StoneX Group Inc.

Good day, and thank you for standing by. Welcome to the StoneX Group's second quarter 2025 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Bill Dunaway, Chief Financial Officer. Please go ahead.

Good morning, and welcome to our earnings conference call for the quarter-ended March 31, 2025, our second fiscal quarter. After the market closed yesterday, we issued a press release reporting our results for the quarter. This release, as well as a slide presentation, which we will refer to on this call, are available on our website at www.stonex.com. The presentation and an archive of the webcast will also be available on our website after the call's conclusion. Before getting underway, we're required to advise you, and all participants should note, that the following discussion should be considered in conjunction with the most recent financial statements and notes thereto included in the Form 10-Q file 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. I'll be starting with slide number four in the slide deck. So, first, I'd like to highlight that during the quarter, our board of directors approved a three-for-two stock split of our common shares. Trading on the stock split adjusted basis began on The market opened on March 24th, 2025. And as such, all per share figures referenced today are on a split adjusted basis. Second quarter net income came in at 71.7 million with diluted earnings per share of $1.41, which represents 35% and 29% growth over the prior year respectively. These measures were down 16% and 17% versus our immediately preceding record first quarter. This represented a 15.7% return on equity, despite a 51% increase in book value over the last two years. We had record operating revenues of $956 million, up 17% versus the prior year, and up 1% versus the immediately preceding quarter. As a reminder, our operating revenues include not only interest and fees earned on our client balances, but also carried interest that is related to our fixed income trading activities. Net operating revenues, which nets off interest expense, including that which is associated with our fixed income trading activities, as well as introducing broker commissions and clearing fees, were up 15% versus a year ago and down 1% versus the record achieved in the immediately preceding quarter. Total compensation and other expenses were up 9% versus the prior year quarter and up 2% versus the immediately preceding quarter. Variable compensation was up 19% versus the prior year which is higher than the growth in net operating revenues as a result of declines in net operating revenues in our self-directed and retail segment and overall interest and fee income earned on client balances, which typically have lower rates of variable compensation associated with them. Fixed compensation and related costs were up 9 percent versus a year ago and up 1 percent or 1.2 million versus the immediately preceding quarter. The immediately prior quarter included $5.8 million in fixed compensation expense related to a departing executive officer. It is of note that the immediately preceding first quarter, as well as the prior year second quarter, each include class action settlements received of $5.7 million and $6.9 million, respectively, which are included in other gains. Looking at it from a longer standpoint, our trailing 12-month results show Operating revenues were up 18%. Net income was 295.4 million, up 22%, with earnings per share of $5.90 and an ROE of 17.3% above our target of 15. We ended the second quarter of fiscal 2025 with a book value per share of $38.59. Turning to slide number five in the earnings deck, which compares quarterly operating revenues by product, as well as key operating metrics versus a year ago, we experienced an increase in operating revenue across most of our product offerings, led by a strong performance in physical contracts. Transactional volumes were up across all of our products, and an increase in volatility drove growth in client balances and an increase in rate per contract and spread capture across most of our products, with the exception of payments and FX and CFDs. Just touching on a few key highlights for the second quarter, we saw operating revenues derived from physical contracts were up 58% versus the prior year, off the back of strong growth in both precious metals and our physical ag and energy businesses, most notably in cocoa. However, they were down 22% versus the immediately preceding first quarter. Operating revenues derived from listed derivatives were up 15% versus both the prior year and immediately preceding quarter, primarily driven by our commercial segment. Operating revenues derived from OTC derivatives were up 14 percent versus the prior year and up 65 percent versus the immediately preceding quarter, driven by increases in both contract volume and rate per million, in particular in Brazil and European markets. Securities operating revenues were up 25 percent, as volumes were up 19 percent, and the rate per million increased 17 percent versus the prior year. primarily driven by significant improvement in our equity businesses, as well as compared to the prior year due to market volatility. Payments operating revenues were up 2% versus the prior year, but down 13% versus the immediately preceding quarter, which is always a strong quarter for us, with NGOs and charitable organizations increasing their payment volumes during the end of the calendar year. FX and CFD revenues were down 12%, despite a strong increase of 10% in average daily volume as we experienced a 19% decline in rate per million driven by lower spread retention and product mix. This also represented a decline of 28% versus a record first quarter of 2025. Our interest and fee income earned on aggregate client float, including both listed derivative client equity and money market and FDIC suite balances, decreased 2% versus the prior year, primarily due to lower short-term interest rates, which were mostly offset by growth in client balances. Turning to slide number six, this depicts a waterfall of net operating revenues by product from both the prior year quarter to the current one, as well as the same for the trailing 12-month periods. For the quarter, net operating revenues increased 15%, with largest gains coming from securities up $32.2 million, followed by growth in listed derivative and physical contracts of $12.1 million and $11.8 million, respectively. As noted earlier, it was a challenging market environment for FX and CFDs, which were down $9.3 million. Looking at the bottom graph for the trailing 12-month period, it shows a slightly different picture, as in addition to the growth in securities, we see large increases in interest and fee income, listed derivatives, physical contracts, and FX and CFD contracts, slightly offset by declines in payments and OTC derivatives. Moving on to slide number seven, I will do a quick review of our segment performance. Our commercial segment increased 18% in net operating revenues, primarily driven by strong performance in physical contracts, as well as 28% and 14% growth enlisted in OTC derivatives, respectively. Segment income was up 13%. On a sequential basis, net operating revenues were up 2% and segment income was down 5%. Our institutional segment experienced record net operating revenues and segment income in the second quarter, with growth of 28% and 41% respectively. The growth in net operating revenues is principally driven by $31.7 million increase in securities revenues, primarily in equity markets. Non-variable direct expenses increased 2%. partially offsetting the net operating revenue growth. On a sequential basis, net operating revenues and segment income were up 10% and 11% respectively. In our self-directed retail segment, net operating revenues were down 14% and segment income was down 34%, reflecting the high level of operating leverage inherent in this business. The decline in net operating revenues is primarily driven by a 34% decline in rate per million in FX CFD contracts, which was partially offset by a 34% increase in volumes. As noted earlier, the second fiscal quarter was a challenging market environment for spread capture in this business. On a sequential basis, net operating revenues were down 32% and segment income was down 61% versus a record quarter in this segment. In our payment segment, net operating revenues were up 2% and segment income was relatively flat. Rate per million was down 15% versus the prior year. However, the rate per million relatively consistent with immediately preceding two quarters. Average daily volume was up 20% versus the prior year, but down 8% versus the immediately preceding quarter. Moving on to slide number eight, looking at segment performance for the trailing 12 months, we experienced strong growth in our institutional segment with net operating revenues up 27% and segment income increasing 34%. In addition, our self-directed retail segment recorded increases in net operating revenues and segment income of 11 percent and 27 percent, respectively. Our commercial segment recorded increases in net operating revenues and segment income of 8 percent and 10 percent, respectively. Payments recorded decreases in net operating revenues and segment income of 5 percent and 7 percent, respectively. Next, slide number nine 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. The interest and fee income net of interest paid to clients and the effect of interest rate swaps increased to half a million to $74.5 million versus the prior year. This represents a $2.9 million decline from the immediately preceding quarter as we're starting to feel the effect of the Fed actions to reduce short-term interest rates. As noted in the table, we estimate 100 basis point change in short-term rates, either up or down, would result in a change in net income by $28.2 million or 57 cents per share on an annualized basis. With that, I will hand it over to Sean.

Thanks, Bill. Well, the big news of the quarter was our announcement of the planned acquisition of RJ O'Brien. We covered a lot of the background of this transaction in a separate call when we announced the transaction, but perhaps it's worth a quick overview now as well. We believe that this is a transformational transaction and our largest ever. that positions StoneX as a market leader in global derivatives and reinforces our position as an integral part of the global financial market infrastructure. With institutional-grade global market access, end-to-end clearing and execution capabilities, high touch service, and deep expertise, this acquisition enhances our entire franchise. It supports our goal of becoming the counterparty of choice for clients across asset classes embedding our integrating offering into long-term trusted relationships. RJO O'Brien has been a leading FCM in the industry with a stellar reputation and a culture matching our own. And while we are active in the same derivative markets, we have a limited amount of customer overlap. RJO segments its business into commercial, introducing brokers, institutional, and retail segments. The commercial segment consists of large commodity clients, similar in nature to those in our own commodity segments, and accounts for approximately 11% of RJO revenues. Additionally, many of RJO's introducing brokers serve as smaller commodity producers, which we at Stonex do not typically cover with our high-cash approach. However, we believe that Stonex has the best-in-class toolkit to service these clients. including our extensive OTC and structured product capabilities, as well as our physical logistic servicing capabilities, allowing us to provide additional value-added services, such as embedding price protection into physical contracts to avoid hedge accounting complexities, assisting in moving goods on rail cars or ships, and running managed price protection programs secured by physical grain, eliminating the need to finance margin calls. We know these products not only deepen client relationships, but also increase client value. We see strong potential to bring these capabilities to RJO's client base, representing a meaningful revenue synergy opportunity. RJO is the best in class provider to introducing brokers in the listed derivative industry, providing these IBs with execution and clearing they need to service their clients. RJO has over 250 IB relationships, and we have just over 100. Interestingly, we do the exact same thing for retail securities firms through our correspondent clearing business, where we provide the execution and clearing services to over 200 retail, introducing broker dealers, RIAs, and wealth management firms. So now in aggregate, this will now position us as one of the leading firms providing these critical backend services to over 600 retail firms across both asset classes. This dramatically expands the overall market footprint as these firms aggregate assets and trading flow for us. RJO is a market leader in providing interest rate hedging products to institutional clients, mainly banks looking to manage the interest rate risk, an area that has not been a core focus for StoneX to date. RJO has been exploring opportunities to expand into the trading of the underlying debt instruments to expand these relationships. This aligns directly with our fixed income business. As you know, our fixed income business is focused on exactly that, providing banks with the underlying fixed income instruments they invest in, from treasuries to agencies, mortgages, asset backs, as well as corporate bonds, both investment grade and high yield. Combining these complementary capabilities will provide us with a compelling capability to service all of the needs of these banking institutions around the world. RJO's retail segment is small and will be combined with our much larger, broader-based retail effort. As you can probably tell, we're very enthusiastic about this transaction. While we have not completed the detailed work to quantify revenue synergies, we believe that they could ultimately exceed the expected cost synergies in terms of bottom-line impact. More importantly, we see a significant opportunity to enhance client value and deepen our position as the counterparty or broker of choice across the industry. RDO brings an attractive financial profile to StoneX, having generated $766 million in revenue and approximately $170 million in EBITDA during calendar 2024. This acquisition is expected to immediately enhance our margins, our EPS, and our return on equity, and in addition add nearly $6 billion of client float and approximately $119 million in listed derivative contract volumes. Additionally, we've identified approximately 50 million in cost synergies, the majority of which we expect to realize within the 18 to 24 months of closing. To satisfy the purchase price of 900 million, we'll be issuing 625 million of senior secured notes, as well as 275 million in common stock to existing RJO shareholders. It is interesting that when we look back five years ago, during our initial presentation announcing the acquisition of GAIN Capital, we reported EBITDA of around 129 million and stockholders' equity of around 615 million. Now, following the acquisition of RJO, including the realization of the full 50 million in synergies and on a pro forma basis, we would have around 750 million in EBITDA, up nearly six times over this five-year period. and over $2 billion in stock equity, up over three times. This is a dramatic change in the scope and scale of the overall StoneX franchise over this five-year period. As a regulated business, this transaction requires several change of control approvals, which are underway, and we expect the transaction to close in the second half of 2025. In addition to the recently announced acquisition of RGO this quarter, we also announced the acquisition of the benchmark company, which is a full-service investment banking firm offering robust sales and trading platform, award-winning research, and a highly experienced investment banking team. Just like Stonex, Benchmark is a founder-managed firm, which was established by Rich Messina over 30 years ago. Benchmark brings broad relationships with over 800 institutional accounts to Stonex, which we believe we can leverage across Stonex's broader product offerings. brings a new investment banking capability, which we believe we can leverage into our existing client base, both for equity and debt capital markets transactions. Rich and I have been exploring a potential transaction for many years, and I'm glad we have finally taken the step and believe that the combination of the two firms will be powerful and accretive to all parties concerned. Note that the closing of this transaction is also subject to regulatory approval and customary closing conditions. Thirdly, during the quarter, we also announced a strategic investment and partnership with Bamboo Payment Systems to provide local in-country payment services for our clients in Latin America. Some years ago, we identified that our clients needed a digital payment service to accept and make payments in-country. While we initially dedicated an internal resources to building these capabilities, we have decided to partner with the firm that already possesses the expertise and proven experience in this area. Bamboo brings deep expertise and established payment ecosystem across Latin America with over 200 payment methods in 11 countries and connections to more than 600 local banks and institutions, enabling us to offer comprehensive end-to-end pay-in and pay-out solutions for existing clients. Bamboo clients will also benefit from our cross-border capabilities. As part of this transaction, we not only establish a commercial relationship, but also made a strategic investment. becoming one of Bamboo's largest shareholders and securing a pathway to full ownership should we choose to pursue it. The closing of this transaction is also subject to regulatory approvals. Additionally, a couple of days ago on May 6th, Stonex entered into a definitive agreement to acquire PlantaRo, a well-established Paris-based brokerage firm specializing in agricultural commodities, particularly cereals and oilseeds, across both the physical and derivative markets. This acquisition will mark StoneX's entry into the French grain market, the largest grain-producing region in Europe, expanding our footprint into a strategically important location. Again, similarly to the previously mentioned transactions, the closing of this transaction is again subject to regulatory approval and customary closing conditions. During the quarter, we received CME approval for our New York-based metals vault. make us one of only 11 u.s depositories authorized to facilitate comex and nymex deliveries and the only non-bank fcm with this capability our vault is authorized to store and deliver gold silver platinum and palladium enhancing our virtually vertically integrated offering in metals and complementing our existing vault operations in london and frankfurt at the beginning of this fiscal year we completed the acquisition of jbr recovery a silver recycling in the UK, one of only two companies accredited by the LBMA for good delivery of silver to the London bullion markets. This was discussed last quarter, and given all the activity on the metal side, we thought it would be a good time for us to do a deeper dive into our global metals market, which Philip will now do for us. But as you can see, the last quarter has been very active for us on the acquisition side, And I think we're well poised for an exciting year or two as we bed down these acquisitions. Philip, over to you.