StoneX Group Inc. Q4 FY2025 earnings call

Management Statement and Operational Highlights

• Financial Overview: Fourth quarter net income was $85.7 million (12% growth), diluted EPS $1.57. Operating revenues over $1.2 billion (up 31% y/y, 17% q/q). Net operating revenues up 29% y/y and 20% q/q. Fixed compensation and other expenses up 24% y/y and 14% q/q.
• M&A Activities: Completed 6 transactions in FY 2025, including R.J. O'Brien (transformational acquisition, largest non-bank FCM in US), Benchmark (investment banking firm), JBR (UK silver refiner), Right Corporation (physical meat trading), Octo Finance (French fixed income broker), and investment in Bamboo payments.
• Integration of R.J. O'Brien: Sees potential for value creation, aiming for $50M expense savings and $50M capital synergies. Focus on expanding products, entering new markets, and achieving cost and capital synergies. Early integration progress shows positive client balance growth and initial revenue synergies.
• Organic Product Enhancements: Build-out of metals vault in NY, agreements with LatAm wealth management firms, approval for digital asset services in Europe, improvements to StoneX Hedge platform, and enhancements in prime brokerage and OTC structured products.

Segment Performance

• Commercial Segment: Net operating revenues increased 25% ($42.9 million), with listed and OTC derivative contract volumes up 32% and 27% respectively, physical contracts up 26%, and net interest and fee income up 22%. For the full fiscal year, net operating revenues were up 1% in segment income.
• Institutional Segment: Record net operating revenues and segment income, with growth of 67% and 73% respectively in the quarter. For the full fiscal year, net operating revenues were up 36% and segment income increased 45%.
• Self-Directed Retail Segment: Net operating revenues declined 35% and segment income was down 51% in the quarter. For the full fiscal year, segment income increased 12%.
• Payments Segment: Net operating revenues were up 7% and segment income increased 21% in the quarter. For the full fiscal year, segment income added 4%.

Guidance

• R.J. O'Brien acquisition expected to be accretive to EPS and ROE.
• Target $50 million in annual run rate cost synergies from RJO integration, with progress on achieving these.
• Anticipate capital synergies from collapsing operations, with initial releases expected in Q2 FY 2026.
• Revenue synergies potential from cross-selling products to RJO and StoneX clients, though hard to quantify precisely.

Risks

• Potential revenue attrition from acquisitions due to revenue producers leaving or client duplication, though initial attrition is limited.
• Market volatility impacts, such as low volatility in FX markets affecting FX/CFD revenues, and precious metals market dislocations affecting profitability.
• Interest rate sensitivity risks, with a 100 basis point change in short-term rates potentially impacting net income by $53.8 million annually.

Question and Answer

• Q: How are early cross-selling efforts with RJO clients going? **A: Sean O'Connor noted cross-selling is going as expected, with education and engagement ongoing, and early signs of revenue uptick across desks.
• Q: Did precious metals trading improve after gold was exempted from tariffs? **A: Sean O'Connor explained that precious metals trading was worse in Q3 but improved in Q4, with potential for positive environment in Q1 as the business adjusted and dislocations turned into opportunities.
• Q: Sustainability of institutional business RPC for listed derivatives and rate per million on securities? **A: William Dunaway stated it was due to business mix between StoneX and RJO, with higher rates from RJO's incremental rates, and sustainability tied to market conditions and business expansion.
• Q: Integration expense synergies and capital synergies progress? **A: Abigail Perkins mentioned $20 million annualized cost synergies achieved, with further synergies expected from U.K. combinations in Q2 FY 2026 and U.S. FCM merger in late 2026, targeting $50 million in cost synergies.
• Q: Hedging strategy for interest rate sensitivity? **A: William Dunaway stated they are active in hedging, looking to lock in rates over a 2-3 year window to protect against downside, leveraging RJO's portfolio management capabilities.