. We tried commodity tyco tried lots of things that obviously.
We have.
Gary.
Decently wide disparity between the rate per million all of those products.
That said I mean, we shoot for something around $85 $90 in terms of rate per million through the cycle.
From memory I don't hold me to this but I think we've been down as low as sort of in the low fifties and we've been as high as sort of.
Bill Dunaway: The rise in short-term interest rates drove an $81.8 million increase in interest expense versus the prior year. Interest expense related to fixed income trading and securities lending activities increased $75.8 and $6.7 million, respectively, as compared to the prior year, while interest paid to clients decreased $1.4 million due to the decline in client balances. Segment income increased 5% to $65.2 million in the current period, as a result of the $5.4 million increase in net operating revenues, a $1 million decline in other fixed expenses, primarily lower professional fees and non-trading technology and support, as well as a favorable variance in bad debt expense of $300,000 versus the prior year quarter. This was partially offset by a $3.7 million increase in fixed compensation and benefits.
$140. So there is quite a wide range.
We knew that when we looked at the game business, what does that almost four years ago now.
There was some inherent volatility and how that business works and the revenue capture that came out of that but.
I think the portfolio within our sort of broader and more doctors to buy business you don't feel that volatility quite as much as gained it went as well as a standalone business.
I'm, Eric volatile look to that although I don't know if you have any data points that I just don't have it in front of me.
Yes, no I mean, obviously, we've been averaging well north of that here in the last three quarters.
And.
Very good performance.
Thank here over that time period, and obviously comparing to what was the low point.
Post the acquisition of gain in the prior year quarter.
We've seen that steadily creep up in.
<unk> been good here in the last three quarters.
I would say to add though that I think we all realize we also trading at the top of the range here.
I don't think that that is sustainable long term I think this business does get the EBIT after over periods I mean, it's great that we've got two or three quarters ago, Robert here, whether it be sort of at the.
Bill Dunaway: Segment income increased $10.2 million versus the immediately preceding quarter. For the current period, the allocation of corporate costs for our institutional segment was $12.8 million. Moving on to the next slide, operating revenues in our retail segment increased $22 million versus the prior year, driven by a $27 million increase in FX and CFE revenues, as a result of an 84% increase in rate per million, as compared to the prior year. However, operating revenues were relatively flat with the immediately preceding quarter. Segment income was $28.7 million in the current period, compared to a segment loss of $4.2 million in the prior year period.
Upper end, but.
It's likely to settle is going to be a revision to the meeting.
Okay.
Understood, Okay and then.
Just following up on <unk>.
The interest income and kind of thinking about the.
Understanding the chart about the sensitivity to rates, but I believe you have swaps that are you know.
Rolling off as well Bill So could you talk about just kind of the dynamics as we think about the rest of this year.
And what.
Some of the positives and negatives associated with your interest income and what that could look like sure.
Sure Yeah. Thanks, Dan.
I would say we did have some swaps that roll off here in December.
And I would anticipate that that will probably give us somewhere in the neighborhood of 40% to 50 basis points in total.
Bill Dunaway: This was a result of a 31% increase in operating revenues, as well as a $2.9 million decline in fixed compensation and benefits, as well as a $6.4 million decline in other fixed expenses, as compared to the prior year. The decline in fixed compensation was partially driven by FX hedge gains on positions we established to hedge compensation expense in some of our foreign jurisdictions. The decline in other fixed expenses was driven by a $2.3 million decline in selling and marketing, as well as a $2.7 million decline in depreciation and amortization.
Kind of increase.
If youre looking at the overall portfolio going forward irrespective of.
What happens to the fed decisions, obviously, it will be we'll change that but kind of those rolling off we should see an uptick there.
Based upon current level of interest rates.
But obviously it remains to be seen what happens with the fed.
Right Okay.
And then just as we think about the security business in fixed income area that you guys have been growing and having success. In is there are you still hiring there should we think about this just.
Bill Dunaway: Segment income increased $700,000 versus the immediately preceding quarter. For the current period, the allocation of corporate costs for our retail segment was $11.5 million. Closing out the segment discussion, on the next slide, operating revenues in our payment segment increased $5.2 million versus the prior year, driven by a 10% increase in the rate per million, as compared to the prior year. Segment income increased 8% to $35 million in the current period, as a result of the growth in operating revenues, which was partially offset by a $1.8 million increase in fixed compensation and a $900,000 increase in other fixed expenses Segment income increased $2.7 million, or 8%, versus the immediately preceding quarter. For the current period, the allocation of corporate costs for our payment segment was $5.1 million.
What's been happening just a continuation of.
What <unk> started in that business, just scaling or when you think about investment is there more people infrastructure all the things that are happening within that business as we think about this year.
I think there's probably two things happening.
In our fixed income business, but in securities generally for US is one we continue to grow into sort of adjacent products and I think fixed income as exemplified that probably over the last two years, we've expanded that product stance and yes. I think we are looking to continue to expand.
Some of those areas.
Also the beachhead at this moment and we want to expand that more fully so we continue to hire people I would say the other thing that's.
Sort of exercising our minds.
Our securities businesses by fixed income and equity.
Largely U S businesses.
Trading products in the U S with U S clients.
And what we're starting to do now is the message that capability globally, and I think that's an enormous opportunity for us I mean, everyone.
Bill Dunaway: Moving on to slide number 13, which represents the bridge between operating revenues for the first quarter of last year and the current period across our operating segments. Overall operating revenues were $784.2 million in the current period, up 129.4, or 20% over the prior year. This variance is primarily covered in the segment discussion I just walked through, so I'll move on to the next slide, number 14, which represents the bridge from our 2023 first quarter pre-tax income of $95.6 million to pre-tax income of $95.7 million in the current period. The negative variance in corporate of $19.6 million was primarily driven by a $10.7 million increase in fixed compensation and benefits, as well as a $3.9 million increase in variable compensation
The world.
The products, we tried I tried treasures that trade mogens mortgages that Shanghai yield that trade U S equities.
And that for us is still pretty new territory. So we.
We started to hire people, we have a team that we brought on about.
About nine months industrial not mistaken in Singapore.
Got off to a great start I mean, it's still a very small business for us, but we starting to see that there is appetite there is opportunity.
We have a small team in London that we starting to grow and same thing on the equity side. So I think it's a combination of growing leveraging our capabilities internationally and continuing to grow into other product adjacencies.
We see opportunities to fill out our product offerings I would say on the fixed income side. The other thing that is.
Notable is we.
We seem to be doing.
I would say significantly better than a lot of our peers are doing at the moment.
Bill Dunaway: The increase in fixed compensation and benefits was primarily driven by a build-up of our compliance, IT, and other functional areas to support our continued business growth. Finally, moving on to slide number 15, which depicts our interest in fees earned on client balances by quarter, as well as a table that shows the annualized interest rate sensitivity to a change in short-term interest rates. Interest in fee income net of interest paid to clients and the effective interest rate swaps increased $12.4 million to $62.1 million in the current period, as compared to $49.7 million in the prior year. As noted in the table, we estimate a 100 basis point change in short-term interest rates, either up or down, would result in a change to net income by $15.3 million, or $0.49 per share on an annualized basis. With that, I would like to turn it back over to Sean. Thanks, Phil. And let's move to the final slide, number 16.
Not really sure why that is.
And we starting to see a lot of inbounds from.
People, who are interested in coming to work for us I mean, I think that view has been you guys have grown more than most people over the last three four years, you guys seem to be doing something right.
And you guys seem to be the team I would like to join so so that's giving us lots of opportunities as well right.
<unk> wants to join you that gives you.
Lots of choices lots of opportunities so.
So I guess, that's how I would think about it.
Okay. That's helpful. And then I guess building upon that a little bit in terms of future growth can you talk about the inorganic backdrop now for M&A and maybe how big of a I know you have a lot of organic growth that you are looking to build an it focus on but how do you think about complementing that with M&A as you think about that.
Kind of one to two years.
Yes, I think this comes up regularly on our earnings calls and.
Just some historical perspective.
We seem to have done a couple of decent sized M&A deals almost every year or so.
With the exception of the Covid period, I mean, certainly we did our largest acquisition gaining rapid startup covered but during COVID-19 pricing just crazy.
Sean O'Connor: We achieved very strong results in fiscal first quarter 2024, delivering good growth across all of our segments and nearly all of our products, despite moderating market volatility. We delivered operating revenue of $784.2 million, up 20%, earnings of $69.1 million, and diluted EPS of $2.13, up 30% and 28%, respectively, when excluding the one-off acquisition gain we realized in the prior period. This represents a 20.5% ROE on tangible book and 19.3% on stated book, both well ahead of our long-term 15% target. We are pleased to see that our business continues to generate superior long-term returns for our shareholders despite moderating volatility, which demonstrates the multiple drivers of our results and the diversification of our business. When our performance is viewed through a slightly longer-term lens, such as the trailing 12 months over the last two years, which evens out quarterly anomalies, our results continue to show a strong upward trajectory, growing our operating revenues at a 32% CAGR and our adjusted earnings at a 29% CAGR.
The peak earnings in peak multiples and that's not hard to be a buyer of the business.
So I think we honestly didnt see anything that interested us I would say the market is starting to normalize a bit now.
We are seeing more opportunities.
Im not sure.
Yes, a very conducive environment for us I mean, we tend to be very disciplined around price.
Or we can add value to the acquisition I mean buying a business at a fair price and not being able to do anything to change that business does absolutely nothing for our shareholders. So we have to make sure we can acquire business at attractive pricing.
We can transform that business in some shape or form.
And we just I think we're looking at more things now and I think there are more things coming through.
But.
And some of them look a little bit interesting, but I think we still a ways away from an environment, where we might see ourselves being something but you never know I mean things could change.
Pretty rapidly I would also make the point that we tend to.
Reports.
Discrete acquisition.
I'd have to do that.
But.
We acquired talent too.
Like what I was talking about with the fixed income business and when we acquire it.
Experienced people or teams of people they tend to bring business with them they tend to bring relationships with them revenue and so on and those are ways that we can grow inorganically in a way right. Because we are bringing in new books of business new capabilities, new product expertise and we're doing a lot of that so.
Certainly as a much lower risk way for us to grow our business, it's oftentimes much more impactful in.
Sean O'Connor: We continue to see strong growth in client trading volumes across most of our products and all client segments, which speaks to growth in our underlying client base and client engagement. While we consider ourselves to be a 22-year-old startup, we have the privilege of being custodians of legacy businesses that were leaders and innovators in our industry, a legacy we aim to continue and enhance. As we begin our 2024 fiscal year, we celebrate the 100-year anniversary of our namesake legacy company, Saul Stoneman.
In the short term it just happens to be.
So the buy side, so much smaller bite sized chunks right. So.
So we are doing that I mean, I think the aggregate the results.
As I sort of talent acquisition has been material over the last 345 years.
And we continue to do that so anyway.
Thats helpful.
Yes, no that is and I guess, just lastly for me you have been operating above your long term target of 15% ROE for some time as.
As the business scales and grows and Diversifies I mean, do we think you are at a level, where we can take that that goal should be something above that given given the business and how it looks today.
Sean O'Connor: It is remarkable that what started as a door-to-door ad wholesaler has since grown into a global financial franchise spanning over 80 offices across all continents. This milestone is a powerful reflection of our unwavering commitment to our clients, our disciplined approach to risk management, capital allocation, and acquisitions, and our perpetual focus on sustainable business. Our long-standing track record sets a standard which we believe is largely unmatched in our industry. Yet, we recognize we are still far from realizing the full scope of opportunities and market share available to us. I would like to emphasize that the greatest asset of StoneX is our people.
I remember about 10 or 15 years ago, probably when we had a couple of years in a row, we move below 15% and I got to ask the exact same question is.
Should you lower your long term target because it doesn't look realistic.
I would say.
You.
To achieve a 15% Roe.
No.
In our marketplace.
<unk> sort of environment, which is quite competitive over a long period of time I think is a compelling and.
Robust targets to try and achieve.
I think we've also said that there could be long stretches of time, where we operate below that target and when we operate above that target because market environments can cause that to happen compared to a time and I don't think its helpful. If we continually change our long term target either bringing.
Operator: We have an extremely talented team that continues to deliver phenomenal value to our shareholders. Above all, we embody a customer-first mentality that permeates our business globally. Operator, let's open the line for questions. Thank you. At this time, we will conduct the question and answer session. As a reminder, to ask a question, you will need to press star 11 on your telephone and wait for your name to be announced.
It down when times are tough or sort of putting it up when we sort of.
In a positive environment, so honestly I prefer not to do that I think we've embedded in our business and throughout our compensation structures and so on this mentality around.
We have to do better than 15% and I think it's a challenging target.
I think our business is operating above trend a little bit at the moment.
Interest rates, obviously are constructive at the moment I would say volatility is not anymore. It was.
Operator: To withdraw your question, please press star 11 again. One moment for our first question. The first question comes from Daniel Fannon with Jeffries.
But to your point there might be at some point.
On a scale benefits.
Pounded with.
Technology.
That may cause us to think about raising that level at some point.
Daniel Thomas Fannon: Your line is open. Thanks. Good morning, Sean. Good morning, Bill. Hope you guys are well. Morning, Dan. How are you?
If we think the sort of entire structure and the cost structure of the business has the tendency to change, but I'm not sure we want to do that anytime soon but it's something we should think about it I think.
Sean O'Connor: Good, thanks. To start, I was hoping we could... The retail FX business, the fee per million there, or RPM, was a record. So can you just talk about what's happening in that business? And the level is probably not sustainable, but what's a reasonable outlook for that number? Well, the way we look at it internally is, you know, we have a rate per million, a revenue capture target that we believe is somewhat sustainable through the cycles. It depends, obviously, on two things. It depends firstly on sort of market volatility, and it also depends a little bit on the business mix. You know, obviously, foreign exchange is a pretty big part of that business, but we also trade indices, we trade commodities, we trade gold, we trade lots of things, and they obviously have, you know, very, there's a decently wide disparity between the rate per million and all of those products.
Okay.
Understood. Thanks for taking all my questions. Okay. Thank you.
Operator are there any other questions.
As a reminder to ask a question you will need to press star one on your telephone and wait for your name to be announced.
I'm showing no further questions at this time I would like to turn the call back to Sean O'connor for closing remarks.
Thank you and thanks, everyone for joining.
Our first quarter conference call, we look forward to speaking to you in the next few months. Thank you.
Thank you for your participation in today's conference. This does conclude the program you may now disconnect.
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Sean O'Connor: That said, I mean, we shoot for something around $85, $90 in terms of rate per million through the cycle, and from memory, I don't hold you to this, but I think we've been, you know, down as low as sort of in the low 50s, and we've been as high as sort of $140. So, you know, there is quite a wide range, and we knew that when we looked at the game business, almost four years ago now, that there was some inherent volatility in how their business worked and the revenue capture that came out of that. But, you know, I think as a portfolio within our sort of broader and more diversified business, you don't feel that volatility quite as much as you did when it was a standalone business, but there is some inherent volatility in that. So, I don't know if you have any data points there; I just don't have it in front of me.
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Bill Dunaway: Yeah, no, I mean, obviously, we've been averaging well north of that here the last three quarters. You know, it's just been, you know, very, you know, good performance. We think here over that time period, and obviously, comparing to what was the low point, post the acquisition again in the prior year quarter, we've seen that steadily creep up and been good here the last three quarters.
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Sean O'Connor: Yeah, I would say, Dan, though, that I think we all realize we are sort of trading at the top of the range here. I don't think that that is sustainable long-term. I think this business does tend to, even after overperiods. I mean, it's great that we've had two or three quarters in a row here where we've been sort of at the upper end, but it's likely to settle. There's going to be a reversion to the mean here, I would anticipate. Understood. Okay.
Okay.
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Bill Dunaway: And then just following up on just the interest income and kind of thinking about understanding the chart and about the sensitivity rates, but I believe you have swaps that are, you know, rolling off as well, Bill. So could you talk about just kind of the dynamics as we think about the rest of this year and what, you know, some of the positives and negatives associated with your interest income and what that could look like? Sure. Yeah, Thanks, Dan.
Okay.
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Bill Dunaway: I would say we did have some swaps that rolled off here in December. And I would anticipate that, you know, that'll probably give us somewhere in the neighborhood of 40 to 50 basis points, in total, kind of increase on if you're looking at the overall portfolio going forward irrespective of what happens to the Fed decisions, obviously, we'll change that, but kind of those rolling off, we should see an uptick there, you know, based upon the current level of interest rates, but obviously, it remains to be seen Right, OK.
Sean O'Connor: And then, just as we think about the securities business and fixed income area that you guys have been growing and having success in, is there, are you still hiring there? Should we think about this as just what's been happening, just a continuation of what you started and that business just scaling? Or when you think about investment, is there more people, infrastructure, other things that are happening within that business as we think about this year? I think there are probably two things happening, in our fixed income business, but in securities generally for us, one; we continue to grow into sort of adjacent products. And I think fixed income has exemplified that probably over the last two years as we've expanded that product set.
Okay.
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Sean O'Connor: And yes, I think we are looking to continue to expand, and some of those areas are sort of beachheads at this moment, and we want to expand them more fully. So, you know, we continue to hire people. I would say the other thing that's sort of exercising our minds is our securities businesses for fixed income and equity are largely U.S., trading products in the U.S. with U.S. clients, and what we're starting to do now is leverage that capability globally, and I think that's an enormous opportunity for us. I mean, you know, everyone across the world trades the products we trade.
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Sean O'Connor: They trade treasuries, they trade mortgages, they trade high yield, they trade U.S. equities, and that, for us, is still pretty new territory. So, you know, we started to hire people. We have a team that we brought in about, I think about nine months ago, if I'm not mistaken, in Singapore. They got off to a great start.
Yes.
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Sean O'Connor: I mean, it's still a very small business for us, but, you know, we're starting to see that there is appetite, there is opportunity. We have a small team in London that we're starting to grow, and same thing on the equity side. So, I think it's a combination of growing, you know, leveraging our capabilities internationally and continuing to grow into sort of product adjacencies as, you know, we see opportunities to fill out our product offerings. I would say on the fixed income side, the other thing that is..., notable is that we seem to be doing, I would say, significantly better than a lot of our peers are doing at the moment. I'm not really sure why that is, but we're starting to see a lot of inbound calls from people who are interested in coming to work for us. I mean, I think their view has been that you guys have grown more than most people over the last three, four years. You guys seem to be doing something right, and you guys seem to be the team I would like to join.
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Sean O'Connor: So that's giving us lots of opportunities as well, right? When talent wants to join you, that gives you, you know, lots of choice and lots of opportunities. So I guess that's how we think about it. Okay, that's helpful.
Sean O'Connor: And then I guess building upon that a little bit in terms of future growth, and can you talk about the inorganic backdrop, you know, now for M&A and maybe, you know, how big of a, I know you have a lot of organic growth that you're looking to build and focus on, but how do you think about complementing that with M&A as you think about the next, you know, kind of one to two years? Yes, I think, you know, this comes up regularly on our earnings calls. And, you know, I think just from a historical perspective, we seem to have done a couple of decent-sized M&A deals almost every year or so, with the exception of the COVID period.
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Sean O'Connor: I mean, certainly, we did our largest acquisition right at the start of COVID. But during COVID, you know, pricing just became crazy, you know, just sort of peak earnings and peak multiples. And, you know, that's not a good time to be a buyer of the business. So, we honestly didn't see anything that interested us.
Sean O'Connor: I would say the market is starting to normalize a bit now. We are seeing more opportunities, but I'm not sure it's yet a very conducive environment for us. I mean, we tend to be very disciplined around price and how we can add value to the acquisition. I mean, buying a business at a fair price and not being able to do anything to change that business does absolutely nothing for our shareholders.
Sean O'Connor: So we have to make sure we can acquire a business for an attractive price and that we can transform that business in some shape or form. And we just, you know, I think we're looking at more things now, and I think there are more things coming through. But, you know, and some of them look a little bit interesting. But I think we are still a ways away from the environment where we might see ourselves doing something. But, you know; you never know.
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Sean O'Connor: I mean, things could change pretty rapidly. I would also make the point that, you know, we tend to report discrete acquisitions on www.stonex.com. But you know, we acquire talent too, just like what I was talking about with the fixed income business. And when we acquire, you know, experienced people or teams of people, they tend to bring business with them, they tend to bring relationships with them, revenue, and so on. And those are ways that we can grow sort of inorganically in a way, right?
Sean O'Connor: Because we're bringing in new books of business, new capabilities, new product expertise, and we're doing a lot of that. So, you know, that certainly is a much lower-risk way for us to grow our business. It's oftentimes much more impactful in the short term. It just happens to be for bite-sized or much smaller bite-sized chunks, right?
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Sean O'Connor: So we are doing that, and I think the aggregate result of Talib Acquisition has been material over the last, you know, three, four, five years, and we continue to do that. Hopefully that's helpful. Yeah, no, no, that is. And I guess, just lastly, for me, you have been operating above your long-term target of 15% ROE for some time now, you know, as the business scales and grows and diversifies. I mean, do we think you're at a level where we can take that, that goal should be something above that, given, given the business and how it looks today? I remember about 10 or 15 years ago when we had a couple of years in a row when we were below 15%, and I got asked the exact same question: you know, should you lower your long-term target? Because it doesn't look realistic.
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Sean O'Connor: You know, I would say... to achieve a 15% ROE in our marketplace and in our sort of environment, which is quite competitive, over a long period of time, I think is a compelling and robust target to try and achieve. I think we've also said that there could be long stretches of time where we operate below that target and times when we operate above that target because, you know, market environments can cause that to happen for periods of time. And I don't think it's helpful if we continually change our long-term targets, either, you know, bringing them down when times are tough or sort of putting them up when we are in a positive environment. So, honestly, I would prefer not to do that. I think, you know, we've embedded in our business and throughout our compensation structures and so on this mentality around, you know, we have to do better than 15%. And I think it's a challenging target.
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Sean O'Connor: I think our business is operating above trend a little bit at the moment. You know, interest rates are obviously constructive at the moment. I would say volatility is not anymore; it was. But to your point, there might be, at some point, sort of scale benefits compounded with. Technology may cause us to think about raising that level at some point if we think the sort of entire structure and the cost structure of the business have literally changed.
Sean O'Connor: But I'm not sure we want to do that anytime soon, but it's something we should think about. Understood. Thanks for taking all my questions. Okay, thank you, Dan. Operators, are there any other questions?
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Operator: As a reminder, to ask a question, you will need to press star 11 on your telephone and wait for your name to be announced. I'm showing no further questions at this time. I would like to turn the call back to Sean O'Connor for closing remarks. Thank you and thanks everyone for joining our first quarter conference call. We look forward to speaking to you in the next three months. Thank you. Thank you for your participation in today's conference. This does conclude the program. You may now, www.stonex.com www.mooji.org www.stonex.com www.mooji.org [inaudible] StoneX Group StoneX Group, www.stonex.com www.mooji.org www.mooji.org Copyright 2020 Mooji Media Ltd. All Rights Reserved. No part of this recording may be reproduced without Mooji Media Ltd.'s express consent.
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