Q2 2024 StoneX Group Inc Earnings Call

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Operator: Good morning, ladies and gentlemen, and welcome to the StoneX Group Inc. Q2 FY24 earnings call. As a reminder, this call is being recorded. At this time, all participants are in listen-only mode. Later, we will conduct a question and answer session. If you want to ask a question during this time, press star followed by the number 1 on your telephone keypad. If you would like to withdraw your question, press star 1 again. Thank you. I would now like to turn the call over to Bill Dunaway, Chief Financial Officer. You may begin.

Good day, ladies and gentlemen, and welcome to the show next Group, Inc. Q2, FY 'twenty for earnings calls.

Operator: During this call is being recorded.

Operator: At this time, all participants are in listen only mode.

Operator: Later, we will conduct a question and answer session. If you want to ask a question. During this time crash Sars followed by the number one on your telephone keypad. If you would like to withdraw your question Press Star. One again. Thank you I would now like to turn the call over to Bill Dunaway, Chief Financial Officer, you may begin.

William John Dunaway: Good morning. My name is Bill Dunaway.

William John Dunaway: Good morning, My name is Bill Dunaway.

William John Dunaway: Earnings Conference call for our second quarter ended March 31 2024.

William John Dunaway: Welcome to our earnings conference call for our second quarter ended March 31st, 2024. After the market closed yesterday, we issued a press release reporting our results for our second 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 and year-to-date results. The presentation and an archive of the webcast will also be available on our website after the call's conclusion.

William John Dunaway: After the market closed yesterday, we issued a press release reporting our results for our second fiscal quarter of 2024.

William John Dunaway: This release is available on our website at www Dot dot dot com as well as a slide presentation, which we will refer to on this call in our discussions of our quarterly and year to date results.

William John Dunaway: The presentation and an archive of the webcast will also be available on our website after the call's conclusion.

William John 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 include known and unknown risks and uncertainties, which are detailed in our filings with the SEC.

William John 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.

William John Dunaway: As well as the Form 10-Q filed with the SEC.

William John Dunaway: This discussion may contain forward looking statements within the meaning of section 27, a of the Securities Act of $19 33.

William John Dunaway: And section 20 <unk> of the Securities Exchange Act of 1934 is a method.

William John Dunaway: These forward looking statements include known and unknown risks and uncertainties, which are detailed in our filings with the SEC.

William John Dunaway: 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. Readers are cautioned that any forward-looking statements are not guarantees of future performance. With that, I'll now turn the call over to Sean O'Connor, the company's CEO.

William John Dunaway: Although the company believes that its forward looking statements are based upon reasonable assumptions regarding its business and future market conditions there.

Sean O'Connor: 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.

Sean O'Connor: 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.

Sean O'Connor: Readers are cautioned that any forward looking statements are not guarantees of future performance.

William John Dunaway: I'll now turn the call over to Sean O'connor, the company's CEO.

Sean O'Connor: Thanks, Will. Good morning, everyone, and thanks for joining our fiscal 2024 second quarter earnings call. The second quarter of fiscal 2024 was a solid result for us with earnings up 27% and EPS up 25% versus the prior year period. The current quarter includes a $9.1 million, or approximately $0.20 per share, unrealized loss on a derivative position used to hedge our gold inventory. We don't elect hedge accounting on these inventories, so these losses will be reversed when this inventory is sold.

Sean O'Connor: Thanks, Bill good morning, everyone and thanks for joining our fiscal 2024 second quarter earnings call.

Sean O'Connor: The second quarter of fiscal 2024 was a solid result for us with earnings up 27% and EPS up 25% versus the prior year period.

Sean O'Connor: The current quarter includes a $9 1 million or approximately <unk> <unk> per share unrealized loss on derivative position us to hedge our gold inventory.

Sean O'Connor: We don't collect hedge accounting on these inventory these losses will be reversed when this inventory is sold.

Sean O'Connor: For the six months to date, we recorded earnings of $122.2 million, or $3.76 per share. Excluding acquisition gains in the prior period relating to CDI, this represents an increase of 29% for the year-to-date period. Turning to slide three and a summary of our second quarter and trailing 12-month results.

Sean O'Connor: For the six months to date, we recorded earnings of $122 2 million or $3 76 per share excluding acquisition gains in the prior period relating to CDI. This represents an increase of 29% for the year to date period.

Sean O'Connor: Turning to slide three and a summary of our second quarter and trailing 12 months results.

Sean O'Connor: We recorded operating revenues of $818.2 million, up 16% versus the prior year. Our operating revenues include not only interest earned on our client floats but also carried interest that is related to our fixed income trading activity. Net operating revenues, which nets off interest expense as well as introducing broker commissions and curing costs, were up 6% versus the EURICO number and relatively flat versus the immediately prior quarter. Total compensation and other expenses were up 4% for the quarter, with variable compensation up 2%, which was below the net operating revenue growth rate of 6%.

Sean O'Connor: We recorded operating revenues of $819 2 million up 16% versus the prior year.

Sean O'Connor: Operating revenues include not only interest earned on our client flows but also carried interest that is related to our fixed income trading activities.

Sean O'Connor: Net operating revenues, which net of interest expense as well as introducing broker commissions and carrying costs were up 6% versus the year ago number and relatively fast flat versus the immediately prior quarter.

Sean O'Connor: Total compensation and other expenses were up 4% for the quarter with variable compensation up 2%, which was below the net operating revenue growth rate of 6%.

Sean O'Connor: Fixed compensation and related costs were flat versus a year ago and were up 15% compared to the immediately prior quarter. The prior year amount included a severance amount of $12.1 million versus $1.1 million in the current quarter.

Sean O'Connor: Fixed compensation and related costs were flat versus a year ago and were up 15% compared to the immediately prior quarter.

Sean O'Connor: The prior year amount included a severance amounts in the amount of $12 1 million versus $1 $1 million in the current quarter.

Sean O'Connor: Net income was $53.1 million for the current period, up 27% over the prior year quarter, but 23% down on the immediately preceding quarter. This represents a 14.8% ROE on tangible and a 14% ROE on stated book value, which, as a reminder, has increased 53% over the last two years, with both measures close to our long-term target of 15%. We recorded diluted EPS of $1.63, up 25% over the prior year. Looking now on a 12-month trading basis, our operating revenues were up 28% versus the prior 12-month period, and adjusted net income was $247.9 million, up 21%. EPS came in at $7.50, up 8%. We ended our second quarter in 2024 with a book value per share of $48.74, up 21% versus Eurocom.

Sean O'Connor: Net income was $53 1 million for the current period up 27% over the prior year quarter, but 23% down on the immediately preceding quarter. This represents a 14, 8% ROE on tangible and a 14% ROE on stated book value, which has a reminder have increased 53 <unk>.

Sean O'Connor: Over the last two years with both measures Costar long term target of 15%.

Sean O'Connor: We recorded diluted EPS of $1 63 up 25% over the prior year.

Sean O'Connor: Looking now on a 12 month trailing basis operating revenues were up 28% versus the prior 12 month period and adjusted net income was $247 9 million up 21%.

Sean O'Connor: EPS came in at $7 50 up 8%.

Sean O'Connor: We ended our second quarter in 2020 full with book value per share of <unk> 48.

Sean O'Connor: <unk> dollars 74.

Sean O'Connor: Up 21% versus a year ago.

Sean O'Connor: Turning to slide 4 in the earnings deck, which compares quarterly operating revenues by product versus a year ago, our operating revenues were up 16%, with securities and FXCFDs showing strong gains, up 37% and 30%, respectively, partially offset by physical contracts, which were down 15%, primarily due to the gold inventory item I mentioned earlier. OTC operating revenues were down 8% while listed derivatives and payments were relatively flat. However, we experienced robust volume growth in listed derivatives, up 29%, and securities, up 30%. However, OTC derivatives and payment volumes are down 6% and 2% versus the prior year, respectively.

Sean O'Connor: Turning to slide four the earnings deck, which compares to <unk> 40, operating revenues by product versus a year ago in.

Sean O'Connor: In aggregate operating revenues were up 16% with securities and FX Cfd is showing strong gains up 37% and 30%, respectively, partially offset by physical contracts, which were down 15% primarily due to the gold inventory item I mentioned earlier.

Sean O'Connor: OTC operating revenues were down 8%, while listed derivatives and payments were relatively flat.

Sean O'Connor: We experienced robust volume growth and listed derivatives up 29% and securities up 30%. However, OTC derivatives in payment volumes are down, 6% and 2% versus the prior year respectively.

Sean O'Connor: While FX and CFD volumes declined 23%, we experienced a significant increase in our revenue capture and rate per million, which was up 67%, primarily due to increased client activity in gold, oil, and index products, as opposed to the relatively higher volume but lower spread FX contracts. Outside of that, with the exception of payments rate per million, which grew modestly, we generally saw lower revenue capture versus the prior year, with OTC rate per contract declining due to lower agricultural commodity volatility and lower rate per contract enlisted derivatives, which was primarily due to an increase in volumes from the institutional side of our business relative to the higher rate per million commercial side of our business.

Sean O'Connor: While FX and CSD volumes declined 23%, we experienced a significant increase in.

Sean O'Connor: Revenue capture rate per million, which is up 67% primarily due to increased client activity in gold foil and index products as opposed to the relatively higher volume, but lower spread FX contracts.

Sean O'Connor: Outside of that with the exception of payments rate per million, which grew modestly we generally saw lower revenue capture versus the prior year with OTC rate per contract declining due to the lower agricultural commodity volatility and lower rate per contract and listed derivatives, which was primarily due to an increase in volumes from the <unk>.

Sean O'Connor: Institutional side of our business relative to the higher rate per million commercial side of our business.

Sean O'Connor: Securities-related operating revenue was up 37%, although this number is somewhat distorted due to a much higher interest income in our fixed income business. Carried interest in fixed income is reflected in operating revenues while the offsetting interest expense to finance these positions is not.

Sean O'Connor: Securities related operating revenue was up 37%. Although this number is somewhat distorted due to a much higher interest income in our fixed income business carried interest in fixed income is reflected in operating revenues, while the offsetting interest expense to finance. These physicians is not.

Sean O'Connor: The rate per million numbers have been adjusted to reflect this offsetting expense. Security continues its trend of strong increases in volumes and a decrease in revenue capture as we continue to see strong growth in lower margin products. Our aggregate client float, which includes both listed derivative client equity and our money market FDIT sweep balances, declined 17% versus relatively high levels experienced in the prior year.

Sean O'Connor: The rate per million numbers have been adjusted to reflect this offsetting expense securities continues its trend of strong increase in volumes and the decrease in revenue capture as we consider continue to see strong growth in lower margin products.

Sean O'Connor: Our aggregate volume floods, which includes both listed derivatives declined equity and our money market FDIC sweep balances declined 17% versus relatively high levels experienced in the prior year. Despite this interest and fee income on these balances increased by 1% to $104 2 million due to us capturing higher.

Sean O'Connor: Despite this, interest and fee income on these balances increased by 1% to $104.2 million due to us capturing higher interest rates in the current period. Turning now to slide 5, 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 up 2%, and physical contracts, which were up 1% versus the prior year. Again, securities-related revenues were up significantly, but part of that is also due to the carried interest component I just mentioned.

Sean O'Connor: Interest rates in the current period.

Sean O'Connor: Turning now to slide five 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 up 2% in physical contracts up 1% versus the prior year again securities related revenues were up significantly but part of that is also due to.

Sean O'Connor: The carried interest component I just mentioned.

Sean O'Connor: Volumes, which were up across the board, except for FX GFDs which were down 17% and payments, which were down 1%, are typically an important indicator for us on a long-term basis when it comes to measuring client engagements and market penetration. However, we are still somewhat subject to overall market activity.

Sean O'Connor: Volumes, which were up across the board, except for <unk>, which were down 17% and payments down 1%, while typically an important indicator for us on a long term basis. When it comes to measuring client engagements and market penetration. However, we are still somewhat subject to overall market activity.

Sean O'Connor: Revenue capture is largely a function of market conditions, and again, we can see a mixed picture as market volatility generally retraced to lower levels as compared to the prior year, with the obvious exception of FX and CFDs, which experienced a significant increase in rate per million revenue capture, up 33% versus the prior year. In addition, we continue to see the effects of the change in product mix and the securities rate per million with increased volumes in lower-margin products. Turning now to slide 6, our segment summary, just to touch on a few brief highlights before Bill gets into more detail.

Sean O'Connor: Revenue capture is largely a function of the market conditions and again, we can see a mixed picture as market volatility generally retrace to lower levels as compared to the prior year with the obvious exception of FX, and Cfd, which experienced a significant increase in rate per million revenue capture up 33% versus the prior year.

Sean O'Connor: In addition, we continue to see the effects of the change in product mix and the securities rate per million with increased volumes and lower margin products.

Sean O'Connor: Turning now to slide six and our segment summary, just to touch on a few brief highlights of the full bill gets into more detail for the quarter segment operating revenues were up 15% and segment income was up 14% versus the prior year.

Sean O'Connor: For the quarter, segment operating revenues were up 15%, and segment income was up 14% versus the prior year. However, our commercial segment was down 17% in segment income, on the back of a 9% decrease in operating revenue. On a sequential basis, operating revenues were up 1%, and segment income was down 2%. However, our institutional segment realized a 28% increase in operating revenues, which translated into a 10% increase in segment income. On a sequential basis, operating revenues were up 6%, and segment income was down 7%.

Sean O'Connor: Our commercial segment was down 17% and segment income off the back of a 9% decrease in operating revenues on a sequential basis operating revenues were up 1% and segment income was down 2%.

Sean O'Connor: Institutional segment realized a 28% increase in operating revenues, which translated into a 10% increase in segment income on a sequential basis operating revenues were up 6% and segment income was down 6%.

Sean O'Connor: Retail was the standout this quarter with operating revenues up 30% driven by the much improved revenue capture I mentioned earlier. This growth in operating revenues, combined with declines in fixed expenses, led to a $28.4 million increase in segment income to $33.2 million in the current period versus $4.8 million a year ago. On a sequential basis, revenues were up 10%, and segment income increased 16%. In our payments business, operating revenues were down 1%, while segment income was up 55%, principally due to the prior year including a severance charge of $10 million. Operating revenues were down 19% and segment income was down 30% versus the record immediately prior quarter.

Sean O'Connor: Retail was a standout this quarter with operating revenues up 30% driven by the much improved revenue capture I mentioned earlier.

Sean O'Connor: This growth in operating revenues combined with declines in fixed income and expense are fixed expenses led to $28 $4 million increase in segment income to $33 2 million in the current period versus $4 8 million a year ago on a sequential basis revenues were up 10% and segment income increased.

Sean O'Connor: 16%.

Sean O'Connor: In our payments business operating revenues was down 1% while segment income was up 55% principally due to the prior year, including a severance charge of $10 million.

Sean O'Connor: Operating revenues were down 19% to segment income down 30% versus the record immediately prior quarter.

Sean O'Connor: On a trading 12-month basis, we had double-digit operating revenue gains for our commercial, institutional, and payment segments, while our retail segment operating revenues increased 5%. We saw growth in segment income across all of our segments versus the prior year trailing 12-month period, led by the retail segment, which was up 127%, followed by payments with a 24% growth. Turning now to slide 7, which sets out at the top of the page our trailing 12-month financial performance over 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 statement.

Sean O'Connor: On a trailing 12 month basis, we had double digit operating revenue gains for our commercial institutional and payments segment, while our retail segment operating revenues increased 5%.

Sean O'Connor: We saw growth in segment income across all of our segments versus the prior year trailing 12 months period led by the retail segment, which was up 127% followed by payments with a 24% growth.

Sean O'Connor: Turning now to slide seven which sets up at the top of the page our trailing 12 month financial performance over the last nine quarters.

Sean O'Connor: These numbers have been adjusted for the accounting treatment related to the gain in CDI acquisitions as disclosed in our prior filings and which appeared in the reconciliations provided in the appendix of this earnings deck.

William John Dunaway: On the left-hand side, the bars represent our trailing 12-month operating revenues 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. Operating revenues are up 74% over this period for a 32% CAGR. Our adjusted pre-tax income, likewise, has grown significantly, also at a 32% CAGR. On the right-hand side, you can see our adjusted net income in the bars, which is up 63% over the two years for a 28% CAGR.

Sean O'Connor: On the left hand side, the Basel represent our trailing 12 months operating revenues over the last nine quarters.

William John Dunaway: As you can see this has been a smooth that strongly upward trend as we have steadily expanded our footprint and capabilities operating revenues up 74% over this period for a 32% CAGR.

William John Dunaway: Our adjusted pre tax income Likewise described significantly also had a 32% CAGR.

William John Dunaway: On the right hand side, you can see our adjusted net income in the boss, which is up 63% over the <unk> for a 28% CAGR.

William John Dunaway: The dotted line represents our adjusted ROE, which has remained solidly above our 15% target even though our capital has grown by 53% over this period. On the bottom half of the slide, we set out our long-term performance, both measured in stockholders' return on the bottom left graph, where we have significantly outperformed both indices shown, as well as our financial performance on the bottom right-hand graph, which shows that we have grown our stockholders' equity, operating revenue, and market capitalization at nearly a 30% CAGR for the last 21 years.

William John Dunaway: The dotted line represents our adjusted ROE, which has remained solidly above our 15% target, even though our capital that's grown by 53% over this period.

William John Dunaway: On the bottom of the slide we set out our long term performance, both measured and stockholders return on the bottom left graph and which we have significantly outperformed by seemed to see China as well as our financial performance on the bottom right hand graph, which shows that we have got enough stock holders equity operating revenue and market capital.

William John Dunaway: <unk> at nearly 30% CAGR for the last 21 years with that I will hand over to Bill Dunaway for a more detailed discussion of the financial results Bill. Thank.

William John Dunaway: Thank you, Sean. I'll be starting with slide 8, which summarizes our consolidated income statement for the second quarter of Fiscal 24. Sean covered many of the highlights relating to operating revenues for the quarter, so I will just cover the consolidated expense fluctuations and then move on to a segment discussion. Transaction-based clearing expenses increased 13% to $78.5 million in the current period as a result of the increases in listed derivative and security volumes as compared to the prior year. Introducing broker commissions were relatively flat in the prior year at $42 million in the current period.

Speaker Change: Thank you, Sean I'll be starting with slide number eight which summarizes our consolidated income statement for the second quarter of fiscal 'twenty four.

William John Dunaway: Sean covered many of the consolidated highlights relating to operating revenues for the quarter. So I will just cover the consolidated expense fluctuations and then move onto our segment discussion.

William John Dunaway: Transaction based clearing expenses increased 13% to $78 5 million in the current period as a result of the increases enlisted derivative and security volumes as compared to the prior year introducing broker commissions were relatively flat with prior year at $42 million in the current period.

William John Dunaway: Interest expense increased $80.5 million versus the prior year, primarily as a result of the $78.6 million increase in interest expense related to our institutional fixed income business, as well as the $5.7 million increase in interest expense related to securities lending activity. Both of these were due to increases in short-term interest rates and, in addition, in the case of the fixed income business, increased volume. Interest paid on client balances on deposit declined $5.8 million as compared to the prior year due to declines in average client flow.

William John Dunaway: Interest expense increased $85 million versus the prior year, primarily as a result of the $78 $6 million increase in interest expense related to our institutional fixed income business as well as a $5 $7 million increase in interest expense related to securities lending activities. Both of these were due to increases in short term.

William John Dunaway: Interest rates and in addition in the case of the fixed income business increased volumes.

William John Dunaway: Interest paid on client balances on deposits declined $5 8 million as compared to the prior year due to declines in average client flows.

William John Dunaway: Interest expense on corporate funding increased $1.3 million versus the prior year. As a result, the incremental issuance of our senior secured borrowings was partially offset by lower average borrowings on our revolving credit facility. I will expand on this topic later on this call when I cover the new notice.

William John Dunaway: Interest expense on corporate funding increased $1 $3 million versus the prior year as a result of the incremental issuance of our senior secured borrowings partially offset by lower average borrowings on our revolving credit facility.

William John Dunaway: I will expand on this topic later on this call that cover the new note issuance.

William John Dunaway: Variable compensation increased $1.9 million versus the prior year and represented 29% of net operating revenues in the current period compared to 30% 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 typically not included in variable compensation payouts, as well as the increase in net operating revenues in our retail segment, which has incrementally lower levels of variable compensation associated with it. Fixed compensation was flat versus the prior year.

William John Dunaway: Variable compensation increased $1 $9 million versus the prior year and represented 29% of net operating revenues in the current period compared to 30% and the net operating revenues in the prior year.

William John Dunaway: 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 as revenue is typically not included in variable compensation payout as well as the increase in net operating revenues in our retail segment, which is incrementally lower levels of variable compensation.

William John Dunaway: And associated with it.

William John Dunaway: Fixed compensation was flat versus the prior year. However, the current period current period includes $1 1 million in severance cost versus $12 1 million in the prior year.

William John Dunaway: However, the current period includes $1.1 million in severance costs versus $12.1 million in the prior year. Offsetting this decline in severance costs was an $8.1 million, or 12%, increase in non-variable salaries due to a 13% increase in headcount, resulting from an expansion of our capabilities among our business lines, as well as in support areas to facilitate this business growth. Fixed compensation increased 15% versus the immediately preceding quarter. Within this increase in fixed compensation, non-variable salaries increased a relatively modest $2.6 million, primarily related to annual merit increases.

William John Dunaway: Offsetting this decline in severance cost was $8 1 million or 12% increase in non variable salaries due.

William John Dunaway: 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.

William John Dunaway: Fixed compensation increased 15% versus the immediately preceding quarter within this increase in fixed compensation non variable salaries increased a relatively modest $2 6 million primarily related to annual merit increases.

William John Dunaway: In addition, we saw seasonally driven increases in payroll taxes, retirement, and paid time off accrual expenses of $6.1 million. In addition, share-based compensation expense increased $1.8 million, and a reduction of deferred compensation increased overall non-variable compensation by $3.1 million as compared to the immediately preceding first fiscal quarter of 2024. Other fixed expenses increased $16.5 million as compared to the prior year, including an $8 million increase in professional fees, primarily due to an increase in legal fees, as well as a $3 million increase in occupancy and equipment rental, principally driven by the acquisition of additional space in London and India, as well as a $1.3 million accelerated charge related to the consolidation of our offices.

William John Dunaway: In addition, we saw seasonally driven increases in payroll taxes retirement and paid time off accrual expenses of $6 1 million. In addition share based compensation expense increased $1 8 million and a reduction in deferred compensation increased overall non variable compensation by $3 1 million as compared.

William John Dunaway: The immediately preceding first fiscal quarter of 2024.

William John Dunaway: Other fixed expenses increased $16 5 million as compared to the prior year, including an $8 million increase in professional fees, primarily due to an increase in legal fees as well as a $3 million increased occupancy and equipment rental principally driven by the <unk> acquisition of additional space in London in India as.

William John Dunaway: As well as a $1 3 million accelerated charge related to the consolidation of our offices in London.

William John Dunaway: In addition, selling and marketing and travel and business development combined were up $2.7 million as compared to the prior year, primarily driven by approximately $4 million in expenses related to our biannual global sales summit, which was also partially offset by lower direct marketing costs in our retail sector. Compared to the immediately preceding quarter, other fixed expenses increased $14.8 million, principally driven by a $5.9 million increase in occupancy and equipment rental due to the additional space acquired and accelerated charges I just mentioned, as well as the fact that the immediately preceding quarter included a one-time $3.3 million property tax refund.

William John Dunaway: In addition, selling and marketing and travel and business development combined were up $2 7 million as compared to the prior year, primarily driven by approximately $4 million <unk>.

William John Dunaway: And expenses related to our biannual global sales summit, which was also partially offset by lower direct marketing costs in our retail segment.

William John Dunaway: Compared to the immediately preceding quarter other fixed expenses increased $14 8 million, principally driven by a $5 $9 million increase in occupancy and equipment rental due to the additional space acquired accelerated charges I just mentioned as well as the fact, the immediately preceding quarter included a one time $3 $3 million property tax refund.

William John Dunaway: Finally, to close the discussion of expenses, we had favorable variances in bad debts, net of recoveries of $3.4 million and $100,000 versus the prior year and immediately preceding quarters, respectively. The other gain of $6.9 million in the current quarter is a class action settlement received in the Commodity Exchange Gold Futures and Options Trading Matters.

William John Dunaway: Finally, close out the discussion of expenses, we had favorable variances in bad debt net of recoveries of $3 4 million and $100 versus the prior year and immediately preceding quarters, respectively.

William John Dunaway: The other gain of $6 9 million in the current quarter as a class action settlement received in the commodity exchange gold futures and options trading matter.

William John Dunaway: Net income for the quarter of fiscal 2024 was $53.1 million, which represents a 27% increase versus the prior year. However, net income declined 23% versus a very strong result in the immediately preceding quarter. Moving on to slide number 9, I'll provide some information on our operating segment.

William John Dunaway: Net income for the quarter of fiscal 2024 was $53 1 million, which represents a 27% increase versus the prior year.

William John Dunaway: Net income declined 23% versus the very strong results in the immediately preceding quarter.

William John Dunaway: Moving on to slide number nine I'll provide some information on our operating segments.

William John Dunaway: Operating revenues in our commercial segment declined $19.6 million versus the prior year, but they increased $2.1 million versus the immediately preceding quarter. The decline versus the prior year was principally driven by an $8 million decline in operating revenues from physical contracts due to an $8.5 million impairment charge and derivative positions used to hedge our gold inventory, as Sean mentioned earlier. The remainder of this unrelated loss relates to our retail sector. In addition, operating revenues from listed and OTC derivatives declined $1.9 million and $4.9 million, respectively, as compared to the prior year.

William John Dunaway: Operating revenues in our commercial segment declined $19 6 million in operating revenues versus the prior year, However, increased $2 1 million versus the immediately preceding quarter.

William John Dunaway: The decline versus the prior year was principally driven by an $8 million decline in operating revenues from physical contracts.

William John Dunaway: Due to an $8 5 million.

William John Dunaway: Realized loss on derivative positions used to hedge our Goldman inventory as Sean mentioned earlier.

William John Dunaway: The remainder of this unrealized loss relates to our retail segment.

William John Dunaway: In addition, operating revenues some listed and OTC derivatives declined $1 9 million and $4 9 million, respectively as compared to the prior year.

William John Dunaway: The listed derivative decline was due to lower spreads in LME products as compared to the prior year, which more than offset the 12% increase in lifted contract volume. The OTC decline was primarily due to a decline in activity in Brazilian markets due to lower agricultural volumes.

William John Dunaway: The listed derivatives declined was due to lower spreads and <unk> products as compared to the prior year, which more than offset the 12% increase in lifted contract volumes.

William John Dunaway: The OTC decline was primarily due to a decline in activity in Brazilian market steward of lower agricultural volatility.

William John Dunaway: Finally, interest earned on client balances declined $5.3 million as compared to the prior year as a result of a 15% decline in average client equity resulting from reduced market requirements driven by lower cut monthly volatility. Fixed compensation of benefits increased $200,000 versus the prior year and $1 million versus the immediately preceding quarter. Other fixed expenses increased $4.7 million versus the prior year but were relatively flat with the immediately preceding... As compared to the prior year, we had increases in travel and business development, professional fees, depreciation and amortization, bank fees, and non-income taxes. We had a positive variance in bad debts, a net of recoveries of $2.3 million as compared to the prior year, principally driven by a decline in bad debts and our fiscal lag in energy.

William John Dunaway: Finally interest earned on client balances declined $5 3 million as compared to the prior year as a result of a 15% decline in average client equity, resulting from reduced market requirements driven by the lower comp might be volatility.

William John Dunaway: Fixed compensation and benefits increased 200000 versus the prior year and $1 million versus the immediately preceding quarter.

William John Dunaway: Other fixed expenses increased $4 7 million versus the prior year, but were relatively flat with the immediately preceding quarter.

William John Dunaway: As compared to the prior year, we had increases in travel and business development professional fees depreciation and amortization bank fees and non income taxes.

William John Dunaway: We had a positive variance in bad debts net of recoveries of $2 3 million as compared to the prior year, principally driven by a decline in bad debts, and our physical AG and energy business.

William John Dunaway: Segment income was $85.6 million for the period, a decline of 17% versus the prior year period, and including the other gain related to the gold class action matter I mentioned earlier. Segment income decreased 2% versus the immediately preceding quarter. As a reminder, in the first quarter of fiscal 2024, we started to allocate a portion of our corporate expenses to each of 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 similar allocations for previously reported periods.

William John Dunaway: Segment income was $85 6 million for the period, a decline of 17% versus the prior year period and included the other gain related to the gold class action matter I mentioned earlier.

William John Dunaway: Segment income decreased 2% versus the immediately preceding quarter.

William John Dunaway: As a reminder, in the first quarter of fiscal 2024, we started to allocate a portion of our corporate expenses to each of our four operating segments, including costs associated with compliance technology credit and risk human resources and occupancy.

William John Dunaway: We have provided this allocation in each of our segments for the current period and we will continue to do so prospectively. However, we have not calculated similar allocations for previously reported periods.

William John Dunaway: For the current period, this allocation of corporate costs to our commercial segment was $8.9 million. Moving on to slide number 10, operating revenues in our institutional segment increased to $100.9 million versus the prior year, primarily driven by an $88.1 million increase in securities operating revenues compared to the prior year period, as a result of a 30% increase in the average daily volume of securities 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.

William John Dunaway: For the current period this allocation of corporate costs for our commercial segment was $8 9 million.

William John Dunaway: Moving on to slide number 10 operating revenues in our institutional segment increased $109 million versus the prior year, primarily driven by an $88 $1 million increase in securities operating revenues compared to the prior year period as the result of a 30% increase in the average daily volume of securities transactions as well as the increase in <unk>.

William John Dunaway: Best regards.

William John Dunaway: The increase in Securities Adv was driven by an increase in client volumes in both equity and fixed income markets.

William John Dunaway: 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 will touch on momentarily. Interest and fee income earned on client balances increased $6.2 million versus the prior year as a result of the increase in short-term rates, which was partially offset by 17% and 24% declines in average client equity and average money market balances in FDIC client suite balances, respectively. Interest and fee income earned on client balances was up $4.9 million versus the immediately preceding quarter. The rise in short-term interest rates drove an $83.4 million increase in interest expense compared to the prior year.

William John Dunaway: 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 will touch on momentarily.

William John Dunaway: Interest and fee income earned on client balances increased $6 2 million versus the prior year as a result of the increase in short term rates, which was partially offset by 17% and 24% declines in average client equity and average money market and FDIC clients sweep balances respectively versus the prior year.

William John Dunaway: Interest and fee income earned on client balances was up $4 9 million versus the immediately preceding quarter.

William John Dunaway: The rise in short term interest rates drove an $83 $4 million increased interest expense versus the prior year.

William John Dunaway: Interest expense related to fixed income trading and securities lending activities increased $78.6 million and $5.7 million, respectively, as compared to the prior year, while interest paid to clients decreased $6 million due to the decline in client balances. Segment income increased 10% to $61.3 million in the current period, primarily as a result of the $11.9 million increase in net operating revenues, which was partially offset by a $4.3 million increase in fixed compensation and benefits, as well as a $4.9 million increase in other fixed expenses. The increase in other fiscal expenses was primarily driven by a $4.1 million increase in professional fees and a $600,000 increase in trade systems and market information.

William John Dunaway: <unk> expense related to fixed income trading and securities lending activities increased $78 6 million and $5 $7 million, respectively as compared to the prior year, while interest paid to clients decreased $6 million due to the decline in client balances.

William John Dunaway: Segment income increased 10% to $61 $3 million in the current period, primarily as a result of the $11 $9 million increase in net operating revenues, which was partially offset by $4 3 million increase in fixed compensation and benefits as well as a $4 $9 million increase in other fixed expenses.

William John Dunaway: The increase in other <unk> expenses was primarily driven by a $4 $1 million increase in professional fees and a $600000 increase in trade systems and market information.

William John Dunaway: These increases were partially offset by a $1.5 million favorable variance in bad debt expenses versus the prior year quarter. However, segment income declined $3.9 million versus the immediately preceding quarter. For the current period, the allocation of corporate costs for our institutional segment was $13.3 million. Moving on to the next slide, Operating revenues in our Retail Segment increased $23.4 million versus the prior year, driven by a $20.2 million increase in FX and CFD revenues as the result of an 82% increase in rate per million as compared to the prior year, which more than offset a 24% decline in FX and CFD average daily volume.

William John Dunaway: These increases were partially offset by a $1 5 million favorable variance in bad debt expenses versus the prior year quarter.

William John Dunaway: Segment, and client income declined $3 $9 million versus the immediately preceding quarter for the current period the allocation of corporate costs for institutional segment was $13 3 million.

William John Dunaway: Moving on to the next slide operating revenues in our retail segment increased $23 $4 million versus the prior year driven by a $22 million increase in FX and Cfd revenues as the result of an 82% increase in rate per million as compared to the prior year, which more than offset a 24% decline in FX and Cfd average.

William John Dunaway: Daily volume.

William John Dunaway: The increase in RPM was primarily due to higher client activity in gold, oil, and index CFD products, which generally have a higher RPM in relation to FX products, while the decline in ADV was driven by lower FX market volatility.

William John Dunaway: The increase in our Gam was primarily due to higher client activity in gold oil index, Cfd products, which generally have a higher RPM in relation to FX products, while the decline in Adv was driven by lower FX market volatility.

William John Dunaway: Operating revenue increased 10% versus the immediately preceding quarter. Segment income was $33.2 million, which represents a 592% increase over the prior year period and a 16% increase compared to the immediately preceding quarter. This was a result of the 30% increase in operating revenues as well as the $6.7 million decline in other fixed expenses as compared to the prior year. For the current period, the allocation of corporate costs to our retail segment was $12 million.

William John Dunaway: Operating revenue increased 10% versus the immediately preceding quarter.

William John Dunaway: Segment income was $33 2 million, which represents a 592% increase over the prior year period, and a 16% increase compared to the immediately preceding quarter.

William John Dunaway: This was a result of the 30% increase in operating revenues as well as a $6 $7 million decline in other fixed expenses as compared to the prior year.

William John Dunaway: For the current period the allocation of corporate costs for our retail segment was $12 million.

William John Dunaway: Closing out the segment discussion on the next slide, operating revenues in our payment segment declined 1% versus the prior year, driven by a 1% decline in average daily volume, which more than offset a 3% increase in the rate per million as compared to the prior year. Segment income increased 55% to $24.6 million in the current period as a result of a $10.3 million decline in fixed compensation, as the prior year included the $10 million of severed charges Shawn mentioned earlier. Segment income decreased $10.4 million versus the immediately preceding record first quarter.

William John Dunaway: Closing out the segment discussion on the next slide operating revenues in our payments segment declined 1% versus the prior year driven by a 1% decline in average daily volume, which more than offset a 3% increase in the rate per million as compared to the prior year.

William John Dunaway: Segment income increased 55% to $24 6 million in the current period as a result of a $10 $3 million decline in fixed compensation as the prior year included the $10 million of sovereign charge as Sean mentioned earlier.

William John Dunaway: Segment income decreased $10 4 million versus the immediately preceding record first quarter.

William John Dunaway: For the current period, the allocation of corporate costs for our payment segment was $5.2 million. Finally, before passing it back to Sean for a strategy discussion, I wanted to give an update on long-term capital following our recent note offering. As Sean highlighted in the past, long-term capital is integral to the success of StoneX, as it supports our client activity and our regulated subsidiaries and supports the growth of our franchise. Our fundamental focus is on compounding our internally generated equity, accessing capital markets in a thoughtful manner when appropriate, and deploying a centralized, disciplined approach to capital allocation in order to drive results for our stockholders.

William John Dunaway: For the current period the allocation of corporate costs for our payments segment was $5 2 million.

William John Dunaway: Finally, before passing it back to Sean for a strategy session I wanted to give an update on long term capital. Following our recent note offerings as Sean highlighted in the past long term capital are integral to the fact, the success of <unk> as it supports our client activity and our regulated subsidiaries and supports the growth of our franchise our <unk>.

William John Dunaway: Our focus is on compounding our internally generated equity accessing capital markets in a thoughtful manner when appropriate and deploying a centralized disciplined approach to capital allocation in order to drive results for our stockholders.

Sean O'Connor: To that end, on March 1st, we issued $550 million of new 7-year secured notes, which allowed us to extend our debt maturity profile and bolster our liquidity. The proceeds of these notes were used to refinance our existing $348 million of senior secured notes, which were scheduled to mature in June of 2025, as well as to pay down existing borrowings on our evolving credit facility. The $348 million in senior secured notes will remain on our balance sheet as well as $363 million in restricted cash, which represents principal plus accrued interest through June 15, 2024, as part of this agreement, at which time we will call these notes at par.

William John Dunaway: To that end on March 1st we issued $550 million of new seven year secured notes, which allowed us to extend our debt maturity profile and bolster our liquidity.

Sean O'Connor: The proceeds of these notes were used to defease, our existing $348 million of senior secured notes, which were scheduled to mature in June of 2025, as well as to pay down existing borrowings on our revolving credit facility.

Sean O'Connor: The $348 million in senior secured notes will remain on our balance sheet as well as $363 million in restricted cash which represents the principal plus accrued interest through June 15, 2024, as part of the season at which time, we will call. These notes at par ultimately, while having the new notes and previously issued notes both outstanding for $3.

Sean O'Connor: Ultimately, while having the new notes and previously issued notes both outstanding for three and a half months will result in incremental interest costs of approximately $900,000 per month, net of the interest earned on restricted cash, it will ultimately save us $4.5 million in call premiums. For the new issuance, we're very pleased with how the process unfolded, with the issuance being nearly two and a half times oversubscribed and priced at a much tighter spread to Treasuries at 377 basis points, as compared to our previous issuance done during the onset of COVID and ultimately an effective interest rate 155 basis points lower than that offering.

Sean O'Connor: Five months will result in incremental interest costs of approximately 900000 per month net of the interest earned on restricted cash we will ultimately save us $4 5 million call premium.

Sean O'Connor: For the new issuance, we're very pleased with how the process unfolded with issuance being nearly two five times oversubscribed and pricing at a much tighter spread to treasuries at 377 basis points as compared to our previous issuance done during the onset of Covid and ultimately at an effective interest rate of 155 basis points lower.

Sean O'Connor: The net offering.

Sean O'Connor: Overall, this will be leveraged neutral for us while extending our maturity profile by six years. Following this transaction, we will have practically $2.1 million in long-term capital available to support our clients and our growth. Finally, we are pleased to announce that SP recently revised the rating outlook for StoneX to positive from stable, reflecting our focus on long-term capital, retained earnings, and diversified.

Sean O'Connor: Overall, this will be leverage neutral for us, while extending our maturity profile by six years.

Sean O'Connor: Following this transaction were approximately $2 1 million in long term capital available to support our clients and our growth.

Sean O'Connor: Finally, we are pleased to announce that S&P recently revised their rating outlook for <unk> to positive from stable, reflecting our focus on long term capital retained earnings and diversified franchise.

Sean O'Connor: With that I'll now like to turn it back over to Sean.

Sean O'Connor: Thanks, Phil. We are aware that there's been some renewed investor interest and some activity in our market sector, and we thought it might be worthwhile to touch on our strategy and what is driving our results currently, particularly for any new shareholders that may be listening. Slide 14 sets out our high-level strategic objectives that we are focused on. This basic approach and strategy has been unchanged for over 15 years and has served us well.

Speaker Change: Thanks, Bill we are aware that there has been some renewed investor interest and some activity in our market sector and we thought it might be worthwhile to touch on our strategy at what is driving our results currently particularly for any new shareholders that might be listening.

Sean O'Connor: Slide 14 sets out a high level strategic objectives that we are focused on this basic approach and strategy has been unchanged for over 15 years and has served us well before dealing with the strategy, perhaps it would be helpful to give our views on how we have seen the market structure in a competitive environment changing and how our strategy aligns with that.

Sean O'Connor: Before dealing with the strategy, perhaps it would be helpful to give our views on how we have seen the market structure and our competitive environment changing and how our strategy aligns with that. Following the financial crisis 15 years ago, there was a comprehensive and significant response from regulators around the world to create a more robust and durable financial market. The key impacts of this were a massive increase in costs due to more complex processes and oversight, as well as dramatically increased capital requirements. This makes it difficult for smaller firms and those with narrow product offerings to generate sufficient revenue to remain viable, given the cost and capital requirements.

Sean O'Connor: Following the financial crisis, <unk> 15 years ago, there was a comprehensive and significant response from the regulators around the world to create a more robust and durable financial markets. The key impacts of this were a massive increase in cost due to more complex process and oversight as well as dramatically increased capital requirements.

Sean O'Connor: This made it difficult for smaller firms and those with narrow product offerings to generate sufficient sufficient revenue to remain viable given the cost of capital requirements.

Sean O'Connor: As a result, there has been a fairly dramatic consolidation in our industry. This can be evidenced by looking at clearing FCMs or broker-dealers, which have massively reduced in numbers over this period. We have directly participated in this process through some of the acquisitions we have made. We have made over 30 acquisitions over this period. And we've also benefited indirectly as clients have been forced to find new firms to deal with. In addition, we have seen a fairly significant withdrawal from our market by the big banks as capital requirements have forced them to re-evaluate their strategies.

Sean O'Connor: As a result, there has been a fairly dramatic consolidation in our industry. This can be evidenced.

Sean O'Connor: By looking at hearing mcm's or broker dealers, which have massively reduced in numbers over this period.

Sean O'Connor: We have directly participated in this approach process through some of the acquisitions. We have made we have made over 30 acquisitions over this period and we are also benefiting indirectly as clients are being forced to find new firms to deal with.

Sean O'Connor: In addition, we havent seen a fairly significant withdrawal from a market by the big banks as capital refinements that forced them to reevaluate the strategy. The large banks in aggregate still accounted for the majority share of the market, but they are retreating which has created significant opportunities for us.

Sean O'Connor: The large banks in aggregate still account for a majority share of the market, but they are retreating, which has created significant opportunities for us. As we speak, currently, U.S. banks are potentially facing increased capital requirements of over $7 billion for their U.S. derivative clearing operations if proposed rules are enacted by U.S. bank regulators. Generally speaking, the Barlow Capital rules are very punitive to trading-type operations, and if adopted, I'm certain the banks' withdrawal from our market will accelerate as they increasingly focus on their Tier 1 clients.

Sean O'Connor: As we speak currently U S banks are potentially facing increased capital requirements over of over $7 billion for the U S derivative clearing operations. If proposed rules are enacted by the U S Bank regulators.

Sean O'Connor: Generally speaking the Basel capital rules are very punitive to trading top operations and if adopted I'm certain the bank's withdrawal from a market will accelerate as they increasingly focus on the tier one clients.

Sean O'Connor: Both of these factors, the low-end consolidation and the withdrawal by larger banks, have directly and positively impacted StoneX and allowed us to post CAGRs close to 70% over the last 20 years. We think there is still a long way to go in the reordering of the market structure, and with our broad and unparalleled capability and product set, we are ideally placed to continue to take advantage of this trend. The most significant strategic priority in the context of the market dynamics I've just mentioned is to keep building our ecosystem.

Sean O'Connor: Both of these factors the low end consolidation and the withdrawal by larger banks have directly and positively impacted <unk> and have allowed us to post <unk> close to 50% over the last 20 years we.

Sean O'Connor: We think there are still a long way to go in the reordering of the market structure and with our broad and unparalleled capability and product set we are ideally placed to continue to take advantage of this trend.

Sean O'Connor: The most significant strategic priority in the context of the market dynamics I. Just mentioned is to keep building our ecosystem. We wanted to be the most relevant firm in the space by having the best ecosystem to connect clients to the global financial markets. Thus makes us an attractive destination for new clients looking for a single partner to satisfy that.

Sean O'Connor: We want to be the most relevant firm in the space by having the best ecosystem to connect clients to the global financial market. This makes us an attractive destination for new clients looking for a single partner to satisfy their trading needs and allows us to also remain relevant to our existing clients. I believe StoneX is becoming known as a growing and best-in-class financial services franchise. We continue to invest in our ecosystem by acquiring talent, either individuals or teams, as well as investing in technology to expand our product and capabilities to better serve our clients.

Sean O'Connor: <unk> needs and allows us to also remain relevant to our existing clients.

Sean O'Connor: I believe <unk> is becoming known as a growing and best in class financial services franchise.

Sean O'Connor: We continue to invest in our ecosystem by acquiring talent.

Sean O'Connor: The individual teams as well as investing in technology to expand our products and capabilities to better serve our clients.

Sean O'Connor: While these investments result in increased costs and expenditures, often well in advance of the ultimate benefit being achieved, they are essential to achieve the strategic objective. However, none of these projects in isolation will result in a significant change to our current growth trajectory, and certain of these initiatives may not be viable in the long run.

Sean O'Connor: While these investments resulted in increased costs and expenditures oftentimes well in advance of the ultimate benefits being achieved achieved that are essential to achieve our strategic objective. None of these projects in isolation will result in a significant change stockpiling approach.

Sean O'Connor: <unk> and certain of these initiatives may not be viable in the long run however in the aggregates and over time, we believe that these initiatives will bend outgrowth could've upwards. In addition, because many of these are digital in nature, we should see operational leverage and scalability starting to kick in as well as steady improvement in margins.

Sean O'Connor: However, in the aggregate and over time, we believe that these initiatives will bend our growth curve upwards. In addition, because many of these are digital in nature, we should see operational leverage and scalability starting to kick in, as well as steady improvement in margins. We also continue to look at acquisition opportunities and, indeed, over the last 15 years, we have concluded close to 30 acquisitions. Some of these have been large and transformational, such as the FC Stone acquisition in 2009 and the Gain acquisition in 2020.

Sean O'Connor: We also continue to look at acquisition opportunities and indeed over the last 15 years of computer close to 30 acquisitions. Some of these have been large and transformational such as the <unk> acquisition in 2009 and the gain acquisition in 2020 many.

Sean O'Connor: Many, however, have been small and below-scale operations that needed to be part of a bigger ecosystem given the dramatic change in the operating environment I mentioned post the financial crisis. While these acquisitions were not large, many have thrived and become significant franchises for StoneX. We believe that the market structure is not favorable for these small businesses, and we will continue to see a wide range of opportunities to acquire businesses that offer new capabilities or products for our franchise. We believe that business valuations are now returning to more reasonable levels after becoming elevated in the aftermath of the COVID crisis.

Sean O'Connor: <unk> have been smaller, but low scale of operations that needed to be part of a bigger ecosystem given the dramatic change in the operating environment as I mentioned post the financial crisis.

Sean O'Connor: While these acquisitions were not large many have thrived and become significant franchises for <unk>. We believe that the market structure is not favorable for the smaller businesses and we will continue to see a wide range of opportunities to acquire businesses that offer new capabilities of products while franchise.

Sean O'Connor: We believe that business valuations are now returning to more reasonable levels after becoming elevated in the aftermath of the COVID-19 prices and we will remain disciplined in evaluating these opportunities to ensure that any acquisition adds value to our franchise and is accretive to our shareholders.

Sean O'Connor: And we will remain disciplined in evaluating these opportunities to ensure that any acquisition adds value to our franchise and is accretive to our shareholders. The second key part of our strategy is that we are a client-centric business, and we need to consistently work at growing our client footprint into new markets and expanding market share where we have existing clients. We also seek to serve new client segments and channels. We have capabilities to service clients of all types and have a large addressable market in front of us with very low market penetration currently.

Sean O'Connor: Second.

Sean O'Connor: Key part of us.

Sean O'Connor: Our strategy is we are client centric business and we need to consistently work at growing our client footprint into new markets and expanding market share where we have existing clients. We also seek to serve new clients statements and channels, we have capabilities to service clients of all types and have large addressable market in front of us with very low market.

Sean O'Connor: Penetration currently unlike many other firms we already have deepened significant client footprints with not only institutional clients, but also for corporate clients retail clients and financial institutions and in each of these segments, we haven't global representation of clients.

Sean O'Connor: Unlike many other firms, we already have deep and significant client footprints with not only institutional clients but also with corporate clients, retail clients, and financial institutions. And in each of these segments, we have a global representation of clients.

Sean O'Connor: Each of these client segments represents a large opportunity, but in the aggregate and globally, the addressable market for us is massive. We have grown our client footprint significantly over the last 10 years, assisted by the positive industry environment and the fact that we have a unique ecosystem. We see this trend continuing, and many clients will be looking for new brokerage and trading relationships. We believe that our unique global financial ecosystem allows us to be the counterparty of choice and places us in a strong position to win market share.

Sean O'Connor: Each of these client segments ransom represents a large opportunity, but in the aggregate that globally the addressable market for us is massive.

Sean O'Connor: We have grown our client footprint significantly over the last 10 years assisted by the positive industry environment and the fact that we have the unique ecosystem. We see this trend continuing and many clients will be looking for new brokerage and trading relationships. We believe that on a unique global financial ecosystem allows us to be the counterparty of choice in place.

Sean O'Connor: For us in a strong position to win market share.

Sean O'Connor: As part of our strategy, we will not achieve the necessary growth and scale unless we continue to embrace technology to digitize our offerings. This will not only enhance client engagement but increase scalability and margin. This initiative requires a rethink of our processes from front to back, which has been underway for some years but has accelerated with the acquisition of Gain. We see technology playing a role in three key areas for us.

Sean O'Connor: Third part of our strategy, we will not achieve the necessary growth and scale unless we continue to embrace technology to digitize offerings. This will not only enhance client engagement, but increased scalability and margins.

Sean O'Connor: This initiative provides a rethink about processes from front to back which has been underway for some years, but has accelerated with the <unk> acquisition of gain we see technology, playing a role in three key areas for us.

Sean O'Connor: Firstly, we have a large number of initiatives underway to ensure that we can engage digitally with our clients. Increasingly, ease of use and digital access is a key differentiator for clients. In addition, if done right, technology can drive wallet share and embed us deeply with our clients for the long term, and they become stickier to us. We offer the full spectrum of digital solutions, from mobile-based, low-latency trading platforms all the way to enterprise-integrated bespoke offerings for our large corporate clients. The advantage of digital offerings is that it dramatically expands your addressable market. Every client, everywhere, becomes a potential client.

Sean O'Connor: Firstly, we have a large number of initiatives underway to ensure that we can engage digitally with our clients increasingly ease of use and digital access is a key differentiator for clients. In addition, if done right technology can drive wallet share and embed us deeply with our clients for the long term and they become stickier to us.

Sean O'Connor: We offer the full spectrum of digital solutions from mobile base low latency trading platforms, all the way to enterprise integrated the spoke offerings for our large corporate clients.

Sean O'Connor: The advantage of digital offerings as at a dramatic expansion of addressable market every clients everywhere it becomes a potential client and it offers scalability and operational leverage to enhance margins.

Sean O'Connor: And it offers scalability and operational leverage to enhance margins. Secondly, we are increasingly using technology on the trading side. All of our trading platforms are designed to aggregate trading and internalize spreads so we can maximize the client revenue opportunity and minimize hedging costs. As we gain critical mass in trading volumes, the impact on revenue capture can be significant and should drive additional margin.

Sean O'Connor: Secondly, we are increasingly using technology on the trading side all of our trading platforms are designed to aggregate trading and internalized spreads. So we can maximize the client revenue opportunity and minimize hedging costs as.

Sean O'Connor: As we gain critical mass and trading volumes the impact on revenue capture can be significant and should drive additional margin.

Sean O'Connor: And thirdly, we have a number of projects underway throughout many of our support areas to better use technology to create efficiency and scalability in our infrastructure, which should, over time, drive operational leverage. Success on the technology side should allow us to accelerate revenue growth by more effectively gaining market share, drive margin through better revenue capture on the trading and execution side, and allow us to achieve operational leverage on the operational side.

Sean O'Connor: And thirdly, we have a number of projects underway throughout many of our support areas to better use technology to create efficiency and scalability of our infrastructure, which over time should drive operational leverage.

Sean O'Connor: Access on the technology side should allow us to accelerate revenue growth by more effectively gaining market share drive margins through better revenue capture and on the trading and execution side and allow us to achieve operational leverage on the operational side. These three factors together could and should be a powerful driver of our bottom line.

Sean O'Connor: These three factors together could and should be a powerful driver of our bottom line and net margin. Finally, our business is supported by long-term capital, and we need to underpin our growth with internally generated capital, access the capital markets when appropriate, and approach acquisitions in a disciplined manner. Our business requires regulatory capital to support the client activity we take on, but we believe that most of this capital should be in the form of permanent equity capital to provide the fortress balance sheet that will define a long-term client franchise. The most important thing we can do is to continue to create our own internal capital runway for continued growth. This is why we focus on our ROE.

Sean O'Connor: Net margins.

Sean O'Connor: Finally, our business is supported by long term capital and we need to underpin our growth with internally generated capital access the capital markets when appropriate and approach acquisitions in a disciplined manner.

Sean O'Connor: Our business revised regulatory capital to support the clients activity. We take on we believe that most of this capital should be in the form of permanent equity capital to provide the fortress balance sheet that will define the long term client franchise.

Sean O'Connor: The most important thing we can do is to continue to create our own internal capital runway for continued growth. This is why we focus on a row.

Sean O'Connor: It is interesting to note that 10 years ago, we had little over $300 million in stockholder equity and only a slightly lower number of shares outstanding than we do now. Over this 10-year period, we have more than tripled our shareholder funds, acquired 15 businesses, significantly expanded our client footprint, largely financed organically from retained earnings and the unbelievable power of compounding. During this growth, we have largely achieved our 15% ROE target. Certainly not every year, but on average over the period, it's pretty close.

Sean O'Connor: It is interesting to note that 10 years ago, we had little over $300 million in stockholder equity and only slightly lower number of shares outstanding that we do now.

Sean O'Connor: The 10 year period, we have more than tripled our shareholder funds acquired 15 businesses significantly expanded our client footprint largely finance organically from retained earnings and the unbelievable power of compounding.

Sean O'Connor: During this growth we have largely achieved a 15% ROE talked certainly not every year, but on average over the period, it's pretty close.

Sean O'Connor: This has happened despite the investments we've made in technology and infrastructure, the cost of developing new capabilities, the integration of a large number of acquisitions, and despite low interest rates for extended periods of time. Achieving our ROE target continues to be our North Star, and we believe that as we digitize our platform and gain scale, our margins and our ROE should start to increase. Now turning to slide 15, which gives you some sense of the scale and breadth of our ecosystem, which we believe is unique other than in bulge bracket banks.

Sean O'Connor: This has happened despite the investments we've made in technology and infrastructure the cost of developing new capabilities. The integration of a large number of acquisitions and despite low interest rates for extended periods of time, achieving our ROE target continues to be our north star and we believe that as we digitize our platform and gain scale that our margins in <unk>.

Sean O'Connor: ROE should start to increase.

Sean O'Connor: Now turning to slide 15, which gives you some sense of the scale and breadth of our ecosystem, which we believe is a unique other than in bulge bracket banks, we provide global execution clearing and custody across equities fixed income FX listed derivatives swaps and commodities.

Sean O'Connor: We provide global execution, clearing, and custody across equities, fixed income, FX, listed derivatives, SWOTs, and commodities. To do this, we have a regulated platform allowing for these activities in all the global financial markets, the U.S., the U.K., Europe, Singapore, Hong Kong, Brazil, and Argentina. As you will note, we are members of only 40 exchanges.

Sean O'Connor: To do this we have regulated unregulated platform, allowing for these activities and all the global financial markets. The U S. The U K, Europe, Singapore, Hong Kong, Brazil, and Argentina.

Sean O'Connor: As you will note. We are members of only 40 exchanges, we trade out about 18000 over the counter swap products and trade almost every currency on the planet.

Sean O'Connor: We trade over 18,000 over-the-counter swap products and trade almost every currency on the planet. In terms of clients, we have over 54,000 institutional and commercial clients, over 400,000 retail clients, and deal with over 600 financial institutions as clients. We have $7.1 billion of client funds and support this with $1.5 billion of permanent equity capital, as well as $550 million of term debt and over 4,300 professionals around the world. The next slide gives you some sense of the breadth of our products and how they match our client segments.

Sean O'Connor: Some clients, we have over 54000, institutional and commercial clients over 400000 retail clients and deal with over 600 financial institutions as clients, we have $7 $1 billion of client funds and support this with one 5 billion.

Sean O'Connor: Permanent equity capital as well as $550 million of term debt and over 4300 professionals around the world.

Sean O'Connor: The next slide gives you some sense of the breadth of our products and how they match offline segments. As you can see we have a very broad fixed income and equities offering as well as an expanded derivatives capabilities.

Sean O'Connor: As you can see, we have a very broad fixed income and equity offering, as well as an expanded derivatives capability. Also unique is our Payments Platform, which provides efficient and fast payments into over 180 countries, something no one else can do. We provide this service to most of the large and medium-sized banks around the world, to charities, NGOs, and commercial clients, as well as to other payment platforms who do not have this last-mile capability.

Sean O'Connor: Also unique is our payments platform, which provides efficient and fast payments into over 180 countries something no. One else can do we provide the service to most of the large and medium sized banks around the world to charities, Ngos and commercial clients as well as to other payment platforms, who do not have this last mile capability, we can clearly.

Sean O'Connor: We can clearly and transparently demonstrate to clients the significant savings realized by using our Payments Platform, and the addressable market for this business is immense. Moving on to wrap up, let's move to the last slide, 17.

Sean O'Connor: And transparently demonstrates our clients a significant savings realized by using our payments platform and the addressable market for this business is immense.

Sean O'Connor: Moving on to wrap up let's move to the last slide 17.

Sean O'Connor: We achieved solid results in the second fiscal quarter of 2024, delivering growth in operating revenues and income, despite a short-term mark-to-market adjustment on the gold inventories and an elevated fixed expense base for the quarter. We delivered operating revenue of $818.2 million, up 16%, earnings of $53.1 million, and diluted EPS of $1.63, up 27% and 25%, respectively. This represents a 14% ROE on stated book, and excluding any mark-to-market adjustment, it would have been 15.8% ahead of our long-term 15% target.

Sean O'Connor: We achieved solid results in the second fiscal quarter 2020, full delivering growth in operating revenues and income. Despite the short term mark to market adjustment on the Golden Patrice and elevated fixed expense base for the quarter.

Sean O'Connor: <unk> delivered operating revenue of $818 2 million up 16% earnings of $53 1 million.

Sean O'Connor: And diluted EPS of $1, 63, up 27% and 25% respectively.

Sean O'Connor: This represents a 14% ROE stated book and excluding any mark to market adjustment would have been 15, 8% ahead of our long term 15% target.

Sean O'Connor: In some ways, the clearest and best measure of financial performance is the growth in book value per share, which for the last year was up 21%. We are pleased to see that our business continues to generate strong long-term returns for our stockholders 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 30% CAGR and our adjusted earnings at a 28% CAGR.

Sean O'Connor: In some ways the clearest and best measure of financial performance is the growth in book value per share, which for the last year is up 21%.

Sean O'Connor: We are pleased to see that our business continues to generate strong long term returns for our stockholders, despite moderating volatility, which demonstrates the multiple drivers of our results and the diversification of our business.

Sean O'Connor: We're not performance is viewed through a licensed slightly longer term data such as the 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 at a 30% CAGR in our adjusted earnings at a 28% CAGR.

Sean O'Connor: Over these last 12 months, we continue to see growth in client trading volumes across most of our products and in our operating revenues across all of our segments, which speaks to growth in our underlying client base and client engagement. As a reminder, in our 2024 year, we celebrate the 100-year anniversary of our namesake legacy company, Soulstone & Company. It is remarkable to think that what started as a door-to-door payment wholesaler has grown into a global financial franchise spanning over 80 offices and across six continents.

Sean O'Connor: Over these last 12 months, we continued to see approach.

Sean O'Connor: Client trading volumes across most of our products and in our operating revenues across all of our segments, which speaks to growth in our underlying client base and client engagements.

Sean O'Connor: As a reminder, in 2024 year, we celebrate 100 year anniversary of our namesake legacy company sold stolen company remarkable to think that what started as a door to door egg wholesaler has grown into a global financial franchise spending over 80 offices and across six continents.

Sean O'Connor: Our long-standing track record sets a standard we believe is largely unmatched in our industry. Yet we recognize we are far from realizing the full scope of opportunities and market share available to us. Operator With that, let's move to some questions, if there are any.

Sean O'Connor: Our longstanding track record and sets a standard we believe is largely unmatched in our industry. Yet we recognize we are far from realizing the full scope of opportunities and market share available to us.

Speaker Change: Operator with that let's move to some questions. If there are any.

Sean O'Connor: Yes.

Sean O'Connor: Yes.

Operator: We will now begin the question-and-answer session. If you have dialed in and would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your questions, simply press star one again. If you are called upon to ask your question and are listening via the loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking your question. Again, press star 1 to join the queue, and your first question comes from the line of Dan Fannon with Jeff.

Speaker Change: We will now begin the question and answer session. If you have dialed in and would like to ask a question. Please press star one on your telephone keypad through Asia, and then join the queue.

Daniel Thomas Fannon: If you would like to withdraw your question. Thank you Brett.

Daniel Thomas Fannon: Thank you I'll follow the one to ask your question is are listening via loud speakers. Your device. Please pickup your handset and ensure that youre on mute when asking your question.

Daniel Thomas Fannon: Again Revpar one thank you.

Operator: And your first question comes from the line of Dan Fannon with Jefferies.

Daniel Thomas Fannon: Thanks, come on in. I'm doing well, thanks. Good morning, Bill and Sean.

Daniel Thomas Fannon: How are you.

Daniel Thomas Fannon: I'm doing well thanks, good morning, Bill and Sean.

Daniel Thomas Fannon: I guess to start, you touched on this topic, but volumes were generally strong across the board in the quarter, but the rate per contract or fee per million outside of FX was generally lighter. So I was hoping you could talk about the trends within the commercial and institutional segments. And I believe you indicated some mix of lower ags in certain segments. So this would be to get a little more color around that trend on the capture rates and how you think about that.

Daniel Thomas Fannon: I guess to start you touched on this topic, but volumes were generally strong across the board in the quarter, but the rate per contract can be familiar outside of FX was generally lighter. So I was hoping you could talk about the trends within the commercial and institutional segments and I believe you indicated some mix of like lower eggs.

Daniel Thomas Fannon: Certain segments, but just would be to get a little more color around that.

Daniel Thomas Fannon: That trend on the on the capture rates and how you think about that prospectively.

Sean O'Connor: Well, I think our capture rates, as you know, probably refract sort of market conditions in terms of volatility, right? When markets become more volatile, we tend to see revenue capture expand, and when markets become sort of either trending or sort of flatline, and volatility declines, we tend to see them narrow in. And I think this is probably the same as what we've seen for the last two or three quarters, actually, if you go back, which is, you know, generally speaking, with some exceptions, volumes continue to go up, but revenue capture tends to be a little bit more kind of, you know, I guess, varied up and down, depending on what product.

Daniel Thomas Fannon: Well I think.

Daniel Thomas Fannon: Ill capture rates as you know probably refresh so.

Sean O'Connor: Market conditions in terms of volatility right when markets become more volatile we tend to see revenue capture expand and when markets become.

Sean O'Connor: EBIT trending or sort of flat line and volatility declines we tend to see them narrow and.

Sean O'Connor: And I think this is probably the same as what we've seen for the last two or three quarters actually if you go back which is.

Sean O'Connor: Generally speaking with some exceptions volumes continuing to go up but revenue capture tending to be a little bit more kind of.

Sean O'Connor: I guess very up and down depending on what product.

Sean O'Connor: And I guess that just speaks to sort of a normalization in volatility across the board. I mean, we now see the VIX in sort of, you know, the low teens, which is sort of back where it was at 19, and that's starting to play through into some other markets. But, you know, the one thing I know for sure, having been in this business for over 40 years, is volatility doesn't stay low for long, and it also doesn't stay at high levels for long.

Sean O'Connor: That just speaks to sort of a normalization in volatility across the board I mean, we now see the VIX and so the.

Sean O'Connor: The low teens, which is sort of back where it was at 19 and thats starting to play through into some other markets, but the one thing I'll note for sure having been in this business for over 40 years as volatility doesn't stay low for longer and it also doesn't stay at peaks for launch.

Sean O'Connor: So, you know, I think volatility itself is volatile, and it's hard, I think, to determine a long-term trend on that because it really depends on short-term market conditions. That's all I can say. I don't know, Bill, if you have anything to add to that.

Sean O'Connor: I think it is a volatility itself is volatile.

Sean O'Connor: It's hard I think to determine a long term trend on that visit it really depends on short term market conditions is all I can say I don't know bill if you have anything to add on that a couple of pieces, Dan as we've talked a little bit it comes the interplay between the commercial and institutional segments and certainly on the commercial side.

William John Dunaway: Yeah, I mean, a couple of pieces. Dan, as we talked a little bit, it's becoming an interplay between the commercial and the institutional segments. And certainly on the commercial side, you know, post, you know, during the COVID era, and then kind of surrounding the Russian invasion of Ukraine, you kind of saw that there was a spread component to that in the London market when it comes to even unlisted derivatives, and those were quite wide, so you've seen that trend down.

William John Dunaway: Post during the Covid era, and then kind of surrounding Russia.

William John Dunaway: Russian invasion in Ukraine, you kind of saw there is a spread component to that in the London market. When it comes to even unlisted derivatives and those were quite wide <unk> seen that trend down.

William John Dunaway: And then it kind of stabilized, and then here, I would say, for the last three or four consecutive quarters, on the commercial side, we've turned it down a little bit further, and a lot of that has been actually us picking up some pretty good size, you know, large commodity intermediaries that are a little bit higher volume, a little lower rate. And at the same time, you know, here recently, commodity volatility has just kind of fallen off a little bit.

William John Dunaway: And then it kind of stabilized and then here I would say for the last three or four consecutive quarters.

William John Dunaway: On the commercial side, we've trended down a little bit further and a lot of that has been actually pick us picking up some pretty.

William John Dunaway: Good sized.

William John Dunaway: Largely the commodity intermediaries that are little bit higher volume a little lower rate.

William John Dunaway: And at the same time.

William John Dunaway: Here recently commodity volatility just kind of fallen off a little bit so.

William John Dunaway: So, you know, you saw a little bit lower activity but generally higher volume from some commodity intermediaries. And on the institutional side, it's been the same thing, but client acquisition, you've seen volumes go up, particularly on that institutional side. And that's us capturing some, you know, some more ETFs and some larger groups that are starting to really do a lot of volume through us. It tends to be lower volume, a lower rate per contract. But, you know, overall, a good thing; we want more and more volume going through our pipes. It's just a little bit incrementally lower in RPC, but I wouldn't, you know; it's kind of stabilized.

William John Dunaway: You saw a little bit lower activity, but generally higher volume from some commodity intermediaries and on the institutional side. It's been the same thing a bit client acquisition you have seen the volumes go up particularly on that institutional side and Thats us capturing some some more etfs.

William John Dunaway: Some some larger groups.

William John Dunaway: Turning to really do a lot of volume through us.

William John Dunaway: <unk> to be lower volume lower rate per contract, but overall, a good thing, we want more and more volume going through our pipes.

William John Dunaway: Just a little bit incrementally lower RPC.

William John Dunaway: But I wouldnt, its kind of stabilized and let this most recent quarter versus last quarter at least in the institutional side.

William John Dunaway: Wouldn't see meaningful down from here.

Speaker Change: Okay, Great. That's helpful and then on the retail side, where clearly the fee per million for the second quarter ROE has been well above the trends I think you also cited mix there.

Sean O'Connor: Okay, great, that's helpful. And then on the retail side, where clearly, the fee per million for the second quarter in a row has been well above the trend. I think you also cited mix there. I guess as you look underneath the hood a little bit at the customer base or, I don't know, channels for where that's coming, like sustainability, is that something you could speak to or is it still, obviously, again, volatility being a big component of that business, but curious about maybe an outlook there.

Sean O'Connor: I guess as you look underneath the hood, a little bit at the customer base or channels.

Sean O'Connor: Channels for where thats coming like sustainability.

Sean O'Connor: Anything you can speak to or is it still obviously again volatility being a big component of that business, but curious about maybe an outlook there.

Sean O'Connor: Yeah, I think it's volatility and product mix clearly, but I would say, you know, sort of revenue capture at the $120 level is probably unsustainable for a significant period of time. You know, our view is it probably normalizes at around sort of $90-ish. It's sort of our, you know, $90 to $100 is our expectation, but, you know, sometimes these trends can go on longer than you think, so obviously, we'll take as much as we can get when we can get it.

Sean O'Connor: I think this volatility is product mix, clearly, but I would say sort of revenue capture at the $120 level.

Sean O'Connor: Honestly, it's probably unsustainable for a significant period of time.

Sean O'Connor: Our view is it's probably normalizes at around sort of 90 ish.

Sean O'Connor: Is sort of 90 to 100 design expectation, but sometimes these trends can go on longer than you think so obviously, we will take as much as we can get when we can get it.

Sean O'Connor: I would say another comment on the retail business is, and if you remember when we did the acquisition of Gain, you know, our thought was that if we could intelligently combine the retail flows we had in things like gold and oil and corn and even FX with the flows we were getting from our commercial and institutional clients, that would provide us a more efficient internalization mechanism because, you know, there's just a greater flow, and b, the different nature And I think as we sort of build those pipes out, and as that happens, my sense is we are driving to a slightly higher average over time.

Sean O'Connor: I would say a number comment on.

Sean O'Connor: The retail business is and if you remember when we did the acquisition of <unk> and our thought was that if we could intelligently combine the retail flow, we had in things like gold and oil and corn and even FX with the flows we're getting from our commercial and institutional clients that would provide us a more.

Sean O'Connor: Missions internalization mechanism because.

Sean O'Connor: There is a greater flow and be the different nature of the flows allows you for greater opportunity for spread capture internally and I think as we sort of both of those pipes South and Thats happened. My sense is we are driving to a slightly higher average over time I mean, it will still be some.

Sean O'Connor: I mean, it'll still be somewhat volatile, but I think we are starting to see sort of tangible signs of the success of that strategy we laid out a couple of years ago, that we are now sort of having all of that flow centralized through one pipe, and I think we are starting to see sort of an increase in the average. But I don't think 120 is going to be the average, so I mean, I still think we're above trend there. Does that make sense?

Sean O'Connor: More volatile, but I think we are starting to see sort of tangible signs of success of that strategy. We laid out a couple of years ago that we are now sort of having all of that flow centralized through one pipe and I think we are starting to see sort of a increase in the average, but I don't think a 120 going to be the average.

Sean O'Connor: I still think we have upgrades that does that make sense.

Sean O'Connor: understood. I guess I was hoping to now tie some of the comments you mentioned around the longer-term strategies of technology and expenses and the potential for margin expansion in the kind of one to two year time period versus, certainly, your comments were longer term, but as you think about where we sit with expenses thus far on the fixed side, are these good run rates as we think about the remainder of the year? And when do you really think you'll see some of that operational leverage from the investments you're making?

Speaker Change: Yes understood.

Speaker Change: I guess I was hoping to now tie some of the comments you mentioned around the longer term strategies of technology, we have.

Sean O'Connor: Expenses.

Sean O'Connor: The potential for margin expansion.

Sean O'Connor: It kind of one to two year time period versus certainly I know your comments were longer term, but as you think about where we sit with expenses. Thus far on the fixed side are these good run rates as we think about the remainder of the year and when do you really start to do you think youll see some of that operational leverage from the investments you're making today.

Sean O'Connor: Yeah, well, I'll just give you a high-level overview, then I'll hand off to Bill here who has all the details. I think we did a fairly significant ramp up over the last two years, two, three years in terms of our infrastructure. We obviously made a gain, we saw a very big jump in our volumes, you know, over that period, and it sort of led to a step change in us having to spend money to invest in the infrastructure to support that and in, you know, more technology rather than more people necessarily. So I think the bulk of that spend has happened. I don't think that we're necessarily going to see costs come down. I mean, I just don't think costs will come down.

Speaker Change: Yeah, well I'll just give you a high level overview, and then I'll hand off to Bill will.

Bill: All the details.

Bill: I think we did a fairly significant ramp over the last two years two to three years in terms of our infrastructure. We obviously have five gain we saw a very big jump in our volumes over that period and that sort of led to a step change in us having to spend money to invest in the infrastructure to support that.

Bill: And in more technology, rather than more people necessarily so I think the bulk of that spend has happened.

Bill: I don't think that we initially going to see.

Sean O'Connor: So, you know, we're fighting very hard to level costs, but what should happen is we should have dramatically more scalability from here on in. So, you know, having made that step change in all the infrastructure, you know, from compliance to, you know, KYC to risk to, you know, front-end technology development and so on, you know, if we start to see volume increases, which we continue to see and we hope for, we should see a much higher incremental margin on that growth because, hopefully, we can kind of keep our costs where they are now.

Bill: It's come down I mean, thats funding costs come down. So we are fighting very hard to like level cost off but what should happen is we should have dramatically more scalability from hereon in so.

Sean O'Connor: <unk> made that step change and all the infrastructure from compliance to.

Sean O'Connor: KFC to risk too.

Sean O'Connor: <unk> technology development and so on.

Sean O'Connor: If we start to see volume increases, which we continue to see and we hopeful we should see a much higher incremental margin on that net growth because hopefully we can kind of keep our costs, where they are now so thats our plan and.

Sean O'Connor: So that's our plan, and, you know, you can kind of see what our growth run rates are, and, you know, if we continue on those growth run rates and we can keep our expenses down to low single digits, and we can, you know, kind of grow our top line in the 15% plus range, I mean, you're going to start to see that operational leverage show up pretty quickly. I mean, Bill Levity, do you agree, or not?

Sean O'Connor: You can kind of see what our growth run rates are and if we continue on this growth run rates and we can keep our expenses down to low single digits and we can kind of grow our top line in the 15% plus range I mean, youre going to start to see that operational leverage show up pretty quick I think.

Bill Levity: I mean below the GG agree Oh, yes, yes.

William John Dunaway: Yeah, yeah, and to your point, you know, as far as Sean said the cost being there, as I pointed out, the actual non-variable salary piece from Q1 to Q2 was actually relatively modest growth. You know, we are up from last year, but I think we've touched on that in the last couple of calls. I think the actual headcount is starting to moderate, starting to see that level off a little bit. Obviously, this quarter you had some anomalies somewhat on the expense side. Some of it's seasonal, as we talked about last year with benefits, taxes, retirement, and PTOs that kind of get reset at the beginning of the year. You know, so that's probably $3 to $4 million.

Speaker Change: And to your point.

William John Dunaway: As far as Sean said the costs being there as I pointed out that the actual non variable salary piece from Q1 to Q2 was actually relatively modest growth.

William John Dunaway: We are up from last year, but I think you've touched on the last couple of calls I think the actual head count.

William John Dunaway: Starting to moderate starting to see that level off a little bit odd.

William John Dunaway: Obviously this quarter you had some.

William John Dunaway: <unk> somewhat on the.

William John Dunaway: On the expense side some of its seasonal as we talked about last year with benefits taxes retirements PTO is that kind of get reset at the beginning of the year.

William John Dunaway: That's probably $3 million to $4 million, we had some fluctuations in deferred comp.

William John Dunaway: We had some fluctuations in deferred comp, but, you know, it's probably another couple million dollars on the comp side. So overall, comp, I would expect to at least trend down by probably $4 to $6 million from where it is right now, just because of that seasonal activity. And then certainly also in the quarter, as I touched on, we reorganized the office in London. That added about... $1.8 million in total for kind of recharges with kind of consolidation of offices there and right off some of the leaseholds.

William John Dunaway: Another a couple million dollars on the <unk>.

William John Dunaway: Comp side, so overall comp I would expect to at least trend down probably $4 million to $6 million from where it is right now just because of that seasonal activity.

William John Dunaway: And then certainly also in the quarter as I touched on we rework the office in London that added about <unk>.

William John Dunaway: $1 8 million in total of kind of re.

William John Dunaway: Charges with kind of consolidation of offices, there and write off of some of the leasehold.

William John Dunaway: So, you know, the run rate on occupancy, I would expect to probably be about a million and a half lower than it is now for the current quarter, and then certainly professional fees, you know, probably a couple million dollars high here in the current quarter. And then the sales count, which we talked about, you know, it's about $4 million in there. So overall net, you're probably somewhere in the 11, 12 million, a little bit higher this quarter than we would expect going forward. But things do change, right?

William John Dunaway: So the run rate on occupancy I would expect to probably be about 1 million and a half lower than it is now for the current quarter and then certainly professional fees.

William John Dunaway: A couple of million dollars high here.

William John Dunaway: Here in the current quarter and then the sales conference we talked about that's about $4 million in there. So overall net you are probably somewhere in the.

William John Dunaway: $11 $12 million, a little bit higher this quarter than we would expect going forward, but things do change right.

William John Dunaway: But that's kind of our current expectations I guess I had one other thing to mention on that is sort of strategically and long term.

Sean O'Connor: I mean, you know, but that's kind of our current expectation. I guess then one other thing to mention on that is, you know, sort of strategically and long term. We've sort of got to the point now where we are pushing a lot of our incremental hires into lower cost or more efficient jurisdictions. It's something we've done for a while, but we think we've got critical mass. We now have about 400 people in India.

Sean O'Connor: We still have got to the point now where we are pushing a lot of our incremental hires into the <unk>.

Sean O'Connor: <unk> cost more efficient jurisdictions.

Sean O'Connor: We have done for a while but we think we've got critical mass. We now have about 400 people in India. We have 350 people in Krakow Poland.

Sean O'Connor: We have 350 people in Krakow, Poland. We're spinning up centers in Colombia, where we're finding lots of great talent at fractions of U.S. prices. Our Birmingham office is a great office for us, and it's sort of becoming our operational center, moving people out of expensive Chicago and New York real estate and price points. We're really pushing that hard now, and I think you might not see it show up in heads, but you should see it show up in dollars. That's something we're working towards as well.

Sean O'Connor: Spinning up centers in Colombia, we finding lots of great talented sort of fractions of U S prices.

Sean O'Connor: Office is.

Sean O'Connor: Great office for us in this sort of becoming operational center moving people out of expensive Chicago, and New York Real estate and price points. So we really pushing that hard now and I think you might not see it show up in heads, but you should see it show up in dollars. So that's something we're working towards as well.

William John Dunaway: Right, that's helpful. And then I guess, Bill, just looking at the cash balances and client balances and interest income sensitivities we get, but I also wanted to get some color around the hedges that you have in place and, as they roll off, how we should think about what the sensitivity is or the duration of those contracts and maybe the impact, you know, on a prospective basis.

Speaker Change: Great that's helpful.

Sean O'Connor: And then I guess bill just looking at the.

William John Dunaway: Cash balances and client balances and interest income.

William John Dunaway: Sensitivities, we get but also wanted to get some color around the hedges that you have in place and as they roll off.

William John Dunaway: How we should think about what the sensitivity is or the duration of those contracts and maybe the impact on a prospective basis.

William John Dunaway: Sure. Yeah, and the big ones that we've talked about previously, the really early ones we had, did roll off, right? So that was a nice component here from Q1 to Q2 of them rolling off. I would say that currently, where we're at now, gross yield is a little shy of 5%, and net us paying out what we're paying the clients at, you know, like 330. Some of those hedges rolled off, and on a net basis, about 75 basis points picked up.

William John Dunaway: Sure.

William John Dunaway: Yes.

William John Dunaway: The big one that we've talked about previously really early on ones. We have good roll off price. So that was a that was a nice component here from Q1 to Q2 of them Rolling off I would say that currently where we're at now.

William John Dunaway: Gross yield a little shy of 5%.

William John Dunaway: And that is paying out in what we're paying to clients.

William John Dunaway: <unk> 30, so we saw probably a 50 basis point pick up.

William John Dunaway: As those.

William John Dunaway: Some of those hedges roll off and on a net basis about 75 basis points pick up so I would say this is kind of where we are now we've still got some on but they are rolling off and we've been cautious to go into the market now just given too.

William John Dunaway: So I'd say this is kind of where we are now. We've still got some on, but they're rolling off, and we've been cautious to go into the market now, just given where we are in the Fed cycle of cutting, in the inverted market that we're seeing. So, you know, I would, you know, I'd say we're pretty pegged, right?

William John Dunaway: Where we are.

William John Dunaway: In the first cycle of cuts.

William John Dunaway: Cutting.

William John Dunaway: And the inverted market that we're seeing so.

William John Dunaway: I'd say, we're pretty rapidly currently generally to the three month.

William John Dunaway: So in that three to six month maturity properly.

William John Dunaway: With the outstanding view that we do still have on.

William John Dunaway: They're not going to make a material difference. Yeah, they shouldn't make a material difference at all in the rate.

William John Dunaway: And then I'm going to make a material favorable maybe I shouldn't make a material difference in the rate.

William John Dunaway: And as far as Sandler.

Speaker Change: Go ahead sorry.

William John Dunaway: Thank you very much. As far as the balances are concerned, we've kind of come off a little bit, as I touched on in my stated remarks. Lower commodity volatility brings lower market requirements on the commercial side, so that's driven some of the balances a little bit lower. And on the institutional side, you kind of had high-water marks early last fiscal year and the mid-last fiscal year when we had a lot of institutional clients doing a lot of interest rate plays that drove a lot of funds. Some of those opportunities have dried up, and also the margin requirements affect them as well. So that's where you've seen a little bit of the balances.

William John Dunaway: Okay hedges in order to the balances we've kind of come off a little bit as I touched on in my stated remarks with lower commodity volatility brings lower margin requirements.

William John Dunaway: On the commercial side and so that's driven some of the balances a little bit lower and on the institutional side, you've kind of had.

William John Dunaway: The high watermark early last fiscal year in the mid fiscal last fiscal year. When we had a lot of institutional clients doing a lot.

William John Dunaway: Interest rate play to drive a lot of funds some of those opportunities have dried up and also the margin requirements affect them as well thats, where <unk> seen a little bit to the balances go down.

Daniel Thomas Fannon: But we weren't retaining much interest. Correct, yeah, yeah. The net net, as you can see, we were paying out quite a bit of interest on some of those clients. So, overall, you know, the margin, the net margin has expanded versus where we were a year ago, despite those lower balances.

William John Dunaway: We went at retaining much interest Surat gas, but net debt as you can see.

Daniel Thomas Fannon: We are paying out quite a bit of interest on some of those clients. So overall the margin. The net margin has expanded versus where we were a year ago.

Daniel Thomas Fannon: Spike thus lower balances.

Daniel Thomas Fannon: Okay.

Sean O'Connor: Great, okay, that's helpful. And then, just lastly for me, Sean, just to clarify some of the comments or expand on around M&A in the current environment, you mentioned valuations coming down a bit. I guess as you think about your current backlog discussions, how does that compare to, say, this time last year?

Speaker Change: Great. Okay. That's helpful. And then just lastly for me John just to clarify some of the comments or expand upon around M&A in the current environment as you mentioned valuations coming down a bit I guess as you think about your <unk>.

Sean O'Connor: <unk>.

Sean O'Connor: Backlog discussions.

Sean O'Connor: How does that compare to say this time last year.

Sean O'Connor: And maybe in terms of the appetite for small versus large.

Sean O'Connor: Where does it sit today based on those conversations.

Sean O'Connor: I would say it's been sort of a trend over the last sort of year or so where I think things are coming into a more normalized range valuation wise. I mean, you know, we sort of dealt with the sort of craziness of COVID, and it takes a while for people to adjust to kind of what's normal.

Sean O'Connor: I would say, it's been sort of a trend.

Sean O'Connor: Trends over the last sort of year also where I think things are coming into a more normalized range valuation wise I mean, we sort of dealt with a sort of craziness of Covid is it takes a while for people to adjust to kind of what's normal and I think thats starting to happen and we certainly see a fair amount of.

Sean O'Connor: And I think that's starting to happen. And, you know, we certainly see a fair number of opportunities coming to us at the moment, and they seem to be more reasonably priced. So, you know, if that all holds, it probably argues that there's a higher probability we may do something than say two years ago. But, you know, with M&A, it's really hard.

Sean O'Connor: Of opportunities coming to us at the moment.

Sean O'Connor: And they seem to be more reasonably priced so.

Sean O'Connor: If that all holds it probably.

Sean O'Connor: Argues that we did.

Sean O'Connor: Higher profitability, we may do something than say two years ago with M&A, It's really hard I mean, we stay very disciplined around us we don't chase deals we don't chase price.

Sean O'Connor: We found that bad things happen when you do that.

Sean O'Connor: But certainly it looks more encouraging than it did even.

Sean O'Connor: Even a year ago so.

Sean O'Connor: Initially, we will do anything, but it's certainly more encouraging.

Daniel Thomas Fannon: Great, thanks for taking all my questions.

Speaker Change: Great. Thanks for taking all my questions.

Sean O'Connor: Sure, no problem. I appreciate it, Dan. Thank you.

Speaker Change: Sure No problem appreciate it Dan.

Operator: Operator, do we have any other questions? Again, if you would like.

Speaker Change: Operator, do we have any other questions.

Operator: Again, if you would like to ask a question, press star and then the number 1 on your telephone, J Fannon.

Operator: Again, if you would like to ask the question, Chris sides and the number one on your telephone keypad.

Operator: Okay.

Operator: Alright, well I don't see any questions popping up, so I'd just like to say thanks to everyone for attending our conference call. I appreciate all the support, and we will speak to you in three months' time. Thank you.

Speaker Change: Alright, well I don't see any questions popping up so.

Operator: So just like to say thanks to everyone for attending our conference call I. Appreciate all the support and we will speak to you in three months time. Thank you.

Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining us. You may now disconnect.

Speaker Change: Ladies and gentlemen that concludes today's call. Thank you all for joining you may now disconnect.

Operator: [music].

Operator: Okay.

Operator: [music].