StoneX Group Inc (SNEX) 2021 Q4 法說會逐字稿

Good day, and thank you for standing by. Welcome to the StoneX Group Inc. Q4 Fiscal Year 2021 Earnings Conference 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, Chief Financial Officer. Please go ahead.

Good morning. My name is Bill Dunaway. Welcome to our earnings conference call for our fourth quarter ended September 30, 2021. After the market closed yesterday, we issued a press release reporting our results for our fourth fiscal quarter of 2021. 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 discussions of our quarterly and fiscal year 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-K filed with the SEC. This discussion may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements involve known and unknown risks and uncertainties 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 assurance 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 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 2021 Fourth Quarter Earnings Call.

In Q4, our results were below our expectations and our long-term ROE target. During the September quarter, market conditions were less beneficial than in prior quarters with generally less of a volatility tailwind than a year ago or even earlier in the fiscal year. As most of you know, we have always taken a long-term view in how we manage the company and continue to grow our franchise. And I was pleased to see that our annual results were retained very close to our long-term ROE target of 15%.

Before I get into a discussion of the quarterly results, I want to note, since we are wrapping up fiscal 2021 that last year's fiscal results included the significant nonrecurring gain on our acquisition of GAIN Capital Holdings. Adjusting for the impact of that, both the last fiscal year and the current year-to-date results, we saw core operating performance in fiscal 2021 with adjusted income of $124.3 million, up 25% and an adjusted ROE of 14.9% for the year.

So starting with the earnings deck and starting on Slide 4, comparing operating revenues and product metrics against the prior quarter. Operating revenues overall were up 14% for the quarter versus a year ago, with increases in all product areas versus a year ago, with OTC derivatives being stand out with an increase of 52% off the back of better commodity markets versus a year ago. This operating revenue growth was driven by increased volumes across the board, which speak to enhanced client engagement. Although, it should be noted that the year ago quarter wasn't a particularly strong one for us either.

Volume increases were offset by reduced revenue capture, especially in securities and FX and CFDs where market volatility declined. On average, our client float, both in listed derivatives and securities clearing, experienced strong growth, up 25% and 21%, respectively, due to both higher client volumes as well as market share gains, and in aggregate, now stands at $5.8 billion, up 10% from a year ago and up slightly from the immediately preceding quarter. Interest earnings were actually up this quarter versus a year ago due to higher client balances and we're also now comparing against post-COVID interest rate environment.

Turning to Slide 5 and looking at revenue and product metrics for the full fiscal year, operating revenues were up 28% versus a year ago, partially due to the GAIN acquisition. There were a number -- there were double-digit increases in revenues across the board, a really good result, given that we're comparing against the exceptional 2020 results where we experienced heightened volatility as a tailwind. Strong volume increases across the board, except for listed derivatives which were down slightly, again speaks to enhanced client engagement.

Volume increases were offset by reduced revenue capture, especially in securities, where market volatility declined with lower volatility post the COVID disruption. Also notable is the increase in revenue capture in our listed derivatives business. Some of this increase was due to relatively more volume for our higher-margin commercial sector. However, institutional listed derivatives, our most competitive product, increased its revenue capture by 18% as we actively repriced our offering to institutional clients.

More on this later. Our average client float, both in listed derivatives and securities clearing, experienced strong growth, up 39% and 30%. However, interest and fee earnings were down significantly as the prior year incorporated a period prior to the Fed action to reduce interest rates.

Turning now to Slide 6 and a summary of our earnings as reported and on an adjusted basis, so removing the accounting impact of the August 2020 acquisition of GAIN. We recorded operating revenues of $390.1 million, up 14% versus the prior year. Aggregate costs were up 12% for the quarter, largely due to GAIN and the associated overheads that were only included for 2 or 3 months in the prior year's quarter as well as recent investments in technology and support functions to both foster future growth and support the franchise we have built.

As compared to the immediately prior quarter, overall operating revenues were down 10% or $41 million, which drove the decline in pretax income. Largest declines on a -- versus the preceding quarter were in securities, which was down 18% or $25 million and OTC derivatives down 30% or $15.3 million of a very good performance in the prior quarter. Listed derivatives were down 12%. These declines were offset by modest gains in global payments, FX, CFDs and physical contracts.

Net earnings were $7.3 million and a diluted EPS of $0.36, both down significantly versus a year ago due largely to the accounting treatment of the GAIN acquisition mentioned earlier. On an adjusted basis, excluding the nonrecurring accounting treatment of gain, quarterly earnings were up 55%, although ROE was still below our target at only 4.3%.

Looking at the summary for the fiscal year, our operating revenues were $1.7 billion, up 28% and a new record, the acquisition of GAIN being a significant contributor to this. Net income was $116.3 million, down 31%. However, adjusted net income was $124.3 million, up 25% and a new record for our core operating results for a fiscal year. Our reported diluted EPS was $5.74. Although, the current year adjustments related to the GAIN acquisition reduced the diluted EPS by approximately $0.40 and reduced the prior year EPS by $3.59.

After consideration of these EPS adjustments, our adjusted EPS for the 2021 year would have been $6.14 versus $5.02 for 2020, an increase of 23%. Our reported ROE was 13.9% and on an adjusted basis was 14.9% for the fiscal year. Although our interest earnings on the float may seem immaterial in the context of overall operating revenues, this number dropped straight to the bottom line. We estimate that 100 basis points increase in short-term interest rates potentially adds $27 million or $1.38 to net income.

Reflecting on our 2021 results, we have always managed our business for the long-term rather than for quarterly results, and we believe that shareholders should look at it the same way and look at our financial performance through cycles. Looking at our adjusted results, which best reflect the core earnings of the company, I'm extremely pleased with our 2021 performance. We have 52% more capital than we had 2 years ago. And we have deployed it effectively at around our target ROE, and we have significantly grown both the scale and diversity of our client footprint. We have delivered 28% top line revenue growth, and on an adjusted basis, 25% earnings growth against this very challenging 2020 comparison when we enjoyed significant volatility tailwinds. We have delivered this growth without any increase in our share count other than small options activity. Although, we did take on some high-price, high-yield debt to fund the GAIN acquisition.

Again, retail platform delivered on its first year expectations, both in terms of revenues and cost synergies. Although as anticipated, the results were volatile, with most of the bottom line being delivered in Q2 and much more modest net contributions in the other quarters of the year. In addition, higher interest expense related to the high-yield notes exacerbated quarterly earnings volatility this fiscal year. However, this is not concerning given how we run our business and how we focus on long-term results.

Turning to Slide 7, which is our segment summary. And just to briefly touch on the highlights before Bill gets into more detail. Aggregate segment operating revenues were up 15% for the quarter and segment income up 8% for the quarter. That said, on a sequential basis, operating revenues were down 11% and segment income was down 26%. The standouts were our Commercial segment, which had operating revenues up 23% and segment income up 29%, and Global Payments operating revenue up 18% and segment income up 11%. Retail shows good growth in the operating revenue. Although, segment income was down 34% versus a year ago. For the year overall, we saw strong growth in both operating revenue and segment income across the board. Very pleasing to see that, especially given the tough comparable period.

With that, I'll now hand you back to Bill Dunaway for a more detailed discussion. Bill?

Thank you, Sean. I'll be starting with Slide #8, which shows our consolidated income statement for the fourth quarter of fiscal '21. Sean covered many of the consolidated highlights for the quarter, so I'll just highlight a few and then move on to a segment discussion.

Transaction-based clearing expenses were up 13% to $64.4 million in the current period, primarily related to the increase in listed derivative operating revenues in our commercial segment, higher costs in our equity capital markets business as well as a full 3 months of costs of the GAIN business acquired effective August 1, 2020. Introducing broker commissions were up 17% to $39.7 million in the current period, primarily as a result of the incremental cost of GAIN as well as increased activity in independent wealth management and listed derivatives. Interest expense increased $4.1 million versus the prior year, primarily due to higher average borrowings on short-term financing facilities or our subsidiaries and an increase in securities lending activities.

Interest expense on corporate funding decreased $4.6 million versus the prior year, primarily as a result of the prior year period, including a $4.4 million of bridge financing fees related to the issuance of our senior secured notes used for the GAIN acquisition. Variable compensation increased $3.9 million versus the prior year and represented 32% of net operating revenues comparable to 36% of net operating revenues in the prior year period. The decrease in variable compensation as a percentage of net operating revenues was principally related to lower back office and administrative incentives versus the prior year period as they are impacted by overall company performance. Fixed compensation increased $13.8 million versus the prior year, with the growth principally related to salary and benefit costs of increased headcount, along with an incremental month of GAIN employees' compensation.

Additionally, fixed compensation in the current period includes $1.6 million in severance costs. The prior year period included $400,000 in severance costs. Other fixed expenses increased $16.6 million versus the prior year, principally driven by an incremental month of expense attributable to the acquisition of GAIN, most notably among market information, selling and marketing costs and amortization, including $900,000 in incremental amortization of intangibles acquired.

In addition, other fixed expenses increased versus the prior year as a result of the increase in nontrading technology costs, professional fees, travel and business development and depreciation of internally developed software. Bad debts and impairments declined $5.8 million versus the prior year. Bad debt expense was relatively flat versus the prior year, with the current period client deficits of $6.7 million, primarily within the physical ag and energy business versus the prior year, which included client deficits of $6.8 million, primarily within the physical ag and energy and institutional futures and options businesses. The prior year period also included the nonrecurring impairment charge of $5.7 million of capitalized developed software-related to the trading system considered to be duplicative following the acquisition of GAIN.

As noted by Sean on Slide #6, the prior year quarterly results included a $81.8 million gain on acquisition. The current quarter includes some modest losses related to the disposal of some fixed assets. We recorded an income tax benefit of $2.4 million for the fiscal fourth quarter of fiscal 2021, despite having pretax income of $4.9 million for the quarter. This was a result of a couple of things.

First of all, there is a $1.8 million deferred tax asset remeasurement related to future corporate tax increases in the U.K. and secondly, due to a change in worldwide income mix for the full fiscal year versus what was projected at the end of the third quarter, our effective tax rate for the full fiscal year declined to 25.1% as compared to 27.8% that was projected at the end of the third quarter. Net income for the fourth quarter of fiscal 2021 was $7.3 million and represented 91% decrease over the prior year and a 79% decrease over the immediately preceding quarter. Finally, we closed out the quarter with net asset value per share of $45.60 per share as compared to $39.61 a year ago.

Moving on to Slide #9, I'll provide some information on our operating segments. The Commercial segment added $24.9 million in operating revenues versus the prior year. Within the segment, listed derivative operating revenues increased $10.5 million versus the prior year as a result of a 23% increase in the average rate per contract and a 4% increase in contract values, driven by increased commodity volatility and customer mix. OTC derivative operating revenues were $34.5 million for the quarter, which was up $11.9 million versus the prior year, primarily as a result of a 40% increase in OTC derivative volumes, driven by increased volatility in agricultural and energy markets. OTC derivative operating revenues declined $15.2 million versus the immediately preceding third quarter of 2021, which was the primary driver of the overall decline in operating revenues as compared to the third quarter in the commercial segment.

Operating revenues from physical transactions declined $900,000 primarily -- compared to the prior year period, primarily as a result of a $10.6 million decline in precious metals revenues, which was partially offset by a $6.8 million increase in physical ag and energy commodity revenues. Operating revenues in physical contracts for the current period included a $400,000 unrealized loss on derivative positions held against physical inventories carried at the lower of cost or market, while the prior year quarter included a $2.8 million unrealized loss of a similar nature. Finally, interest on client balances increased $3 million versus the prior year, principally due to the 61% increase in average client equity as well as an increase in interest charge to customers on certain margin balances.

Total nonvariable expenses increased $3.3 million versus the prior year, primarily result of an increase in bad debt expense, market information and professional fees. Segment income was $44.1 million for the period, an increase over the prior year period and preceding quarter of 29% and 27%, respectively.

Moving on to Slide #10, our Institutional segment added $2.1 million in operating revenues versus the prior year, primarily driven by a $6.3 million increase in securities revenues as a result of an 81% increase in the average daily volume of securities transaction, which is partially offset by a 41% decline in securities rate per million. The decline in rate per million 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 $3.4 million as a 11% decline in the rate per contract more than offset a 1% increase in volumes.

Interest and fee income on client balances modestly increased $100,000 versus the prior year due to a 7% increase in average client balances versus the prior year. Segment income increased 9% to $24.4 million in the current period, primarily as a result of a $7 million decline in bad debts and impairments and the increase in operating revenues, which was partially offset by a $2.7 million increase in variable compensation and a $500,000 increase in fixed expenses. Segment income declined $22.1 million versus the immediately preceding third quarter, which benefited from strong performance in our securities businesses.

Moving on to the next slide. Operating revenues in our Retail segment added $17.9 million versus the prior year, which was primarily driven by an $8.9 million increase in FX and CFD revenues from the GAIN acquisition. Our retail physical precious metals business and independent wealth management businesses added 3.8 and $5 million in operating revenues, respectively, versus the prior year. The increase in variable compensation and benefits and non-variable direct expenses was driven by the acquisition of GAIN. Segment income declined $6.1 million versus the prior year, primarily as a result of a decline in profitability in the acquired business -- GAIN business. Segment income increased $5.9 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 $5.2 million versus the prior year, driven by a 29% increase in the average daily volume, despite a 9% decrease in the rate per million earned as compared to the prior year. This growth was driven by increased activity from our NGO clients as well as continued growth in our client base. Non-variable expenses increased $1.3 million and is primarily related to the expansion of our payment offerings. Segment income increased 11% to $18.4 million in the current period and represented a 9% decline versus the immediately preceding third quarter.

Moving on to Slide #13, which represents a bridge between operating revenues for the fourth quarter of last year to the current period across all of our operating segments. Overall operating revenues were $390.1 million in the current period, up $48 million or 14% over the prior year. I've covered the changes in operating revenues for our segments. However, the $2.1 million decline in revenues in unallocated overhead is primarily related to a negative variance in foreign currency gains and losses and the decline in value of the exchange stock held for clearing purposes.

The next slide, #14, represents the bridge from 2020 fourth quarter pretax income of $79.9 million to pretax income of $4.9 million in the current period. The negative variance nonallocated overheads of $82.5 million is a result of the acquisition gain noted earlier, the operating revenue variance noted on the previous slide as well as the increase in unallocated expenses, primarily related to the acquisition of GAIN, the severance expense noted earlier, an increase in nontrading technology and support related to the build-out of our support platforms and the amortization of intangibles acquired in the GAIN acquisition.

Finally, moving on to Slide #15, which depicts our average invested client balances and associated earnings by quarters as well as a table which shows the annualized interest rate sensitivity for a change in short-term interest rates. As noted at the bottom of the table, 100 basis point increase in short-term interest rates, we estimate, would increase net income by $27.3 million or approximately $1.38 per share, based upon current client balances.

With that, I would like to turn it back to Sean for a strategy discussion.

Thanks, Bill.

Turning to Slide 16, which summarizes the high-level strategic objective that management is focused on. Most of these projects are unchanged and ongoing. But given that this is year-end, I thought a more detailed update on progress would be useful. First, building our ecosystem. We want to stay relevant to our clients, both existing and new clients by adding new products and services and creating the best financial ecosystem to connect them to the global financial markets.

There are 2 large product areas or maybe even growing financial ecosystems that we are focusing more attention on. Both are driven by increased client interest. As we mentioned last time, cryptocurrency remains a hot topic and a growing market. We actively support our institutional and retail clients by facilitating trading in a growing number of crypto related products, such as listed derivatives as well as publicly listed ETFs, Bitcoin exchanges and other market participants. This is a growing revenue source for us, and we want to remain relevant to our clients by ensuring we provide access to this growing ecosystem as well as providing market intelligence around the space. We are looking at various collaboration and partnerships arrangement to extend our crypto offering to our retail clients. We're also pleased to account some of the new ETF entrants amongst our clearing clients.

Secondly, carbon trading is another growing market propelled by global ESG initiatives. We are exploring ways to better assist and leverage our client relationships in this space and I spoke a little bit about that last time. ESG is also providing new and interesting market opportunities for us. Certain base metals are fundamental for the electric car industry, and biodiesel is a priority for the green energy initiative. These initiatives impact markets we are currently active in and provide significant opportunities to assist our clients to take better advantage.

During the year, we also found ways to give our clients access to listed derivative markets in China that were not previously available to them. We continue to grow our product offering in fixed income, adding teams and product expertise consistently. During 2021, we acquired a small -- large endowment, but fully licensed U.S. payment services company. We have now completed the regulatory change of control process and will soon be able to offer our 28,000 commercial clients and some of our nearly 400,000 retail clients, our unmatched global payment services. We aim to have a payments capability on all our digital platforms, which will provide simplicity and ease of use for all our clients. In 2022, we are looking for ways to expand our payments licensing to facilitate the similar approach in Brazil, which we see as a large potential market for us.

We are a customer-centric business, and we need to consistently work at growing our customer footprint into new markets and expanding market share where we have existing customers and look to serve new customer segments and channels. We have all the capabilities to service customers of all types and have a large addressable market in front of us with very low market penetration, which we currently estimate in the single basis points range. The payment platform I just mentioned will allow us to attract new and smaller commercial clients, SMEs, looking for a simple, integrated solution to hedge currency exposure and then make the underlying payments.

We have successfully expanded our wholesale precious metals business into the U.S. with the addition of a small, but very experienced team in California. We will look to further solidify this with the addition of a digital retail capability, using our Coininvest platform, which has been very successful in Europe. We have rolled out a number of electronic trading applications for our equity market making business. These are not only fully automated, what we've always done on the best, but provide clients with additional capabilities and transparency when executing their orders. We are now actively rolling out our retail self-directed platform into the EU, which opens up a big new market for us on retail side and is gathering momentum.

Lastly, we also have state-of-the-art internal digital marketing capability at StoneX, which we acquired with the GAIN acquisition. Their capabilities span the design and execution of digital marketing strategies as well as the ongoing analytics to measure and optimize results. This is a proven and talented group that drives the retail platform revenue and increasingly, we'll look to scale and grow our other client areas as they become more digitized and platform based.

In terms of digitizing our business, we have mentioned this on a number of calls over the last few years, and I thought it might be good to provide some more detail around this. Over the last 3 to 4 years, we've made pretty significant investments in technology to create a more efficient and scalable technology stack internally, a foundation and a prerequisite for us being able to service clients digitally.

We have decided to use industry standard systems of record for all our key product areas as this was the most cost-effective and scalable way, designing and creating an enterprise solution would have been cost and time prohibitive. However, this led to StoneX having nearly 20 systems of record, requiring point-to-point connections with all of our support systems as well as all of our client placing platforms. This is not scalable or efficient and also endeavors flexibility and agility as well as growth into new products and capabilities.

Our approach to address these shortcomings was to create a data lake, where all data from the various systems of record would reside and be normalized so the various bits of data could be aggregated seamlessly. This is a concept that many financial firms have laid out, but it's not easy to deliver on. Each system has different data fields and tags. And so, normalizing large amounts of data can be difficult. After many years, we have now reached the point where our data lake comprises the majority of our systems of record. This now allows us to have various support areas in client-facing applications to be able to connect only one place and get all the data they need. We now have real validation of the success of this approach.

For example, our risk team can now access all client activity across the organization, different products, different locations and different legal entities. We now also have the capability to view the profitability of each client across both their risk profile as well as their specific capital requirements. This has been instrumental in us being able to be more granular in how we price client business, especially in the lower margin institutional derivative business. This is one of the reasons you can see better pricing being achieved in this product segment. These are just 2 examples, but we are really pleased to see the increasing cadence of other applications now being delivered as a result of the data lake. This is a key foundational step and allows all our support areas and our client platforms to have one connection to access all data. This eliminates the need for multiple point-to-point connections, and it provides a much more flexible and agile systems architecture.

In addition, we have been working for some time to create a flexible open architecture API approach to our systems of record. This will allow us to combine access to systems and products to client-facing platforms in a modular and efficient way. Combined with the data lake, this will allow us to create very flexible platforms for specific client types, giving them access to the products and capabilities they need. This has also been a long-term project, but again, we're now seeing validation through the increased cadence of delivery.

We're about to launch our internal pilot for StoneX One, which will be a self-directed multi-asset trading platform, allowing clients to trade equities, both cash and options, as well as listed derivatives to U.S. clients. We will then look to add foreign exchange to create the full menu. This seamlessly brings together 3 different regulatory environments and related products for our clients. This is currently a desktop application, but once validated, we'll then use the same APIs to create a digital version for the self-directed and mobile retail platform of GAIN, an objective we set out at the time of the GAIN acquisition, which will be transformational to their offering here in the U.S.

In summer next year, we'll be rolling out cash equities of the retail platform outside of the U.S., which, again, will transform the GAIN platform from just CSDs to an investment offering. In summer next year -- sorry, we developed one of the leading OTC derivatives and structured product platforms over the last few years, taking some of our most complex products and making them easy to access, understand, design and then execute, all electronically. We have validated this with a pilot launch and will now more aggressively be launching this to existing clients and even more broadly to showcase new and potential clients, our unique capabilities.

We have launched our new base metals trading system, which allows clients to more easily track their positions and access pricing. We plan to roll this out to all clients team and enable direct execution over this platform, thereby totally automating this business. We're also looking to provide electronic trading access to active clients where we can internalize their flow and offer them equal or better pricing than offered on exchanges. We have a growing ecosystem and increased flow in all products and now have the ability to leverage this for our clients' benefit.

So as you can gather, there's a lot going on with digitization. We are firmly of the belief that electronic trading and the digitization of client platforms is a key requisite for our continued growth. This should not only allow us to become -- to acquire global market share in our addressable market, but should also provide scalability and margin expansion. To be clear, not all of our businesses can or should be digitized, and we have some of our clients that will continue to demand and pay for high-touch service. Even the areas of our business where we can become more digitized, we will always strive to provide high-grade support and service to all of our clients.

Finally, our business is supported by capital, and we need to underpin our growth with internally generated capital resources and where appropriate, access the capital markets in a disciplined manner. The most important thing we can do is to continue to create a capital runway for our continued growth. This is why we are focused on ROE. It is interesting to note that 10 years ago, we had less than $300 million in shareholders' equity and roughly the same number of shares outstanding as we do now.

Over this 10-year period, we have tripled our shareholder funds, acquired over 15 businesses and significantly expanded our client footprint, all financed organically from retained earnings and the unbelievable power of compounding. During this growth, we have largely achieved our ROE target, certainly not every year or every quarter, but on average, over the period, it's pretty close. This has happened despite the investments we've made in technology and infrastructure, the cost of developing new capabilities and despite low interest rates for periods of time.

Achieving our ROE target will continue to be our North Star, and we believe that as we digitize our platforms and gain scale that our margins and ROE should start to increase. As mentioned earlier, the high-yield issue to acquire GAIN was priced in the middle of COVID with the added complication of StoneX being a first-time issuer. The debt was priced at nearly 9%. And as such, has added a lot of fixed costs against which we acquired GAIN, which has exacerbated the volatility of our overall earnings, as we have seen during this year. We have the ability to call the entire high-yield issue in June 2022, the second year anniversary of the issue.

As mentioned last time, we extended the maturity of our holdco bank facilities until August 2022, which generally lines up with a high-yield call date. This will allow us to strategically reassess our capital structure in June 2022 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.

Moving on to Slide 17, which is the high level KPIs by which we manage our targets on the right-hand side. You can see that we are generally in line with most of our targets despite a challenging quarter. Moving on to the next slide, which shows our customer growth. And again, all of those lines pointing upwards, as mentioned earlier, highest priorities to better serve our existing customers and grow our footprint, which drives every aspect of our business. And I think the slide could provide some context around that.

Finally, let's move to Slide #19. The current quarter was somewhat disappointing and below our long-term expectations. However, we have always managed our business for the long term and our annual results were in line with expectations. When compared on an adjusted basis, which excludes the acquisition accounting for GAIN last year, our core operating results were up significantly against a tough comparison in 2020 when volatility provides some tailwinds. We achieved record operating revenues of $1.7 billion, up 28%, and record adjusted net income of $124 million, up 25% with an adjusted ROE of 14.9%. We are extremely proud of our long-term track record, where over the last 19 years, we have compound operating revenue at 36% compound per annum and shareholder capital at 33% compound per annum.

We believe that this track record is unsurpassed in our industry. Indeed, over the last 2 years, we have continued to grow operating revenue and capital at similar rates. Over the last 2 years, our shareholder capital has grown by more than 50%, and we have managed to continue to deploy that increased capital near our target returns. We've made a large acquisition with GAIN, significantly expanded our footprint, client reach and product offering without issuing any stock. Although, this has required us to take on some high-price debt, which has added some volatility to our quarterly earnings.

As mentioned earlier, we will be focusing on this in the upcoming year, looking to restructure and optimize our debt structure once we can call the high yield notes. We've also made large investments in technology over the last 4 to 5 years and believe that we now have the foundations in place to accelerate the digitization of our business. Our internal infrastructure has been built to allow immediate connectivity and access throughout all of our many operating systems of record and allow us to instantly view real-time 360-degree engagement with our clients in all products and jurisdictions.

We have adopted an open architecture, which now allows us to provide clients with digital access to most of our products and capabilities on one platform, which can be customized by client type and channel. The acquisition of GAIN has provided us with leading internal digital marketing capabilities to leverage these capabilities. This year, we'll see a number of digital platforms launched, which will more tightly integrate our client type and make it more engaging for clients to interact with our financial ecosystem.

The next phase will be to actively and aggressively market these platforms to 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 have good market share in certain niche segments of the market, lots of white space remains in areas where we already have client relationships and demonstrable capability, and we now need to monetize these opportunities.

In aggregate, we believe that we maybe have single basis points of market share of our total addressable market. We believe that with the technology investments we have made to date, the early validation thereof, the growing client base that has broader needs we can fulfill, the growing awareness of StoneX and the unique financial ecosystem we offer, make us a very exciting phase of the StoneX story. One thing will always be constant for the StoneX team. We've continued to dedicate ourselves to better serving our growing client footprint around the world by providing them with the best ecosystem and service to access global financial markets. The executive team and I are extremely proud of the talented StoneX team who continue to propel us to new heights.

And with that, operator, we are ready to take questions.

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

Wanted to -- first, I know you mentioned in the securities business, the RPM decline year-over-year, lower volatility, but it's been declining for several quarters now. This is the lowest -- this quarter was the lowest in at least as far back as we can see. So just if you could give a little bit more color on kind of what was going on in that business and how we should think about that on a -- I don't know, on a more normalized basis?

Okay. Obviously, it's highly dependent on market conditions, on volatility, on the flow we see. So, it's hard to sort of be very prescriptive in terms of giving you guidance going forward. But I think what we can say was the revenue capture was very elevated last year at sort of way above mean. And I would say the last quarter was probably below where we had liked to see it. So we're going to probably narrow in somewhere between those 2 ranges I would think over time.

I think we are also looking to expand our offering and we're moving from the sort of some of the niche areas like the foreign securities where we have very large market share and I think, can drive decent rate per million to maybe going into some new areas where we're probably going to see a lower rate per million. So that could skew the overall result, but we should see, in aggregate, more revenue and more segment income as a result.

So as we start to digitize, as I mentioned, and we start getting into some of this white space and leveraging some of our client relationships to move beyond what we've just been doing for the last year, that's going to have some impact on the rate per million. So it's going to be a tough thing to track, I think, for that reason. So, I don't know if I can give you any better guidance than that. But I would say for our core area of the business we've been in historically, I would say this quarter is probably below trend, last quarter was above trend, but we are entering some more areas, which are probably going to be slightly more competitive.

Okay, that's helpful. And then just on expenses and I understand the year-over-year comparisons associated with gain, but even the sequential pickup in some of the fixed costs, I was hoping to get a little bit more color on kind of the investment you mentioned on a lot of the new initiatives, some of the digital investments you've been making for several years. So, a little bit of context around this quarter, if there was anything one-time outside of the bad debt, but other parts of the business -- other things. And then as you think about next year, the budget and how you're thinking about growth rates of kind of the fixed cost, is there an acceleration in that spend or any context there would be helpful.

Okay. Well, I'll start, and then maybe Bill can follow-up with any comments he has. So, I think we've got a couple sort of push factors on us here. So, the first thing is our business is obviously expanding significantly. I mean, when you grow your revenues 50% over 2 years, when you see big growth rates year-on-year, you have to backfill some of that growth of making sure you've got the right infrastructure in place. And we tend to see the revenue and then sort of fill in behind that. So there was a little bit, I guess, of infrastructure debt we have to catch up on generally because of all the growth that happened over the last 2 years. So, I think there's a bit of that.

There has been a fairly significant technology spend over the last 3 or 4 years, which I mentioned, which I think, to be honest, hasn't delivered much in the way of incremental revenue or scalability thus far, but we're pretty excited that we're now starting to see real validation on that. So, I think we will start to see a payoff for that. And then I think the third factor is things like Brexit and the changing regulatory environment, also put a lot of cost push on your business. And Brexit was not insignificant as well of all the changes we've seen over the last 2 years in Europe. So, we've had to, in some instances, increase overhead compliance regulatory oversight and so on as a result of that.

So those are the 3 pushes we're facing. We've just completed our sort of budget and planning exercise. And our Q4 run rate is -- really bakes in a lot of all of those increases we anticipate for the next year. So, we do anticipate some flattening off now after some pretty big increases in spend. I mean we saw some synergies captured from GAIN. And then, we saw some offsets for some of the new stuff we're doing and some of the, I guess, the infrastructure debt we had to fill in and some of the regulatory changes. But I would say our exit run rate of fixed costs -- I would not anticipate us seeing a major increase on a go-forward basis, I mean, single digits maybe, unless there's some other major change, right, either an acquisition, some regulatory change or some massive expansion into new products or new capabilities. Bill, you got any comments on that?

Yes, I mean, just a few points, Dan, I guess, I pointed out during my portion of the script, there was about $1.6 million in severance costs that we had here in the fourth quarter, which skews that run rate a little bit. There's also about $0.5 million worth of kind of contingent consideration for one of the smaller acquisitions that flowed through the Q4, which we wouldn't expect to see that on a go-forward basis. And overall, kind of professional fees were up Q3 -- or Q4 versus Q3.

A good portion of that, probably $1 million, $1.5 million of it is just increased audit fees that kind of come through as the work -- as we get through the audit period here in Q4, we tend to see Q4 being higher. So overall, the fee on a year-to-date basis is probably about where it will be, but you see kind of a spikiness in the Q4 results versus kind of where you see lower work being done in Q2, Q3. And then, probably the only other point there is just kind of selling and marketing, which is up $1.8 million versus Q3, which some of that flexes a little bit, particularly with the GAIN business as they deploy the marketing dollars. I think it was a little higher than what our run rate has been historically in the prior 3 quarters of the fiscal year. So, probably certainly leveling off on that aspect.

Okay. Great. That's helpful. And then last one is just given we're 2 months into the quarter, maybe if you could characterize the current environment. We've had a little bit more volatility in recent weeks. And maybe just in some of the initiatives that you've talked about, which I know are much longer term, but maybe some context around kind of how the first fiscal quarter is trending at this point?

Dan, just, sorry, I was on mute. I wanted to chip in on cost. I guess one thing that will start to become noticeable on our costs is, as we spend more on technology, what we tend to find is those costs are much more fixed relative to the legacy StoneX mix of variable and fixed, right, because we're not paying high payouts to brokers and relationship people, but we're now spending more money on technology.

So we are going to see a shift to a little bit more and it will be incremental over time from here to more of a fixed cost model. But obviously, the flip side of that is it's much more scalable, right? So, if you start getting some real scalability, your incremental margins on that growth are much higher than they would be for our legacy business because you don't have those payouts to deal with. So, just something to be aware of. I don't think it's -- you're not going to see it move the needle quickly, but I think that's a trend we see in our business now, particularly since we acquired GAIN. That make sense?

Yes, that does.

Yes. Well, our business can move very quickly. The markets can move day-to-day, month-to-month, and you never quite know [the net income] until you're at the end of the quarter. But I would say, generally speaking, this is a more positive environment for us right now. I didn't want to opine in my sort of formal remarks on the environment. Obviously, the news on COVID, it's not great right now. But I think what that does say to us is we're still a long way from normalization here. It feels like COVID is going to have sort of a long path towards some sort of endemic normal for us. And then, you still have to deal with sort of the Fed's normalization of its position in the markets.

And I think both of those things are going to provide periodic bouts of volatility, which can be very good for us. So, I think it's generally a pretty positive environment. That doesn't mean it will be positive every quarter. But I think we see that as a pretty good environment for us. And there's also -- with all the talk around inflation, there's some real talk now that interest rates are going to start being pushed up sometime soon. And obviously, that has a pretty dramatic effect on our bottom line. So, I think the environment for us is setting up well. As I said, it's hard to know quarter-to-quarter how that's going to play out, but I'm pretty bullish about the environment we're facing and I think the current market is better for us.

All right. Any other questions, operator?

At this time, I'm showing no further questions.

All right. Well, thanks, everyone, and enjoy the holidays. We will be speaking to you, I guess, in early Feb. And so, thanks. Bye-bye.

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