Q1 2025 StoneX Group Inc Earnings Call
Speaker Change: Good day and thank you for standing by. Welcome to the StoneX Group first quarter fiscal year 2025 earnings call.
Speaker Change: At this time, all participants are on a listen-only mode. After the speaker's presentation, there will be a question and answer session.
Speaker Change: To ask a question during the session, you will need to press star 101 on your telephone.
Speaker Change: You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I will now turn the conference over to your first speaker today, Bill Dunaway, Chief Financial Officer. Please go ahead.
Speaker Change: Good morning. My name is Bill Dunaway. Welcome to our earnings conference call for the quarter ended December 31st, 2024, our first quarter of fiscal 2025.
Speaker Change: The presentation and an archive of the webcast will also be available on our website after the call's conclusion.
Speaker Change: 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, included in the Form 10-Q filed with the SEC.
Speaker Change: 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.
Speaker Change: These forward-looking statements involve known and unknown risks and uncertainties, which are detailed in our filings with the SEC.
Speaker Change: 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 expected or implied by the company's forward-looking statements.
Speaker Change: 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.
Speaker Change: Readers are cautioned that any forward-looking statements are not guarantees of future performance.
Speaker Change: With that, I'll now turn the call over to Sean O'Connor, the company's Executive Vice Chairman, for a brief intro.
Sean O'Connor: Thanks, Bill. Good morning, everyone, and thanks for joining our Fiscal 2025 First Quarter Earnings Call.
Sean O'Connor: I'm very pleased to report that we continue to build on the momentum we developed during Fiscal 2024 with another record quarter to start Fiscal 2025, our second record quarter in a row.
Speaker Change: We have a different format for the earnings call this time based on feedback we received from some of you over the last couple of quarters. As always, please let us know if you have suggestions for us on the format and content of our earnings call and investor relations steps. So, back to you Bill.
Bill Dunaway: Thank you, Sean. I'll be starting with slide number four in the slide deck. And as Sean just noted, it was a strong start to fiscal 2025.
Bill Dunaway: with first quarter net income coming in at $85.1 million and diluted earnings per share of $2.54.
Bill Dunaway: which represents 23% and 19% growth over the prior year quarter, respectively.
Bill Dunaway: In addition, these measures were up 11% and 9% versus our immediately preceding record fourth quarter.
Bill Dunaway: This represented a 19.5% ROE despite a 51% increase in book value over the last two years.
Bill Dunaway: We had record operating revenues of $944.3 million, up 20% versus the prior year, and up 3% versus the immediately preceding quarter.
Bill Dunaway: As a reminder, our operating revenues include not only interest and fees income earned on our client balances, but also carried interest that is related to our fixed income trading activities.
Bill Dunaway: 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 17% versus a year ago and 8% versus the record achieved in the immediately preceding quarter.
Bill Dunaway: Total compensation and expenses were up 17% versus the prior year quarter and 7% versus the immediately preceding quarter.
Bill Dunaway: Variable compensation was up 9% versus the prior year, less than the growth rate of net operating revenues.
Bill Dunaway: Fixed compensation and related costs were up 24% versus a year ago, and up 6% or $7.1 million versus the immediately preceding quarter.
Bill Dunaway: The current quarter includes $5.8 million in fixed compensation expense related to a departing executive officer.
Bill Dunaway: excluding variable compensation and the charters related to departing executive officer, total compensation and other expenses were up 2% versus the immediately preceding quarter.
Bill Dunaway: It is of note that the income before tax for the first quarter of fiscal 25 includes gains of $5.7 million related to class action settlements received, which are included in other gains.
Bill Dunaway: Looking at it from a longer standpoint, our trailing 12-month results show operating revenues up 18%, net income of $276.8 million, up 20% with earnings per share of $8.37, and an ROE of 17% for the trailing 12-month period.
Bill Dunaway: We ended the first quarter of fiscal 25 with a book value per share of $55.48.
Bill Dunaway: Next, 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.
Bill Dunaway: While in the first quarter of fiscal 25, volatility continued to be generally low, with the exception of a select few products, we saw continued growth in client engagement, represented by an increase in transactional volumes across all of our product offerings, as well as a very strong growth in operating revenues derived from physical contracts.
Bill Dunaway: The spread capture continued to be challenging in certain areas, particularly in OTC derivatives and payments, due to diminished volatility and market conditions. However, recent events have shown that this can change rapidly, so we can hopefully see that we may see better market conditions in the future.
Bill Dunaway: Just touching on a few key highlights for the quarter, we saw operating revenues derived from physical contracts up 80% versus the prior year, off the back of strong growth in both our precious metals and our physical ag and energy businesses, most notably in cotton and cocoa.
Bill Dunaway: Securities revenues were up 27% with volumes up 40% which was partially offset by a 20% decline in rate per million due to continued growth and lower spread products such as U.S. Treasuries and U.S. listed equities combined with diminished market volatility.
Bill Dunaway: Payments revenues were down a modest 4% versus a record year ago quarter, but up 20% versus the immediately preceding quarter.
Bill Dunaway: OTC derivatives revenues were down 18%, largely due to revenue capture being down 22%.
Bill Dunaway: Our interest and fee income earned on our aggregate client float, including both listed derivative client equity and money market FDIC suite balances, increased 9% versus the prior year primarily driven by growth in client balances.
Bill Dunaway: Turning to slide 6, this depicts a waterfall by product of net operating revenue.
Bill Dunaway: from both the prior year quarter to the current one as well as the same for the trailing 12-month periods.
Bill Dunaway: 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.
Bill Dunaway: 17 percent with the largest gains coming from physical contracts up 35.1 million and FXCFDs up 24.1 million while interest in fee income on client balances increased 14.4 million.
Bill Dunaway: Looking at the bottom of the graph for the trailing 12-month period shows a slightly different picture, with large increases coming from interest in fee income, securities, and FXCFP contracts, which represents well the diversity of the StoneX model.
Bill Dunaway: Moving on to slide number seven, I'll do a quick review of our segment performance.
Bill Dunaway: All segments were up in both net operating revenue and segment income with the exception of payment, which I noted earlier was modestly down from a record prior year quarter.
Bill Dunaway: In addition, we saw margin expansion across all segments with a very strong result in our self-directed retail segment.
Bill Dunaway: Our commercial segment grew net operating revenue 16%, primarily driven by the strong performance in physical contracts, which was partially offset by lower OTC derivative revenues.
Segment income was 17%.
Bill Dunaway: On a sequential basis, net operating revenues were 13% and segment income was up 15%.
Bill Dunaway: Our institutional segments on net operating revenues and segment income grow 17% and 20% respectively.
Bill Dunaway: The growth of net operating revenues was principally driven by a $4.3 million increase in securities revenue and a $17.2 million increase in interest and fee income earned on client balances.
Bill Dunaway: Partially offsetting the non-operating revenue growth, non-variable fixed expenses increased 17%, however that was a 10% decline versus the immediately preceding quarter.
Bill Dunaway: On a sequential basis, both net operating revenues and segment income were relatively flat.
Bill Dunaway: Self-directed retail had a record quarter with net operating revenues up 41% and segment income up 98%.
which demonstrates the operating leverage in this business.
Bill Dunaway: This is primarily driven by increases in average daily volume rate per million in the FX-CSD contract.
Bill Dunaway: On a sequential basis, net operating revenues were up 24%, and fed grain income was up 91%.
Bill Dunaway: In our payments segment, net operating revenues were down 5% and segment income was down 3%.
Bill Dunaway: are, principally due to tighter FX spreads in several of our key payment corridors, while average daily volume was up 12%.
Bill Dunaway: On a sequential basis, debtor operating revenues were up 21% and segment income up 38%.
Bill Dunaway: Next, moving on to slide number 8, looking at our segment performance for the trailing 12 months, we saw strong growth in our institutional segment with net operating revenues up 22% and segment income increasing 26%.
Bill Dunaway: In addition, our self-directed retail segment increased net operating revenues and segment income 25% and 87% respectively.
Bill Dunaway: Our commercial and payment segments were relatively flat on a segment income basis.
Bill Dunaway: Finally, moving on to slide number 9, 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 swap increased $14.4 million.
Bill Dunaway: to $77.4 million in the current period. This represents a $6 million decline from the immediately preceding quarter as we are starting to feel the effects of the FedNax and the reduced short-term rate.
Bill Dunaway: As noted in the table, we estimate a 100 basis point change in short-term interest rates, either up or down, would result in a change to net income by $27.7 million, or 78 cents per share on an annualized basis.
Bill Dunaway: On a final note, before I turn it back to Sean for a strategy update, yesterday our Board of Directors approved a 3-for-2 stock split of its common stock. The stock split will be affected as a stock dividend, entitling each stockholder of record to receive one additional share of common stock for every two shares owned.
Bill Dunaway: Additional shares issued as a result of the stock dividend will be distributed after the close of trading on March 21, 2025 to stockholders of record at the close of business on March 11, 2025.
Bill Dunaway: Cash will be distributed in lieu of fractional shares based on the opening price of each share of common stock on March 12, 2025.
Bill Dunaway: trading expected to begin on a stock split adjusted basis on the market open on March 24, 2025.
With that, I will hand you back to Sean.
Sean O'Connor: Thanks Bill. In our prior earnings call covering the full fiscal year 2024 results, I reviewed our overall corporate strategy in some detail, so I'll not repeat all of that each quarter, but rather focus on any significant updates or developments that we believe are noteworthy.
Sean O'Connor: As you no doubt saw, there was an announcement late last year about some management changes, so perhaps that's a good place to start. So turning to slide 11.
Speaker Change: It has been 22 years since I took the position in what is now Stonex and became CEO. From humble beginnings, just 10 people and less than $10 million in equity, we have grown into our financial franchise with nearly 5,000 employees and over $3 billion in revenue and market capitalization.
Speaker Change: These achievements are really a testament to the incredible team at StoneX, whose hard work has made this journey possible and provided me with an experience beyond my wildest dreams.
Speaker Change: Leading this company has been an enormous privilege and one for which I am deeply grateful.
Speaker Change: However, I believe that the time has come to start the transition to the next generation of exceptionally capable leaders.
Speaker Change: Al is a fast-moving industry and it's important that at every level we are bringing in new talent and moving our proven leaders into new areas to look at things in new ways. We have constantly done this throughout the organization and it is part of our success.
Speaker Change: Changes are always best done from a position of strength. When things are going well, when you have momentum behind you and a very strong bench in position and ready to go.
Speaker Change: With this in mind, I was pleased that late last year we announced that Philip Smith and Charles Lyons have taken on day-to-day leadership of StoneX as CEO and President respectively.
Speaker Change: With these changes, I have transitioned to the role of Executive Vice Chairman, remaining a full-time employee, a member of the Executive Committee, and with a focus on strategy.
Speaker Change: Philip, Charles and I have worked together for 20 years and I have complete confidence in their ability to build on our track record of success.
Speaker Change: I've asked Philip and Charles to join us today on the call to introduce them to you, and perhaps they can each give you a little background on themselves. So Philip and Charles, over to you guys.
Speaker Change: following the acquisition of Global Currencies Limited, a UK-based emerging market foreign exchange provider, which today you know as our payment segment.
Speaker Change: This UK-based business has been the foundation upon which we have successfully built out the full Stonex product offering in London over the last 20 years.
Speaker Change: I am both humbled and excited to be appointed the Group Chief Executive for Stonex.
Speaker Change: In politics, one might say I've climbed to the top of the greasy pole, but I see this as being given a huge opportunity to continue on the adventure that is Stonex.
Speaker Change: This is a company like no other, with a successful track record like no other, and all that is down to the leadership of Sean O'Connor, a mentor for whom I have worked since 2004.
Speaker Change: I have poured my heart and soul into the success of this company and feel a huge level of excitement for the opportunities that lay ahead.
Speaker Change: The disciplined approach to expanding the StoneX ecosystem by geography, by product, or by acquisitions of teams and businesses has resulted in StoneX being the premier financial services firm that it is today.
Speaker Change: We shall continue along these successful lines each and every day to ensure we maintain our relevance to our clients, our counterparties and the broader market.
Speaker Change: Like Sean, I too have worked with Charles since 2004 and have a huge amount of respect and friendship with him.
Speaker Change: I view this next phase of the management of stonex with excitement and enthusiasm. Thank you.
Speaker Change: Thank you, Philip and Sean. Good morning all. I'm Charles Lyon. I started my career at StoneX in 1999 after college as my first job and have worked at StoneX my entire career.
Speaker Change: I began working on the International Equity Market Making Desk, eventually helping to lead the growing equity trading business through business expansion, acquisitions, and new product growth.
Speaker Change: Over the years, my roles expanded to oversee securities clearing, fixed income trading, equity derivatives, prime brokerage, outsource trading, wealth management, and self-directed trading.
Speaker Change: I've also helped to manage our derivatives and FX activities, both exchange-traded and over-the-counter.
Speaker Change: My role has evolved over the years, and my recent focus has been working with our technology, operations, trading, and risk teams, which are all critical to ensuring that we are well positioned to maximize the incredible opportunity in front of us at StoneX.
Speaker Change: It is an overwhelming privilege to continue serving the teams, clients, and shareholders of the organization, focusing on developing and deploying our group strategy for future success. Thank you very much.
Speaker Change: Thanks guys. I am very excited and confident that Philip and Charles have the experience, skills, the internal support and most of all the passion to continue our amazing strategy.
Moving on to highlight a few strategy updates.
Speaker Change: We just last week closed the acquisition of Octo Finance, a leading fixed-income trading firm in Paris, with experience in bond and convertible securities, debt capital markets, and credit research. Octo has a footprint of over 500 clients, including banks, insurance companies, debt funds, mutual funds, and wealth managers.
Speaker Change: The acquisition provides us with broad access into the EU institutional market, and we believe we'll be able to significantly enhance and grow the Okta product offering.
Speaker Change: We have already been working closely with OCTO while we're waiting for regulatory approval and have collaborated on a number of successful capital markets mandates, validating the rationale and fit with Stonex.
Speaker Change: In early December 2024, we received approval from the Central Bank of Ireland as a virtual asset service provider, allowing us
Speaker Change: to operate a digital asset business in Europe. As one of the first such approved entities, this will allow us to provide execution and custody services for digital assets, which will be integrated into our suite of prime brokerage services, complementing our existing capabilities in equities, ETFs, futures, and treasuries.
Speaker Change: As I mentioned in the last call, during 2024, we saw the U.S. prime business grow by about 30% as we were able to internalize capabilities and spreads from our other existing business lines.
Speaker Change: Some of this growth was fueled by growth in the ETF space where we offer a unique custody and execution solution for the new wave of alternative ETFs being launched. This strong momentum continued into Q1 with record revenues for that business.
Speaker Change: Early in the quarter we completed our acquisition of JBR Recovery, a silver recycler in the UK, one of only two companies accredited by the London bullion market for good delivery silver to the London bullion markets.
Speaker Change: giving us reliable access to metal while internalizing the refining margin and facilitating responsible reuse and recycling of secondary or waste materials.
Speaker Change: The last six quarters or so have seen growing earnings momentum for our business, despite declining volatilities over that period and more recently declining interest rates.
Speaker Change: We remain very optimistic about our trajectory and our ability to sustain it for the medium to long term. Our diversified business has served to offset some of the market headwinds, and we have an enormous addressable market in front of us.
Speaker Change: While it is difficult to be precise, we believe that we have single-digit market share in certain niche markets where we have traditionally focused, but in the broader financial markets where we now compete, our market share barely rises to a single percentage point.
Speaker Change: We believe that our growth strategy is underpinned by the following, obstructive market dynamics driven by regulation that will enable us to capture market share from large banks.
Speaker Change: leveraging our geographic footprint to expand into markets where we are underrepresented.
Speaker Change: adding new products and services to our ecosystem, the white space, to create new revenue streams.
Speaker Change: cross-selling our existing ecosystem of products and services to our growing client base.
Speaker Change: and scaling our self-directed offering to broaden our addressable market and overcoming the limitations of a high-touch approach and geographic reach.
Speaker Change: We decided based on the feedback received it might be informative for us to focus on one of our businesses each quarter and to give you perhaps a deeper dive into what we're doing at StoneX. So we'll start that this quarter and Philip will be kicking us off with payments. Philip, over to you.
Philip Smith: Thank you, Sean, and good morning to all listening in. As Sean mentioned, I'll be providing a deeper dive into our payments business, which is a business near and dear to my heart that is where I began my career 30 years ago this year.
Firstly, a high-level overview on slide 13.
Philip Smith: This business started out as a specialized foreign exchange trading firm where we sought to help clients obtain better execution in emerging and frontier currencies.
not well served by larger banks.
Philip Smith: This ended up becoming a payment capability facilitating clients who are looking to get local currency into a local bank account efficiently and effectively.
Philip Smith: Stonex has, over the last 20 years, developed what we believe to be the largest correspondent banking network of any non-bank financial institution in the world, which allows us to seamlessly deliver local currency into local bank accounts in over 180 countries.
Philip Smith: We have successfully disrupted the traditional payments channels which were highly inefficient and opaque throughout the non-G20 markets.
Philip Smith: We believe StoneX Payments is the premier gateway to the global payments ecosystem.
facilitating seamless cross-border transactions across a vast array of currencies.
Philip Smith: Engineered as a world-class, API-driven solution, it combines advanced automation with superior execution capabilities and transparency, ensuring efficiency, security, and reliable payment processing for enterprises worldwide.
Philip Smith: As you can see from the slide, we provide access to 140 currencies in over 180 current countries, which is effectively every country except those that are sanctioned.
Philip Smith: This service is provided to over 2,000 active clients. We achieve this with a network of over 385 correspondent banks in-country.
and over 400 staff located around the world.
Philip Smith: Turning to slide 14, this helps explain who we serve, with our clients split between four segments.
international development organizations, financial institutions, corporates and educational institutions.
So, starting with international development organizations.
Philip Smith: This is made up of charitable non-profits, NGOs and supranational agencies, all of whom are sending funds around the world, funding their global field operations or directly paying vendors and supplier invoices.
Philip Smith: In the last quarter, this segment represented approximately 40% of the revenue generated.
Financial Institutions
Philip Smith: These are the 80-plus global commercial banks, central banks, credit unions, as well as regional and community banks who use the payments capability of Stonex to satisfy the demands of their banking and commercial client base worldwide.
Philip Smith: This segment now also includes six non-bank financial institutions who offer Stonex payment services to their underlying corporate clients.
Philip Smith: And in the last quarter, this segment represented approximately 55% of the revenue generated.
Speaker Change: Corporates and universities I put together being the two smallest segments but areas we are actively expanding into.
Speaker Change: With over 20,000 commercial clients within the overall StoneX group, we are leveraging that client base to cross-sell our payments capability.
Speaker Change: We've also spent the last few quarters enhancing our client-facing platforms and hiring specialist teams to launch the payments capability of StoneX.
Speaker Change: to universities and colleges globally where we believe there is a meaningful opportunity to add value as a true last mile payment provider.
from an organic growth perspective.
Speaker Change: We're proud to report that in the last four quarters, Stonex added 134 IDO clients, 7 banks and financial institutions, and 39 corporates and universities.
Speaker Change: and we see a robust pipeline growing well into our new fiscal year.
Speaker Change: Among the recent additions to our client base you will find esteemed organizations such as NatWest Bank, MUFG and Visa.
Speaker Change: We also continue to expand our correspondent banking network of over 385 banks.
Speaker Change: which enables us to navigate market conditions prudently without the risk of concentration or revenue dependence on any specific payment corridors.
Speaker Change: By region, in the last four quarters, we added 9 new correspondent banks in APAC, 11 in EMEA, and 9 in the Americas.
Speaker Change: We believe that our brand, our balance sheet, our formidable track record as a provider to some of the world's largest institutions
Speaker Change: and our expertise in connecting to high and low value clearing systems around the world allows us to dynamically manage our infrastructure and add or replace endpoints with great efficiency to meet our client demands.
Speaker Change: Moving to slide 15, this sets out our annual financial performance for the payment segment since 2019.
Speaker Change: It is worth reminding our investors that over the last 20 years, we have seen a consistent, double-digit, year-on-year revenue growth in this product line, with 2024 seeing the first year-on-year decline, albeit by 1%.
Speaker Change: The first financial quarter is historically a strong quarter for us due to the calendar year-end seasonality of funding from our IDO client base and large corporate flows that come through our FI clients.
Speaker Change: This is reflected in the Q125 revenue of $58.1 million, which represents our second strongest quarter in the history of this business.
Speaker Change: It is a 20% increase in operating revenue on the immediately preceding quarter and a 4% decrease year on year.
Speaker Change: which in itself was an all-time record quarter, albeit in an outlier period of volatility and emerging market dislocation that has normalized in 2024.
Speaker Change: We saw a 12% increase in average daily volume year-on-year to $84 million, an increase of nearly 100% from 2020.
Speaker Change: This growth was driven consistently across both our international development organizations and our financial institution segments.
Speaker Change: We believe the overall U.S. dollar strength, particularly in the November and December months, also drove more demand than we've seen previously in the customary seasonality of these segments.
Speaker Change: Of the 140 currencies we provide to our clients, we saw healthy geographical diversification across our top corridors, with noteworthy demand in key Central Asian, Sub-Saharan African, and Latin American markets.
Speaker Change: Whilst we do expect subsequent quarters to normalise in terms of volume, we have seen a strong start to the calendar year in January, with several new clients working towards their first transactions with us.
Speaker Change: Moving to slide 16 we can highlight some of the current strategic initiatives for the payments business.
We start with building our ecosystem.
Speaker Change: The payments technology journey, which began in earnest in 2022, when we embarked on a significant overhaul,
Speaker Change: and an in-house rebuild of our entire front-to-back StoneX Payments technology stack.
Speaker Change: This included client-facing platforms, trading and risk management modules, and a bestowed core payments engine built from scratch, patent pending.
Speaker Change: This large increase in payment processing capacity will take us from millions of payments per year to millions of payments per month.
Speaker Change: This has allowed us to eliminate vendor dependencies and service our clients from an in-house platform that is optimized for the future of payments rather than beholden to the off-the-shelf limitations of the past.
with this significant increase in the payment capacity.
Speaker Change: of the Stoic system, our investment in technology has also extended to include machine learning to enhance data validation, which improves efficiency and driving delivery speeds, whilst also reducing errors in payment settlement data.
Moving on onto growing and diversifying our client base.
Speaker Change: Whilst we have long focused on the value of providing world-class FX payout solutions and infrastructure, we are now actively facilitating FX repatriations and pay-ins as demanded by our growing client base.
Speaker Change: In Brazil, which is one of our largest payment corridors and where we possess a FX banking license
Speaker Change: Our clients benefit from the ability to seamlessly process both pay-ins and pay-outs in local currency at scale.
Speaker Change: As an example of this capability, we recently completed an integration with Amazon to be their cross-border payment provider for sellers in Brazil.
Speaker Change: We were also recently granted a similar license in Colombia, where we launched our services in mid-2024 and have already onboarded over 200 clients locally.
Speaker Change: We believe that our legacy expertise in global FX liquidity management, treasury and cross-border money movement presents a compelling case for expanding aggressively into bi-directional omni-channel payment processing, particularly in the emerging markets we specialize in.
Speaker Change: We intend to continue to execute on this strategy, exploring both organic and inorganic options to attain new capacities and market share.
Moving on to digitizing our business.
Speaker Change: We often find that whilst the top-tier banks and FIs have scope and budget for sophisticated product development and integrations with our market-leading APIs
Speaker Change: There are tiers of institutions that do not possess their own front-end applications for cross-border payments or streamlined workflows in all 140 currencies that we can offer.
to further penetrate this market.
We have launched a low-touch, plug-and-play white-label instance.
Speaker Change: of our web-based Connect payments platform, which will allow tier two and tier three financial institutions to easily integrate with us and supplement their existing online banking functionality with competitive cross-border payments in 140 currencies.
Speaker Change: In a similar vein, we have launched a partnership with Fiserv, who is a leading provider of core banking technology solutions to hundreds of banking institutions of all shapes and sizes.
in conjunction with Fiserv's Payment Exchange APIs.
community banks, credit unions and other bank users.
of the system will have the opportunity to directly leverage
Speaker Change: Stonex's institutional grade infrastructure resulting in improved global reach, ultra-competitive pricing for their clients and robust transparency in their cross-border payment life cycles.
Speaker Change: These opportunities represent hundreds of new clients that will not have to deal with the inconvenience of new integrations to launch enhanced services for their underlying clients.
Speaker Change: In summary, having achieved the second best financial performance for a quarter on record in Q1, with our strategic focus and investments to target the areas I've just covered, such as increasing our payment processing capability more than tenfold, and extensive investment in technology,
Speaker Change: You add all these initiatives, with client onboarding currently at an all-time high, with the enormous total addressable market in terms of opportunity ahead of us.
Sean O'Connor: And I strongly believe that StoneX is well positioned to see significant growth in this business line for many, many more years to come. Thank you, Sean.
Sean O'Connor: Thanks Philip, and maybe next quarter we'll hear from Charles and he can cover some of the exciting things that he's working on in the securities area. So let's move on to the final slide, number 17.
Sean O'Connor: This was another record quarter for us with broad-based strength across most of our products and segments.
Sean O'Connor: We achieved cheap earnings of $85.1 million, a diluted EPS of $2.54, and an ROE on Stated Book of 19.5%.
Our earnings in EPS were up 23% and 19% respectively.
Sean O'Connor: Looking ahead, we continue to be well-positioned to capitalise on the ongoing industry transformation driven by regulatory changes and market consolidation.
Sean O'Connor: These shifts not only create significant opportunities for stonics to expand market share, but also provide a substantial runway for growth.
Sean O'Connor: Our ecosystem, underpinned by broad and diverse offerings, enables us to deliver innovative solutions that simplify client operations, expand their market reach, and create long-term value.
Sean O'Connor: Central to our strategy is the discipline's use of capital, supported by a fortress balance sheet.
Sean O'Connor: Over the past decade, we have tripled shareholder funds, acquired more than 15 businesses, expanded our client footprint, primarily financed organically through retained earnings and the remarkable power of compounding.
Sean O'Connor: We anticipate our recent acquisitions combined with selective access to capital markets will continue to drive meaningful growth and further strengthen our position in the market.
Sean O'Connor: The evolving regulatory landscape, shifting market dynamics, and our increasingly recognized ecosystem, along with the prospect of improved market volatility despite declining interest rates, still provide a favorable environment for our business.
Sean O'Connor: As we continue to move forward, we remain committed to expanding the client base in both new and existing markets, while deepening existing client relationships through effective cross-selling strategies.
Sean O'Connor: The thing that will always be constant for the Sonex team is to dedicate ourselves to better serve our growing client footprint around the world by providing them with the best financial ecosystem and client services to access the global financial markets.
Sean O'Connor: We're all extremely proud of the talented team who continue to propel us to new and record heights.
Sean O'Connor: So with that, operator, let's open the line and see if we have any questions.
Speaker Change: Thank you. And as a reminder, to ask a question, you will need to press star 11 on your telephone and wait for a name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster.
Speaker Change: Our first question comes from Dan Fannin from Jeffries. Your line is open.
Thanks. Good morning, gentlemen.
Thanks, Sam.
Speaker Change: Morning. Yeah, appreciate the additional color this quarter. I guess to start just looking at the results.
Speaker Change: The physical contracts, you know, continued, had a record quarter. Could you talk about what drove that revenue and, I guess, maybe the sustainability of that result?
Bill, do you want to handle that?
Well, you're mute.
Speaker Change: I am on mute. My apologies. Sure, Sean. Thank you. Dan, the key drivers there was kind of threefold this quarter. It was a combination of precious metals, which, you know, had saw, you know, a fair amount of volatility around, you know, proposed tariffs.
Speaker Change: that might occur in the first quarter of 2025 fiscal for us, as well as just really good client activity.
Speaker Change: So strong activity there. And then in addition, the acquisition of CDI two years ago continues to grow. They've expanded into coffee as well a bit. But really, they did quite a bit of new business.
Speaker Change: into the first quarter, so really nice strong performance there. And then finally, as you've seen, the cocoa prices have been quite volatile here over the last probably 12 months.
Speaker Change: which has led to a lot of client activity and that business has really grown for us. You know, as far as sustainability, you know, there's, you know, a lot of, you know, continued
Speaker Change: you know, noise around tariffs and the precious metal state, so to be able to see how that plays out, you know, could be volatility the upside or downside for us.
Speaker Change: So, you know, that remains to be seen, but, you know, I think that, you know, the cocoa business, it seems like Volatile is staying around there, and the cotton business, you know, it's a really nice acquisition we did that continues to, I would say, probably outperform what we originally had.
expected of it.
Speaker Change: Okay, great. That's helpful. And then the retail business, you know, I feel like it's a kind of a broken record where every quarter you continue to have really good results.
Speaker Change: the RPM, you know, I think that might be a record. But can you talk to, you know, you've done a lot of things on the backend with the technology, you're broadening beyond just FX, I think, in this asset class or this offering. And so again, sustainability of some of the results that you're putting up, is this, how would you characterize this quarter versus, you know, the outlook as we look out, you know, for this fiscal, rest of this fiscal year?
Speaker Change: excellent and much improved and I think what we've seen over probably six or eight quarters is a steady sort of improvement.
Speaker Change: in our revenue capture in that business. And, you know, I think.
Speaker Change: There's a lot of technology, a lot of expertise that's gone into that.
Speaker Change: And I would say, you know, we probably close to being at the high watermark. I mean, we just can't keep squeezing more and more juice out of the orange. So, you know, that may fluctuate a little bit and hopefully the sort of.
with a slow upward bias, I would say.
Speaker Change: call and, you know, I think we see our self-directed business becoming a broader-based business and if we can keep that sort of revenue capture where it is, but expand into other products and other asset classes, that's where we're really going to see meaningful growth. Charles, I don't know if you have any comments on the sort of revenue capture or anything you'd like to add.
Charles: I do, and Dan, we've had a consistent focus on trying to
Charles: stabilize and have consistency around those results. I think we've made improvements around some of the back end and not so much technology side, but just around the way that we think of how we operate in the space. But the mindset is to be able to produce consistent results. And to Sean's point,
Charles: The future growth is going to be around how do we expand very thoughtfully and consistently the products that we offer and move into other spaces and continue to move into securities and other more mainstream spaces and add clients.
Speaker Change: So I think Sean said it right, that we've put a lot of effort towards stabilizing that CTR in a capture. Now it's going to come from new clients, new products.
Speaker Change: Great, that's helpful. And then maybe one for Philip on the payment side, understand the...
Speaker Change: context of the growth, new customers, but can you talk just about the the rates coming down year over year, the mix that you're seeing of
Speaker Change: transactions today vis-a-vis previous periods and how we should be thinking about that going forward versus you know what we've seen is that a downward trend or is you know consistently given the mix of business and how your outlook is.
Speaker Change: Sure, I think the way to think about it is, you know, we have diversity of payment corridors and we want to maintain as diverse a business, as diverse a revenue stream as possible. But there will always be moments and periods where dollar scarcity in certain payment corridors
Speaker Change: widens the spread, and whilst the volumes may not necessarily increase, the profit per transaction increases significantly. We have no control over that. These are specific to countries, it's specific to regional.
Disparities between
Speaker Change: But it does go through a cycle where, you know, certain corridors, the dollar scarcity will happen on a regular basis, but you can't predict that regularity.
Speaker Change: I think the key thing is to ensure that we are maintaining an increase in volume because that's what we can control. We can't control the spread and we can't control the dollar scarcity in specific regions or countries.
Speaker Change: but what we can do is just constantly be building out.
Speaker Change: widening of spread every certain period of time isn't distorting our numbers, our figures, too greatly. So that's our objective. We're very happy when there's a dollar scarcity. We have no ability to build a business around that.
Speaker Change: all we can do is maintain increased volumes and that's providing a...
Speaker Change: better service to our clients and providing access for more clients to utilize our ecosystem. So that's that's basically our objective and increasing our client base, increasing the volume that comes through our channels is what we control and what we're driving, if that helps.
That's helpful. All right. Thanks for taking my questions.
Thank you. Again, that's star 11 for questions, star 11.
Sean O'Connor: And I'm not showing any further questions at this time. I would like to turn the call back to Sean O'Connor for any closing remarks.
Sean O'Connor: Okay, thanks operator. Thanks everyone for joining us. Hopefully you like the new format. If not, let us know. And hopefully you enjoyed getting to know Charles and Philip. So with that, let's close the call down and look forward to seeing you in three months time. Thanks all.
Thanks, everyone.
Sean O'Connor: Thank you for your participation in today's conference. This does conclude our program. You may now disconnect. Everyone have a great day.