Welcome to the INTL FCStone Fourth Quarter and Full Year 2016 Earnings Conference Call. [Operator Instructions]. As a reminder, this conference call is being recorded. I would now like to turn the conference over to your host for today. Bill Dunaway, Chief Financial Officer, you may begin.

Good morning. My name is Bill Dunaway, CFO of INTL FCStone. Welcome to our earnings conference call for our fiscal fourth quarter ended September 30, 2016. After the market closed yesterday we issued a press release reporting our results for the fiscal fourth quarter. This release is available on our website 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. But the presentation and an archive of the webcast will also be available on our website after the call's conclusion. Before getting underway, we're required to advise you and all participants should note that the following discussion should be taken in conjunction with the most recent financial statements and notes thereto, as well as the Form 10-K filed with the SEC. This discussion may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements involve known and unknown risks and uncertainties which are detailed on our filings with the SEC. Although the Company believes that its forward-looking statements are based upon reasonable assumptions regarding its business and future market conditions, there can be no assurances that the Company's actual results will not differ materially from any results expressed or implied by the Company's forward-looking statements. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Readers are cautioned that any forward-looking statements are not guarantees of future performance. With that, I'll now turn the call over to Sean O'Connor, the Company's CEO.

Thanks, Bill. Good morning, everyone and welcome to our FY '16 fourth quarter earnings call. The general market environment has changed for us in ways that were unforeseen and unanticipated, starting with the unexpected Brexit vote, followed by the surprise U.S. presidential vote, has led to possibly more favorable conditions for our business. It would seem that in the U.S. anyway, markets have become more optimistic and interest rates reacted accordingly which over time should have a material and direct impact on our earnings. In addition, the withdrawal of the Fed from the markets, combined with the less predictable political playing field, should increase overall volatility which is also a favorable development for us. Finally, higher commodity prices are also a welcome development. So overall, although not evident throughout the Q4 under review here, market conditions would seem to have improved for our business overall. Just as in 2015, Q4 was again the best quarter of the year for us. We achieved earnings of $16.8 million which was down 20% against last year's record result and EPS of $0.90 per diluted share, down 17%. The EPS was down relatively less than earnings due to the impact of share buybacks in the early part of the fiscal year. Just as in 2015, our Q4 results had some unusual nonoperating items. This year we recorded a $6.2 million nontaxable gain on the acquisition of the Sterne Agee business as a result of us having acquired the businesses at an effective discount to the asset value received. In the year ago Q4, we also realized an after-tax mark-to-market gain of $4.2 million in the treasuries held in our interest rate program versus an after-tax loss of $2.2 million in the current quarter. So, there was a swing of $6.4 million on the bottom…

Thank you, Sean. I would like to start my discussion with a review of the quarterly results. I will be referring to slides and the information we have made available as part of the webcast, specifically starting with slide number 3 which represents a bridge between operating revenues for the fourth quarter of last year to the current year fiscal fourth quarter. As noted on the slide, fourth quarter operating revenues were $178.6 million which is relatively flat with the prior year. Looking at the performance in our operating segment, the most notable change was a $23.5 million or 75% increase in our clearing and execution services segment. This is primarily related to the acquisition of the Sterne Agee correspondent securities clearing and independent wealth management businesses which Sean touched on which added an incremental $24.1 million. The second largest increase in operating revenues was in our physical commodities segment which added $9 million or 148% versus the prior year. This was a result of a $6.5 million increase in our precious metals business combined with a $2.5 million increase in our physical ag and energy businesses. The precious metals business benefited from the reversal of a third quarter unrealized loss on derivative positions held against inventories carried at the lower of cost or market in our non-broker-dealer subsidiaries. These gains in operating revenues were offset by declines in commercial hedging, global payments and securities. Commercial hedging operating revenues decreased $13 million due to declines in both exchange-traded as well as OTC revenues. Exchange-traded revenues declined 12% or $4 million due to weaker LME, energy and renewable fuels revenues. Over-the-counter revenues declined 35% or $9.4 million, driven by lower Latin American agricultural volume as well as the effect of lower energy prices and volatility. Global payments segment operating revenues declined…

Thanks, Bill. We have now delivered best-in-class financial performance for the last two years and look forward to potentially more favorable market conditions with higher interest rates, increased volatility and higher commodity prices generally. We continue to see a competitive environment with consolidation of smaller players and larger banks shedding clients, all of which is favorable for us. We have acquired two meaningful businesses during the year which we believe will not only be earnings accretive but further expand our capabilities and presence in key markets. We have now grown beyond our niche capabilities and stand poised to become a best-in-class franchise, offering our global customers high-quality execution both in high-touch and electronic, in-cycle market intelligence and post-trade clearing services in almost all markets and asset classes. This is a comprehensive array of products and services which should allow us to take advantage of the large and noticeable and as yet unfilled void in the market created by the demise of larger financial franchises during the crisis. With that, I would like to turn it back to the operator and open the question-and-answer session. Sonya?

[Operator Instructions]. And our first question comes from Greg Eisen from Singular Research. Your line is now open.

Congratulations on the results and the execution of these acquisitions. No sooner do you complete them then I ask what's next. My question is, once you feel like you have digested what you have acquired, when you look at your overall business platform of what you have in place, where do you think you want to expand next? You have acquired a wealth management business in this Sterne Agee process and lots of players in wealth management like to add bulk. They seem to just want to make them bigger and bigger. Is that something you want to add to? And what should we expect out of that?

First of all, we're in a very interesting place in the market at the moment where there's lots of consolidation, lots of monoline businesses out there that are struggling. We tend to see a lot of these opportunities. They come to us, they see us as a potential acquirer, so we see lots of opportunities all of the time. I don't think we have a target list of people we want to acquire and are willing to acquire them at any cost. That is not how we work. What we see is a lot of opportunities coming across our desk. When we see something that fits, adds real value to our capability set, adds a new customer base and on top of that if it is priced right to be attractive to our shareholders, then it merits serious consideration. I just want to be clear, we're not looking to acquire businesses and have a list of potential targets we want to go after. We're a little bit more opportunistic on that side. I would say at this point there is -- I think we have most of the capability sets we think we need. There was a gap on the securities clearing side. We had come to the conclusion that we were prepared to build that organically. We had looked at a couple of opportunities. None of them were priced right for us. And then, fortunately, the Sterne Agee acquisition came along, so we solved that problem. I think the things we would be looking for and would be interesting to us, the ICAP type opportunity that came to us which was a respected team of people with great relationships with clients, turnkey lift out and drop onto our platform type business. Those opportunities we're always interested in. Anyone who…

I think you did. If I could turn to your precious metals side of the physical commodities business, could you review that again and explain what drove the improvement, what drove the delta this quarter?

The first thing was, there was a little bit of a timing issue on a mark-to-market reversal that happened in the prior quarter. So you need to, when you're thinking about our precious metals business, just adjust for that. That obviously doesn't affect the annual results. This is a business that we have had for a long time. It's one of the legacy INTL businesses. If you go back seven, eight years ago, this was a business that probably was even making greater gross revenues that it is now. And then we went through a tough patch with that market. Some of the key markets we're active in, like India and Vietnam, they changed some of the rules and we were very concentrated in those markets. So, we really have to go through a restructuring of that business and diversifying our client base and expanding. We bought some more people on and they've, honestly, done a really great job on that. This has been a long time coming for us. I think I have mentioned on prior calls that we were restructuring this business and we thought it was on the right track. And I think now they have delivered on that promise. We have a nicely diversified business. I think what we've also found -- and, honestly, we see this in all of our businesses -- the big banks that really dominated this business are starting to retrench. This business was dominated by some of the Swiss banks, Scotiabank. We were the scrappy small player making inroads into their customer bases. And what's happened now is they've pulled away from the market a little bit, so it's allowed us to really make some nice inroads there. And I don't think that's going to reverse. Banks all around the world…

[Operator Instructions]. And our next question comes from Christopher Hillary of Roubaix Capital. Your line is now open.

Can I just ask, you made in your press release in your remarks that the business conditions or the backdrop has improved quite a bit. Can you speak a bit more to that? And on a more medium term note, can you also expand on the opportunities you see from the other players backing away from the market and in what ways we're going to see that manifest itself in the business over the next year or so?

Okay. It's a multi-level conversation. I think the first and the most obvious change in macro conditions is interest rates. We just had the first increase yesterday -- sorry, the second increase -- in a decade in interest rates. We've now given a slide in the deck which I think shows what interest rates could do for us. I think the Fed has been consistently wrong in their prediction of how interest rates are going to play out. But if we had to take them at their word and three interest rate increases next year, it looks like, from our Q4 to the end of our fiscal year, we could see a 1% increase in interest rates. That adds close to 4% in ROE for us and is a significant tailwind for our business. I think that's the first and most obvious the most easily quantifiable thing I can say to you. Obviously it depends on what your judgment is on interest rates. But we essentially are a float business, so we have a big float in our business. So, that's the first thing I would say to you. The second thing is, our business is driven by client activity and, best we can tell, client activity is pretty directly correlated to market volatility. And market volatility has been significantly dampened over the last eight years by incredible intervention by the central banks around the world. It certainly looks like in the U.S. that phase has ended and that would probably argue for a higher and more normal level of volatility. I think we have been in an abnormally low volatile type market. And I think if you layer on to that a very unpredictable political situation, I think there is likely to be more of and less volatility and…

And then just one more on the payments business where you've had the exceptional volume growth, do you think we're going to see, as you look into the upcoming fiscal year, do you think the interplay between volumes and your spread or your rates is going to become more favorable for profit growth?

I think that the global payments is an interesting thing to look at, because if you just look at the numbers as we have presented them, it doesn't look very attractive, if you look at the current year versus last year or the current quarter versus last year. I would urge you and I think we give you enough data points to do this, if you had to pluck out quarter by quarter just sequentially the growth in volume as well as the average revenue per trade, if you like, I think you'll see some very strong trends. And then you will see a huge aberration in the trend a year ago. So, what you see is an explosive growth in underlying transactions. And I think that's intact. And what you see is a decline in revenue per transaction, except for the Q3 last year and then the Q4 where actually the revenue per transaction increased. So, if you look at that I think it becomes really clear the market aberration we had a year ago. And if you normalize for that, because I think that is not a repeatable event -- it may happen again at some point, but certainly I don't think it is repeatable in that scale -- I think you'll get a clearer picture of how the underlying trends are. So, that's the first point. The second point is, we have signed up a number of very large financial institutions in the last couple of quarters. We now have almost every large and mid-size banks, in the U.S. certainly and a lot of them in Europe, now doing payments through us. As we said before, there's a long adoption cycle with these banks. I still think we're in the early innings of that. So, I can…

It does. In case there's not another question, I have one more. You have a relatively meaningful share buyback authorization in place. Can you remind us how to think about how you're going to go about executing that going forward?

Yes. I think we've discussed this in the past before. I think empirically, if you look at share buybacks, they have almost predominantly been bad -- IE, companies always overpay for their stock in the market and that just generally is not a good result for the shareholders. We have a pretty formulaic approach to buybacks. We look at a book value metric. It's very much how Warren Buffet does his buybacks. We will start buying back shares if we think it's going to be accretive on a book value per share basis in a two- to three-year window. If we can't see that buying back our stock is going to be accretive for our shareholders on that basic measurement, we're probably not inclined to buy our shares back. Obviously, if you go back a year ago we were trading at around book value which that becomes very accretive, so that's when we bought shares back. Obviously now we're trading at something like twice book. This would not be a time when we would be buying shares back. So, we're much more focused on book value per share and making that metric accretive than we're on an EPS per share. And just to put it in context, Bill can probably give you the exact numbers, but we purchased around 2 million shares and I think the average price we paid is somewhere around $20 a share. If you had to mark that to market, we have created, I think, significant value for our shareholders through the buybacks and we want to make sure we continue to do that. Does that make sense?

Thank you. This does conclude our question-and-answer session for today. I would now like to turn the conference back to Sean O'Connor, Chief Executive Officer, for any further remarks.

Okay. Thank you, everyone. All I can say I guess is happy holidays to everyone. So, enjoy. Thank you.

Ladies and gentlemen, thank you for participating in today's conference. This concludes today's program. You may all disconnect. Everyone have a great day.