Q4 2024 StoneX Group Inc Earnings Call
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Okay.
Speaker Change: Ladies and gentlemen, thank you for standing by welcome to the fourth quarter full year two shallow.
Speaker Change: Two after the hour, we're going to get started.
Speaker Change: Can you hear me.
Speaker Change: Hello can you hear me.
Speaker Change: Yeah, I can hear you operator.
Can you hear me.
Speaker Change: Yeah, we can.
Speaker Change: Yeah.
Speaker Change: Ladies and gentlemen, thank you for standing by welcome to the fourth quarter full year 'twenty 'twenty four stone next group earnings call. At this time all participants are in a listen only mode. After the speaker's presentation, there will be a question and answer session.
Speaker Change: To ask a question. During this session you will need to press star one on your telephone you wouldn't hear an automated message of bites in your hand, it's right to withdraw your question. Please press star one one again please be advised that today's conference is being recorded I would like now to turn the conference over to Bill Dunaway.
Bill Dunaway: <unk> Financial Officer, Sir Please go ahead.
Bill Dunaway: Good morning, welcome to our earnings conference call for our fourth quarter ended September 30th 'twenty 'twenty four.
Bill Dunaway: After the market closed yesterday, we issued a press release reporting our results for the fourth fiscal quarter of 2024.
Bill Dunaway: This release is available on our website at Www Dot stone ex dot com.
Bill Dunaway: Well as a slide presentation, which we will refer to on this call and our discussion of our quarterly and full fiscal year results.
Bill Dunaway: The presentation and an archive of the webcast will also be available on our website after the call's conclusion.
Bill Dunaway: Before getting underway, we're required to advise you and all participants should note that the following discussion should be taken in conjunction with the most recent financial statements and notes there too as well as the Form 10-K to be filed with the SEC.
Bill Dunaway: This discussion may contain forward looking statements within the meaning of section 27, a of the Securities Act of 1933 as amended and section 21 E of the Securities Exchange Act of 1934th amended.
Bill Dunaway: These forward looking statements involve known and unknown risks and uncertainties, which are detailed in our filings with the SEC.
Bill 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 companys forward looking statements.
Bill Dunaway: 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.
Speaker Change: 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 our fiscal 2024th quarter earnings call.
Sean O'Connor: Starting on slide three of the earnings that the fourth quarter of fiscal 2024 was a record result for us with net income of $76 7 million and earning per diluted earnings per share of <unk>.
Sean O'Connor: Versus the comparator period, a year ago, we were up 51% of net income and 48% in EPS and that's compared to the immediately preceding quarter. These measures were up 24% and 23% respectively.
Sean O'Connor: This represented an 18, 5% ROE on stated book and a 19, 4% ROE on tangible book value. Despite the 21% increase in book value over the last year and a 60% increase over the last two years.
Sean O'Connor: We had record operating revenues of $920 1 million up 18% versus the prior year just to remind our 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 nets off interest expense as well as introduce introducing broker commissions and carrying costs were up 13% versus a year ago, but down 3% versus the record achieved in the immediately preceding quarter.
Sean O'Connor: Total compensation and other expenses were up 8% for the quarter with variable compensation up 7% in line with net operating revenue growth rates.
Sean O'Connor: Fixed compensation related costs were up 14% versus a year ago.
Sean O'Connor: Down 4% compared to the immediately preceding quarter.
Sean O'Connor: The strong finish to our fiscal years have resulted in record full year operating results for the third year in a row, which we believe validates our strategy and underscores the robust earnings potential of our franchise.
Full year operating revenues were $3 4 billion up 18% versus the prior year.
Sean O'Connor: Net income was a record $260 8 million up 9% with adjusted net income of $264 2 million up 18%.
Sean O'Connor: EPS was $7 96 per share up 7%.
Return on equity for the year was 16, 9% of stated book and $17 eight on tangible book value.
Sean O'Connor: We ended the 2020 full fiscal year with book value per share of $53 62 up 21% versus a year ago.
Sean O'Connor: Turning to slide four in the earnings deck, which from past quarterly operating revenues by product versus a year ago.
Sean O'Connor: Generally speaking the market environment in the fourth quarter was similar to what it has been for most of the fiscal year with generally low volatility some exceptions periodically in some of our products, which negatively impacted revenue captured most of our product areas, except for foreign exchange and see a piece.
Sean O'Connor: As we all know volatility can change quickly and indeed recent events or prove this out and we are hopeful that we may see better market conditions ahead.
Sean O'Connor: However, we continue to see good client engagement and market share capture as evidenced by increased volumes across all of our products the earnings power from and our clients enhance client footprint should be even more evident with improved trading conditions.
Sean O'Connor: For the fourth quarter, we saw solid revenue guidance of 20% and listed derivatives with strong volume growth of 46% offset by a 50% reduction in contract rates.
These factors were driven by institutional segment, which continues to make gains with large institutional clients. In addition to the commercial segment increased both volumes and rate per contract as compared to the prior year.
Sean O'Connor: OTC derivatives revenue was down 23% largely due to revenue capture being down 26%.
Sean O'Connor: By slightly higher volumes, which were up 4%.
Sean O'Connor: Securities revenue was up 34% with volumes up 34% and partially offset by a 3% decline in rate per million.
Sean O'Connor: Over the last two years, we have seen the business mix switch to higher volume lower margin products, although the impact of this on revenue capture is not forgotten about.
Sean O'Connor: Payments revenue was down 11% a theme we've seen that for the last couple of quarters due to much tighter spreads in several several of our key payments cargoes with rate per million down 20%.
Sean O'Connor: On a positive note volumes were up 13%, which was the third consecutive quarter year over year volume growth.
FX in Cft's revenues were up 7% due to gains in both volumes and spread capture.
Sean O'Connor: Interest and fee income earned on our aggregate client flows, including both listed derivatives client equity and money market FDIC sweep balances increased 10% versus the prior year as we achieved higher interest rates on those balances.
Sean O'Connor: That was partially offset by 2% decline in these balances versus the prior year.
Sean O'Connor: Turning to slide five and looking at the same data over the full fiscal year for 2024, we again see good revenue growth and listed derivatives Securities FX and Cfd.
Sean O'Connor: New was down for OTC derivative payments and physical commodities.
Sean O'Connor: Williams were up across the board for all products with the exception of FX and Cfd on a long term basis. This is an important indicator for us when it comes to measure client engagements and market penetration.
Sean O'Connor: However, our revenue capture is largely a function of market conditions, and we can again see a mixed picture with market volatility generally retrace to lower levels compared to the prior year with the exception of FX, and Cfd, which experienced a significant increase in rate per million up 32% versus the prior year.
Sean O'Connor: In addition, we continue to see the effect of a change in product mix on the securities are.
Sean O'Connor: Right.
Sean O'Connor: With increased volumes.
Sean O'Connor: Our margin products.
Speaker Change: Turning now to slide six our segment summary, just to touch on the highlights before bill gets into more details.
Speaker Change: The quarter segment operating revenues were up 18% and segment income was up 9% versus the prior year.
Speaker Change: All segments were up in both revenue and income except for payments with institutional being a positive outlier.
Our commercial segments at a relatively flat quarter in both operating revenues and segment income.
Speaker Change: We got listed revenue listed derivatives revenue was largely offset by lower OTC derivative revenue upper.
Operating revenues and segment income were down 20, and 29% respectively versus the immediately prior record quarter.
Speaker Change: As I noted earlier, our institutional segment.
Speaker Change: A record quarter in both operating revenues and segment income with increases over the prior year of 30, and 41% respectively. In particular driven by increases in equity market, making derivatives and interest income on a sequential basis operating revenues were up 9% and segment income was up 24%.
Speaker Change: Self directed retail had operating revenues up 13% and a 6% increase in segment income.
Speaker Change: On a sequential basis, both operating revenues and segment income were up 8% and segment income up 8% again, demonstrating the operational leverage inherent in the self directed platform.
In our payments segment operating revenues down, 10% and segment income was down 23% principally due to the pocket FX rates in several of our key payment Colorado's on a sequential basis operating revenues were down 5% and segment income was down 12%.
Speaker Change: For the fiscal year as a whole the summary was commercial and payments segments were roughly flat for the year in both operating revenue as well as segment income while institutional was up and self directed retail was up significantly.
Speaker Change: As mentioned the commercial segment was roughly flat with stronger results from our listed derivatives and interest being offset by lower revenues from OTC derivatives and physical commodities.
Speaker Change: Institutional segment grew operating revenues at 30%.
Speaker Change: Segment income, 22% with all products shown guidance with the exception of FX.
Speaker Change: Self directed retail was a standout with operating revenues up 19% driving a 160% increase in segment income.
Speaker Change: Clearly demonstrating the operational leverage we have in a self directed platform. The most significant factor here was better revenue capture as we benefited from improved internalization of spreads and a diversification of products traded.
Speaker Change: Payments segment operating revenues down, 1%, but up slightly in segment income and what has been the toughest market conditions. We've had in many years for this business.
Speaker Change: Turning to slide seven we set out at the top of the page I'll try. This a 12 month financial performance over the last nine quarters. These numbers have been adjusted for accounting treatment related to the gain in CDI acquisition as discussed in our prior filings and which appears on the reconciliation provided in the appendix of the earnings deck.
Speaker Change: On the left hand side, the bars represent our trailing 12 months operating revenues over the last nine quarters.
Speaker Change: As you can see this has been a smooth and strongly upward trend as we have said, we expanded our footprint and capabilities.
Operating revenues up 63% over this period for 28% CAGR.
Speaker Change: Our adjusted pre tax income is likewise grown at an 11% CAGR.
Speaker Change: On the right hand side, you can see our trailing 12 month adjusted net income in the boss, which is up 23% over the last two years for an 11% CAGR.
Speaker Change: That line represents an ROE, which.
Speaker Change: Which has remained constantly above our 15% target, even though our capital has grown by 60%.
Speaker Change: <unk>.
Speaker Change: The bottom half of the slides that are our long term performance both measured in terms of shareholders' return the bottom left hand graph, which shows that we have significantly outperformed both indices shallow as well as our financial performance on the bottom right hand graph, which shows we have grown our stockholders' equity operating revenue and market capitalization.
Nearly 30% CAGR for the last 21 years.
Speaker Change: With that I'll hand, you over to Bill Dunaway Bill.
Bill Dunaway: Thank you Sean I'll be starting on slide number eight which summarizes our consolidated income statement for the fourth quarter of fiscal 'twenty four.
Bill Dunaway: Sean covered many of the consolidated highlights related to the operating revenues for the quarter. So I'll just mentioned one item and then cover off consolidated expense fluctuations and then finish with the segment discussion.
Bill Dunaway: Operating revenues for the current quarter were unfavorably impacted by $4 5 million and unrealized losses on derivative positions related to inventory carried at cost.
Bill Dunaway: We will record a realized gain on the sale of these inventories in the upcoming quarter.
Bill Dunaway: Similar in nature of the prior year quarter was unfavorably impact and the amount of 200000.
Bill Dunaway: Moving on to consolidated expenses transaction based clearing expenses increased 25% to $85 5 million in the current period as a result of increases unlisted derivative and securities volumes as compared to the prior year.
Bill Dunaway: Introducing broker commissions increased 7% to $42 million in the current period.
Interest expense increased $70 3 million versus the prior year, primarily as a result of the $68 $6 million increase in interest expense related to our institutional fixed income business and as well as a $7 $3 million increase in interest expense related to securities lending activities.
Bill Dunaway: Interest paid on client balances on deposits declined $7 7 million as compared to the prior year.
Bill Dunaway: Interest expense on corporate funding increased $1 million versus the prior year, principally due to incremental interest from our March one 2020 for issuance of senior secured notes due 2031.
Bill Dunaway: That issuance, which allowed us to extend our debt maturity profile and increase our long term capital was a refinancing of our senior secured notes which were due 2025.
Bill Dunaway: Interest expense on corporate funding decreased $9 8 million versus the immediately preceding quarter, which included incremental interest expense on the diffusing that period. Following the notes due 2025 as well as a loss on extinguishment of debt related to the write off of unamortized original issue discount and deferred financing costs of these notes.
Bill Dunaway: Variable compensation increased $7 9 million versus the prior year and represented 26% of net operating revenues in the current period compared to 28% net operating revenues in the prior year period.
Bill Dunaway: Fixed compensation increased $14 million or 14% versus the prior year, which was driven by non variable salaries, increasing nine eight or 12%.
Principally resulting from a 10% increase in head count, resulting from an expansion of our capabilities among our business lines as well as in support areas to facilitate our business growth as well as annual merit increases.
Bill Dunaway: Additionally.
Bill Dunaway: Employee benefits increased $3 2 million or 14% versus the prior year.
Bill Dunaway: Fixed compensation decreased 4% versus the immediately preceding quarter, which included severance and acceleration of share based and long term incentive compensation related to the departure of an executive officer.
Bill Dunaway: Other fixed expenses increased $10 4 million as compared to the prior year, principally driven by a $5 $9 million increase in depreciation and amortization, primarily due to the amortization of capital capitalized internally developed software a $3.3 million increase in occupancy and equipment rental principally driven by.
Bill Dunaway: <unk> of additional space in London, and the continued build out of our offshore presence in India.
Bill Dunaway: A $2 $9 million increase in non trading technology, and support and a $1.8 million increase in trading systems and market information.
Bill Dunaway: These were partially offset by a $1 $2 million decrease in professional fees, primarily due to the recovery of certain legal fees under an insurance policy.
Bill Dunaway: Compared to the immediately preceding quarter other fixed expenses decreased 700000, principally driven by a $5 $3 million decrease in professional fees, partially offset by a $5 million increase in amortization as previously discussed.
Finally, the close out the discussion of expenses, we had a favorable variance in bad debts net of recoveries of $5 7 million versus the prior year with bad debts being relatively flat with the immediately preceding quarter.
Bill Dunaway: The prior year quarter and immediately preceding quarter included other gains of $1 9 million and $1 8 million, respectively related to proceeds received and class action settlements.
Bill Dunaway: Net income for the fourth quarter of fiscal 'twenty, four was $76 7 million, which represents an increase of 51% versus the prior year.
Bill Dunaway: Net income increased 24% versus the immediately preceding quarter.
Bill Dunaway: Now moving on to slide number nine I'll provide some more information on our operating segment.
Operating revenues in our commercial segment increased $3 3 million versus the prior.
Bill Dunaway: Prior year, but declined 51.
Bill Dunaway: It's been a record quarterly performance for that segment.
Bill Dunaway: The increase versus the prior year was principally driven by $11 million increase in listed derivatives operating revenues.
Bill Dunaway: Driven by improved performance in agricultural and <unk> market.
Bill Dunaway: In addition interest earned on client balances increased $2 million as compared to the prior year due to higher realized on the client balances.
Operating revenues from physical transactions increased.
Bill Dunaway: $4 million, despite $3 7 million and a loss on derivative positions related to inventory carried at cost described previously principally as a result of our strong performance in precious metals.
Bill Dunaway: Finally, operating revenues from OTC derivatives declined $13.7 million as compared to the prior year, primarily due to a decline in OTC average rate per contract due to diminished commodity volatility, which was partially offset by modest growth in OTT.
Sean O'Connor: It's Sean if I could just interrupt you you know audio is cutting in and out a little bit. So I don't look at your headset.
Speaker Change: For the phone.
Speaker Change: Sorry about that okay.
Speaker Change: Fixed compensation and benefits increased $1 8 million versus the prior year, primarily due to increased head count.
Speaker Change: But decreased $2 6 million versus the immediately preceding quarter primarily.
Speaker Change: Primarily due to decreased employee benefits and severance costs.
Speaker Change: Other fixed expenses increased 600000 versus the prior year, but were down $2 4 million versus the immediately preceding quarter.
Speaker Change: With the decline versus the immediately preceding quarter being driven by a decline in professional fees.
Partially offsetting these increases we had a positive variance in bad debt net of recoveries of $7 6 million compared to the prior year.
Speaker Change: Segment income was $89 2 million for the period, an increase of 1% versus the prior year period, but declining 29% versus the immediately preceding quarter.
Speaker Change: As a reminder, in the first quarter of 'twenty 'twenty four 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.
Speaker Change: Human resources and occupancy.
Speaker Change: We've provided this allocation in each of our segments for the current period and we'll continue to prospectively. However, we have not calculated where allocations for previously reported periods.
Speaker Change: For the current period this allocation of corporate costs for our commercial segment was $8 9 million.
Speaker Change: Moving on to slide number 10 operating revenues in our institutional segment increased to $127 6 million versus the prior year, primarily driven by a $102 million increase in securities operating revenues compared to the prior year as a result of a 34% increase in the overall average daily volume of Securities.
Speaker Change: Most notably in the equity market as well as higher interest income related to our fixed income dealing activity as a result of an increase in interest rate.
Speaker Change: Outside of our fixed income activity interest and fee income earned on client balances, which is associated with our listed derivatives and securities clearing activities increased $8 $7 million versus the prior year as the result of an increase in interest rates realized on these balances.
Which was partially offset by a 15% decline in average money market and FDIC sweep balances versus the prior year.
Speaker Change: Average client equity increased 1%.
Speaker Change: Interest and fee income earned on client balances was up $3 1 million versus the immediately preceding quarter.
Speaker Change: Interest expense increased $69 6 million versus the prior year with interest expense related to fixed income trading and securities lending activities, increasing $68, six and $7 $3 million, respectively. While interest paid to clients declined $9 8 million.
Speaker Change: Segment income increased 41% to $77 $3 million in the current period, primarily as a result of the $43 $7 million increase in net operating revenue.
Speaker Change: Which was partially offset by $5 2 million increase in fixed compensation and benefits.
Speaker Change: Well, it's a $5 $5 million increase in other fixed expenses.
Speaker Change: As compared to the prior year, we had increases in professional fees and selling and marketing costs.
Speaker Change: Good systems and market information and operations charges.
Speaker Change: Segment income increased $15 1 million versus the immediately preceding quarter.
Speaker Change: For the current period, the allocation of corporate costs to our institutional segment with $13 2 million.
Speaker Change: Moving to the next slide operating revenues in our self directed retail segment increased $11 9 million versus the prior year driven by a $7 million increase in FX and Cfd revenue as a result of a 7.7% increase in Adv and a 3% increase in rate per million as compared to the prior year.
Speaker Change: Operating revenues increased $8 1 million versus the immediately preceding quarter, driven by an 11% increase in adv, partially offset by a modest decline in RPM.
Speaker Change: Segment income was $29 8 million in the current period, which represents a 6% increase over the prior year. This was the result of a 13% increase in operating revenues, partially offset by increased $1 5 million and $2 9 million in fixed compensation and other fixed expenses, respectively as compared to the prior year.
Here.
Speaker Change: The increase in fixed expenses as compared to the prior year is principally due to higher amortization of capitalized internally developed software and increased non trading technology costs.
Speaker Change: Offset by lower selling and marketing costs and other expenses.
Speaker Change: Segment income increased $2 2 million compared to the immediately preceding quarter, which also included a gain of $1 $8 million related to the proceeds received in the class action settlement.
Speaker Change: For the current period the allocation of corporate costs for our self directed retail segment was $11 8 million.
Speaker Change: Closing out the segment discussion on the next slide operating revenues in our payments segment declined 10% versus the prior year. Despite a 13% increase in adv as the rate per million declined 20% as compared to the prior year.
Speaker Change: Segment income declined 23% to $24 8 million in the current period as the result of the decline in operating revenues, along with a $1 $6 million increase in fixed compensation and benefits.
Speaker Change: Segment income decreased $3 4 million versus the immediately preceding quarter.
Speaker Change: For the current period the allocation of corporate costs for our payment segment was $5 3 million and with that I'd like to turn it back over to Sean.
Sean O'Connor: Thanks, Paul apologies, everyone for the audio Paul I think you need to switch off your headset immediately.
Sean O'Connor: So anyway.
Sean O'Connor: Let me proceed so slide 13 picked up the high level strategic objectives that we are focused on this approach and.
Sean O'Connor: <unk> strategy has remained unchanged for 15 years and has served us well and we presented it before given that this is year end. However, we thought we would like to review this and perhaps provide some examples of how we put the strategy interaction during 2024.
Sean O'Connor: We remain in a very constructive industry environment, which aligns with our strategy, which is summarized on the slide the comprehensive comprehensive had significant response from the regulators around the world to the financial crisis resulted in massive increase in cost due to more complex processes and oversaw five 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 revenue to remain viable given the cost and capital requirements, resulting in a fairly dramatic consolidation in our industry.
Sean O'Connor: The increased capital requirements, especially the Basel capital rules, which are punitive to trading operations.
Sean O'Connor: It has forced banks to reevaluate the strategy and focus on larger tier one clients.
The large banks in aggregate still account for the majority share of market, but they are retreating which has created significant opportunities for us.
Sean O'Connor: Both of these factors the lower end consolidation and the withdrawal by larger banks is directing them positively impacted <unk> and has allowed us to post <unk> close to 30% over the last 20 years. We still think there is a long way to go and whats reordering off the market structure and with our broad and unparalleled capabilities.
Sean O'Connor: Product sets, we are ideally placed to continue to take advantage and win market share.
Sean O'Connor: Additionally, starting several years ago, we started the process to re launch the high touch business and to become more digitized technology is an overwhelming force in our world and our industry and if harvest can provide tremendous benefits to existing customers as we add more value and become embedded with them allows.
Sean O'Connor: Us to dramatically expand our addressable market and to enhance our operating margins. This.
Sean O'Connor: This initiative gathered momentum with the acquisition of <unk> four years ago, which was a totally digital trading platform for active traders around the world.
Sean O'Connor: This platform is totally integrated with digital marketing and client journey through onboarding to trading of thousands of products with settlements and execution of trades automated including the internalization of trading spreads although somewhat delayed by Covid. We have not started to leverage these digital assets and expertise throughout the start next franchise.
Sean O'Connor: Yeah.
We are now able to deliver institutional grade high touch service and a digital self service format to smaller clients and will no longer be constrained by our house.
Sean O'Connor: Touch approach or by geographical reach.
Every client everywhere now a potential client for us as we continue down this digitization journey, not only will we be able to scale, but we should see significant operating leverage as already evidenced in what we have now renamed our self directed retail cycles, which we believe will serve to dramatically increase margins over time.
Speaker Change: I'll start next increasingly exhibit characteristics all of a sudden textile company.
Speaker Change: First our strategy the first pillar there is building our ecosystem.
Speaker Change: Wanted to stay relevant to our clients' existing and new by adding products and services to create the best financial ecosystem to connect them to the global financial markets.
Speaker Change: We continue to invest in our ecosystem by attracting talent as well as investing in technology to expand our products and capabilities to better serve our clients.
While these investments resulted in increased costs and expenditures often times well in advance of the ultimate benefits being achieved they are essential to you Steve the strategic objective. None of these projects in isolation will result in a significant change stockholder growth trajectory and certain of these initiatives may not be viable in the long run however.
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 start to kick in as well as a steady improvement in margins.
Speaker Change: In our precious metals business, we continued to expand our ecosystem and integrate into the global supply chain. During the year, we signed an agreement to acquire silver recycling in the UK one of only two companies accredited by the Lps MA for the delivery of good delivery silver to the London markets, giving us a reliable access metal.
Speaker Change: While internalizing, the refining margin and responsibly reusing and recycling secondary of waste materials. We are also launching our own CMA approved bolt in New York, which will allow our clients to deliver and receive physical gold and settlement of derivative contracts as well as whole precious metals inventory horizon clients.
Speaker Change: On the equity side, we continue to grow electronic market, making platform on the domestic NMS equities, leveraging our long standing institutional relationships over 20 years from the international equity side during fiscal 2024, we traded at a record 118 billion shares.
Speaker Change: We believe that the ability to custody assets and provide provide prime brokerage solutions is the central and defining requirement for hedge funds, which then leads to execution on other revenue sources.
Speaker Change: Up until a few years ago and hedge funds are a new client segment opportunity for us because.
Speaker Change: Because largely incumbent firms are not servicing mid sized hedge funds appropriately.
Speaker Change: The last few years, we have expanded our use prime break brokerage capability into a global multi asset class offering.
Speaker Change: Last year, we expanded in the UK to include repo financing and securities lending as well as continued investment in our technology platforms across trading regulatory reporting middle and back office operations, all designed to augment client engagements and drive growth within our security and prime offerings.
Speaker Change: During 2020 haul we still saw the U S. Prime business, we're about 30%. In addition, we're able to internalize.
Speaker Change: Capabilities that spreads from other existing business lines. Some of this growth has.
Speaker Change: Fueled by the growth in the ETF space, where we offer a unique custody and execution solution for the new wave of alternative Etfs being launched.
Speaker Change: So as trading business part of our broader prime offering continued to grow and we received some prestigious awards such as best outsource solution from hedge Fund magazine enhancing week all signs are the growing awareness in the market with this capability.
Speaker Change: We believe our capabilities in this business, which is becoming more and more integral part of our prime offering a best in class and during this year, we expanded the credit and sell side outsource trading both of which are new approaches for the industry.
Speaker Change: The crypto market is now emerging as a regulated market best served in the long term by well capitalized unregulated firms such as <unk>. We haven't made some additional new hires starting next digital on the execution side in the U S. Our goal is to provide institutions with access to digital trading custody and services to this end we established the.
To become a digital asset custodian in Ireland, and we are currently waiting for regulatory approval.
Speaker Change: Trading is another growing market on a primary role to date has been to provide our clients with access to select carbon trading instruments.
Speaker Change: Continue to make good incremental progress and had a small but growing revenue stream and client base in carbon trading.
Speaker Change: We continue to add new trading revenues on exchanges and products to our ecosystem to better serve our clients.
Speaker Change: Our next recently became a member of the ASX exchange in Australia.
Speaker Change: <unk> X X for carbon trading and LNG in Singapore, and we now offer at 117, new listed products to our clients. In addition, we recently joined the Montreal exchange the Tms, a Montreal office, which is traditionally offer commodity trading and risk management.
Speaker Change: Now expanded to offer a broad expertise in listed products, including Mr. Fixed income products, we continue to evaluate other potential trading venues.
Speaker Change: We have been expanding our capabilities and expertise in physical commodities to provide a comprehensive service from risk management to logistics and supply chain management to our clients at the beginning of fiscal 2023, we acquire CDI physical Cochrane brokerage business based in Brazil, and Switzerland.
Speaker Change: Which now has almost doubled its gross revenue after its first year validating the original thesis that clients see value in combining hedging services with the sale of physical commodities and the related logistical arrangements. In addition, many clients see value in embedding the hedges into physical contract, which simplifies the accounting treatment will take us into <unk>.
Speaker Change: And we are now offering a bundled service to coffee produces in Brazil and has seen some very encouraging early results. We are likely to see this approach expanding.
Speaker Change: Products and regions as clients clearly see value out of the strategy, where we are uniquely placed.
Speaker Change: We also acquired a small coffee team in Ethiopia, a big coffee producing country. Furthermore, we acquired a well respected special specialty coffee team in the U S focus on helping clients source, especially speciality coffee from around the world.
Speaker Change: Continue to believe that there's a sizable opportunity for us to expand our self directed offering to include all of our <unk> products and capabilities.
Speaker Change: Cft's stocks crypto precious metals coins payments futures and foreign exchange doing this will dramatically expand the addressable market for our self directed platform.
Speaker Change: We continue to offer new OTC products to address client needs and have invested in our technology stack to do this faster and more effectively we now introducing dozens of new products every month, some of which are new and industry, leading which drives incremental revenue as well as position <unk> as the leading integrated focusing on adding value to our client.
Yeah.
Speaker Change: Yes.
Speaker Change: We are client centric business and we need to consistently work at growing our client footprint. The second pillar of our strategy.
And growing our client footprint into new markets and expanding market share, where we have existing clients.
Speaker Change: We will also.
Seek to serve new client segments and channels, we have all the capabilities to service clients of all types and have a large addressable market in front of us with very low market penetration currently.
Speaker Change: Obviously as we enhance our ecosystem.
Speaker Change: Able to offer a more compelling value proposition to both our existing and potential clients.
Speaker Change: We have grown our client footprint significantly over the last 10 years assisted by the positive industry environment to outlined upfront.
Speaker Change: 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.
Speaker Change: We have now leveraged the considerable marketing assets, we have especially on the digital side to aggressively grow the Starbucks brand and market awareness over the last year, we've seen a dramatic uptick in all marketing metrics unique visitors are up over 100%.
Speaker Change: <unk> rankings up 2000% new leads generated have doubled et cetera monthly searches will start next up 14%.
Speaker Change: Compared to the prior year average an indication of increased brand awareness and a growing interest in our digital touch points of course, the ultimate measure is the onboarding of new clients and indeed during 2024, we continue to sustain a very high level of new account Onboarding and in fact Q3 wasn't all time quarterly record for us in terms of <unk>.
On boarding.
Speaker Change: In addition, we can.
Speaker Change: To actively market, the Starbucks brand and a quiet clients through events that we host to educate our clients on how best to utilize the financial markets to add value to their business. We have a very good track record over the years converting attendees to.
Speaker Change: Revenue producing clients. Following these events during the year, we hosted over 280 events and we attend to well over 503rd party events globally, continuing to spread the word of the stone X franchise.
A key part of our strategy is to build the best financial ecosystem. So that we can service most if not all of our clients' needs. This requires us to ensure we continue to cross sell our capabilities to our existing client sanction that we are leveraging this ecosystem to broaden and deepen our relationships with our existing clients.
Speaker Change: This has now become deeply embedded in the <unk> culture, and that's something we're not actively track and measure.
Revenue from cross sales has doubled in the last year and of course this is relatively high margin revenue.
Speaker Change: In many cases, our clients are now trading more than just one product or utilizing more than one of our capabilities. This is how the value of a true franchise scheme to monetize.
During the year, we entered into agreement to acquire <unk> finances, a leading fixed income trading payment Paris with expertise in bond and convertible securities debt capital markets and credit research after as a client footprint of over 500 clients, including banks insurance company debt funds mutual funds and wealth managers, we believe we'll be able to see.
Speaker Change: Difficult to enhance the okta product offering while the acquisition provides us with broad access into the EU institutional market.
Speaker Change: As you've all noticed we have changed our retail segments.
Speaker Change: Retail and self directed.
Speaker Change: As I mentioned earlier, we are looking to take up retail digital platform and expand its capabilities to include all of the <unk> products and capabilities together with our proven digital marketing team. This will allow us to expand our addressable market for all of these <unk> products globally.
Speaker Change: <unk> direct.
Speaker Change: Self directed retail platform is a powerful concept, allowing us to provide a curated list of products and bespoke ways to different sets of clients, while leveraging the ability to digitally market onboard service and execute the resulting trades effectively and efficiently.
Speaker Change: This is a multiyear project, but we have already started delivering on the potential in small and meaningful way.
Speaker Change: On the agricultural side are still X plus offering which utilizes the self directed retail platform has gathered momentum, reaching new clients not traditionally serviced by <unk>.
Speaker Change: Hi, <unk>.
Speaker Change: I have over 300 active clients and strong and accelerating adoption with many of these clients now large enough to warrant a high touch relationship now that we have proven.
Speaker Change: That this is a viable product we are able to digitally market to hundreds of thousands of farmers around the world looking for risk management advice and the ability to hedge price risk without the obvious constraints of our high touch model or geographic reach.
Speaker Change: During the year, we established an office in gift city in India to facilitate the trading a precious metals markets into this very important.
Speaker Change: We also joined the local I I'd be ex exchange, becoming the first international entity to be trading in self clearing.
Speaker Change: Of this exchange overtime, we believe that our presence in gift city will provide broader access for our other products and capabilities into the Indian subcontinent.
Speaker Change: We believe that the legacy introducing brokers structure in the futures and securities businesses, an updated model.
Speaker Change: Will evolve as technology allows soft directed retail clients to effectively and efficiently trade directly with logic peering and custodial firms without the need for an intermediary to provide the client service and Onboarding. Indeed. This is one of the advantages we saw in acquiring gained four years ago to provide a self directed offering to smaller clients.
During the year, we facilitated a number of our introducing brokers to transition their clients directly to us, which provided us with an improved margin and the clients with a more effective and efficient solution. We believe this to be a long term trend.
Speaker Change: We continue to invest and grow our EU presence post Brexit with an expanding office in Frankfurt to service, our existing European based clients and allowing us to more effectively market to new clients in Europe, which may not be adequately covered in a post Brexit world. We have upgraded our regulatory presence in Germany with a full Boston license and upgrade I E.
Speaker Change: Ex membership.
Speaker Change: Over the last few years, we dramatically expanded our product capability in Singapore, adding fixed income foreign exchange and commodity expertise, which should allow us to increase our market penetration in Asia. We have also expanded our licensing to facilitate a broader payments and securities offering all of these initiatives have gathered momentum in the region.
Speaker Change: One way, we are still under represented and represents a significant opportunity for us.
Moving on to the third pillar of our strategy, we will not achieve the necessary growth in sky. It unless you continue to embrace technology to digitize, our offering not only enhance client engagement, but increased scalability and margin. This initiative requires a rethink of our processes from front to back which has been underway for some years, but is now accelerating.
Speaker Change: Many of the product initiatives mentioned above are digital in nature side, Mark mentioned them again, but the advantage of the digital offering as they dramatically expand your addressable market. So that every client everywhere. There is a potential client it often scalability and operational leverage to enhance margins.
Speaker Change: <unk> technology on the trading side many of our trading platforms are designed to aggregate trading and internalize spreads. So we can maximize the client revenue opportunity provide a better price to our clients and minimize our hedging costs. In this regard we have made solid incremental process on combining flows the broad diversification, we have amongst client types.
Internalization easier as there's a higher probability of offsetting trades.
Speaker Change: As part of the reason, we are seeing much higher revenue capture and the self directed retail business over the last two years we.
Speaker Change: We have also internalize some of the equity and index hedging arising from a software record flows leading to higher margins and better capital treatment.
Speaker Change: Our electronic metals trading platform Pms has now become one of our market leading execution continues.
Speaker Change: Excuse me.
Speaker Change: Moving a record daily notional trading volume up over $3 6 billion per day. We're also very active on Bloomberg FX go where we are ranked number one overall for all metal related products.
Speaker Change: Stone stone hedge offering and achieve critical mass and is now the go to solution for the large grain elevators in the Midwest.
Speaker Change: <unk> provides our clients with real time enterprise solution to managing the incoming deliveries and multi jurisdictional formats and to immediately hedge any resulting exposures for the third straight year, we have doubled volumes on the platform and now have over 620 locations in 900 trade to setup on the platform. This offering is a great example.
Speaker Change: How to use technology to provide a value add to our large commercial clients and to embed ourselves as a long term partner in that business.
Speaker Change: Now looking to expand this offering to include other commodity products and an expanded set of jurisdictions.
Speaker Change: During the year, we launched loan match and innovative product.
Speaker Change: Platform that brings together increased transparency liquidity and lower transaction costs to the loan market.
Speaker Change: That form allows institutional bank clients.
Speaker Change: Participated open matching by entering orders on a confidential basis, which are then matched up and execute didnt predict REIT costs.
Speaker Change: We continue to enhance our digital platform for OTC and structured products saw a commercial client.
Speaker Change: <unk> hedging clients around intrepid scenario, assuming the best product for their needs and to get quotes instantly.
Our risk management team has made significant strides in the table to more easily aggregate and analyze data with real time monitoring charms risk monitoring across the entire organization.
Speaker Change: We have a number of projects underway.
Speaker Change: Hello.
Speaker Change: We have a number of projects underway throughout many of our support areas to better utilize technology to create efficiency.
Speaker Change: And scalability of our infrastructure, which over time should drive operational leverage.
The most significant of beef as an organization wide technology solution to better and more effectively manage client onboarding and ongoing monitoring and maintenance of client data and this includes the onboarding Ky SEC requirements as well as the required periodic reviews of all of our different types of clients in all our jurisdictions.
Speaker Change: This is going to be an enormous I'm overly manual process complicated by different regulations in different jurisdictions and also for all of our various different types of clients. The technology solution will harmonize and simplify our approach globally.
Speaker Change: <unk> will be significantly more efficient with a lot of client self service options.
Speaker Change: <unk> is well underway and were looking forward to seeing the first module is delivered in early 2025.
Speaker Change: We are in the late stages of a complete rework all of our global payment system architecture, resulting in over 90% of our clients migrated to our new cloud based system, which offers significantly high STP rates on payments are internally both X based system will deliver an ability for payments at scale and will eliminate costly vendor based.
Speaker Change: <unk>.
Speaker Change: Generally speaking, we continue to simplify our technology stack and a retired a number of large member systems.
<unk> continued to improve key metrics, such as resiliency latency and security.
Speaker Change: Several years ago, we took the strategic decision to reset our cost base by utilizing best cost locations.
Speaker Change: Applies to both technology costs, as well as operational accounting and other support function.
Speaker Change: This is already had a significant impact on our cost structure and our use of these locations will likely to continue to grow over time. We currently have around 550 softened, India and over 300 in Poland.
Speaker Change: As mentioned in previous calls a core part of our systems architectures, the data Lake, which allows us to normalized data from all our books and records systems to be accessed in one place with continues to make excellent progress with this in addition, we have now introduced <unk>.
Speaker Change: For each of our individual clients globally, allowing us to more easily match up transactional implied beta globally. We are also looking to centralize all market data into a data hub, which should dramatically decrease the cost associated with data says we will continue to support spiral.
And finally, our businesses supported by capital and we need to understand our growth with internally generated capital access capital markets were inappropriate and approach acquisitions in a disciplined manner.
The most important thing we can do is to continue to create the capital runway for continued growth.
Speaker Change: This is why one of the things we focus on is ROE and compounding our capital. It's interesting to note that 10 years ago, we had little over $300 million.
Speaker Change: Stockholders' equity and only a slightly lower number of shares outstanding as we do now over this 10 year paired with more more than tripled our own shareholders' funds acquired 15 businesses and significantly expanded our client footprint all finance organically from retained earnings and unbelievable power of compounding.
Speaker Change: During this growth we have achieved a 15% ROE target certainly not every year and every quarter, but on average over the period. We are pretty close. This has happened. Despite the investments made in technology and infrastructure cost of developing these new capabilities. The integration of a large number of acquisitions and despite low interest rates for extended period.
Speaker Change: Upon achieving our ROE targets will be continuing important metric for us and we believe as we digitize our platform and gain scale that our margins and ROE should increase.
Speaker Change: Part of our strategy is to make sure we selectively approach the capital markets and raising additional capital when the capital is appropriately priced during the year, we successfully refinanced our senior secured notes that we issued as part of the acquisition of <unk> four years ago.
Speaker Change: We upsize the transaction from original $350 million to 550 and extended the duration of our long term capital stack at a yield spread significantly lower than our initial issues.
Speaker Change: So finally to wrap up let's move to the final slide number 14.
Speaker Change: This was another strong quarter, despite more difficult market conditions with solid results across nearly all products and client segments, we have.
Speaker Change: <unk> earnings of $76 7 million diluted EPS of $2 32, and an ROE stated book of 18, 5%. This.
Speaker Change: This quarter kept the best fiscal year in <unk> history.
Speaker Change: With earnings of $260 8 million diluted EPS of $7 96 on an ROE of 16, 9%.
Speaker Change: Stated book value per share is now $53 62 up 21% from last year.
Speaker Change: We continue to see strong growth in our client base with record Onboarding steps in Q3, 24, and our high sustained level of client on boarding for several years. Now this is being driven in part by the effect of increasing capital requirements being applied for trading activities at the larger banks under the Basel regime as well as smaller players being squeezed out by Hyatt.
Speaker Change: Regulatory costs.
Speaker Change: Belief.
Speaker Change: We believe.
Speaker Change: This constructive market environment, our unique and increasingly recognized ecosystem combined with the outlook for generally improved market volatility. Despite the prospect of declining interest rates puts a tailwind behind our business for the next year or so.
Speaker Change: Fiscal 2025, we believe we will see accelerated cadence of delivery of our platforms, which will more tightly integrate our offering by client type and make it more engaging for clients to interact with our financial ecosystem.
Speaker Change: Soft directed digital offering allows us the potential to massively expand our addressable market targeting clients globally, which are too small or geographically remote for our current type touch approach. We believe that this has the potential to both accelerate our revenue growth and drive our operating margins as a result of the leverage digital platform affords.
Continue to invest in our financial ecosystem by expanding our products and capabilities and talent, we have a unique and comprehensive financial ecosystem with a very large addressable market in front of us, which should only increase the expansion of our self directed offering.
Speaker Change: While we have good market share in certain segments of the market a lot of white space remains in areas, where we already have client relationships and demonstrable capabilities and we now need to monetize these opportunities.
Speaker Change: One thing, we'll always be constant for the next team will continue to dedicate ourselves to better serve our growing client foot print around the world by providing them with the best financial ecosystem and the best client service to access the global financial markets and the executive team and I am extremely proud of the talented <unk> team and continue to propel us to new Heights.
Speaker Change: On that final note.
Speaker Change: We are open for questions operator.
Speaker Change: Thank you as a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced and to withdraw. Your question. Please press star one again.
Speaker Change: And our first question will come from Dan Fannon with Jefferies. Your line is now open.
Speaker Change: <unk>.
Speaker Change: Thanks, Good morning, Sean and Bill.
Speaker Change: Okay.
Speaker Change: Arts.
Speaker Change: I'm doing well, thanks, I guess to start I've got several questions on the segments just in terms of the quarter and maybe the outlook.
Speaker Change: Really centered around capture rates, so starting with the commercial segment can you expand upon what happened in the listed as well as the OTC segment to take the kind of lower fee per million.
Speaker Change: In the quarter.
Bill Dunaway: Bill do you want to take that.
Bill Dunaway: Hello.
Bill Dunaway: But with us.
Dan: Dan can you hear me, having some ods I can hear you yes.
Sir.
Speaker Change: So Dan I guess the story with the commercial business was.
Speaker Change: We had a tremendous quarter last quarter that was a little bit driven by the <unk> we had.
Speaker Change: Good pop in volatility on the island, I think and I think you saw that with some of our industry competitors.
Speaker Change: Obviously, it was a bit more muted this quarter.
Speaker Change: So that certainly had an impact on some of our revenue capture rates.
Particularly on the OTC side, so the OTC market was a tougher market for us, but very solid on the derivative side and feel good about sort of continued underlying growth. So I think that the noise, you're seeing may be quarter to quarter is sort of a reflection of market conditions, primarily in the sort of.
Alan: Alan let me sort of elevated conditions and then returning to normal.
Speaker Change: Sorry, guys can you hear me.
Speaker Change: Yeah, what happened, but okay I've tried to switch to another house.
Speaker Change: It didn't work, but you covered the question.
Speaker Change: Perfectly.
Speaker Change: [laughter].
Speaker Change: Does that answer your question Dan.
Yes, So I guess, we said we should look at last quarter is more of an abnormal level. In this quarter is more of a what you call normalized yeah, I would say, yes derivative Dan. It was that was the highest that we've seen right.
Speaker Change: Came out of the <unk> business as John touched on so I would say last last quarter was an anomaly and I think if you look historically in that commercial segment you were at.
Speaker Change: High fives low sixes.
Speaker Change: Six and a half and we had spiked up over.
June quarter, but I would expect it to be lower than that and the OTC. This is probably the low watermark that we've seen over the trailing probably 12 to 15 quarters.
It was just on touch on just a little bit more difficult market environment with lower volatility.
Speaker Change: Okay. Okay. That's helpful and then similarly on the institutional segment the listed derivatives.
Speaker Change: Also kind of seen the rate per contract coming in just is that just mix or can you talk about what happened there.
Speaker Change: Thank you.
Speaker Change: We're very excited actually about I'll list the derivative business on the institutional side.
Speaker Change: And if you look at it through a longer term lens I think the nature of that business says.
Really transformed in many ways.
Speaker Change: And even if you go back longer I mean, the traditional business of FC stone was really to sort of clear.
Speaker Change: What they called the locals basically it was the floor traders that was the business. They had so it was a bunch of small.
Speaker Change: Proprietary trading shops, and the like and what's a good business that we did very well, but that business has now transitioned into a truly institutional business and.
Speaker Change: The scale of the business is completely different we're dealing with very large etfs.
Speaker Change: Funds.
Speaker Change: Very large institutions that are looking to access the derivative markets and we're very pleased about that that's the direction, we want to move in and I think the reason we accessing that market is for all the reasons I mentioned in the strategic section of the big banks aren't that interested in that business anymore. So these are relatively large players are coming to us they like our.
System, They love our service.
Speaker Change: So that business has changed now when you're dealing with these very big customers.
Speaker Change: Obviously, a different sort of.
Speaker Change: Risks and different economics on the risk side a lot of these businesses are very low risk because they tend to sort of just be long only and they sort of leave a lot of cash with mute, but not sort of proprietary trading firms.
Speaker Change: But they're all pretty demanding on the on the commission side. So you have to sort of prop.
Speaker Change: Probably accept a lower commission rates, but obviously the business is so much bigger so I think we're seeing a little bit of a change.
Speaker Change: Both in sort of risk profile to a much more positive risk profile, a larger sort of.
Speaker Change: Customer base, we'd really want, but it's sort of at a lower price points.
Speaker Change: I would say that's the summary, I totally agree with that come in yes.
Speaker Change: Yep Yep Yep exactly right.
Speaker Change: Okay. Okay. That's helpful. And then just on the payments business you talked about just the market dynamics in the quarter.
Speaker Change: So youre continuing to see a little bit of.
Speaker Change: Of softness within that segment. There also was some act potential inorganic activity with the cap payments transaction can you just maybe tie those two together in terms of what the longer term outlook in terms of igniting growth in the payment segment.
Speaker Change: Yes sure.
Speaker Change: No I think we have been a leading disruptor in the payments business I mean.
Speaker Change: We help people get money into non G 20 countries.
Speaker Change: That was a very opaque part of the market with <unk>.
Speaker Change: Clients were paying sometimes five percentage points in spread to acquire Kenyan chilling or whatever it was.
Speaker Change: And a lot of times I didn't even know that we're being charged that right because it was very hard to find the rates.
We went in and sort of professionalize that markets David transparency became.
Speaker Change: Easy provider to banks, and Ngos and people because they can come to one place and we could handle payments to 195 markets.
Speaker Change: Could do it best execution, we could do it at spreads that were much lower so we've totally disrupted the sort of traditional correspondent banking market and will be dramatically lower spreads in the process and I think the established ourselves as sort of a meaningful participant in that market I still think we've got a long way to go in.
Speaker Change: In terms of the addressable market, but I think we sort of well known in the business.
Speaker Change: So that's the business, we and I think they have been.
Speaker Change: Some other people who had.
Speaker Change: Sort of try to follow in our footsteps.
Speaker Change: Certainly cap payments is one of those.
As well as some others and we know the cap payments parks, we really like what they've done.
Speaker Change: Business, we've looked at previously.
Speaker Change: And we still think there's a lot of commercial rationale.
Speaker Change: For us to combine with someone like type payments.
Speaker Change: The real issue.
Speaker Change: The real issue. We had recently was just sort of a value discussion around price.
Speaker Change: And as you saw they announced there was an earnings call.
Speaker Change: Wanting different during the process, which complicated matters, but we would still love to see if we could do something with those guys. If we could I think it would be very additive to our business.
Speaker Change: But we're also seeing an environment there, where there's just like a lot of the rest of our businesses relatively sort of.
Speaker Change: Benign market conditions and as a result spreads have contracted.
Speaker Change: And it never really lasts for long, but certainly across.
Speaker Change: Across the board, we've never seen sort of type of spreads in all of the sort of key car doors, we have.
Speaker Change: And that's somewhat.
Just certain extent, we professionalize that market, we've made it more transparent.
Speaker Change: There are other players in the market. So we sort of created that problem in a funny way.
Speaker Change: But our job is really to always provide our clients with best execution.
Speaker Change: We can't influence margins in the market. We also the price takers if you like.
Speaker Change: But what we can do is we can grow our footprint and we can grow our clients and we can service the hell out of our clients and we can.
Speaker Change: Build a better ecosystem for them that attracts more of their business. Those are the things we can control and I would say is a common theme through our results I think what you're seeing is we're doing that well because our volumes are growing our onboarding is high you can see that in some of the stats.
Speaker Change: What's tougher for us to deal with as the market environment, where volatility is much more benign than it has been and you're seeing that show up pretty much in every product with just lower revenue capture right and and we have cross paper on that I don't think theres much we can do to influence spreads in the market. It is what it is right.
Speaker Change: But.
Speaker Change: Okay. That's certainly helpful.
Speaker Change: Point with payment to answer your second question, we have I think a lot of exciting ideas in the pipeline.
Speaker Change: Our payments business.
Speaker Change: Recruited a bunch of new people. We go after new market segments. We're looking at collaborations with other folks I mean, I cant get into lots of detail on this stuff but.
Speaker Change: We certainly see a way for us to dramatically expand and diversify our client base, we certainly haven't proven ecosystem.
Speaker Change: Of all the major banks in the world dealing with us.
Speaker Change: There's a lot more business, we can get from them. So there are lots of levers we can pull in a lot of hard work ahead of us two two.
Speaker Change: Execute on all of those opportunities and hopefully at some point, we get a little bit of help from the market and spreads kind of normalize a little bit about as tight as we going to see them right now.
Speaker Change: Okay.
Speaker Change: Okay understood.
And then just on as we think about expenses in a lot of the commentary you gave around digitizing the business and the efficiencies that came with it as you look through the next year in your budget.
Speaker Change: Thinking about how we should think about kind of fixed cost growth and the balance of investment versus some of the that the utilization how do you think about.
The longer term kind of growth of that fixed cost base.
Speaker Change: Yeah. Unfortunately, as you know that in some of the stuff is you have to spend the money.
Speaker Change: You can say, but.
Speaker Change: If you want to digitize you have to build the infrastructure.
Speaker Change: The technology stack before you can start to see the back end savings now part of the way through that so we are even though we continue to invest I think we are now starting to see some real savings now some of them may be don't show up in absolute reductions, but what we're seeing is we able to handle growth without any incremental.
Speaker Change: Costs. So we've seen some scalability and some operational leverage starting to come in I would say as a general point in both correct me if I'm wrong I mean, we're looking for pretty slacks.
Speaker Change: Sort of expense growth scenarios for the next year or two I mean, I don't think it's going to come down, but I, certainly think we'll be at or around sort of inflationary type increases were working very hard to do that.
Speaker Change: And that's hard to do when your business is growing and you are trying to expand right because you're having to realize efficiencies somewhere else to pay for those investments. We continue to make in your business. So I think that's the goal we have it.
Speaker Change: It will be hard work to get there you've also got.
Speaker Change: The regulators sort of volume business to increase your costs and make things more typical for us we got a.
Speaker Change: Cost push from the regulators, we got a cost push because we want to invest in our business and expand our ecosystem, which we think is fundamental to our long term success, but the offset to that should be we should start to see some efficiencies and some operational leverage from some of the technology spend we put in place already so I hope is.
Speaker Change: But that sort of nets out to a pretty small number but what would you agree with that yes, yes exactly.
Yes.
Speaker Change: And then just in terms of the fourth quarter, just some of the expense.
Speaker Change: One time or nonrecurring stuff looks like DNA was a bit high professional services, a little bit low I don't know if thats, just or those good jumping off point or.
Speaker Change: Understanding the context of what you said earlier in terms of the marginal growth, but just on a line item basis. There are any one of them saw the severance number but any other kind of onetime items. So just be aware of I.
Speaker Change: I would say the DNA as you touched on it's probably at a run rate going forward is probably more in the high <unk>, maybe around $15 million on a quarterly basis. There were some there was some additional assets software put into service.
Speaker Change: Q4 and kind of.
Speaker Change: Marrying up the policies around the world around that but I would say that's a touch high.
And as we've touched on there was a little bit of insurance recovery on professional fees.
Speaker Change: I think we came in at 14 and a half.
Speaker Change: At least in the immediate future probably more.
Speaker Change: 15 to 16 million number.
Speaker Change: Okay. Thanks for taking my questions.
Speaker Change: Of course, thank you.
Speaker Change: Thank you as a reminder to ask a question. Please press star one one on your telephone.
Speaker Change: Okay, I would now like to turn the call back to Sean O'connor for closing remarks.
Sean O'Connor: Well thanks, everyone. Thanks for joining us again and that was a little bit of a long call hopefully stayed with us.
Sean O'Connor: Very pleased with the overall results and as I said thrilled with the <unk> team for all their hard work and thanks to all our customers for trusting us with your business. Another final Merck just like to wish all of those in the U S.
Sean O'Connor: Thanks, giving next week and happy holidays to everyone else. Thanks. Thanks all.
Speaker Change: This concludes today's conference call. Thank you for participating you may now disconnect.
Speaker Change: Okay.
Speaker Change: [music].