StoneX(SNEX) - 2025 Q3 - Earnings Call Transcript

Financial Overview - The third quarter net income was $63.4 million, with diluted earnings per share (EPS) of $1.22, reflecting a 2% growth in net income but a 2% decline in diluted EPS compared to the prior year due to additional shares outstanding [5][44] - Operating revenues reached $1.024 billion, up 12% year-over-year and 7% sequentially [5][6] - Total compensation and other expenses increased by 5% year-over-year and 3% sequentially, with fixed compensation and related costs up 6% year-over-year [6][7] - The trailing twelve months results showed operating revenues up 17%, net income up 26%, and EPS of $5.87, with a return on equity (ROE) of 16.6% [8] Business Line Performance - Growth was observed in securities, payments, and FX CFDs, while declines were noted in listed and OTC derivatives, physical contracts, and interest and fee income on client balances [8][9] - Operating revenues from physical contracts decreased by 17% year-over-year, primarily due to tariff-related uncertainties [9][10] - Securities operating revenues increased by 30%, driven by a 25% increase in volumes and a 15% rise in rate per million [10][11] - The commercial segment's net operating revenues declined by 24%, primarily due to a 44% drop in physical contracts [12][13] - The institutional segment saw record net operating revenues and segment income growth of 27% and 41% respectively [13][14] - The self-directed retail segment's net operating revenues increased by 18%, with segment income up 49% [14][15] Market Data - Interest and fee income on client balances decreased by 11% year-over-year, primarily due to lower short-term interest rates [11][12] - Average daily volume in FX CFD contracts increased by 34%, contributing to the growth in the self-directed retail segment [15][16] Company Strategy and Industry Competition - The company closed the RJO and Benchmark acquisitions, which are expected to be transformational and position the company as a market leader in global derivatives [18][19] - The RJO acquisition is anticipated to enhance earnings and margins, with a focus on integrating capabilities and expanding market reach [19][22] - The Benchmark acquisition is expected to provide robust sales and trading platforms, enhancing the company's investment banking capabilities [25][26] Management Commentary on Operating Environment and Future Outlook - Management noted that the commercial segment faced challenges due to tariff uncertainties and diminished volatility in key agricultural markets [50][51] - The company remains optimistic about the potential revenue synergies from the RJO acquisition, particularly in the commercial segment [56][58] - Management highlighted the ongoing uncertainty in the macro environment but noted that volatility can be beneficial for trading activities [78][79] Other Important Information - The company is focused on expanding its custody and clearing capabilities, including launching digital asset custody solutions [31][34] - The company reported a 27% year-over-year increase in correspondent clearing balances, indicating strong growth across major business lines [33][36] Q&A Session Summary Question: Can you provide more detail on the weakness in the commercial segment? - Management attributed the weakness to tariff uncertainty and lack of volatility in the agricultural sector, impacting trading volumes and revenue capture [50][51][52] Question: Any updates on revenue synergies for RJO now that it's closed? - Management indicated that while it is difficult to quantify revenue synergies immediately, they believe the potential is significant, particularly in the commercial segment [56][58] Question: What are the longer-term plans for the retail segment? - Management discussed plans to expand the retail segment beyond FX trading, focusing on a multi-asset class offering [63][66] Question: What are the priorities for the integration of RJ O'Brien? - Management outlined a focus on realizing synergies quickly, particularly on the international side, while ensuring a seamless integration process for U.S. operations [72][75] Question: Are there any changes in behavior from large financial institutions? - Management noted no significant changes in behavior from banks regarding investment in the FCM business, indicating a continued focus on other strategic priorities [84][85]