StoneX Group Inc (SNEX) 2022 Q1 法說會逐字稿

Good day, and thank you for standing by. Welcome to the StoneX Group Inc. Q1 Fiscal Year 2022 Earnings Call. (Operator Instructions) Please be advised that today's conference is being recorded. (Operator Instructions)

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 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 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 thereto.

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 trailing 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 in the Fed withdraws its support for the market and also from interest rate increases, both direct and positive drivers for our business.

Starting with Slide 3 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 increase 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 5 years, and we believe there is 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 see -- 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 4, 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 enhance 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, up 36% and 26%, respectively, with interest earnings down slightly as a comparative period incorporated a period prior to the Fed action to reduce interest rates.

Turning now to Slide 5 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 acquisition. 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, 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 trailing 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 Q1 '22 with a book value per share of $47.44, which was up 16% versus a year ago.

Turning now to Slide 6, our segment summary. Just a touch on the highlights before Bill gets into more detail. Aggregates 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 Securities 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 upfront, 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, #7. On the left-hand side, the blue bars represent our trailing 12-month operating revenue over the last 9 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 up 56% over this period or 25% CAGR. Our adjusted pretax 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 on net income over the last 2 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. Bill?

Thank you, Sean. I'll be starting with Slide #8, 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 nontrading 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 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 #9. 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, $1 million increase in precious metals revenues.

Operating revenues in 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 realized 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 #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 RPM. 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, nonvariable 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 nonvariable 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 in 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 #13, which represents a 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 U.K. subsidiaries in the prior year period.

The next slide, #14, represents a bridge from a 2021 first quarter pretax income of $26.9 million to pretax 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 nontrading technology and support.

Finally, moving on to Slide #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 underpinned $1 billion of interest rate swaps with a 2-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 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.

Thanks, Bill. Turning now to progress on the high-level strategic objective 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 midsized corporations, including all of the 50,000 StoneX corporate and institutional clients. This platform is to be -- 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 GAIN's 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 securities clearing activities, and 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 LME Platinum auction. StoneX is now the first nonbank 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 will 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, thus 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 3 months T-bill also moved up by about 20 basis points in the last for 4, 5 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 and 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 the 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, operator, if there are any questions, we'll take them now.

(Operator Instructions) Our first question comes from the line of Dan Fannon from Jefferies.

I guess, yes, 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?

Yes. So a couple of points here. So we did this very successfully about 4 or 5 years ago where we laddered into the 2-year rate, which gave us an enhancement of the short-term rates when rates were low at that time. 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'd 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 what rate can we lock in now and what earnings would we get over a 2-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, we think it's prudent to do that because we immediately start earning at higher rate. Instead of waiting 3, 4, 5 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 a fixed rate over that 2-year period.

So when we did that calculus, it was positive. We will do that again in March. We will look at sort of the Fed plot, look at sort of a 2-year swap versus what the Fed plot shows us and the aggregate interest earnings over that 2-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, 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 changed. So these 7 rate increases that people are talking about now are by no means certain. So there is some variability to that. In terms of what it cost us and how we can execute that, we broadly have 2 options, right? We can actually just go buy 2-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 0 cost, if you like. 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 are constantly look at it because even once the rate increases have finished, if you're in a positive yield curve, you can still swap from the overnight rate to the 2-year rate and see what kind of enhancements you can get. The reason we choose 2 years is going beyond 2 years, we think it's probably too aggressive for us and also the haircuts on instruments beyond 2 years becomes quite egregious. So we like to stay in that 0 to 2-year kind of category.

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've put forth in Slide 15 and has been there for some time, the incremental margin that we should think about at the corporate level in terms of compensation, 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?

Yes. Absolutely. We have no payouts to our teams on that, so that goes straight to the pretax line. Obviously, to the extent that impacts ROE, there will be added compensation to the executive team if our ROE goes up because we're 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. If you look in the context of $1.7 billion in top line revenue and just doing the math off the top of my head, if you get 1% on $6 billion, that's $60 million. $60 million doesn't sound that important in the context of $1.7 billion, but it's $60 million to the pretax line pretty much, right? So it's very important to -- lots of leverage on that.

Right, right. Makes sense. And if we think about -- I mean, the context of the business in the quarter and to start the year, Global Payments continues to -- or certainly had a very good kind of quarter. I think you mentioned some of the initiatives that are in place.

Yes.

Yes. And so just a little bit more context on the momentum in that business as we think about what's -- I don't want to say normal, but the 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 this -- is it building from here or are there maybe this past quarter was a bit elevated versus what you might consider normal?

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 third quarter -- so the -- sorry, the fourth quarter for us, the September quarter, is typically a weak quarter for us. That's sort of summer holidays in Europe and 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 weak 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.

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 midsized banks around the world. I mean, we are almost systemic to some of these countries in terms of 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 borrowing deeper into these banks, getting more of their flow. So that's a steady business that is growing at a nice pace. We've got tremendous franchise value there, great relationships with our clients.

I think what you're starting to see now starting probably 3 quarters ago is we're now starting to sort of, I think, look at some new avenues and sort of to reenergize the business a little bit. So we started with the sort of digital offering to go after smaller corporations where 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 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 our hope is over sort of a 2- to 3-year period, those initiatives become very sizable businesses in their own right.

So I think you should expect that from the Payments Business, a little bit of a growth push, and we've seen that over the last 3, 4 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 breakeven, we start getting beyond breakeven, I think you could see that Global Payments business accelerate in terms of its growth. Do it makes sense?

Yes, that does. And I guess just, Bill, as a follow-up in terms of expenses and other kind of notable items in the quarter. I think you talked about -- there wasn't anything, I guess, that stood out materially and the bad debt was obviously quite small or actually a positive. But anything as we think about the remainder of this year. Just walk through kind of Global Payments and some of the investments there, but other subsegments either at the corporate level or at the segment level that we should think about that might have different run rates than what we saw here in the December period?

Bill, why don't you take that?

Sure. Nothing material, Dan. I do think that we'll probably continue to see nonvariable comp creep up a little bit from where it is now as we continue to kind of expand that digital offering, but 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. We are going to be looking to refinance the debt we put on when we did the GAIN Capital acquisition.

So there'll be some -- we hope some significant changes there to the interest expense line on a go-forward basis. But outside of that, the last thing of note here is, I would say, we have seen kind of sequentially and even quarter-over-quarter some increases in travel and business development, as we've had kind of ebbs and flows in COVID, offices opening and clients being more willing to see us, kind of has come and gone several times. But I think we're starting to see that go up. We do have some big conferences planned coming up here, so we'd 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 and interest nothing else of note, I would say, Dan, that jumps out at me.

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 2 years of quite strong growth. Some of that was gained and some of that was sort of us spinning up 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 is challenging.

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 and 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?

Yes. I think we've always prided ourselves on having a good and profitable business that has strong organic growth, and that's always been our #1 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 our #1 goal is to leverage the capabilities we have. And I don't think we've ever seen an environment in 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 we've got lots to keep us busy and lots of ways we can grow our business. And therefore, we're only going to do something on the acquisition side, if it really fits, it's priced right and so on. So I think it's allowed us to be very disciplined, and 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, we have a situation where I think we've got some enormous opportunities on the sort of organic growth side, but you don't want to necessarily take an eye off the ball unless the price is big.

And then on the acquisition side, it feels to me that everything is overpriced. So I think in that environment, it's probably unlikely we're going to do anything meaningful. But as soon as I say that, something will kind of happen potentially. But I honestly think it's probably a lower probability than it has been in the past that 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 not really good stuff to do internally.

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.

Well, thanks, again, everyone, for joining us, and we look forward to speaking to you in 3 months or so. So thanks for your interest, and goodbye.

This concludes today's conference call. Thank you for participating. You may now disconnect.