StoneX Group Inc.

FY 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 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 speaker today, Bill Dunaway, CFO. Please go ahead, sir.

Good morning, and welcome to our earnings conference call for our quarter-ended September 30, 2025, our fourth fiscal quarter. After the market closed yesterday, we issued a press release reporting our results for the fourth quarter and the full fiscal year. This release is available on our website at www.stonex.com, as well as a slide presentation, which we will 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 are 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, as well as the Form 10-K 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 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 begin with the financial overview for the quarter, and we'll be starting with slide number four in the slide deck. Fourth quarter net income came in at a record $85.7 million, with diluted earnings per share of $1.57. This represented a 12% growth in net income. However, EPS grew at 1% rate due to the additional shares outstanding as compared to the prior year, primarily related to the issuance of approximately 3.1 million shares related to the acquisition of R.J. O'Brien. It is of note the current quarter includes pre-tax acquisition related charges of approximately $9.3 million, including $1.3 million of bridge loan financing charges and $8 million of investment banking fees, which equates to approximately $0.13 per diluted share. Net income and diluted EPS were up 35% and 29% respectively versus our immediately preceding third quarter. This represented a 15.2% return on equity, despite a 72% increase in book value over the last two years. We had operating revenues of just over $1.2 billion, up 31% versus the prior year, and up 17% 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 29% versus a year ago and 20% versus the immediately preceding quarter. Fixed compensation and other expenses were up 24% versus the prior year quarter. This also represented a 14% or $36.3 million increase versus the immediately preceding quarter. with $32.4 million of this attributable to the acquisition of RJO and Benchmark during the quarter. Fixed compensation and related costs were up 23% versus a year ago and up 12% or $14.2 million versus the immediately preceding quarter. The increase versus the immediately preceding quarter was almost entirely as a result of the acquisitions I just noted. Professional fees increased 12.2 million versus the prior year, primarily as a result of the $8 million investment banking fee noted earlier. They were up 3 million versus the immediately preceding quarter, with the investment bank fee just noted partially offset by a $5.8 million decline in legal fees, primarily driven by an insurance recovery. The acquisitions of R.J. O'Brien and Benchmark contributed $22.1 million and $2.4 million in pre-tax net income excluding acquired and tangible amortization, respectively, for the quarter. Looking at it from a longer standpoint, our full fiscal year results show operating revenues up 20%, net income was a record $305.9 million, up 17%, with earnings per share of $5.89 and a return on equity of 15.6 for the fiscal year, above our 15% target. We ended the fourth quarter of fiscal 25 with book value per share of $45.56 per share. Now 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 across all products with the exception of FX CFDs. Transactional volumes were up across all of our product offerings with the exception of FX CFDs and spread and rate capture increased in all products with the exceptions of payments down 4% and FX CFDs, which declined 32%. Just touching on a few key highlights for the fourth quarter, we saw operating revenues drive from listed contracts increasing 89.4 million or 76% versus the prior year with the acquisition of RJO contributing 89.5 million. This also represented a 64% increase versus the immediately preceding quarter. Operating revenues derived from OTC derivatives increased 27% versus the prior year, however declined 1% versus the immediately preceding quarter. Operating revenues derived from physical contracts increased 24% versus the prior year, primarily driven by a $19.5 million increase in physical, agricultural, and energy revenues, which were partially offset by a $6.8 million decline in precious metals operating revenues. Operating revenues derived from physical contracts were up 18% versus the immediately preceding third quarter. Securities operating revenues were up 26% as volumes were up 25% and the rate per million increased 23% versus the prior year, with the improvement driven by strong growth in both equities and fixed income. Payments revenues were up 8% versus a year ago, but down 3% versus the immediately preceding quarter, primarily due to a decline in rate per million. FX CFD revenues were down 34% versus a year ago, resulting from a 7% decline in ADV and a 32% decline in rate per million, primarily driven by low volatility in FX markets. This also represents a 36% decline versus the immediately preceding quarter. Our interest and fee income earned on our aggregate client float, including both listed derivative client equity and money market FDIC suite balances, increased 52 million or 46% versus the prior year, with the acquisition of RJO contributing 50 million. Average client equity and average money market FDIC sweep client balances increased 71% and 25% respectively. For the current quarter, the average client equity includes the effect of an incremental 5.6 billion per month from RJO for the two months post-acquisition, or an incremental 3.8 billion increase to the quarterly average. Turning to slide number six, this depicts a waterfall by product of net operating revenues from both the prior year quarter to the current one, as well as the same for the full fiscal year periods. Just a reminder, net operating revenues represents operating revenues less introducing broker commissions, clearing fees, and interest expense. For the quarter, net operating revenues increased 29%, principally coming from securities and listed derivatives, up $48.7 million. and $43.1 million, respectively. On a net basis, interest and fee income on client balances increased $28.8 million, with RJO contributing $32.5 million, which was partially offset by a modest decline in legacy StoneX. As noted earlier, due to the lower FX volatility, we saw FX CFD's net operating revenues decline $29.7 million versus the prior year. Looking at the bottom graph for the full fiscal year periods, once again, it is securities with the largest increase, up $126.1 million versus the prior year, driven by a 27% increase in ADV and a 9% increase in rate per million. In addition, listed derivatives and interest and fee income increased $46.3 million and $31.2 million respectively, primarily as a result of the acquisition of R.J. O'Brien. Finally, physical contracts net operating revenues added $34.7 million versus the prior fiscal year. Moving on to slide number seven, I'll do a quick review of our segment performance. Our commercial segment net operating revenues increased 25% or $42.9 million, with $20 million of this being contributed by the RJO acquisition. Listed and OTC derivative contract volumes increased 32% and 27% respectively. In addition, physical contracts increased 26%, while net interest and fee income increased 22%. The growth in listed derivative and interest income were primarily driven by the acquisition of RJO. Segment income increased 25% versus the prior year, while on a sequential basis, net operating revenues were up 23% and segment income was up 35%. Our institutional segment saw record net operating revenues and segment income, with growth of 67% and 73%, respectively. Versus the prior year, this represented growth of $117.5 million, with the acquisition of RJO contributing $50.2 million. The growth in net operating revenues is principally driven by a $48.9 million increase in securities revenues. In addition, listed derivatives and interest and fee income increased $30.5 million and $20.7 million, respectively, primarily driven by the acquisition of RJO. On a sequential basis, net operating revenues and segment income were up 46% and 53%, respectively. In our self-directed retail segment, net operating revenues declined 35% and segment income was down 51%. primarily driven by a 4% decline in average daily volumes in FX CFD contracts, combined with a 31% decline in rate per million. On a sequential basis, net operating revenues were down 37%, and segment income declined 62% in this segment. In our payment segment, net operating revenues were up 7%, and segment income increased 21%. ADV was up 13% versus the prior year, while rate per million was down 4%. versus the immediately preceding quarter payments and net operating revenues declined 2% while segment income increased 7%. Now moving on to slide number eight, looking at segment performance for the full fiscal year, we saw strong growth in our institutional segment with net operating revenues up 36% and segment income increasing 45%. In addition, our self-directed retail segment increased segment income 12%. Our commercial and payment segment added 1% and 4% in segment income, respectively. Finally, moving on to slide number nine, which depicts our interest and fee income on client balances by quarter, as well as a table showing 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 effect of interest rate swaps increased 28.8 million to 112.2 million in the current period, And as noted, the acquisition of R.G. O'Brien contributed $32.5 million in the net interest in the current quarter. As noted in the table, with the addition of the $6.3 billion in client assets from the R.G.O. acquisition, we now estimate a 100 basis point change in short-term interest rates, either up or down, would result in a change to net income by $53.8 million, or $1.02 per share on an annualized basis. With that, I will turn you to Sean O'Connor, our Executive Vice Chairman.

Thanks, Bill, and good morning, everyone. It is very gratifying to see that we've achieved yet another record financial result in what is a long string of record performances. We have managed to exceed our ROE targets, despite our stockholders' equity increasing by 72% over the last two years. It is no easy feat to continuously compound at a high rate when you're reinvesting 100% of your capital, something we have managed to do for decades now. Turning to slide 11 in the deck, as you're aware, over roughly the last 20 years, we've been active in the M&A market, especially following the financial crisis, having now completed over 30 acquisitions during this time. During the COVID pandemic and the years immediately following, our activity was notably limited on the M&A front. The prevailing market conditions at that time We're characterized by bubble-like valuations based on peak earnings for most companies active in our space as well. We chose to focus on organic opportunities and to wait for valuation demands to become more rational. 2025 was our most active year ever, with us completing six transactions, culminating in the acquisition of RJ O'Brien, our largest ever, and one we believe will be transformational for the organization. I thought it might be useful here to review our M&A approach, something that a lot of investors have asked me in calls over the last few years. We are very opportunistic around acquisitions. As an old M&A banker, I'm acutely aware that most transactions don't succeed for the simple reason that buyers are often desperate, maybe for a growth strategy, maybe a new strategy overall, new talents, and as a result, they tend to overpay it. We pride ourselves on being very disciplined, and we can afford to be disciplined because we have such a strong or grand growth track ahead of us, given the market dynamics we have spoken about previously, with banks withdrawing and smaller firms being consolidated. When we evaluate a new opportunity, we always have to consider the risk and disruption that this may cause to our existing organic growth initiatives, and therefore any opportunity needs to be compelling and accretive. we pass potential acquisitions through a number of screens. First, they need to be accretive to our ecosystem, adding either new products or capabilities, or adding to our client footprint and increasing market share in existing or new markets. We then need to clearly understand how we drive value for our shareholders. Most often, that is by selling these new products and capabilities to our existing client base to drive incremental revenue, or in the case of client acquisition, by leveraging our ecosystem of products into these new clients. And of course, culture is all important. We are a client-first business, and we seek to establish long-term embedded relationships with our clients. We also look at the requirement for resources and capital, as well as cost structures and margins, to make sure that these transactions can be quickly accretive to our bottom line and to our ROE. In many instances, we can achieve capital and cost synergies given our larger scale and global footprint. Then, of course, we need to get to price. And given our desire to compound our capital, we tend to be on the conservative end of the value spectrum. We need to see how the acquisition can be accretive to our ROE and also quickly earn back any goodwill that may be incurred, typically inside 36 months. I also strongly believe that we should take the leading role in due diligence rather than rely too heavily on bankers and advisors. This forces our team to roll up their sleeves and take ownership for the business we are acquiring and leads to quicker integration and synergies being achieved. Despite our strict criteria laid out above, we continue to find many good opportunities, and I think our discipline and rigor on the front end have resulted in us having a very high success rate with acquisitions. Almost all have gone on to become multiples of the size they were at the time of acquisition. Turning to slide 12, in the last several years, we get approached on around 85 to 100 opportunities per year, many of which are sourced internally by our own teams. We typically engage with around 70% of those at some level and get into initial due diligence on around 50%. and full due diligence on around 25% of those opportunities. That ends up with us submitting bids on around 15%. As you probably realize, this entails a fair amount of work and focus, and we are very lucky to have an extremely capable, albeit small, corporate development team who, of course, can leverage the internal expertise we have when needed. We're also lucky to have an exceptional in-house legal team which is involved in the process. We have received numerous compliments over the years from our external bankers and lawyers on the exceptional corporate development and legal teams we have in-house here at StoneX. Without a background, let's turn to slide 13 and take a look at how we did in 2025 fiscal year. As a reminder for this year, we made five acquisitions and we made one strategic investment. Starting with RGO Brine, which we continue to believe will be a transformational acquisition for us, RGO was one of the oldest independent FCMs in the U.S., transacting with over 45,000 clients and over 200 IBs. This acquisition has made StoneX the largest non-bank FCM in the United States and a market leader in global derivatives, reinforcing our position as an integral part of the global financial market infrastructure. This acquisition has brought us new clients in the likes of regional banks, to whom RGO provides clearing and risk management and interest rate products, a large introducing broker networks, which we believe we can leverage further, almost become an extension of our own sales team, as well as an agency execution capability where we can offer block trading and futures options and customized solutions. It was an acquisition which we also believe provides significant opportunities to improve our efficiency. As stated in our announcement, we expect there to be 50 million of expense savings and at least 50 million in capital synergies as we consolidate regulated entities. Abby Perkins from our executive team will be on this call and shortly provide an update on our integration progress with RJO. Coincidentally, we closed Benchmark on the same day as RJO. Benchmark is a midsize investment banking firm offering a sales and trading platform equity research, and a highly experienced investment banking team. Benchmark brought us deep relationships in the hedge fund community, which were incremental to us, as well as an investment banking capability. We are looking to leverage our broader training and clearing capabilities into these new clients and, of course, offer investment banking capabilities to our StoneX clients. Additionally, Benchmark has been able to leverage our balance sheet to take larger roles in transactions than before. Lastly, on capital synergies, by leveraging the existing larger StoneX broker-dealer balance sheet, which already supports our FCM and securities businesses, Benchmark can reduce the capital requirement for its business. We acquired the assets of JBR, a leading UK-based silver recovery refiner at the beginning of our fiscal year, which allows us to produce our own silver London good delivery bars and further extended our physical capabilities in metals. This has proven to have been particularly valuable during the recent metals volatility and shortages experienced this year, as we can now produce our own metal. It has also expanded our customer base by adding numerous industrial clients who see StoneX as a better capitalized counterparty and who can offer a range of storage, refining, and hedging services. In September, we announced the acquisition of Wright Corporation, a physical meat trading business in the U.S., RJO has a dominant position in the meat and livestock industry in the U.S., and with this acquisition, we now bring a downstream physical capability to our clients, much like the rationale behind the very successful acquisition of CDI back in 2022, which extended our cotton derivative experience into the physical. It adds a new relationship with meat suppliers and ranchers across beef, pork, poultry, as well as buyers in the processor and distribution space. In February, we completed the acquisition of OctoFinance, a leading French fixed income broker, which provides credit research and expertise in the trading of European bonds and convertibles. We are now able to offer the European-based clients access to our broader product mix, enable Octo to participate in larger transactions, and to add credit research and expertise in European bonds and convertibles to our suite of capabilities. We have begun to cross out clients of Octonia products and services, as well as expanding their available credit products to include investment grade, high yield, and US treasuries. Lastly, we made investments in Bamboo Payments, which was accompanied with an option to acquire full ownership down the road. Bamboo brings deep expertise and a well-established in-country payment ecosystem in South America, which has extended our cross-border capabilities. Bamboo serves large regional marketplaces, ride-hailing services, and HR platforms, which are new client types for StoneX to interact with. Turning now to slide 14, alongside our inorganic M&A growth, we continue to iteratively improve our product and services offered organically. This has included several enhancements to our business, which extends our ecosystem and addresses additional client needs with the intent of capturing more of their business. Some of these enhancements this year include the following. The build out of our metals vault in New York, which now has more than a billion dollars of assets under custody and is a CME designated depository and custodian. It has not only been a value add to our wholesale precious metals business, but also has attracted the global banks who would like to diversify their holdings away from other competing banks. It is highly complimentary to our overall metal strategy of providing a full service offering in the market. And we are a unique industry participant in that we're both a regulated FCM and an exchange approved depository. Towards the end of the year, we entered into two agreements, bringing in the business of two LATAM focused wealth management firms which have expanded our capability service clients by providing brokerage and investment and advisory services. These two transactions bolstered our existing wealth management business, further strengthens connection into Latin America, and provide us with incremental clearing opportunities. Late last year, we were approved to provide digital asset services to institutional clients in Europe. This will allow us to provide execution and custody services alongside our existing suite of global prime, brokerage services, and other complementary offerings, including equities, ETFs, futures, and fixed income. We have also been improving our digital offering, which provides automation of management, merchandising, and origination of grain products. This is done through our proprietary platform called Stonex Hedge. This platform integrates with existing grain elevators, enterprise systems, and back-office systems to automate and proactively manage the industry. Inventory, sorry. We announced last year that this platform had surpassed total volume of over 1 billion bushels of grain, which is a significant milestone for us. Interestingly, RGIO has a similar product offering, and we will be merging these two platforms to provide clients with the best of the two offerings. In prime brokerage, we offer a comprehensive custody and clearing platform across the globe aimed at financial institutions and funds. During the year, we have made several enhancements to our service offering, which have included an expansion of our CAP intro capabilities, improving consolidated reporting and margining for clients, and the addition of cross-currency products to the suite. These improvements have driven increased engagement, particularly among large ETF issuers and mutual funds, resulting in strong momentum for this product and this business. Lastly, regarding our OTC and structured products capabilities, as we have mentioned in previous discussions, we see OTC as a tremendous growth opportunity to help our commercial clients run more complex and intricate scenarios, determining the best product for their needs and to get quotes instantly. In the year, we have further expanded our OTC products focused on agriculture, which include shell egg contracts and dairy derivatives. We believe we have one of the most comprehensive OTC platforms in the market today. These are just a few examples of our recent organic rollout of products and services, and we will continue to grow our ecosystem by launching adjacent products and services to better serve our clients. Moving back to RJO, we'd like to provide some time giving an update on the integration. As mentioned earlier, I would like to introduce a new one of our executives to you all, Abby Perkins, who is a member of our executive committee. Earlier this year, we asked her to lead our M&A integration efforts, in particular, the RJO integration, given its importance and its financial impact to our company. She'll be providing a more detailed update on our integration plans, actions taken, and key milestones ahead. Abby, over to you.