Welcome to the FY '22 Third Quarter StoneX Group Earnings Conference Call. At this time, all participants are in listen-only mode. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today Bill Dunaway. Please go ahead, Bill.

Good morning. My name is Bill Dunaway. Welcome to our earnings conference call for our third quarter ended June 30, 2022. After the market closed yesterday, we issued a press release reporting our results for our third fiscal quarter of 2022. This release is available on our website at www.stonex.com, as well as a slide presentation we will refer to on this call in our discussion 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 website after the call's conclusion. Before getting underway, we are required to advise you that all participants should note 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 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 thanks for joining our fiscal 2022 third quarter earnings call. During the third quarter of fiscal '22, we continued to see the effects of inflationary pressures on the global markets, sharp increases in short-term rates, and continued volatility in both financial and physical markets. We recorded operating revenues of 528.8 million, up 23% versus the prior year, while expenses are up 19%. This resulted in net earnings of 49.1 million, up 44%, and diluted EPS of $2.37, up 42%, which produced a 19.1% return on equity. Turning to Slide 3 of the earnings deck, the increase in our revenue was primarily driven by FX and CFDs, up 68%, as well as other segments we see significant growth in. Interest on client balances was up 207% due to a 44% increase in the total client float, which now stands at a record $8 billion. This revenue was driven by strong double-digit increases in transaction volume except for OTC contracts. The standout categories were FX CFDs and securities. In terms of revenue capture, we saw a large decrease in securities of 48%, which significantly offset the volume increase of 128%. As we have mentioned previously, our securities business has been growing and expanding alongside our product capabilities, which have impacted transactional metrics over the last couple of quarters. Our fixed income and equities business has expanded its product offerings to now include more vanilla offerings that are higher volume and lower margin, where we still have limited market share but a large addressable market in front of us, presenting substantial opportunities. Although we see increased volumes, revenue capture has declined. As revenue from these new initiatives picks up, we expect to see a boost to the bottom line, and the transactional metrics should start to stabilize as the products mature. We are committed to investing in our businesses, and enhancing our financial ecosystem by expanding our products and capabilities is a core pillar of our strategy. This will drive increased wallet share from existing clients and enhance client adoption and market utilization. Turning now to Slide 4, looking at revenue and product metrics for the trailing 12 months. Our operating revenues were up 18% compared to the prior comparative period. Revenue increased by double digits across all of our products, except for securities, which grew at 4%. Key contributors included CFDs up 54%, OTC contracts up 47%, and interest balances up 110%. Revenue capture was down 37% in the securities market and slightly lower for FX CFDs, but up for all other products. Summing up our earnings, as reported and on an adjusted basis excluding the accounting impact from two years ago, we recorded operating revenue and other expenses up 19% for the quarter, with variable compensation increasing in line with revenue. This resulted in net earnings of 49.1 million, up 44%, and diluted EPS of $2.37, reflecting a 19.1% return on equity. The adjusted ROE numbers were slightly higher, further improved if tangible equity is adjusted. In comparison with the immediately prior quarter, we note that last quarter was our best ever from an operational standpoint, bolstered by market volatility surrounding the Ukraine situation. However, when comparing to the prior quarter, our operating revenues and earnings were down 23%. Looking at the summary for the trailing 12 months, operating revenues totaled 1.9 billion, reflecting an 18% increase over the comparable period, with net income at 162.1 million, adjusting for exceptional circumstances. We ended Q3 2022 with a book value per share of $51.70. Turning now to Slide six, our segment's summary just to highlight the key points before Bill gives more details. For the quarter, operating revenue and segment income increased across the board. Our largest segment, commercial clients, saw a solid 20% increase in segment income with a 12% revenue increase driven by strong performance on the physical side of our business. Our institutional segment achieved a 21% increase in revenues, a new record that translated into a 3% growth in segment income for the previously mentioned reasons. Our global payments segment also realized record revenue, up 27%, with segment income equating to 1%. This segment has been investing heavily in developing its local payment capabilities and digital platforms for midsized commercial clients. Across the trailing 12 months, similar trends persist, showing strong double-digit growth across all segments except for our institutional segment where operating revenue saw a 7% increase but segment income was down 7% due to earlier discussed issues. These are strong results, but as we've stated repeatedly, we take a long-term approach in managing the company and growing the franchise. We believe that the best way to gauge our results and progress is to look at longer-term performance metrics rather than isolating specific quarters. Turning to Slide seven, we have provided our 12-month trailing financial performance data in the presentation. These numbers have been adjusted for treatment related to prior acquisitions disclosed in our prior filings. As you can see, our operating revenue over the last nine quarters has shown remarkable smoothness with a strong upward trend as we steadily expanded our footprint and capabilities. Our revenues have grown 57% over this period, resulting in a 25% compound annual growth rate. Likewise, our adjusted pre-tax income has seen significant growth at an average rate of 22%. On the right side of the slide, you can see our adjusted earnings in the yellow bars, which are up 54% over the last few years for a 23% compound annual growth rate. The dotted line represents our return on equity, which has remained above a certain threshold, even though our capital has grown by 55% during this period. We've seen significant strength in the dollar over the past couple of quarters due to diverging global interest rates which has conferred benefits to our earnings as most of our revenues and variable compensation are denominated in dollars, while a significant portion of our fixed expenses are locally denominated. This favorable exchange rate impact has reduced costs in dollar terms by approximately $20 million per annum compared to the previous year, which is a material benefit.

Thank you, Sean. I'll begin on Slide number eight, which shows our consolidated income statement for the third quarter of fiscal 2022. I have already covered many of the consolidated highlights for the quarter, so I will just emphasize a few points related to specific segments. On the expense side, transaction-based clearing expenses were up 11% to 74.7 million in the current period, primarily due to the increase in securities average daily volume, an uptick in listed derivative contract volumes, and higher costs associated with our global payments business. Introducing broker commissions declined by 1% to 41.2 million in the current period, as increases in our institutional listed derivative and global payment businesses were offset by a decline in introducing broker commissions in our commercial listed derivatives. Interest expense related to trading activities increased by 13.6 million compared to the prior year, driven primarily by increases in short-term interest rates and higher average borrowings in our physical commodity business. Interest expense in corporate funding was relatively flat compared to the previous year. Variable compensation increased by 21.5 million versus the prior year due to higher net operating revenues, representing 33% of net operating revenues in the current period compared to 30% previously. Fixed expenses grew by 24.7 million compared to the prior year, totaling 101.7 million, and were up 1.8 million versus the immediately preceding quarter. Selling expenses increased by 7.9 million and professional fees grew by 3.7 million. The surge in selling and marketing expenses primarily correlates with rising digital marketing efforts in our retail Forex business. We have also started to see increases in travel and business development expenses, which rose by 3.6 million compared to the previous year. Furthermore, trading systems and market information costs increased by 1.6 million, along with non-trading technology and support costs rising 1.6 million, as part of our initiative to enhance our digital offerings. In the current period, we had net recoveries of bad debt expense of 700,000 compared to expenses of 1.3 million in the previous year and the prior quarter. While last year, we recorded a 3.6 million gain on acquisitions and other gains, primarily related to an adjustment of liabilities assumed in the acquisition of Gain Capital, no such gains were recorded in the current period. The net income for the third quarter of fiscal 2022 was 49.1 million, representing a 44% increase over the prior year and a 23% decline compared to our all-time best quarterly performance recorded in the immediately preceding quarter. Moving on to Slide number nine, I will provide some more information about our operating segments. The company had another strong quarter, adding 18 million in operating revenues compared to the prior year; however, this reflects a 13.9 million decline versus the record second quarter. Within the derivative segment, operating revenues experienced a decline of 3.7 million due to a 5% decrease in contract volumes and a 2% decline in average rate per contract. OTC derivative operating revenues were 50.2 million for the quarter, which was an increase of 500,000 compared to the prior year quarter, driven by an 8% increase in the average rate per contract, partially offset by a 5% decline in OTC derivative contract volumes. Operating revenues from physical transactions rose 13.6 million compared to the previous year, primarily due to a substantial increase in precious metals revenues. Additionally, interest earned on client balances grew by 7.2 million versus the prior year due to a 45% increase in average client equity, as well as rising short-term rates following actions by the Federal Reserve. Segment income for the period was 72.5 million, reflecting an increase compared to the prior year and preceding quarter by 20% and 3% respectively. Moving on to Slide number 10, operating revenues in our institutional segment increased by 36.1 million compared to the previous year, primarily due to an $18.6 million rise in securities operating revenues driven by a 128% increase in the average daily volume of security transactions, despite a 48% decline in rate per million. The surge in securities average daily volume is largely attributable to significant increases in debt capital markets, most notably in U.S. Treasuries, driven by new hires in this area amidst a rapidly changing rate environment due to recent Federal Reserve actions to curb inflation. Additionally, volatility in equity markets has contributed to our improved market share. Operating revenues also increased by 8 million in listed derivatives and 4.2 million in FX products due to ongoing global market volatility. Lastly, interest earned on client balances rose by 6.9 million compared to the prior year, fueled by a 63% increase in average client equity and higher short-term interest rates following recent Fed actions. Segment income increased by 3% to 47.7 million in the current period, which resulted from a 15.3 million rise in net operating revenues, partially offset by a $10.5 million increase in variable compensation and a $3.6 million rise in non-variable direct expenses from the prior year. Continuing on to the next slide, operating revenues in our retail segment grew by 30.8 million compared to the prior year, driven primarily by a $30.8 million increase in FX and CFD revenues due to a 12% and 47% increase in average daily volume and revenue per million, respectively. Operating revenues from security transactions decreased by 1.1 million, while operating revenues from retail physical precious metals remained flat compared to the prior year period. In contrast to the immediately preceding quarter, operating revenues in the retail segment fell by 11.5 million. Segment income rose by 20.3 million compared to the previous year, largely as a result of the increase in operating revenues, although this growth was partially offset by a $9.5 million rise in non-variable direct expenses compared to the prior year, primarily driven by a $5 million increase in selling and marketing expenses.

Closing out the segment discussion on the following slide, operating rental payments increased by 9.3 million compared to the prior year, propelled by a 20% increase in average daily volume and a 9% increase in the rate per million over the previous year. Non-variable expenses ticked up by 2.8 million, primarily related to the expansion of our payment offerings. Segment income rose by 21% to 24.6 million in the current period, representing a 3% increase compared to the immediately preceding quarter.

Moving on to Slide number 13, we present a bridge showing the operating revenue for this quarter compared to last year across our operating segments. Overall operating revenues amounted to 528.8 million in the current period, representing an increase of 97.3 million or 23% over the previous year. While I have detailed the changes in operating revenues for our segments, there was also a $3.1 million increase in revenues from unallocated overhead, primarily related to positive variance in foreign currency revaluation compared to the prior year period, partially offset by a mark-to-market loss on exchange shares held for clearing purposes in the current period. Slide number 14 demonstrates a bridge from our 2021 third quarter pre-tax income of 46 million to pre-tax income of 70.9 million in the current period. The negative variance in unallocated expenses, totaling approximately 13 million, is primarily attributed to a rise in unallocated expenses, including a $5.1 million increase in variable compensation related to improved performance, a $3 million rise in non-operating technology and support costs, a $1.8 million increase in fees, a $1.6 million increase in selling and marketing expenses, and a $1 million increase in depreciation and amortization costs. These increases were partially offset by a $1.4 million decrease in fixed compensation and benefits.

Finally, turning to slide number 15, we illustrate our average invested client balances and associated earnings by quarter, as well as a table outlining the annualized interest rate sensitivity concerning short-term interest rates. The interest rate on these current balances increased 41 basis points to 69 basis points for the period, as the full effect of recent Federal Reserve rate hikes during the period will be more fully reflected in the fourth quarter of fiscal 2022. As mentioned in the table, given the rise in client balances noted earlier, we estimate that a 100 basis point increase in short-term interest rates would elevate net income by 31 million or $1.53 per share on an annualized basis. With that, I'd like to turn it back to Bill for a strategy discussion. Thanks, Bill. Moving to Slide 16, here are the high-level strategic objectives we are focusing on. We've included this slide before, and I've gone through it in detail on the last call, so I won't elaborate too much. However, I want to emphasize that over the past six quarters, we've made excellent progress and are on track to meet our milestones for several capabilities. Some of these are set to launch in the next three to six months. As mentioned, our securities business is evolving and expanding its product mix, leveraging our longstanding institutional relationships to provide broader product offerings. On the equity side, we've now rolled out our electronic market-making platform, designed for spread on domestic NMS equities, while ensuring the best execution. This is an area currently dominated by a handful of large players, and our broker-dealer clients are expressing interest in alternative execution outlets. We've onboarded a limited number of clients and names, and they have been successfully using us for foreign and unlisted stock executions over time. The results are very encouraging, and this platform is already proving beneficial for our cost strategy. We will gradually scale up our client base and the variety of stocks we market. There’s a substantial opportunity here. On the fixed-income front, we have been diversifying into more asset classes, many of which are higher volume and lower margin, such as peoples, treasuries, and other high-yield products. This strategy has been fruitful and provided revenue resilience as interest rate environments change. We have made key hires to develop a local currency payment business, starting in Brazil, with plans to expand into Colombia afterwards. This will enable us to deliver an end-to-end payment service for our existing corporate clients with substantial domestic operations, providing an effective method for them to infuse dollars into their operations and collect local payments from clients to remit back to headquarters. This unique offering is poised to appeal strongly to large corporate clients. Our StoneX One platform, aimed at individual clients, is live and currently being used by employees. This multiproduct platform enables trading in equities, equity options, and listed derivatives. We plan to launch this in the upcoming quarter to a select group of clients and will progressively expand its reach, leveraging our digital marketing team. We're also adding crypto FX and gold, creating a unique cross-asset class self-directed execution capability. All trading flow will be directed to our electronic market-making platform where we can internalize spreads when appropriate. It’s apparent that we have numerous exciting projects nearing launch. Moving to Slide 17, we had another strong quarter, experiencing favorable market conditions with excellent results across all segments. We achieved earnings of $49.1 million, a diluted EPS of $2.37, and a 19% return on equity based on our stated book value. This quarter marks the best nine-month period we've ever had, with earnings standing at $154.8 million, diluted EPS of $7.52, reflecting an ROI of 20.92%. Our results continue to reflect a steady and strong upward trajectory, with revenues exhibiting a 24% compound annual growth rate, and adjusted earnings demonstrating a 23% compound annual growth rate. We are witnessing robust growth in client trading volumes and assets, which drives the expansion of our underlying client base and improves client engagement. The combination of increased market volatility and interest rates provides a significant tailwind for our business. This year, we look forward to launching several digital platforms that will integrate our offerings more closely on the client side, enhancing engagement with our financial ecosystem. While we initially observe increased costs associated with these platforms, we anticipate that as we intensively market these solutions to our clients, it will accelerate our growth, leveraging the scalability that technology affords to enhance margins and core profitability. We are focused on expanding our product offerings to build a comprehensive financial ecosystem, which has a vast addressable market ahead of us. Although we have favorable market trends, there remain many underserved segments within which we have established relationships and demonstrable capabilities, needing to be monetized effectively. One constant for the StoneX team is our commitment to better serving our growing clientele worldwide by providing the best financial ecosystems and exceptional service to access global financial markets. With that, operator, let's open the line and see if we have any questions.

Great, thank you. [Operator Instructions] Our first question comes from Daniel Fannon with Jefferies, LLC. Daniel, please go ahead.

I guess my first question, Sean, is on the securities business. Clearly, average daily volumes are increasing, as you mentioned, while the revenue per million is going lower. This is an issue within that complex, but can you provide more details on where you currently stand because this quarter saw a notable increase in both volume and a decrease in capture rate? I'd like to know what asset classes are impacting this and your outlook regarding these dynamics moving forward.

Yes, sure. Dan, perhaps it would be helpful to mention that a long time ago, when we started our global payments business, we underwent a similar process where we were focusing on large payments with a high revenue capture and transitioned to working with bank partners, resulting in lower revenue capture but more transactions over time. That transition took us about two years before those metrics stabilized. We are currently witnessing a similar evolution in the securities segment. Primarily, our revenue has been coming from market making in foreign unlisted stocks, which have a higher revenue capture. We are now transitioning into the NMS market, where the revenue capture is substantially lower. I cannot give an exact timeline, but I would conservatively estimate that it may take about two years for our metrics to reach equilibrium. We have to approach this growth cautiously through our automated electronic platform, ensuring that we are responsibly integrating this new offering. As the client base adjusts to the technology, we expect to see the same trends persist for the next four to five quarters. The rate of change should begin to slow down as we reach a point of saturation in client engagement. Regarding fixed income, a similar process is happening where we've diversified our focus from high-margin products like mortgages to treasuries and other commissions-based products. The changes in the interest rate environment, especially with the slowdown in mortgages, have affected revenue capture but have provided some resilience. Progressive experiences in these business segments could lead to stabilized metrics.

Yes, that makes sense. Thank you. I’d also like to touch on your FX business, which has benefited from volatility. Can you clarify if this is due to existing customers trading more, or are you also seeing account growth? I am trying to gain a better understanding of how the business could look going forward.

Certainly, Dan. You’re likely familiar with the GAIN business we acquired; performance can fluctuate based on market conditions. In the last quarter, volatility contributed significantly to our improved performance. However, I would note that the primary driver for our performance was indeed market conditions rather than extraordinary account growth. Our account growth has been moderate but not exceptional—similar trends are impacting our peers in the industry. As for our client base, we are beginning to see the benefits that support improved revenue capture, as we offset internal trades across various segments. Although market conditions are the leading factor, volatility has aided in excellent results that exceeded our expectations from the acquisition, paving the way for future developments such as launching cash equities in the U.K. and access to crypto to diversify offerings.

Thank you for the insights. Lastly, I’d like to assess your perspective regarding potential M&A activities alongside the current market backdrop, especially valuations trending downwards. Are there specific market segments where you see potential opportunities?

It is beginning to appear more interesting due to the consequences of startups struggling to secure further funding, which may compel them to seek acquisitions to strengthen their financial position. This development could prove intriguing for us, but I think it's still early to pinpoint concrete opportunities. I believe over the next six to 18 months we will likely see promising opportunities materialize, but we haven't yet encountered attractive options in the last six months.

At this point, we do not have any more questions, so I'd like to turn it back over to you, Sean, CEO for closing remarks.

Thank you all for participating in today’s call. Enjoy the remainder of your summer, and we look forward to speaking with you again in early December. Thanks, everyone, and goodbye.

Thank you all for your participation in today's conference. This concludes the program. Everyone may now disconnect.