Good morning, ladies and gentlemen and welcome to the INTL FCStone Q3 FY 2017 Earnings Call. At this time, all participants are in a listen only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the call over to your host, Mr. Bill Dunaway, CFO.

Good morning. My name is Bill Dunaway, CFO of INTL FCStone. Welcome to our earnings conference call for the fiscal third quarter ended June 30th, 2017. After the market close yesterday, we issued a press release reporting our results for the fiscal third 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 the 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, we're required to advise you and all participants should note, that the following discussion should be taken in conjunction with the most recent financial statements and notes thereto as well as the Form 10-Q filed with the SEC. This discussion may contain forward-looking statements within the meaning of Sections 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 in 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 could 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 fiscal 2017 third quarter earnings call. We continued to experience depressed volatility and, in some instances, multi-decade lows in volatility, which provided headwinds for us as customer activity was generally muted. In addition, low volatility tends to compress trading spreads where we act as a principal for our customers, which accounts for around 40% of our overall revenue. Given these market conditions, we feel we achieved an acceptable result with net earnings per share of $0.66, an increase of 14% over the immediately prior quarter, but 15% below the prior year. We achieved nearly 11% return on equity for the quarter. Some highlights for the quarter. Bill will cover these in more detail in his section later. While operating revenues were up 13%, net earnings declined 13%. This was due to an increase of 97% in introducing broker commissions and a 17% increase in non-interest expenses. These increases in costs were due to the acquisition of the Sterne Agee and the voice broking business as well as a sizeable increase in IT-related costs as we upgrade our systems and infrastructure to make it more scalable. Continued strong growth from our payments business, with segment income up 30% off the back of a 54% growth in volumes and stable fixed costs. Physical commodities recorded segment income up nearly threefold. I'll come back to this in a bit. Clearing and execution business was up nearly double, largely due to acquisitions we have made in the last 12 months. Commercial hedging was down sharply, driven by 40% decline in OTC trading revenues, although we did see a very nice pickup in June where we had some price spikes in the grains sector. Securities was down largely off the back of reduced revenue captured in…

Thank you, Sean. I'll be referring to slides and the information we have made available as part of the webcast, specifically starting with slide number three, which represents a bridge between operating revenues for the third quarter of last year to the current year fiscal third quarter. As noted on the slide, third quarter operating revenues were $197.6 million, which is a $22.6 million increase over the prior year. Looking at the performance in our operating segments, the most notable change was a $32.1 million or 96% increase in our clearing and execution services segment. This was primarily related to the acquisition of the Sterne Agee Correspondent Securities Clearing and Independent Wealth Management businesses as well as the ICAP voice brokerage business, which collectively added incremental operating revenues of $32.2 million in the current quarter. Our global payments and physical commodities segment added $4.1 million and $4.3 million in operating revenues, respectively. The number of payments in our global payments business continued to grow adding 54% versus the prior year, driving the growth in operating revenues. Sean previously touched on the key drivers of the physical commodities growth. These gains in operating revenues were partially offset by declines in our commercial hedging and securities segments. Operating revenues at our commercial hedging segments declined 21% to $57.1 million as exchange traded and OTC revenues declined to 11% and 40% respectively. These declines were primarily related to low market volatility, as mentioned by Sean earlier, most notably in global grain, LME metals, food service, and dairy markets, as well as the decline in customer interest rate swap activity. Partially offsetting these declines was a $1.1 million increase in interest income, driven by an increase in short-term rates. Securities segment operating revenues declined $1.6 million, primarily driven by a $1.2 million decline in…

Thanks Bill. We are pleased that we achieved a nearly 11% ROE for the third quarter, given the historically low volatility environment we have experienced. We continue to see consolidation in our part of the market, which is generally positive and is allowing us to expand our customer footprint, all of which stand us in good stead when market conditions improve. The management team is now focused on building an efficient and scalable infrastructure, where the marginal costs associated with the incremental transactions is close to negligible. This will be a key differentiator in medium term and will help drive volumes and margins for us. The result of this is though in the short-term there's been a significant increase in technology-related costs, but we are working hard to ensure that we see a meaningful and enduring payoff for these investments. We continue to believe that we stand poised to become the best-in-class franchise offering of global customers high-quality execution, both high tough and electronic, insightful market intelligence, and post-trade clearing services in almost all markets and asset classes. With that, I would like to turn it back to the operator to open the question-and-answer session. Operator?

Thank you. [Operator Instructions] Your first question comes from Will Settle from Woodmont. Please go ahead.

Good morning gentlemen.

Hey Will, how are you?

All right. Figured if no else will ask the question, I will. I got a few here. So, on the payments business, just strong growth again. Is that driven by new customers, new onboarding folks, or just continued ramp of some of your recent adds?

Well, I think it's a little bit of everything, to be honest. We still have clients moving up the adoption curve, particularly the big banks with us. We have signed a number of large and medium-size banks over the last six, nine months. So, that's obviously incremental to all of that. So, it's a combination of both new clients and the existing clients still kind of moving through the adoption curve. So, bit of everything.

Great. And then I remember a couple of years ago and trying to evaluate the global payments segment, we talked about an allocation of corporate overhead, I think around 10% or so of your run rate at that time. Obviously, you've made some acquisitions, corporate G&A has ramped up. Connected with that, what -- as we try to think about what should be allocated to global payments, have you been out of leverage that corporate overhead level from a couple of years ago or has that ramped up with the growth as well that we need to connect there?

No, I would say of all our business segments, the global payments is probably the lightest user of central overhead and probably also the lightest user of capital. So, from that point of view, it's definitely our highest margin business, which is why we kind of excited about this business. That said, if you have to think about -- if you ran the business as a separate business, so for example, if we look to ever spin this off, that's I guess the true test of what corporate overhead would you need to run that business and what capital would you need to run that business. That's kind of a bit of a different discussion because we are dealing with the biggest banks in the world and I think they get tremendous comfort from the balance sheet that they have facing them and from the fact that we are a public company with lots of oversight managements and somewhat of an institutional banking. So, even though those aren't directly allocated to that business, I think there's a big halo effect on that business of the infrastructure and the capital that sits in the overall company. So, it's kind of a -- it's a tough thing to answer because on a factual basis, the usage of both infrastructure and capital is low, but I think that business needs kind of the support we give it to be credible and to face the kind of banks which are now also the biggest part of that business. Does it make sense?

Sure. Yes, that makes good sense. And then finally, Sterne Agee, you have little more time with the Clearing and the Asset Management, Financial Advisory, Independent Wealth Management business. What -- just on the Independent Wealth Management business in general, obviously, market's gone up which should help rising tide there, but just as you kind of evaluate the opportunity for that Independent Wealth Management, what's your latest take -- assessment, if you will?

Okay. Well, there's sort of, I guess, two parts to that question. So, on the core clearing capability, which is a capability we have thought for a while, Sterne Agee represented a great add for us. It wasn't perfect. It wasn't perfect in the sense that it was much more focused on retail and introducing broker-dealer type clearing, and honestly, we probably would have preferred getting something focused on institutional to handle small institutional-type business. That said, being a custodian and being able to handle retail is a much heavier lift and it's a lot easier to move from that direction towards institutional than the reverse. And I think having those custodial capabilities will allow us in due course to build a prime brokerage capability and institutional clearing capability. So, those are the pieces we need to put in place organically through build and we got a great foundation to do that. And I think we feel pretty confident given the landscape we see in that market where we see massive consolidation in the -- if you exclude the sort of Tier 1 players, probably seven more or less clearers in the second tier space. And without sounding arrogant in anyway, I think we feel that we can become the clearer of choice in that sector. This is a business, though, that takes time and lot of people have long-term contracts. People don't move their clearing quickly. So, this is a kind of a slow burn business, but I'm pretty sure in five years' time, we will be sitting here with this business being much bigger than it is now with institutional component, a prime brokerage component and as being recognized as one of the leading securities clearance in the mid-size space. So, that's the Clearing part of the business.…

Right. And I understand the relationship there I guess thinking on the Wealth Management, we did $90 million revenue this quarter, but still basically flat on the net income side. Is that -- I mean, what's your outlook for improving the profitability?

Yes. So, when we consummated this transaction, which was almost a year ago now, I guess, just shy of a year ago, our best guess was that both the Sterne Agee entities in aggregate were going to lose $4 million pretax and I think we talked about that at the time in the conference call. And that was part of the reason we drove the economics that we had a bargain gain of around $6 million on the transaction because we knew we were sort of inheriting a loss-making entity. We put a lot of work into this business in terms of just integrating it and kind of changing reporting lines and upgrading and have even added some people in some instances. We have looked at the client roster, and we have, we believe, upgraded the client roster. I mean, that has included us reducing some of the clients, that's had somewhat of a negative short-term impact. Some of the clients, we just didn't feel we're priced appropriately or -- from a risk point of view, well appropriate for what we wanted. So, all of those things in the short-term probably exacerbated situation of a $4 million kind of loss. On the upside, what we found is lots of ways where we could better monetize the balances and the flow that we found in that business. And it was kind of crazy, actually, it was sort of opening up closets and money was falling out them a bit. So, that's the way it's a good surprise. So, as we were sort of working through integration and figuring out how we could do things smarter, we certainly found ways to monetize their revenues better. And then, of course, we had a third interest rate increase, which kicked in. So, I think all of those things in the aggregate, I would guess we would like to think that we'd finish up our first year in that business at breakeven or better. So, that's a pretty material -- materially better than we envisaged going into the transaction. And I think we will continue that slow trajectory upwards as we start to add more customers. Our marketing campaign has kicked in. We have a nice pipeline. We've opened some new accounts. But as I told you, this is a slow business. This is a business that takes time to build those balances. Obviously, any sort of Fed's rate of increase will help enormously, but I think it's going to be slow and steady business. But for now, I think we are ahead of where we thought we would be, partly through luck and the Fed and some hard work. But we're very happy with the way this business is going. So, we just want to keep it on that trajectory so. Does that answer your question?

Yes. That's helpful. Thank you.

Okay. Thanks William.

[Operator Instructions] Your next question comes from Erick Sönne from Private Capital Management. Please go ahead.

Erick? Operator?

Caller, if you are on mute, please unmute.

We may have lost, Erick. Erick, if you're on mute -- looks like he's off the list.

There are no further questions.

Give him a second. He may find back in. I don't know if he lost his signal or something. Any other questions from anyone else, while we wait to see if Erick comes back? No?

All right. Well, I think let's leave it there. Thanks very much for your time and attention, and we appreciate it. And we will be speaking to you again soon. Thank you.

Ladies and gentlemen, this concludes today's conference. Thank you for your participation and have a wonderful day. You may all disconnect.