StoneX Group Inc (NASDAQ:SNEX) Q1 2023 Earnings Conference Call February 8, 2023 9:00 AM ET
Company Participants
Bill Dunaway – Chief Financial Officer
Sean O’Connor – Chief Executive Officer
Conference Call Participants
Paul Dwyer – Punch & Associates Investment
Operator
Good morning, ladies and gentlemen. Thank you for standing by, and welcome to the StoneX Group Inc. First Quarter Fiscal Year 2023 Conference Call. 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] Please be advised that today’s conference may be recorded.
I would now like to hand the conference over to your speaker host today, Mr. Bill Dunaway, Chief Financial Officer. Please go ahead, sir.
Bill Dunaway
Good morning. My name is Bill Dunaway. Welcome to our earnings conference call for our first quarter ended December 31 2022. After the market closed yesterday, we issued a press release reporting our results for the first fiscal quarter of 2023. 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 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, 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.
Sean O’Connor
Thanks, Bill. Good morning, everyone, and thanks for joining our fiscal 2023 first quarter earnings call. The first quarter of fiscal 2023 was marked with the continuing effect of inflationary pressures on global markets and significant increases in short-term interest rates. Volatility continued in both financial and physical markets, however, at a more diminished level than we experienced for much of fiscal 2022, especially towards the end of the quarter.
Turning to slide three in the earnings deck, which compares quarterly operating revenues by product versus a year ago. Listed derivative revenues were essentially flat as higher volumes were offset by lower revenue capture. Revenue from over-the-counter derivatives were down 9% off the back of lower volumes and slightly tighter spreads. Physical revenues were up a strong 46%, due to the addition of CDI, as well as good results from the precious metals activity. This was despite a $4.2 million mark-to-market loss on derivatives held against inventories, which should reverse next quarter.
Securities operating revenues were up 91% as a result of significantly higher volumes and also interest rates. While the higher interest rates helped drive the increase in securities operating revenue, we experienced significant increase in interest expense related to our fixed income trading as well. This happens as when we trade bonds, we earn the carried interest on our positions, but also incur related interest expense on financing the securities, which results in a bit of a gross up on the income statement.
We have changed our method of calculating securities rate per million revenue capture for this quarter and the prior year to address this and are now deducting the related interest expense associated with our fixed income trading. Factoring this in, the securities rate per million declined 20% to $422 in the first quarter, as compared to $529 in the prior year. Securities net operating revenues, which deducts the interest expense in aggregate, as well as the peering costs and IB commissions, increased 29% versus the prior year driven by increased volumes.
Global Payments recorded their best ever quarter with revenues up 31% and volumes up 23% and revenue capture up 7%. Our FX and CFD revenue was down 32% largely due to tougher market conditions, which resulted in lower revenue capture, down 27% versus a year ago. Interest and fee income on client balances was $86.2 million, up over 900% as we realized the impact of the cumulative interest rate increases off the back of a 56% increase in our total client float, which now stands at $9.8 billion.
Moving on to slide four, which shows the same data for the trailing 12-months. Over this longer period, we realized strong double-digit revenue growth across all products, except listed derivatives, which was up 9%. We have generally seen increases in both volumes and revenue capture over this period with the exception of securities and listed derivatives showing declines in revenue capture.
Turning now to slide five and a summary of our first quarter and trailing 12-month results. We recorded operating revenues of $654.8 million, up 45% versus the prior year. Our operating revenues were boosted by interest both on our client float and also the interest that is embedded in our fixed income trading, as I mentioned earlier. Net operating revenues, which nets off the interest expense, as well as introducing broker commissions and clearing costs, was up 22%.
Total compensation and other expenses were up 19% versus the quarter — for the quarter with variable compensation up 18%, slightly below the net operating revenue growth rate. Fixed compensation and related costs increased 8% versus a year ago and were in line with the immediately prior quarter.
During the quarter, we acquired CDI, a global cotton merchant business based in Switzerland, with clients and producers in Brazil and West Africa, as well as buyers in the APAC region. This acquisition resulted in a gain on acquisition of $23.5 million, both before and after tax. Excluding the acquisition gain of $23.5 million and the intangible amortizations we recorded, adjusted net income of $55.3 million, up 27% over the last year and up 2% on the immediately prior quarter.
On this same basis, we achieved an adjusted ROE of 19.7%. Including the gain on acquisition, and as reported, our earnings were $76.6 million, resulting in an ROE of 27.3%. We realized record operating revenues for both our Institutional and Global Payments segments.
Looking at the summary for the trailing 12-months. Operating revenues were a record $2.3 billion, up 33% over the prior year. Net income was a record $242 million, up 75% and, excluding the acquisition gain and the related intangible amortization, was $226.6 million, up 60%. Our diluted EPS was $11.59 for the trailing 12-months, up 70%. Our ROE was 23% despite equity increasing 47% over the last two years.
Our financial results were boosted by higher interest and fee income on our client float as we started to realize the full benefit of the accumulated interest rate increases. As mentioned last quarter, our interest-earning assets generally take about 45-days to reprice to new rates. Our average gross yield on our client float was 303 basis points for the quarter versus 193 basis points for the fourth quarter. And our net interest and fee income after deducting what is paid to finance increased $36.3 million versus the prior year quarter. We ended the quarter with a book value of $57.17, up 21% versus a year ago.
Turning now to slide six, which is our segment summary. Just to touch on some highlights before Bill gets into more detail. For the quarter, segment operating revenue was up 44% and segment net income was up 19%, with very strong performances across all, but one of our client segments. Our Commercial client segment was up 26% in segment income off the back of a 20% increase in operating revenues, with strong performances from our physical business following the acquisition of CDI, as well as the effect of higher interest rates.
Our Institutional segment was 113% increase in revenues, which translated into a 94% increase in segment income. This was largely due to a much-improved performance from our securities business and particularly equity market-making versus a softer quarter a year ago, as well as the increase in interest and fee income. Retail had a tough quarter with more challenging market conditions, resulting in a lower revenue capture compared to a much more favorable environment last year.
Operating revenue was down 27%, which resulted in a segment loss of $4.2 million, demonstrating that the high operational leverage we have with the digital platform works both ways. Global Payments revenue was up 31% and segment income was up 32% with solid increases in both volumes and revenue capture.
For the trailing 12-months, we had segment operating revenue and segment income up double-digits across the board. These were strong quarterly results, but as we have said repeatedly, we take a long-term view on how we manage the company and grow our franchise. As such, we believe that the best way to gauge our results and progress is to look at longer-term performance, such as the trailing 12-months rather than specific quarters taken in isolation.
Turning to slide seven, which sets out our trailing 12-month financial performance over the last nine quarters. These numbers have all been adjusted for the accounting treatment related to the gain in CDI acquisitions as disclosed in our prior filings, and which appear the reconciliation provided in the appendix at the end of this earnings deck.
On the left-hand side, the bars represent our trailing 12-month operating revenue over the last nine quarters. As you can see, this has been a smooth and strongly upward trend as we have steadily expanded our footprint and capabilities. Our operating revenues are up 64% over this period for a 28% compound average annual growth rate. Our adjusted pretax income likewise has grown significantly at a 40% CAGR.
On the right side, you can see our adjusted net income in the bars, which is up 107% over two years for a 44% CAGR. The dotted line represents our ROE, which has remained above our 15% target, even though our capital has grown by 47% over this period.
With that, I’ll hand you over to Bill Dunaway for a discussion of the financial results. Bill?
Bill Dunaway
Thank you, Sean. I will be starting with slide number eight, which shows our consolidated income statement for the first quarter of fiscal 2023. Sean covered many of the consolidated highlights for the quarter, so I’ll highlight a few more and then move on to a segment discussion. Transaction-based clearing expenses declined 5% to $67.3 million in the current period, primarily due to lower fees and equity products and the decline in FX/CFD contracts average daily volume.
Introducing broker commissions declined 4% to $36.8 million in the current period principally due to declines in our independent wealth management and retail FX/CFD business, which was partially offset by incremental expense from the CDI acquisition.
Interest expense increased $138.6 million versus the prior year, primarily as a result of the $93.3 million increase in interest expense related to our institutional fixed income business, which Sean noted earlier, as well as a $36.1 million increase in interest paid to clients on their deposits as a result of the significant increase in short-term interest rates.
Interest expense on corporate funding increased $2.6 million versus the prior year, also as a result of the increase in short-term interest rates, as well as an increase in average borrowings. Variable compensation increased $18.1 million versus the prior year, due to the increase in net operating revenues and represented 31% of net operating revenues in the current period, compared to 32% of net operating revenues in the prior year period.
Fixed compensation increased $5.9 million versus the prior year with the growth principally related to salary and benefit costs of increased head count, which increased 13%, as compared to the prior year, which was partially offset by an increase in deferred compensation.
Other expenses increased $23.7 million as compared to the prior year to $110.2 million, which also represented a $3.8 million increase over the immediately preceding quarter. As compared to the prior year, trading systems and market information increased $1.6 million, primarily in our securities business. In addition, professional fees increased $4 million versus the prior year principally due to higher legal, accounting and other consulting fees.
Non-trading technology and support increased $1.8 million due to non-trading software implementations, and selling and marketing expenses increased $1.9 million principally due to increased campaigns in our retail FX/CFD business, as well as additional hosted conferences and marketing expenses across our businesses. We continue to see an uptick in business development, increasing $2.8 million as compared to the prior year.
Finally, depreciation and amortization increased $3.6 million as compared to the prior year due to incremental depreciation related to internally developed software, as well as higher average leasehold improvements and intangibles acquired. We had bad debt expense net of recoveries of $700,000 for the quarter versus a $200,000 recovery in the prior year period.
Net income for the first quarter of fiscal 2023 was $76.6 million and represented an 84% increase over the prior year and a 46% increase versus the immediately preceding quarter. As Sean noted, net income includes a non-taxable gain on the acquisition of CDI in the current period.
Moving on to slide number nine. I’ll provide some more information on our operating segments. Our Commercial segment added $29.8 million in operating revenues versus the prior year, however declined $2.8 million when compared to the immediately preceding quarter. This increase was driven by a $20.7 million increase in interest earned on client balances versus the prior year as a result of a 25% increase in average client equity, as well as a significant increase in short-term interest rates.
In addition, operating revenues from physical transactions increased $16.3 million, compared to the prior year principally due to the acquisition of CDI, as well as an increase in precious metals activities. These increases were partially offset by $3.9 million and $4.2 million declines in operating revenues from listed and OTC derivatives, respectively. Segment income was $82.8 million for the period, an increase over the prior year and preceding quarter of 26% and 3%, respectively.
Moving on to slide number 10. Operating revenues in our Institutional segment increased $182.2 million versus the prior year primarily driven by $115.5 million increase in securities operating revenues, compared to the prior year as a result of a 56% increase in the average daily volume of securities transactions, as well as the increase in interest rates. The increase in securities ADV was primarily driven by an increase in volumes in both equity and fixed income markets as a result of continued volatility and increased market share.
As Sean mentioned earlier, the increase in interest rates also led to a significant increase in securities related interest expense for the period, which I will touch on momentarily. Operating revenues increased $3.1 million and $3.9 million in the listed derivative and FX products, respectively, driven by growth in both listed derivatives and FX contract volumes.
Finally, interest and fee income earned on client balances increased $56.7 million versus the prior year as a result of the increase in short-term rates, as well as a 106% increase in average client equity. The rise in short-term interest rates drove an increase in interest expense for the period with interest expense increasing $132.9 million versus the prior year.
Interest expense related to fixed income trading and securities lending activities increased $93.3 million and $2.2 million, respectively, as compared to the prior year, while interest paid to clients increased $33.1 million.
Segment income increased 94% to $62 million in the current period as a result of the $50.3 million increase in net operating revenues. Variable compensation increased 37% or $13.1 million as a result of the growth in net operating revenues. Fixed compensation and benefits increased $1.7 million versus the prior year as we build out our product offering, while other fixed expenses increased $5.6 million, including a $1.7 million increase in professional fees, a $1.5 million increase in trading systems and market information. Segment income increased $17 million versus the immediately preceding quarter.
Moving to the next slide. Operating revenues in our Retail segment declined $25.9 million versus the prior year, which was primarily driven by a $27.3 million decrease in FX and CFD revenues as a result of the 29% decline in RPM, as well as a 10% decline in FX/CFD average daily volume as compared to the prior year.
Operating revenues from securities transactions declined $4.1 million, while operating revenues from physical contracts added $2.5 million, as compared to the prior year period. Operating revenues in the Retail segment declined $31.3 million versus the immediately preceding quarter.
We recorded a $4.2 million segment loss in the current period versus segment income of $23.4 million in the prior year primarily as a result of the decline in operating revenues. Other fixed expenses increased $6.5 million, compared to the prior year driven by a $1.1 million increase in selling and marketing, a $1.8 million increase in depreciation and amortization, $600,000 increase in non-technology and support costs and a $300,000 increase in travel and business development.
Closing out the segment discussion on the next slide, operating revenues in Global Payments increased $13 million versus the prior year driven by a 23% increase in the average daily volume and a 7% increase in the rate per million as compared to the prior year. Non-variable expenses increased $2.4 million and is primarily related to the expansion of our payment offerings. Segment income was $32.3 million in the current period and represents a 32% increase over both the prior year and immediately preceding quarter.
Moving on to slide number 13, which represents a bridge between operating revenues for the first quarter of last year to the current period across our operating segments. Overall operating revenues were $654.8 million in the current period, up $204.3 million or 45% over the prior year.
I have covered the changes in operating revenues for our segments. However, the $5.2 million positive variance in revenues in unallocated overhead is primarily related to an increase in unallocated interest income net of an FX hedge-related loss as compared to the prior year period.
So next slide number 14, represents a bridge from 2022 first quarter pretax income of $52.5 million to pretax income of $95.6 million in the current period. The positive variance in unallocated overhead of $15.5 million was driven by the $5.2 million positive variance in revenues I just mentioned, as well as a $23.5 million gain on acquisition, which was partially offset by a $4.1 million increase in variable compensation as a result of improved performance, a $2.3 million increase in professional fees, a $700,000 increase in depreciation and amortization, a $900,000 increase in trade systems and market information and a $1 million increase in travel and business development.
Finally, moving on to slide 15, which depicts our interest and fees earned on client balances by quarter, as well as a table which shows the annualized interest rate sensitivity for a change in short-term rates. Interest and fee income net of interest paid to clients and the effect of interest rate swaps increased $36.3 million to $44.3 million in the current period as compared to $8 million in the prior year.
As noted in the table, we estimate a 100-basis point change in short-term interest rates either up or down would result in a change to net income by $28.8 million or $1.40 per share on an annualized basis.
With that, I would like to turn it back to Sean.
Sean O’Connor
Thanks, Bill. Let’s move on to the final slide, 16. We achieved very strong results in the fiscal first quarter 2023, delivering double-digit increases in operating revenues and net income, which resulted in diluted EPS of $3.62 and an ROE of over 27% for the quarter. These results included a $23.5 million non-taxable gain on the acquisition of CDI, which contributed $1.11 of earnings per diluted share and a significant increase in interest income, reflecting the growth in our client assets and higher interest rate environment.
While trading conditions moderated towards the end of the first quarter, the multiple drivers of our business, including our disciplined approach to acquisitions, the strong growth in client assets and our core operating performance, exemplify the diversity in our operating model. We believe that these multiple drivers and our ongoing investments position us to continue to empower our clients and drive our growth and deliver shareholder value.
When our performance is viewed through a slightly longer-term lens such as trailing 12-months over the last two years, which evens our quarterly anomalies, our results continue to show a strong upward trajectory, growing our revenues at a 28% CAGR and our adjusted earnings at a 44% CAGR. We continue to see strong growth in client trading volumes and client assets across all products and all client segments, which speaks to growth in our underlying client engagements.
We continue to invest in our financial ecosystem, expanding our products, capabilities and talent. We have a unique and a comprehensive financial ecosystem with a very large addressable market in front of us.
I would just like to note that this week represents the 20th anniversary of the investment into what would become StoneX. 20-years ago, the stock price was $0.64 and the market value of the company was $1.5 million, and the annual operating revenues were well less than $10 million. Over the past 20-years, we have compounded operating revenues at 32% per annum, shareholder equity at 29% per annum. And by harnessing the phenomenal power of compounding, we have increased the market value of the company over 130 times.
Our commitment to our clients, our discipline around risk and acquisitions and our long-term owner-based approach to investing into and growing our business have all been key underpinnings of the success. While we are proud of our track record and believe that it is largely unmatched by our peers, we also believe that we are still in the early stages of the opportunity that is available and in front of us. I have no doubt that the next 10 years are likely to be much more — for StoneX than the last 20 were.
Operator, let’s open for questions.
Question-and-Answer Session
Operator
Thank you. [Operator Instructions] I’m showing we have a question coming from the line of Daniel Fannon with Jefferies.
Unidentified Participant
Hi, thanks for taking my question. This is actually June on behalf of Dan. So maybe we can just start off with a quick discussion on the current environment and maybe just on 2023, how has that started versus what was the backdrop of 2022.
Sean O’Connor
Sure. Obviously, things can change fast in our business. So these general comments can change by the minute. I think if you go back to our discussion at year-end, my view was we were going to continue to see somewhat elevated volatility, which is obviously a key driver for our business. And that volatility would be higher than it was pre-pandemic, but maybe slightly lower than it had been for the last two years. And I think that’s what we still see.
Things obviously quieted down last quarter over the Christmas period. And maybe it was just the way the days fell over Christmas. It might also be that it was such a rough last quarter that I think a lot of people sort of closed down. In the beginning of December, it went down. We’ve seen things pick up to a more normal cadence here in January. So I think we’re going to see an environment that is moderately good for us on the volatility side, not quite as good as it was in COVID, but better than it was pre-COVID. And I think that will continue for some time yet.
On the other side, we’re obviously now starting to feel the full impact of interest rate increases. We always forget how quick and how fast these interest increases came about. And we really only started to see them showing up in our financial results by any magnitude in the fourth quarter. And obviously, now we’re starting to get to the point where we’ve seen that interest really kick in. And I think we’re going to be in an environment where interest rates are sort of either side of 4% for a while. I mean I’m not sure they’ll stay at 5%, which is where it looks like they’re going. But I don’t see a sort of a 2% environment out there anytime soon. That’s obviously very attractive for us, and that’s a much better environment than we’ve had at any point in time over the last four years, I mean, and certainly better than last year.
I mean, last year, as I said, we only saw a very small benefit from the interest rates. So I would say if you put those two things together, I think it’s a pretty good environment for us, honestly. The interest rate impact is material. And I think we’re still in a decent environment for volatility. So that would be my view. So as I said, things can change dramatically — quickly in our business.
Obviously, volatility changes faster than interest rates do. But I think this is going to be a good environment for us for at least 12 to 18 months. I mean beyond that, hard to know how far interest rates might go down, but I still don’t see them going to below 2%. So anything above 2.5% for us is a very attractive environment in our business. Does that answer your question, June?
Unidentified Participant
Yes, yes, absolutely. That was super helpful. And then since you mentioned interest rates and just it seems like markets pricing interest rates going down maybe at some point this year or next, so just on the way down as your earnings sensitivity to rates sort of similar — will be somewhat similar on the way up versus way down? Or is there some kind of dynamic here?
Sean O’Connor
Yes, it will be the same. I mean, the assets sort of might take a little quicker to reprice from the way down. But the dynamic will be the same. I mean, obviously, our incremental take of interest as it goes up reduces, because we pay more weight to clients. And on the way down, same thing happens. We take more of the interest rate on the way down. So it’s a little bit muted each way as you get sort of above 3%. But it should be symmetrical.
Unidentified Participant
And maybe just in terms of margin balance — margin requirements and client balances, do you see any dynamics between that related to interest rates — interest rate changes?
Sean O’Connor
Yes. We have seen some small changes here and there. I mean I think they’re largely immaterial. But certainly, in our equity clearing business, we’ve seen some retail clients take money or full deposits. I don’t know if that’s because they could find higher interest rates elsewhere or people were starting to buy into the market rather than having money on the sidelines. But we’ve seen that go down 1% or something.
And then on the other side of our business, it obviously depends on the volatility in the markets because that somewhat drives how much margin people have to leave with us. So if volatility moderates a little bit, we may see a little bit of a pullback on our aggregate client balances. The top sort of, I guess, 10% or 15% of our client balances tends to be more volatile. But there’s a core level of client balances there, which sort of just underpins our client footprint, right? And as long as markets are reasonably active, that’s probably going to be reasonably stable. But it could move around on the margin just a little bit for those reasons.
Unidentified Participant
Got it. Got it. And just specifically on the Retail business. You mentioned capture rate decline was mostly due to diminishing market volatility. So going forward, what would you describe as a normalized rate? And maybe you can go a little bit more in depth on the dynamics of just market volatility and the rate that we’re seeing here.
Sean O’Connor
Yes. So we have data around sort of revenue capture in that business over a long period of time. And it’s pretty damn stable over a period of time. What we do see is, in the short-term, weekly, monthly, even quarterly, there can be quite a lot of volatility in that revenue capture. So I would say something around $90, $95 in terms of revenue capture on the CFDs is sort of about where we think the long-term average is. I mean that obviously also differs with product mix because we make a lot less on the FX than we do say on indices. So something in that region is probably where we’d like to see it.
Now we are at 82 this quarter. So we were significantly below the sort of 9,500 type level that we see as the long-term average. But if you look at the prior quarter a year ago, we’re at 115. And in the immediately preceding quarter, we had 140. So I would say we’re sort of massively overachieved in those quarters. And you trend back to the mean at some point. We’re probably going to see a couple of quarters where we’re going to underperform to bring that average back in line with the sort of 95, 100 type levels that we think is sort of the long-term average.
So we certainly saw exceptional market conditions over the last 12 to 18-months in that business. Our revenue capture was above trend. And now we’ve seen a bit of a tougher environment and now we’re below trend. So we should be evening out somewhere in the middle here over time.
Unidentified Participant
Understood. Thank you. And maybe, Bill, just a quick one for you. I understand that the business is doing well, but how are you thinking about fixed expenses for 2023?
Bill Dunaway
Well, certainly, it’s something that we look to try to continue to control, right? And the increase was relatively modest from Q4 into Q1 here. We’re cognizant that, obviously, we’re riding the tailwind a bit of higher interest rates and slightly elevated volatility. So I think that the growth that we kind of saw over Q4 to Q1 is probably more indicative of what we would expect going forward versus when you looked at Q1 versus last year Q1 with a relatively sizable increase in fixed expenses, kind of, due to what Sean’s talked about on previous calls, us trying to digitize the business and expand our offerings. But our expectation is that would moderate here on a go-forward basis like it did from Q4 to Q1.
Unidentified Participant
Got it. Got it. And then just lastly on M&A. Do you think you’re still sort of digesting the CDI acquisition or you are kind of looking for more opportunities at this point?
Sean O’Connor
I’ll take that, Bill, if you like. So CDI is a relatively small deal for us. I mean, it had a disproportionate impact on our financial statements through, sort of, how you have to account for these things. That deal is going to be digested, I think, pretty easily and quickly by us. So it is not a gating factor for us looking at anything else at this point. And we’re always in the market. We’re always looking at opportunities.
I would say, and I’ve said this on previous calls, up until now, we’ve seen financial businesses hit peak earnings, and we’ve seen owners want to put sort of spat multiples on peak earnings, which obviously — of no interest to us. And I think we were well served not getting involved in any acquisitions on that basis. What we’re now seeing is, obviously, as you read in the press and see everywhere is a totally different environment, right?
Some of these businesses are now not performing so well, and they’ve realized that it was maybe a little bit of a COVID sort of bump that got them there. And additionally, funding has dried up for a lot of the sort of start-up businesses, and a lot of them are sort of halfway down the road of building out their capabilities. So we’re seeing a lot of those kind of opportunities.
We’re not a — we don’t like to take sort of — I guess we start businesses all the time ourselves, but we don’t think of ourselves as venture capitalists. So we will look at those businesses. And if we think there is real capability there and real opportunity and with a modest amount of additional investment bias, we can bring those to accounts and grow our ecosystem. That’s sort of interesting. But I think we’re getting into a more interesting and more rational environment now for M&A.
So I think it’s still going to take another six to 12 months for that to sort of settle down and for people to become totally rational around prices. But that could happen. I’m not saying that will mean we go buy anything, because I think we’ve expanded our footprint. We filled in a lot of our gaps. And so our gaps are fewer and our needs are less. And our default is always focused on organic growth. That’s the way we can add to shareholder value the best, right? When we buy something, we have to make it significantly better than it was when we bought it. Otherwise, we’ve added no value.
So our default is — our ecosystem. I think we have a tremendous run at the moment. We seem to be garnering market share all over the place. And the story is exciting at the moment, and I think clients and talent and so on are taking notice of us. So our default is just to continue doing what we think we’re good at, which is growing our business organically. And if we see an opportunity to do it faster through a good accretive acquisition that is well priced, we’ll always think about that.
Unidentified Participant
Okay, that was super helpful. Thanks again for taking all my questions.
Sean O’Connor
Of course. Thank you. Operator, do we have any other questions?
Operator
Thank you. Yes, sir. [Operator Instructions] And our next question coming from the line of Paul Dwyer with Punch & Associates Investment.
Paul Dwyer
Hi, good morning, guys.
Sean O’Connor
Hey, Paul. How are you doing?
Paul Dwyer
Thanks for taking my questions.
Bill Dunaway
Good morning.
Paul Dwyer
Good. Maybe just to follow-up on CDI. Can you spend — I think it’s only like a $40 million deal. Can you talk about what drove this gain on the acquisition?
Sean O’Connor
Yes. I mean I don’t want to get too much in the weeds on this, but this was a sole proprietorship. And I think we sort of said some of when we announced we were doing the deal a quarter ago. One of our top employees in Brazil joined the company, I think it’s five, six years ago to become sort of the heir apparent. We were sad to see him go, and he was a tough competitor in the cotton business for us.
And when the principal wanted to sell his business, he immediately thought of us and said this is right up StoneX’s alley, let’s call them. And there was no process. We just did a deal. I think the owner took the view that if I can just get my capital out of the business, and there was a big tax advantage for him, he had let the profits remain inside the company because, as I understand it, this tax treatment would be — he would be taxed on anything he took out of the company. But if he sold the company, that would be a tax-free receipt for him.
So there was a significant tax advantage for him to sell a business that accumulated sort of capital over the years. So the pressure price is sort of in the $30 million, which was tangible book value. That was the deal we did. And there were a few sort of add-on payments based on the results of the company on a cash basis up until December. So we made some small additional payments. So that’s the deal we did. I think that’s the deal he wanted. There wasn’t huge amounts of negotiation. I think that’s the deal he was looking for.
The difference is, for him, he always accounts for his base — his company on a cash basis, which is how Swiss GAAP does it. We have to account for the business on a mark-to-market basis. And their business, they have a significant portion of their next year’s revenue contracted in. So we obviously had to mark that to market, which led to some of the gains. So we’ve now brought forward some portion of their next year’s revenue. And because we sort of — that came as part of the acquisition, that was sort of part of the gain we realized.
Additionally, we have to go through an independent valuation process when we acquire businesses. And we use a third-party to do that. They do it for all our acquisitions. And they have to value the business independently, and they do look at things like the value of the relationships, the suppliers and so on. So there is an intangible write-up of the value of the contracts and the suppliers. I mean if it were up to me, I would prefer, and I think Bill agrees, we prefer never to write up those intangibles, because we just have to write them back down.
And for me, intangibles aren’t worth anything really. It’s not hard cash, and that’s how we think. So part of that is just sort of an accounting anomaly that happens. So we will have to write some of that down. But that’s really the gist of it. So it was sort of a bizarre outcome when we saw how much of a gain would show on a relatively small acquisition, but that’s the reason.
Paul Dwyer
Yes. Okay. Sounds like a nice deal. On Global Payments, it seems like it’s continuing to accelerate in its growth. Can you just spend a little more time talking about what the drivers have been to get the acceleration and just the general landscape for that segment?
Sean O’Connor
Yes. I mean definitely, we sort of feel that, that business has got sort of renewed energy and we’re starting to invest in the business in sort of new angles, which I think maybe three, four, five years ago, we weren’t doing so much because our core business was sort of [on affair] (ph). And that’s always frustrating to me is when businesses do well, people stop investing because they’re sort of busy making money, right?
And I think we’ve always got to do both. You’ve got to take advantage and make hay while the sun shines, but you’ve also got to sort of — you’ve got to think about investing in your business, because we want to grow the franchise. And sometimes those market conditions that make your business profitable or sustainable in the long-term unless you invest.
So I think with the payments business, we pushed them really hard about two, three years ago to really think about how to sort of reinvest and grow the business. And they are — we’re making big investments in that business right now. And not a lot of that is showing up yet in the P&L. But I think it sort of energized the team. We’ve got a lot more sort of younger people in the team. We’ve recruited people. All these new initiatives are very much technology-based. So we’ve recruited sort of younger technology-based people. So sort of feel good about the general sort of tone of the business and where it’s taking us and our local payments capability when we launched that, I think, would be very significant, potentially for us.
In terms of why the business is doing better now, I think this perversely was one of the businesses that didn’t experience a COVID, kind of, tailwind. People stopped investing overseas. I mean, the payments where we really make a lot of money on with corporations are investing and making larger size payments into the subsidiaries, a lot of that slowed down during COVID is now picking up. So I think, on the margin, I would say that sort of high-level takeaway is COVID was sort of a tough environment for this business, and we’re getting back to a more normalized environment, which is a little bit the opposite of some of our other businesses, right? So that’s what I would describe it generally. Yes.
Paul Dwyer
Okay, great. Yes, that’s perfect. And then really nice operating leverage again this quarter. just big picture, how do you think about continuing to be able to drive, I guess, segment income relative to unallocated costs, particularly if the interest rate benefits are now starting to be more accurately reflected in the business.
Sean O’Connor
Well, when you say we got better operating leverage, my response to that would be finally. So we always seem to be investing so much in trying to make our infrastructure more efficient, more scalable. But in the short-term, it’s just a net add in costs. And you sort of hope that, at some point, you start to see those benefits of scalability and that operational leverage sort of come to the fore.
So it’s been a long time in coming. And hopefully, we’re now getting to the point where we will see our aggregate, sort of, unallocated cost base sort of level out. And if we can continue to keep the volumes and the revenues going up, I mean, we should have very significant operating leverage going forward. It’s hard to do, because not only are you trying to digitize your business and leverage technology better, but there’s always a continual push on costs from the regulators and the environment, right?
The regulators are always imposing more and more costs on us, more and more processes. Some of that’s good. Some of that maybe is more than is required, but you have to continuously, sort of, work with that environment. And then as we’re all digitizing, so you have to deal with things like cybersecurity and all the costs that are related to that. And those costs are going up faster than even the high inflation we’re seeing at the moment.
So there’s — even though we’re starting to flatten out at some point, there are some real pushes to costs here that we’ve managed to work with, and there’s going to be a challenge going forward. But we definitely feel we should be tapping out. We’ve made some major investments over the last 10-years. I think we’re starting to see a little bit of the payoff for that. So hopefully, that will continue.
Obviously, it always looks better when you have interest coming in and a positive environment, because your revenues grew, kind of, faster than your cost at that point. And always remember that without interest, we have zero cost against that, right? There’s no operational costs, no systems cost. So the operational leverage on interest is 100%, right? So that also skews the numbers a little bit. So I sort of rambled on it. Did I answer your question, Paul?
Paul Dwyer
Yes. No, that’s great. That’s perfect. And then just last for me, in terms of just being able to continue to grow the core business, it sounds like you’re having no issues with market share gains, but any color you can add just the current competitive landscape and the ability to keep taking market share?
Sean O’Connor
Yes. I mean we seem to be organically, sort of, growing our market share in line with what’s happened over the last five to 10 years, which is 10% to 15% incremental growth in customers and activity. And we’re giving you guys some of the data now on revenue capture. I mean, there was always the argument that you tend to face revenue capture pressure. But if you look at it over sort of five or 10 years, we haven’t seen any material decline in our margins on the revenue capture side. That may happen at some point, and it’s happened in some of our activities. But generally speaking, we managed to maintain our pricing. And we’ve managed to increase our market share in our client base.
And I don’t see any reason why that won’t continue. I mean, I do think maybe the environment has given us a boost because volatility was high and revenue capture was higher. So it sort of looked a bit better than it was. But underlying that trend has been a pretty steady kind of organic growth in customers. And that’s the core long-term driver for us. And I think we feel good. That’s in fact and in some ways, relative to the comments I made at the end, I think the next 10-years is going to be much more exciting than the last 20. And the reason I say that is I think we’re getting to sort of a tipping point in scale, in acceptability from counterparties. People know who we are. People want to come and work here. Clients see the value in our offering.
I mean five or 10-years ago, we were a tiny little business that no one had heard of. And if I think back 10-years ago where we were sitting and how we managed to grow, I’m sort of like holy [Indiscernible], we managed to pull that off, right? And I think this does become a little bit easier as you get a little bit of scale and as you grow your ecosystem. So not that I’m saying it’s easy, but I think there’s an opportunity for us to continue that trend and feel confident about it. So anyway, we’ll see, but that would be my view.
Paul Dwyer
Okay, great. That’s it from me. Thank you for the time.
Sean O’Connor
Yes, of course. Operator is there anyone else?
Operator
I’m not showing any further questions at this time.
Sean O’Connor
Okay. Well, thanks, everyone, for attending. I appreciate your support, and we will be speaking to you in three months’ time. Thanks very much. Bye-bye.
Operator
Ladies and gentlemen, that does conclude the conference for today. Thank you for your participation. You may now disconnect.
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