This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk00: Good day and thank you for standing by. Welcome to the Stone X Group Inc. Q1 Fiscal Year 2022 Earnings Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker today, Bill Dunaway, CFO. Please go ahead.
spk04: Good morning. My name is Bill Dunaway. Welcome to our earnings conference call for our first quarter ended December 31, 2021. After the market closed yesterday, we issued a press release reporting our results for our first fiscal quarter of 2022. This release is available on our website at www.stonex.com. as well as a slide presentation, which we'll refer to on this call, in our discussion of our quarterly 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 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 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 it was 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.
spk03: Thanks, Bill. Good morning, everyone, and thanks for joining our fiscal 2022 first quarter earnings call. Q2 was a strong start to the fiscal year for us with an ROE on stated book value of 18% and 20% on tangible book basis. Market conditions generally turned more favorable for our business during the quarter as the financial markets contemplated inflation and the Fed response there too. These quarterly results are a significant improvement from the immediately prior quarter. But as we have said repeatedly, we take a long-term view in how we manage the company and grow our franchise. As such, we believe that the best way to gauge our results and progress is to look at longer-term performance, such as the training 12 months, rather than specific quarters taken in isolation. As I mentioned on the last call, we believe that the market environment is likely to be positive for us for the next year or so. With sporadic volatility, the Fed withdraws its support for the market and and also from interest rate increases, both direct and positive drivers for our business. Starting with slide three in the earnings deck, comparing operating revenues and key operating metrics against the prior year quarter. Operating revenues were up 19% for the quarter versus a year ago, with increases in all product areas versus a year ago except for securities, which was down 3%. OTC and physical commodities were the standouts, up 93% and 72% respectively. Transaction volumes were up double digits in all product areas, except listed derivatives, which was down 1%. Revenue capture increased in all products, except for securities and FX CFDs. Securities revenue capture was down 26% and offset their volume increases. although we did see an increase of 29% in revenue capture and securities versus the immediately prior quarter. Our securities activities have expanded significantly over the last five years, and we believe there's still considerable room for growth. We continue to make investments and expand into new related products, some of which have lower revenue capture and will change its metric over time and additionally result in higher costs until these new activities reach critical mass. Our average client float, both in listed derivatives and securities clearing, experienced strong growth, up 36% and 19% respectively, due both to higher client volumes as well as market share gains, and now in aggregate stands at $6.2 billion, up 32% from a year ago. Interest earnings on client balances were up 57% versus a year ago due to the higher client balances, and we are now starting to see interest rate increases. More on this later. Versus the immediately prior quarter, operating revenues were up 15% for the quarter versus Q4 2021. Volumes increased in all products except for securities, which was down 11%, although offset with a 29% increase in revenue capture. Physical commodities operating revenues were essentially flat with the fourth quarter. We also saw revenue capture increase across all products. Our average client float was up 9%, and interest earnings on client balances were up 5%. Turning to slide four and looking at the revenue and product metrics for the trailing 12 months, operating revenues were up 24% versus the trailing 12 months ended December 31, 2020. There were double-digit increases in product revenues across the board, except for securities, which was up 7%. This is a really good result given that the comparative trailing 12-month period includes an exceptional 2020 result where we experienced heightened volatility as a result of the onset of COVID-19 as a tailwind. There were strong volume increases across the board, except for listed derivatives, which was down slightly, which again speaks to enhanced client engagement versus the comparative period. Revenue capture was up for listed derivatives and OTC, and down slightly for global payments and FX CFDs. Securities revenue capture was down 30% for the reasons mentioned earlier regarding the very strong comparative period. Our average client float, both in listed derivatives and securities clearing, experienced strong growth of 36% and 26% respectively, with interest earnings down slightly as the comparative period incorporated a period prior to the Fed action to reduce interest rates. Turning now to slide five and a summary of our earnings as reported, and also on an adjusted basis, which excludes the accounting impact of the GAIN transaction. We recorded operating revenues of $450.5 million, up 19% versus the prior year. Total compensation and other expenses were up 14% for the quarter. Notably, fixed compensation costs were up only 8%, and this is flattening out after the impact of the GAIN acquisitions. Variable compensation was up 19%, which was in line with the operating revenue growth. Net earnings were 41.7 million, or $2.04 per diluted share, representing an 18% ROE on stated book value. On an adjusted basis, net earnings were 43.7 million, representing an ROE of 18.8%. Looking at the summary for the trailing 12 months, Our operating revenues were $1.7 billion, up 24% over the prior comparable period. Net income was $138.5 million and $141.9 million on an adjusted basis. Our reported diluted EPS was $6.80 for the 12-month period for a 15.8% ROE or 16.2% on an adjusted basis. Our quarterly earnings were up 471%, or 34.4 million higher than the immediately prior quarter, with EPS showing a similar increase. We ended Q122 with a book value per share of $47.44, which was up 16% versus a year ago. Turning now to slide six, our segment summary. Just a touch on the highlights before Bill gets into more detail. Aggregate segment operating revenues were up 17% for the quarter, and segment income was up 26% for the quarter. That said, on a sequential basis, operating revenues were up 16%, and segment income was up 47%. The standouts for the quarter were our commercial segment, which increased operating revenues 45%, and segment income 104%, both new records. Global payments operating revenue was up 23% and segment income up 20%, which was also a record quarter for global payments. Retail showed strong growth in operating revenue, up 18%, and segment income was up 31%. Securities operating revenue was down 3% and segment income down 29% for the reasons I discussed earlier. For the trailing 12 months, we see much of the same, with double-digit growth across the board, except for the security segment income, which was down 10%. We have added a new slide to this earnings deck, which sets out our trailing 12-month financial performance over time. As I said up front, I think this is a better way to evaluate our performance and our progress as it eliminates quarterly anomalies. These numbers have been adjusted for the accounting treatment related to the gain acquisition, as disclosed in our prior filings, and which appear in the reconciliation provided on the last page of this earnings deck. Turning to that new slide, number seven, on the left-hand side, the blue bars represent our trailing 12-month operating revenue over the last nine quarters. As you can see, this has been a remarkably smooth and strongly upward trend as we have steadily expanded our footprint and capabilities. Our revenues are at 56% over this period, or 25% CAGR. Our adjusted pre-tax income likewise has grown significantly, up 92% over this period for a 31% CAGR. On the right-hand side, you can see our adjusted net income in the yellow bars, which shows us nearly doubling our net income over the last two years for a 44% CAGR. The dotted line represents our ROE, which other than in the first couple of periods has been relatively stable, between 14% and 16%. even though our capital has grown by some 60% over this period. With that, I'll hand you over to Bill Dunaway for a discussion of the financial results.
spk04: Bill? Thank you, Sean. I'll be starting with slide number eight, which shows our consolidated income statement for the first quarter of fiscal 2022. Sean covered many of the consolidated highlights for the quarter, so I would just highlight a few and then move on to a segment discussion. Transaction-based clearing expenses were up 8% to $70.9 million in the current period, primarily due to higher clearing and ADR conversion fees within the equity capital markets, resulting from the increase in average daily volumes in that business. Introducing broker commissions were relatively flat with the prior year at $38.3 million in the current period. Interest expense increased $5.8 million versus the prior year, primarily due to an increase in activity in our institutional fixed income dealer, higher average borrowings on short-term finance facilities of our subsidiaries, and an increase in securities lending activities. Variable compensation increased $16.1 million versus the prior year and represented 32% of net operating revenues, comparable to 33% of net operating revenues in the prior year period. Fixed compensation increased $5.3 million versus the prior year, with the growth principally related to salary and benefit costs of increased headcount. along with a $900,000 increase in share-based compensation. Other fixed expenses increased $12.4 million to $86.5 million. However, we're relatively flat with the $86.7 million in the immediately preceding quarter. As compared to the prior year, trading system and market information increased $2.4 million, and non-trading technology and support increased $2.1 million as part of our initiative to expand our digital offerings. In addition, professional fees and selling and marketing expenses increased $2.6 million and $2.2 million, respectively. Finally, we have started to see increases in travel and business development, increasing $1.9 million as compared to the prior year. We had a net recapture of bad debt expense of $200,000 for the quarter versus $1.5 million in bad debt expense in the prior year. Net income for the first quarter of fiscal 2022 was $41.7 million. and represented a 114% increase over the prior year and a 471% increase over the immediately preceding quarter. Finally, we closed out the quarter with a net asset value per share of $47.44 per share as compared to $40.78 per share a year ago. Moving on to slide number nine, I'll provide some more information on our operating revenues. The commercial segment added $47 million in operating revenues versus the prior year and $19.9 million versus the immediately preceding quarter. Within this segment, listed derivative operating revenues increased $6 million versus the prior year as a result of a 17% increase in average rate per contract as a result of improved performance in LME metals. This was partially offset by a 5% decline in contract volumes. OTC derivative operating revenues were $46.7 million for the quarter which was up $22.6 million versus the prior year, primarily as a result of a 54% increase in OTC derivative volumes and a 27% increase in the average rate per contract, driven by strong performance in energy and renewable fuel markets. Operating revenues from physical transactions increased $15.3 million compared to the prior year as a result of a $14.1 million increase in physical, agricultural, and energy commodity revenues, and to a lesser extent, a million-dollar increase in precious metals revenues. Operating revenues and fiscal contracts for the current period were favorably impacted by realized gains of $800,000 on the sale of physical inventories carried at the lower of cost or net realize of value, while the prior year period included a $2.9 million unrealized loss of a similar nature. Finally, interest earned on client balances increased $2.9 million versus the prior year, principally due to a 36% increase in the average client equity, as well as an increase in interest charged to customers on certain margin balances. Segment income was $65.5 million for the period, an increase over the prior year period and preceding quarter of 104% and 49%, respectively. Moving on to slide number 10, operating revenues in our institutional segment declined $4.2 million versus the prior year, primarily driven by a $6.9 million increase in securities revenues, as a 25% increase in the average daily volume of securities transaction was more than offset by a 26% decline in securities RPMs. The decline in RPM was primarily a result of the prior year quarter benefiting from wider spreads due to heightened volatility driven in part by the COVID pandemic. Listed derivative operating revenues declined $400,000 primarily as a result of a 1% decline in the rate per contract as contract volumes were relatively flat with the prior year. Institutional segment operating revenues increased $23 million versus the immediately preceding quarter. primarily as a result of $11.5 million and $6.9 million increases in securities and listed derivative operating revenues, respectively. Segment income declined 29% to $31.9 million in the current period as a result of a decline in operating revenues, an increase in volume-related transaction-based clearing fees I mentioned earlier, as well as an increase in interest expense. In addition, non-variable direct expenses increased $3.2 million versus the prior year, primarily due to an increase in professional fees, travel and business development, and depreciation of internally developed software. Segment income increased $7.5 million versus the immediately preceding fourth quarter as a result of improved performance in securities and listed derivatives. Moving on to the next slide, operating revenues in our retail segment added $14.7 million versus the prior year, which was primarily driven by a $12.1 million increase in FX and CFD revenues, as a result of a 17% increase in the rate per million. Our retail physical precious metal and wealth management businesses added $1.8 million and $3 million in operating revenues, respectively, versus the prior year. Segment income increased $5.5 million versus the prior year, primarily as a result of the increase in operating revenues, which was partially offset by a $5.9 million increase in non-variable direct expenses. primarily driven by a $2.7 million increase in nonvariable compensation, $1.1 million increase in professional fees, and a $1.7 million increase in selling and marketing. Segment income increased $11.5 million versus the immediately preceding quarter, primarily as a result of the increase in operating revenues. Closing out the segment discussion, on the next slide, operating revenues and global payments added $8 million versus the prior year, driven by a 15% increase in the average daily volume and a 7% increase in the rate per million as compared to the prior year. Non-variable expenses increased $1.7 million and is primarily related to the expansion of our payment offering. Segment income increased 20% to $24.5 million in the current period and represented a 33% increase over the immediately preceding quarter. Moving on to slide number 13, which represents the bridge between operating revenues for the first quarter of last year to the current period across our operating segments. Overall operating segment revenues were $450.5 million in the current period, up 70.4 million or 19% over the prior year. I've covered the changes in the operating revenues for our segments. However, the $4.9 million increase in revenues in unallocated overhead is primarily related to the $6.4 million FX-related net loss on the internal merger of the operations of GAIN Capital UK subsidiaries in the prior year period. The next slide, number 14, represents a bridge from a 2021 first quarter pre-tax income of $26.9 million to pre-tax income of $52.5 million in the current period. The negative variance in unallocated overhead of $4.5 million is primarily related to an increase in unallocated expenses, including a $2.4 million increase in variable compensation as a result of improved performance, a $2.6 million increase in fixed compensation benefits, and a $1.4 million increase in non-trading technology and support. Finally, moving on to slide number 15, which depicts our average invested client balances and associated earnings by quarter. as well as a table which shows the annualized interest rate sensitivity for a change in short-term interest rates. Sean will touch on this more in detail next during the strategy session of this call. But in late December and early January, similar to an interest rate strategy we utilized in fiscal 2015 and 2016, we entered into $1 billion of interest rate swaps with a two-year duration to lock in interest earnings on a portion of our client float. As noted in the table, the annualized incremental earnings on these swaps are $5.2 million after tax on an annualized basis. In addition, we retain the incremental sensitivity, as noted in this table, on the remaining $5.2 billion of total investable balances, for which we estimate a 100 basis point increase in short-term rates would increase net income by $23.5 million, or $1.17 per share. With that, I would like to turn it back to Sean for a strategy discussion.
spk03: Thanks, Bill. Turning now to progress on the high-level strategic objectives that management is focused on and that we discussed in detail last quarter. Starting with global payments, thus far we are focused on building a leading franchise to efficiently and seamlessly make payments into over 175 local countries for banks, NGOs, and large corporations. We announced last year that we're expanding this capability into a digital offering for mid-sized corporations including all of the 50,000 StoneX corporate and institutional clients. This platform is due to be rolled out during 2022. During the current quarter, we announced that we have launched a new digital capability in our global payments franchise. This will allow us to leverage our regulated capability in certain markets, such as Brazil and others, to accept local payments on behalf of our existing clients, many of whom have significant client bases in these countries. In this way, we'll be able to handle local pay-ins as well as the cross-border requirements, a more complete and integrated payments capability for these clients. On the commercial side of our business, we just launched StoneHedge, a digital merchandising system for the grain industry which automates and streamlines the activities of our large grain merchandising clients. Providing value-added systems to our clients has always been part of our DNA, and helps grow market share and increases client engagement and loyalty. We also completed a soft launch of our new Farmers Advantage phone app, which provides a full suite of products aimed at the individual commodity producer. We have previously accessed this client segment through introducing brokers. We are now able to facilitate and service these retail clients directly, which opens a new and potentially large client segment for us. This was a great example of collaboration between the client relationship folks, the technology teams, and GAINS digital marketing team. During the quarter, we rolled out our electronic trading platform for domestic U.S. stocks, which initially focused on executing our internally generated flow from our security scaring activities, and in so doing, capturing and internalizing a new, albeit modest, profit stream for the company. We will now start rolling out this trading platform to our existing U.S. clients who previously used us only for the execution of foreign stocks. We believe that we can leverage our existing client relationships together with this new electronic trading capability into an expanded relationship with these clients and a new and potentially large revenue source for us. Yesterday, we announced that we have become a member of the Alamy Platinum Auction. Stonex is now the first non-bank member of the gold, silver, and platinum auctions. putting us at the center of the global precious metals business to better serve our broad and diverse client base. In late December, the interest rate market started to move higher, thus signaling the probability that the Fed would start to raise interest rates in coming months. The exact timing and extent of these increases is still data dependent and, of course, not guaranteed. However, the move in interest rates allowed us to lock into swaps on a portion of our client funds, That's immediately ensuring and guaranteeing higher interest earnings on a portion of our client funds. We will continue to look at the swap rate versus the probability of rate increases and in a disciplined manner determine whether it makes sense to lock in now versus waiting for the Fed action over time. It should also be noted that the three months T-bill also moved up by about 20 basis points in the last four or five weeks. We anticipate that starting in Q2, we should start to see a steady rise in the average yield earned on our growing client float, dependent in the medium term on the exact action the Fed takes. Finally, we have started the process to refinance and restructure our debt structure. This will allow us to strategically reassess our capital structure to take advantage of the most optimal combination of debt and bank funding, as well as hopefully drive down the cost of this capital fairly significantly. We envisage this to be completed by the end of the third fiscal quarter. Moving on to slide 16 and to wrap up, this was one of our strongest starts to a fiscal year with good market conditions and excellent results across all products and client segments. We achieved a diluted EPS of $2.04, an ROE on stated book of 18%, or 20% on tangible book value. When our performance is viewed through a slightly longer-term lens, such as trailing 12 months, which evens out quarterly anomalies, our results show a steady and strong upward trajectory. We continue to see strong growth in client trading volumes and client assets, which speaks to growth in our underlying client base and to the engagement of that client base. This combined with heightened general market volatility and increasing interest rates puts a real tailwind behind our business for the next year or so. This year, we'll see a number of our digital platforms being launched, which will more tightly integrate our offering by client side and make it more engaging for clients to interact with our financial ecosystem. While we are initially seeing increased costs associated with bringing up these platforms, as we start to actively market them, we should further accelerate our growth with the scalability that technology provides to increase margins and overall profitability. We have a unique and comprehensive financial ecosystem with a very large addressable market in front of us. While we may have good market share in certain niche segments of the markets, large areas of white space remain where we already have client relationships and demonstrable capabilities and now need to monetize these opportunities. In aggregate, we believe that we may have single basis points market share of our total TAM. One thing will always be constant for the Stonex team. We'll continue to dedicate ourselves to better serve our growing client footprint around the world by providing them with the best ecosystem to service them to access the global financial markets. So with that, operators, any questions? We'll take them now.
spk00: Thank you. As a reminder, to ask a question, you will need to press star 1 on your telephone. To withdraw your question, press the pound key. Please stand by while we compile the Q&A roster. Our first question comes from the line of Dan Fannin from Jefferies. Your line is now open.
spk02: Hey, thanks. Good morning. Morning, Don. I guess maybe just starting with rates and the swap that you talked about, maybe I guess some context around the rationale for doing that, I guess the cost associated with it. And I think you mentioned retaining the upside as rates go higher, but just want to make sure I understand the mechanics of this versus just kind of the normal course of reinvesting your balances.
spk03: Yeah. So a couple of points here. So we, we did this very successfully about four or five years ago where we ladded into the two year rate, which gave us an enhancement of the short term rates when rates were low, you know, at that time. You know, we do it in a very disciplined way. We sort of look at it every quarter. And with the current setup here, And with interest rates having moved so aggressively in late December, we decided we would sort of implement that same process. And the methodology we look at is we basically look at a portion of our total balance, and then we say, you know, what rate can we lock in now, and what earnings would we get over a two-year period versus if the Fed did what it says it's going to do. And if that calculus shows us that with certainty we can achieve a better result at that point in time, you know, we think it's prudent to do that because we immediately start earning that higher rate instead of waiting, you know, three, four, five quarters, we start earning that right now. If the Fed is more aggressive with its rate increases, obviously on the back end, you may have an opportunity cost, but you certainly lock into, you know, a fixed rate over that two-year period. So When we did that calculus, it was positive. We will do that again in March. We will look at the Fed plot, look at a two-year swap versus what the Fed plot shows us and the aggregate interest earnings over that two-year period. If that calculus is positive and certain versus uncertain, we will consider doing more swaps. At this point, I think it's probably not going to be positive, given where we stand right now. If we had to do that calculus, it wouldn't be positive. And in that instance, we'd probably then just wait it out and see what happens with the Fed increases. The one thing I would say, though, you know, we're obviously in uncharted territory, but if you go back and look at any of these Fed predictions in the past, the Fed almost never did what it first projected, right? I mean, things change. So, you know, these seven rate increases that people are talking about now, are by no means certain. So, you know, there is some variability to that. In terms of what it costs us and how we can execute that, we broadly have two options, right? We can actually just go buy two-year rate instruments, whether it be treasuries or similar high-quality assets. If we do that in our FCM broker-dealer, we have additional capital head cuts on that, so we've got to make that calculus as well. because it does tie up capital. If we use the derivative swap market, we don't tie up any capital. We may have to place some margin to support those trades. In this instance, actually, we had a client book that was the other way. So when we put these trades on, it actually released capital back to the firm. So we sort of had a capital win and sort of a zero cost, if you like. So So I'll stop there. I hope that all makes sense, Dan. But that's sort of how we're going to look at it, and that's how we'll constantly look at it. Because even once the rate increases have finished, you know, if you're in a positive yield curve, you can still swap from the overnight rate to the two-year rate and see what kind of enhancement you can get. The reason we choose two years is going beyond two years we think is probably too aggressive for us. And also the haircuts on instruments beyond two years becomes quite egregious. So we like to stay in that zero to two-year kind of category.
spk02: That's very helpful. Okay. No, that does make sense. And I guess, as you think about the incremental benefit of not only that, but just higher rates in general and the sensitivity that you put forth in slide 15 and it's been there for some time. The incremental margin that we should think about at the corporate level, you know, in terms of compensation or there's obviously not a lot of expense tied to this, but we should think about this as very high incremental margin revenue coming through to your returns and overall profitability, correct?
spk03: Yeah, absolutely. We have no payouts to our teams on that. So that goes straight to the pre-tax line. Obviously, to the extent that impacts ROE, you know, there will be added compensation to the executive team if our ROE goes up because we are ROE-based. But it's a very small drag that compensation provides on that. So it's a very high-margin revenue source. And I think people don't really understand, you know, if you look at the context of, you know, $1.7 billion in, you know, top-line revenue. And, you know, just doing the math off the top of my head, if you get 1% on $6 billion, it's $60 million. $60 million doesn't sound that important in the context of $1.7 billion, but it's $60 million to the pre-tax line pretty much, right? So it's very important to, you know, lots of leverage on that.
spk02: Right, right. Makes sense. And if we think about, I mean, the context of the business in the quarter and the you know, to start the year. Global payments, you know, continues to, or certainly had a very good, you know, kind of quarter. I think you mentioned the initiatives that are in place.
spk01: Yeah.
spk02: And I guess, so just a little bit more context on the momentum in that business. So we think about what's, I don't want to say normal, but the, you know, kind of if there's any seasonal components or things that maybe this is a good, As you think about the health of that business, is it building from here or maybe this past quarter was a bit elevated versus what you might consider normal?
spk03: No, I think this quarter was what I would consider to be normal. I mean, there is definitely seasonality in our global payments business. If you look back on it, the fourth quarter for us is September quarter. is typically a weak quarter for us. That's sort of summer holidays in Europe and, you know, just a lot of people just go away, don't do anything. So we always find that the September quarter is probably the weakest of the four. And then we find that the Q1, which is the quarter we just reported on, the December quarter, is normally the strongest because it's a little bit of a catch-up after the week Q3. So we seem to see that catch up happen almost every year. So there is seasonality and that comes largely from the NGO part of our business, less so from our banks. So I would say that's to answer your seasonality question. You know, the global payments business is an incredible franchise. I mean, we make payments around the world for 15 of the largest banks in the world and probably another 200 mid-sized banks around the world. I mean, we We are almost systemic to some of these countries in terms of, you know, how much money we are pushing into those local markets and who we do it for. And that business is continuing to grow. I mean, we are sort of burrowing deeper into these banks, getting more of their flow. So that's a steady business that is, you know, growing at a nice pace. We've got, you know, tremendous franchise value there, you know, great relationships with our clients. I think what you're starting to see now, starting probably three quarters ago, is we're now starting to sort of, I think, look at some new avenues and sort of to re-energize the business a little bit. So, you know, we started with a sort of digital offering to go after smaller corporations where, you know, a high touch just isn't going to work. So we're trying to see whether we can gather up some of these smaller companies that do payments, also use that platform for our own internal clients. That's a whole sort of new avenue for us, right? And this digital pay-in business in some of the key countries where we have licenses is also a new business. So what I would say is, you may see some additional costs. And indeed, I think there have been some additional costs to fund the build out of those businesses, which is going to put a, probably a little bit of a drag on the segment income we would have otherwise seen from sort of the banks and NGO business. But, you know, our hope is over sort of a two to three year period, you know, those initiatives become, you know, very sizable businesses in their own right. So, So I think you should expect that from the payments business, you know, a little bit of a growth push. And we've seen that over the last three, four quarters. I don't think it's going to be materially different from where it is now. But as those businesses start sort of turning themselves to account, we start getting to break even, we start getting beyond break even. I think you could see the global payments business accelerate in terms of its growth. It makes sense?
spk02: Yep, that does. Thank you. Yeah. I guess this bill is a follow-up in terms of expenses and other, you know, kind of notable items in the quarter. I think you talked about there wasn't anything, I guess, that stood out materially in the bed that was obviously quite small or actually a positive. But anything as we think about the remainder of this year, we just walk through kind of global payments and some of the investments there. But other subsegments or either at the corporate level or the segment level that we should think about that might be you know, have different run rates than what we saw here in the December period.
spk03: Will, why don't you take that?
spk04: Sure. You know, nothing material, Dan. You know, I do think that, you know, we'll probably see, you know, non-variable comp, you know, creep up a little bit from where it is now as, you know, we continue to kind of expand that digital offering. But you know, not substantially. And the only other thing I would notice, as Sean touched, is going to be more on the interest expense line, as we've talked about quite a bit. You know, we are going to be looking to refinance the, you know, the debt we put on when we did the gain capital acquisition. So, you know, there'll be some, you know, we hope some significant changes there to the interest expense line on a go-forward basis. But, you know, outside of that, you know, the The last thing of note here is I would say, you know, we have seen kind of sequentially and even quarter over quarter some increases in travel and business development. You know, as we've had kind of ebbs and flows in COVID, you know, offices opening and clients being more willing to see us, you know, kind of has come and gone, you know, several times. But, you know, I think we're starting to see that go up. You know, we do have some big conferences planned coming up here. So I would expect to see some of those travel and business development costs go up. You'll see we've put out some press releases on our global market outlook here at the beginning of March, which is something we do biannually. And so it's something that is a relatively big event for us. So I would expect to see some travel and business development increases. But outside of that, an interest – Nothing else of note, I would say, Dan, that jumps out at me.
spk03: I would probably say one other thing, Dan. We did, I think, speak to this, that we would see our sort of fixed cost component decline over sort of two years of quite strong growth. Some of that was gain and some of that was sort of us spinning up, you know, sort of our technology teams and so on. We did plan for an increase this year and a more modest increase. it's challenging filling those spots. So what we may see is some of that cost sort of being back-ended a little bit into the year just because of the challenges around hiring people. So in aggregate, I don't think it's going to be anything different than we planned. It's just probably not going to happen sort of evenly over the quarter as we had planned. So it's just challenging.
spk02: Right. Okay. And then just, Sean, as you think about the environment today, and the firm being acquisitive over time, but listening to your prepared remarks, lots of organic opportunities, and you just mentioned the TAMs and where you are. So the inorganic versus organic kind of focus in this type of backdrop, do you see M&A as attractive in the current backdrop versus some of the internal kind of opportunities you have ahead of you?
spk03: Yeah, you know, I think we've always, you know, we've always prided ourselves on having, you know, a good and profitable business that has strong organic growth. And that's always been our number one criteria. As many acquisitions that we've done, we've never sort of set out to go acquire businesses. It's been much more opportunistic. And, you know, our number one goal is to leverage the capabilities we have. And I don't think we've ever seen – you know, an environment and a situation where we have so much opportunity to capitalize on internally. The good news with that is it allows you to be very disciplined around acquisitions, right? Because, you know, we've got lots to keep us busy and lots of ways we can grow our business and, you know, therefore, you know, we're only going to do something on the acquisition side if it really fits its price right and so on. So I think it's allowed us to be very disciplined. And, you know, we don't like to overpay. We like to buy businesses we can add value to. And I think we've done that pretty successfully. So in this environment, you know, we have a situation where I think we've got some enormous opportunities on the, you know, on the sort of organic growth side that we don't want to necessarily take our eye off the ball unless the price is big. And then on the acquisition side, it feels to me that everything's overpriced. So I think in that environment, it's probably unlikely, you know, we're going to do anything meaningful. But, you know, as soon as I say that, you know, something will kind of happen potentially. But I honestly think it's probably a lower probability than it has been in the past that, you know, we'll see something on the acquisition side, just because I think prices are way high. It's probably not the right time to buy the kind of businesses we look at. And at the same time, we just got lots of like really good stuff to do internally.
spk02: Great. Well, thanks for taking all my questions. Yeah, of course.
spk00: Thank you. As a reminder, at this time, I am showing no further questions. I would like to turn the call back over to Sean O'Connor, CEO, for closing remarks.
spk03: Well, thanks again, everyone, for joining us, and we look forward to speaking to you in three months or so. So thanks for your interest, and goodbye.
spk00: This concludes today's conference call. Thank you for participating. You may now disconnect.
Disclaimer