StoneX Group Inc.

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.

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.

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.