StoneX Group Inc (SNEX) 2021 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the StoneX Second Quarter Earnings Conference Call. Please note that today's call is being recorded. (Operator Instructions)

I would now like to hand the conference over to your speaker for today, Bill Dunaway, Company's CFO. Bill, the floor is yours.

Good morning. My name is Bill Dunaway. Welcome to our earnings conference call for the second quarter ended March 31, 2021.

After the market closed yesterday, we issued a press release reporting our results for our second fiscal quarter of 2021. This release is available on our website at www.stonex.com as well as a slide show presentation we will refer to on this call and our discussions 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 and Section 21E of the Securities Exchange Act of 1934. 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 the 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. Sean?

Thanks, Bill. Good morning, everyone, and thanks for joining our second quarter earnings call. In the second quarter, we reported very strong results across the board despite near 0 interest rates on our client float. We handily beat the prior year record quarter where we benefited from unprecedented market volatility due to the onset of COVID. Our trailing 12-month results are also very strong as our company has grown its capabilities, expanded its client footprints, gained market share and has made significant progress in the integration of the GAIN transaction. During the market -- during the March quarter, the market environment was positive for us with buoyant equity market increased volatility in many of the commodity markets, including copper and grains, which hit multiyear highs.

So turning to the slide deck and starting on Slide 4, dealing with our product results and the key metrics. The key takeaway here is we managed to increase operating revenues 29% in aggregate despite comparing against last year's exceptional results where volume spiked and volatility in market dislocation increased revenue capture, all due to the onset of COVID. Operating revenue increased in all product areas, except OTC derivatives. Volumes were up across the board, except for listed derivatives, where we saw a large decline from the Institutional segment. This declined again against the very strong prior year quarter.

Revenue capture was down in OTC derivatives as well as Securities due largely to lower market volatility versus the prior year quarter. The notable exception here was listed derivatives, where revenue capture increased as a result of a change in the business mix as well as a successful effort to reprice our lower-margin Institutional business upwards because of the decline in interest rates. Securities was again a standout with average daily volume up 34%, although partially offset by a 7% decline in revenue capture.

Our FX and CFD revenues were up significantly due to the addition of GAIN, which was not in the comparable quarter last year. GAIN had a very good quarter overall. Global Payments operating revenues were up 14% due to increases in both volumes and revenue capture. Physical trading was again very strong, largely in precious metals, which continue to have very positive market conditions as well as on the ag and biodiesel side.

Our average client float, both on the derivatives side and the securities clearing side, experienced strong growth, up 56% and 42%, respectively, due to both higher client volumes as well as market share gains. And in aggregate, our float now stands at $5.2 billion, up nearly 10% from the immediately prior quarter. Unfortunately, the strong growth in balances was more than offset by significantly lower interest rates, leading to a 62% decline in interest and fee income on these client balances.

Looking at the immediately prior quarter, overall revenues were up 24% on a consecutive basis and up across all products except Global Payments, which was down marginally. Listed derivatives operating revenues were up 6% OTC derivatives up 45%, Securities up 25% and Global Payments down 2%. FX and CFDs were up 25% and physical contracts up 108%. Even interest revenue was up on a consecutive basis due to the increase in the client float. Overall, a very strong performance compared to the immediately prior Q1.

Turning now to Slide 5 and the summary of our earnings. We recorded operating revenues of $471.4 million, up 29% for the quarter. Aggregate costs were up 38% for the quarter, primarily related to the addition of GAIN as well as increased incentive compensation due to better performance. Net earnings were $55.3 million, up 41% and diluted EPS was $2.73, up 37%. ROE was an exceptional 26.7%, and this despite a much larger capital base than we had a year ago.

There are a number of notable items again this quarter, although in aggregate, they were insignificant. GAIN had a very good quarter. And on an incremental basis, including the related financing cost of the high-yield note, this acquisition is now accretive to earnings in only its second full quarter.

Looking again on a consecutive basis versus Q1 of fiscal 2021. EPS versus the Q1 number, which adjusted number of $1.43, was up 91%. ROE was 26.7% versus the adjusted 14.5% in the immediately preceding quarter.

Turning now to Slide 6, our quarterly performance trend. We think the best way to evaluate our results is by looking at the longer term performance, which shows how our business performs through short-term market cycle. I would like to point it out that the attached chart includes only our GAAP markets. We have not adjusted the Q1 EPS, which in our estimate was $1.43 and the Q4 2020 number includes the purchase accounting of GAIN, which largely reflects the 2020 earnings that accrued to the StoneX shareholders.

The trailing 12-month ROE, which encompasses the last 8 quarters' results, has steadily climbed from 14%, which was just below our long-term target of 15% with the current 24%. It's worth noting that 8 quarters ago, our shareholder equity was $552 million and so has grown over 50% in the last 2 years, making the ROE target more challenging in absolute terms. Our trailing 12-month GAAP diluted EPS is currently $9.48. And if you annualize our year-to-date performance, again, just using the GAAP numbers, is $7.62.

Turning to Slide 7, the segment summary. Just to touch on a few highlights before Bill gets into more detail. I was pleased to see once again that despite the challenging comparative period, all of our client segments were up in terms of segment operating revenue as well as segment income, up arrows across the page. On a quarterly basis, the standouts of the Commercial Client segment with segment income up 33%; and Retail, up 357% as GAIN was included, and on top of that, had a very good quarter. On a trailing 12-month basis, Institutional was a standout with segment income up 50% and, of course, again, for the reasons mentioned earlier.

I will now hand it over to Bill Dunaway for a discussion of the financial results in more detail. Bill, over to you.

Thanks, Sean. I'll be starting on Slide #8, which shows our consolidated income statement for the second quarter of fiscal 2021. Sean covered many of the consolidated highlights for the quarter, so I'll just highlight a few and then move on to segment discussion.

Transaction-based clearing expenses were up 17% to $74.8 million in the current period, primarily related to increased volumes in equity capital markets and the incremental cost of GAIN, which was partially offset by lower listed derivative volumes. Introducing broker commissions were up 38% to $40.8 million in the current period, primarily as a result of the incremental cost of GAIN plus increased activity in our independent wealth management business. Interest expense, which is related -- primarily related to our fixed income, securities lending and physical commodity activities declined $16.7 million versus the prior year, primarily as a result of the decline in short-term interest rates, which was partially offset by increased borrowings in our physical business.

Interest expense on corporate funding increased $8.3 million versus the prior year, primarily as a result of the senior secured note issuance in the third quarter of fiscal 2020 related to the GAIN acquisition. Variable compensation increased $23.4 million versus the prior year and represented 32% of net operating revenues, while they represented 34% of net operating revenues in the prior year period. The increase in variable compensation was related to the growth in operating revenues versus the prior year period.

Fixed compensation increased $24.9 million versus the prior year, with the growth in -- related to acquisitions completed subsequent to the end of the prior year quarter, increased headcount related to strategic initiatives, which Sean touched on in his comments, as well as growth in support areas to support these initiatives. Other fixed expenses increased $25.8 million versus the prior year, with $20.3 million of increase being related to acquisitions completed subsequent to the prior year.

Bad debt expense declined $3.5 million versus the prior year. Net income for the second quarter of fiscal 2021 was $55.3 million and represented a 41% increase over the prior year and 184% increase over the immediately preceding quarter. Finally, we closed out the quarter with a net asset value per share of $43.48 per share as compared to $33.75 a year ago.

Moving on to Slide #9. I'll provide some more information on our operating segments. The Commercial segment added $18.1 million in operating revenues versus the prior year. Within this segment, listed derivative operating revenues increased $4.6 million versus the prior year as a result of a 23% increase in the average rate per contract. Volumes declined by 7% versus the prior year, despite strong growth in ag-related volumes as the prior year quarter benefited from strong volumes in LME markets due to volatility related to the onset of the COVID-19 pandemic.

The onset of the pandemic in the prior year also led to record OTC revenues and thus, while we had a strong quarter in OTC products with $35.1 million in operating revenues, this was down $9.3 million versus the prior year record quarter. The current period, however, represents an $11 million increase over the immediately preceding first quarter of 2021.

Operating revenues from physical transactions increased $24.2 million, primarily as a result of strong customer demand for precious metals and, to a lesser extent, in biodiesel feedstock market. Operating revenues in physical contracts for the current period included $2.4 million net gain recognized on the sale of inventories carried at the lower of cost or net (inaudible) at the end of the preceding quarter.

Finally, interest earned on client balances declined $1.9 million versus the prior year due to a sharp term interest rates, which was partially offset by an 86% increase in average client equity. Total non-variable expenses declined $2.5 million versus the prior year, primarily as a result of a decline in bad debt expense. Segment income was $55.6 million for the period, an increase over the prior year and the preceding quarter of 33% and 73%, respectively.

Moving on to Slide #10. Our Institutional segment added $5.9 million in operating revenues versus the prior year, primarily driven by a $24.8 million increase in Securities revenues as a result of a 34% increase in the average daily volume of security transactions, driven by our expanded product offering and continued market volatility. Operating revenues from listed derivatives were relatively flat with the prior year period, down $1.6 million as a sharp decline in volumes from the strong pandemic-led quarter a year ago was mostly offset by a repricing of customers in this business, which led to a 29% increase in the rate per contract.

Interest and fee income on client balances declined $7.3 million versus the prior year due to sharply lower interest rates. However, the average client balance increased 37% versus the prior year. Segment income increased 1% to $52 million in the current period, while adding $7.2 million versus the immediately preceding quarter.

Moving on to the next slide. Operating revenues in our Retail segment added $74 million versus the prior year, which was primarily driven by a $71.2 million increase in FX and CFD revenues from the GAIN acquisition. As Sean mentioned, our retail precious metals business had a record quarter, adding a $1.5 million in operating revenues 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 increased $25 million versus the prior year and $14.1 million versus the preceding quarter.

Closing out the segment discussion on the next slide, operating revenues in Global Payments added $4.1 million versus the prior year, driven by an 8% increase in both the average daily volume and 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. Operating revenues declined modestly from first quarter levels as the first quarter typically benefits from the cyclical activity of our NGO clients are on the holidays and related to the end of the calendar year. Non-variable expenses increased $900,000 and is primarily related to the acquisition of GIROXX. Segment income increased 13% to $19.4 million in the current period.

Moving on to Slide #13, which represents a bridge between operating revenues for the second quarter of last year to the current period across our operating segments. Overall, operating revenues were $471.4 million in the current period, up $104.6 million or 29% over the prior year. I have covered the changes in operating revenues for our segments. However, the increase in revenues in unallocated overhead is primarily related to a $3.1 million net gain on the revaluation of the U.K.-based subsidiaries of GAIN, which is partially offset by a $1.2 million loss on derivative positions entered into to temporarily hedge our exposure to the British pound in these entities. We consolidated the majority of the operations of these gaining entities into our U.K. affiliate during the quarter and closed out our derivative positions as our U.K. affiliate is a U.S. dollar-based entity.

The next Slide #14 represents a bridge from 2020 second quarter pretax income of $56.1 million, a record at the time the pretax income of $76.3 million in the current period. The negative variance in unallocated overhead of $21.5 million is net of the positive operating revenue noted before on the previous slide and includes an $8.5 million increase in fixed compensation, including $3.7 million related to acquisitions closed subsequent to the end of the prior year period. And finally, a $7.1 million increase in other expenses, including an incremental $5.8 million related to other acquisitions.

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

Okay. Thanks, Bill. I think you'll also notice that we included a slide in there, which was requested by many of you showing our floats and our sensitivity to interest rates on Slide 15. I think that's self-explanatory.

So let's move on to Slide 16. This summarizes the high-level strategic object -- objectives that management is and has been focused on and will allow us to capture the opportunity we see before us. And this is similar to the slide we showed last time, so I'll go through it very quickly. Firstly, we want to continue to build our ecosystem. We want to stay relevant to our clients, existing and new clients, by adding products and services, creating the best financial ecosystem to connect them to the global markets.

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 looking to serve new customer segments and channels. GAIN provided us access into the retail self-directed trading market, which is significant and growing. 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 currently.

We will not achieve the necessary growth and scale unless we better enhance technology to digitize our offering. This will not only enhance customer engagement but increase scalability and increase margins. This requires a rethink of our processes front to back, which has been underway for some years, but has now accelerated with the acquisition of GAIN. And then lastly, our business is supported by capital, and we need to underpin our growth with internally generated capital resources and where appropriate, access to capital markets in a disciplined manner.

Moving on to Slide 17. Each of our products and segments has a larger number of project [highlights] to address each of these strategic objectives. The projects listed here have not changed from the last call and will take some quarters to deliver to our customers. We are pleased with the cadence and progress on all fronts and are injecting as much energy into completion of these objectives as possible.

Just a couple of initiatives to highlight here. Over the last year, we have transformed our equity market-making business into more of an electronic offering for our clients. This business is focused on non-listed OTC ADRs, and we are seeing increased efficiency and client engagement as a result. We are now using what we have learned to start expanding our electronic offering into related segments, where we believe we can leverage our decades-long time relationships with retail brokers in the U.S. as well as our technology assets. This will be a thoughtful and careful rollout, but if successful could deliver meaningful incremental revenues for us.

Just 2 years ago, we acquired a small outsourced trading business as part of our prime brokerage offering we were building at the time. Outsourced trading has become a growing market generally, and our business has performed exceptionally well. Revenues here are up 204% from a year ago and up 104% from the immediately prior Q1 quarter. We have a great team and are well positioned in the growing segment of the market of turnkey solutions to our institutional clients. Now overall, the prime brokerage business seems to be gathering momentum.

On the fixed income side, as we mentioned on a number of previous calls, we have significantly expanded our products and capabilities over the last 2 years. We have recently started to expand our presence in the primary issuance in the mortgage agency and municipals markets which adds value and broadens our client relationships.

About a year ago, we recruited a small team to support our growing precious metals franchise, both the wholesale bullion capability as well as the digital retail offering of CoinInvest here in the U.S., where we had almost no market share. We create -- we recruited a small and experienced team based in Santa Monica, and they have hit the ground running and have already surpassed their first year's budget.

On the Retail side, we have a number of big initiatives in place, which are all progressing well. GAIN has a leading digital marketing capability, which is at the core of their digital platform, continuously driving new clients to their platforms. Over the last couple of quarters, GAIN has restructured this capability by in-sourcing talent rather than using outsourced vendors and agencies. This has had a material impact on the efficiency of the marketing spend, which is down around 30% in absolute terms while retaining effectiveness in adding new accounts. This should lead to significant financial impact on the business overall.

Now increasingly looking to leverage this digital market team more broadly throughout our business as we continue to digitize the legacy StoneX business. This has started with our CoinInvest business and is already showing benefits. The most significant project on the Retail side is adding a cash equities capability to the GAIN platform globally. This is a big project that will take some time to deliver, but should fundamentally reposition the business, providing a broader and more attractive value proposition for larger clients globally. We continue to develop our corporate payments platform and hope that in the next months, we can start a small beta rollout to our existing commercial clients in both the U.S. and Europe.

You will have also noticed that we announced that we acquired an equity stake in a minority broker, Tigress. We are very excited to partner with Cynthia DiBartolo, who has an extremely impressive background in the financial markets and is a leader in the minority and women-owned brokerage space. We are excited about partnering with Cynthia and her team to grow our respective businesses.

We have always believed that we do very well by doing good. This should be an excellent example of that as we leverage our capabilities and products with Cynthia's talented team. We have always held ourselves a very high standard by playing by the rules, treating all of our stakeholders fairly, creating opportunities for all our employees and rewarding them on merit and doing the right thing over the easy thing even when no one is watching.

Many of you may be aware of our Global Payments business, which started by serving the NGO and charitable space. We provided transparency and cost efficiency to the opaque international payments world and, in many cases, disrupted that market. In so doing, over the last 10 or more years, we have saved these NGOs and charities hundreds of millions of dollars in fees and foreign exchange costs, while at the same time, building our industry-leading payments capabilities in over 170 countries. Another example of doing well by doing good.

Some of you probably saw the announcement yesterday that StoneX has become a member of the London Stock Exchange. Our equities market-making business generates significant volumes of orders and LSE names from our existing relationships, and we'll be better able to provide execution to our clients and also potentially internalizing trading spreads currently paid away to other LSE member firms. We are always looking for ways to better monetize our client flow and better service our clients, both of which will positively impact our margin.

Moving on to Slide 18. Our quarterly dashboard that shows how we've been doing versus the high level KPIs we have established. We work very hard to keep as much of our cost base variable in nature and linked to revenue and in so doing protect our bottom line. As you can see, we have easily met this target, although the ratio has worsened a bit. This is in large part due to both the acquisition of GAIN and the ongoing digitization of our business, which leads to a higher proportion of fixed costs, although these costs are very scalable and less variable compensation to brokers and salespeople.

Total compensation is right at our target level of 40% of operating revenue. And of course, the most important KPI for us is ROE and we have significantly exceeded our long-term target, not only for the quarter but for the trailing 12 months as well.

Moving to Slide 19 shows our customer growth over the last 3 years. As mentioned earlier, our highest priority is to better serve our existing customers and to grow our footprint. This is what drives every aspect of our business. The slide is intended to provide some context and data points around our progress.

It should be noted that not every client is equal in terms of revenue potential. But the important thing is we're attracting customers and growing our footprint. This not only drives our revenue, but is validation of our approach, our strategy and the platform we have built. We continue to see consolidation in the industry, especially from banks, both here in the U.S. and the U.K. as they refocus on larger clients.

Lastly, an update on the GAIN integration and synergies. We have largely completed all of the legal entity rationalization. The U.K., Singapore and Australia are all merged with the local StoneX entities and all that remains of any consequence is the merger of the GAIN swap dealer, which is likely to happen in the current quarter. As we reported last time, we have largely integrated all of the support functions, which are operating well. There has been a good injection of new talent from GAIN, and this should not be underestimated. And in many instances, our support areas are now headed up by GAIN folks.

We remain broadly in line with our cost synergies, having realized over $17 million annualized. We have also realized our capital synergies and, in fact, have exceeded the $100 million target and ahead, and are closer to $150 million, which exceeded our expectations at the time of the transaction.

We now turn our efforts to the longer-term cost synergies, such as the consolidation of premises as leases run off, consolidation of data centers, renegotiation of duplicative vendor contracts as these renew. The most exciting part of this transaction is the integration of products, capabilities and trading flow. This will take some time to fully realize that we've already seen some good and easy wins and a lot more to achieve as we consolidate flow internally and better realize more spread capture internally and less hedging costs.

Given the secular growth in the self-directed segment of the financial markets, we are now looking to offer an expanded product and capability set to the retail client base, having started investing now in the future growth of this retail platform. The most significant initiative here is the build-out of a cash equities offering for the City Index platform, after which we'll then pivot and do the same in the U.S.

In addition, we are revamping the GAIN Open E Cry platform for institutional investors and aim to roll that out soon with enhanced product capabilities. So we feel pretty good about progress that has been achieved thus far. And if anything, we have become more excited about the potential and opportunity we have in front of us.

Moving on to the final slide, #20, just to close. Record results, ROE of 27% for the quarter and 25% over the trailing 12 months. We really believe our business has been transformed over the last few years, with shareholder funds and operating revenue up 50% plus an entire new customer segment. Continued growth in client activity and onboarding. We continue to see strong onboarding. That has happened continuously through the COVID period and continue to see that even today.

Strong client engagement, I think that's evidenced by our volumes and the increased float. We continue to expand our products and capabilities, some of which I touched on earlier. And we have made good progress on leveraging our capabilities into the GAIN trading platform. We continue to digitize the legacy StoneX business. We now have a number of platforms, new platforms in flight and continue to make good progress on both, again, integration and navigating with COVID.

Just dealing on the COVID issue, it seems like we're finally moving out of the pandemic to a relatively normal situation, at least in the U.S., the U.K. and Singapore. And perhaps Europe and the rest of the world may be 6 to 12 months behind that. In some ways, things may never be the same, and we've all learned how to adapt and survive and even thrive in our instance. We are actively now returning to an office environment, which I strongly believe is the best format for our business. It fosters a team culture and collaboration, which allows us to better serve our customers and allows our people, especially the junior folks to learn and grow.

So I'll stop there. Operator, let's open the line and see if we have any questions.

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

My first question is on the listed derivatives, RPC obviously came in a little bit better. You mentioned a couple of things in terms of why that happened and one of which was focused on improved pricing. So just curious about sustainability at this level and some of the inputs that drove that this quarter.

Okay. Well, welcome, Dan. Let me start and Bill can chip in later. So I think there were 2 things going on. Obviously, we saw, on a relative basis, a decline on the Institutional side, which is our lower-priced offering versus the Commercial side. So there was a little bit of a sort of a business mix towards a higher-priced product. And then additionally, on the Institutional side, which you can clearly see with the institutional metrics, we have systematically been trying to reprice some of our lower-priced customers. And it's not an easy thing to do. These are tough conversations. And I think we approach them with candor.

To our clients, I think our clients appreciate what we're doing for them. We support them with capital, we support them with infrastructure. And if in the aggregate, we're not getting the right return, that's not a good relationship for us in the long term. So not going to end well for them either, right?

So those conversations have gone pretty well. I think people realize that we're trying to be fair and reasonable. I would say it's also quite hard at the moment to move accounts. I think sort of pricing pressure has turned a little bit in favor of the clearing firms because we're still seeing a lot of banks sort of pushing out clients and not a lot of people have the breadth of market access than we have. So obviously, there's a market and you have to be competitive, but I think the pressures have abated a little bit in terms of sort of people driving pricing downwards.

So I think all of that speaks to this probably being okay for us and sustainable. I mean you do have to be prepared at some level, not to compete for low price business and to walk away if necessary. That hasn't happened with us. So I think we're in a good place with that. We may find, if interest rates start to spike, there may be kind of a review of the conversation, right, because some of these clients may come back to us and say, "Well, hey, the economics have moved a little bit more in your favor now. So can we maybe rethink the overall relationship?" So I think there's a potential for that, but I think that would be a sort of a high-quality problem for us at that point.

Bill, I don't know if you have anything to add on that.

Sure. I mean the only other aspect that you didn't touch on, Sean, would be last year, the volumes on the London Metals Exchange were really quite high with the onset of the pandemic, right? So if we just kind of isolate them, their volume is down about 30% versus last year. And a lot of that there is a spread component in the LME business. It's a little different than the U.S. futures exchanges. So it was more high-volume kind of lower RPC last year, which I would say is a bit of an anomaly.

And what it's been replaced with volume-wise, part -- about half of that volume has been replaced with higher volumes in the U.S. ag markets, where we have a higher RPC just naturally. And so with the kind of coordination of those 2 items kind of is a component that led to that rise in RPC, in addition to what Sean said, that's kind of the repricing on the straight futures and options business in the Institutional segment, if that makes sense.

Yes, that makes sense. Okay. And then I have a question on expenses. Obviously, variable comp growing with the revenue and profitability makes sense. The fixed compensation seems to grow a little bit faster than I would have expected. So I think there were a few things you talked about in some of the comments around acquisitions that added -- so I just want to make sure if this is a reasonable run rate or if there's seasonal stuff that makes this past quarter higher. Or just trying to think about the trajectory from here in fixed compensation.

Sure. Sure, Dan. Thanks. There was about -- I think we mentioned in the comments, in the filing, about $1.8 million in severance that was in Q1. If you're looking at as compared to the immediately preceding Q1 -- it was in Q2 versus immediately preceding Q1, sorry, which kind of drives that up a bit. I would also say the -- there is some long-term incentive increase of about $1.2 million that went up from Q1 to Q2 with much better performance kind of stated GAAP ROE basis. While it's -- we consider it nonvariable because it doesn't necessarily flow directly with the revenues each quarter, you do see increases when you see outsized performance.

And then the remainder is mostly kind of the beginning of the calendar year reset with payroll taxes, health -- I'm sorry, payroll taxes, retirement, some increases related to kind of paid time-off accruals with the fourth calendar quarter or first fiscal quarter for us, you have some of those write-offs of those balances that can't be carried over. And then you're starting a new here in the first calendar quarter.

So I'd say in all kind of benefits, non share-based benefits, we're up about $7 million -- a little over $7 million kind of Q1 to Q2. And I would say probably $4 million of that or so. A little better than half of that is kind of just related to kind of the beginning of the calendar year, kind of -- I wouldn't call them abnormal because it happens every year, but those are tick-ups. You see in the first calendar quarter that I would expect them to go down, particularly with retirement charges and payroll taxes as the front office people meet some of those limits that are on those expenses.

Okay. That makes sense. And then just on the retail rollout, it was mentioned a few times throughout your prepared remarks, Sean. So just to be clear, this is an offering that you're looking to start with City Index or the retail platform in Europe expanding kind of direct equity capabilities that ultimately you think will -- you will then push to the U.S.? Or just want to talk about the time line and kind of opportunities that you see with that.

Okay. So I think one of the underlying sort of long-term strategic thesis is for us acquiring GAIN was to try and add our broader product and capability set to their self-directed platform. And obviously, they were bringing in a self-directed platform and a new customer segment for us. So that -- those things are harder to do than it sounds like, but that's the plan.

And we've identified that the biggest part of that is to add more of a sort of a cash equities component to the GAIN platform. It's going to be rolled out in slightly different ways just because of the regulatory differences between Europe and the rest of the world and the U.S. The good news in the U.S., we obviously are a broker-dealer. We are a retail broker-dealer. We clear equities. We do it all, but it all happens in sort of different regulatory entities. In the U.K., we can probably do that a little bit simply. But on the flip side, we don't clear international securities ourselves, so having to do just kind of a work around there.

So long story short, both of these projects are in flight, both in the U.K. and the U.S. and we'll have to see exactly how they sequence in. But we are hoping that within a 12-month period or so, that we will have roll-outs in both markets of at least an initial offering. And then we'll sort of iterate from there.

So it's a big project. It's a project that I think we all think will fundamentally reposition both the GAIN and the StoneX business and allow us to compete actively in that self-directed space. I think in the U.S., there are not many people I know of that on a retail self-directed basis can offer futures equities, even potentially fixed income and foreign exchange. And that's our desire, right, to offer that both in the U.S. and in Europe.

So long story short, it's a dual track just because the capability set we have and the regulatory environments are different in both jurisdictions, but we're pushing on both of them at the same time. Currently, we think we'll probably have it launched first in Europe and then in the U.S., but that timing could change just depending on how things come together. Does that answer your question, Dan?

Yes. No, it does. It does. And then my final question is just on the M&A environment. Currently, I know obviously, you've been very acquisitive over time. How would you characterize the kind of opportunity set today versus other periods and maybe how much time you guys, as a management team, are spending on those inorganic opportunities versus organic?

Yes. So we obviously see a lot of stuff. I mean people know us as a consolidator and acquirer. So I think we're sort of in the flow of the transactions, if you like. Typically, we see anything from 50 to 100 opportunities in a 12-month period. I would say what's different now from my perspective and maybe sort of the way we think about things a little bit, but you've got a lot of the potential targets we would look at who have benefited from very buoyant market conditions. So a lot of them are sort of at peak revenue or peak earnings through a long-term cycle, right?

And then on top of that, you see all the craziness in the current markets, whether it be driven by SPACs or bitcoin or how some valuations have just accelerated. And a lot of these potential sellers are looking to put extremely high multiples on sort of peak earnings. That's not going to be a trade we're going to be on the other side of, right? So we tend to be very disciplined value buyers. I think there are lots of people who are looking to monetize those kind of peak valuation levels, and some of them were.

But I think we want to make sure we stay sort of focused and disciplined around compounding our book value, buying businesses we believe we can add value to. I mean there's no point in us buying a fully priced asset, paying good money for it and not being able to make it better, right? Because what's the point -- how do our shareholders benefit from that? So I think we've just got to stay very focused.

So in the context of that environment, I would say it's probably fairly unlikely we would do something meaningful until market conditions change. Now they could change fast. And it's hard to know what things will look like in 6 or 12 months. But certainly in this environment, it seems to be a seller's market, not a buyer's market, if that makes sense.

Okay. Operator, do we have any more questions?

(Operator Instructions)

All right, it looks like we don't have any more questions. So let me just close by saying this is really been a tremendous and perhaps transformational 18-month period for us, starting with the GAIN transaction, the COVID effect both on us personally and on the markets, and now culminating with our best quarter ever. None of this would have been possible without the amazing folks at StoneX and GAIN and their dedication and determination to serve our clients no matter what. Really a great privilege to be part of this amazing company and really excited about our trajectory and where we're heading.

So thank you for joining. We will chat again in 3 months' time, and enjoy the summer, everyone. Thank you.

And again, ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect. Have a great day.