Q2 2025 StoneX Group Inc Earnings Call
Guitar playing
Speaker Change: Good day and thank you for standing by. Welcome to the StoneX Group's second quarter 2025 earnings conference call.
At this time, all participants are in a listen-only mode.
Speaker Change: After the speaker's presentation, there will be a question and answer session.
Speaker Change: To ask a question during the session, you'll 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.
Speaker Change: Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today. Bill Dunaway, Chief Financial Officer, please go ahead.
unknown: Good morning and welcome to our earnings conference call for the quarter-ended March 31st, 2025, our second fiscal quarter.
Speaker Change: After the market closed yesterday, we issued a press release reporting our results for the quarter.
Speaker Change: This release, as well as a slide presentation which we will refer to on this call or available on our website at www.stonex.com 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're 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 there too included in the form 10Q file with the SEC.
Speaker Change: This discussion may contain forward-looking statements within the meeting of Section 27A of the Securities Act of 1933 is amended and Section 21E of the Securities Exchange Act of 1934 is 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 extra results will not differ materially from any results of expressed 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, readers are cautioned that any forward-looking statements are not guarantees of future performance.
Speaker Change: I'll be starting with slide number four in the slide deck.
Speaker Change: So first I'd like to highlight that during the quarter, our Board of Directors approved a three-for-two-stock split of our common shares. Frading on the stock split-adjusted basis began on the market open on March 24th, 2025, and as such, all per share figures referenced today are on a split-adjusted basis.
Speaker Change: 2nd quarter net income came in at 71.7 million with diluted earnings for share of $1.41 which represents 35% and 29% growth over the prior year respectively.
Speaker Change: These measures were down 16% and 17% versus are immediately preceding record first quarter.
Speaker Change: This represented a 15.7% return on equity, despite a 51% increase in book value over the last two years.
Speaker Change: We had record operating revenues of 956 million up 17% versus the prior year and up 1% versus the immediately preceding quarter.
Speaker Change: As a reminder, our operating revenues include not only interest in fees earned on our client balances, but also carried interest that is related to our fixed income trading activities.
Speaker Change: 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, we're up 15% versus a year ago, and down 1% versus the record achieved in the immediately preceding quarter.
Speaker Change: Total compensation and other expenses were up 9% versus the prior year quarter and up 2% versus the immediately preceding quarter.
Speaker Change: Variable compensation was up 19% versus the prior year, which is higher than the growth in net operating revenues as a result of declines in net operating revenues in our self-directed and retail segment and overall interest in fee income earned on client balances, which typically have lower rates of variable compensation associated with them.
Speaker Change: 6th compensation and related costs were up 9% versus a year ago and up 1% or 1.29 versus the immediately preceding quarter.
Speaker Change: The immediately prior quarter included 548 million and 6th compensation expense related to a departing executive officer.
Speaker Change: It is a note that the immediately proceeding first quarter, as well as the prior year second quarter, each include class action settlements received a $5.7 million and $6.9 million respectively which are included in other games.
Speaker Change: Looking at it, from a longer standpoint, our trailing 12-month results show operating revenues were up 18% that income was 295.4 million up 22%.
Speaker Change: with earnings for share of $5.90 and an ROE of 17.3% above our target of 15.
Speaker Change: We ended the second quarter of fiscal 2025 with a book value for share of $38.59.
Speaker Change: 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 an increase in operating revenue across most of our product offerings, led by a strong performance and physical contracts.
Speaker Change: Transaction of volumes were up across all of our products and an increase in volatility drove growth in client balances and an increase in rate per contract and spread capture across most of our products with the exception of payments and effects and CFDs.
Speaker Change: Just touching on a few key highlights for the second quarter, we saw operating revenues derived from physical contracts were up 58% versus the prior year off the back of strong growth in both precious metals and our physical ag and energy businesses.
Speaker Change: Most notably in Coco. However, they were down 22% versus the immediately proceeding first quarter.
Speaker Change: Operating revenues derived from lifted derivatives were up 15% versus both the prior year and immediately proceeding quarter primarily driven by our commercial segment.
Speaker Change: Operating revenues drive from OTC derivatives were up 14% versus the prior year, and up 65% versus the immediately preceding quarter, driven by increases in both contract volume and rate per million in particular in Brazil and European markets.
Speaker Change: Security's operating revenues were up 25%, as volumes were up 19%, and the rate per million increased 17% versus the prior year.
Speaker Change: Primarily driven by significant improvement in our equity businesses as well as compared to the prior year due to market volatility.
Speaker Change: Payments operating revenues were up 2% versus the prior year, but down 13% versus the immediately proceeding quarter, which is always a strong quarter for us, with NGOs and charitable organizations increasing their payment volumes during the end of the calendar year.
Speaker Change: FX and CFD revenues were down 12%, despite a strong increase of 10% in average daily volume as we experienced a 19% decline in rate per million driven by lower spread retention and product mix.
Speaker Change: This also represented the client of 28% versus the record first quarter.
of 2025.
Speaker Change: Our interest and see income earned on aggregate client float, including both listed derivative client equity and money market and FDIC suite balances, decreased 2% versus the prior year, primarily due to lower short-term interest rates, which are mostly offset by growth in client balances.
Speaker Change: Turning to flight number six. This depicts a waterfall of net operating revenues by product from both the prior year quarter to the current ones.
as well as the same for the trailing to all month periods.
Speaker Change: for the quarter, net operating revenues increased 15% with largest gains coming from securities up 32.2 million followed by growth and listed derivative and physical contracts of 12.1 million and 11.8 million dollars respectively.
Speaker Change: As noted earlier, it was a challenging market environment for FX and CFDs which were down 9.3 million.
Speaker Change: Looking at the bottom graph for the trailing 12 month period, it shows a slightly different picture. As an addition to the growth in securities, we see large increases in interest in fee income, listed derivatives, physical contracts, and effects in CFD contracts, slightly offset by declines in payments and OTC derivatives.
Speaker Change: Moving on to slide number seven, I will do a quick review of our segment performance.
Speaker Change: Our commercial segment increased 18% in net operating revenues, primarily driven by strong performance and physical contracts, as well as 28% and 14% growth enlisted in OTC derivatives
Speaker Change: Segment Income was up 13%. On a sequential basis, net operating revenues were up 2% and the segment income was down 5%.
Speaker Change: Our institutional segment experienced record net operating revenues and segment income in the second quarter with girls of 28% and 41% respectively.
Speaker Change: The growth and net operating revenues is principally driven by $31.7 million increase in securities revenues primarily in equity markets.
Speaker Change: Non-variable direct-expensive increased 2%, partially offsetting the net operating revenue growth.
Speaker Change: On a sequential basis, net operating revenues and segment income were up 10% and 11% respectively.
Speaker Change: In our self-directed retail segment, net operating revenues were down 14% and segment income was down 34%. Reflecting the high level of operating leverage inherent in this business.
Speaker Change: The decline in net operating revenues is primarily driven by a 34% decline in rate per million in an FXCFD contracts, which was partially offset by a 34% increase in volumes.
Speaker Change: As noted earlier, the second fiscal quarter was a challenging market environment for the spread capture in this business.
Speaker Change: On a sequential basis, net operating revenues were down 32% and segment income was down 61% versus a record quarter in the segment.
Speaker Change: In our payment segment, net operating revenues were up 2% and segment income was relatively flat. Rate per million was down 15% versus the prior year. However, the rate per million was relatively consistent with immediately proceeding to quarters.
Speaker Change: Averstaley Volume was up 20% versus the prior year, but down 8% versus the immediately preceding quarter.
Speaker Change: Moving on to slide number eight, looking at a segment of formats for the trailing
Speaker Change: We experience strong growth in our institutional segment with net operating revenues up 27% and segment income increasing 34%. In addition, our self-directed retail segment recorded increases in net operating revenues and segment income of 11% and 27% respectively.
Speaker Change: Our commercial segment recorded increases in net operating revenues and segment income of 8% and 10% respectively.
Speaker Change: Payments recorded decreases in net operating revenues and segment income of 5% and 7% respectively.
Speaker Change: Next, slide number nine to fix our interest and fees earned on client balances by quarter, as well as the table which shows the annualized interest rate sensitivity for a change in short term rates.
Speaker Change: The interest and fee income net of interest paid to clients and the effect of interest rate swaps increased to half a million to 74.5 million versus the prior year. This represents a $2.9 million decline from the immediately preceding quarter as we're starting to feel the effect of the Fed actions to reduce short-term rate to
Speaker Change: As noted in the table, we estimate a hundred basis point change in short term rates either up or down would result in a change in net income by 28.2 million or 57 cents for share on an annualized basis.
With that, I will hand it over to Sean.
Thank you, bro.
Sean: Well, the big news of the quarter was our announcement of the planned acquisition of RJ O'Brien. We covered a lot of the background of this transaction and the separate call when we announced the transaction but perhaps it's a worth a quick overview now as well.
Sean: We believe that this is a transformational transaction and our largest ever, that position StoneX has a market leader in global derivatives and reinforces our position as an integral part of the global financial market infrastructure.
Sean: with institutional great global market access, end-to-end peering, and execution capabilities, high-touch service, and deep expertise, this acquisition enhances our entire franchise.
Sean: It supports our goal of becoming the counterparty of choice for clients across asset classes embedding our integrating offering into long-term trusted relationships.
Sean: I Joe O'Brien has been a leading FCM in the industry with a stellar reputation and a culture matching our own and while we are active in the same derivative markets, we have a limited amount of customer overlap.
Sean: RJO segmented its business into commercial, introducing brokers, institutional and retail
Sean: The commercial segment consists of large commodity clients, similar in nature to those in our own commodity segments, and accounts for approximately 11% of RGO revenues.
Sean: Additionally, many of our gyros introducing brokers serve as smaller commodity producers, which we at StoneX did not typically cover with our high-touch approach.
Sean: However, we believe that StoneX has the best in class toolkit to service these clients.
including our extensive OTC and structured product capabilities.
Sean: as well as our physical, logistic servicing capabilities, allowing us to provide additional value added services.
Sean: such as embedding price protection into physical contracts to avoid head-to-counting complexities.
Sean: Assisting and moving goods on rail cars or ships and running managed price protection programs secured by physical grains, eliminating the need to finance margin calls.
Sean: We know these products not only deep and client relationships but also increased client value.
Sean: We see strong potential to bring these capabilities to RJO's client base, representing a meaningful revenue synergy opportunity.
Sean: RJO is the best-in-class provider to introducing brokers in the listed derivative industry, providing these IDs with execution and clearing they need to service their clients.
Sean: RJA is over 250 IB relationships and we have just over 100.
Sean: Interestingly, we do the exact same thing for retail securities firms through our correspondent clearing business, where we provide the execution and clearing services to over 200 retail introducing broker dealers, RIAs and wealth management firms.
Sean: So now in aggregate, this will now position us as one of the leading firms providing these critical backend services to over 600 retail firms across both asset classes.
Sean: Distramatically expands the overall market for a footprint as these firms aggregate assets and trading flow for us.
Speaker Change: RJO is a market leader in providing interest rate hedging products to institutional clients, mainly banks looking to manage the interest rate risk, an area that has not been a core focus for StoneX to date.
Speaker Change: <unk> has been exploring opportunities to expand into the trading of the underlying debt instruments to expand these relationships. This aligns directly with our fixed income business. As you know our fixed income business is focused on exactly that providing banks with the underlying fixed fixed income instruments are they investing from treasuries to agency.
Speaker Change: These mortgages asset backs as well as corporate bonds, both investment grade and high yield.
Speaker Change: Combining these complementary capabilities will provide us with a compelling capability to service all of the needs of these banking institutions around the world.
Speaker Change: Our <unk> retail segment is small and will be combined with our much larger broader base retail effort.
Speaker Change: As you can probably tell were very enthusiastic about this transaction, while we have not completed the detailed work to quantify revenue synergies, we believe that that could ultimately exceed the expected cost synergies in terms of bottom line impact.
Speaker Change: More importantly, we see a significant opportunity to enhance client value and deepened our position as the counterparty or broker of choice across the industry.
Speaker Change: <unk> brings an attractive financial profile to start next having generated $766 million in revenue and approximately <unk> of approximately 170 million in EBITDA during calendar 2024.
Speaker Change: This acquisition is expected to immediately enhance our margins our EPS and our return on equity with the addition of and in addition add nearly $6 billion of client flows and approximately 119 million enlisted derivative contract volumes.
Speaker Change: Additionally, we have identified approximately $15 million in cost synergies the majority of which we expect to realize within 18 to 24 months of closing.
Speaker Change: To satisfy the purchase price of 900 million will be issuing $625 million senior secured notes as well as $275 million in common stock to existing <unk> shareholders.
Speaker Change: It is interesting that when we look back five years ago. During our initial presentation announcing the acquisition of gain capital, we reported EBITDA of around 129 million and stockholders equity of around $615 million.
Speaker Change: Now following the acquisition of <unk>, including the realization of the full $50 million in synergies and on a pro forma basis, we would have around $750 million in EBITDA.
Speaker Change: Nearly six times over this five year period and over $2 billion in stock equity up over three times. This is a dramatic change in the scope and scale of the overall start next franchise over this five year period.
Speaker Change: As a regulated business. This transaction requires several kinds of control approvals, which are underway and we expect the transaction to close in the second half of 2025.
Speaker Change: In addition to the recently announced acquisition of <unk>. This quarter. We also announced the acquisition of the benchmark company, which is a full service investment banking firm offering robot sales and trading platform Award winning research and a highly experienced investment banking team.
Speaker Change: <unk> benchmark as a founder managed firm, which was established by rich massena over 30 years ago bench.
Speaker Change: Benchmark brings broad relationships with over 800 institutional accounts to <unk>, which we believe we can leverage across <unk> broad product offerings brings a new investment banking capability, which we believe we can leverage into our existing client base, both for equity and debt capital markets transactions.
Speaker Change: Rich and I have been exploring a potential transaction for many years and I'm glad we have finally taken this step and belief that the combination of the two firms will be powerful and accretive to all parties concerned.
Speaker Change: Note that the closing of this transaction is also subject to regulatory approval and customary closing conditions.
Speaker Change: Thirdly during the quarter, we also announced a strategic investment and partnership with bamboo payment systems to provide local in country payment services for our clients in Latin America.
Speaker Change: Some years ago, we identified that our clients needed a digital payment service to accept and make payments in country.
Speaker Change: While we initially dedicated and internal resources to building. These capabilities, we have decided to partner with a firm that already possesses the expertise and proven experience in this area.
Speaker Change: <unk> brings deep expertise and established payment ecosystem across Latin America with over 200 payment methods in 11 countries and connections to more than 600 local banks and institutions.
Speaker Change: <unk> got to offer comprehensive end to end pay in payout solutions for existing clients.
Speaker Change: Bamboo clients will also benefit from our cross border capabilities.
Speaker Change: As part of this transaction, we not only establish a commercial relationship but also made a strategic investment.
Speaker Change: Becoming one of <unk> largest shareholders and securing a pathway to full ownership should we choose to pursue it.
Speaker Change: The closing of this transaction is also subject to regulatory approvals.
Speaker Change: Additionally, a couple of days ago on May six <unk> entered into a definitive agreement to acquire planter wrote a well established Paris based brokerage firm specializing in agricultural commodities, particularly cereals and oilseeds across both the physical and derivative markets.
Speaker Change: This acquisition will Mark <unk> entry into the French grain market, the largest grain producing region in Europe, expanding our footprint into a strategically important location.
Speaker Change: <unk> suddenly to the previously mentioned transactions the closing of this transaction again subject to regulatory approval and customary closing conditions.
Speaker Change: During the quarter, we received <unk> approval for a New York based metals volt make us one of only 11 U S. Depository is authorized to facilitate comex in Nymex deliveries and the only nonbank SCM with this capability.
Speaker Change: Vault is authorized to store and deliver gold silver platinum and palladium enhancing out virtually vertically integrated offering in metals and complementing our existing vault operations in London and Frankfurt.
Speaker Change: At the beginning of this fiscal year, we completed the acquisition of J B our recovery.
Speaker Change: Silver recycling in the UK one of only two companies accredited by the L. BMA for good delivery of silver to the London Berlin markets. This was discussed last quarter and given all the activity on the metal side, we thought it would be a good time for us to do a deeper dive into our global metals market, which Philip will not do for us.
Speaker Change: But as you can see the last quarter has been very active for us on the acquisition side and I think we're well poised for an exciting year or two as we bed down these acquisitions.
Speaker Change: Over to you.
Speaker Change: Thank you Sean like last quarter, when we provided a deep dive into <unk> payments. This quarter, we felt it topical and relevant to highlight <unk> metals.
Speaker Change: For this discussion I'd like to point, you to slide number 13 in our deck.
Speaker Change: So next metals as a truly global franchise powered by a diverse team, although the 80 professionals operating from Hong Kong. So in Los Angeles with key hubs in Singapore gift City in India, Dubai, Humbug, London, Charlotte and New York.
Speaker Change: We provide an end to end offering across physical and financial metro markets, including trading storage logistics and hedging capabilities, serving a global customer base of over 1000, commercial and financial entities as well as over 127000 retail clients our business is rooted firmly.
Speaker Change: At the center of the global metals ecosystem.
Speaker Change: <unk> is uniquely positioned as the only non bank participants in setting the gold silver platinum and Palladium daily price benchmarks.
Speaker Change: <unk> is also the only firm globally to hold these membership in addition to being a category one ring dealing member of the global base metals benchmark setting venue, the London metal exchange or let me.
Speaker Change: Over the past five years net operating revenues for <unk> metals have increased by over 40% now consistently exceeding $200 million annually.
Speaker Change: We continue to build on this momentum with strategic investments such as the acquisition of JP, All recovery limited and L. P. M. A good delivery silver Recycler L. P M a being the London Bullion Metal Association market Association My apologies.
Speaker Change: As Joe mentioned, the launch of a CME approved precious metals folks in New York and one of the first entities to establish a gift city.
Speaker Change: It's providing access into the Indian subcontinent.
Speaker Change: These development strengthen our capabilities across refining storage and distribution aligning with our mission to create a fully integrated global metals platform.
Speaker Change: So who are our clients.
Speaker Change: So as metal says a dynamic and expanding client base that includes central banks sovereign mints refineries Boolean bank commercial enterprises financial institution and institutions and retailers our value proposition is based on seamless execution market access and Taylor.
Speaker Change: Solutions to meet a wide array of customer needs.
Speaker Change: So what it would've been some of the recent areas of expansion in base metals, we have seen steady and diversified growth across our base metals business, we enhanced our <unk> option market, making capabilities by Onboarding, a highly experienced trading team significantly boosting client engagements and trade volumes.
Speaker Change: Earlier this year, we completed the first ever lithium carbonate futures block trade on paybacks following our previous success with nickel sulphate futures.
Speaker Change: These milestones reinforced our leadership in pioneering new contracts and facilitating liquidity and emerging battery metals.
Speaker Change: Stone has established itself as the number one clearer of enemy steel scrap and rebar contracts driven by consistent carrying volume growth from both financial and physical players.
Speaker Change: Our performance during the nickel market disruption and more recently during the CME <unk> base metals prices ticket dislocation validated our disciplined risk management and client services capability.
Speaker Change: As other firms pulled back we benefited from an increase in client onboarding, including large ftm's, who salt stability and expertise from the worlds premier missiles team.
Speaker Change: Our investment in technology with our proprietary base metals trading platform B M execute a streamlined execution and post trade processes offering clients direct interaction and greater transparency.
Speaker Change: Integration with our upcoming enterprise trading out Nexus will further simplify risk management and mobile trading axis.
Speaker Change: Now turning to precious metals, where similar to base metals, our electronic trading capabilities have continued to grow via our proprietary trading platform PM execute which now handles an average of $2 $5 billion in daily client trading flow.
Speaker Change: We also provide integration integrated pricing services via direct trading Apis as well as streaming prices into major FX.
Speaker Change: Trading venues for example, Bloomberg.
Speaker Change: Next go West Onyx is the number one liquidity provider in silver platinum and palladium.
Speaker Change: <unk> has always been a leading participant in physical billions of commercial players around the world, including refineries large commercial jewelry manufacturers' Central bank sovereign mints and others.
Speaker Change: We help clients across access the precious metal in full and size they need and take advantage of the locational arbitrageurs.
Speaker Change: We do this on a hedged back to back basis, and utilize global logistics providers to handle the delivery with settlement usually within 24 hours.
Speaker Change: We provide we believe we are now one of the top three participants in this global market globally and the number one non bank in the physical bullion market globally.
Speaker Change: Our e-commerce platform through <unk> billion office physical bullion in the form of small bars and coins to both retail and wholesale customers across Europe.
Speaker Change: Since acquiring the business six years ago. It has grown tenfold in transactional volume through significant expansion in its client base with a more extensive product offering through access to the broader <unk> ecosystem.
Speaker Change: <unk> is now a leading provider in this space in Europe with broader geographical plans in the future.
Speaker Change: On a more topical matter <unk> has been in the forefront and effectively navigating recent market volatility driven by the threat and imposition of U S. Tariffs on behalf of our extensive network of clients in multiple jurisdictions.
Speaker Change: We facilitated the physical movement of go into the United States ahead of the possible imposition of U S tariffs for our clients and also for many international banks, who themselves did not have access to the physical market and therefore relied upon the services of <unk>.
Speaker Change: Interestingly the large movements in gold actually showed up in the U S trade deficit.
Speaker Change: Great.
Speaker Change: And to remind you we are on slide 13.
Speaker Change: And looking at the Q2 figures moving on to slide 14.
Speaker Change: The second quarter of financial year, 'twenty five was marked by exceptional volatility with geopolitical tensions and policy uncertainty driving significant dislocations across global metals markets, we sold gold prices surged to an all time nominal high surpassing even the inflation adjusted peak from the $19.
Speaker Change: Oil crisis. This was driven by investor flight to safety amid geopolitical instability and changing central bank strategies.
Speaker Change: This quarter, we saw significant global prices dislocations and logistics disruptions driven by divergent trade policies, particularly in the U S.
Speaker Change: These shifts created pricing gaps between international and domestic U S metals pricing.
Speaker Change: In response market participants rush to move physical inventory into the U S warehouses to cover short positions ahead of possible tariffs leading to significant logistical bottlenecks.
Speaker Change: As a result of this inventories in CME warehouses jumped by nearly 850 tons or 250% from December 2024 to March 2025, highlighting the massive repositioning of metal within the market and the relevance of <unk> to expand its ecosystem to include its own.
Speaker Change: CMA approved volt.
Speaker Change: Concurrently and for similar reasons, the CME <unk> copper arbitrage spiked to over $1000 per ton at its peak in February underscoring the regional supply demand imbalances.
Speaker Change: Despite these unusual market events stomach delivered a standout performance with its net operating revenues in metals for Q2 up 20% versus Q2 last year.
Speaker Change: Throughout this period of extreme volatility.
Speaker Change: <unk> was able to provide first class market, making activity.
Speaker Change: The pricing integrity and most importantly continue to offer our full service offering to enable clients to access pricing in order to hedge exposures at a time when other counterparties had withdrawn from the market.
Speaker Change: Moving to slide 15.
Speaker Change: What are the strategic pillars with regards to <unk> metals as well number one building our ecosystem.
Speaker Change: As mentioned earlier.
Speaker Change: <unk> obtained CME accreditation for its New York Volt and is a natural extension of its existing capabilities and the enactment of all of our long term strategy to build a fully integrated global metals platform <unk> can now offer the customers a comprehensive global one stop shop service of hedging.
Speaker Change: Physical supply vaulting financing and physical fulfillment all managed through a single convenient relationship.
Speaker Change: The <unk> acquisition, <unk> further deepened and metals offering with the acquisition of <unk> recovery limited one of any two L. B M. A good delivery silver refiners in the U K.
Speaker Change: This refinery provides provides invaluable.
Speaker Change: I'm sorry, this refinery proved invaluable during the CME versus the OTC price dislocations in Q2.
Speaker Change: <unk> was able to produce its own CME eligible material in order to mitigate this price risks.
Speaker Change: Having this extension to the <unk> ecosystem allows <unk> to produce approximately 120 tonnes about 4 million ounces of CME eligible material since the acquisition closed in October.
Speaker Change: The integration of JV, all with the broader <unk> group has proceeded smoothly with investments anticipated in the short term to increase production capabilities and capacity significantly better serving our customers' needs and natural demand for metal.
Speaker Change: In continuation of our ecosystem expansion stomachs metals has established a presence in Indias first three financial freezer Gibson.
Speaker Change: <unk> City <unk> became the first international trading and pay remember on IPX pioneering international access to India's precious metals market.
Speaker Change: <unk> was also the first member to import under the Q S. FCA category and the first International company on India in the India International but in exchange.
Speaker Change: This was a natural area of expansion and licensed the unique position <unk> as the leading nonbank in poultry gold into India.
Speaker Change: Number two growing and diversifying our client base.
Speaker Change: As we are constantly evolving our client mix to capture new growth opportunities.
Speaker Change: Metals clearing business has attracted new institutional participants, including other <unk>, which we feel is a testament to our operational excellence and capital efficiency.
Speaker Change: I will focus on building proprietary pricing and risk management tools is enhancing our electronic offerings in both base and precious metals with automatic FX crush rates were required which in turn is attracting a sizeable increase in clients, especially funds and financial institutions.
Speaker Change: We are continuing to expand our geographical retail footprint beyond Europe into Asia, the Middle East and North America supported by a localized digital presence enhanced logistic capability naturally.
Speaker Change: Enhanced with the addition of the New York based volt.
Speaker Change: Number three digitizing our business.
Speaker Change: Consistent with much of Sonics, we're using technology to internalize flow optimize execution on scale up of our platforms.
Speaker Change: Our internalization engine continues to drive greater execution efficiency and margin capture particularly during periods of high volatility.
Speaker Change: Later, this year, our existing fronts and trading platforms by PM execute and BMX skewed shall be integrated into our broader multi asset class access platform for the <unk> group.
Speaker Change: With volumes through both platforms at record highs. This will fully integrate trading risk management account management and reporting for clients across <unk> and price and precious metals products.
Speaker Change: It also includes a mobile trading capability, which should be a major step forward in platform accessibility.
Speaker Change: I'm sorry.
Speaker Change: Despite the challenging macroeconomic backdrop Q2 twenty-five showcase best in class resilience agility.
Speaker Change: With products and service provided by <unk> metals and <unk>.
Speaker Change: <unk> diversified and fully integrated business with the deepest non bank <unk> vertical in this space and a truly unique ecosystem that is second to none.
Speaker Change: Without <unk>.
Speaker Change: So you get some expansion.
Speaker Change: Diversification and Digitization Phenix metals is well positioned.
Speaker Change: To lead in the evolving global metals marketplace.
Speaker Change: Yes.
Speaker Change: I missed the opening remarks.
Phillip: Thanks, Phillip let's move to the final slide number 16 in the deck.
Phillip: This was another strong quarter for us and what has been a long series of quarters, where we have exhibited growth off the back of a broad based strength across most of our products and segments.
Phillip: We achieved earnings of $71 7 million and diluted EPS of $1 41 up 35% and 25% respectively are.
Phillip: Our business is showing its resiliency by producing these growing results in markets, where volatility is generally be muted, albeit in a rising interest rate environment.
Phillip: It seems to us that there's a period of higher volatility ahead, while interest rates have stabilized, which bodes well for the continued growth in our business.
Phillip: The addition of <unk> will be significantly accretive to our earnings and our franchise generally and we believe the acquisition will further accelerate our current growth trajectory.
Phillip: As I mentioned earlier, there has been quite a transformation in the last five years since we acquired gain capital since December 2019, we starting all stock.
Phillip: Equity over three fold and following the acquisition of agile, Brian on a pro forma basis, including synergies. The combined entities will have around $750 million and EBITDA of nearly six times without as yet factoring in any revenue synergies.
Phillip: We are not even better positioned to capitalize on the ongoing industry transformation driven by regulatory change and market consolidate consolidation to become the counterparty of choice for clients of all types looking for access to the global financial markets. These shifts will continue to create significant opportunities for <unk> to expand its market share.
Phillip: And provide a substantial runway for growth.
Phillip: <unk> system underpinned by broad capabilities and diverse offerings enables us to deliver innovative solutions that will provide clients with access to markets expand our market reach and create long term value.
Phillip: The one thing we'll always be constant for the next team and that is to dedicate ourselves to better serve our growing client footprint around the world by providing them with the best financial ecosystem and the best client service to access the global financial markets.
Speaker Change: Operator with that let's open for questions. If there are any.
Speaker Change: Thank you at this time, we will conduct a question and answer session. As a reminder to ask a question you will need to press star one on your telephone and wait for your name to be announced to withdraw your question. Please press star one again.
Speaker Change: Please standby, while we compile the Q&A roster.
Speaker Change: Our first question comes from Dan Fannon with Jefferies. Please go ahead.
Dan Fannon: Thanks. Good morning, just wanted to touch base on just the environment, obviously, a ton of volatility in the quarter and subsequently in April.
Dan Fannon: The metrics you've put out we're obviously looks strong, but just curious about the health of the markets and how things behaved in the quarter and as you think about prospectively do you I mean, obviously not be able to predict volumes, but do you think a return to normal.
Dan Fannon: Is reasonable in terms of.
Dan Fannon: Just kind of a near term kind of outlook.
Speaker Change: Well good morning, Dan.
Speaker Change: First of all as I said in my remarks, we obviously, if you're looking back over a slightly longer period say the last 12 to 18 months I think we've generally so volatility decline and sort of interest rate environment getting better for us. So those are the two sort of macro factors I think we've now seen interest rates sort of stabilize I think originally we thought.
It might move down a little bit faster they haven't done that but I think what we've also noticed is the volatility volatility is dramatically increase right.
Speaker Change: Certainly over the last couple of months with tariffs and so on.
Speaker Change: This is my personal view.
Speaker Change: I don't have a crystal ball for the future.
Speaker Change: But I would anticipate that volatility will be higher in the next 12 months that it wasn't the last 12 months.
Speaker Change: I think the sort of chaos around tariffs the reformatting of trade globally.
Speaker Change: The sort of high debt levels that we see uncertainty around supply chain and inflation I think these are all things that will lead to.
Speaker Change: Volatility may be sporadic bouts of volatility, but I would say on average volatility being higher. So so we feel good about the environments I mean, we obviously thrive in volatility.
Speaker Change: I think what we don't want to see is massive dislocation I think that's not good for us or for the market and.
Speaker Change: And we certainly don't want us to see extreme volatility because extreme volatility tends to sort of help clients. So you get a lot of.
Speaker Change: I guess revenue, while it's happening and then you sort of that revenue sort of front ended and then sort of clients in the.
Speaker Change: Not doing much afterwards, so we don't want to see that environment.
Speaker Change: I think there was sort of a little a little bit of that around the gold market as Philip alluded to I mean metro sort of.
Speaker Change: A dislocation which.
Speaker Change: <unk> was great because we had all the capabilities to take advantage of that situation.
Speaker Change: But I wouldn't want to see too much of that happening so.
Speaker Change: My hope is that doesn't happen and my my prediction, if I had to make one is that we would see slightly higher volatility going forward, which I would say would be a net positive for us.
Dan Fannon: No if it adequately answer your question Dan.
Dan Fannon: No that's helpful. Obviously.
Dan Fannon: No one has a crystal ball, but.
Dan Fannon: That is helpful.
Speaker Change: Question just on the payments business you guys gave us the additional detail last quarter.
Speaker Change: Just in terms of how that's different in the market, but if you look at just kind of the results. The last four quarters, we've seen down year over year growth.
Speaker Change: As you think about the business today and the prospects for it going forward. What do you think gets or what are the catalysts to start to return to that more growth in that segment.
Speaker Change: Okay.
Speaker Change: Sure.
Speaker Change: He wants to jump in here. So let me go first and then I'll lithium fill in.
Speaker Change: I would say again looking over a slightly longer period. So the last 24 months I would say and as I think I mentioned this previously.
Speaker Change: I think we became a little bit challenged on the capacity side.
Speaker Change: With our technology I mean, our business is obviously ramped significantly over the sort of prior 10 or 15 years.
Speaker Change: What we do is not easy I mean, we are linking to.
Speaker Change: 180 markets in correspondent banks in all those markets some of which aren't on the leading edge of technology. So we built our technology and then I think we realize that we have sort of hit a plateau.
Speaker Change: And we have to do with technology rebuild which meant we had to back away a little bit from certain markets and certain high volume transactions with our business partners. So it's one hates to do but.
Speaker Change: So we built a.
Speaker Change: In our system, it's called X pay that's been about two years in the works.
Speaker Change: That was sort of the master plan to really significantly upgrade our tech stack, there and provide us with significantly greater capacity as well as much higher S.
Speaker Change: <unk> rates.
Speaker Change: I'm pleased to say that is now operational it was delivered in January it's sort of working flawlessly.
Speaker Change: Couple of more modules two to add onto that but it's allowed us to sort of open the taps a little bit. So I think what youll see and what you noticed in this quarter is volumes were up pretty nicely and thats, probably the first time in a while we've been able to let our volumes go up I think the number right in front of me, but I think it was like 17% in terms of Adv.
Speaker Change: Up quarter on quarter.
Speaker Change: So as I've always say, that's sort of the number one thing for us to watch right. As you know are we getting engagement from clients always picking up more volume.
Speaker Change: They are certainly at this point that data point would indicate we sort of turned the corner, we now using that surplus capacity.
Speaker Change: So guiding up on the flip side again also discussed previously.
Speaker Change: Been very challenged on the on the market side.
Speaker Change: A lot of the spreads have narrowed in.
Speaker Change: We've seen this occasionally where we sort of had spreads generally narrow in across all of our markets normally we have a couple of big.
Speaker Change: Colorado's.
Sort of have a little bit of chaos, which allows us to get some some rate capture that but for a while now it's been sort of consistently tight across the board and if you have a look that shows up in lower rate per million capture right. So.
Speaker Change: So what we've seen as volumes started to increase which I think is a really good sign.
Speaker Change: And a continued sort of tough trading environment.
Speaker Change: That's kind of what the recent data points I think on a go forward basis.
Speaker Change: We now are able to do.
Speaker Change: Large amounts of lower volume transactions with a new tech stack I think we now re pitching their services to all our bank partners.
Speaker Change: I would hope to see continued volume increase as we go forward and then obviously in terms of rate capture that really depends on sort of market conditions. So quite hard to predict so I'm, hoping we've turned the corner here I think the tie up with bamboo is very exciting for us definitely extends our ecosystem.
Speaker Change: And America very significantly.
Speaker Change: It's something our clients have been asking us for for two three years now.
Speaker Change: We were trying to solve the problem ourselves, but it's a big lift and we saw an opportunity to partner with bamboo so that immediately enhances our ecosystem and our capabilities and I think that will again drive.
Speaker Change: More volume so so we sort of hopeful we through the kind of the lull we had in that business a little bit just because of the technology changes and we now think we sort of got the best in class technology solution. We saw the future proof the business for 20 X growth at this point.
Speaker Change: And now we've got to go and go get that growth. So I'll stop there and see if Philip wants to add anything to that.
Philip: What I think you covered pretty much everything that Sean but some just illustrated.
Speaker Change: The.
Speaker Change: Kate the capacity is.
Speaker Change: Issue, which forced us previously to have to turn away business, because we had a lot of banks wanting to provide.
Speaker Change: Provide us access to that.
Speaker Change: The low value high volume payments and which they struggle with.
Speaker Change: Because of capacity issues from our end systems, we were unable to take for this business on so you can imagine the relief and excitement from the team in rolling out our own X page it gives them that additional capacity in <unk>.
Speaker Change: Tenfold capacity, where we were able to go back to these banks to say, okay. Thank you for being patient and thank you for waiting for us.
Speaker Change: We're very happy to provide the service to you and to give an example.
Speaker Change: Literally this week, we had some.
Speaker Change: Two and a half thousand payments to Vietnam, which ordinarily would have been a struggle for us to do over a period of a month, we did it in one morning out of our Singapore office, So very straightforward very easy and illustrating the.
Speaker Change: The increased.
Speaker Change: The ability to service those clients, which have been waiting patiently for us to build out the technology to do so and as Sean said, we we still we still look at the volumes the volumes going through all our channels is the early indicator and being able to take advantage of the widening of spreads where appropriate where they appear.
Speaker Change: Which I think is pretty much what we covered in the last deep dive too to highlight what we were building why why we're building it and what would be the benefits of the buildout.
Speaker Change: Does that answer your question yes.
Speaker Change: Yes, it does.
Speaker Change: And then just my last question is just on the retail segment.
Speaker Change: Fee per million or came in much lower than we've seen over the last previous several quarters.
Speaker Change: I guess I'm, just a bit surprised just given the environment and volatility thought spreads widen a bit a little bit wider than that might've been it's still a good constructive environment. So can you talk just about the mix and kind of what happened or what was kind of driving that in the quarter.
Bill Dunaway: Bill I don't know if you want to jump in but again, let me give some initial comments.
Speaker Change: Firstly and I think I said this previously.
Speaker Change: Oh.
Speaker Change: Revenue capture.
Speaker Change: Was kind of off the charts previously sort of way above where we expected it to be and obviously, great when that happens, but very hard to sustain that level of revenue capture so I think we're trending down to a more normalized level. So yes, it's a decline from where we were but I think we were sort of apps.
Speaker Change:
Speaker Change: Sure.
Speaker Change: Unusually high levels in the last two quarters certainly so I think this is the sort of level, we probably anticipate and I think there was a little bit of product mix, which drove that as well bill.
Speaker Change: And I mean, just.
Speaker Change: Just to chime in there I think at the beginning of the quarter, Dan It was kind of a tough environment a lot of banded trading.
Speaker Change: And just generally directional markets that kind of limited and as Shaun touched on there was also just kind of some product mix.
Speaker Change: A lot of the flow within variant.
Speaker Change: These industry that had pretty tight spreads.
Speaker Change: Towards the end of the quarter that picked up and started to improve I think towards the end of the quarter. It was much stronger obviously as you would think from the standpoint of the volatility that is creeping in but early in Jan.
Speaker Change: It was more of a difficult environment.
Speaker Change: Environment.
Speaker Change: Great. Thank you.
Speaker Change: Youre welcome.
Speaker Change: Okay.
Speaker Change: Any other questions.
Speaker Change: Yes. Our next question comes from Jeff Schmitt with William Blair. Please go ahead.
Jeff Schmitt: Hi, good morning, everyone.
Speaker Change: Could you talk about the rest of you.
Speaker Change: I'm good I'm. Good could you talk about your risk management policies in general and just how you are able to avoid large losses during this higher volatility.
Speaker Change: Well that could be a really long conversation.
Speaker Change: The short one.
Speaker Change: So.
Speaker Change: Obviously when volatility goes up.
Speaker Change: The potential for risk or risk manifest itself right and these are times, where we get a good sort of test of our systems and.
Speaker Change: The first thing to say is.
Speaker Change: I think we performed pretty flawlessly.
Speaker Change: Everything sort of happening margin calls were made.
Speaker Change: And sort of.
Brian: I almost hate to say this but sort of unusually good Brian I mean, you'd normally expect when you see this kind of volatility that you might have a few small problems here or there, but honestly didn't have any so that was great.
Speaker Change: I would say generally with risk management is.
Speaker Change: You can't stop changing your risk management or taking up risk management. When you have the iron stove risk management as a culture, it's something that you've got to define upfront you've got to create muscle memory around you've got to have all the disciplines in all the time. So when do we start with the storm hits you sort of.
Speaker Change: Prepaid and you're just executing your plan right. When you start to try and make up things when the market hits here, it's too late right. So I think we pride ourselves on making sure we instill those disciplines and get that muscle memory throughout the organization. So you know when we go through these times everyone knows the assignments everyone knows what to do.
Speaker Change: And we sort of execute on plan and I think that's pretty much what happened.
Speaker Change: I would say generally speaking there's.
Speaker Change: The fundamentals to risk management.
Speaker Change: To make sure that you are dealing with clients and the physicians clients are running with you are appropriate to the size of the organization you are.
Speaker Change: And that you are comfortable and know the risks associated with those positions and can handle that I think when people get upside down on risk is when you start taking on clients that are too big for you that might be excellent clients. I mean for example, if one of the big National Airlines came to us to hedge energy that would be a great client.
Speaker Change: For us, but the size of positions that would be running with us would be too big for the size company, we are and replace liquidity and other risks on the system. So you've got to make sure that constantly youre right sizing your business with the market the market liquidity the clients. So that you have a well diversified business.
Speaker Change: That doesn't expose you to outsize risks in the event of a black Swan event. So that's the fundamental sort of coal.
Speaker Change: Thing that underpins our strategy.
Speaker Change: We got a great risk team they battled hardened I mean, we've come through any number of sort of black Swan events and I think we've proven that we can handle lots of these non touching wood as I say this.
Speaker Change: You never know what the next thing is coming coming at you, but I'm very confident in our risk management capabilities.
Speaker Change: If you would like to go through that in a much more granular way more than happy to take you through that.
Speaker Change: Okay great.
Speaker Change: And then just a question on <unk>.
Speaker Change: This administration were to loosen up banking regulations and capital requirements.
Speaker Change: After the tariffs.
Speaker Change: Do you think it could cause some of your larger competitors to maybe get more competitive in some of your markets or could it change the kind of industry consolidation dynamics at all.
Speaker Change: We've been asked this question a while I think it might slow things down a little bit, but I don't think banks are going to reverse course on this.
Speaker Change: I think they are so reformatted their businesses their out of proprietary trading the clients sort of execution side of the business has been dramatically sort of refocused onto large clients that do other business with the banks.
Speaker Change: I think that obviously welcome some relief, but I don't think they will reverse course is my personal opinion.
Speaker Change: You may find that they are less willing to sort of shape to continue to shed more business and see less.
Speaker Change: Less need to do that.
Speaker Change: If theyre not pushed by capital.
Speaker Change: So I don't think its going to have an immediate impact that I can see.
Speaker Change: I think they are making so much money doing other things that they will probably focus on those businesses that are meaningful for them and really sort of move the needle rather than sort of get into the businesses like this which probably up for them aren't going to really move the needle that much that would be my view.
Speaker Change: Okay. That's helpful and just last one on the R. J O deal I mean, any update on revenue synergies or do you sort of have to wait until that closes to get a better sense of that client list and the opportunities there.
Speaker Change: Yes, so obviously we.
Speaker Change: We are two competitors in a very competitive industry.
And because of that we have to stay sort of totally separate.
Speaker Change: Not in a position to get sort of granular in terms of.
Speaker Change: Who the clients are and what we can do with our clients. So it's quite hard for us to.
Speaker Change: Could any definitive metrics around sort of the revenue.
Speaker Change: And the way we can save costs.
Speaker Change: And we will only be able to really do that after closing, but having said that we've had broad and sort of general discussions with the senior leadership at RJR.
Speaker Change: Sort of demonstrated and shown them sort of.
Speaker Change: What our capabilities on what our toolkit is which I think is much more broad than what they've had.
Speaker Change: To date and I think the general view is people.
Speaker Change: People are very excited over there I think they should be.
Speaker Change: And I think we have a lot of products that are very applicable to their clients and I think certainly the two of us as a combined force will will be terrific and I think we'll add a lot of additional revenue from from their clients, which will be good for the brokers of the client relationship people are going to make more money, we're going to make more money and we.
Speaker Change: Going to end up serving the clients better which is the most important thing so.
Speaker Change: No sorry, I cant be definitive about it but you know my.
Speaker Change: Basic work, we've done and sort of looking at sort of how much money, we generate out of similar lines to the RJR clients and comparing would lead us to believe that the revenue synergies are.
Speaker Change: Significantly larger potentially than the cost synergies on the bottom line, but it may take a while to realize right I mean, it could be sort of <unk>.
Speaker Change: 12 to 18 months before we see those showing up it takes a long time to educate the sales force and get the products into the clients.
Speaker Change: A lot longer process, potentially but I think it could be more significant.
Speaker Change: Right. Okay. Thank you.
Speaker Change: Alright.
Speaker Change: Operator is there anyone else I.
Im showing no further questions at this time I'd like to turn it back to Sean O'connor for closing remarks.
Sean O'Connor: Alright, well thanks, everyone for joining we appreciate your time as you can tell it's been a pretty busy six months I'll be here at <unk> and we all very excited then.
Speaker Change: This could be the beginning of a really exciting new chapter with us in Ontario, Brian as well as all the other acquisitions. We've got we we certainly feel we have got a lot to do and a lot of opportunity.
Sean O'Connor: That we need to take hold off here, so very exciting and.
Speaker Change: We look forward to reporting back.
Speaker Change: Yes.
Speaker Change: Thank you for your participation in today's conference. This concludes the program you may now disconnect.
Speaker Change: Yeah.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: [music].