StoneX Group Inc (SNEX) 2008 Q1 法說會逐字稿

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the FCStone Group 2008 first-quarter earnings conference call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions. (OPERATOR INSTRUCTIONS). This conference is being recorded today, Monday, January 14, 2008.

I would now like to turn the conference over to Bill Dunaway, Chief Financial Officer. Please go ahead, sir.

Great. Thank you, Bao, and good morning, everyone. I would like to welcome you to FCStone's fiscal first-quarter 2008 earnings conference call. Shortly before the market opened today, FCStone issued a press release reporting its earnings for the fiscal first quarter 2008. The press release is available on our website at www.fcstone.com. Additionally, we're conducting a live webcast of this call, which will also be available on our website after the call's conclusion.

During today's call, Pete Anderson, our President and CEO, will first provide an overview of our results and commentary on our business. I will then provide details on our financial performance for the first quarter. Pete will then conclude our presentation with some closing remarks before we open the call up for some Q&A. Please note that today's conference call is copyrighted material of FCStone and cannot be rebroadcast without the Company's express written consent.

I would also like to remind you that during the course of this call, management will make projections or other forward-looking remarks regarding future events or the future financial performance of the Company. We base these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs.

It is important to note that such statements about FCStone's estimated or anticipated future results, prospects or other nonhistorical facts or forward-looking statements can reflect FCStone's current perspective of the existing trends and information as of today's date. FCStone disclaims any intent or obligation to update these forward-looking statements, except as expressly required by law.

Actual results can be affected by inaccurate assumptions, including the risks, uncertainties and assumptions described in the Company's filings with the Securities and Exchange Commission. In light of these risks, uncertainties and assumptions, the forward-looking statements in this earnings call may not occur, and actual results could differ materially from those anticipated or implied in the forward-looking statements. When you consider these forward-looking statements, you should keep in mind these risk factors and other cautionary statements during this earnings call.

I would now like to turn the call over to Pete Anderson, our President and CEO.

Thank you, Bill. I want to welcome everyone and thank you for joining our call this morning. I'm happy to be representing FCStone for its fiscal 2008 first-quarter results conference call, which represents the beginning of our first full fiscal year as a public company.

As you can see from this morning's release, our first quarter continued to show strong revenue and earnings growth. This growth continues to be driven by our focus on our core business segments of Commodity and Risk Management Services and the Clearing and Execution segment for exchange-based as well as OTC derivative instruments.

Revenue for the first quarter of fiscal 2008 is $75.5 million, which is up 29% from $57.3 million in the first quarter of fiscal 2007. Net income for the first quarter of fiscal 2008 is $13.1 million or $0.45 per diluted share, which represents a significant increase over first-quarter fiscal 2007 net income of $6.3 million or $0.29 per diluted share.

The growth and success with the core initiatives and business segments starts with the agricultural and energy markets and both the production and consumption of various commodities. Our core grain production and consumption clientele are experiencing 40-year highs with unprecedented volatility in all of the commodities they deal in. This is being driven primarily by the mandated demand for both corn and soybeans in the renewable fuels industry.

The demand generated by the growth and expansion of the renewable energy industry has resulted in the largest increase and largest crop of corn production in U.S. history at an estimated 3 billion-plus bushels. This record supply of corn is also being met with record demand for not only the renewable energy industry, but also worldwide demand and consumption.

Specifically, this past year, the industry experienced an unprecedented shift in acreage from soybeans and cotton to corn. This extraordinary competition for acreage production is driving the extreme volatility that the entire grain complex is experiencing and that FCStone benefits from with increased volume.

In the energy complex, the crude market just established new record highs with unprecedented premiums for political risk. The renewable energy division has added a number of new clients in ethanol as the industry continues to expand and consolidate, while biodiesel is one of the fastest-growing business segments in the Company. Driven by this increased volatility in the strategic markets and segments that FCStone has targeted, we anticipate continued growth in demand for the risk management services products and platforms that the Company provides.

The Company's presence internationally also continues to expand, especially in Brazil, where the focus is on the Company's core competency of commercial grain production and handling. Other commodities and industries that represent significant growth in Brazil include sugar, ethanol, coffee, foreign exchange and consulting. Furthermore, the China division continues to add clientele in commercial grain processing and handling, metals, energy, cotton and FX.

Three of the future commission merchants, or FCMs, approved to trade directly on exchanges outside of China opened accounts to clear through FCStone during the quarter.

As the United States market and domestic demand for grain production increases, we expect Brazil to see continued expansion in grain production and China representing the consumption side of worldwide demand.

FCStone's growth initiatives continue to be implemented and accelerated with the added financial capacity the Company now has as a result of last year's successful IPO. This expansion includes our traditional core businesses of agriculture and energy, as well as renewable energy, international markets, foodservice, weather, livestock, forest products, carbon credits and foreign exchange.

Spearheading this growth are FCStone's risk management consultants, which are truly the foundation upon which much of our success is built. These consultants are responsible for developing customer relationships, analyzing the commodity risk of our customers, developing strategies to mitigate this risk and executing these strategies at the direction of the customers. Furthering our growth avenues, we continue to reassess and develop our training programs to address new and developing products and industries that have growth potential.

In fiscal 2007, the consultant network increased by 16 to 118, and our goal for fiscal 2008 is to add an additional 20 consultants to the various market segments and geographic regions of FCStone.

In addition to achieving organic growth through current and developing clientele and new consultant capacity, FCStone is also looking to grow through the acquisition of organizations that have similar philosophies in managing risk and servicing their customer base. The recent acquisition of Downes-O'Neill, the premier risk management firm in the dairy industry, is a prime example of the type of organization that FCStone is interested in partnering with and consolidating to offer the various platforms, instruments and services that we can provide. This acquisition demonstrates our commitment to strengthening our presence and service offering in the dairy and foodservice industry while significantly ramping up the Company's expertise and experience and capacity in this area.

This acquisition will add five new consultants to the FCStone network. FCStone will continue to have discussions regarding potential acquisitions with firms that have similar interests and philosophies and servicing clientele, and we will continue to remain disciplined regarding the price that we would be willing to pay and the return we would need to see from such opportunity. The Company's focus and interest regarding strategic acquisitions is in all of the various commodities and industries we serve, both here domestically and internationally.

Moving on to other areas that would be of interest to our shareholders, I would like to discuss the consummation of an agreement with OMX and Agora-X. OMX is a leading expert in the exchange industry and has signed an agreement with Agora-X to provide a complete hardware, software and operations solution to support its new ECN platform scheduled for launch in mid-2008.

Agora-X is a Delaware limited liability company based in Kansas City. Founded by FCStone Group Inc., the Company was formed to develop an electronic communications network, or ECN, for over-the-counter, or OTC, commodity contracts designed to help eligible institutional participants achieve the strategic advantage in the rapidly growing OTC commodities market.

While designed for a range of contract types, the ECN will initially target OTC option look-alikes and specific energy and agricultural commodities, as well as all commodity swaps. The current OTC market is inefficient as a call-around market, and we feel there is a significant opportunity to build through Agora-X a more efficient platform for FCStone and other market participants. By doing so, we are able to bring the best markets and prices to our customers. We're excited about the opportunities this agreement could present for FCStone and our clients.

Moving on to the carbon space, FCStone is helping its customers and client base mitigate environmental risk. FCStone Carbon aims to create, represent and market technologies that improve efficiencies in the renewable energy sector, as well as other industries. FCStone is offering to the renewable energy industry not only a carbon marketing platform, but also a suite of technologies and services that will help them find a pathway to being a lower-cost producer and a low emitter. FCStone has been innovative in linking both technologies to reduce cost and risk to the creation of greenhouse gas emission credits or environmental emissions credits.

FCStone Carbon continues to develop aggregation agreements, develop technology and perfect the carbon credit inventory that it has acquired. While the company recently canceled its first carbon credit transaction as a result of concerns over the counterparty's credit risk, we have several promising prospects in the pipeline for this service.

The green diesel and biodiesel plant is going through an equipment upgrade to increase production to design capacity. As a result of the necessity to upgrade this facility with the most current and advanced technology, we have assumed majority interest in the facility by way of an additional loan. This upgrade should be completed by the end of the first half of calendar 2008.

One last area of importance for FCStone is interest rates, which continue to soften, but that weakness in interest income should be offset somewhat by the growth in customer funds, investment in alternative instruments, and continued direct hedging of interest rates.

As I've said before, many of the initiatives that the Company implemented over the previous six to seven years are just hitting their stride. In particular, the international effort is experiencing the fastest growth in the Company, while the renewable energy group manages a large segment of the independent producers in the ethanol and biodiesel industry. Our clearing and execution business also continues to benefit from the consolidation of the industry. In the other targeted areas, it is a process of education and customer development. We see that education process accelerating in the dairy and foodservice, weather, fuel surcharge, carbon credits and foreign exchange.

In conclusion, we're pleased with the success we achieved in the first quarter and believe that the market conditions that currently exist will continue to present us with opportunities to expand our business. Furthermore, we believe that the traditional commitment to our clients' best interest, the strength of the FCStone consultants' experience and expertise, and alternative platforms to manage our clients' risk will continue to drive the growth and development of FCStone over the long term.

With that, I'd like to turn the call over to Bill Dunaway, our CFO, for a financial review. Bill?

Thank you, Pete. As Pete mentioned, we're pleased to report a strong start to fiscal 2008, with first-quarter revenues, net of the cost of commodities sold, of $73.7 million. Compared to the prior year of $57.3 million, the first quarter's revenues increased 29%.

Our pretax income was $21 million for the quarter compared to $10.1 million for the same period last year. Without the several onetime items noted of $2.9 million, our pretax income was $18.1 million for the quarter compared to $10.1 million for the same period last year. Furthermore, our net income was $13.1 million for the first quarter this year, or $11.3 million without the special items, compared to $6.3 million last year. Again, the onetime items during the quarter related to the gain on sale of Chicago Board Options Exchange trading rights and a gain on the sale of CME Group Inc. common stock.

Now let me take a few minutes to talk through the main components of the quarter's results, starting with the $16.4 million net revenue increase. First, commissions and clearing fees were up $6.5 million or 20%, with approximately $6.1 million of this increase coming from exchange trades and the other $0.4 million of this increase coming from our ForEx commissions and clearing fees.

Next, our service consulting and brokerage fees, which are primarily our over-the-counter product brokerage fees, were up about $7.2 million for the quarter over last year, or approximately 79%. The bulk of this increase this year was in our renewable fuels and Brazilian operations.

Our interest income was $13.4 million, up $5 million from the same period last year, of which $4 million came from our Commodity and Risk Management and Clearing and Execution segments, with the balance mostly from our Financial Services segment repurchase program. Of course, most of that program's interest income is offset by the interest expense of the repurchase program.

The biggest increase in the Commodity Risk Management and Clearing and Execution segments' interest was related primarily to higher customer segregated funds and over-the-counter margin deposits that we were carrying during the quarter.

Our total balance sheet assets were over $1.7 billion at November 30, 2007, whereas on August 31, 2007, they were just over $1.4 billion. Also, as we no longer consolidate our grain merchandising business, such first-quarter net revenues from that segment were $6.1 million lower than last year.

As we look at total expenses, our expenses net of cost of commodities sold increased approximately $5.8 million for the quarter over the same period last year. Upon a closer examination of the expenses, revenue volume-related variable expenses and broker commissions and compensation, as well as the benefits in pit brokerage and clearing fees and IB commissions accounted for approximately $7.4 million of the increased expenses, net of grain merchandise-related cost reductions. Interest expense was lower by $1 million, primarily due to the sale of part of our majority interest in our Grain Merchandising segment that we now no longer consolidate. Such Grain Merchandising segment had about $4 million in noninterest expenses in the prior-year quarter and none in this quarter since we no longer consolidate it. Also, bad debt expense was $1.3 million lower than the prior year.

As we noted, we had two onetime or special items in the first quarter. First, we had a $2.6 million pretax gain on the sale of CME stock we owned in excess of our required holdings as a result of the Chicago Board of Trade/Chicago Mercantile Exchange merger this summer. Secondly, we had a $0.5 million pretax gain from the sale of the CBOE trading rights. The effect of these items netted to an additional net revenue and pretax income of $2.9 million and after-tax net income of $1.8 million. It is our intent to sell any significant excess exchange stock above our required amounts needed for clearing purposes.

We will next look at our two main business segments, our C&RM full-service segment and our Clearing and Execution segment. The Commodity and Risk Management full-service segment generated operating income of $17.2 million, or $14.3 million for the quarter before the onetime income items, compared to $7.6 million last year. This segment benefited from significantly higher over-the-counter revenues, as noted earlier, and interest income was up $2.5 million, primarily as result of the much higher customer segregated funds and over-the-counter margin deposits.

Commissions and clearing fees were slightly lower as it appears farmer producers are holding their crops to sell after January 1, 2008, and the new tax year. Finally, you can see also the segment's income margins continue to be very favorable.

Our Clearing and Execution segment had operating income of $5.2 million compared to $3.6 million in the prior year. The segment had a 37% increase in commissions and clearing fees revenue and also higher interest income, primarily as a result of higher seg fund balances.

Reviewing our balance sheet, our total assets are $1.7 billion at November 30, 2007, up from approximately $1.4 billion at August 31, 2007. This $329 million increase was due to approximately $85 million in additional customer segregated funds, $142 million from additional over-the-counter customer margins and accounts, $67 million from our financial services repurchase program, and approximately $18 million from our consolidation of Green Diesel, LLC, after our acquisition on the majority interest in that entity.

The primary reasons for most of these increases was the continued commodity volatility and the resulting increased trading volume of our customers, especially in the renewable fuels, energy and Brazil areas.

Moving on to one additional item, although it took place following the close of the first quarter, we announced our strategic acquisition of Downes-O'Neill on December 12, 2007. The all-cash transaction closed on December 31, 2007. As noted previously, the acquisition is expected to be accretive immediately. As part of our growth initiatives, we will continue to evaluate all opportunities to further our vision of providing the best services to our customers across the board in respective commodity markets.

With that, I would like to turn it back over to Pete for some concluding remarks.

Thank you, Bill. FCStone remains committed to its mission of improving our customers' bottom-line results by leveraging the expertise and experience of our consultants, as well as utilizing the most appropriate platform or instrument to manage commodity risk. FCStone intends to leverage the industry dynamics and momentum that are in place to drive our volumes and growth of the Company in the future. We believe the Company is well positioned for long-term success and to drive shareholder value.

That concludes our prepared remarks. We would now like to open up the call to questions. Operator?

(OPERATOR INSTRUCTIONS). Mike Vinciquerra, BMO Capital Markets.

Congratulations and good morning, guys. First of all, wanted to just get a sense -- there's a lot of -- some moving parts here, obviously, with all your different clients, but in the CES segment, how much of your revenue gain there quarter over quarter in terms of commissions and clearing fees were related to these new professional trading groups that you guys have signed? And I also presume that that was the majority impact on your rate per contract on the exchange traded side?

That is the majority of the contract increase that you saw quarter over quarter. We have not broken out -- we don't break out any customer data as far as segmenting those new customers as they come on. But the new business that was added was fairly high-volume, low-margin business, so it's not going to be -- it's going to be under $1 per contract that new customer adds to the commission growth.

Thank you for that. And then just kind of staying in the same segment, the interest income, the growth in the interest income was really from CES during the quarter. I presume again it related to these new clients that you brought on board. First that question, and then I'll follow up.

Some of that, Mike, but actually it's kind of an across-the-board, just with the continued increased commodity volatility and the high seg fund balances contributed more than just the addition of that client. That client did obviously bring additional customer seg funds, but it was a little bit broader than that.

And then just staying on interest is a question I get frequently from your investors, but I show interest income being up about 13.5% sequentially and ending client assets up about 8%. So either the ending balance just doesn't give us a full dynamic of what went on in the quarter, or you actually increased your spread somehow during the quarter, which kind of goes against what we have seen from lower short-term rates. Can you just talk about the dynamics of your interest income and what we might anticipate going into the February quarter here?

Well, a little bit of that ends up being kind of a product mix, Mike, as we have got -- you are right in that the quarter-end balances kind of do just provide you a snapshot and they can obviously be fairly volatile during the quarter. But we also saw -- one thing that's helpful, especially in the Clearing and Execution segment, where we pay back a little bit more of the interest to clients, we had, in addition to our investable funds, the rate on those goes down, but also the interest that we pay out to those clients has kind of dropped, so it doesn't hurt us quite as badly with that aspect of the business. But what you saw is we had more and more clients that actually we were charging some interest to based on their option positions in the Clearing and Execution segment, and actually kind of adds to the bottom line as they do some option strategies.

That's helpful. Should we anticipate, just looking forward, that your rate earned is going to come down a bit, and if you continue to grow balances, hopefully that offsets the decline from rates? You will be affected by lower rates, I guess is the point.

Yes, I mean, we will be affected by lower rates. We have done some things to try to mitigate that. As Pete mentioned in his call, there is a portion of our interest rate exposure that we have done direct hedges on. So that should continue to benefit us going forward. And also, we have got a large portion of the assets invested in the money market funds that are pledged to the Chicago Merc and the New York Merc and the New York Board of Trade, which is now ICE. Those haven't dropped quite as precipitously as the 90-day treasury, which we're often pegged to. But yes, we obviously are affected by the lower rate, but we anticipate with the volatile commodity markets we will continue to see growth in our seg funds with the higher-volatility and higher-margin deposits.

Chris Allen, Banc of America Securities.

Nice quarter. Just following up on Mike's question, in the past you've talked about using the 90-day treasury as a good benchmark in terms of where to think about it. And the average entity, treasury was down about 100 bips sequentially quarter to quarter, and you look at your average balances in the customer segregated assets you reported to the [TFEC], the numbers that I'm calculating, you had a 50 bip increase in the yield, I mean, just some options-related transactions -- seems to be a lot more than just that to me. I mean, can you give us any additional color there?

A little bit of it, Chris, is right now you do have such a disconnect with the 90-day treasury. It's trading at such a spread to LIBOR or even some of the other funds. Traditionally, you are correct -- the 90-day treasury bill has kind of been the benchmark that we have used. But right now, because of that disconnect, we're not going out and buying a lot of direct 90-day treasuries. It doesn't benefit you to.

The other benefit that has really helped us is the interest rate hedging that we have done. So that continues to benefit us, as I mentioned. The money market funds are paying a substantial spread to the 90-day treasury, so that's going to help.

Part of the issue, Chris, is there's a substantial amount of assets or funds that come through the OTC platform as well that's increased, and that doesn't necessarily show up as seg funds on an exchange basis.

And then just moving to the expense side, for me the biggest surprise is introducing broker commissions. We saw a decline in commission levels, so it's been somewhat in decline, but that's the lowest level of introducing broker commissions we have seen since fourth quarter '06. I'm curious there.

The majority of that, probably two-thirds of that drop, it was related to our ForEx business. The fourth quarter, we had a very strong ForEx commission business, and with that there are introducing broker payments that went out. So if you kind of combined the slightly lower volumes that we had on the exchange with the significantly lower ForEx business, fourth quarter to first quarter, that explains virtually all the drop that we had in introducing broker commissions.

And then, just looking forward, Pete, you alluded to it a little bit in terms of where volumes -- I mean, where activity seems to be going. We're seeing fairly big volume pickups on the agricultural side right now. Is there any reason to think you guys aren't going to participate in that? And also, what is the outlook in terms of Brazil and China in terms of contribution? I'm not looking for any specific numbers, just kind of a general feel.

I think as we've talked before, Mike, if you look at just the underlying supply and demand numbers, we went from a 10 billion bushel corn crop last year to a 13 billion bushel corn crop. At some point, a significant part of that volumes or that increase in volume will hit our books basically from a production standpoint, as well as the consumption went from basically -- I think total use went from about a little over 11 billion bushel to almost 13 billion bushel this year. And a significant part of that consumption will also hit our books and here domestically, so our volume should reflect that over really the next nine months of the crop cycle.

And then if Brazil continues to really pick up some of the slack in lack of production, especially as we go forward, and really the markets in general competing for acres both here and on a worldwide basis, and a lot of that new production at least in soybeans, and even to some degree we're starting to see a little bit of an increase in corn across Brazil and Latin America, that will pick up and really continue to accelerate, I think, our pace of growth across Brazil. And then the demand from China is about as great as it has ever been. So the domestic demand is huge, as well as worldwide demand. And over time, I think our volume and growth will reflect that, driven by all the volatility that we see, probably as much today, specifically today, Friday and today, as much as any time.

Rich Repetto, Sandler O'Neill.

I guess the first question, historically you had broken out volumes between the CRM and then the Clearing and Execution, the exchange volume. Could you give us those numbers for this quarter?

Yes, they will actually be in the Q that we file later today. But the exchange volumes for the first quarter in the CRM was 655,894 [ground turn] contracts. The Clearing and Execution was 22,620,917, and then the over-the-counter volume was 301,258.

Okay, that's helpful. And I guess -- I know this number I purely missed, because I heard you say I just didn't get it. But the FX this quarter, I know it was $4.9 million last quarter, the fees?

It was actually -- yes, this quarter it would be $1.267 million, Rich.

Okay, so that introducing broker, the expense line for introducing broker -- so I heard you say two-thirds correlated to the change in FX. Is the other third related to sort of this -- well, where is the other third? I'm just trying to understand the other third.

Of that other third, probably the majority of it was just drop in IB payments in the Commodity and Risk Management segment related to our exchange business, and also the Clearing and Execution, the introducing broker payments are down as well. They're just kind of more tied to just exchange volume than anything. Just the IBs that we have did less business.

Okay. Well, I guess the -- you know, I would say the increase in the professional trading groups that you see, and I know that will hit the -- what do you call it -- rate per contract, but overall you saw your margins go up. Is it safe to say that -- because I'm assuming it's done directly electronically, that the margin on business like this, even though it's a lower rate, is higher margin than your other business? It's at a high margin, incremental margin?

On the Clearing and Execution side, it really doesn't increase the margin related to it, because you end up collecting from the client that commission and a clearing fee from the client, and then you end up seeing an expense for that clearing fee come through the P&L as well. So I think the increase, I think the expansion in the margins has come more from our over-the-counter business and the core commodity risk management exchange business.

Okay, well then, I guess the question is, then, if you continue to grow with these professional trading groups, what impact on the margin would it have?

If we continue to get more and more of those professional trading in the Clearing and Execution side, it could -- because the volumes, as we just pointed out, are so significantly higher in the Clearing and Execution side, because it is that high-volume, lower-margin business, that can affect the overall margin of the Company as we go forward. But it's still going to be -- we still look to add that type of business, because it brings in the incremental dollars to the bottom line. It's still very profitable business. It just won't be at the 30% margin that you may experience in the Commodity and Risk Management segment.

Understood. Thanks, guys. Excellent quarter.

Mark Lane, William Blair & Co.

Just a few. On the acquisition, can you give us just some idea of the revenue contribution from the transaction?

It's fairly minor, Mark. I think it's more of a key acquisition to round out a product line that we don't currently service as much as we see the need to. So it was a fairly -- it's something that is fairly immaterial in the way it stands now. It's more of a growth strategy and adding the additional consultants that we did through the --

Would there be any delay in executing consulting-related business from these new consultants? The deal closed on December 31. Are they executing business through you already?

Correct. I mean, we have brought them over. They're already engaged in consulting type of work, and the exchange business is already coming over. So there is no delay at all.

And the real advantage, the real opportunity, Mark, is plugging in their expertise and experience into utilization of our OTC platform, as well as the expertise and experience they bring to the foodservice industry that we are pursuing as well. So it's a real win-win for both of us.

Last quarter, you were pretty open about being in discussions or talking with small consulting groups. Was this the firm that you were specifically talking about, or are there are other firms of this type that you are --

This is one of the firms that we have been talking to.

So there are other firms similar to those that you are still having discussions with?

Yes.

And the C&RM margin was over 40% this quarter, if you take out the gain. Is that -- I know it's the first quarter, and so there are some estimates on comp and all this sort of stuff. But why wouldn't that be a decent run rate if you're hedging some of your interest rate exposure and mitigating some of the impact from lower rates?

I think you nailed it on the head. Interest income is obviously one of the things that really brought it from 29% last year in the same period to over 40% now. And in addition, if you look, the two big increases in that segment were the service consulting and brokerage fees and the interest, and the majority of the service consulting and brokerage fee is that over-the-counter that carries with it the higher margin. So those two pieces are really what drove the margin expansion that you saw there.

Okay. And then lastly, this OMX agreement, is this anything that is meaningful or is this -- what are your expectations there?

Our real expectations, Mark, are, number one, as we'd said, the real issue with the OTC markets is, to a large extent, it's a call-around market, and I think there's a lot more efficient way for us as participants in that market to capture the best pricing for our customer and ultimately for FCStone and the other participants that are utilizing or dealing in the OTC market. We think this is the avenue that will accomplish that. And our hope is that we see significant commitments from other participants and that volume grow, and if it does, I think it, number one, will benefit our client, as well as capturing some of the value, our deal flow as well as the other participants in that effort.

But are you consulting with them on building this system, or --

We have spent a lot of time going through the design phase. In fact, we've probably spent almost six months going through that process, and we will continue to consult with them as we finalize and develop the platform.

Could you get any ongoing revenue stream -- volume-based revenue stream from that?

We hope to. If there is significant participation, along with those other organizations that would participate, we would be one of a number of participants and owners going forward.

Mark, I think that's twofold. It would actually be growth from the investment in Agora-X and also just providing that more efficient platform for our over-the-counter customers trading in the over-the-counter. We would look to hopefully continuing to increase volumes that way.

James Rhee, KBW.

I guess questions have pretty much been answered, but I was wondering if you guys could give us an idea of the size of the acquisition as far as maybe what the seg assets go for, the Downes-O'Neill?

Once again, James, it's minor. It's less than 5% of what we currently hold. So it's not -- it's more of a growth and expansion of our platform than a real sizable acquisition.

I guess as far as the Agora-X platform goes, just to switch bases here, I guess, just trying to figure out -- it does seem like you guys are using this platform to more or less leverage -- I guess it's something that you guys are developing for your internal deal flow. But how aggressively are you guys going out there to actually market this platform, or I guess at the same time try and build traction? Have you been speaking with other institutions to try and build up some interest?

We have talked to a number of other institutions and participants in the OTC market, and there's significant interest. In fact, we have basically had commitment from two or three organizations that want to be participants, and we are going to really actively pursue that as we approach the conclusion of the development of the platform.

Mike Vinciquerra.

Just one more question on Agora. Have you just looked into the possibility of taking some minority investors into that? It seems like the ECNs on the equity side, for instance, that have been successful have taken in minority investors to really help to get to a level of liquidity that brought additional folks in and forced people to pay attention. Is that something you're considering?

Effectively, that's the model we're looking at and will be using, Mike.

And then, just on the international side, just international as a whole, can you give us potentially the percentage of either volume or revenue coming from outside the U.S. during the quarter, maybe compare that to either last quarter or a year ago, Bill?

We haven't broke that down at all, Mike, as far as the contribution of those.

Safe to say, though, based on your comments, Pete, about Brazil that international is still growing faster than the U.S.?

Yes.

And then finally, international consultants, dedicated consultants to the international markets, where does that stand at the end of the quarter?

I think we were still at basically what we'd term qualified or full-service consultants, we're at 16, and we just added three more trainees, basically, within the last week or so.

Rob Wolgemuth, Insight Investments.

Nice quarter. Just had a couple quick questions for you. One was related to lower interest rates. You had mentioned that you had some hedges in place and some other programs to mitigate some of the effects of lower interest rates on your interest income. Can you maybe just tell us a little bit more about some of those hedges and when you actually took some of those positions?

No, I don't think we would want to disclose our position or when we put those on, necessarily, but it's pretty typical or common, I think, positions of utilizing swaps and collars or really locking in a floor with a cap, and we have done that over a period of time.

And then, Bill, when I spoke with your predecessor probably about six months ago, he seemed a bit concerned about lower interest rates, if that were to happen in the future, which of course it has started to happen. And you guys don't seem as concerned, and I just wondered if that is because of some of these hedges you guys put on, or if there are some other factors?

We're obviously concerned because it does drop to the bottom line, but we have actively managed the risk and looked at ways that we could protect ourselves through different investments and the hedging aspect of it. So he participated in those conversations as well, so it was kind of a strategy with all of us looking at it. And I think that short-term interest rates are a concern, but we are doing what we need to in order to protect ourselves.

And then finally, is there any way to quantify the impact of the lower rates, if any, going forward?

Nothing that we have put out there or really prepared to discuss. Like we indicated, 90-day treasury has traditionally been the benchmark, but you have seen such a disconnect between -- with the flight to quality with the 90-day treasury that it's a little more difficult to track. What we are generally looking at is kind of a blend of overnight rates, money market funds, rated money market funds, and then some treasuries thrown in there.

(OPERATOR INSTRUCTIONS). I'm showing there are no further questions in the queue. I'll turn it back over to management.

Thanks, everyone, for joining our call today, and we look forward to talking to you at our next quarterly earnings report. Thank you, operator.

Thank you. Ladies and gentlemen, this concludes the FCStone Group 2008 first-quarter earnings conference call. If you'd like to listen to a replay of today's call, please dial 303-590-3000 or 800-405-2236. Enter the passcode 11106090. Once again, that is 303-590-3000 or 800-405-2236. Enter the passcode 11106090. Thank you for your participation and for using ACT teleconferencing. You may now disconnect.