StoneX Group Inc. (SNEX) Q2 2021 Earnings Report, Transcript and Summary

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. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [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 our second quarter ended March 31, 2021. After the market closed yesterday, we issued a press release reporting our results for the second fiscal quarter of 2021. This release is available on our website at www.stonex.com, as well as a slide presentation we will refer to on this call and our discussions on 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 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 include 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 will 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 zero 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 bronze, which hit multiyear highs. So turning to the slide deck and starting on slide four, 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 volumes spiked and volatility and 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 re-price 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 continued to have very positive market conditions, as well as on the ag and biodiesel side. Our average client float, both on the derivative 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, our 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 five 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 notes, this acquisition is now accretive to earnings in only a second full quarter. Looking at Gain 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 six, 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 performed through short-term market cycle. I would like to point it out that the attach chart includes only our GAAP. 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 accrue to the StoneX shareholders. The trailing 12-month ROE, which encompasses the last eight quarters’ results has steadily climbed from 14%, which was just below our long-term target of 15% to the current 24%. It’s worth noting that eight quarters ago, our shareholder equity was $552 million and so has grown over 50% in the last two 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 seven, 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 revenues, 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, Gain 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 will be starting on slide number eight, 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 will 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 due 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 support these initiatives. Other fixed expenses increased $25.8 million versus the prior year, with $20.3 million of the 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 the net asset value per share of $43.48 per share, as compared to $33.75 a year ago. Moving on to slide number nine, I will 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 -- at the end of the preceding quarter. Finally, interest earned on client balances declined $1.9 million versus the prior year, due to a short-term interest rates, which was partially offset by 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 number 10, our institutional segment added $5.9 million in operating revenues versus the prior year, primarily driven by $24.8 million increase in securities revenues as a result of a 34% increase in the average daily volume 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 re-pricing 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 $7.3 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 $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 $1.5 million in operating revenues versus the prior year. The increase in variable compensation and benefits and non-variable direct expenses were 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 around the holidays and related to the end of the calendar year. Non-variable expenses increased $900,000 and it is primarily related to the acquisition of GIROXX. Segment income increased 13% to $19.4 million in the current period. Moving on to slide number 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% 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 was partially offset by $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 number 14, represents a bridge from 2020 second quarter pretax income of $56.1 million, a record at the time the pretax income was $76.3 million in the current period. The negative variance in unallocated overhead of $21.5 million is net of the positive operating revenues noted before on the previous slide and includes $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 will also notice that we included a slide in there, which was requested by many of you showing our float 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. This is a similar to the slide we showed last time, so I will 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 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 under way 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 the capital markets in a disciplined manner. Moving on to slide 17, each of our products and segments has a larger number of project slides 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 client 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 two years ago, we acquired a small outsource trading business as part of our prime brokerage offering we were building at the time. Outsource 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 and turnkey solutions to our institutional clients. But, 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 two years. We have recently started to expand our presence in the primary issuance in the mortgage agency in municipals market, 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 this digital platform, continuously driving new clients to their platforms. Over the last couple of quarters, Gain has restructured those capabilities by in-sourcing talent rather than using outsourced vendors or 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 and adding new accounts. This should lead to significant financial impact on the business overall. Now increasingly looking to leverage this digital marketing more broadly throughout our business as we continue to digitize legacy StoneX business, this has started with our CoinInvest business and is already showing benefits. The most significant projects 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 continued 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 all 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 to 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 have provided transparency and cost efficiency to the peg international payments world, and in many cases, disrupted debt 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 existing relationships and we will be better able to provide execution to our clients and also potentially internalizing trading spreads to currently pave the way 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 have been doing business with the higher 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 bottomline. 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 sales people. So 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 three 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. This slide is intended to provide some fund techs 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 are attracting the 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 re-focus 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 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 talents from Gain and this should not be underestimated, and in many instances, our support areas are now headed up by Gain folks. We remained 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 and spaces 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 product capabilities and trading flow. This will take some time to fully realize, but we have 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 segments 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 success significant initiative here is the build out of a cash equities offering for the city index platform, after which we will 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 in-house 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 number 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 floats. We continue to expand our products and capabilities, some of which I have touched on earlier. And we have made good progress on leveraging our capabilities into the Gain trading platform. We continued 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 the Gain integration and navigating with COVID. Just dealing on the COVID issue, it seems like we are 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 maybe six months to 12 months behind that. In some ways, things may never be the same and we have 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 will stop there. Operator, let’s open the line and see if we have any questions.

Thank you. [Operator Instructions] Our first question comes from the line of Dan Fannon of Jefferies. Your line is open.

Thanks. Good morning, gentlemen. 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 the sustainability at this level and some of the inputs that drove that this quarter?

Okay. Well, welcome Dan. Let me start and then Bill can chip in later. So I think there were two 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 toward 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 re-price some of our lower price customers. And it’s not an easy thing to do, these are tough conversations, and I think we approached them with Kanda [ph] to our clients. I think our clients appreciate what we are doing. So then we support them with capital. We support them with infrastructure and if, in the aggregate, we are not getting the right return, that’s not a good relationship for us in the long-term. So it’s not going to end well for them either, right? So those conversations have gone pretty well. I think people realized that we are 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 terms, because we are 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 is 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 downward. 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 are 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 banks may come back to us and say, well hang on, the economics have moved up a little bit more in your favor now so can we maybe rethink the overall relationship. So I think there is 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 that’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 two items kind of is a component that led to that rise in RPC, in addition to what Sean said that’s kind of the re-pricing on the straight futures and options business in the institutional segment, if that makes sense.

Yeah. That makes sense. Okay. Thank you. 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 is 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 are 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 on a stated GAAP ROE basis. While it’s -- we consider it non-variable 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, healthcare, I am sorry, payroll taxes, retirement, some increases related to kind of paying time off accruals with the fourth calendar quarter or first fiscal quarter for us. You have some of those write-off of those balances that can be carried over and then you are starting a new here in the first calendar quarter. So I’d say, in all, kind of benefits -- non-share-based benefits were 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, 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. But I would expect them to go down, particularly with the 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 a offering that you are 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 timeline and kind of opportunity set 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 capability set to their self directed platform, and obviously, that we are 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 have identified that the biggest part of that is to add more of a sort of a cash equities components 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 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 have been probably doing that a little bit simply. But on the flip side, we don’t clear international securities ourselves. So, we are having to do kind of a work around there. So last time we showed, both of these projects are in flight, both in the U.K. and the U.S., and we will 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 out both markets of at least an initial offering and then we will 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 that we have and the regulatory environments are different in both jurisdictions, but we are pushing on both of them at the same time. Currently, we think we will 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 have 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?

Yeah. So we, obviously, see a lot of stuff, I mean, people know us as a consolidator and acquirer. So I think we are sort of in the flow of the transactions, if you like. Typically, we see anything from 50 to 100 opportunities in that 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 have 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 specs 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 are going to be on the other side of. So we tend to be a very disciplined value buyers. I think there are lots of people who are looking to monetize at those kind of the peak valuation levels and some of them work. But I think we want to make sure we stay so sort of focused and disciplined around compounding our book value, buying businesses we believe we can add value to, I mean, there is 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 have 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 six months 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.

Yes. It does. Thanks for taking all my questions.

Okay. Operator, do we have any more questions?

Thank you. [Operator Instructions]

All right. It looks like we don’t have any more questions. So let me just close by saying this has 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, I am really excited about our trajectory and where we are heading. So thank you for joining. We will chat again in three month’s time and enjoy the summer everyone. Thank you.

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