Good morning, ladies and gentlemen, and welcome to the INTL FCStone Third Quarter 2019 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 conference over to your host, Bill Dunaway, CFO.

Good morning. My name is Bill Dunaway. Welcome to our earnings conference call for our fiscal third quarter ended June 30th, 2019, after the market closed yesterday, we issued a press release reporting our results for the third fiscal quarter of 2019. This release is available on our website at www.intlfcstone.com, as well as a slideshow presentation we will refer to on this call and 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. The presentation and an archive of the webcast will also be available on our website after the call's conclusion. Before getting underway, we are 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 meanings of the 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 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. Participants 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 thanks for joining our fiscal 2019 third quarter earnings call. Market conditions continue to be generally less favorable during the quarter under review than they were a year ago, especially for our equity capital markets business that was positive for our commercial hedging business due to the unusually wet weather we experienced over the planting season in the US. In the last week or so, we have seen some real volatility around interest rates -- interest rates, as it appears around a competitive currency devaluations was about to start combined with an acceleration of the trade war. We had a 25 basis point cut and it now appears that may be followed with a further cut, which of course negatively affects the interest and fee income we receive on our customer floats. But this could be offset by the positive impact of increased volatility in these markets. Our third quarter earnings were $16.3 million or $0.84 a share, down 32% or $7.7 million from a year ago. As you've seen from our recent announcements, we have made a number of small acquisitions and organic growth initiatives in the last year. We run our business for the long term and believe in prudently investing to strengthen and grow our franchise. We look to make disciplined acquisitions where we can add value for our shareholders and oftentimes [indiscernible] us acquiring businesses at a low price, but requires us to absorb costs and some negative earnings until we restructure and integrate the new capability. Organic expansion is also [indiscernible] until critical mass is achieved. This is being the model we have followed for a number of years now and we believe it is a prudent and disciplined way to grow and expand our business. During the third…

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 shows our performance over the last five fiscal quarters. The chart depicts our net income, earnings per share and return on equity over the last five quarters. As shown, net income in the third quarter of 2019 was $16.3 million, which represents a $7.1 million decline over the immediately preceding quarter and a $7.7 million decrease over the prior year. Moving on to Slide number four, which represents a bridge between operating revenues, for the third quarter of last year to the current period, operating revenues were $283.4 million in the current period, up $23.6 million or 9% over the prior year. This growth was led by our security segment which added $24.3 million or 49% in operating revenues versus the prior year. Within this segment, equity capital markets added $6.5 million in operating revenue versus the prior year, primarily as a result of a $7 million increase in conduit securities like lending activities. Excluding these activities, equity capital market's operating revenues declined $0.5 million, despite a 17% increase in the dollar volume traded, as the lower market volatility drove a decline in our spread capture portrayed. In this segment, as Sean mentioned earlier, our debt capital markets had a strong quarter, adding $18.5 million in operating revenues versus the prior year, primarily driven by increased activity in our domestic fixed income business, as well as improved performance in our Argentina business and $2.9 million of operating revenues contributed by the newly acquired GMP Securities. These gains were partially offset by $1.6 million decline in our municipal securities business. Operating revenues increased in our commercial hedging segment by $8.5 million versus the prior…

Thanks, Bill. The improving conditions of 2018 seems to have given the way to slightly more challenging environment for us right now with an outlook for lower interest rates, but perhaps more volatility and improved trading conditions. We are in many ways in uncharted territory with lots of cross-currents and unknowns, but we remain laser focused on serving our clients and the challenges while facing these markets. We continue to prudently invest and grow our franchise. And while this can [indiscernible] performance, as it did this quarter, we are focused on the long term and confident that these modest investments will pay off well for us down the line. We are a financial network that connects 20,000 institutional and commercial clients and over 80,000 retail clients with the global markets, which include 40 derivative exchanges, most international and domestic equity and fixed income markets, foreign exchange in over a 175 countries and a wide range of financial swaps. Like any network, it becomes exponentially more valuable as we add desired markets and capability. In addition to connecting these clients to these markets, we also clear custody and settle their trades, which is durable, value business which is increasingly unique and requires capital systems and infrastructure. This is a capability that is hard and expensive to replicate and in many ways has a motive [ph] around this, and is becoming more valuable as consolidation in our space continues. With that, I'll turn it back to the operator to open the Q&A session. Operator?

[Operator Instructions] Your first question is from the line of Bill Dezellem [ph].

Thank you. A couple of questions. First of all, would you talk about -- in more detail about the $3.5 million loss on the acquisitions and strategic initiatives?

Sure. So that is a combination of two things. We started up two -- we started organically two initiatives one is on the prime brokerage side. We've hired a team of people. We believe we have the infrastructure to support the growth of that business. It's a missing customer segment for us. That obviously entails some costs because you get the people up front and you get the revenue later. We think it is an important add for us. So that is proceeding well. In addition, we are expanding into the US institutional equities business. We already have great touch points with a lot of these institutions on the international side, on the rates and fixed income side and just looking to expand our business there. But again, when you hire teams of people, you get cost before you get the revenues. So on most of the initiatives, that is just a straight kind of cost or cash burn until those businesses reach break even, which we think that it will pretty soon. And then on the acquisition side, we tend to buy businesses that we think are attractively priced and businesses that we think we can turn around. So rather than going and paying huge premiums for businesses that are operating very well, our view is we don't -- we go on to add a lot of value in that instance, the seller is extracting full price. We get a [Technical Difficulty].

Sean, are you there and if so, you have gone quiet.

Yes, I'm sorry, it sounds like we might have lost Sean there real quick.

His line is still connected into the call.

Okay, I'll try to continue on there where Sean left off. So, you know, it's mainly related to the acquisitions that we've started to make. You know, early last calendar year with the Carl Kliem acquisition, which really represented our, you know, our breakthrough strategy and then continued on with the acquisition of PayCommerce and CoinInvest and then most recently, GMP Securities, just rounding out our, you know, our overall capabilities. And then, you know, certainly we over time, we start up new initiatives within organically within our business, and so, you know, we've taken on the project that's starting up kind of equity prime brokerage business and equity -- institutional sales with an equity, which is something that we see as key ways to grow our business going forward. So, you know, it's mostly just related to the cost of those businesses while we try to get those up and running some of those acquisitions that we're doing, you know, were often buying businesses that we need to look at the cost and also look at opportunities to cross-sell growing in. So they will take some time for us to integrate.

Bill, would you be able to split that $3.5 million between the businesses that you have purchased versus the organic startups that are costing you money?

You know, we haven't put that in the disclosures as now. But, you know, I think that it's probably two thirds, one third with two thirds of it being acquisitions and one third being startups.

Great, thank you. Let me shift, if I may, to the Global Payments business, volumes were only up 2%, which is -- which seems low relative to the activity taking place in the currency arena. Would you talk to that? And then secondarily, do you see the ongoing trade issues benefiting or hurting volumes in that business, or is it even a relevant factor?

Sure. I do think that some of the revenue -- some of the volume growth that we've seen here is coming from the institutional -- the international bank clients that we have, and then we've seen some of that derived from kind of M&A activity and capital transactions in the international markets that we end up making the payments for those banking clients. And I think we have seen some of that being tempered a bit.

Sorry, guys. My line dropped. Anyway, keep going Bill.

Okay, and so we have seen some of that being tempered a bit here in the most recent quarter. With the kind of geopolitical and the international and the environment being with the trade wars, etc and that dampened in a bit. I think that perhaps you could see a bit of that going forward, but it's still kind of remains to be seen whether or not, that'll be a drag going forward, and I think that the addition of -- we still have a strong pipeline of new banks coming in and still quite a few banks that have been brought on that are still kind of in their infancy of getting started and taking on more and more payments in more and more countries from us.

And then let me shift, if I could to LIBOR that is going to be ending at some point here. What impact, if any, does that have on your business or is it we need to simply be finding another measurement to put the OTC contracts in place?

Sean, you are want me to take that?

Yes, go ahead, Bill.

Okay. You know, I don't anticipate it having a huge impact on us. I mean, we do have some bank lines that are tied to LIBOR and we do a limited amount of interest rate swaps with clients hedging. But, I think they'll be just a pivot to another measurement in that space. So we don't -- I don't see it as having a material impact for us.

Great. Thank you.

Sure. Thank you.

[Operator Instructions]

All right. Operator, do we have any other questions?

I am showing no further questions at this time. I will now turn the conference over back to Sean O'Connor.

Okay. Well, thanks everyone. Enjoy the rest of the summer and we'll be speaking to you for our fiscal year-end call. Thank you.

Thank you.

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