StoneX Group Inc.

Good day and thank you for standing by. Welcome to the StoneX Group Inc. Q3 Fiscal 2025 Earnings Call. At this time, all participants are in the listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask the question during the session, you will 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, CFO. Please go ahead.

Good morning and welcome to our Earnings Conference Call for our quarter ended June 30, 2025, our third fiscal quarter. After the market closed yesterday, we issued a press release reporting our results for the quarter and this release is available on our website at .stonex.com, as well as a slide presentation which we'll refer to during this call. 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 recently financial statements filed and notes there too, as well as the Form 10Q to be 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 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 it was 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 begin with the financial overview of the quarter and we'll be starting with slide number four in the slide deck. Third quarter net income came in at $63.4 million with diluted earnings per share of $1.22, which represents 2% net income growth but a 2% decline in diluted EPS versus the prior year quarter due to additional shares outstanding. The current quarter includes pre-tax acquisition related charges of approximately $8.9 million, including $6.5 million of bridge loan financing charges and $2.4 million of professional fees, which equate to approximately $0.12 per diluted earnings per share. These measures were down 12% and 13% versus our immediately preceding second quarter, primarily due to the acquisition related charges I just mentioned. This represented a .1% ROE despite a 49% increase in book value over the last two years. We had operating revenues of $1.024 billion, up 12% versus the prior year and up 7% versus the immediately preceding quarter. As a reminder, our operating revenues include not only interest and fees earned on 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 4% versus the year ago and flat versus the immediately preceding quarter. Total compensation and other expenses were up 5% versus the prior year quarter and 3% versus the immediately preceding quarter. Fixed compensation and related costs were up 6% versus the year ago and 2% or $3 million versus the immediately preceding quarter. The increase versus the prior year was primarily related to merit increases at the beginning of calendar year, a 7% increase in headcount, as well as an increase in share-based compensation, with the increase versus the immediately preceding quarter also primarily related to the increase in share-based compensation. Professional fees increased $3.9 million versus the prior year, with $2.4 million of that increase related to the acquisitions as I noted before. It is of note that the income for tax for the current quarter includes a $2.3 million loss on disposal of capitalized hardware, partially offset by a gain of $1 million related to class action settlements received, while the prior year quarter included gains of $1.8 million related to class action settlements received, all which are included in the other losses and gains in the financial statements. Looking at it from a longer standpoint, our trailing 12-months results show operating revenues up 17%. Net income was $296.9 million, up 26%, with earnings per share of $5.87, and a return on equity of .6% for the trailing 12-month period, while above our target of 15%. We ended the third quarter of fiscal 2020-25 with a book value per share of $40.36. 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 growth in securities, payments, and FX CFDs, which were partially offset by declines enlisted in OTC derivatives, physical contracts, and interest in fee income on client balances. Transaction of volumes were up across all of our product offerings. Our diminished volatility combined with client mix drove a decline in spread and rate capture, with the exception of securities, which were up 15% and FX and CFDs, which were flat. Just touching on a few highlights for the third quarter, we saw operating revenues derived from physical contracts were down 17% versus the prior year, primarily related to the effect of tariff-related uncertainties on client activity, as well as the prior year comparable period, including an $8.4 million realized gain on physical inventories held at the lower of cost or micro nenhum daily market. Operating revenues derived from physical contracts were down 23%, versus the immediately preceding quarter, operating revenues derived from lifted derivatives were down 3% versus the prior year and down 2% versus the immediately preceding quarter, primarily driven by our commercial segments. Operating revenues derived from OTC derivatives were down 11% versus the prior year and 2% versus the immediately preceding quarter, primarily as the result of declines in the average rate per contract due to diminished commodity volatility. Securities operating revenues were up 30% as volumes were up 25% and the rate per million increased 15% versus the prior year, with the improvement driven by significant improvement in our equity businesses driven by increased volatility and client engagement. Security-related operating revenues were up 14% versus the immediately preceding quarter. Payments revenues were up 5% versus the year-ago quarter and up 6% versus the immediately preceding quarter. FX CFD revenues were up 14% resulting from an increase of 12% in average daily volume while the RPM was flat. This also represented an increase of 23% versus the immediately preceding quarter. Our interest and fee income earned on our aggregate client float, including both listed derivative client equity and the money market and FDIC suite balances, decreased 11% versus the prior year, resulting primarily from lower short-term interest rates, which were partially offset by 10% growth in client balances. However, this was modestly higher versus the immediately preceding quarter. Turning to slide 6, this depicts a waterfall byproduct of net operating revenues from both prior year quarter to the current one, as well as the same for the trailing 12-month period. Just a reminder, net operating revenues represent operating revenues less introducing broker commissions, clearing fees, and interest expense. For the quarter, net operating revenues increased 4%, principally coming from securities up 39.3 million and FX and CFDs, which were up 9.8 million, partially offset by declines in physical contracts, listed derivatives, and OTC derivatives of 22.5 million, 8.4 million, and 7.4 million respectively. On a net basis, interest and fee income on client balances decreased 12.5 million. Looking at the bottom graph for the trailing 12-month period, it shows a slightly different picture, as in addition to very strong growth in securities, we saw large increases in interest and fee income, physical contracts, listed derivatives, and FX and CFD contracts, slightly offset by declines in payments and OTC derivatives. Moving on to slide number 7, I'll do a quick review of our segment performance. Our commercial segment net operating revenues declined 24%, primarily resulting from a 44% decline in physical contracts, driven by a decline in client activity and increased interest expense related to our precious metals activities, as well as declines of 18% and 11% enlisted in OTC derivatives respectively. Segment income was down 36%. On a sequential basis, net operating revenues were down 13%, and segment income was down 17%. Our institutional segment saw record net operating revenues and segment income, with growth of 27% and 41% respectively. The growth of net operating revenues is principally driven by a 38.9 million increase in securities revenues, in particular in equity markets. Partially offsetting the net operating revenue growth, non-variable direct expenses increased 10%. On a sequential basis, net operating revenues and segment income were up 5% and 1% respectively. In our self-directed segment, net operating revenues were up 18% and segment income was up 49%, which demonstrates the operating leverage in this business. This was primarily driven by a 34% increase in average daily volume in FXCFD contracts, which was partially offset by a 13% decline in rate per million. On a sequential basis, net operating revenues were up 26% and segment income was up 87% in this segment. In our payment segment, net operating revenues were up 3% and segment income was flat. Rate per million was down 6% versus the prior year, however, it was relatively consistent with the immediately preceding quarter. Average daily volume was up 16% versus the prior year and up 4% versus the immediately preceding quarter. Moving on to slide number eight, looking at segment performance for the trailing 12 months, we saw strong growth in institutional segment, net operating revenues up 26% and segment income increasing 35%. In addition, our self-directed retail segment increased net operating revenues and segment income 14% and 28% respectively. Our commercial segment net operating revenues increased modestly while segment income declined 5%. Payments decreased net operating revenues and segment income 3% and 7% respectively. Finally, moving on to slide number nine, 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 interest rate. The interest and fee income net of interest paid to clients and the effective interest rate swaps declined 12.5 million to 73.9 million in the current period. This represents a $600,000 decline from the immediately preceding quarter. As noted in the table, we estimated 100 at basis point change in short-term interest rates either up or down could result in the change in net income by roughly $27 million or $0.54 per share on an annualized basis. With that, I will hand you over to Sean O'Connor, our vice chairman, for a strategy discussion.

Thanks, Bill. Good morning, everyone. So, I'm starting here on slide 11. As you no doubt saw, we closed the RJO and the benchmark acquisition after the close of business last Thursday, July 31st. We've covered a lot of the background of this transaction in both a separate call and during last quarter's earnings call, but perhaps just a quick refresh on both given that we are now fully in execution mode. RJO is the largest and most consequential transaction we have ever undertaken. We believe that this is a transformational transaction 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, -to-end clearing and execution capabilities, high-catch service and deep expertise, with this acquisition the hands-on on franchise, it supports our goal of becoming the counterparty of choice for clients across all asset classes, embedding our integrated offering into long-term trusted relationships. RJO Brian has been a leading FCM in the industry with a stellar reputation and 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. The commercial segment consists of large commodity clients, similar in nature to those in our own commercial segments, and this accounted for approximately 11% of RJO revenues in 2024. We believe that Stonex has the best in-class toolkit to provide additional services to these clients, including our extensive OTC and structured product capabilities, as well as our physical and logistic servicing capabilities, allowing us to provide additional value-added services. RJO is the best in-class service 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. This dramatically expands our overall market footprint as these firms aggregate for these assets and transfer them to us. RJO is also a market leader in providing interest-rate hedging products to institutional clients, mainly banks, looking to manage their interest-rate risk, an area that has not been a core focus for Stonex to date. This aligns directly with our own fixed income business. Combining these complementary capabilities will provide us with a compelling ability to service the needs of these banks around the world. As we continue to spend time with RJO folks over the last couple months, we have become even more enthusiastic about this transaction. As the transaction is now closed, we'll start to see the financial impact on our results, starting with Q4. As we have said from the outset, this transaction will be materially accretive to earnings and to EPS, as well as enhancing our margins to fully integrate it. Unfortunately, RJO in private has not reported its 2025 financials, but they are roughly in line with our expectations at the time of the transaction and in line with its 2024 results. Looking at pro-forma 2024 metrics we disclosed when we announced the transaction, RJO generated $766 million in revenue and approximately $170 million in EBITDA during calendar 2024. We issued around 3.1 million shares as part of the purchase price, which increases our share count by approximately 6%. This transaction is expected to immediately enhance EPS and return equity with the addition of nearly $6 billion in client float, as well as enhancing our margins over time. We are now able to refine our synergy analysis specifically around execution timelines. Broadly speaking, we believe that the integration and related synergies of the international components of RJO could be completed in the next three to six months, with a balance related to US which is larger and more complex, likely to take 9 to 12 months to realize. But more to come on this once we have finalized our detailed work. In late June we went ahead and raised the debt portion of the purchase on certain issues. Despite the market until a time of unanswered uncertainty and the geopolitical effects of the US strike against Iran, the issue was very well received we priced inside of one day, were multiple times oversubscribed, and more importantly, priced significantly tighter than our recent refinancing one year ago. The notes have also traded very well since we settled the issue in early July. Now moving to slide 12, we also closed the benchmark acquisition on July 31st. Benchmark is a full-service investment banking firm, offering robust sales and trading platform, award-winning research, and a highly experienced investment banking team. Benchmark provides research coverage on over 400 companies, brings broad relationships with over 800 institutional accounts to Stonics, which we believe we can leverage across Stonics broader product offering, and the new investment banking capabilities, which we believe we can leverage into our client base, both for equity and debt capital markets. We believe this is an important transaction that will be a creative to both our ecosystem as well as our bottom line earnings. So a very eventful and consequential July 31st for us here at Stonics and the beginning of a very exciting new chapter. I would now like to introduce Charles Lyon, our president, who together with Philip has taken over the -to-day running of Stonics. Charles technically has been at Stonics longer than I have. He was already working at the company when I took a position in it 23 years ago. Charles is especially focused on the trading and technology parts of our business. I've asked Charles to give you all an update on the clearing and custody side of our business, which is in many ways at the heart of our business. When we decided to start Stonics 23 years ago, we decided early on that we didn't just want to be an executing broker, but wanted a deeper, more meaningful and integrated relationship with our clients, which comes from clearing and holding client assets. In most instances, opening a new brokerage arrangement is a decision made by our clients on the trading desk. A clearing or custody arrangement is a C-level decision. However, becoming a clearer and a custodian requires a pretty heavy lift in terms of regulation, capital and infrastructure, but does put a very attractive moat around your business. So Charles, over to you.