StoneX Group Inc. Q3 FY2025 earnings call

Management Statement and Operational Highlights

• Financial Overview: Third quarter net income was $63.4 million with diluted EPS of $1.22 (2% net income growth, 2% decline in EPS due to additional shares). Net operating revenues were up 4% vs prior year and flat vs preceding quarter. Total compensation and other expenses were up 5% vs prior year and 3% vs preceding quarter.
• Acquisitions: Closed RJO and Benchmark acquisitions on July 31. RJO is a transformational acquisition positioning StoneX as a market leader in global derivatives. Benchmark is a full-service investment banking firm with sales, trading, research, and investment banking capabilities.
• Custody and Clearing: Highlighted growth in custody and clearing business, including self-clearing equities, options, fixed income, futures, and commodities. Expansion into digital asset custody in Q4 2025, with regulated custody for cryptocurrencies, tokenized securities, etc., by Q1 2026.

Segment Performance

• Commercial segment: Net operating revenues declined 24% vs prior year, segment income down 36%. Sequentially, net operating revenues down 13%, segment income down 17%. Trailing 12 months: net operating revenues increased modestly, segment income declined 5%.
• Institutional segment: Record net operating revenues and segment income, with growth of 27% and 41% respectively vs prior year. Sequentially, net operating revenues up 5%, segment income up 1%. Trailing 12 months: net operating revenues up 26%, segment income up 35%.
• Self-directed retail segment: Net operating revenues up 18% vs prior year, segment income up 49%. Sequentially, net operating revenues up 26%, segment income up 87%. Trailing 12 months: net operating revenues up 14%, segment income up 28%.
• Payments segment: Net operating revenues down 3% vs prior year, segment income down 7%. Trailing 12 months: net operating revenues down 3%, segment income down 7%.

Guidance

• Acquisitions: RJO and Benchmark acquisitions are expected to be accretive to earnings and EPS, enhance margins, and accelerate the growth trajectory.
• Synergies: Integration of RJO's international components expected in 3-6 months, with U.S. components taking 9-12 months to realize synergies.

Risks

• Tariff Uncertainty: Impacted physical contracts and commercial segment performance due to client uncertainty around tariffs and logistics.
• Geopolitical Effects: Geopolitical events like the U.S. strike against Iran affected market conditions and client activity.
• Interest Rate Sensitivity: A 100 basis point change in short-term interest rates could result in a change in net income by roughly $27 million or $0.54 per share on an annualized basis.

Question and Answer

• Q: Weakness in commercial segment trading volumes and hedging activity? A: Tariff uncertainty, lack of volatility in agricultural markets, and interest expense related to metals movement contributed to weakness in the commercial segment, affecting physical contracts and OTC derivatives performance.
• Q: Revenue synergies for RJO integration? A: Focus on commercial and interest rate franchise synergies, with revenue synergies expected to be multiples of cost synergies. Key areas include serving commercial clients with expanded toolkit and combining RJO's interest rate franchise with StoneX's fixed income business.
• Q: Priorities for RJO integration in first 3, 6, 9 months? A: Update on synergy timetable, including providing more detailed synergy information and better indications of revenue synergies. International integration of RJO expected in 3-6 months, with U.S. integration taking 9-12 months.
• Q: FCM business and bank behavior changes? A: No significant behavior changes observed from banks in the FCM business; banks have not rededicated resources to this area, and no evidence of change in client behavior or bank investment in FCM business.
• Q: Benchmark business modeling and accretion? **A: Benchmark is a smaller accretive business fitting in the institutional segment. It is expected to enhance StoneX's ecosystem and bottom line earnings, with excitement about growing its capabilities in sales, trading, research, and investment banking.