Good day, everyone, and welcome to the INTL FCStone Fourth Quarter Fiscal Year 2013 Earnings Call. Today's call is being recorded. At this time, I'd like to turn the call over to Mr. Bill Dunaway. Please, go ahead, sir.

Good afternoon. My name is Bill Dunaway, CFO of INTL FCStone. Welcome to our earnings conference call for our fiscal fourth quarter ended September 30, 2013. Before the market opened today, we issued a press release reporting our results for the fiscal fourth quarter. This release is available on our website at www.intlfcstone.com, as well as a slide presentation, which we will refer to on this call in our discussions of our quarterly and year-to-date results. You'll need to sign on to the live webcast in order to view the presentation. Both the presentation and an archive of the webcast will also be available on our website after the call's conclusion. Before getting underway, I'd like to cover a couple of housekeeping items. On these conference calls and in the management discussion portions of our SEC filings, we present financial information on a non-GAAP basis in order to take into account mark-to-market adjustments in our physical commodity product lines, which are included in both our CRM and Other segments. As discussed on previous conference calls and in our filings, the requirements of accounting principles generally accepted in the U.S., which I'll refer to as GAAP, to carry derivatives at fair market value but physical commodities inventory at the lower of cost of market value, may have a significant temporary impact on our reported earnings. Under GAAP, gains and losses on commodities inventory and derivatives, which the company intends to be offsetting, are often recognized in different periods. Additionally, in certain circumstances, GAAP does not require us to reflect changes in estimated values of forward commitments to purchase and sell commodities. For this reason, we believe that the GAAP numbers do not reflect the commercial results of our physical commodities product lines, and therefore, the company as a whole. Instead, we…

Thanks, Bill. Good afternoon, everyone, and welcome to our fourth quarter earnings call. Before we start, just apologies. I have a cold, so if I sound a little weird it's just I'm under the weather, a little bit of a cold. I'd like to start by discussing the restatement of our previously filed financials for fiscal years 2012 and 2011. And I would ask that you refer to the earnings call presentation, which is available on our website, which I'll walk through. Starting with the third slide, which is the first slide after the disclaimers dealing with the background of the restatement. During our year-end close procedures, we came to realize that we had an accounting error of approximately $10.2 million. Upon further review, we have determined that we have overstated revenues by an aggregate $9.5 million relating to the prior 3 fiscal years. This was all related to our swap-dealer subsidiary. In order to determine how to proceed with the correction, we had to identify the specific errors, reperform a vast amount of accounting reconciliations and assess the materiality of this error on each of the prior 12 quarters. This could not be done in time with the thoroughness and accuracy required, so we were forced to delay our filing. This is not something we do lightly, and even though the aggregate correction may be deemed small relative to our net worth and even to our earnings in the aggregate over the time period in question, we believe we owe it to our investors and customers to be completely transparent and get our numbers right. We have now finalized the work and have summarized the necessary corrections in our earnings release, which went up prior to the market opening this morning. Early next week, we will be filing our…

Thank you, Sean. I'd like to start my discussion with the review of the quarterly results and refer to the eighth page of the slide presentation titled Quarterly Financial Dashboard. This slide lays out the quarterly operating results as well as related balance sheet information in comparison to the prior year period, as well as in some cases, the internal target which management has for our operating results. Adjusted operating revenues were $113.8 million for the current period, which represents a 9% decrease from $124.7 million in the fourth quarter of 2012. Adjusted operating revenues decreased 5% from the $119.7 million recorded in the third quarter of 2013. Adjusted operating revenues declined in the core CRM segment, however, all other segments of the company has experienced growth in adjusted operating revenues in the fourth quarter as compared to the prior year, highlighted by a 66% increase in the adjusted operating revenues in our Securities segment. Looking at our revenues on a segmental basis, adjusted operating revenues in our Commodity and Risk Management Services segment decreased 30%, from $69.1 million in the prior year to $48.1 million in the fourth quarter of 2013. Adjusted operating revenues decreased 9% as compared to the third quarter revenues of $53 million. Our CRM segment is further broken down into 3 product lines: Soft commodities, precious metals and base metals. Starting with soft commodities, operating revenues decreased 33% from $57.7 million in the fourth quarter of 2012 to $38.5 million in the current period. Third quarter 2013 revenues were $46.5 million. Exchange traded contract volumes decreased 14% and OTC contract volumes decreased 33%, respectively, over the prior year period. The decrease in exchange traded contract volume was primarily driven by the diminished hedging volume from our domestic grain customers as a result of low commodity…

Thanks, Bill. I mentioned earlier about our team in the middle of a perfect storm with generally reduced market volatility, lower commodity prices, cyclical drought-related issues and regulatory changes as well as depressed interest rates. These are tough headwinds for our business to sustain as currently configured. And as a result, the returns have been significantly below expectations and our targets for a couple of years now, but fortunately, have been at least positive. We have been asked recently by some investors and have internally deliberated if our long-term target of 15% ROE can be achieved. And certainly in the face of these headwinds, it's not possible in the short term. However, we run our business for the long term, and this is a long-term objective, and we should not be altering it based on short-term or cyclical circumstances. But the question we are left with is whether these headwinds are more permanent in nature and part of a new normal, or are they a short-term phenomenon. We may all have different opinions on this. My thoughts are that some of these headwinds are here to stay, especially the regulatory issues insofar as they affect us and how we conduct our business and also potentially the impact on the market. This is unlikely to change anytime soon, and we need to assume that this is, in fact, a new normal. Volatility may be somewhat subdued for a longer period due to the industry impact of these regulatory changes as well as the abnormal Fed activities, which have tended to drive up volatility in the market. But price levels, absolute price levels, and drought conditions, both material factors for us, are short-term phenomena and are unlikely to continue. And while interest rates may take a little longer to move up, it…

[Operator Instructions] We'll take our first question from Justin Hughes with Philadelphia Financial.

I was wondering, the strongest part of your revenue this quarter was the Securities. It was $18 million, which is up over 60% year-over-year. Could you just give us a little bit of color on what's going on with that line item? And is this sustainable? Or is there something maybe special in the quarter?

Okay. Well, Bill, feel free to chime in as well. I think the biggest impact on that was the acquisition we made of Tradewire about a year ago. So if you look on a year-on-year comparison, that acquisition was in for a full year this time and not for a full year last time. And I think that's a big part of the delta. Additionally, I think we are just gaining market share in all of our related Securities businesses. And I think with what's happening in the market, there is generally sort of more activity in the equity markets as equity prices are running up. And bear in mind, we're picking up ultimately largely retail flow. I mean, we pick it up from institutions but sitting behind that is retail flow. I think retail investors are just becoming more active in the market, and I think that always happens when equity markets do well. And I think we're sort of in that abnormal situation 2, 3 years ago where everyone bailed out of the equity markets and were seeding [ph] long cash money markets or bonds. I think those are probably the 3 biggest factors. Bill, you got anything else?

No. That's it, Sean.

Seasonally, usually, third quarter has lower activity. Do you see higher activity this year? Because your revenue in that line item was up $5 million quarter-over-quarter.

Yes, honestly, it's hard to see if there's seasonality. I mean, I think largely you are correct because that's kind of summer and so on. But honestly, it's hard for me to know whether seasonality applied this time. I think the markets are just kind of on fire at the moment. So I think everyone is kind of getting back and involved, and I think that's probably the biggest factor for us.

Okay. And then you spent some time talking about your payments business. Can you tell us how much -- first of all, where would we find that, which revenue segment? And how much is your revenue and earnings from your payments business?

Okay. Yes, well, firstly, let me -- Bill can give you the exact numbers. We're going to try to do a better job and one of our thoughts [ph] is to break the payments numbers out in our future filings. So to answer that question, Justin, as I said in my little prepared remarks, I think you're going to see more detail from us on that business. Bill, do you have some fill that you could throw out there just for the big numbers: revenue and net segment earnings?

Yes. On an annual basis for the full year, Justin, the payments business generated about $41 million worth of adjusted operating revenues and about $20.5 million of segment income for the full year 2013.

Okay. And how much was that up over the prior year?

As compared to the prior year, it's up about 5% in revenue, and it's down slightly. It's down about 5% in segment income. Most of that's related to the system costs. As I touched on, they put in a new back-office platform, so there were some costs associated with getting that platform up and running and ongoing.

Justin, that business is really done kind of a real pivot in our mind, which is why we want to highlight it. We really started that business along with our sort of general strategy, I guess, of focusing on sort of underserved market segments, underserved customers, generally high-touch type businesses, and that's how that business started. We dealt with very unsophisticated NGOs trying to do payments in very difficult markets. And we kind of exhausted that opportunity -- or not exhausted it, but I think we -- that became a mature opportunity for us. And our decision was we had to really turn ourselves into a much more efficient technology-driven business. And the last 2 years has been a lot of costs that we put through the income statement in making that pivot. And as I mentioned in my prepared remarks, we've gone from, maybe I'm off a little bit, but something like 90% of our payments being some manual interface to probably 90% of them being -- or higher being no touch now. So that involved a lot of cost and a lot of expense in developing those proprietary systems, all of which sort of impacted the bottom line. It's a great business, growing, we think, very nicely. Transaction revenues are growing. We sort of made good headway and proof of concept in getting banks onboard. But that was all possible because of these technology costs. So we're kind of at an interesting point now because if we can really see these volumes go up, we should have a lot of operational leverage due to our new technology platform. So I hope that gives you some feel for it.

Bill, you may also want to repeat some of the quarterly information that you gave on that business in your presentation. So you just went through the year, but perhaps you can touch on the Q4 results for that business as well. I know you covered it in your presentation but maybe just repeat it.

Sure. They were -- for the fourth quarter, they generated about $10.4 million in revenue, which is up about 6% over the prior year and about 5.5 -- almost $5.6 million in segment income, which was 9% over the prior year period.

Okay. So I mean, just -- and that compares to, looks like, segment income of -- for the full fourth quarter full company, negative 2.6. So really, we should spend a lot more time on this because it looks like it's the only segment making money. Is that fair to say?

Well, the segment income is before sort of the central overhead and so on. So I'm not sure that's exactly a fair comparison, but it's certainly one of our highest margin businesses and I think has made an interesting pivot to being a mainstream business. Honestly, serving some of the biggest banks in the world, so I just think that's interesting. Very hard for me to predict how successful we are in turning that into sustained growing revenues. I think we've got a great shot at doing that, and there is kind of a lottery ticket kind of effect in that business if we can really crack it. I mean, we could be on to something that's pretty interesting. But it's very hard to get big banks to deal with you, so I caution everyone by saying we've made progress, we've got these banks on, they're all dealing with us, but you're dealing with huge organizations, and sometimes it's hard to get them to sort of work with you and use you the way you want them to use you.

Justin, just to give you some clarity -- just to give you some clarity, Justin, on the segment income. The total segment income, which is a measure of profitability before central overheads, the total segment income for the fourth quarter was just under $25 million. So this represented about $5 million, $5.5 million of the $25 million.

We'll go next to Russell Mollen with Bares Capital.

My first question is the impact from the accounting issues. Was there any post release that you guys had last month? Any issues with loss of business or customers leaving or anything like that being scared away from that uncertainty?

Yes. And again, we're going to be very candid and forthright with you here. We worked pretty hard to make sure that when we made our initial announcement that we quantified the extent of the problem because I think oftentimes, people go out and just say, "We don't know what our numbers are, it's a mess." And that's obviously very damaging. And clearly, our accountants and our advisers have to be onboard with that. So we went out and gave a number, and we thought the number from a counterparty creditworthiness point of view was largely immaterial. And honestly, we got a much worse reaction than we anticipated, both in terms of the stock price, which you've probably seen that, and we did have a number, particularly sort of our larger banks and our larger customers, they did come on and start asking lots of questions. A couple of our big customers, said, you know, we're going to scale back our business until you guys can verify for us that these numbers are indeed what we think they are, and we've now done that. So very hard for me to -- you don't know what's happening with people that aren't talking to you, so don't know. I think we feel pretty confident that we have great relationships with our customers. They're all long-term relationships. We do things kind of that other people don't initially do in the same way. But certainly, there's going to be some impact. Whether it's noticeable or not, we'll have to see.

Got it. And then secondly is, either on the last call or the one before that, you guys talked about sort of a potential for it to be a really good crop season and things sort of picking up and the fall and winter and things like that, particularly on the soft grain business. Are you kind of saying the opposite now. Did that not happen? Was it not a good crop season? What's sort of going on there?

Okay. There are kind of a lot of dynamics that drive our revenues coming out of that crop things and maybe -- and I think we've chatted about this before but let me just give you some of the impacts. So firstly, the main thing that drives our full futures business is how much grain is sitting in storage with the elevator networks. And once they take the grain in storage, they have to hedge it, right? So that's kind of the underpinning of our business. And with what's happened with the drought, those stocks went down to historic lows. So the bins were empty. There just wasn't a lot of hedging that had to happen. So irrespective of whether it's a good or bad crop, what matters to us is how much of that is sitting in storage, right? So that's one issue. The other issue around that for our structured products business is what's the volatility in the market? Because if there's volatility, that certainly helps us put structured products together. It helps -- customers are more interested in trading. And then the third factor you've got in all of this is kind of the absolute price levels and the leads and lags that causes with the grain actually coming into storage. So for example, if prices are very high, I would guess the argument would be farmers and producers would rush that grain to market so they could get paid a high price. Or even if they couldn't get it to market, they would ask the elevators to maybe hedge for them, and we would in turn see that business from the elevators. When prices are low, even if there's a good crop, the farmers may hang on to their grain because they think, "Why should I…

We'll go next to Paul Siegel [ph] with Columbia Management.

I'm not sure if I missed this, but how much of -- how much was the severance payment on the compensation line, the one large severance agreement?

It wasn't actually a severance payment, Paul, it was a -- the person was retiring, and he had restricted stock in our plan, which we would have recognized that the expense on that restricted stock over a period of about 2.5 more years. But the way our restricted stock plan works, if you do retire, that stock immediately vests, and thus, we have to recognize that compensation expense all in the current period. So it was about $2.6 million on a pretax...

And just to be clear, that stock was in lieu of cash bonuses. I mean, we have a mechanism where our traders and our executives can take a portion of their cash bonus in stocks. So that stock, that executive elected to take restricted stock. We only allow that stock to vest over a period of time, and when he retired, we had to accelerate the write-off of that stock.

And then within the foreign exchange payments business, now that you've broadened your offering, are you now addressing the entire market? Or are you moving from the smaller niche that you were in to a different segment?

I'm not sure exactly what your question is or how to answer that. Let me just say this, I mean, certainly, I think when we started in the business, I think it was a little bit more of a niche approach in the sense we were going for kind of the easy access point, right, which was small NGOs who were relatively unsophisticated. They didn't need a fancy system. They just needed someone who could help them and sit down with them, right? And they were also doing a lot of business in very quirky places, so it was sort of high-touch, hard work kind of business, and that's kind of where we built this business from. And now we're offering this out to pretty much anyone, including the biggest banks you can think of here in the U.S. down to the NGOs, but we're now doing it in a much more automated way with technology. And this has been sort of a challenge for the last 2, 3 years and cost us a lot of money to do, but we now think we've got a pretty broad offering. We can do payments in more countries than any organization on the planet. So that's a pretty strong offering for us, and we are truly one of the few one-stop shops. Even the big banks can't do as many countries as we can do. So I hope that answers your question, but it certainly moved from initially where we took a very targeted approach at a customer base we thought we could compete for. And as we've developed our abilities, we now think we have a business that has a pretty broad appeal.

What do you think your...

Just to add one other comment there, as I touched on a little bit earlier, with the new back-office platform, we're actually able to do far more smaller payments than we used to because we used to have to touch each payment, so we're able to do higher volume of lower value payments, which before, we would have had to touch and would have been more manual. That kind of expands our offering to commercial customers as well.

Okay. So what do you think your market share is, loosely?

I think it's infinitesimal. I mean, the global payments business is massive, I mean and still dominated largely by the big banks. And I would probably say, most of the payments of the world go to sort of between the G7 countries just because those are the biggest economies. And even the part where I think we offer more of a value proposition, which is the developing markets, I mean, we can do anything in the developing market. It's still an enormous business. And what we -- who we're really disintermediating are the banks in this business. In fact, banks have become our customers because the banks that we are disintermediating are the local, colonial, multinational banks who have had this business for generations, and they're just not competitive, and that's really who we're displacing and disrupting in this industry.

Okay. And then, I guess, finally, in terms of acquisitions, you said that the pace was accelerating. Have you noted that it accelerated further in the fourth calendar quarter of '13?

I can't point to any specific data points that would lead me to think that over a quarter it's accelerated. But if you watch some of the industry data, I mean, the tab [ph] report is probably a good place to go. We talk to our regulators who can tell us how many people they regulate and so on. I mean, if you just look at the FCM space, you go back 3, 4 years, there were probably 200, 220 FCMs. I think it's down to 120 now or 130, and it's probably going to be 75 is everyone's view pretty soon. Now there are a lot of small guys at the bottom end there that, in aggregate, don't amount to a lot, but you're sort of seeing a massive consolidation, I think. And the same is happening on the broker-dealer space, and the same is happening with swap dealers. I mean, in fact, swap dealers, there haven't been a lot out there, but there've been a lot of entities that have been engaging in swaps that are just going to be out of business because they can't sustain infrastructure costs of being a regulated swap dealer. And maybe just to give you some anecdotal kind of data points here, we are a regulated swap dealer, and we did this business a year ago as an unregulated entity, and part of our regulatory regime is we have to prepare a compliance report annually, which we have to take to our board, and it has to go to our regulators. And a part of that compliance report is you have to list out all the regulations that you are subject to, and you have to map those to your internal controls and make sure that every one of those regulations has a control that is robust and continuously ensures compliance. In our swap dealer, we are subject to 715 regulations. I mean, this is a massive change for us. We were subject to no regulations other than basic money laundering and good commercial sense a year ago. These 715 regulations, there are not a lot of people, particularly smaller entities, that have the wherewithal to even begin to think about doing that. And that's the same in our FCM, and it's the same in the broker-dealer world right now. So you know that regulators have significantly upped the ante, and that is going to force a consolidation. There's no doubt in my mind that's going to happen. How does it happen? When does it happen? Timing, those are all the imponderables at this point.

[Operator Instructions] We'll go next to Bartley Cohen [ph] with -- private investor.

I was just curious if you could -- I know last year, you were repurchasing shares and then you stopped for a few quarters and then you started recently again. I just -- if you could just go through the thought process of why you stopped and then why you restarted.

Okay. So I think we had a pretty explicit conversation about the process of share repurchases about a year or so ago. And maybe just to refresh everyone on that, I mean, firstly, we don't believe, and I think a lot of companies our size use the share repurchase plan to either indicate to the market what the executives think the share price should be or to support the share price. We have absolutely no interest in doing either of those 2 things. We are clearly focused on compounding our book value, and therefore, buying shares at significantly above book value destroys our book value per share, right? If we can buy shares at or around book value, that can be very accretive over a period of time to book value. So that's sort of our methodology, and we believe in discipline because if you try and do it on the fly, you'd probably screw it up. So what we do is a very mechanical process where we set out how many shares we will buy at increments relative to book value. And these aren't exact numbers, but just to give you an example, at 20% over current book value, we might buy 100 shares. At 15% over book value, we might buy 200 shares. And at book value, we might buy 500 shares. So we will incrementally buy more shares as the share price goes down. And ultimately, anyone who's selling us their shares should know we're buying them because we think they're cheap, and we know better than they do. And so -- and we also have a -- as kind of a timeout kind of policy because we don't want to be supporting the share price. If the share price goes down, in a funny way, we want it to go down so we can buy more shares cheaper, right? So what we do is we will only accumulate a certain number of shares, and then we will withdraw from the market and let the market find its true level. And if it's lower, we'll buy more at that point. So a very mechanical process. We implement it every quarter. Unfortunately, and probably a lesson for us, is we recalibrate our quarterly share purchase program in an open period because we're not allowed to do it in a closed period because the company has inside information. And clearly, when we delayed our filings, we went into a quiet period and -- or a closed period, and we weren't able to kind of re-up our plan, which was unfortunate. So obviously, once we file on Monday or Tuesday morning, that we will be able to recalibrate for the next quarter our share purchase plan, and it will be a mechanical process. We leave the orders with our agent, and they execute. Did that make sense?

Right. It does. I just -- I mean, I thought you guys stopped for a while this -- yes, it makes sense. So the last question was, I know last year, you guys were getting -- gaining like a lot of customers per month, and it was like 300 or 400 or something. Has that picked up? Has it slowed down?

I think it's sort of -- it's -- I don't want to say flatlined. I think it's not accelerating, but we're still acquiring customers at a pretty steady rate. But the rate is the same. It's 200, 300 customers a month or whatever it is. So at one point, it was sort of rapidly expanding, and I think that was sort of a little bit in the aftermath of MF Global and a couple of other things. But there's a steady stream of inbound customers, higher than it’s been 3, 4 years ago. Still higher, but not accelerating necessarily.

And at this time, we have no other questions.

Okay. Well, thanks, everybody, for your attention, and sorry you had to wait so long to hear from us. We will hopefully be on time with our first quarter, and we'll be speaking to you soon. Thank you.