SNEX - NASDAQ

Good day, and thank you for standing by. Welcome to the 2024 Third Quarter StoneX Earnings Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Bill Dunaway, CFO. Please go ahead.

Good morning. My name is Bill Dunaway. Welcome to our earnings conference call for our third quarter ended June 30, 2024. After the market closed yesterday, we issued a press release reporting our results for our third fiscal quarter of 2024. This release is available on our website at www.stonex.com as well as a slide presentation, which we will refer to on this call and our discussions of our quarterly and year-to-date results. 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 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 the call. Starting on Slide 3 of the earnings deck. The third quarter of fiscal 2024 was a solid result for us with net income of $61.9 million and EPS of $1.88 per diluted share. This represented a 15.7% ROE on stated book and 16.5% ROE on tangible book value despite a 19% increase in book value over the year and a 54% increase in book value over the last 2 years versus the comparative year-ago period, which was a record quarter for us, where we're down 11% in net income and 13% in EPS. On a consecutive quarterly basis, our earnings were up 17% and our diluted EPS was up 15%. We had record operating revenues of $913.7 million, up 18% versus the prior year. Our operating revenues include not only interest earned on our client float but also carried interest that is related to our fixed income trading activities. Net operating revenues, which net off interest expense as well as introducing broker commission and clearing costs, were also a record and up 7% versus a year ago and up 11% versus the immediately prior quarter. Total compensation and other expenses were up 12% for the quarter, with variable compensation up 8%, which is in line with net operating revenue growth. Fixed compensation and related costs were up 22% versus a year ago and were up 6% compared to the immediately prior quarter, due in large part to severance costs relating to an executive officer. For the 9 months to date, we recorded earnings of $184.1 million or $5.64 per share, down slightly versus the comparative period. On a trailing 12-month basis, our operating revenues were $3.3 billion, up 21% versus the prior 12-month period and adjusted net income was $238.9 million, up 6%, with EPS of $7.21 per diluted share, down 4%. We ended our third quarter 2024 with book value just over $50.65, up 19% versus a year ago. Now turning to Slide 4 in the earnings deck, which compares quarterly operating revenues by product versus a year ago. Generally speaking, the market environment was difficult for us with extremely low volatility. In fact, the VIX was close to all-time lows during much of the quarter, which negatively impacted revenue capture in most of our products. Low volatility and the resulting tough trading environment have characterized most of this fiscal year. This market complacency has been difficult to understand given the current geopolitical tensions, the election cycle here in the U.S. and in many other countries as well as the uncertain economic situation. As we know, volatility can change quickly and indeed, recent events over the last couple of days have proved this out. And we are hopeful we may see better market conditions ahead. However, we continue to see good client engagement and market share increases as evidenced by generally increased volumes across most of our products. The earnings power related to our enhanced client footprint should be evident with improved trading conditions. For the quarter, we saw strong revenue gains in listed derivatives with both our institutional segment seeing strong volume growth of 41% as we saw market gains with large institutional clients, offset by a 17% reduction in contract rates. Our commercial segment saw a 17% increase in volumes and a 10% increase in contract rates. Securities revenue was up 37% with volumes up 37%, rate per million down 9%. FX and CFD revenues were up 6% due to small gains in both volumes and spread capture. OTC revenue was down 8%, largely due to volumes being down 10% versus a record prior year period. Payments revenue was down 5% due to a lower revenue capture as a result of tighter spreads in most of our key payment corridors. Physical revenues were down 17% versus last year's very strong quarter, due largely to a decline in our renewable fuels business. Our aggregate client float, which includes both listed derivative client equity and our money market and FDIC sweep balances declined 10% versus the prior year. Despite this, interest and fee income on these client balances increased 26% to $115.9 million due to us capturing a higher interest rate in the current period versus the year-ago period. Turning to Slide 5 and looking at the same data of the trailing 12 months. We can again see good revenue growth across most of our products with the exception of physical contracts. Volumes were up across the board, except for FX and CFDs which were down 12%. Again, on a long-term basis is an important indicator for us when it comes to measuring client engagement and market penetration. Revenue capture is largely a function of market conditions. And again, we see a mixed picture as market volatility generally retraced to lower levels compared to the prior year, with the exception of FX and CFDs, which experienced a higher increase in rate per million, up 34% versus the prior year. In addition, we continue to see the effect of the change in product mix and the securities revenue capture with increased volumes in lower-margin products. Turning now to Slide 6, our segment summary and just a touch on a few highlights before Bill gets into more details. For the quarter, segment operating revenues were up 18% and segment income was up 17% versus the prior year quarter. All segments were up both in terms of revenues and income, except for payments, which is marginally lower. Our commercial segment had a record quarter in both operating revenues and segment income with segment income up 7% off the back of a 4% increase in operating revenues, with increased revenues in listed derivatives and interest offsetting the lower OTC and physical revenues. On a sequential basis, operating revenues and segment income were up 31% and 47%, respectively. Our Institutional segment realized a 34% increase in operating revenues, which translated into a 38% increase in segment income off the back of a strong increase in securities revenues and interest income. On a sequential basis, operating revenues were up 10% and segment income was up 1%. Retail was again a standout this quarter, with operating revenues up 5%, driving a 60% increase in segment income, highlighting operational leverage we have in this digital offering. On a sequential basis, operating revenues were down 6% and segment income decreased 17%. In our payments segment, operating revenues were down 4% and segment income was down 1%, primarily due to tighter FX spreads in our key payment corridors. Operating revenues were up 4% and segment income was up 15% versus the immediately prior quarter. On a trailing 12-month basis, we had operating revenue gains and segment income gains across the board. Retail was again the standout with segment income up 209% followed by institutional, up 17% and payments, up 19%. Turning now to Slide 7, which sets out at the top of the page, our trailing 12-month financial performance over the last 8 quarters. These numbers have been adjusted for the accounting treatment related to the gain on CDI acquisition as disclosed in our prior filings and which appears in the reconciliation provided in the appendix of this earnings deck. On the left-hand side, the bars represent our trailing 12-month operating revenues over the last 9 quarters. As you can see, this has been a smooth and strongly upward trend, and as we have steadily expanded our footprint and capabilities. Our operating revenues are up 72% over this period for a 31% compound average growth rate. Our adjusted pretax income has likewise grown significantly at a 22% CAGR. On the right-hand side, you can see our adjusted net income in the bars, which is up 40% over the last 2 years for an 18% CAGR. The dotted line on the right-hand side represents our adjusted ROE, which has remained above our 15% target, even though our capital has grown 54% over this period. The bottom half of the slide sets out our long-term performance, both measured in stockholders' return, which is the bottom left graph in which we have significantly outperformed both index shown as well as our financial performance on the right-hand graph, which shows we have grown our stockholder equity, operating revenue and market capitalization at nearly 30% compound growth rate over the last 21 years. With that, I'll now hand you over to Bill Dunaway for a discussion of the financial results. Bill, over to you.

Thank you, Sean. I'll be starting on Slide #8, which summarizes our consolidated income statement for the third quarter of fiscal '24. Sean covered many of the consolidated highlights related to the operating revenues for the quarter. So I'll just mention one more item and then cover off on some of the consolidated expense fluctuations and then finish with a segment discussion. Operating revenues for the current quarter included an $8.5 million realized gain on the sale of inventories carried at cost, for which losses on related derivative positions were recognized in the immediately preceding quarter as discussed on our last earnings call. Similar in nature, the prior year quarter had a $3.6 million realized gain on physical inventories carried at cost. Moving on to consolidated expenses, transaction-based clearing expenses increased 21% to $81 million in the current period as a result of the increases in listed derivatives and securities volumes as compared to the prior year. Introducing broker commissions were relatively flat with the prior year at $43.1 million in the current period. Interest expense increased $81 million versus the prior year, primarily as a result of the $72.7 million increase in interest expense related to our institutional fixed income business as well as a $5.2 million increase in interest expense related to securities lending activities, both of which were due to the increase in short-term interest rates, and in addition, in the case of the fixed income business, increased volumes. Interest paid on client balances on deposits declined $2.3 million as compared to the prior year due to the decline in average client float. Interest expense on corporate funding increased $9.2 million due to incremental interest on our March 1, 2024 issuance of senior secured notes due 2031, which allowed us to extend our debt maturity profile and bolster our liquidity. The proceeds of these notes were used to diffuse $348 million of senior secured notes, which were scheduled to mature in June of 2025 as well as to pay down existing borrowings on our revolving credit facility. While the funds from the issuance of the new notes were used to redeem the notes due 2025, the redemption is not incurred until June 17, 2024, in order to redeem those notes at par. This resulted in an incremental $6.8 million of interest expense during the diffusion period. In addition, upon completion of the redemption of the notes due 2025, we recognized $3.7 million loss on extinguishment of debt related to the write-off of unamortized original issue discount and deferred financing costs. Partially offsetting the incremental interest expense on the diffused notes, we earned $3.9 million in interest income on the funds held in escrow up until the redemption date. Overall, this transaction was leverage neutral for us while extending out our maturity profile by 6 years. Following the transaction, we have nearly $2.2 billion in long-term capital available to support our clients and our growth. Moving on. Variable compensation increased $10.1 million versus the prior year and represented 30% of net operating revenues in both the current and the prior year period. Fixed compensation increased $20.8 million or 22% versus the prior year, which was partially driven by a $4.1 million increase in severance as compared to $4.1 million in severance costs as compared to $700,000 in the prior year as well as a $1.8 million in accelerated share-based and long-term incentive compensation related to the departure of an executive officer. In addition, non-variable salaries increased $8.8 million or 13% due to a 12% increase in headcount, resulting from an expansion of our capabilities among our business lines as well as in support areas that facilitate this business growth as well as annual merit increases. Fixed compensation increased 6% versus the immediately preceding quarter, primarily due to the increase in severance and acceleration of share risk compensation and long-term compensation I just noted. Other fixed expenses increased $15.8 million as compared to the prior year, including a $6.1 million increase in professional fees, primarily due to an increase in legal fees, a $5 million increase in non-trading technology and support and a $3.5 million increase in occupancy and equipment rental, principally driven by the acquisition of additional space in London and the continued build-out of our offshore presence in India. Compared to the immediately preceding quarter, other fixed expenses increased $1.4 million, principally driven by a $700,000 increase in professional fees and a $700,000 increase in trade systems and market information. Finally, to close off the discussion of expenses, we had a favorable variance in bad debt net of recoveries of $5.8 million and $900,000 versus the prior year in the immediately preceding quarters, respectively. The other gain of $1.8 million in the current quarter of the class action settlement received in the Commodity Exchange Gold Futures and Options trading matter. Net income for the third fiscal quarter of 2024 was $61.9 million, which represents an 11% decline versus a very strong prior year period. Net income increased 17% versus the immediately preceding quarter. Moving on to Slide #9. I'll provide some more information on our operating segments. Operating revenue in our commercial segment increased $9.5 million versus the prior year and [ $51.7 ] million when compared to the immediately preceding quarter. The increase versus the prior year was principally driven by a $16.4 million increase in derivative operating revenues driven by increased volumes and widening spreads in London metals markets following the U.S. and U.K. sanctions on Russian metals. In addition, interest earned on client balances increased $10.2 million as compared to the prior year due to higher interest rates realized on client balances. Offsetting these increases, operating revenues from physical transactions declined $11.7 million despite the realized gain on the sale of physical inventories carried at costs I mentioned earlier, principally due to very strong performance in renewable fuels in the prior year. Finally, operating revenues from OTC derivatives declined $5.7 million as compared to the prior year, primarily due to a 10% decline in OTC volumes primarily in Brazilian markets. Fixed compensation and benefits increased $3.5 million versus the prior year and $3 million versus the immediately preceding quarter, primarily due to increased headcount and $600,000 in severance costs in the current period. Other fixed expenses increased $4.6 million versus the prior year, but were down $500,000 versus the immediately preceding quarter. As compared to the prior year, we had increases in special fees and selling and marketing. Partially offsetting these increases, we had a positive variance in bad debt net of recoveries of $5 million compared to the prior year. Segment income was $125.7 million for the period, an increase of 7% versus the prior year and 47% versus the immediately preceding quarter. As a reminder, in the first quarter of fiscal 2024, we started to allocate a portion of our corporate expenses in each of our 4 operating segments, including costs associated with compliance, technology, credit and risk, human resources and occupancy. We've provided this allocation in each of our segments to the current period and will continue to do so prospectively. However, we have not calculated similar allocation for previously reported periods. For the current period, this allocation of corporate costs for our commercial segment was $8.9 million. Moving on to Slide #10. Operating revenues in our Institutional segment increased $127.8 million versus the prior year, primarily driven by a $99.6 million increase in securities operating revenues compared to the prior year as a result of a 37% increase in the average daily volume of securities transactions as well as the increase in interest rates. The increase in securities ADV was driven by an increase in client volumes in both equities and fixed income markets. Interest income earned on client balances increased $13.6 million versus the prior year as a result of the increase in interest rates realized on these balances, which was partially offset by 9% and 24% declines in average client equity and average money market and FDIC client sweep balances, respectively, versus the prior year. Interest and fee income earned on client balances was up $4.7 million versus the immediately preceding quarter. The increase in securities ADV grew about $79.4 million increase in interest expense versus the prior year. Interest expense related to fixed income trading and securities lending activities increased $72.7 million and $5.2 million, respectively, as compared to the prior year, while interest paid to clients decreased $3.8 million due to the decline in client balances. Segment income increased 38% to $62.2 million in the current period, primarily as a result of a $37.4 million increase in net operating revenues, which was partially offset by a $4.2 million increase in fixed compensation and benefits as well as a $1.6 million increase in other fixed expenses. Segment income increased $900,000 versus the immediately preceding quarter. For the current period, the allocation of corporate costs for our institutional segment was $13.1 million. Moving on to the next slide. Operating revenues in our retail segment increased $4.7 million versus the prior year, driven by a $4.8 million increase in FX and CFD revenues as a result of an 8% increase in rate per million as compared to the prior year. Operating revenues declined $5.8 million versus the immediate preceding quarter despite an 8% increase in ADV due to a decline in RPM, which was at an all-time high in the preceding quarter. Segment income was $27.6 million in the current period, which represents a 60% increase over the prior year. This was a result of the 5% increase in operating revenues as well as $1.7 million and $2.5 million decline in fixed compensation and other expenses, respectively, as compared to the prior year. In addition, in the current quarter, we received $1.8 million in the gold fix class action matter. For the current period, the allocated corporate costs for retail segment were $11.9 million and segment income declined $5.6 million compared to the immediately preceding quarters. Closing out the segment discussion on the next slide, operating revenues in our payments segment declined 4% versus the prior year despite a 6% increase in ADV as the rate per million declined 13% as compared to the prior year. Segment income declined 1% to $28.2 million in the current period as a result of the decline in operating revenues, which was partially offset by a $1.1 million decrease in fixed compensation and benefits. Segment income increased $3.6 million versus the immediately preceding quarter. And for the current period, the allocation of corporate costs for our payments segment was $5.3 million. With that, I'd like to turn it back over to Sean.

Thanks, Bill. Moving on to Slide 13, which sets up the high-level strategic objectives that we are focused on. This basic approach and strategy has been unchanged for over 15 years and has served us well. And we have mentioned and discussed it on numerous calls before, but I think it's probably worth repeating again. We remain in a constructive industry environment, which aligns with our strategy, which is summarized on this slide. Following the financial crisis, there was a comprehensive and significant response from the regulators around the world to create a more robust and durable financial market. The key impacts of this were a massive increase in costs due to more complex process and oversight as well as dramatically increased capital requirements. This made it difficult for smaller firms and those with narrow product offerings to generate sufficient revenue to remain viable given the cost and capital requirements. As a result, there has been and continues to be a fairly dramatic consolidation in our industry. This can be evidenced by looking at clearing FCMs and broker dealers, the number of which has massively declined. We have directly participated in this process through some of our acquisitions and have also benefited indirectly as clients have been forced to find new firms for their business. In addition, we have seen a fairly significant withdrawal from our markets by the big banks as capital requirements have forced them to reevaluate this strategy. The large banks in aggregate still account for the majority share of the market, but they are retreating, which creates a significant opportunity for us. Generally speaking, the Basel capital rules are punitive for the trading type operations we have. And if adopted fully, I'm certain the banks withdraw from our market will continue to accelerate as they increasingly focus on their Tier 1 core customers. Both of these factors, the lower end consolidation and the withdrawal by the larger banks have directly and positively impacted StoneX and have allowed us to post CAGRs close to 30% over the last 20 years. We think there's still a long way to go in this reordering of the market structure. And with our broad and unparalleled capability and product set, we are dearly placed to continue to take advantage. The most significant strategic priority for us in the context of the market dynamics I've just mentioned, is to keep building our ecosystem. We want to be the most relevant firm in the space by having the best ecosystem to connect clients to the global financial markets. This makes us an attractive destination for new clients looking for a single partner to satisfy their trading needs and allows us to remain relevant to our existing clients. I believe StoneX is now becoming known as a growing and best-in-class financial services franchise. Secondly, we are a client-centric business, and we need to consistently work at growing our client footprint into new markets and expanding market share where we have existing clients. We will also seek to serve new channels, segments and markets and increasingly look to cross-sell all of our various capabilities to all of our existing clients. In addition, we will not achieve the necessary growth in scale unless we continue to embrace technology and digitize our offering. This will not only enhance client engagement but increase scalability and margins. This initiative requires a rethink of our processes from front to back and has been underway for some years now, but has been accelerated with the acquisition of GAIN, which itself is a digital business. Success on the technology side should allow us to accelerate revenue growth by more effectively gaining market share, drive margins through better revenue capture on the execution side and allow us to achieve better operational leverage. These 3 factors together could and should be a powerful driver of our bottom line and net margins. Finally, our business is supported by capital, and we need to underpin our growth with internally generated capital, access capital markets when appropriate and approach acquisitions in a disciplined manner. Our business requires regulatory capital for the client activity we take on. We believe that most of this capital should be in the form of permanent equity capital to provide the fortress balance sheet that will define a long-term client franchise. Moving on to the last slide. And in conclusion, we achieved solid results in the third fiscal quarter 2024, delivering record operating revenues of $914 million, up 18%. Earnings was $61.9 million and a diluted EPS of $1.88. This represents a 15.7% ROE on stated book ahead of our long-term 15% target. For the trailing 12 months, we generated net income of $234.8 million and EPS of $7.21 per diluted share. In some ways, the clearest and best measure of financial performance is the growth in book value per share, which for the last year is up 19%. We are pleased to see that our business continues to generate strong long-term returns for our stockholders despite lower volatility and more challenging trading conditions, which demonstrates the multiple drivers of our results and the diversification of our business. When our performance is viewed through a slightly longer-term lens such as trailing 12 months over the last 2 years, which evens out the quarterly anomalies, our results continue to show a strong upward trajectory, growing operating revenues at a 31% CAGR, which is up 72% over the last 2 years and our adjusted earnings at an 18% CAGR, which is up 40% over the last few years. Over these last 12 months, we continue to see growth in online trading volumes across most of our products and in operating revenues across all of our segments, which speaks to the growth of our underlying client base and engagement. This should result in enhanced long-term earnings power as trading conditions improve. As a reminder, our 2024 fiscal year, we celebrate our 100-year anniversary of our namesake legacy company, Saul Stone & Company. Again, remarkable to think what started as a small door-to-door egg wholesaler has since grown into a global financial franchise spanning over 80 offices across 6 continents. Our long-standing track record sets the standard, we believe is largely unmatched in our industry. Yet we recognize we are still far from realizing the full scope of the opportunities and the market share available to us. With that, operator, let's open the line for questions.

[Operator Instructions] Our first question comes from the line of Dan Fannon of Jefferies.

I'd like to start just on the short term, just given all that's happened during the last kind of handful of trading days. I would be curious about what you've kind of seen through your platform, both from a volume perspective, which I assume is elevated, but maybe also on the balance side. I'm curious if you would characterize this as good or bad volatility as we kind of get to some of these very quick moves and extremes. And I know volatility has been low as you highlighted, Sean, in your prepared remarks, but just a little more context around more recent would be helpful.

Well, I think as we've always said, moderate volatility and reasonable interest rates are the best environment for us. Very extreme volatility at the time that we saw at the onset of COVID or in the financial crisis or during the Ukraine war, that can be less helpful because clients end up defaulting. There's a lot of market dislocation, which is difficult to handle. We make a lot of money in those environments, but you can end up with bad debts and charge-offs and the like. I would say the recent volatility over the last 5 days, in my opinion, didn't get to the sort of extreme volatility that I've just described. So there's obviously a spike in volatility. I think, obviously, there were some people who were probably caught offsides by it a little bit. But we didn't see major market dislocations. The market was orderly, but volume spiked, spreads spiked. And obviously, that's good for us, right? So the last 5 days were sort of a good trading environment for us. But not extreme. We didn't see any major dislocations. And as far as we are aware, it's no major sort of damage that we've heard about out there. So I would say sort of high volatility, but without any major problems, if that answers your question.

Yes. That's helpful. And I guess in terms of balances and like risk or kind of what's happened, any changes that's worth noting there?

Nothing that we can discern at the moment. Obviously, in that environment, there are lots of margin calls that have to be made. All of that was done in an orderly fashion, didn't sort of see any major problems. What does tend to happen though, if this volatility continues, and I think we were at extreme low volatility. So even though the mix is probably going to come off the sort of 60 spike it hit, I think we may be in for slightly higher volatility and not cut back down to the low. When that tends to happen, you get recalibrated off a new volatility basis, which may require more balances to be put up to sustain the same level of activity. That's certainly what we saw maybe 18 months ago. I mean one of the reasons we had much higher client balances was the exchange requirements were higher because of the COVID and Ukraine war situation, right, had elevated volatility. So we may see a little bit of an uptick in balances just because margins get recalibrated or sort of higher volatility levels.

Got it. Okay. And then just in terms of the quarter itself, obviously, revenue is quite strong. But we're continuing to see the fixed expense base grow. I think there were some things you called out, Bill, in terms of the one-timers around severance. But if I look the 9-month number versus this year versus last year, just on a reported basis, fixed expenses are growing at a pretty healthy rate. So wanted to get a sense of as you think about this transition longer term of more digitization and frankly, trying to get more efficient, where we think we are in that process because understanding variable comp will move with revenues, but I would have thought there'd be a little bit more higher incremental margin on the fixed side in a period like this.

Sure, Dan. So sure. Yes. I mean, so certainly, as I called out on a little bit, I mean, we had fixed compensation nonvariable compensation up about $6 million sequentially. The vast majority of that, as I touched on during my portion was related to some severance and some acceleration. So I think that certainly, we wouldn't expect to have that level on a go-forward basis. We've seen a build-out of occupancy equipment rental. We are trying to take steps to go offshore with some of our development and the digitization. So we have taken some additional space in India, which is flowing through and we'd like to think we'll see the benefits of that going forward. So obviously, I think that we have seen a pretty good growth. We would like to think that certainly, it's a focus for us going forward to try to drive the operating margin that we have and really focus on the growth in the fixed side. Some of them end up being a little bit out of your control, like professional fees, et cetera. But certainly, it is an area of focus for us. So we would expect the growth in it, certainly not to continue to be at the rate it was kind of in the year-over-year that we've seen here, as you noted.

I would say, Dan, there's sort of 2 big buckets of, I guess, some sort of compensation costs or 2 ways to think about it, right? We've got our sort of institutional sort of high-touch business where there's a lot of variable comp. And that business continues to grow, and we continue to recruit teams of people and hire people and expand that business. And that obviously adds to fixed compensation and obviously, variable comp when the revenues grow. So I don't think that's going to stop growing. I mean I think what we've got to make sure is that, that growth is sort of delivering the incremental revenue, we hope it's going to deliver. On the technology side, certainly for the client-facing technology, you sort of have to build it and spend the money in the hope that down the line, you'll see the revenue. And I think we're starting to see that. And again, I think it's the sort of old game retail platform is doing exceptionally well. And that's where we hope to see real margins because there's almost 0 variable comp attaching to that, but there's a high fixed cost element because you've got a lot of developers and so on. And what we're trying to do there is we factor that cost base by pushing as much of that cost to more efficient locations. So we've got, Bill, correct me if I'm wrong, but round numbers, we've got 400-plus people now in India. We've got 300-plus people in Poland. We've got people that we're spinning up in some other lower cost places. And there's a pretty big delta on the cost there. I mean it's 50% or greater in some of those regions. So you get a lot of efficiencies if we can refactor the cost base. Now we're having to build offices to do that. You think some of that costs come through. But I think that's going to refactor that cost base. And as we start to see that revenue come through, I think, hopefully, we should start to see sort of operational leverage coming from that. And we'll have a high fixed cost, but we'll have very high operational leverage once the revenues cover the costs. The other thing we're doing internally is we're undergoing a little bit of an internal reorg to try to simplify our tech stack, try and centralize and get some efficiency out of things we believe are sort of utility functions within the company. So we're working hard to try to see that we can make that spend as efficient as possible. So I don't know sort of at the end of the day, what that means, I mean, you may still see costs go up because you may find we continue to expand on the high-touch side, and we continue to add people. But hopefully, what you should see is that's offset with incremental revenues over time. And hopefully, if we do our jobs right, the cost may still grow, but what we should see is increasing margins. And I think that's how we should think about it, right? We really focus now on trying to be efficient, making sure we're using technology to create operational leverage as we go forward. So we want revenues to grow, costs may grow, but what we definitely want to see is increased margins.

Understood. And then as I think about rates and prospectively, the potential for cuts, can you remind us on the swaps that are rolling off or what else might be offset to lower interest rates on your interest income?

Sure, Dan. The vast majority of all the swaps are rolled off. The one we do still have on is pretty close to current market rates or just maybe 50 bps lower than what we saw. So we do have, in the earnings deck, kind of still that sensitivity table that shows about a $20 million delta for a 100 basis point drop. And either increase or drop or obviously the drop is what everybody focused on now. But what I will say is that does kind of factor in that there is a fair amount that we are paying clients, particularly on the institutional side, where it is just a spread on the business. So there's probably about 1/3 of those balances that with the drop in rates, it's really not going to affect our overall capture on a net basis. And there's another probably 1/3 where it will partially affect it and then a 1/3 that you're not really paying interest on. So overall, it's captured kind of in the net interest rate sensitivity table, but it won't be a dollar-for-dollar drop on the downside. So it will be some muted by the fact that we are just earning a spread on some of it. Does that make sense?

Yes. No, it does. I guess then just following up, Sean, just on kind of the environment. This location like this, does this create more inorganic opportunities? It's been for you guys a little bit quiet for several quarters, but the organic growth has been positive. So curious about just the dialogue and opportunity set as you think about M&A in this environment?

Yes. We're just dealing with the organic opportunity. I mean I think we've seen some really good organic growth at the moment. And it feels to us that the banks are really struggling and sort of having to refocus their business. I mean, we're hearing it from a number of banks now. So we're seeing a lot of talent becoming available and a lot of clients sort of being shaken loose. So the organic sort of opportunity for us is pretty significant. And as I think I've discussed before, if we can bring on teams of people, that's almost like an acquisition, right? It's not recorded or accounted for as an acquisition, but the net result is the same. You end up with a big chunk of incremental revenue coming across, if you do that right. So that's very constructive at the moment. In terms of acquisitions, I think as I said previously, we're definitely seeing more come across our desks, and we're looking at a bunch of stuff. There's nothing we can mention at this point that's significant. But certainly, it seems like the environment is getting better. If you have extreme dislocation, that generally provides a lot more opportunity for us. I don't think what we saw in the last 5 days is extreme. I think I said that earlier. I mean, it was sort of a blip and it was good to see volatility going up a little bit. I don't think that's going to create any discrete opportunities of itself. But it does feel like the private equity bid is sort of a little bit going away. Higher interest rates have made that harder. It does look like a lot of these sort of start-ups that were spun up on unrealistic sort of expectations during the COVID period when money was sort of free and available to all those businesses are sort of 4, 5 years in now and a lot of them are struggling. So from that sense, it's becoming quite interesting. I think there are going to be a lot of interesting opportunities coming out of that. Now a lot of those businesses may just not be viable at all and not interesting to us. But I do think there's sort of a lot of stuff where the chickens are coming home to roost, and that does give us some opportunities. So we'll see how it goes.

I'm showing no further questions at this time. I would now like to turn it back to Sean O'Connor for closing remarks.

Well, thanks, everyone, for taking the time to listen. We appreciate it. And for everyone here in the Northern Hemisphere anyway, enjoy the rest of the summer, and we'll speak to you in 3 months' time. Thanks so much.