StoneX Group Inc. (NASDAQ:SNEX) Q3 2022 Earnings Conference Call August 4, 2022 9:00 AM ET
Sean O’Connor - President and Chief Executive Officer
Bill Dunaway - Chief Financial Officer
Conference Call Participants
Daniel Fannon - Jefferies
Welcome to the FY '22 Third Quarter StoneX Group Earnings Conference Call. At this time, all participants are in listen-only mode. [Operator Instructions] Please be advised that today's conference 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, we will refer to on this call in our discussion 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 the following discussion should be taken in conjunction with the most recent financial statements and notes thereto and 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'll 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 '22, we continued 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 are 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.
Turning to Slide 3, the earnings deck, [Technical Difficult] being FX and CFDs up 68% [Technical Difficult] being up 37%. And then of course interest on fine balances was up 207% off the back of a 44% increase in the total client float, 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 128% volume increase.
As we have mentioned previously, our securities business is growing and expanding as products and capabilities which has these transactional metrics over the last couple of quarters. Both our fixed income and equities business have expanded the 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 presents large opportunities. Just obviously as the impact of increasing volumes while revenue capture has declined.
Additionally, these new areas have required upfront investments in personnel increased costs slightly faster than revenue, which has also impacted the [Technical Difficult]. As you 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 stabilizes. [Technical Difficult] invested in our businesses and a core pillar of our strategy is to continue to enhance our financial ecosystem by expanding on products and capabilities. This in turn drives increased wallet share from existing clients and enhances client adoption and market uses.
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 at 4%. The standouts here playing CFDs are 54%, OTC contracts up 47% and again, interest balances are up 110 [Technical Difficult] and rates.
This robust increase in transaction volume across the board with standouts being securities and FX CFDs. Revenue capture was down 37% and securities and down slightly for the FX CFDs. But up for all the other products. Setting now for slide five and a summary of our earnings as reported and also on an adjusted basis which excludes the accounting impact of election two years ago.
We recorded operating revenue [Technical Difficult] and other expenses we are up 19% for the quarter, was variable compensation up 21% in line with revenue. Fix compensation cost [Technical Difficult]. This resulted in net earnings of 49.1 million up 44% and diluted EPS of [indiscernible] up 42% for 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 our best ever from an operational point of view, boosted by the market volatility of Ukraine situation. However, comparing with us immediately prior quarter, our operating revenues [Technical Difficult] and earnings were down 23% against this exceptional quarter.
Looking at the summary for the trailing 12 months, operating revenues were 1.9 billion up 18% over the comparable period, net income was 162.1 million and 170.2 on an adjusted basis. [Technical Difficult] $7.88 for the trailing 12 months for a 16.6 ROE or 17.5% on an adjusted. We ended Q3 2022 with a book value per share of $51.70.
Turning now to Slide six, our segments summary just to touch on the highlights before Bill goes into more detail. For the quarter operating revenue and segment income was across the board. Our largest segment commercial clients was up a solid 20% in segment income of the 12% revenue increase driven by spark on the physical side of our business.
Our institutional segment realized a 21% increase in revenues a new record which translated into a 3% in segment income for the reasons mentioned earlier.
We saw a very strong performance with operating revenues at 40% driving segment income up [Technical Difficult]. Global payments also realized the record revenue up 27% and payment equates to 1%. The segment has also been investing in its new local pay and capability as well as digital platform for midsize 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've discussed earlier. These are strong results. But as we've said repeatedly, we take a long-term view and 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 seven, we've set out our 12-month trailing financial performance. These numbers have been adjusted for [Technical Difficult] treatment related to the gain acquisition as disclosed in our prior filings and which appear in the reconciliation I did on the last page of this earnings deck.
On the left hand side, [Technical Difficult] trailing 12 month operating revenue over the last nine 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 pre-tax income likewise has grown significantly a 22% average growth rates.
On the right-hand graph you can see our adjusted earnings in the yellow bars which are up 54% over the last few years for a 23% CAGR. The dotted line represents our ROE which has remained above [Technical Difficult] even 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 writing life.
In addition, I'll 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. And 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, it discounts on a fixed cost base. We intend to lock in currency rates to ensure that we have some COVID benefit [Technical Difficult].
With that, I will now hand you over to Bill to provide more detailed discussion on financial
A - Bill Dunaway
Thank you, Sean. I'll be starting on Side number eight, which shows our consolidated income statement for the third quarter of fiscal 2022. So uncovered many of the consolidated highlights for the quarter so I'll just highlight a few bond 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 and our global payments business.
Introducing broker commissions declined 1% to 41.2 million in the current period, as increases in our institutional listed derivative and global payment businesses were more than offset by a decline in IB commissions in our commercial listed during this 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 and 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% of net operating revenues in the current period, compared to 30% of net operating revenues in the prior year periods.
This compensation increased 3.4 million versus the prior year with the growth principally related to salary and benefit costs have increased headcount, which increased 11% as compared to the prior year period, which is 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 we're up 1.8 million versus the immediately preceding quarter.
As compared to the prior year, selling expenses increased 7.9 million and professional fees increased 3.7 million. The increase in selling and marketing primarily relates to increase in digital marking 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 that's part of their initiative to expand our digital offerings.
Differentiation and Amortization was 2 million and primarily leads to an increase in internally developed software. We had net recoveries of bad debt expense of 700,000 for the quarter versus one point 3,000,012 point 3 million in expense 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 games, 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 million foreign exchange antitrust class action lawsuit settlement. We recorded no gain on acquisition or other games 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 number nine, I will provide some more information or operating segments. The company 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 looked at 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 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, in our 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 following Fed actions.
Segment income was 72.5 million for the period and increased over the prior year and preceding quarter of 20% and 3%, respectively.
Moving on to Slide number 10, operating revenues and 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 128% increase in the average daily volume of security transactions 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 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 enlisted derivative in 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 is 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 in travel and business development, which is partially offset by $1 million favorable variance and bad debt. Segment income declined 2.3 million versus 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 is primarily driven by a $30.8 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 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 $9.5 million increase in non-variable direct expenses 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 up the segment discussion on the next slide operating rental 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 it's 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 immediately preceding quarter.
Moving on to Slide number 13, which represents a bridge between operating revenue this 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 is partially offset by a mark-to-market loss and exchange shares held for clearing purposes in the current period.
The next slide number 14 represents a bridge from 2021, third quarter pre-tax income of 46 million to pre-tax income of 70.9 million in the current period. The negative variance in unallocated over 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-training technology and support a $1.8 million increase in fees, 1.6 million increase in selling and marketing expenses and $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 number 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 current balances increased 41 basis points to 69 basis points 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 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 without the high level strategic objectives that we are focused on. We have included this slide before, and I've gone through it in detail on the last call, so I won't repeat it all again. Over the last six quarters or so I've given a fairly granular view of the various projects we are undertaking in our segments and I'm 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 three to six months.
However, some highlights. As mentioned, our securities business is expanding and changing its product mix, as we leverage our longstanding institutional relationships into broader product offerings. On the equity side, we have now launched our electronic market making platform [Technical Difficulty] represents 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 enrolled 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 were very pleased with the results and the performance of our platform. And this is already accretive to the costing purpose. We'll be ramping this up steadily over time, we're increasing the number of clients and the number of stocks we make marketing. We believe that this is a very large opportunity for us.
On the fixed income side, we have steadily been diversifying in fixed income asset classes, many of which are higher volume and lower margin such as peoples 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 environments have changed. As we noticed change in the [Fed initial] [ph] investments, as well as talent in that we are now seen as a growing and successful fixed income franchise that can compete with Tier-1 players. We made some crews from larger players and we've seen increased clients adoption.
On the payment side, we've made some key hires to develop a local currency pay in business in Brazil and will thereafter do this in Colombia. This will allow us to provide an end-to-end payment service for our large 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 US based self-directed platform for individuals is live and being used by employees. This is a multi-asset platform, allowing trading in equities and equity options as well as listed derivatives. We'll be launching this platform in the upcoming quarter to a limited number of clients and ramp up from there utilizing our digital marketing team. We will also soon add crypto FX and gold making this a unique cross asset class self-directed execution capability. All of the trading flow will be directed to electronic market making platform where we and where appropriate, we will be able to internalize spreads. As you can probably tell we have a number of very exciting projects close to being launched.
Let's move on to Slide 17. This was another strong quarter with good market conditions and excellent results across [an] [ph] all-time segments. We achieved earnings of $49.1 million diluted EPS of $2.37 and an ROE on stated book off just over 19% This was also the best nine month period we have ever had with earnings for the nine months period being 154.8 million diluted EPS of $7.52 for an ROI of 20.92%. [Technical Difficulty] our results continued to show steady and strong upward trajectory. Right now revenues at 24% CAGR and growing our adjusted earnings at a 23% CAGR. We continued to see strong growth in client trading volumes and client assets, which leads to growth in our underlying client base and client engagement. This combined with heightened market volatility and increasing interest rates puts a real tailwind behind our business within.
So this year, we'll see a number of digital platforms being launched, which are more tightly integrate our offerings by client side, 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 increased margins and our core profitability.
We considered expanding our product capabilities and [indiscernible] we need a comprehensive financial ecosystem with a very large addressable market in front of us. While we have good market trends, the niche segments of the market lots of whitespace remains in areas where we already have tried relationships, and demonstrable capabilities and now need to monetize these opportunities.
One thing is always constant for the StoneX team and continue to dedicate ourselves to better serving our growing plants around the world by providing them with the best financial ecosystems and the best service to access global financial markets. So with that operator, let's open the line and see if we have any questions.
Great, thank you. [Operator Instructions] Our first question comes from Daniel Fannon with Jefferies, LLC. Daniel, please go ahead.
I guess my first question, Sean to be on the securities business. Clearly ADVs going higher, as you mentioned, in the RPM or the capture rate going lower? And obviously an issue 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 two dynamics going forward?
Yes. Sure. So Dan, probably before, [indiscernible] us 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 those VM charities, 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 two years before those metrics kind of leveled off. In aggregate it’s a still a net plus for the business. I think we now are seeing the exact same thing on the security side.
On the equity side, for example, the bulk of our revenue, up until now has been a market making in foreign unlisted stocks, which has a pretty high revenue capture associated with it. We now moving into the NMS market, and the revenue capture is orders of magnitude. So I'm not sure if I'm exactly correct, but I think the number of shares we trade on the NMS is now a significant portion of the national shift foreign [Technical Difficulty] while for those numbers on the equity side, to sort of achieve equilibrium and I think it's probably going to take, I would say conservatively, probably two years just like it did on the payment side. We want to approach this very cautiously. It's an automated electronic platform. We want to make sure that we do it responsibly and carefully. We want our clients in the technology, so I don't think it would be prudent to just sort of, rip it out there and let everyone have just added too. We are doing that mostly and you will continue to see the same trend, as we've seen in the last few quarters probably perpetuate, probably for another four or five quarters what you might guess.
Obviously, the incremental rate of change should slow because, if we already sort of, 80:20, when you get to 80:40, it gets slower. So, I mean, at some point, you do start to the law of averages apply, I guess. On the fixed income side, in theory, the exact same process has happened, our fixed income business was very focused on the mortgage market, that's a high margin product. And that's where we made, 75% of our revenue three years ago. And we have diversifying that business into T bills into treasuries into a whole range of other products. And then there's some products where we actually, are more commission based, like high yield and others.
So, what's happened in this interest rate environment is as the mortgage market is so slow, [Technical Difficulty] again, the revenue capture there is, fractions of what it is in the mortgage market and the volume grows up. So, I think, really good time, because it gave us some resilience. But again, is affecting those metric.
[Technical Difficulty] income side, we probably closer to seeing more of an equilibrium, just because I think the move there has been faster. But anyway, those are the comments, you need a precise 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. Does that make sense?
Yes, that's helpful. And then just want to understand your comment about FX and the benefit that it provided the fixed costs, I think you said 12 per annum? So is that something that was kind of in the fix -- I mean your fixed number, 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 prospectively, 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've had, 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, wow, the currency sort of coming our way here, because we have the aggregate impact of that 20 million that we've all seen and achieved in our numbers. So the current exit rate is, basic use the average rate, I think over the quarter. But that's the exit rate we have now, I think what we see built is, we'd like to try and lock that in, because what we don't want to have happen is, if the dollar goes the other way, and we're going to see a $20 million ramp up from where we are now. And in a sort of [Technical Difficulty] about it, we just got a $20 million discount on all the people we've hired and the offices we spun up, right. So we want to try preserve that lower cost space for as long as we can. So we're going to try and hedge that risk out.
But to answer your question, the exit rate we have now is a good impression. And from here on in, it will be sort of net adds, and we are sort of review site, at the end of the year, we obviously are going to make some adjustments are probably going to be larger than they have been previously just because of inflation. So there'll be some impact of all of that coming into that run rate.
Yes. That's well said. 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 GAIN business previously. And certainly that business can be vary by 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 count growth has been kind of okay, but not fantastic. And I think all of our peers are seeing the same thing, I mean, just look at Robin Hood and so on. I mean, those guys, their account bases have plummeted out haven't like we sort of grown them significantly. But market conditions have been better. And I think, we starting to see some of the benefits that I mentioned at the time of the transaction where, if we can do this right, we're going to see better revenue capture, because we can start offsetting, internal trades in the same products coming from different areas.
So I do think we starting to see better revenue capture, which should help us but market conditions are still the key there and it’s hard to predict sort of market conditions going forward for that business. But it's done very, very well for us, exceeded our expectations at the time of the acquisition. And I think the business has got some exciting things it's going to [Technical Difficulty] hadn’t mentioned in my section, but we're going to be launching pretty soon, cash equities in the U.K., which sort of moves us from speculative products to investment products, we're 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 bodes well for that business. But volatility is also a key thing. Right?
Yep. Understood. And then I guess just lastly, for me, just thinking about the current backdrop, and valuations coming in for businesses and broadly, how you're thinking about a year and is there any, you've got a lot of organic initiatives that you're 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's starting to get more interesting, just because as you say, there's sort of been a bit of a fallout and I think it's going to get interesting. when some of these startups sort of find that they can't raise more money and need to go to some buyers to help them out. I mean, certainly, that would be an interesting development for us. But honestly, at this point, I think it's still early in that cycle. I think over the next sort of six to 18 months will be interesting to see if some interesting opportunities come up, but we certainly haven't seen opportunities that have been exciting to us in the last six months.
Got it. I actually do have one more question just on the interest rate sensitivity in the charts that you guys provide? So that's incremental from here. So like, the 75 basis points we've got a few weeks ago, or certainly wasn't in your run rates are -- is prospective. So just thinking about exiting, kind of the fiscal third quarter and the rate benefit you've got versus that chart that you provide in terms of incremental hikes, how we should kind of blend those together?
Yes. So I mean, I'll let Bill chime in here. Go ahead, Bill.
I was going to say, I think you're right, Dan. I mean, that certainly the 75 wasn't 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 two, kind of coming in Q4 in an onward basis for us.
I think the way you should think about it is, we invest in two things, normally, it's T bills and sort of three month treasuries and deposits on the other side. There's sort of a delay for us in catching with interest rates, particularly with banks, they don't all kind of put their rates up immediately. So there's a bit of a lag impact there. So we sort of, I guess, a little bit of maybe a three month moving average of the interest rates rather than the sort of exact interest rate at the time. So, we sort of catch it on the back end. And so I was actually pretty shocked to see that. [Technical Difficulty]. At the moment, we invest in three months treasury bills, 250 basis points, or 230 basis points. So, there's a long baked in kind of increase that we should start showing up in the next quarter or two for us.
Okay, understood. All right. Thank you.
Any other questions, operator?
At this point, we do not have any more questions. So I'd 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.