Good day and thank you for standing by. Welcome to the StoneX Group Inc. Q4 Fiscal Year '22 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions]. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Mr. Bill Dunaway, Chief Financial Officer. Sir, please go ahead.

Good morning. My name is Bill Dunaway. Welcome to our earnings conference call for our fourth quarter ended September 30, 2022. After the market closed yesterday, we issued a press release reporting our results for our fourth fiscal quarter of 2022. This release is available on our Web site at www.stonex.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 will 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 Web site 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-K to be filed with the SEC. This discussion may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. 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 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…

Thank you, Sean. I'll be starting on Slide 8, which shows our consolidated income statement for the fourth quarter of fiscal 2022. Sean covered many of the consolidated highlights for the quarter, so I will just highlight a few and then move on to a segment discussion. Transaction-based clearing expenses were up 7% to 69.1 million in the current period, primarily due to the increase in securities ADV and listed derivatives contract volumes. Introducing broker commissions declined 6% to 37.4 million in the current period and an increase in IB commissions from listed derivatives were more than offset by decreases in independent wealth management and retail FX and CFD business. Interest expense increased 63.5 million versus the prior year primarily as a result of a $44.5 million increase in interest expense related to our institutional fixed income and securities lending activities as well as a $13.7 million increase in interest paid to clients on their deposits as a result of the increase in short-term interest rates. Interest expense on corporate funding increased 1.4 million versus the prior year, also a result of the increase in short-term rates. Variable compensation increased 44.7 million versus the prior year due to the increase in net operating revenues and represent 33% of net operating revenues in the current period compared to 32% in net operating revenues in the prior year period. Fixed compensation increased 2.6 million versus the prior year, with the growth principally related to salary and benefit costs with increased headcount, which increased 12% as compared to the prior year, which is partially offset by an increase in deferred compensation. Other fixed expenses increased 19.7 million as compared to the prior year to 106.4 million and were 4.7 million versus the immediately preceding quarter. As compared to the prior year, selling and…

Thank you. [Operator Instructions]. Our first question will come from Dan Fannon of Jefferies. Your line is open.

Thanks. Good morning. Sean O’Connor: Hi, Dan.

I wanted to just follow up on the comments that were just around the interest rate sensitivity and clearly seeing it flow through the income statement. I think that comment, Sean, you made is that 60% of the benefit is, I think in the fiscal fourth quarter, was realized. So just want to think about from here prospectively, just kind of the flow through, the 45-day average thinking about, so incremental upside, what rates have done? And then I guess as you think about the sensitivity charts, we see that, but at what point -- I guess is where do you think we are in terms of the realization based on current balances and current rates? Sean O’Connor: So I would say if you look at that interest rate slide that we provided you, I forget what number it was --

Slide 15. Sean O’Connor: Slide 15, you can actually see on that actually the average yield per quarter. And you can see it was 193 basis points for the last quarter, Q3 was 69 basis points. So a massive increase, and then it was sort of 28 basis points. So I think we all forget how quickly and steeply interest rates kind of jacked up and it was all sort of in the summer, right? So it's happened fairly recently. And because we sort of lagged by about 45 days, because normally most of our investments are 90-day T bills and we roll them, we sort of ladder them up, but it takes a little while for that to roll out. We’re sort of always a little bit behind the current interest rate curve. So I guess if you looked at -- I don't have the number to hand, but if you looked at what the average sort of three months T bill rate was in the last quarter, that's probably closer to 4% frankly. So we're still a long way behind where current interest rates are. Now we'll start catching up, particularly if the interest rate increase or slow down a little bit, we'll start catching up. We still got a bit of a bow wave [ph] behind us, which will start to show up in upcoming quarters. So I don't know if that explains it, Dan. I'm sure Bill has more granular detail. The other thing I would just also throw out there is it's a little bit of an unknown for us, so we're making our best guess here. But as we start to get to these levels of interest rates, clients obviously want to start participating in interest. So every interest rate increase is incremental, but it's sort of less incremental than the prior one was because we have to pay some portion of that away. So those are sort of the dynamics we're dealing with. We've got sort of a bow wave where we’re still catching up to current market rates. And we've also got to recognize we're going to start putting some of that incremental interest away. Anything else to add, Bill?

No, I think that's right, Sean. I think the average T bill rate was probably something in the 2.25, 2.5 range for the fourth quarter and I would anticipate for the fourth quarter us being somewhere in the 3% plus range for the fourth quarter as we kind of, as Sean said, catch up with where T bills rates are going and overnight rates are going, given no other market events occur that change anything. But as Sean touched on, they've been rapidly increasing.

Right. And just to clarify because I look at the institutional segment, the 30.1 in interest and fees on client balances that was reported, there's also -- in the institutional segment, there was some consulting and management account fees that also jumped a lot to 14.4. So I just want to make sure the 30.1 is a good jumping off point to what you just said in terms of incremental, the rate upside, respectively? Sean O’Connor: Yes. So the interest and fee income we earn on client balances is split between those two lines, Dan, so that all the T bills and overnight balances that we hold probably go into the interest line, but the FDIC sweep, right, which is based on that roughly 1.9 billion that we have, that all mostly flows through the fee income line for consulting and fee revenues you touched on. So that's the reason, the primary reason for the big jump you saw in consulting and fee income just because that comes through as a fee as opposed to interest. That's all aggregated down below where we kind of break out and give you the aggregated interest and fee income on client balances figure.

We think about that as a run ratable number from here or does -- like that consulting fee thing or line item isn't a one-time component? Sean O’Connor: No, I’d anticipate both, the interest line and the fee income line. They both go up as interest rates go up during the fourth quarter.

It’s generically bundled into consulting and fee income, but it's really the interest split we get on the FDIC sweep is paid to us as a fee, not as an interest. So we have to put it in that line.

Got it, makes sense. And then just in the securities business, you've been showing -- you talked about kind of the expansion into fixed income, which is going to take the ag higher and the fee per million lower, but this quarter was kind of a dynamic, the opposite, right, where the fee per million went up a lot and ADV went down. Can you talk to that and obviously the longer term trend? Sean O’Connor: Well, I think the first thing to recognize is, and we sort of said this a year ago I guess if you want to go back and listen, but the fourth quarter last year was a pretty crappy quarter for us on the securities side. So we are comping to a weak quarter in all of those stats. So I think you should look at it sort of just setting up the quarters, I think the trend will look a little bit different than just the quarterly comparison.

Yes. And I would also say since -- yes, the ADV had trended down kind of in the securities just with getting into some of those other products that Sean touched on. But I tried to point out in my portion of the script that as interest rates go up when you're trading in fixed income securities that the revenue side goes up because there's just an interest component in the revenues. But you also saw the interest expense for that business going up quite a bit in the quarter as well. So we don't show a net RPM, because it's kind of hard to do that across all of our businesses. So we're showing you gross. But some of that RPM expansion you saw in the fourth quarter is just because interest rates going up, if that makes sense.

Okay. But we obviously didn't see that last quarter, so --

Yes, I think it's because that you saw the fourth quarter, you saw the rates going up quite precipitously in the fourth quarter more so than you saw in the third quarter. And also you'll note, we put a note in the slide deck you could take a look at, Dan. The ADV for the third quarter was higher than it should be. We had some double counting of transactions. So we gave you an adjusted figure here. And that obviously affects RPM. It had no effect on revenues itself, but kind of adjusted that figure to where Q3 RPM should have been 512 for the third quarter with that adjusted figure.

Okay, it makes more sense.

And still, the fourth quarter is up precipitously because of the interest.

Okay. And then just in the context of what you guys have been talking about in terms of the new investment, digitizing the platform and then margin expansion potential and operating leverage as a result. So I guess as you budgeted and think about next year, fixed expenses in kind of -- is there a inflation plus growth investment number we should be thinking about for fixed rate expenses, and obviously the revenues will be what they are, but in the hopes of driving margin expansion, I get the longer term goals of this, but just trying to get a sense from a dollar perspective or how the budget looks as you think about expenses for next year? Sean O’Connor: Well, Bill can give you the exact number that we thinking about I guess, but I would say the good and the bad news, we've spent that money and have been spending it for the better part of two years. So these platforms don't just get stood up overnight, right? There's a long lead time. So a lot of that cost is already in our cost structure. So you shouldn't see a big ramp up just for that, right. And as I said, we're going to start rolling these out and have started rolling out some of these initiatives slowly and incrementally. And obviously, that'll show some incremental revenue. And obviously, we'll be positive against that cost base. I think we got to assume -- I was kind of pleased to see that our fixed costs have sort of flattened out. A year ago, we were talking about pretty big fixed compensation cost increases and it was largely because of the Gain acquisition. But you always worry that when you get through that cycle where we really see these numbers plateau, and they did. We're up 3% or something sort of quarter-on-quarter in fixed compensation expense, I expect that to stay in a pretty modest range, but we obviously have to take account of sort of higher inflation. So we're just going through our annual increase process now and it's going to be larger than it was a year ago, right? So that is something to be taken into account. Well, I don't know what your overall sort of view on that could be, but I would say it's going to be inflationary largely, right?

Yes, I would agree with you, Sean. I think a lot of that has come through so far. But I think inflationary, right, we have to be realistic here with the environment that we're seeing. So I think that 7%, 8% growth is probably likely given just the inflationary pressures that we're seeing on a go-forward basis, Dan.

Okay, that makes sense. Sean O’Connor: Yes, Dan, I don't know if you picked up, I think we chatted about it in the last call but I didn't chat about it now. But the strong dollar has been a net benefit for us and our cost base, right. Almost all of our revenues are in dollars. So we don't have any impact on the revenue side with a strong dollar. And all our bonuses are linked to the dollar. But our fixed costs in places like London and Europe and Poland and so on have all got cheaper, right? So we've seen some benefit on the cost structure to that. And indeed, we've put on FX hedges to try and lock that in. And we sort of have a rolling to sort of hedge in place to try hold on to that benefit for as long as we can. So about 20% of those costs are down, that's been the movement in Sterling and złoty [ph] and in euros. So also something to bear in mind, we've had a little bit of help on the cost side, Dan.

Makes sense. And then as you think of -- obviously, we're -- I know you are focused more longer term, but we're halfway through the quarter. Your environment as you look past over the last 12 months has been very strong in terms of client engagement activity levels, all the things you guys highlighted in terms of your results. As you look forward and what you've seen thus far, is there any -- from a customer or market perspective, geography anything really changing or is it still relatively constructive based on kind of how you exited the quarter and where things sit now? Sean O’Connor: Honestly, I don't want to curse us here but if you just look at our set of results, I think it's just a fantastic result across the board. Every one of our products is up double digits, every one of our segments. We’re really firing on all cylinders here. So nothing stays the same way forever. But I can't really see anything sort of in the immediate future that is going to materially change what we see now. So we just wanted to continue as long as possible, I guess, which we know it won't. But so -- no, there's nothing really I can speak to. I think Q4 was a pretty straightforward sort of vanilla quarter. There wasn't any sort of exceptional items or exceptionally crazy market conditions. It was just sort of business as usual I think. Bill, do you agree?

Yes, I’d agree.

All right. And then just in terms of the current backdrop for M&A, you announced is kind of a recent smaller acquisition, as you said, but would be immediately accretive. And then the context of the backdrop given valuations have come in, markets are maybe good for some businesses, maybe not for others. Is there more opportunity today for you to deploy capital inorganically, or similar to -- or no real change? Sean O’Connor: Well, firstly, we’re pretty excited about the organic trajectory that we are in. If you just look at that graph of sort of new clients and changes, our client base is up 50%, 100% over the last two years and that run rate seems to be continuing, and that will take capital, right. So our base case is we sort of pretty happy with the organic track we’re on. In terms of acquisition opportunities, I think we now are starting to see sort of early days of opportunity starting to come to the table. There are a couple of things we've had a look at, a couple of things we’re looking at, nothing that I think is close to the premises [ph] point. But it's definitely a change from what's happened in the last two years. A small change, but a change nonetheless.

Okay. Well, I think that's all my questions. Happy Thanksgiving. And I appreciate the time. Sean O’Connor: Thank you, Dan.

Thank you. And I see no further questions in the queue. I would now like to turn the conference back to the CEO, Sean O’Connor, for closing remarks. Sean O’Connor: Okay. Well, thanks everyone. We will speak to you again pretty soon here in the new year. And once again, Happy Thanksgiving to all the U.S. colleagues and friends and also for everyone else, enjoy the holidays. And we'll speak to you soon. Thank you.

This concludes today's conference call. Thank you all for participating. You may now disconnect. Have a pleasant day.