StoneX Group Inc. (SNEX) Q3 2021 Earnings Report, Transcript and Summary

Thank you for standing by. And welcome to the StoneX Group Third Quarter Fiscal Year '21 Earnings Call. At this time, all participants' lines are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference may be recorded. [Operator Instructions] I would now like to hand the conference over to your speaker today, Mr. Bill Dunaway, CFO. Sir, you may begin.

Good morning. This is Bill Dunaway. My apologies to all of you on the call here for starting a little late. The conferencing center was having some technical difficulties. So I appreciate all of you hanging around here a little bit with us. Welcome to our earnings conference call for our third quarter ended June 30, 2021. After the market closed yesterday, we issued a press release reporting our results for our third fiscal quarter of 2021. This release is available on our website at www.stonex.com, as well as a slide presentation, which we'll refer to on this call in our discussions of our quarterly results. You'll need to sign on to the live webcast in order to view the presentation. The presentation and an archive of the webcast will also be available on our website after the call's conclusion. Before getting underway, we are required to advise you and all participants should note that the following discussion should be taken in conjunction with the most recent financial statements and notes thereto, as well as the Form 10-Q filed with the SEC. This discussion may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements involve known and unknown risks and uncertainties, which are detailed in our filings with the SEC. Although the company believes that 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'll now turn the call over to Sean O'Connor, the company's CEO.

Thanks, Bill. Good morning, everyone and thanks for joining for our third quarter earnings call. In Q3, we once again reported strong results that exceeded our 15% ROE target despite near zero interest rate yields on our client float. During the June quarter, market conditions remained somewhat positive for us, but perhaps less low than in prior quarters, as we started to see a normalization of the markets post the COVID disruption of a year ago, although, we did see heightened volatility in commodities, particularly, in agricultural markets. So if you could turn to Slide 4 in the earnings deck, we'll go through that. Operating revenues were up a strong 34% for the quarter and 33% for the year-to-date period. Operating revenue significantly increased in all product areas with the exception of securities, which was - which were up modestly, and physical contracts, which declined 5% as compared to very strong prior quarter, which benefited from increased demand for precious metals at the outset of the pandemic. Operating revenue growth was driven by strong volumes, which were up across the board with the exception of listed derivatives, where we saw a small decline of 5% as a result of a 10% reduction in our larger Institutional segment, which more than offset an 18% increase in our Commercial segment. Revenue capture was up a very strong 46% for listed derivatives with increases in both our Commercial segment, as well as with our Institutional clients, where we have been actively repricing our offering. Revenue capture was up 64% for OTC contracts off the back of increased volatility in the commodity sector that was down 42% for securities, although, this was offset by significant volume increases. Revenue capture was down slightly for Global Payments, although it's offset by higher volumes resulting in a record quarter in operating revenue for the Global Payments segment. Our average client float both in listed derivatives and securities clearing experienced strong growth of 31% and 26% respectively, due both to higher client volumes, as well as market share gains, and together now stands at $5.6 billion, up 30% from a year ago and up 8% from the immediately preceding quarter. Interest earnings were actually up from a year ago due to the higher client balances, and we are now starting to compare with the post-COVID interest rate environment. On a year-to-date basis, fees on client balances were down 52%, as strong growth in balances was more than offset by significantly lower interest rates. As compared to the immediately preceding quarter, overall, operating revenues were down 8% consecutively due to a moderation in overall market conditions. OTC derivatives revenues were the standout, up 42%, with volume and revenue capture up for the reasons mentioned earlier, while securities revenues were down 13% due to lower revenue capture as a result of less volatile markets. CFD revenues were down 31% consecutively with volumes down 13% and revenue capture down 22%. Global Payments revenues were up 4% consecutively and listed derivative revenue was relatively flat. So overall against our record Q2, a little down, but still a strong result nonetheless. Turning now to Slide 5, which has the summary of our earnings. We recorded operating revenues of $431.5 million, up 34% versus the prior year. Aggregate costs about 43% for the quarter, primarily related to the addition of GAIN, as well as increased incentive compensation due to better performance. Net earnings were $34.2 million, down 7%, and diluted EPS of $1.67, down 11% versus a year ago where we had very positive market conditions. ROE was 15.5% above our long-term target despite a much larger capital base than a year ago. There were a number of notable items you can see they're mentioned there in this quarter, the net impact of this was about $4.3 million pre-tax or about $0.15 per share. Looking at our business over the longer-term cycle for the trailing 12 months, our operating revenues were $1.6 billion, up 30%, our net income was $186.4 million, up 56%, and our EPS was $9.28, up 52%, and ROE was over 23%. Although, it should be noted, these numbers included the bargain purchase gain on the acquisition of the GAIN business in Q4 of last year. Reflecting on our year-to-date results through the nine months, I'm tremendously pleased that these results outpaced the exceptional results of last year, where we were assisted by the market volatility and increased volumes accompanying the onset of COVID-19. For the year-to-date period, our net income is $109 million, up 18%, and earnings per share were $5.38, up 14% versus the very strong comparative period a year ago. Turning now to Slide 6, our quarterly performance trend. We think the best way is to evaluate our results for looking at the longer-term performance, which shows how our business performed through short-term market cycles. I would like to point out that the attached chart includes only our GAAP numbers. We have not adjusted our Q1 EPS, which in our estimate was $1.43 on an adjusted basis, and also the Q4 2020 number includes the purchase accounting of GAIN, which largely reflects the accumulated 2020 earnings that accrue to StoneX shareholders on the date of the acquisition. The trailing 12-month ROE, which encompasses the last eight quarters results has risen from 19% to just over 23% for the current trailing 12 months. This trailing 12-month ROE significantly exceeds our long-term target and was achieved during some pretty unusual market conditions, which include the acquisition accounting of GAIN as well. It is likely as we have seen in our most recent quarter that our ROE is likely to trend a bit lower as market conditions moderate and normalize. It's worth noting that eight quarters ago, our shareholder equity was $570 million and now stands at just over $900 million. So it's grown nearly 60%, making the ROE target much more challenging in absolute dollar terms. Our trailing 12-month GAAP diluted EPS is currently $9.28 and our current year-to-date EPS, if you adjust for Q1 would indicate that annual EPS run rate of around $7.75. Turning to Slide 7, which is our segment summary, just to touch on some highlights before Bill gets into more detail. I was pleased to see that once again and despite challenging comparative period, Aggregate segment's operating revenues were up 35% for the quarter and segment income up 20% for the quarter. The standout here was the Commercial segment, which had operating revenues up 46% and segment income up 62%, despite near zero interest rates on our substantial client float. This was driven by both volume and revenue capture gains in listed and OTC derivatives, as well as continued growth in our customer footprint. We have mentioned a few times that we believe we have the best set of products and capabilities to assist our commercial clients and hedging their risk. This includes listed derivatives, bespoke OTC derivative contracts, as well as the ability to provide physical commodities and logistics support, and even in bad price protection into physical contracts. This is evidenced by the fact that the physical revenues on our meaningful 21% of the aggregate Commercial segment operating revenues. The Institutional segment operating revenues were essentially flat and segment income was down 14%, as revenue gains on the listed derivatives side were offset by a small decline in securities revenue as a result of the lower revenue capture compared to the very volatile prior quarter, as well as lower FX revenues. Retail was up for both operating revenue and segment income, but largely due to the acquisition of GAIN, which happened in the fourth quarter of last year. In the immediately preceding quarter, our Retail segment recorded segment income of $32 million versus only $6 million in the current quarter, a significant decrease. This was due to the GAIN business, which experienced tougher market conditions with less volatility and trending markets in many of its products, which made spread internalization harder to achieve. Average daily volume was down 16% to $8.2 billion versus the immediately prior quarter and revenue capture was $90 per million, down 21% versus the immediately preceding quarter. As we discussed when we announced the transaction, the GAIN retail business has a fair amount of quarterly volatility, which should even out over the longer-term. This is caused by both market conditions, as well as how we hedge and internalize the spreads from the trading flow. This quarter was much weaker than the immediately prior quarter, but that quarter was probably above trend. We would anticipate revenue capture, all things being equal, to average around $100 per million over the longer-term, which is exactly where we are for the year-to-date. I think the key takeaway here is the diversity and resilience we have within our business and even within our segments. The strong results from the Commercial segment offset weakness within the Retail segment allowing us to still report a solid overall result in excess of our target. And, of course, in the immediately prior quarter, we saw a very strong result from the Retail segment, which has offset some weakness elsewhere. So with that, I'll now hand you over to Bill Dunaway for a more detailed discussion. Bill, over to you.

Thank you, Sean. I'll be starting on Slide 8, which shows our consolidated income statement for the third quarter of fiscal 2021. Sean covered many of the consolidated highlights for the quarter. So I'll just highlight a few and then move on to a segment discussion. Transaction-based clearing expenses were up 21% to $67.1 million in the current period, primarily related to the increase in listed derivative operating revenues, as well as the incremental costs of the GAIN business acquired. Introducing broker commissions were up 74% to $41.8 million in the current period, primarily as a result of the incremental costs of GAIN, as well as the increased activity in independent wealth management and listed derivatives. Interest expense increased $3 million versus the prior year, primarily due to higher average borrowings on short-term financing facilities or subsidiaries and an increase in securities lending activities. Interest expense on corporate funding increased $6.2 million versus the prior year, primarily as a result of the senior secured note issuance late in the third quarter of fiscal 2020 related to the GAIN acquisition, partially offset by lower average borrowings on our senior secured credit facility. Variable compensation increased $23.9 million versus the prior year and represented 34% of net operating revenues comparable to the 34% of net operating revenues in the prior year period. The increase in variable compensation was related to growth in operating revenues. Fixed compensation increased $20.9 million versus the prior year with the growth primarily related to the GAIN acquisition, as well as $3.2 million in severance costs as noted on Slide 5. The prior year period included $700,000 in severance costs. Other fixed expenses increased $32.4 million versus the prior year, primarily driven by the acquisition of GAIN, including $2.6 million in incremental amortization of intangibles acquired. In addition, other fixed expenses increased versus the prior year as a result of an increase in non-trading technology costs, professional fees, travel and business development and depreciation of internally developed software. Bad debt expense declined $500,000 versus the prior year period. As noted by Sean on Slide 5, third quarter results include a $3.6 million gain on acquisition and other gains, $3.3 million of this gain related to an adjustment to the final tax liabilities assumed in the GAIN acquisition with the remaining $300,000 other gain primarily related to the disposal of certain fixed assets. Net income for the third quarter of fiscal 2021 was $34.2 million and represented a 7% decline over the prior year and the 38% decrease over the immediately preceding quarter. Finally, we closed out the quarter with the net asset value per share of $45.39 per share as compared to $35.66 a share a year ago. Moving on to Slide 9, I'll provide some more information on our operating segments. The Commercial segment added $47.9 million in operating revenues versus the prior year. Within this segment, lifted derivative operating revenues increased $20.4 million versus the prior year as a result of a 35% increase in the average rate per contract and an 18% increase in contract volumes, driven by increased volatility in agricultural and base metal markets. In addition, as Sean noted earlier, we had a strong quarter in OTC derivatives with $49.7 million in operating revenues. This was up $28.4 million versus the prior year period and was also driven by increased volatility in agricultural markets. Operating revenues from fiscal transactions declined $3.8 million, primarily as compared to the prior year period as a result of $10.6 million decline in precious metals revenues, which was partially offset by a $6.8 million increase in physical ag and energy commodity revenues. Operating revenues in physical contracts for the current period include a $2.1 million unrealized loss on derivative positions held against physical inventories carried at the lower of cost or market, while the prior year period include the $2.5 million unrealized loss of a similar nature. Finally, interest earned on client balances increased $2.3 million versus the prior year, principally due to the 59% increase in average client equity. Total non-variable expenses increased $4.5 million versus the prior year, primarily as a result of the increase in bad debt expense and professional fees. Segment income was $60.4 million for the period, an increase over the prior year period and preceding quarter of 62% and 9% respectively. Moving on to Slide 10. Our Institutional segment added $3.2 million in operating revenues versus the prior year, primarily driven by a $5.8 million increase in listed derivative revenues, as the 20% - 28% increase in the rate per contract more than offset a 10% decline in volumes. This growth was partially offset by a $4.9 million decrease in securities revenues as a result of a 42% decline in securities rate per million, which more than offset a 64% increase in the average daily volume of security transactions. The growth in the average daily volume was primarily driven by increased volumes in fixed income markets and the decline in rate per million was primarily a result of the prior year quarter benefiting from wider spreads related to the onset of the COVID pandemic. Interest and fee income on client balances modestly increased $100,000 versus the prior year due to a 15% increase in the average client balances versus the prior year. Segment income declined 14% to $46.5 million in the current period and declined $5.5 million versus the immediately preceding quarter. Moving to the next slide, operating revenues in our Retail segment added $55.6 million versus the prior year, which is primarily driven by $48.1 million in FX and CFD revenues from the GAIN acquisition. Our retail physical precious metals business added $1.7 million in operating revenues versus the prior year. The increase in variable compensation and benefits and non-variable direct expenses was driven by the acquisition of GAIN. Segment income increased $2.2 million versus the prior year, while declining $26 million versus the preceding quarter, with the decline primarily related to the decrease in FX and CFD average daily volume and rate per million Sean noted earlier. Closing out the segment discussion on the next slide, operating revenues in Global Payments added $7.6 million versus the prior year, driven by a 38% increase in the average daily volume despite an 8% decrease in the rate per million earned as compared to the prior year. This growth was driven by increased activity from our NGO clients, as well as continued growth in our client base. Non-variable expenses increased $1.2 million and is primarily related to the acquisition of GIROXX. Segment income increased 28% to $20.3 million in the current period. Moving on to Slide 13, which represents a bridge between operating revenues for the third quarter of last year and the current period across our operating segments. Overall, operating revenues were $431.5 million in the current period, up $108.9 million or 35% over the prior year. I have covered the changes in operating revenues for our segments, however, the $5.4 million decline in revenues and unallocated overhead is primarily related to negative variance in foreign currency gain and losses. The next Slide 14 represents a bridge from a 2020 third quarter pre-tax income of $49 million to pre-tax income of $46 million in the current period. The negative variance in unallocated overhead of $25.5 million is a result of the operating revenue variance noted on the previous slide, as well as an increase in unallocated expenses, primarily related to the acquisition of GAIN, the severance expense noted earlier, as well as an increase in occupancy and equipment rental related to additional leased office space. Next, I'll move on to Slide 15, which covers the interest rate sensitivity on our average invested client balances. As you can see it, the balances have continued to increase versus the prior year. However, the yield on the funds earned continue to be muted following the onset of the COVID pandemic last year with an average rate of about 19 basis points for the current quarter. At the bottom with the increase in the client balances, we've seen our sensitivity both on a potential rate increase or decrease with the 100 basis point annual rate change resulting in a $1.24, an additional incremental effect on post-tax EPS. With that, I would like to turn it back to Sean for a strategy discussion.

Thanks Bill. Turning now to Slide 16, which summarizes the high level strategic objectives that management is focused on, as well as the key projects we have in flight to address each of these objectives. Most of these projects are ongoing, but some quick updates and highlights. First, in the first column there building our ecosystem, we want to stay relevant to our clients, both existing and new clients by adding products, services, and capabilities and creating the best ecosystem to connect them to the global financial markets. There are two areas we're focusing more attention on both driven by increased client interest. First, cryptocurrency remains a hot topic and a growing market. We actively support our Institutional and Retail clients by facilitating trading in a growing number of listed derivatives, as well as publicly listed entities, such as Bitcoin exchanges and other market participants. This is a growing revenue source for us and we want to remain relevant to our clients by ensuring we provide access to this growing ecosystem, as well as market intelligence around this space. That said, it is unlikely we will enter into physical crypto and wallet space anytime soon. The second area we're spending time on is carbon trading, which is another growing market propelled by the Global ESG initiative. Again, our role is to provide clients with access to all carbon credit instruments. In addition, we have a role in educating our clients on how best to participate in this marketplace. Many of our agricultural clients are potential sources of carbon credits which can be monetized for them. In Brazil, we are now an authorized participant of the local carbon certification process which allows these credits to be traded. Just recently, we're appointed by one of the largest ESG funds in Brazil with nearly $2 billion in assets under management to help them manage this process. Just last week, we closed on a small acquisition for the retail platform called Chasing Returns. This was a digital education product we deployed on our trading platform to assist our clients to become more effective and profitable traders. And empirically this has had a real impact on the results of those who have used it. While this is not a material acquisition, it underscores our commitment to providing education and value-added services to all of our clients. Moving on to the next column, we are a customer-centric business and we need to consistently work at growing our customer footprint into new markets and expanding market share, where we have existing customers and looking to serve new customer segments and channels. 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. During the quarter, we received our regulatory permissions to roll out our Retail platform into the EU, which opens up a big new market for us on the Retail side. On the Commercial and Institutional side, we have already acquired most of the necessary post Brexit regulatory permissions we need, although, the entire process is still proving somewhat difficult to navigate. We will not achieve the necessary growth in scale unless we better enhance our 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 from front to back which has been underway for some time, but has now accelerated with the acquisition of GAIN. We are pleased with our cadence of delivery on our digital footprint. Finally, our business is supported by capital and we need to underpin our growth with internally generated capital resources and when appropriate access the capital markets in a disciplined manner. During the quarter, we had the opportunity to call $100 million of our high yield notes at 103. This was part of a put/call feature in the original note offering. We elected not to call the notes out of an abundance of caution given the strong growth in our business, the uncertain economic situation given that COVID is still impacting things economically. As a result, we remain very liquid and well positioned to handle growth and any volatility that may arise. We have the ability to call the entire high yield issue in June 2022, the second year anniversary of the issue. As you'll notice in our 10-Q filing, we extended the maturity of our wholesale bank facilities until August 2022, which generally lines up with the high yield call date, as well as increasing the size of overall facility by some $40 million. This will allow us to strategically reassess our capital structure in June 2022 to take advantage of the most optimal combination of debt and bank funding. It should be noted that our high yield notes and those of comparable companies are currently trading significantly inside the coupon we have to pay when we issued these notes. This of course will be subject to market conditions at the time we refinance, but we would anticipate being able to drive down the cost of this capital fairly significantly. You will also note that we started to buy back our stock during the quarter. We continue to use our structured approach not trying to support the share price, but trying to take advantage of price weakness for all our shareholders. Moving on to Slide 17, our quarterly dashboard. This sets up the high level KPIs we managed by our targets on the right-hand side, you can see that we comfortably exceeded most of the targets, although, we are a little high on our compensation ratio, and this likely to stay this way given the really tough and competitive environment that exists for talent right now, as well as the low interest rate environment. Slide 18 shows our customer growth over the last three years. We've shortened the time period up here, so you can see sort of the more recent changes. 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 context and data points around our progress in this regard. Lastly, an update on GAIN integration and synergies. We are now almost exactly at the one-year anniversary of the closing of this transaction. As mentioned last time, we remain on track having completed most of the initial integration objectives and making good progress on the longer-term challenges, such as consolidation of premises as leases run off consolidation of data centers, renegotiation of duplicative vendor contracts as these come up for renewal. We continue to make steady progress integrating products capabilities and ensuring we have a central risk book for each principal traded product to centralize all the flow in the company, maximize the spread capture, minimize the hedging costs and minimize risk. This will take some time to fully realize, but we have already seen some good and easy wins. This should allow us to internalize more margins and reduce risk and volatility in earnings. Adding more capabilities to the Retail platform, such as cash equity trading, and in the US, expanding from beyond just FX should increase scale and diversity of the earnings from our Retail platform. We feel pretty good about progress and what has been achieved so far and remain excited about the potential and opportunity we have in front of us. Let's move on to the final slide, closing summary. This quarter represented another strong performance in excess of our stated ROE target, which has now been exceeded for two years on a trailing 12-month basis. The current trailing 12-month ROE of 23% was certainly aided by exceptional market conditions as a result of the COVID volatility and activity is likely to moderate somewhat as market conditions normalize. That said, we believe that our business has been transformed in scale and through revenue and client diversity and is more resilient as a result. We will also benefit significantly from increased interest rates in a more normalized environment, which should mitigate the impact of reduced volatility. We continue to make progress and invest in technology to digitize our offerings, so we are better able to penetrate the massive addressable market that is available to us. Lastly, just to touch on COVID. Last time in my wrap up, I mentioned that it seemed like we are moving out of the pandemic towards normalization. Unfortunately, it seems like I spoke too soon and it looks like in many ways we have taken a backward step, whether it's in the US and internationally. It now seems to me that this will be a much longer process than we first envisaged and in the end, we will have to learn to live with COVID. This process is likely to take years rather than months and there likely be bumps along the away. I also think there'll be profound changes in every part of our lives, our social lives, the global business environment in how we work and travel, as well as in the economy as a whole and the role of government to the economy. Many of these changes are not clear at this time and will unfold slowly as we get to grips with the new normal. One thing will always be constant for the StoneX team, we'll continue to dedicate ourselves to better serve our growing client footprint around the world by providing them with the best ecosystem and service to access the global financial markets. The executive team and I'm extremely proud of the talented StoneX team will continue to propel us to new heights. So with that, operator, can we open for questions.

[Operator Instructions] And our first question comes from Dan Fannon from Jefferies. Your line is open.

Thanks, good morning. Sean, I guess the first question is just…

So, Dan before…

Go ahead.

Before you start, Dan, I want to ask you how often do you get your estimates right to the penny?

Yes, that's usually not the case.

Congratulation.

Yes, that was a unique one. But I guess my first question was just on the ROE targets and understanding that some of it's just math in terms of the growth in the capital base.

Yes.

But you did seem a bit more cautious just generally on just kind of a near-term and potentially longer-term ability to achieve that. So hoping you could just expand upon that a little bit more?

Sure. I think the financial businesses generally do correlate to an ROE range, right. And part of that is because you need capital to support the business and increased revenues generally require increased capital and increased footprint and so on. So I tend to think those laws of sort of gravity or laws of nature exist in financial businesses. Now clearly if you look at the environment now it's a pretty unusual environment and whether it's Goldman Sachs or Jefferies or loss, we are putting up ROE numbers that are well into the 20s. I don't think that's a sustainable situation long-term. I think that is somewhat of an aberration. And I think the market is reflecting that in sort of the low PEs that all these companies are trading at right. So I think the question for us is always look through the cycles, set yourself a long-term ROE target and manage around that. So if you go back to pre-COVID, we were tracking at 15%, 16%, 17% ROE somewhere around there, we made the GAIN acquisition, and if you look at the investor presentation we put out, we said that we think the increased scale of GAIN in addition to the fact that, that business was acquired without the issuance of additional equity. So it was going to sort of keep equity constant, but we had an additional revenue source. Our view was that could push our ROEs closer to the 20% range. So our view was all things being equal, we should be sort of 15% plus, but that assumption is a normalized market environment, normalized interest rate environment and sort of GAIN operating as envisaged. Clearly, we're not in that environment now, but we have pretty conducive market conditions. We have zero interest rates and the net results as we've been sort of above even the top end of that expectation going forward. So all things considered, it's really hard to predict how things are going to track out. I do think COVID is going to be more bumpy that would probably argue for sort of slightly higher volatility generally, although it may be sporadic, and I think at some point we're going to see interest rates kick in, which for us is going to be a big push. So I think we sort of come back to - we should be between 15%, 17%, 18% ROE sort of depending on the environment and dependent on where interest rates are, and I think that's sort of a long-term kind of target we set ourselves. Does that make sense or --

Yes, no, no, that does, that does.

Yes.

So thank you for that. My next question is just on the RBC in the listed derivatives which increased a lot. I think in your prepared comments you mentioned around the pricing changes or proactiveness you guys have had, if you could just kind of expand upon that thinking about the stickiness of these types of levels?

Yes, I - this has been a tough thing for us to do. So if you think about particularly in our Institutional segment, we have a sort of somewhat undifferentiated offering. I mean we always think we better than the competition because we serve them better and all of that, but there are a number of firms who compete with us directly in that offering. And that business model was always priced assuming interest rates, we're going to give you the revenue needed to make the ROEs on the capital resources committed to the business, obviously that changed. And we have to sort of think about how we're going to deal with that business, I mean, otherwise it should be a significant drag on our ROE. And I think what you found also over the last five years is a consolidation of the industry and a reduction of surplus capacity, which means pricing power has returned a little bit to the clearers whereas before you know it was the most aggressive guy on the margins at the price. So I think it's indicative of clearing becoming a more valuable commodity, less capacity and people may be also valuing our increased capabilities over time that people will come here and they can trade different asset classes, and we sat down with some of these folks, and we just said, in this environment, we're just not making the logical return on the capital resources, we're putting up to support your business. And to be honest, for the most part, our clients got it. I mean, they were like, yes, you're running a business, we understand, we don't want to be materially off market here, but we get the point, we like the relationship with you guys, you serve us well. And honestly, not all the clients, but a significant portion of the clients accepted some renegotiation of the rates, which we're not trying to gouge our customers. I think we're just trying to right-size that business model to make sure that we make the right return on capital, otherwise, if we keep doing that, we don't - and we can't justify the return of capital, we start reallocating capital out right and that doesn't help our clients. So I think it was an interesting process we went through. It's never easy to call up a long relationship and say, hey, we have to push your prices up. But I think we explained them in the right way and you can see the results. I think customers generally sort of accepted that argument. So I believe that lots of hard work in sort of calling customers up and having that conversation.

And just one thing I would add there, I guess, Dan. I would say that also, there was a pretty significant increase in the rate per contract on the commercial side as well. With - when you see a lot of ag volatility like we saw in this quarter and even to some extent last quarter, you tend to see not only our - some of our big - some of our commercial clients that tend to be a little bit higher RPC than some of the others, but you also have the introducing brokers, which tend to be - they cover individual farmers, you start seeing a lot of activity from them and you start seeing, it's a bit of a gross-up issue where you start seeing higher overall commissions, which drive higher overall RPC, but then you see a pretty good increase in introducing broker commissions that come in there as well. So it nets out lower, but you're going to see a bigger kind of top-line RPC, just because those individuals are paying a higher rate than a large commercial client is. So hopefully that sheds a little bit more light there.

Yes, that's helpful. And then just shifting to Global Payments, that was a portion of the business that was from a mix perspective impacted by COVID. Just thinking about the outlook for that both from a capture and just kind of volume perspective, how should we think about that business from here?

So you're correct, that business was affected by COVID pretty dramatically, and I think is now sort of back on track largely. I mean, depending on what happens going forward clearly. We're pretty optimistic about our payments business honestly because we continue to get sort of internal traction of the banks, and we always think there is a lot of room for us to grow inside of those bank relationships, right, because you would think the banks are sort of super-organized and all the payments come through to one place and not automatically routed, but they are not. I mean these banks have lots of different divisions and different entities and we have to sort of work with them to go through all of that. So I think there is a good sort of track record, a good track in front of us there. But additionally, I think as we've mentioned before with the GIROXX acquisition, we are now rolling out a sort of a digital offering to smaller companies that we haven't really done before. We've really relied on the banks to pick up some of that flow. We're now going to start that and we're going to do it in Europe, the US, and Brazil. So that's a big initiative for us. And additionally, we're sort of refocusing our efforts on trying to make sure that every one of our 450,000 retail customers and 30,000 commercial institutional customers use us to make their payments, and we really haven't integrated that offering yet. So that's pretty exciting for us as well. And that's just mining the internal client base is pretty significant right now. So those are sort of the two things that are on the table. We've seen a lot of these payments providers come to market. It's honestly sort of a bit shocking and alarming to see some of the market caps that these companies are getting right now. I would say that, I will not name names, but a lot of them use us because they don't have the back-end capability that they sometimes claim they have. And a lot of those companies we looked at buying three years, four years ago, and that were just loss-making entities. So that's a bit frustrating. But we are looking at where they have been successful. And I think there's certain segments out there that we could attack in a more comprehensive way and expand. So we're definitely doing that. So I think there are a bunch of new initiatives in place. And I think you'll continue to see hopefully some decent growth out of that business. We are rolling out the first beta launch of the platform I was talking about for small corporations on a beta basis that should happen here in the next three months to six months. We will start cross-selling on all our platforms. Our payments capabilities that should start to be rolled out again sort of slowly and incrementally, but that should start pretty soon. So I think all of those things are going to sort of push the current growth track that, that business is on. So hard to give you sort of specific. We don't like to give a specific forecast, but that business has grown nicely on a pretty consistent basis top-line and bottom-line, and I don't see any reason why we can't keep that growth rate up.

Understood. And just lastly for me, you mentioned the crypto potential opportunity, and curious if that's just an expansion of kind of GAIN's retail offering or if that's something institutionally, and then within that construct just the M&A kind of outlook, is that - is that a capability that you are just going to be launching organically or something as you look at expanding that, that could be part of the broader kind of inorganic strategy?

It was actually interesting because we think we've been sort of watching like everyone sort of crypto all over the headlines, right. And we actually did sort of a look internally, and we are sort of surprised that how much of revenue we are actually getting at the moment from our clients, who trading in the crypto ecosystem. I mean we make markets in a lot of the public companies, right. We trade all the derivative contracts. So it's actually a meaningful subset of our current businesses, but we've never really sort of thought of it as an ecosystem to go and offer to our clients. And I think we're putting some good research and market intelligence around that, now, we're starting to think a little bit more holistically about what are the other assets in that ecosystem, we should be providing access to our clients, how do we sort of think about the ecosystem better. I mean what we're not going to do is sort of wallets become an exchange and so on. But what we want to do is make sure that as new trading venues pop up. as new instruments pop up with this ecosystem, we sort of thoughtfully think about how we can provide our clients access to that. So that's sort of our current approach to it, and the same thing with carbon. Carbon, I think is a massively growing market. And it's still a little bit of the Wild West out there. I mean you have sort of listed derivative contracts, there's new - there's new contracts coming on in Singapore and elsewhere, and we want to be at the forefront of providing liquidity to our clients in those contracts. And there's also a lot of OTC trading that's happening, and a lot of our commercial clients want to be a part of that. So we've got to figure out how we can be proactive and facilitate our customer demand and interest in these two areas, and we're already making a lot of money in both of them. So it's just a question of being a little bit more focused and thoughtful around it.

And just to clarify, so the crypto that's both through your Retail and Institutional segments then, that's the way to put it.

Correct, correct, yes.

Okay.

Yes, exactly.

[Operator Instructions] And I'm showing no further questions at this time. And now I'd like to turn the conference back over to Sean O'Connor for any closing remarks.

Okay. Well, thanks everyone for joining the call. Enjoy the end of summer here, and we will be speaking to you soon. Thank you.

Thank you. This concludes today's conference call. Thank you for your participation, and you may now disconnect. Everyone have a wonderful day.