StoneX Group Inc (SNEX) 2022 Q3 法說會逐字稿

Good day and thank you for standing by. Welcome to the FY '22 Third Quarter StoneX Group Earnings Conference Call. (Operator Instructions) Please be advised that today's conference call is being recorded. I would now like to hand the conference over to your speaker today, Bill Dunaway. Please go ahead, Bill.

Good morning. My name is Bill Dunaway. Welcome to our earnings conference call for our third quarter ended June 30, 2022. After the market closed yesterday, we issued a press release reporting our results for our third fiscal quarter of 2022. This release is available on our website at www.stonex.com as well as a slide presentation, which we will refer to on this call in our discussions of our quarterly and year-to-date results. You will need to sign on to the live webcast in order to view the presentation. The presentation and an archive of the webcast will also be available on our website after the call's conclusion.

Before getting underway, we are required to advise you and all participants should note that the following discussion should be taken in conjunction with the most recent financial statements and notes thereto as well as the Form 10-Q filed with the SEC. This discussion may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 as amended and Section 21E of the Securities Exchange Act of 1934 as amended. These forward-looking statements involve known and unknown risks and uncertainties, which are detailed in our filings with the SEC. Although the company believes that its forward-looking statements are based upon reasonable assumptions regarding its business and future market conditions, there can be no assurances that the company's actual results will not differ materially from any results expressed or implied by the company's forward-looking statements. The company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Readers are cautioned that any forward-looking statements are not guarantees of future performance. With that, I will now turn the call over to Sean O'Connor, the company's CEO.

Thanks, Bill. Good morning, everyone, and thanks for joining our fiscal 2022 third quarter earnings call. During the third quarter of fiscal 2022, we continue to see the effects of inflationary pressures on the global markets, sharp increases in short-term rates and continued volatility in both financial and physical markets. We recorded operating revenues of $528.8 million, up 23% versus the prior year, while expenses were up 19%. This resulted in net earnings of $49.1 million, up 44% and diluted EPS of $2.37, up 42%, which produced a 19.1% ROE. (inaudible) the earnings back very light revenue for (inaudible) FX and CFDs up 68% and is coning up 37%. And then, of course, interest on client balances was up 207% off the back of a 44% increase in the total client flows, which now stands at a record $8 billion. This revenue was driven by strong double-digit increases in transaction volume, except for OTC contracts, the standouts here being FX CFDs as well as securities. In terms of revenue capture, we saw a large decrease in securities of 48%, which significantly offset the 128% volume increase.

As we have mentioned previously, our securities business is growing and expanding its products and capabilities which has impacted these transactional metrics over the last couple of quarters. Both our fixed income and equities business have expanded their product capabilities to now include more vanilla offerings that are higher volume and lower margin, but where we have limited market share and a large addressable market in front of us and thus present large opportunities. This obviously has the impact of increasing volumes while revenue capture has declined. Additionally, these new areas have required upfront investments in personnel, which have increased costs slightly faster than revenue, which is also the factor of vent income. As we can see revenue from these new initiatives pick up, we should see a boost to the bottom line and the transactional metrics should start to level out as the product we stabilize. We have always invested in our businesses and a core pillar of our strategy is to continue to enhance our financial ecosystem by expanding our products and capability. This, in turn, drives increased wallet share from existing clients and enhances client adoption and market share increases.

Turning now to Slide 4 and looking at revenue and product metrics for the trailing 12 months. Our operating revenues were up 18% versus the prior comparative period. Revenue increased by double digits across the board for all of our products, except for securities, which is up 4%. The standouts here are paying CSDs up 34%, OTC contracts up 47%. And again, interest balances of $110 million (inaudible). This revenue with (inaudible) robust increase in transaction volume across the board with standouts being securities and FX CFDs. Revenue capture was down 37% in securities and down slightly for the FX CFDs, but up for all the other products.

Turning now to Slide 5 and a summary of our earnings as reported and also on an adjusted basis, which excludes the accounting impact of the game transaction 2 years ago. We recorded operating revenue of $52.6 million, up 26% versus the prior year total (inaudible) and other expenses were up 19% for the quarter, with variable compensation up 21%, in line with revenue. Fixed (inaudible). This resulted in net earnings of $49.1 million, up 44% and diluted EPS of $2.37, up 42% from a 19.1% ROE.

The adjusted ROE numbers were slightly higher and slightly higher still if tangible equity is used. In comparison with the immediately prior quarter, just remember, the immediately prior quarter was out and ever from an operational point of view, boosted by the market volatility of the Ukraine situation. However, comparing with this immediately prior quarter, operating revenues was down 3% and earnings were down 23% against this exceptional quarter. Looking at the summary for the trailing 12 months, our operating revenues were $1.9 billion, up 18% over the comparable period. Net income was $162.1 million and $17.2 on an adjusted basis. Our diluted EPS was $7.88 for the trailing 12 months for a 16.6% ROE or 17.5% on an adjusted basis. We ended Q3 2022 with a book value per share of $51.7.

Turning now to Slide 6, our segment summary, just to touch on the highlights before Bill goes into more detail. For the quarter, operating revenue and segment income was up across the board. Our largest segment, commercial clients was up a solid 20% in segment income from a 12% revenue increase driven in large part by the physical side of our business. Our institutional segment realized a 21% increase in revenues and new record, which translated into a 3% in segment income for the reasons mentioned earlier.

Retail had a very strong performance with operating revenues up 40%, driving segment income up a trainer of leverage we have for the digital platform. Global Payments also realized a record quarter with revenue up 27% and (inaudible). This segment has also been investing in its new local pay-in capability as well as its digital platform for midsized commercial clients.

For the trailing 12 months, we see much of the same with strong double-digit growth across the board, except for our institutional segment, where operating revenue was up 7% and segment income was down 7% for the reasons I discussed earlier. These are strong quarterly results. But as we have said repeatedly, we take a long-term view on how we manage the company and how we grow our franchise. As such, we believe that the best way to gauge our results and progress is to look at the longer-term performance such as trailing 12 months rather than specific quarters taken in isolation.

Turning to Slide 7, which sets out our 12-month trailing financial performance. These numbers have been adjusted (inaudible) related to the GAIN acquisition as disclosed in our prior filings and which appear in the reconciliation provided on the last page of this earnings deck. On the left hand and blue to trailing 12-month operating revenue over the last 9 quarters.

As you can see, this has been remarkably smooth, with a strong upward trend as we have steadily expanded our footprint and capabilities. Our revenues are up 57% over this period for a 25% compound annual growth rate. Our adjusted pretax income, likewise, has grown significantly, a 22% compound average growth rate. On the right-hand graph, you can see our adjusted earnings in the yellow bars, which are up 4% over the last 2 years for a 23% CAGR.

The dotted line represents our ROE, which has remained above (inaudible) though our capital has grown by 55% over this period. We have seen significant strength in the dollar over the last couple of quarters as interest rates globally have diverged. I would just like to briefly touch on the impact of this on our earnings. The majority of our earnings are denominated in dollars. And as such, we do not see much direct impact on the ready line. In addition, I'd also note that the vast majority of our variable compensation is also calculated in dollars; however, we have a significant amount of locally denominated fixed expenses.

At our current run rate, these costs have now been reduced in dollar terms as a result of the strength in the dollar by some $20 million per annum from a year ago. This is a material benefit, in essence, a discount on our fixed cost base. We intend to lock in currency rates to ensure that we have some longer to benefit on this (inaudible). With that, I'll now hand you over to Bill for a more detailed discussion of the financial matters.

Thank you, Sean. I will be starting on Slide 8, which shows our consolidated income statement for the third quarter of fiscal 2022. Sean covered many of the consolidated highlights for the quarter, so I will just highlight a few and then move on to a segment discussion. On the expense side transaction-based clearing expenses were up 11% to $74.7 million in the current period, primarily due to the increase in securities ADV, an increase in listed derivative contract volumes as well as higher costs in our Global Payments business. Introducing broker commissions declined 1% to $41.2 million in the current period as increases in our institutional listed derivatives and Global Payment businesses were more than offset by a decline in IB commissions in our commercial listed derivative business.

Interest expense related to trading activities increased $13.6 million versus the prior year, primarily due to increases in short-term interest rates as well as higher average borrowings in our physical commodity business. Interest expense on corporate funding was relatively flat with the prior year period. Variable compensation increased $21.5 million versus the prior year due to the increase in net operating revenues and represented 33% net operating revenues in the current period compared to 34% of net operating revenues in the prior year period. Fixed compensation increased $3.4 million versus the prior year, with the growth principally related to salary and benefit costs of increased head count, which increased an 11% as compared to the prior year period, which was partially offset by an increase in deferred compensation.

Our fixed expenses increased $24.7 million as compared to the prior year to $101.7 million and were up $1.8 million versus the immediately preceding quarter. As compared to the prior year, selling and marketing expenses increased $7.9 million and professional fees increased $3.7 million. The increase in selling and marketing primarily relates to increase in digital marketing in our retail ForEx business. We have started to see increases in travel and business development, increasing $3.6 million as compared to the prior year. In addition, trading systems and market information increased 1.6% and non-trading technology and support increased $1.6 million as part of their initiative to expand our additional offerings.

Depreciation and amortization increased $2 million and primarily relates to an increase in internally developed software. We had net recoveries of bad debt expense of $700,000 for the quarter versus $1.3 million and $12.3 million in expenses in the prior year and immediately preceding quarters, respectively. In the prior year, we recorded a $3.6 million in gain on acquisition and other gains, which primarily related to an adjustment to the liabilities assumed in the acquisition of GAIN Capital, while in the immediately preceding quarter; we received a $6.4 million foreign exchange anti-trust class action lawsuit settlement. We recorded no gain on acquisition or other gains in the current period.

Net income for the third quarter of fiscal 2022 was $49.1 million and represented a 44% increase over the prior year. This represents a 23% decline versus our all-time best quarterly performance recorded in the immediately preceding quarter.

Moving on to Slide 9. I will provide some more information on our operating segments. The Commercial segment had another strong quarter, adding $18 million in operating revenues versus the prior year. However, this represents a $13.9 million decline versus the immediately preceding record second quarter. Within the segment, listed derivative operating revenues declined $3.7 million versus the prior year as a result of a 5% decline in contract volumes as well as a 2% decline in average rate per contract. OTC derivative operating revenues were $50.2 million for the quarter, which was up $500,000 versus the prior year quarter, primarily as a result of an 8% increase in the average rate per contract, which was partially offset by a 5% decline in OTC derivative contract volumes. Operating revenues from physical transactions increased $13.6 million compared to the prior year period, primarily as a result of a $13.1 million increase in precious metals operating revenues.

Finally, interest earned on client balances increased $7.2 million versus the prior year as a result of a 45% increase in average client equity as well as an increase in short-term interest rates following Fed actions. Segment income was $72.5 million for the period, an increase over the prior year and preceding quarter of 20% and 3%, respectively.

Moving on to Slide 10. Operating revenues in our Institutional segment increased $36.1 million versus the prior year, primarily driven by an $18.6 million increase in securities operating revenues compared to the prior year period as the result of a 128% increase in the average daily volume of security transactions, which was partially offset by a 48% decline in securities rate per million. The increase in securities ADV was primarily driven by significant increase in volumes in debt capital markets, most notably in U.S. treasuries as a result of new hires in this business, combined with rapidly changing rate environment related to the recent actual and anticipated Fed actions to curb inflation, and to a lesser extent, volatility in equity markets driven by increased market share and volatility.

The decline in rate per million was primarily a result of product mix traded, most notably the increase in U.S. treasury volumes. In addition, operating revenues increased $8 million and $4.2 million in listed derivative and FX products, respectively, driven by continued volatility in global markets. Finally, interest earned on client balances increased $6.9 million versus the prior year as a result of a 63% increase in average client equity as well as an increase in short-term interest rates following recent Fed actions.

Segment income increased 3% to $47.7 million in the current period as a result of the $15.3 million increase in net operating revenues, which were partially offset by a $10.5 million increase in variable compensation and a $3.6 million increase in non-variable direct expenses versus the prior year. The increase in non-variable expenses was primarily due to a $2.5 million increase in fixed compensation and benefits, a $1.2 million increase in trading system and market information and a $900,000 increase in travel and business development, which was partially offset by a $1 million favorable variance in bad debt. Segment income declined $2.3 million versus the immediately preceding second quarter.

Moving on to the next slide. Operating revenues in our Retail segment added $30.8 million versus the prior year, which was primarily driven by a $3.8 million increase in FX and CFD revenues as a result of a 12% and 47% increase in ADV and RPM as compared to the prior year as a result of heightened volatility in FX markets. Operating revenues for security transactions declined $1.1 million, while operating revenues from retail physical precious metals were flat with the prior year period.

Operating revenues in the Retail segment declined $11.5 million versus the immediately preceding quarter. Segment income increased $20.3 million versus the prior year, primarily as a result of the increase in operating revenues. The increase was partially offset by a $9.5 million increase in non-variable direct expenses as compared to the prior year, primarily driven by a $5 million increase in selling and marketing, a $1.3 million increase in depreciation and amortization, a $700,000 increase in professional fees and a $600,000 increase in travel and business development. Segment income declined $19.2 million versus immediately preceding record second quarter of fiscal 2022, which included the receipt of the $6.4 million from the class action settlement I mentioned earlier.

Closing out the segment discussion on the next slide. Operating revenues and Global Payments added $9.3 million versus the prior year, driven by a 20% increase in average daily volume and 9% increase in the rate per million as compared to the prior year. Non-variable expenses increased $2.8 million and is primarily related to the expansion of our payment offerings. Segment income increased 21% to $24.6 million in the current period and also represented a 3% increase versus the immediately preceding quarter.

Moving on to Slide 13, which represents a bridge between operating revenues for the first quarter of last year to the current period across our operating segments. Overall operating revenues were $528.8 million in the current period, up $97.3 million or 23% over the prior year. I've covered the changes in operating revenues for our segments; however, a $3.1 million increase in revenues and unallocated overhead is primarily related to positive variance in foreign currency revaluation versus the prior year period, which was partially offset by a mark-to-market loss on exchange shares held for clearing purposes in the current period.

The next slide 14, represents a bridge from 2021 third quarter pretax income of $46 million to pretax income of $70.9 million in the current period. The negative variance in unallocated over of $13 million is primarily driven by the increase in unallocated expenses, including a $5.1 million increase in variable compensation as a result of improved performance, a $3 million increase in non-trading technology and support a $1.8 million increase in professional fees, $1.6 million increase in selling and marketing expenses, and a $1 million increase in depreciation and amortization. These increases were partially offset by a $1.4 million decrease in fixed compensation and benefits.

Finally, moving on to Slide 15, which depicts our average invested client balances and associated earnings by quarter as well as a table, which shows the annualized interest rate sensitivity for changes in short-term interest rates. The interest rate earned on these common balances increased 41 basis points to 69 basis points for the current period as the full effect of recent Fed rate hikes during the period will start to be more fully reflected during the fourth quarter of fiscal 2022. As noted in the table with an increase in client balances noted earlier, we estimate a 100 basis point increase in short-term interest rates would increase net income by $31 million or $1.53 per share on an annualized basis. With that, I'd like to turn it back to Sean for a strategy discussion.

Thanks, Bill. Turning now to Slide 16, which sets up the high-level strategic objects that we are focused on. We have included the slide before, and I have gone through it in detail on the last call, so I would not repeat it all again. Over the last 6 quarters or so, I have given a fairly granular view of the various projects we are undertaking in our segments, and I am not going to go through them all again this time. However, we continue to make excellent progress and hit our milestones in delivering many of these capabilities, some of which will be launched in the next 3 to 6 months; however, some highlights. As mentioned above, our securities business is expanding and changing its product mix as we leverage our long-standing institutional relationships into broader product offerings.

On the equity side, we have now launched our electronic market maker plant internalize and spread on the domestic NMS equities while providing best execution. This is an area dominated by a limited number of large players, and our broker-dealer clients are interested in having alternative outlets for execution of these trades. We have already enabled a limited number of clients in a limited number of names, and all of these clients have been using us to execute foreign and unlisted stocks for a long time. We are very pleased with the results and the performance of our platform, and this is already accretive to the cost in curve. We will be ramping this up steadily over time. We are increasing the number of clients and the number of stocks we make markets in. We believe this is a very large opportunity for us.

On the fixed income side, we have steadily been diversifying into different fixed income asset classes, many of which are higher volume and lower margins, such as T bills and treasuries but also high-yield emerging market and structured products. This strategy has really paid off for us and provided resiliency to our revenues as the interest rate environment at (inaudible) has noted a change in the initial investments as well as talent in that we are now seeing as a growing and successful fixed income franchise that can compete with Tier 1 players.

We have made some crucial hires from larger players, and we have seen increased client adoption. On the payment side, we have made some key hires to develop the local currency paying business in Brazil and will thereafter do this in Colombia. This will allow us to provide an end-to-end payment service for our at-existing corporate clients that have large in-country client base. We can provide them an efficient way to get dollars into the country as well as collect local payments from local clients to remit back to head office. This will be a unique offering for these large corporate clients.

StoneX One, our U.S.-based self-directed platform for individuals is live and being used by employees. This is a multi-asset platform, aligned trading in equities and equity options as well as listed derivatives. We will be launching this platform in the upcoming quarters to a limited number of clients and ramp-up from there utilizing our digital marketing team. We will also soon add Crypto FX and physical gold, making this a unique cross-asset class self-directed execution capability. All of the trading flow will be directed to our electronic market-making platform and where appropriate, we will be able to internalize spreads. As you can probably tell, we have a number of very exciting projects mostly being launched.

Let us move on to Slide 17. This was another strong quarter with good market conditions and excellent results across all products and all client segments. We achieved earnings of $49.1 million, diluted EPS of $2.37 and open stated book of just over 19%. This was also the best 9-month period we have ever had with earnings for the 9 months period being $154.8 million, a diluted EPS of $7.52 for an ROE of 21.2% (inaudible). Our results continue to show steady and strong upward trajectory, growing our revenues at a 24% CAGR and growing our adjusted earnings at a 23% CAGR.

We continue to see strong growth in client trading volumes and client assets, which speaks to growth in our underlying client base and client in age. This combined with heightened market volatility and increasing interest rates, puts a little tailwind behind our business for the next year or so. This year, we will see a number of digital platforms being launched, which are more tightly integrate our offerings by client type, make it more engaging for clients to interact with our financial ecosystem.

We are initially seeing increased costs associated with bringing and standing up these platforms. As we actively start to market these platforms to clients, we should further accelerate our growth with the scalability that technology provides to increase margins and profitability. We are considering to invest in ecosystem, expanding our product in the case of these and have unique and comprehensive financial ecosystem with a very large addressable market in front of us. While we have good market shares at niche segments of the market.

But on white space remains in areas where we already have client relationships and demonstrable capabilities and now need to monetize these opportunities. One thing is always constant for the StoneX team. We continue to dedicate ourselves to better serving our growing client footprints around the world by providing them with the best financial ecosystem and the best service to access global financial markets. So with that, operator, let us open the line and see if we have any questions.

(Operator Instructions) Our first question comes from Daniel Fannon with Jefferies LLC.

My first question, Sean, could be on the securities business. Clearly, ADV is going higher, as you mentioned, and in the RPM where the capture rate going lower. And obviously, you have a lot of new initiatives within that complex, but can you talk about where you are because this quarter saw a pretty massive step up in both higher on volume and lower on capture. And just thinking about going forward, maybe just a little more color on what the asset classes are in particular and where you think you are in this normalization of going into these new markets and how we should think about these 2 dynamics going forward?

Yes. Sure. So Dan, probably before you guys were covering this is a lot of time ago when we started our Global Payments business, we went through this exact kind of process where we were exclusively dealing with (inaudible). And the profile of that business was large payments and as a result, reasonably high revenue capture. And we started to transition to working with our bank partners where the payments got a lot smaller, not more of them. And that took about 2 years before those metrics kind of leveled off. In aggregate, it is still a net plus for the business. I think we are now seeing the exact same thing on the security side.

On the equity side, for example, the bulk of revenue up until now has been our market making in foreign unlisted stocks, which has a pretty high revenue capture associated with it. We are now moving into the NMS markets, and the revenue capture is orders of magnitude lower. So I am not sure if I am exactly correct, but I think the number of shares we trade on the NMS is now a significant portion of the net share (inaudible) equity side to sort of achieve equilibrium. And I think it is probably going to take, I would say conservatively, probably 2 years, just like it did on the payment side.

We want to approach this very cautiously. It is an automated electronic platform. We want to make sure that we do it responsibly and carefully, but we want (inaudible) in the technology. So I do not think it would be prudent to just sort of rip it out there and let everyone have started (inaudible) convince to see the same trends as you have seen in the last 2 quarters probably perpetuate on probably for another 4, 5 quarters would be my guess.

Obviously, the incremental rate of change is slow because if we are really sort if we 80/20, when you get to 80/40, it gets lower. So I mean, at some point, you do start to do the law of averages apply our givers. (inaudible) On the fixed income side, in theory, the exact same process has happened. Our fixed income business is very focused on the mortgage market that is a high-margin product. That is where we made 75% of our revenue 3 years ago. And we have diversifying that business into T-bills, into treasuries into a whole range of other products. And then there are some products, where we actually are more commission-based like high yield and others.

So what has happened in this interest rate environment is as the mortgage market has sort of slowed down (inaudible) some of the other products, which again, the revenue capture there is fractions of what it is, (inaudible) because it gave us some resilience. But again, is affecting those metrics. The profitable income side, we probably close to seeing more of an equilibrium just because I think the move there has been faster. But anyway, those are the comments on that site data on when I see these metrics flattening out. But I think you should continue to see over a period of time. I mean, it may vary quarter-to-quarter, but over a period of time, these metrics will continue to trend in the same way, I think that makes sense.

Yes. No, that's helpful. And then I just want to understand your comment about FX and the benefit that it provided to fixed cost. I think you said $20 million per annum. So is that something that was kind of in the fix, I mean, your fixed number or fixed costs came in lower in your fiscal third quarter. Is that a decent exit kind of run rate for this quarter? Or is that based on spot rates now perspectively just thinking about how much was already in your numbers versus potentially benefiting still going forward?

Yes. So the $20 million number is really the benefit we have had kind of from the dollar low to the dollar high. So probably all experienced over the last 12 months. And we kind of looked at it and said, well, the currency is sort of coming our way here because we have a very good impact of that in '20 that is all being achieved in our numbers. So the current exit rate is basically use the average rate, I think, over the quarter, but that's the exit rate we have now. I think what we signaled to people is we would like to try and lock that in because what we do not want to have happen is if the dollar goes the other way, we are going to see a $20 million ramp-up from where we are now.

And in a sort of (inaudible) we just got a $20 million discount on all the people we have hired and the offices we spun up, right? So we want to try to preserve that lower cost base for as long as we can. So we are going to try and hedge that risk out. But to answer your question, the exit rate we have now is a good approximation. And from here on in, it would be sort of net adds, and we are sort of review site at the end of the year. We are obviously going to have to make some adjustments are probably going to be larger than they have been previously, just got some inflation. So there will be some impact of all of that coming into that run rate.

Do you agree with that, Bill?

Yes, sure. That is perfect.

And then just another one on FX. Clearly, the retail side of the business benefiting from some volatility. Can you talk about -- is that existing customers just trading more? Can you talk about account growth? Or kind of just trying to understand maybe going forward, what that business might look like?

Yes. So Dan, you're probably familiar with the gaming business previously. And certainly, that business can be very volatile quarter-to-quarter dependent on market conditions. So we obviously had a good time of it this last quarter because the volatility was good. I would say the main driver for our increased performance was market conditions and not account growth. I think our account growth has been kind of okay, but not fantastic. And I think all of our peers are seeing the same thing. I mean, just going to look at Robinhood and so on. I mean those guys, their account bases have plummeted out having, but we have not sort of grown them significantly, but market conditions have been better. And I think we are starting to see some of the benefits that I mentioned at the time of the transaction, where if we can do this right, we are going to see better revenue capture because we can start offsetting internal trades in the same product coming from different areas.

So I do think we are starting to see better revenue capture, which should help us, but in our market conditions are still the key there. And hard to predict sort of market conditions going forward for that business, but it has done very, very well for us. Exceeded our expectations at the time of the acquisition. And I think that the business has got some exciting things that is going to be being in own shift. We are going to be out and mention it in my section, but we are going to be launching pretty soon cash equities in the U.K. We sort of moved us from speculative products to investment products. We are going to launch Crypto access. So things like that, I think, are going to sort of drive client growth going forward. But if we can have good market conditions, better trading and revenue capture, I think all bones well for that business. But volatility is also the key thing, right?

Yes, understood. And then I guess just lastly for me, just thinking about the current backdrop and evaluations coming in for businesses and broadly how you are thinking about M&A here? I know you have got a lot of organic initiatives that you are focused on, but is there a subset of the market or an area where maybe M&A makes more sense at this point?

I think it is starting to get more interesting just because as you say, there is sort of been a bit of fallout and there is a fit (inaudible) I think it is going to get interesting when some of these start-up sort of find that they cannot raise more money and need to go to some strategic buyers to help them out. I mean, certainly, that would be an interesting development for us. But honestly, at this point, I think it is still early in that cycle. I think over the next sort of 6 to 18 months will be interesting to see if some interesting opportunities come up. But we certainly have not seen opportunities that have been exciting to us in the last 6 months.

Got it. Actually, I do have one more question. Just on interest rate sensitivity and the charts that you guys provide. So that is incremental from here. So like the 75 basis points we have got a few weeks ago or certainly was not in your run rate or is prospective. So just thinking about exiting kind of the June your fiscal third quarter and the rate benefit you have got versus that chart that you provide in terms of incremental hikes, how we should kind of blend those together.

Yes. So yes, I mean, I'll let Bill chime in. Go ahead, Bill.

No, I was going to say, I think you are right, Dan. I mean certainly, the $75 million was not fully baked in and even the $50 kind of came in a month into the quarter. So I think you should be seeing the effect of those 2 kinds of coming in, in Q4 and an onward basis for us.

I think the way you should think about it is we invest in 2 things, normally as T-bills and sort of 3 month treasuries and then bank deposits on the other side. There is sort of a delay for us in catching interest rates, particularly with banks that do not all kind of put their rates up (inaudible) so there is a bit of a lag impacted. So we sort of I guess a little bit of maybe a 3 month moving average of the interest rates rather than the sort of the exact interest rates at the time. So we sort of catch it on the back end. So I was actually pretty short you see that (inaudible) need 6 basis points or whatever it was. At the moment, we are investing at 3 months treasury bills at 250 basis points or 230 basis points. So there is a long baked in kind of increase that we should start showing up in the next quarter or 2 for us.

Any other questions, operator?

At this point, we do not have any more questions. So I would like to turn it back over to you, Sean, CEO, for closing remarks.

Okay. Well, thanks very much. Thanks, everyone, for joining us on the call. Enjoy the rest of your summer, and we will be speaking to you in early December again. Thanks again. Bye-bye.

Thank you all for your participation in today's conference. This concludes the program. Everyone may now disconnect.