Q3 2024 StoneX Group Inc Earnings Call

Operator: This discussion may contain forward-looking statements when the meaning of Section 27A of the Securities Act of 1933 is amended and Section 21E of the Securities Exchange Act of 1934 is amended. These forward-looking statements involve known and unknown risks and uncertainties, which are detailed in our filings with the SEC. Although the company believes 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.

Operator: this discussion may contain forward-looking statements when the meaning of Section 27A of the Securities Act of 1933 is amended and Section 21E of the Securities Exchange Act of 1934 is amended. These forward-looking statements involve known and unknown risks and uncertainties, which are detailed in our filings with the SEC. All of the company believes its forward-looking statements are based upon reasonable assumptions regarding its business and future market conditions.

This discussion may contain forward looking statements within the meaning of section 27, a of the Securities Act of 1933 as amended.

Section 21 E of the Securities Exchange Act of 1034 as amended.

These forward looking statements involve known and unknown risks and uncertainties, which are detailed in our filings with the SEC.

Although the company believes its forward looking statements are based upon reasonable assumptions regarding its business and future market conditions. There can be no assurances that the company's actual results will not differ materially from any results expressed or implied by the companys forward looking statements.

Operator: 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 it is a result of new information, future events, or otherwise.

Operator: 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.

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.

Operator: Readers are cautioned that any forward-looking statements are not guaranteed the future performance.

Sean O'Connor: With that, I'm now turn the call over to Sean O'Connor, the company CEO.

With that I'll now turn the call over to Sean O'connor the company's CEO.

Sean O'Connor: Thanks, Bill. Good morning, everyone, and thanks for joining the call. Starting on slide three of the earnings deck, the third quarter of fiscal 2024 was a solid result for us with net income of $61.9 million and EPS of $88 per diluted share. This represented a 15.7% ROE on stated book and 16.5% ROE on tangible book value, despite a 19% increase in book value over the year and a 54% increase in book value over the last two years.

Sean O'Connor: Versus the comparative year-ago period, which was a record quarter for us, we were down 11% in net income and 13% in EPS. On a consecutive quarterly basis, our earnings were up 17%, and our diluted EPS was up 15%. We had record operating revenues of 913.7 million, up 18% versus the prior year. Operating revenues include not only interest earned on our client float, but also carried interest that is related to our fixed income trading activities. Net operating revenues, which net off interest expense, as well as introducing broker commission and peering costs, were also a record and up 7% versus a year ago, and up 11% versus the immediately prior quarter.

Sean O'Connor: Total compensation and other expenses were up 12% for the quarter, with variable compensation up 8%, which is in line with net operating revenue growth.

Sean O'Connor: Fixed compensation and related costs were up 22% versus a year ago, and were up 6% compared to the immediately prior quarter, due in large part to severance costs relating to an executive office.

Sean O'Connor: For the nine months to date, we recorded earnings of 184.1 million, or $5.64 per share, down slightly versus the comparative period. On a trailing 12 month basis, our operating revenues were 3.3 billion, up 21% versus the prior 12 month period, and adjusted net income was 238.9 million, up 6%. With EPS of $7.21 per diluted share, down 4%. We ended our third quarter, 2024, with book value just over $50, $50, and $65, up 19% versus a year ago. and now turning to slide four in the earnings deck, which compares quarterly operating revenues by product versus a year ago.

Sean O'Connor: On a trailing 12-month basis, our operating revenues were $3.3 billion, up 21% versus the prior 12-month period, and adjusted net income was $238.9 million, up 6%. As we know, volatility can change quickly, and indeed recent events over the last couple days have proved this out, and we are hopeful we may see better market conditions ahead.

Sean O'Connor: Generally speaking, the market environment was difficult for us, with extremely low volatility. In fact, the VIX was close to all-time lows during much of the quarter, which never negatively impacted revenue capture in most of our products. Low volatility and the resulting tough trading environment have characterized most of this fiscal year. This market complacency has been difficult to understand given the current geopolitical tensions, the election cycle here in the US and in many other countries, as well as the uncertain economic situation. As we know, volatility can change quickly, and indeed recent events over the last couple of days have proved this out. We are hopeful we may see better market conditions ahead.

Sean O'Connor: However, we continue to see good client engagement and market share increases, as evidenced by generally increased volumes across most of our products. The earnings power related to unhounds client footprint should be evidence with improved trading conditions. For the quarter, we saw strong revenue gains in listed derivatives, with both our institutional segments seeing strong volume growth of 41%, as we saw market gains with large institutional clients, offset by a 17% reduction in contract rates. Our commercial segments were 17% increase in volumes and a 10% increase in contract rates. The securities revenue was up 37% with volumes up 37%; rate per million down 9%.

Sean O'Connor: For the quarter, we saw strong revenue gains in listed derivatives, with both our institutional segments seeing strong volume growth of 41%, as we saw market gains with large institutional clients offset by a 17% reduction in contract rates. Again, on a long-term basis, this is an important indicator for us when it comes to measuring client engagement and market penetration. Our commercial segment had a record quarter in both operating revenues and segment income.

Sean O'Connor: FX and CFD revenues were up 6% due to small gains in both volumes and spread capture. OTC revenue was down 8%, largely due to volumes being down 10%, versus a record prior year period. Payments revenue was down 5%, due to a lower revenue capture as a result of tighter spreads in most of our key payment corridors. Physical revenues were down 17%, versus last year's very strong quarter, due largely to declining our renewable fuels business. I aggregate client float, which includes both listed derivative client equity and our money market and FDIC sweep balances, decline 10% versus the prior year.

Sean O'Connor: Despite this, interest and fee income on these client balances increased 26% to 115.9 million due to us capturing a higher interest rate in the current period versus the year-ago period. 20% to slide five, and looking at the same data of the trailing 12 months, we can again see good revenue growth across most of our products, with the exception of physical contracts. Volumes were up across the board, except for FX and CFDs, which were down 12%. Again, on a long-term basis, is an important indicator for us when it comes to measuring client engagement and market penetration.

Sean O'Connor: Revenue captures largely a function of market conditions, and again we see a mixed picture as market volatility generally retraced to lower levels compared to the prior year, with the exception of FX and CFDs, which experienced a higher increase in rate per million, up 34% versus the prior year. In addition, we continue to see the effect of the change in product mix and the securities revenue capture with increased volumes in lower-margin products. Turning now to slide six, our segment summary, and just a touch on a few highlights before we'll get into more details. For the quarter, segment operating revenues were up 18% and segment income was up 17% versus the prior year quarter.

Sean O'Connor: All segments were up both in terms of revenues and income, except for payments, which is marginally lower. Our commercial segment had a record quarter in both operating revenues and segment income, where segment income was up 7% off the back of a 4% increase in operating revenues, with increased revenues in listed derivatives and interest offsetting the lower OTC and physical revenues. On a sequential basis, operating revenues and segment income were up 31% and 47%, respectively. Our institutional segment realized that 34% increase in operating revenues, which translated into a 38% increase in segment income of the back of a strong increase in securities revenues and interest income.

Sean O'Connor: With segment income up 7% off the back of a 4% increase in operating revenues, with increased revenues in listed derivatives and interest offsetting the lower OTC and physical revenue, operating revenues were up 4%, and segment income was up 15%, versus the immediately prior quarter, on a trailing 12-month basis. We had operating revenue gains and segment income gains across the board. With that, I'll hand you over to Bill Dunaway for a discussion of the financial results. Bill, it's over to you.

Sean O'Connor: Additional segment were a loss of 34% increase in operating revenues, which translated into a 38% increase in segment income off the back of a strong increase in securities revenues and interest income.

Sean O'Connor: On a sequential basis, operating revenues were up 10% and segment income was up 1%. We told us again, a stand up this quarter, with operating revenues up 5% driving a 60% increase in segment income, highlighting operational leverage we have in this digital offering. On a sequential basis, operating revenues were down 6%, and segment income decreased 17%. In our payment segments, operating revenues were down 4% and segment income was down 1%, primarily due to tighter FX spreads in our key payment corridors. Operating revenues were up 4% and segment income was up 15% versus the immediate prior quarter.

Speaker Change: On a sequential basis operating revenues were up 10% and segment income was up 1%.

Speaker Change: Retail was again a standout this quarter with operating revenues up 5% driving a 60% increase in segment income highlighting the operational leverage we have in this digital offering.

Speaker Change: On a sequential basis operating revenues were down 6% and segment income decreased 17%.

Speaker Change: In our payments segment operating revenues were down 4% and segment income was down 1%, primarily due to talk to FX spreads in all key payment Colorado's operating revenues were up 4% and segment income was up 15%.

Speaker Change: Versus the immediately prior quarter.

Sean O'Connor: On a training 12 month basis, we had operating revenue gains at segment income gains across the board. Retail was again the stand up with segment income up 209%, followed by institutional up 17% and payments up 19%. Turning now to slide 7, which sets out at the top of the page our training 12-month financial performance over the last 8 quarters.

Speaker Change: On a trailing 12 month basis we.

Speaker Change: We had operating revenue guidance at segment income gains across the board.

Speaker Change: Retail was again the standoff with segment income up 209%, followed by institutional up 17% and payments up 19%.

Speaker Change: Turning now to slide seven which sits at the top of the page.

Sean O'Connor: These numbers have been adjusted for the accounting treatment related to the gain and CDI acquisition, as disclosed in our prior filings, which appears in the reconciliation provided in the appendix of this earnings death. On the left-hand side, the bars represent our training 12-month operating revenues over the last 9 quarters. As you can see, this has been a smooth and strongly upward trend, and we, as we have steadily expanded our footprint and capabilities. Our operating revenues are 72% over this period, for a 31% compound average growth rate. Our adjusted pre-tax income has likewise grown significantly at a 22% CAGR.

Sean O'Connor: On the right hand side, you can see our adjusted net income in the bars, which is up 40% over the last two years for an 18% CAGR. The dotted line on the right-hand side represents our adjusted ROE, which has remained above 15% target, even though our capital has grown 54% over this period. The bottom half of the slide sets out our long-term performance, both measured in stockholders' return, which is the bottom left graph, in which we have significantly outperformed both indices shown, as well as our financial performance on the right-hand graph, which shows we have grown our stockholder equity, operating revenue, and market capitalization at nearly 30% compound growth rates over the last 21 years.

William Dunaway: With that, I'll hand you over to Bill Dunaway for a discussion of the financial results. Over to you.

William Dunaway: Thank you, Sean. I'll be starting on slide number 8, which summarizes our consolidated income statement for the third quarter of fiscal 24. Sean covered many of the consolidated highlights related to the operating revenues for the quarter.

William Dunaway: So I'll just mention one more item, and then cover off on some of the consolidated expense fluctuations, and then finish with a segment discussion. Operating revenues for the current quarter include $8.5 million realized gain on the sale of inventory, which is carried at cost, for which losses unrelated to derivative positions were recognized in the immediately preceding quarter, as discussed on our last earnings call. Similar in nature, the prior year quarter had a $3.6 million realized gain on physical inventory is carried at cost. Moving on to consolidated expenses, transaction-based clearing expenses increased 21% to 81 million in the current period as a result of the increase has been listed derivative and securities volumes as compared to the prior year.

Bill Dunaway: Similar in nature, the prior year quarter had a $3.6 million realized gain on physical inventories carried at cost. Moving on to consolidated expenses, transaction-based clearing expenses increased 21% to $81 million in the current period as a result of the increases in listed derivative and securities volumes as compared to the prior year. Introducing broker commissions, we're relatively flat with the prior year at $43.1 million in the current period.

William Dunaway: Introducing broker commissions were relatively flat with prior year, 43.1 million in the current period. Interest expense increased 81 million versus the prior year, primarily as a result of the $72.7 million increase in interest expense led to our institutional fixed income business, as well as a $5.2 million increase in interest expense related to securities lending activities, both of which were due to the increase in short from interest rates and, in addition, in the case of the fixed income business, increased volumes. Interest paid on client balances on deposits, client 2.3 million, is compared to the prior year due to the decline in average client flow.

William Dunaway: Interest expense on corporate funding increased 9.2 million due to the incremental interest on our March 1, 2024, issuance of senior secured notes due to 2031, which allowed us to extend our debt maturity profile and bolster our liquidity. The proceeds of these notes were used to defeat 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. While the funds from the issuance of the new notes were used to redeem the notes due to 2025, the exemptions do not incur until June 17, 2024 in order to redeem those notes at par.

Bill Dunaway: Interest expense on corporate funding increased $9.2 million due to the incremental interest on our March 1st, 2024 issuance of senior secured notes due 2031, which allowed us to extend our debt maturity profile and bolster our liquidity. The proceeds of these notes were used to defease $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. While the funds from the issuance of the new notes were used to redeem the notes due 2025, the redemption did not occur until June 17, 2024, in order to redeem those notes at par.

Bill Dunaway: In addition, upon completion of the redemption of the note due 2025, we recognize $3.7 million loss on extinguishment of debt related to the write-off of unamortized original issue discount and deferred financing costs. Fixed compensation increased 20.8 million or 22% versus the prior year, which was partially driven by a 4.1 million increase in severance as compared to 4.1 million in severance costs as compared to 700,000 in the prior year, as well as a $1.8 million, in accelerated share-based and long-term incentive compensation related to the departure of an executive office, a $5 million increase in non-trading technology and support and a $3.5 million increase in occupancy and equipment rental, principally driven by the acquisition of additional space in London and a continued build-out of our offshore presence in India.

William Dunaway: This resulted in an incremental 6.8 million of interest expense during the defesment period. In addition, upon completion of the redemption of the notes due to 2025, we recognized a 3.7 million loss on extinguishment of debt related to the write-off of unamortized original issued discount and deferred financing costs. Partially offsetting the incremental interest expense on the defes notes, we earned 3.9 million in interest income on the funds held in escrow up until the redemption date. Overall, this transaction was leveraged neutral for us while extending out our maturity profile by 6 years. Following the transaction, we have nearly 2.2 billion in long-term capital available to support our clients and our growth.

William Dunaway: Moving on, variable compensation increased 10.1 million versus the prior year and represented 30% of net operating revenues in both the current and the prior year period. This compensation increased 20.8 million or 22% versus the prior year, which was partially driven by a 4.1 million increase in severance as compared to 4.1 million in severance cost is compared to 300,000 in the prior year, as well as a 1.8 million dollar.

William Dunaway: in accelerated share-based and long-term incentive compensation related to the departure of an executive officer. In addition, non-verbal salaries increase 8.8 million or 13% due to a 12% increase in headcount, resulting from an expansion of our capabilities among our business lines as well as in support areas that facilitate this business growth, as well as annual merit increases. Sixth compensation increased 6% versus the immediately preceding quarter, primarily due to the increase in severance and acceleration of share-based compensation and long-term compensation I just noted. Other fixed expenses increased 15.8 million as compared to the prior year, including a $6.1 million increase in professional fees, primary areas due to an increase in legal fees, a $5 million increase in non-training technology and support, and a $3.5 million increase in occupancy and equipment rental, principally driven by the acquisition of additional space in London, and a continued build-out of our offshore presence in India.

William Dunaway: Compared to the immediately preceding quarter, other fixed expenses increased 1.4 million, principally driven by a $700,000 increase in professional fees and a $700,000 increase in trade systems and market information. Finally, to close out the discussion of expenses, we had a favorable variance in bad debts and net of recoveries of 5.8 million and 900,000 versus the prior year and the immediately preceding quarters, respectively. The other gain of 1.8 million in the current quarter of the class action settlement received in the commodity exchange gold futures and options trading matter. Net income for the third fiscal quarter of 2024 was 61.9 million, which represents an 11% decline versus a very strong prior year period.

Bill Dunaway: Finally, to close out the discussion of expenses, we had a favorable variance in bad debts, net of recoveries of $5.8 million and $900,000 versus the prior year and the immediately preceding quarters, respectively. The other gain of $1.8 million in the current quarter is a class-action settlement received in the Commodity Exchange Gold Futures and Options Trading business. Net income increased 17% versus the immediately preceding quarter. The increase versus the prior year was principally driven by a $16.4 million increase in derivative operating revenues driven by increased volumes and wider spreads in London metals markets following the U.S. and U.K. sanctions on Russian metals.

William Dunaway: Net income increased 17% versus the immediately preceding quarter.

Speaker Change: Increased 17% versus the immediately preceding quarter.

William Dunaway: Moving on to slide number nine, I'll provide some more information on our operating segments. Operating revenue in our commercial segment increased 9.5 million versus the prior year, 61.7 million when compared to the immediately preceding quarter. The increase versus the prior year was principally driven by a $16.4 million increase in derivative operating revenues driven by increased volumes and widening spread and London metals markets following the US and UK sanctions on Russian metals. In addition, interest earned by client balances increased 10.2 million as compared to the prior year due to higher interest rates realized on client balances.

Speaker Change: Moving on to slide number nine I'll provide some more information on our operating segments operating revenue in our commercial segment increased $9 $5 million versus the prior year.

Speaker Change: $1 7 million when compared to the immediately preceding quarter.

Speaker Change: The increase versus the prior year was principally driven by a $16 $4 million increase in derivative operating revenues.

Speaker Change: Given by increased volumes and widening spreads in London metals markets. Following the U S and U K sanctions on Russian metals.

Speaker Change: In addition interest earned on our client balances increased $10 2 million as compared to the prior year due to higher interest rates realized on client balances.

William Dunaway: Offsetting these increases, operating revenues from physical transactions to client 11.7 million, despite the realized gain on the sale of physical inventory, period at cost I mentioned earlier, principally due to very strong performance in renewable fuels in the prior year. Finally, operating revenues from OTC derivatives declined 5.7 million as compared to the prior year, primarily due to a 10% decline in OTC volumes, primarily in Brazilian markets. Sixth competition of benefits increased 3.5 million versus the prior year and 3 million versus the immediately preceding quarter, primarily due to increased headcount and 600,000 and 7th cost in the current period.

Bill Dunaway: Offsetting these increases, operating revenues from physical transactions declined $11.7 million, despite the realized gain on the sale of physical inventories carried at cost I mentioned earlier, principally due to very strong performance in renewable fuels in the prior year. Finally, operating revenues from OTC derivatives declined $5.7 million as compared to the prior year, primarily due to a 10% decline in OTC volumes, primarily in Brazilian markets. Segment income was $125.7 million for the period, an increase of 7% versus the prior year and 47% versus the immediately preceding quarter.

Speaker Change: Offsetting these increases operating revenues from physical transactions declined $11 7 million. Despite the realized gain on the sale of physical inventories carried at cost I mentioned earlier, principally due to very strong performance in renewable fuels in the prior year.

Speaker Change: Finally, operating revenues from OTC derivatives declined $5 7 million as compared to the prior year, primarily due to a 10% decline in OTC volumes, primarily in Brazilian market.

Fixed compensation of benefits increased $3 5 million versus the prior year and $3 million versus the immediately preceding quarter, primarily due to increased head count and 600000 and severance costs in the current period.

William Dunaway: Other fixed expenses increased 4.6 million versus the prior year, but were down 500,000 versus the immediately preceding quarter. As compared to the prior year, we had increases in special fees and selling in markets.

Speaker Change: Other fixed expenses increased $4 6 million versus the prior year, but were down 500000 versus the immediately preceding quarter.

Speaker Change: As compared to the prior year, we had increases in professional fees and selling and marketing.

Speaker Change: Partially offsetting these increases we had a positive variance in bad debts net of recoveries of $5 million compared to the prior year.

William Dunaway: As a reminder, in the first quarter of the 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 the occupancy. We provide this allocation each of our segments to the current period, and we'll continue to do so prospectively; however, we have not calculated similar allocation for previously reported periods to the current period. This allocation of corporate costs for our commercial segment was 8.9 million.

Speaker Change: Segment income was $125 7 million for the period, an increase of 7% versus the prior year and 47% versus the immediately preceding quarter.

Bill Dunaway: As a reminder, in the first quarter of Cisco 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 provide 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.

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

Speaker Change: We provide this allocation each of our segments through the current period and we'll continue to do so prospectively. However, we have not calculated similar allocation for previously reported periods with a current period. This allocation of corporate costs for our commercial segment was $8 9 million.

Sean O'Connor: For the current period, this allocation of corporate costs for our commercial segment was $8.9 million. Moving on to slide number 10, operating revenues in our institutional segment increased $127.8 million versus the prior year, primarily driven by a $99.6 million increase in securities operating revenues compared to the prior year, as a result of a 37% increase in the average daily volume of securities transactions, as well as an increase in interest rates. Interest and fee income earned on client balances was up $4.7 million versus the immediately preceding quarter.

William Dunaway: Moving on to slide number 10, operating revenues in our institutional segment increased to 127.8 million versus the prior year. Primarily driven by a $99.6 million increase in securities operating revenues compared to the prior year, as a result of a 37% increase in the average daily volume of securities transactions, as well as the increase in interest rate. The increase in securities ADV was driven by an increase in client volumes in both equities and fixed income markets. Interest income earned on client balances increased 13.6 million versus the prior year, as a result of the increase in interest rates realized on these balances, which is partially offset by 9% and 24% declines in average client equity and average money market and FDIC client suite balances, respectively, versus the prior year.

Speaker Change: Moving on to slide number 10 operating revenues in our institutional segment increased $127 $8 million versus the prior year, primarily driven by a $99 $6 million increase in securities operating revenues compared to the prior year as a result of a 30, 37% increase in the average daily volume of securities transactions as well as the increase in intra.

Speaker Change: Right.

Speaker Change: The increase in Securities Adv was driven by an increase in client volumes in both equities and fixed income markets.

Speaker Change: Interest income earned on client balances increased $13 6 million versus the prior year as a result of the increase in interest rates realized on these balances, which was partially offset by 9% and 24% decline in average client equity and average money market and FDIC client sweep balances respectively versus the prior year.

William Dunaway: Interest income earned on client balance was up 4.7 million versus the immediately preceding quarter. The increase in securities ADV drove with 79.4 million dollar increase in interest expense versus the prior year. Interest expense related to fixed income trading and securities lending activities increased 72.7 million and 5.2 million, respectively, as compared to the prior year, while interest paid to clients decreased 3.8 million due to the decline in client balances. Segment income increased 38% to 62.2 million in the current period, primarily as a result of a 37.4 million dollar increase in net operating revenues, which is partially offset by a $4.2 million increase in fixed compensation and benefits, as well as a $1.6 million increase in other fixed expenses.

Speaker Change: Interest and fee income earned on client balances was up $4 $7 million versus the immediately preceding quarter.

Speaker Change: The increase in Securities Adv drove a $79 $4 million increase in interest expense versus the prior year interest expense related to fixed income trading and securities lending activities increased $72 7 million and $5 2 million, respectively as compared to the prior year, while interest paid to clients decreased $3 8 million due to the decline in client balances.

Speaker Change: Yeah.

Speaker Change: Segment income increased 38% to $62 2 million in the current period, primarily as a result of $37 $4 million increase in net operating revenues, which was partially offset by a $4 $2 million increase in fixed compensation of benefits as well as a $1 $6 million increase in other fixed expenses.

William Dunaway: Segment income increased $900,000 versus the immediately preceding quarter. For the current period, the allocation of corporate costs for institutional segments was 13.1 million.

Speaker Change: Segment income increased 900000 versus the immediately preceding quarter for.

Speaker Change: For the current period the allocation of corporate costs for our institutional segment was $13 1 million.

William Dunaway: Moving on to the next slide, operating revenues in a retail segment increased 4.7 million versus the prior year, driven by a $4.8 million increase in ethics and CFD revenues as a result of an 8% increase in rate for millions as compared to the prior year. Operating revenues declined 5.8 million versus the immediately preceding quarter, despite an 8% increase in ADV due to a decline in RPM, which was at an all-time high in the preceding quarter. Segment income was 27.6 million in the current period, which represents a 60% increase over the prior year. This was a result of the 5% increase in operating revenues, as well as 1.7 million and $2.5 million declines in fixed compensation and other expenses, respectively, as compared to the prior year.

Sean O'Connor: Moving on to the next slide, operating revenues in our retail segment increased $4.7 million versus the prior year, driven by a $4.8 million increase in FX and CFE revenues as a result of an 8% increase in rate per million as compared to the prior year. Segment income was $27.6 million in the current period, which represents a 60% increase over the prior year. This was a result of the 5% increase in operating revenues, as well as $1.7 million and $2.5 million declines in fixed compensation and other expenses, respectively, as compared to the prior year.

Speaker Change: Moving on to the next slide operating revenues in our retail segment increased $4 7 million versus the prior year driven by a $4 8 million increase in FX and Cfd revenues as a result of an 8% increase in rate per million as compared to the prior year.

Speaker Change: Operating revenues declined $5 8 million versus the immediately preceding quarter. Despite an 8% increase in adv due to a decline in RPM, which was at an all time high in the preceding quarter.

Speaker Change: Segment income was $27 6 million in the current period, which represents a 60% increase over the prior year. This was the result of a 5% increase in operating revenues as well as $1 7 million in two and a half million declines in fixed compensation and other expenses, respectively as compared to the prior year.

William Dunaway: In addition, in the current quarter received a $1.8 million in the gold fixed class action matter. for the current period, the allocation of corporate costs for retail segment was $11.9 million, and segment income declined $5.6 million, compared to the immediately preceding quarters.

Sean O'Connor: In addition, in the current quarter, it received $1.8 million in the Goldthick Class Action Matter. For the current period, the allocation of corporate costs for the retail segment was $11.9 million, and segment income declined $5.6 million compared to the immediately preceding quarter. Closing out the segment discussion on the next slide, operating revenues in our payment segment declined 4% versus the prior year, despite a 6% increase in ADV, as the rate per million declined 13% as compared to the prior year. With that, I'd like to turn it back over to Sean.

Speaker Change: In addition in the current quarter received $1 $8 million and the gold class action matter.

Speaker Change: For the current period the allocation of corporate costs for retail segment was $11 9 million and segment income declined $5 6 million compared to the immediately preceding quarter.

William Dunaway: Closing out the segment discussion on the next slide, operating revenues in our payment segment declined 4%, versus the prior year, despite a 6% increase in ADV, as the rate per million to client 13% is compared to the prior year. Segment income declined 1%, 28.2 million in the current period, as a result of the decline in operating revenues, which is partially offset by a $1.1 million decrease in fixed competition and benefits. Segment income increased $3.6 million versus the immediately preceding quarter, and for the current period, the allocation of corporate costs for our payment segment was $5.3 million.

Speaker Change: Closing out the segment discussion on the next slide operating revenues in our payments segment declined 4% versus the prior year. Despite a 6% increase in Adv is the rate per million declined 13% as compared to the prior year.

Speaker Change: Segment income declined 1% to $28 2 million in the current period as a result of the decline in operating revenues, which was partially offset by a $1 $1 million decrease in fixed compensation and benefits.

Speaker Change: Segment income increased $3 6 million versus the immediately preceding quarter and for the current period the allocation of corporate costs for our payments segment was $5 3 million.

Sean O'Connor: With that, I'd like to turn it back over to Sean.

Speaker Change: With that I'd like to turn it back over to Sean.

Sean O'Connor: Thanks, Bill.

Sean O'Connor: Moving on to slide 13, which sets up the high-level strategic objectives that we have focused on. This basic approach and strategy has been unchanged for over 15 years and has served us well, and we have mentioned and discussed it on numerous calls before, but I think it probably is probably worth repeating again. We remain in a constructive industry environment, which aligns with our strategy, which is summarized on this slide. Following the financial crisis, there was a comprehensive and significant response from the regulators around the world to create a more robust and durable financial market. The key impacts of this were a massive increase in cost due to a more complex process and oversight, as well as dramatically increased capital requirements.

Sean: Thanks, Bill moving onto slide 13, which sets up the high level strategic objective that we are focused on this basic approach and strategy has been unchanged for over 15 years and has served us well and we have mentioned and discussed on numerous calls before but I think it probably bears.

Sean: It's probably worth repeating again.

Sean: We remain in a constructive industry environment, which aligns with our strategy, which is summarized on the slide.

Sean O'Connor: Following the financial crisis, 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.

Speaker Change: Following the financial crisis, there was a comprehensive and significant response from the regulators around the world to create a more robust and durable financial market. The key impacts of this massive increase in costs due to more complex process and oversight as well as dramatically increased capital requirements. This made it difficult for smaller firms and those with narrow product offerings to Jen.

Sean O'Connor: This made it difficult for smaller firms, and those with narrow product offerings, to generate sufficient revenue to remain viable, given the cost and capital requirements. As a result, there has been and continues to be a fairly dramatic consolidation in our industry. This can be evidenced by looking at clearing FCMs and broker dealers, the number of which has massively declined. We have directly participated in this process through some of our acquisitions, and have also benefited indirectly as clients have been forced to find new firms for their business. In addition, we have seen a fairly significant withdrawal from our markets by the big banks, as capital requirements have forced them to re-evaluate their strategy.

Sean O'Connor: This has made it difficult for smaller firms and those with narrow product offerings to generate sufficient revenue to remain viable, given the cost and capital requirements. As a result, there has been and continues to be a fairly dramatic consolidation in our industry. This can be evidenced by looking at clearing FCMs and broker-dealers, the number of which has massively declined.

Speaker Change: Alright, so sufficient revenue to remain viable given the cost and capital requirements. As a result, there has been and continues to be a fairly dramatic consolidation in our industry. This can be evidenced by looking at carrying ftm's of broker dealers and the number of which is massively declined.

We have directly participated in this process through some of the acquisitions and I've also benefited indirectly as clients have been forced to find new firms for their business.

Speaker Change: In addition, we have seen a fairly significant withdrawal from our markets by the big banks as capital requirements have forced them to reevaluate the strategy.

Sean O'Connor: The large banks in aggregate still account for the majority share of the market, but they are retreating, which creates a significant opportunity for us. Generally speaking, the Basel Capital rules are putative for the trading type operations we have, and if adopted fully, I am certain the banks' withdrawal from our market will continue to accelerate, as they increasingly focus on their tier one core customers. Both of these factors, the lower end consolidation, and the withdrawal by the larger banks, have directly and positively impacted Stonics, and have allowed us to post-CAGAs close to 30% over the last 20 years.

Sean O'Connor: The large banks, in aggregate, still account for the majority share of the market, but they are retreating, which creates a significant opportunity. 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 remain relevant to our existing clients.

Speaker Change: Large banks in aggregate still account for the majority share of the market, but they are retreating which creates a significant opportunity for us generally speaking the Basel capital rules of Pulitzer for the trading type of operations, we have and if adopted fully I'm certain the bank's withdrawal from a market will continue to accelerate as they increasingly focus.

Speaker Change: On the tier one core customers.

Speaker Change: Both of these factors the low end consolidation and the withdrawal by the larger banks have directly and positively impacted <unk>.

And have allowed us to post CAG is close to 30% over the last 20 years.

Sean O'Connor: We think there's still a long way to go in this re-ordering of the market structure, and with our broad and unparalleled capability and product set, we are deeply placed to continue to take advantage.

Speaker Change: We think there is still a long way to go in this reordering of the market structure and with our broad and unparalleled capability and product set we are daily place to continue to take advantage.

Sean O'Connor: The most significant strategic priority for us in the context of the market dynamics I've just mentioned is to keep building our ecosystem. 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 main relevant to existing clients. Our belief StoneX is now becoming known as a growing and best-in-class financial services franchise. Secondly, 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.

The most significant strategic priority for us in the context of the market dynamics I just mentioned is to keep building our ecosystem.

Speaker Change: We want to be the most relative.

Speaker Change: Relevant for them in the space by having the best ecosystem.

Speaker Change: To connect clients to the global financial markets. This makes us an attractive destination for new clients looking for a single partner to satisfy their trading needs and allows us to main relevant to our existing clients.

Sean O'Connor: I believe StoneX is now becoming known as a growing and best-in-class financial services franchise. Secondly, 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 will also seek to serve new channels, segments, and markets and increasingly look to cross-sell all of our various capabilities to all of our existing clients. In addition, we will not achieve the necessary growth and scale unless we continue to embrace technology and digitize our office.

Speaker Change: <unk> is now becoming known as a growing and best in class financial services franchise.

Speaker Change: Secondly, 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.

Sean O'Connor: We will also seek to serve new channels, segments, and markets and increasingly look to cross-sell all of our various capabilities to all of our existing clients. In addition, we will not achieve the necessary growth in scale unless we continue to embrace technology and digitize our offering. This will not only enhance client engagement but increase scalability and margins. This initiative requires a rethink of our processes from front to back and has been underway for some years now but has been accelerated with the acquisition of Gain, which itself is a digital business. Success on the technology side should allow us to accelerate revenue growth by more effectively gaining market share, drive margins through better revenue capture on the execution side, and allow us to achieve better operational leverage.

Speaker Change: Seek to serve new channels segments and markets and increasingly look to cross sell all of our various capabilities to all of our existing clients.

Speaker Change: In addition, we will not achieve the necessary growth and scale unless we continue to embrace technology and digitize offering this will not only enhance client engagement, but increased scalability and margins. This initiative requires a rethink about processes from front to back and has been underway for some years now but has been to accelerate.

Sean O'Connor: This will not only enhance client engagement but increase scalability and margin. Success on the technology side should allow us to accelerate revenue growth by more effectively gaining market share, drive margins through better revenue capture on the execution side, and allow us to achieve better operational leverage. These three factors together could and should be a powerful driver of our bottom line and net margin. Finally, our business is supported by capital, and we need to underpin our growth with internally generated capital, access capital markets when appropriate, and approach acquisitions in a disciplined manner.

Speaker Change: With the acquisition of game, which itself is a digital business.

Speaker Change: SaaS on the technology side should allow us to accelerate revenue growth by more effectively gaining market share.

Speaker Change: <unk> margins through better revenue capture on the execution side and allow us to achieve better operational leverage. These three factors together could and should be a powerful driver of our bottom line and net margins.

Sean O'Connor: These three factors together could and should be a powerful driver of our bottom line and net margins.

Sean O'Connor: Finally, our business is supported by capital, and we need to underpin our growth with internally generated capital, access capital markets, win appropriate, and approach acquisitions in the disciplined manner. Our business requires regulatory capital to the client 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. They will define a long-term client franchise.

Speaker Change: Finally, our business is supported by 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 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 friendship. Moving on to the last slide and in conclusion,

Speaker Change: Business requires regulatory capital to the floor the client 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 our long term client franchise.

Sean O'Connor: Moving on to the last slide and in conclusion, we achieved solid results in the third person called Cauter 2024, delivering record operating revenues of 914 million, up 18%, earnings of 61.9 million, and a diluted EPS of $1.88. This represents a 15.7 ROE on stated book ahead of our long term 15% target. For the training 12 months, we generated net income of 234.8 million and EPS of $7.21 hurdle to share. 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 19%.

Speaker Change: Moving on to the last slide and in conclusion.

Sean O'Connor: We achieved solid results in the third fiscal quarter of 2024, delivering record operating revenues of $914 million, up 18 percent, earnings of $61.9 million, and a diluted EPS of $1.88. This represents a 15.7 ROE on stated book ahead of our long-term 15% target. For the trailing 12 months, we generated net income of $234.8 million and EPS of $7.21 per diluted share. 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 19%.

Speaker Change: We achieved solid results in the third fiscal quarter of 2020 for delivering record operating revenues of 914 billion up 18%.

Speaker Change: Earnings of $61 9 million and a diluted EPS of $1 88.

Speaker Change: This represents a $15 seven row stated book ahead of our long term, 15% target for the trailing 12 months, we generated net income of $234 8 million and EPS of $7 21 per diluted share.

Speaker Change: 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 19%.

Sean O'Connor: We are pleased to see that our business continues to generate strong long-term returns for our stockholders, despite lower volatility and more challenging trading conditions, 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 training 12 months over the last two years, which evens out the quarterly anomalies, our results continue to show a strong up-witch trajectory, growing our operating revenues at a 31% cargo, which is 72% over the last two years, and our adjusted earnings at an 18% cargo, which is up 40% over the last two years.

Sean O'Connor: We're pleased to see that our business continues to generate strong long-term returns for our stockholders, despite lower volatility and more challenging trading conditions, 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 trailing 12 months over the last two years, which evens out the quarterly anomalies, our results continue to show a strong upward trajectory, growing operating revenues at a 31% CAGR, which is up 72% over the last two years, and our adjusted earnings at an 18% CAGR, which is up 40% over the last, Over these last 12 months, we continue to see growth in online trading volumes across most of our products and in operating revenues across all of our segments, which speaks to the growth of our underlying client base and engagement, that it should result in enhanced long-term earnings power as trading conditions improve.

Speaker Change: Pleased to see that our business continues to generate strong long term returns for our stockholders, despite lower volatility and more challenging trading conditions, which demonstrates the multiple drivers of our results and the diversification of our business.

Speaker Change: Were not performance is viewed through a slightly longer term land such as trailing 12 months over the last two years, which evens out the quarterly anomalies. Our results continued to show a strong upward trajectory growing operating revenues at a 31% cargo, which is up 72% over the last two years and our adjusted earnings and an 18% CAGR, which.

Speaker Change: Up 40% over the last two years.

Sean O'Connor: Over these last 12 months, we continue to see growth in trading volumes across most of our products and in operating revenues across all of our segments, which speaks to the management. There should result in enhanced long-term earnings power as trading conditions improve.

Speaker Change: Over these last 12 months, we continued to see growth in all of them.

Speaker Change: Trading volumes across most of our products and in operating revenues across all of our segments, which speaks to the growth of our underlying client base and engagement there.

Speaker Change: It should result in harm.

Speaker Change: <unk> long term earnings power as trading conditions improve.

Sean O'Connor: As a reminder, in our 2024 fiscal year, we celebrate the 100th anniversary of our namesake legacy company, Saul Stone & Company. Again, remarkable to think what started as a small door-to-door egg wholesaler has since grown into a global financial franchise spanning over 80 offices across six continents.

Sean O'Connor: As a reminder, our 2024 fiscal year, we celebrate our 100-year anniversary of our namesake legacy company, Saul Stone and Company. Again, remarkable to think what started as a small door-to-door egg wholesaler has since grown into a global financial franchise spanning over 80 offices across six continents. Alongstanding track record sets of standards, we believe as largely unmatched in our industry, yet we recognize we are still far from realizing the full scope of the opportunities and the market share available to us.

Speaker Change: As a reminder, our 2020 full fiscal year, we celebrate 100 year anniversary of our main site legacy company, So stone and company.

Speaker Change: Again remarkable to think what started as a small door to door egg wholesaler has since grown into a global financial franchise spanning over 80 offices across six continents.

Speaker Change: A long standing track record, it's a standard we believe it's largely unmatched in our industry. We recognize we are still far from realizing the full scope of the opportunities and the market share available to us with that operator, let's open the line for questions.

Operator: With that operator, let's open the line for questions. Thank you. At this time, we'll conduct the question-and-answer session. As a reminder, as a question, you'll need to press start one more on telephone and wait for your name to be announced. To withdraw your question, please press start one one again. Please stand by while we compile the Q&A roster.

Operator: Thank you. At this time, I would like to invite you to turn off your phone. Thank you. Thank you. Thank you.

Speaker Change: Thank you at this time, we will conduct a question and answer session.

Speaker Change: I actually ask a question you will need to press star one one telephone and wait for your name to be announced to withdraw. Your question. Please press star one again, please standby, while we compile the Q&A roster.

Speaker Change: Yeah.

Daniel Fannon: Our first question comes from the line of Dan Fannon of Jeffries. Your line is now open. Thanks. Good morning, Sean. Bill, how are you guys?

Speaker Change: Yeah.

Operator: Our first question comes from the line of Dan Fannon of Jeffries. Your line is now open.

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

Daniel Fannon: Thanks, good morning Sean. Bill, how are you guys? Hey Dan, how are you? Yeah, how are you?

Dan Fannon: Thanks, Good morning, Sean.

Daniel Fannon: Hey, Dan. How are you? Yeah, how are you? Good, good. Thanks.

Speaker Change: Bill how are you guys, Hey, Dan how are you yeah why don't you.

Sean O'Connor: Good, thanks. I'd like to start just on the short term, just given all that's happened here in the last, you know, kind of handful of trading days. I'd be curious about what you've kind of seen through your platform, both from a volume perspective, which I assume is elevated, but maybe also on the balance side. And curious if you would characterize this as good or bad volatility as we kind of get to some of these, you know, very quick moves and extremes. And I know volatility has been low, as you highlighted, Sean, in your prepared remarks, but just a little more context around recent volatility would be helpful.

Dan Fannon: Good thanks.

Daniel Fannon: I'd like to start just on the short-term, just given all that's happened during the last handful of trading days. It would be curious about what you've seen through your platform, both from a volume perspective, which I assume is elevated, but maybe also on the balance side. And curious if you would characterize this as good or bad volatility as we get to some of these very quick moves and extremes. And I know that volatility has been low, as you highlighted, Sean. You're prepared for marks, but just a little more context around more recent would be helpful.

Dan Fannon: Just I'd like to start just on the short term just given all that's happened here in the last kind of handful of trading days would be curious about what you've kind of seen through your platform. Both from a volume perspective, which I assume is elevated but maybe also on the balance side and curious if you would characterize this as good or bad.

Dan Fannon: That volatility as we kind of get to some of these very quick moves in extremes and I know volatility has been low as you highlighted Sean in your prepared remarks, but just a little more context around the more recent would be helpful.

Sean O'Connor: Well, I think, as we've always said, moderate volatility and reasonable interest rates are the best environment for us. Not very extreme volatility, the kind that we saw, you know, at the onset of COVID or the financial crisis or during the Ukraine war. You know that that can be less helpful because you know clients end up defaulting. There's a lot of market dislocation, which is difficult to handle. So, you know, we make a lot of money in those environments, but you can end up with, you know, bad debts and charges and the like.

Sean O'Connor: Well, I think as we've always said, you know, moderate volatility and reasonable interest rates are the best environment for us. You know, very extreme volatility that the kind that we saw, you know, at the onset of COVID or in the financial crisis or during the Ukraine war, you know, that can be less helpful because clients end up defaulting, there's a lot of market dislocation which is difficult to handle. So that, you know, we make a lot of money in those environments, but you know, you can end up with, you know, bad debts and chargers and the like.

Sean: Well I think as we've always said moderate volatility and reasonable interest rates or the best environment for us.

Sean: Very extreme volatility.

Speaker Change: Time that we saw.

Speaker Change: At the onset of Covid or the financial crisis in Ukraine wall.

Speaker Change: You know that that can be less helpful because clients.

Speaker Change: Faulting, there's a lot of market dislocation, which is difficult to handle so so that we make a lot of money in those environments, but you can end up with bad debts in charge offs and the lives.

Sean O'Connor: I would say the recent volatility over the last five days, in my opinion, didn't get to the sort of extreme volatility that I've just described, so you know there's obviously a spike in volatility. You know, I think, obviously, there were some people who were probably caught off guard by it a little bit, but we didn't see major market dislocations, the market was orderly, was

Sean O'Connor: I would say the recent volatility over the last five days, in my opinion, didn't get to the sort of extreme volatility that I've just described. So, you know, it was obviously a spike in volatility. You know, I think obviously there were some people who were probably caught off sides by it a little bit, but we didn't see major market dislocations. The market was orderly, but volume spike, spread spike. And obviously, that's good for us, right? So the last five days were sort of a good trading environment for us, but not extreme. Didn't see any major dislocations.

Speaker Change: I would say the recent volatility over the last five days in my opinion.

Speaker Change: I didn't get to the sort of extreme volatility.

Speaker Change: And then I've just described so you know because obviously a spike in volatility.

Speaker Change: I think obviously there were some people who are probably caught offsides by us a little bit, but we didn't see major market dislocations market was orderly.

Speaker Change: But volume Spike.

Speaker Change: Spreads Spike and obviously, that's good for US right. So the last five days with sort of a good trading environment for us, but not extreme but didn't see any major dislocations and as far as we're aware.

Sean O'Connor: And as far as we are aware, you know, no major sort of damage that we've heard about there.

Speaker Change: No major sort of damage, but that we've heard about out there. So I would I would say so the high a high volatility, but without any major problems.

Sean O'Connor: So, you know, I would say, so the high volatility, but without any in terms of balance and risk, or what's happening? Any changes that's worth noting there? Nothing that we can discern at the moment. Obviously, in that environment, there are lots of margin calls that have to be made. All of that was done in an orderly fashion, didn't have seen any major problems. What does tend to happen, though, if there's volatility continues, and I think we were at extreme low volatility, so even though the mix is probably going to come off the sort of 60 spike ahead, I think we may be in for slightly higher volatility and not to back down to the low.

Speaker Change: That answers your question.

Speaker Change: That's helpful and I guess in terms of balances in like risk or.

Speaker Change: Kind of what's happened at any changes that's worth noting there.

Speaker Change: Nothing that we can discern at the moment you know obviously, you're not in that environment. We sort of you know there are lots of margin calls that have to be made all of that was done in an orderly fashion.

Speaker Change: It didn't sort of see any major problems what does tend to happen, though if if this volatility continues and I think we were at extreme low volatility so.

Speaker Change: Even though the mix is probably going to come off the sort of 60 spike it hit.

Speaker Change: I think we might be in for slightly higher volatility and not come back down to the lowest when that tends to happen you would get recalibrated off a new volatility basis.

Sean O'Connor: When that tends to happen, if you get recalibrated or for a new volatility basis, which may require more balances to be put up to sustain the same level of activity, that's certainly what we saw maybe 18 months ago. One of the reasons we had much higher client balances was the exchange requirements were higher because of the COVID and Ukraine more situation had elevated volatility. We may see a little bit of an uptick in balances, just because margins get recalibrated or high volatility levels.

Speaker Change: Which may require more balances to be put up to sustain the same level of activity. That's certainly what we saw.

Speaker Change: Maybe 18 months ago, I mean, one of the reasons, we had much higher client balances was the exchange requirements were higher because of the.

Speaker Change: Covid and Ukraine more situations right had elevated volatility. So we may see a little bit of an uptick in balances just because margins get recalibrated or sort of higher volatility levels.

Speaker Change: Okay.

Speaker Change: Got it okay.

Daniel Fannon: Then just in terms of the core itself, obviously, revenue is quite strong, but we're continuing to see the fixed expense base grow. I think there were some things you called out, Bill, in terms of the one-timers around severance, but if I look, the nine-month number versus this year versus last year, just on a reported basis, fixed expenses are growing at a pretty healthy rate. Wanted to get a sense of, as you think about this transition, longer term of more digitization and frankly trying to get more efficient, where we think we are in that process, understanding variable complement with revenues, but would have thought there'd be a little bit more higher incremental margin on the fixed side in a period like this.

Speaker Change: And then just in terms of.

Speaker Change: The quarter itself, obviously revenue is quite strong, but we're continuing to see the fixed expense base grow.

Speaker Change: There were certainly some things you've called out bill in terms of the one timers around severance, but if I look at the nine month number versus this year versus last year, just on a reported basis fixed expenses are growing at a pretty healthy rate.

Speaker Change: Wanted to get a sense of as you think about this transition longer term of more digitization and frankly trying to get more efficient where we think we are in that process because.

Speaker Change: I understand the variable comp will move with revenues, but would have thought there'd be a little bit more higher incremental margin on the fixed side in a period like this.

William Dunaway: Sure, Dan. So certainly, as I called out on a little bit, I mean, we had fixed compensation or non-variable compensation of about six million sequentially. The vast majority of that, as I touched on during my portion, was related to some severance and some acceleration. So I think that certainly, we wouldn't expect to have that level on a go-forward basis. We've seen a build-out of ACCC equipment rental. We are trying to take steps to go offshore with some of our development and that digitization, so we have taken some additional space in India, which is flowing through, and we'd like to think we'll see the benefits of that going forward.

Speaker Change: Sure Dan so.

Speaker Change: Sure Yeah, so certainly as I called out on a little bit I mean, we had fixed compensation or non variable compensation up.

Speaker Change: $6 million sequentially.

Speaker Change: Majority of that as I touched on during my portion.

Speaker Change: Was it related to some severance and some acceleration.

Speaker Change: That certainly.

Speaker Change: We wouldn't expect to have that level on a go forward basis.

Speaker Change: We've seen a build out of occupancy equipment rental.

Speaker Change: We are trying to take steps to.

Speaker Change: To go offshore with some of our development and that Digitization. So we have taken some additional space in India.

Speaker Change: Which which is flowing through and we'd like to think we will see the benefits of that going forward.

William Dunaway: So obviously, I think that we have seen a pretty good growth. We would like to think that certainly it's a focus for us going forward to try to drive the operating margin that we have and really focus on the growth in the fixed side. Some of them end up being a little bit out of your control, like professional fees, etc. But certainly, it is an area of focus for us, so we would expect the growth in it certainly not to continue to be at the rate it was in the year-over-year that we've seen here. As you noted, I would say, Dan, there's two big buckets of compensation costs or two ways to think about it, right?

Speaker Change: So you know obviously I think that we have seen a pretty good growth we'd like to think that that certainly is a focus for us going forward to try to drive the operating margin that we have and really focus on the growth in the fixed side.

Speaker Change: Some of them end up being a little bit out of your control like professional fees et cetera.

Bill Dunaway: You know, but certainly it is an area of focus for us, so we would expect the growth in it certainly not to continue at the rate it was, you know, kind of in the year over year that we've seen here, as you noted.

Speaker Change: But certainly it is an area of focus for us. So we would expect the growth and it's certainly not to not to continue to be at the rate. It was kind of in the year over year that we've seen here as you noted.

Speaker Change: I would say that there's sort of two big buckets of.

Speaker Change: Yes, I'm sort of compensation costs of two ways to think about it right. We've got a sort of institutional sort of high touch business, where there's a lot of variable comp and that business continues to grow and we continue to recruit teams of people and hire people and expand that business and that obviously adds to fixed compensation and obviously very.

William Dunaway: We've got our institutional high-touch business where there's a lot of variable comp, and that business continues to grow, and we continue to recruit teams of people and hire people and expand that business, and that obviously adds to fixed compensation and obviously variable comp when the revenues grow. So, I don't think that's going to stop growing. I mean, I think what we've got to make sure is that that growth is sort of delivering the incremental revenue. We hope it's going to deliver. On the technology side, certainly for the client-facing technology, you sort of have to build it and spend the money in the hope that down the line you'll see the revenue, and I think we're starting to see that and gain.

Speaker Change: When when the revenues grows so I don't think thats going to stop growing I mean, I think what we want to make sure is that that growth is sort of delivering the incremental revenue, we hope it's going to deliver on.

Speaker Change: On the on the technology side, certainly for the client facing technology.

Speaker Change: You sort of have to build it and spend the money in the hope that down the line, you'll see the revenue and I think we're starting to see that.

William Dunaway: I think it's the old Gain retail platform is doing exceptionally well, and that's where we hope to see real margins because there's almost zero variable comp attaching to that, but there's a high fixed cost element because you've got a lot of developers and so on. And what we're trying to do there is we factor that cost-based by pushing as much of that cost to more efficient locations. So, we've got, well, correct me if I'm wrong, but around numbers, we've got 400 plus people now in India, we've got 300 plus people in Poland, we've got people that we're spinning up in some other lower cost places.

Speaker Change: And I think it's sort of old gain retail platform is doing exceptionally well and that's the way we hope to see real margins because its almost zero variable comp attaching to that but there is a high fixed cost element because you've got a lot.

Speaker Change: Of developers and so on and what we tried to do this we factor that cost base by pushing as much of that cost to more efficient locations. So we've got so correct me if I'm wrong, but round numbers. We've got 400 plus people now in India. We've got 300 plus people in Poland. We've got.

Speaker Change: That we are spending up in some other lower cost places and.

William Dunaway: And you know, there's a pretty big delta on the cost there. I mean, it's 50% or greater in some of those regions. So, you get a lot of efficiencies if we can refactor the cost-based. Now, we're having to build offices to do that. I think some of that costs come through, but I think that's going to refactor that cost-based. And as we start to see that revenue come through, I think hopefully we should start to see sort of operational leverage coming from that. And we'll have a high fixed cost, but we'll have, you know, very high operational leverage once the revenues cover the costs.

Speaker Change: Theres, a pretty big Delta on the costs, there I mean, it's 50% or greater in some of those regions. So you get a lot of efficiencies. If we can re factor the cost base now we're having to build offices to do that do you think some of that cost come through but I think that's gonna re factor that cost base and as we start to see that revenue come through I think hopefully we should start to see.

Speaker Change: Operational leverage coming from that.

Speaker Change: We will have a high fixed cost, but will have very high operational leverage once the revenues cover the costs.

William Dunaway: The other thing we're doing internally is, you know, we're undergoing a little bit of a internal weorg to try and simplify our tax back, try and centralize and get some efficiency out of, you know, things we believe are sort of utility functions within the company. So we're working hard to try to see that we can make that spend as efficient as possible. So, so I don't know sort of at the end of the day what that means. I mean, you may still see costs go up because you may find we continue to expand on the high touch side and we continue to add people.

Speaker Change: The other thing we're doing internally is undergoing a little bit of a internal real to try and simplify our tech stack.

Speaker Change: Try and centralize and get some efficiency out of it.

Speaker Change: Things, we believe are sort of Utah.

Speaker Change: Utility functions within the company.

Speaker Change: So we're working hard to try to see that we can make that that spend is efficient as possible. So.

Speaker Change: So I don't know it sort of at the end of the day, what that means I mean, you may still see costs go up because you may find we continue to expand on the high touch side and we continue to add people, but hopefully what you should see is that's offset with incremental revenues over time and hopefully if we do our jobs right.

William Dunaway: But hopefully what you should see is, you know, that's offset with incremental revenues over time. And, you know, hopefully if we do our jobs right, you know, the costs may still grow, but what we should see is increasing margins. And I think that's how we should think about it, right? We really focus now on trying to be efficient, making sure we're using technology to create operational leverages and go forward. So we want revenues to grow, cost may grow, but what we definitely want to see is increased margins.

Speaker Change: Cost may still grow, but what we should see us increasing margins and I think that's how we should think about it right. We really focus now on trying to be efficient, making sure. We're using technology to create operational leverages of go forward. So we want revenues to grow Cross-mate Grove, but we definitely want to see is increased margins.

Daniel Fannon: Understood. And then just, yes, no, it does. It does. Thanks.

Speaker Change: Understood.

Speaker Change: And then just yes, no. It does it does thanks.

William Dunaway: And then, as I think about rates and prospectively the potential for cuts, can you remind us on the swaps that are rolling off or what else might be offsets to lower interest rates on your interest income? Of all the swaps that are rolled off, the one we do still have on is pretty close to current market rates, are just maybe 50 bit slower than what we saw. So we do have in the earnings deck still that sensitivity table that shows about a $20 million delta for a 100 basis point drop and either increase or drop, or obviously the drop is whatever would be focused on now.

Speaker Change: And then as I think about rates and prospectively the potential for cuts can.

Speaker Change: Can you remind us on the swaps that are rolling off or what else might be offsets to lower interest rates on your interest income.

Speaker Change: Sure Dan So the vast majority of all the vast majority of all the all the swaps are all rolled off the one we do still have honest is pretty close to current market.

Speaker Change: So just maybe 50 bps lower than then what we saw.

Speaker Change: We do have in the earnings deck kind of still that sensitivity table that shows about a $20 million Delta for 100 basis point drop in.

Speaker Change: Either increase or dropped obviously the drop is what everybody's focused on now.

William Dunaway: But what I will say is that does factor in that there is a ceremony that we are paying clients, particularly in the institutional side where it is just a spread on the business. So there's probably about a third of those balances that, with the drop in rate, it's really not going to affect our overall capture on a net basis. And there's another probably third where it will partially affect it. And then a third that you're not really paying interest on. So overall, it's captured kind of in that interest rate sensitivity table, but it won't be a dollar-for-dollar drop on the downside.

Speaker Change: But what I will say is that does kind of factor in that there is a fair amount that we are paying clients.

Speaker Change: Particularly on the institutional side, where it is just a spread on the business. So theres probably about a third of those balances that with the with the drop in rates, it's really not going to.

Bill Dunaway: affect our overall capture on a net basis. And there's another, you know, probably third, where it'll partially affect it. And then a third that you're not really paying interest on. So, you know, overall, it's captured kind of in the net interest rate sensitivity table, but, you know, it won't be a dollar for dollar drop on the downside. So there will be some muted by, you know, the fact that we are just earning a spread on some if that makes sense.

Speaker Change: Affect our overall capture on a net basis.

Speaker Change: And there is another probably <unk>, where it will partially affect it.

Speaker Change: And then a third that youre not really paying interest on so overall, it's captured kind of been in that interest rate sensitivity table, but.

Speaker Change: It won't be a dollar for dollar drop in the downside. So there will be it will be some muted by the fact that we are earning a spread on some of it is.

Daniel Fannon: So it will be some muted by the fact that we are discerning a spread on some of it. Does that make sense? Yep. No, it does.

Speaker Change: If that makes sense.

Sean O'Connor: Yep, no, it does. I guess then just following up, Sean, just on kind of the environment, dislocation like this, does this create more inorganic opportunities? It's been for you guys a little bit quiet for, you know, several quarters, but the organic growth has been positive. So curious about just the dialogue and opportunities as you think about M&A in this environment.

Speaker Change: No it does.

Sean O'Connor: I guess then just following up, John, just on kind of the environment, this location like this, does this create more inorganic opportunities? It's been, for you guys, a little bit quiet for several quarters, but the organic growth has been positive, so curious about just the dialogue and opportunity set as you think about M&A and in this environment. Yeah, we're just dealing with the organic opportunity. I think we've seen some really good organic growth at the moment. And it feels to us that the banks are really struggling and sort of having to refocus their business. I mean, we're hearing it from a number of banks now.

Speaker Change: I guess, then just following up John and just on kind of the environment.

Speaker Change: Location like this does this create more inorganic opportunities. It's been for you guys a little bit quiet for several quarters, but the organic growth has been positive. So curious about just the dialogue and opportunity set as you think about M&A in this environment.

Sean O'Connor: Yeah, well, just dealing with the organic opportunity. I mean, I think we've seen some really good organic growth at the moment. And it feels to us that the banks are really struggling and sort of having to refocus their business. I mean, we're hearing that from a number of banks now.

Speaker Change: Yeah, well just dealing with the organic opportunity I mean, I think I think we've seen some really good organic growth at the moment and it feels to us that the.

Speaker Change: The banks are really struggling and sort of having to refocus their business I mean, we're hearing it from a number of banks now so we're seeing a lot of talent, becoming available and a lot of clients sort of being shaken loose. So so the organic sort of opportunity for us is pretty significant and as I think I've discussed before.

Sean O'Connor: So we're seeing a lot of talent becoming available, and a lot of clients sort of being shaken loose. So the organic sort of opportunity for us is pretty significant. And as I think I've discussed before, you know, if we can bring on teams of people, that's almost like an acquisition, right? It's not recorded or accounted for as an acquisition, but the net result is the same.

Sean O'Connor: So we've seen a lot of talent becoming available, and a lot of clients sort of being shaken loose. So the organic sort of opportunity for us is pretty significant. And as I think I've discussed before, you know, if we can bring on teams of people, that's almost like an acquisition, right? It's not recorded or accounted for. It's an acquisition, but the net resulters will say, you know, you end up with a big chunk of incremental revenue coming across if you do that right. So that's very constructive at the moment.

Speaker Change: If we can bring on teams of people that's almost like an acquisition right. It's not recorded were accounted for as an acquisition, but the net result is the same you know you end up with a big chunk of incremental revenue coming across if you if you do that right.

Sean O'Connor: You know, you end up with a big chunk of incremental revenue coming in if you do that right. So that's very constructive at the moment. In terms of acquisitions, I think, as I said previously, we're definitely seeing more come across our desks. And, you know, we're looking at a bunch of stuff. There's nothing we can mention at this point that's significant, but certainly, it seems like the environment's getting better. If you have extreme dislocation, that generally provides a lot more opportunity for us.

Speaker Change: So that's very constructive at the moment.

Sean O'Connor: In terms of acquisitions, I think, as I said previously, we definitely seeing more come across our desks. And you know, we're looking at a bunch of stuff. There's nothing we can mention at this point that's significant, but certainly it seems like the environment's getting better. If you have extreme dislocation, that generally provides a lot more opportunity for us. I don't think what we saw in the last five days is extreme. I think I said that earlier. I mean, sort of a blip that it was good to see volatility go up a little bit. I don't think that's going to create any the street opportunities of itself.

Speaker Change: In terms of acquisitions I think as I've said previously.

Speaker Change: We are definitely seeing more come across our desks.

Speaker Change: And we're looking at a bunch of stuff.

Speaker Change: Nothing we can mention at this point that's significant.

Speaker Change: But certainly it seems like the environment is getting better when if you have extreme dislocation that that generally provides a lot more opportunity for us I don't think what we saw in the last five days of extreme I think I said that earlier, I mean sort of a blip and it was good to see volatility go up a little bit.

Sean O'Connor: I don't think what we saw in the last five days is extreme. I think I said that earlier. I mean, it was sort of a blip, and it was good to see volatility go up a little bit. I don't think that's going to create any discrete opportunities of itself, but it does feel like, you know, the private equity bid is sort of a little bit going away. Higher interest rates have made that harder.

Speaker Change: I don't think thats going to create any discrete opportunities of itself.

Sean O'Connor: But it does feel like, you know, the private equity bed is sort of a little bit going away. Higher interest rates had made that harder. It does look like a lot of these sort of startups that were spun up on unrealistic sort of expectations during the COVID period when money was sort of free and available to all. Those businesses are sort of four, five years in now, and a lot of them are struggling. So, from that sense, it's becoming quite interesting. I think there are going to be a lot of interesting opportunities coming out of that.

Speaker Change: But it does feel like the private equity bid as sort of a little bit going away I interest rates have made that harder.

Sean O'Connor: It does look like a lot of these sort of startups that were spun up on unrealistic expectations during the COVID period when money was sort of free and available to all. Those businesses are sort of four or five years in now, and a lot of them are struggling. So from that sense, it's becoming quite interesting. I think there are going to be a lot of interesting opportunities coming out of that.

Speaker Change: It does look like a lot of these sort of start ups that were spun off on unrealistic.

Speaker Change: Expectations during the Covid period, when money was sort of free and available to all those those businesses are sort of four or five years in a lot of them are struggling.

Speaker Change: So from that sense, it's becoming quite interesting I think theyre going to be a lot of interesting opportunities coming out of that now a lot of those businesses may just not be viable at all and not.

Sean O'Connor: Now, a lot of those businesses may just not be viable at all and not interesting to us, but I do think there's sort of a lot of stuff where, you know, the chickens are coming home to roost and, you know, that does give us some opportunities. So we'll see how it goes.

Sean O'Connor: Now, a lot of those businesses may just not be viable at all and not interesting to us. But I do think there's sort of a lot of stuff where, you know, the chickens are coming home to roost. And, you know, that does give us some opportunities.

Speaker Change: Interesting to us, but I do think there is sort of a lot of stuff, where the chickens are coming home to roost in.

Speaker Change: That does give us some opportunities so we will see how it goes.

Sean O'Connor: So we'll see how it goes.

Operator: Thank you for taking my question. Thank you.

Speaker Change: Okay.

Daniel Fannon: Great, thanks for taking my question.

Speaker Change: Great. Thanks for taking my questions.

Speaker Change: Awesome. Thank you.

Operator: I'm showing all further questions at this time.

Speaker Change: Thank you I'm showing no further questions at this time I would now like to turn it back to Sean O'connor for closing remarks.

Sean O'Connor: I'll not turn it back to Sean or Connor for close remarks. Well, thanks everyone for taking the time to listen. We appreciate it, and for everyone here in the northern hemisphere anyway, enjoy the rest of the summer, and we'll speak to you in three months' time. Thanks so much.

Sean O'Connor: Well, thanks everyone for taking the time to listen. We appreciate it, and for everyone here in the Northern Hemisphere anyway, enjoy the rest of the summer, and we'll speak to you in three months' time. Thanks so much.

Sean O'Connor: Well, thanks, everyone for taking the time to listen we appreciate it.

Sean O'Connor: And for every one here in the northern Hemisphere anyway enjoy the rest of the summer and we'll speak to you in three months' time. Thanks, so much.

Operator: Thank you for your participation in today's conference.

Speaker Change: Thank you for your participation in today's conference. This does conclude the program you may now disconnect.

Operator: This does conclude the program.

Operator: You may now disconnect.

Speaker Change: Yeah.

Speaker Change: [music].