StoneX Group - Earnings Call - Q4 2025

Transcript

Speaker 0

Good day, and thank you for standing by. Welcome to the StoneX Group Q4 FY 2025 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To try your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Bill Dunaway, CFO. Please go ahead, sir.

Speaker 1

Good morning, and welcome to our earnings conference call for our quarter ended September 30, 2025, our fourth fiscal quarter. After the market closed yesterday, we issued a press release reporting our results for the fourth quarter and the full fiscal year. This release is available on our website at www.stonex.com, as well as a slide presentation which we will refer to during this call. The presentation and an archive of the webcast will also be available on our website after the call's conclusion. 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, as well as the Form 10-K to be filed with the SEC.

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. These forward-looking statements involve known and unknown risks and uncertainties, which are detailed in our filings with the SEC. 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 expressed or implied by the company's forward-looking statements. 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.

With that, I'll begin with the financial overview for the quarter, and we'll be starting with slide number four in the slide deck. Fourth quarter net income came in at a record $85.7 million, with the learning diluted earnings per share of $1.57. This represented a 12% growth in net income. However, EPS grew at a 1% rate due to the additional shares outstanding as compared to the prior year, primarily related to the issuance of approximately 3.1 million shares related to the acquisition of RJ O'Brien. It is of note the current quarter includes pre-tax acquisition-related charges of approximately $9.3 million, including $1.3 million of bridge loan financing charges and $8 million of investment banking fees, which equates to approximately $0.13 per diluted share. Net income and diluted EPS were up 35% and 29%, respectively, versus our immediately preceding third quarter.

This represented a 15.2% return on equity, despite a 72% increase in book value over the last two years. We had operating revenues of just over $1.2 billion, up 31% versus the prior year, and up 17% versus the immediately preceding quarter. As a reminder, our operating revenues include not only interest and fees earned on our client balances, but also carried interest that is related to our fixed income trading activities. 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 29% versus a year ago and 20% versus the immediately preceding quarter. Fixed compensation and other expenses were up 24% versus the prior year quarter.

This also represented a 14% or $36.3 million increase versus the immediately preceding quarter, with $32.4 million of this attributable to the acquisition of RJO and Benchmark during the quarter. Fixed compensation and related costs were up 23% versus a year ago and up 12% or $14.2 million versus the immediately preceding quarter. The increase versus the immediately preceding quarter was almost entirely as a result of the acquisitions I just noted. Professional fees increased $12.2 million versus the prior year, primarily as a result of the $8 million investment banking fee noted earlier. They were up $3 million versus the immediately preceding quarter, with the investment bank fee just noted partially offset by a $5.8 million decline in legal fees, primarily driven by an insurance recovery.

The acquisitions of RJ O'Brien and Benchmark contributed $22.1 million and $2.4 million in pre-tax net income, excluding acquired intangible amortization, respectively, for the quarter. Looking at it from a longer standpoint, our full fiscal year results show operating revenues up 20%. Net income was a record $305.9 million, up 17%, with earnings per share of $5.89 and a return on equity of 15.6% for the fiscal year, above our 15% target. We ended the fourth quarter of fiscal 2025 with book value per share of $45.56 per share. Now 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 growth across all products with the exception of FXCFDs.

Transactional volumes were up across all of our product offerings with the exception of FXCFDs, and spread and rate capture increased in all products with the exceptions of payments down 4% and FXCFDs, which declined 32%. Just touching on a few key highlights for the fourth quarter, we saw operating revenues drive from listed contracts increasing $89.4 million or 76% versus the prior year, with the acquisition of RJO contributing $89.5 million. This also represented a 64% increase versus the immediately preceding quarter. Operating revenues drive from OTC derivatives increased 27% versus the prior year, however declined 1% versus the immediately preceding quarter. Operating revenues drive from physical contracts increased 24% versus the prior year, primarily driven by a $19.5 million increase in physical, agricultural, and energy revenues, which were partially offset by a $6.8 million decline in precious metals operating revenues.

Operating revenues derived from physical contracts were up 18% versus the immediately preceding third quarter. Securities operating revenues were up 26% as volumes were up 25%, and the rate per million increased 23% versus the prior year, with the improvement driven by strong growth in both equities and fixed income. Payments revenues were up 8% versus a year ago, but down 3% versus the immediately preceding quarter, primarily due to a decline in rate per million. FXCFD revenues were down 34% versus a year ago, resulting from a 7% decline in ADV and a 32% decline in rate per million, primarily driven by low volatility in FX markets. This also represents a 36% decline versus the immediately preceding quarter.

Our interest and fee income earned on our aggregate client float, including both listed derivative client equity and money market FDIC sweep balances, increased $52 million or 46% versus the prior year, with the acquisition of RJO contributing $50 million. Average client equity and average money market FDIC sweep client balances increased 71% and 25%, respectively. For the current quarter, the average client equity includes the effect of an incremental $5.6 billion per month from RJO for the two months post-acquisition, or an incremental $3.8 billion increase to the quarterly average. Turning to slide number six, this depicts a waterfall by product of net operating revenues from both the prior year quarter to the current one, as well as the same for the full fiscal year periods. Just a reminder, net operating revenues represent operating revenues less introducing broker commissions, clearing fees, and interest expense.

For the quarter, net operating revenues increased 29%, principally coming from securities and listed derivatives, up $48.7 million and $43.1 million, respectively. On a net basis, interest and fee income on client balances increased $28.8 million, with RJO contributing $32.5 million, which was partially offset by a modest decline in legacy StoneX. As noted earlier, due to the lower FX volatility, we saw FXCFDs net operating revenues decline $29.7 million versus the prior year. Looking at the bottom graph for the full fiscal year periods, once again, it is securities with the largest increase, up $126.1 million versus the prior year, driven by a 27% increase in ADV and a 9% increase in rate per million. In addition, listed derivatives and interest and fee income increased $46.3 million and $31.2 million, respectively, primarily as a result of the acquisition of RJ O'Brien.

Finally, physical contracts net operating revenues added $34.7 million versus the prior fiscal year. Moving on to slide number seven, I'll do a quick review of our segment performance. Our commercial segment net operating revenues increased 25% or $42.9 million, with $20 million of this being contributed by the RJO acquisition. Listed and OTC derivative contract volumes increased 32% and 27%, respectively. In addition, physical contracts increased 26%, while net interest and fee income increased 22%. The growth in listed derivative and interest income were primarily driven by the acquisition of RJO. Segment income increased 25% versus the prior year, while on a sequential basis, net operating revenues were up 23% and segment income was up 35%. Our institutional segment saw record net operating revenues and segment income with growth of 67% and 73%, respectively.

Versus the prior year, this represented growth of $117.5 million, with the acquisition of RJO contributing $50.2 million. The growth in net operating revenues is principally driven by a $48.9 million increase in securities revenues. In addition, listed derivatives and interest and fee income increased $30.5 million and $20.7 million, respectively, primarily driven by the acquisition of RJO. On a sequential basis, net operating revenues and segment income were up 46% and 53%, respectively. In our self-directed retail segment, net operating revenues declined 35% and segment income was down 51%, primarily driven by a 4% decline in average daily volumes and FXCFD contracts, combined with a 31% decline in rate per million. On a sequential basis, net operating revenues were down 37% and segment income declined 62% in this segment. In our payments segment, net operating revenues were up 7% and segment income increased 21%.

ADV was up 13% versus the prior year, while rate per million was down 4%. Versus the immediately preceding quarter, payments and net operating revenues declined 2%, while segment income increased 7%. Now moving on to slide number eight, looking at segment performance for the full fiscal year, we saw strong growth in our institutional segment, with net operating revenues up 36% and segment income increasing 45%. In addition, our self-directed retail segment increased segment income 12%. Our commercial and payment segments added 1% and 4% in segment income, respectively.

Finally, moving on to slide number nine, which depicts our interest and fee income on client balances by quarter, as well as a table showing the annualized interest rate sensitivity for a change in short-term interest rates, the interest and fee income, net of interest paid to clients, and the effective interest rate swaps increased $28.8 million to $112.2 million in the current period. As noted, the acquisition of RJ O'Brien contributed $32.5 million in the net interest in the current quarter. As noted in the table, with the addition of the $6.3 billion client assets from the RJO acquisition, we now estimate a 100 basis point change in short-term interest rates, either up or down, would result in a change to net income by $53.8 million or $1.02 per share on an annualized basis.

With that, I will turn you to Sean O'Connor, our Executive Vice Chairman. Thanks, Bill, and good morning, everyone. It is very gratifying to see that we've achieved yet another record financial result in what is a long string of record performances. We have managed to exceed our ROE targets despite our stockholders' equity increasing by 72% over the last two years. It is no easy feat to continuously compound at a high rate when you are reinvesting 100% of your capital, something we have managed to do for decades now. Turning to slide 11 in the deck, as you're aware, over roughly the last 20 years, we've been active in the M&A market, especially following the financial crisis, having now completed over 30 acquisitions during this time. During the COVID pandemic and the years immediately following, our activity was notably limited on the M&A front.

The prevailing market conditions at that time were characterized by bubble-like valuations based on peak earnings for most companies active in our space as well. We chose to focus on organic opportunities and to wait for valuation demands to become more rational. 2025 was our most active year ever, with us completing six transactions culminating in the acquisition of RJ O'Brien, our largest ever, and one we believe will be transformational for the organization. I thought it might be useful here to review our M&A approach, something that a lot of investors have asked me in calls over the last few years. We are very opportunistic around acquisitions. As an old M&A banker, I'm acutely aware that most transactions don't succeed for the simple reason that buyers are often desperate, maybe for a growth strategy, maybe a new strategy overall, new talents, and as a result, they tend to overpay.

We pride ourselves on being very disciplined, and we can afford to be disciplined because we have such a strong or grand growth track ahead of us, given the market dynamics we have spoken about previously, with banks withdrawing and smaller firms being consolidated. When we evaluate a new opportunity, we always have to consider the risk and disruption that this may cause to our existing organic growth initiatives, and therefore any opportunity needs to be compelling and accretive. We pass potential acquisitions through a number of screens. First, they need to be accretive to our ecosystem, adding either new products or capabilities, or adding to our client footprint and increasing market share in existing or new markets. We then need to clearly understand how we drive value for our shareholders.

Most often, that is by selling these new products and capabilities to our existing client base to drive incremental revenue, or in the case of client acquisition, by leveraging our ecosystem of products into these new clients. Of course, culture is all important. We are a client-first business, and we seek to establish long-term embedded relationships with our clients. We also look at the requirement for resources and capital, as well as cost structures and margins, to make sure that these transactions can be quickly accretive to our bottom line and to our ROE. In many instances, we can achieve capital and cost synergies given our larger scale and global footprint. Of course, we need to get to price, and given our desire to compound our capital, we tend to be on the conservative end of the value spectrum.

We need to see how the acquisition can be accretive to our ROE and also quickly earn back any goodwill that may be incurred, typically inside 36 months. I also strongly believe that we should take the leading role in due diligence rather than rely too heavily on bankers and advisors. This forces our team to roll up their sleeves and take ownership for the business we are acquiring and leads to quicker integration and synergies being achieved. Despite our strict criteria laid out above, we continue to find many good opportunities, and I think our discipline and rigor on the front end have resulted in us having a very high success rate with acquisitions. Almost all have gone on to become multiples of the size they were at the time of acquisition.

Turning to slide 12, in the last several years, we get approached on around 85-100 opportunities per year, many of which are sourced internally by our own teams. We typically engage with around 70% of those at some level and get into initial due diligence on around 50% and full due diligence on around 25% of those opportunities. That ends up with us submitting bids on around 15%. As you probably realize, this entails a fair amount of work and focus, and we are very lucky to have an extremely capable, albeit small corporate development team who, of course, can leverage the internal expertise we have where needed. We are also lucky to have an exceptional in-house legal team, which is involved in the process.

We have received numerous compliments over the years from our external bankers and lawyers on the exceptional corporate development and legal teams we have in-house here at StoneX. With that as background, let's turn to slide 13 and take a look at how we did in the 2025 fiscal year. As a reminder for this year, we made five acquisitions, and we made one strategic investment. Starting with RJ O'Brien, which we continue to believe will be a transformational acquisition for us, RJO was one of the oldest independent FCMs in the US, transacting with over 45,000 clients and over 200 IBs. This acquisition has made StoneX the largest non-bank FCM in the United States and a market leader in global derivatives, reinforcing our position as an integral part of the global financial market infrastructure.

This acquisition has brought us new clients in the likes of regional banks to whom RJO provides clearing and risk management in interest rate products, a large introducing broker network, which we believe we can leverage further, almost become an extension of our own sales team, as well as an agency execution capability where we can offer block trading and futures options and customized solutions. It was an acquisition which we also believe provides significant opportunities to improve our efficiency. As stated in our announcement, we expect there to be $50 million of expense savings and at least $50 million in capital synergies as we consolidate regulated entities. Abby Perkins from our executive team will be on this call and shortly provide an update on our integration progress with RJO. Coincidentally, we closed Benchmark on the same day as RJO.

Benchmark is a mid-size investment banking firm offering a sales and trading platform, equity research, and a highly experienced investment banking team. Benchmark brought us deep relationships in the hedge fund community, which were incremental to us, as well as an investment banking capability. We are looking to leverage our broader training and clearing capabilities into these new clients and, of course, offer investment banking capabilities to our StoneX clients. Additionally, Benchmark has been able to leverage our balance sheet to take larger roles in transactions than before. Lastly, on capital synergies, by leveraging the existing larger StoneX broker-dealer balance sheet, which already supports our FCM and securities businesses, Benchmark can reduce the capital requirement for its business.

We acquired the assets of JBR, a leading UK-based silver recovery refiner at the beginning of our fiscal year, which allows us to produce our own silver London good delivery bars and further extended our physical capabilities in metals. This has proven to have been particularly valuable during the recent metals volatility and shortages experienced this year, as we can now produce our own metal. It has also expanded our customer base by adding numerous industrial clients who see StoneX as a better capitalized counterparty and who can offer a range of storage, refining, and hedging services. In September, we announced the acquisition of Wright Corporation, a physical meat trading business in the US.

RJO has a dominant position in the meat and livestock industry in the US, and with this acquisition, we now bring a downstream physical capability to our clients, much like the rationale behind the very successful acquisition of CDI back in 2022, which extended our cotton derivative experience into the physical. It adds a new relationship with meat suppliers and ranches across beef, pork, poultry, as well as buyers in the processor and distribution space. In February, we completed the acquisition of Octo Finance, a leading French fixed income broker, which provides credit research and expertise in the trading of European bonds and convertibles. We are now able to offer the European-based clients access to our broader product mix, enable Octo to participate in larger transactions, and to add credit research and expertise in European bonds and convertibles to our suite of capabilities.

We have begun to cross-sell clients of Octo new products and services, as well as expanding their available credit products to include investment grade, high yields, and US treasuries. Lastly, we made an investment in Bambu Payments, which was accompanied with an option to acquire full ownership down the road. Bambu brings deep expertise and a well-established in-country payment ecosystem in South America, which has extended our cross-border capabilities. Bambu serves large regional marketplaces, ride-hailing services, and HR platforms, which are new client types for StoneX to interact with. Turning now to slide 14, alongside our inorganic M&A growth, we continue to iteratively improve our product and services offered organically. This has included several enhancements to our business, which extends our ecosystem and addresses additional client needs with the intent of capturing more of their business.

Some of these enhancements this year include the following: the build-out of our metals vault in New York, which now has more than $1 billion of assets under custody and is a CME designated depository and custodian. It has not only been a value add to our wholesale precious metals business, but also has attracted the global banks who would like to diversify their holdings away from other competing banks. It is highly complementary to our overall metal strategy of providing a full service offering in the market, and we are a unique industry participant in that we're both a regulated FCM and an exchange-approved depository. Towards the end of the year, we entered into two agreements, bringing in the business of two LATAM-focused wealth management firms, which have expanded our capability to service clients by providing brokerage and investment and advisory services.

These two transactions bolstered our existing wealth management business, further strengthened its connection into Latin America, and provide us with incremental clearing opportunities. Late last year, we were approved to provide digital asset services to institutional clients in Europe. This will allow us to provide execution and custody services alongside our existing suite of global prime, brokerage services, and other complementary offerings, including equities, ETFs, futures, and fixed income. We have also been improving our digital offering, which provides automation of management, merchandising, and origination of grain products. This is done through our proprietary platform called StoneX Edge. This platform integrates with existing grain elevators enterprise systems and back-office systems to automate and proactively manage the industry inventory. We announced last year that this platform has surpassed total volume of over 1 billion bushels of grain, which is a significant milestone for us.

Interestingly, RJO has a similar product offering, and we will be merging these two platforms to provide clients with the best of the two offerings. In prime brokerage, we offer a comprehensive custody and clearing platform across the globe aimed at financial institutions and funds. During the year, we have made several enhancements to our service offering, which have included an expansion of our CAP intro capabilities, improving consolidated reporting and margining for clients, and the addition of cross-currency products to the suite. These improvements have driven increased engagement, particularly among large ETF issuers and mutual funds, resulting in strong momentum for this product and this business.

Lastly, regarding our OTC and structured product capabilities, as we have mentioned in previous discussions, we see OTC as a tremendous growth opportunity to help our commercial clients run more complex and intricate scenarios, determining the best product for their needs and to get quotes instantly. In the year, we have further expanded our OTC products focused on agriculture, which include shell egg contracts and dairy derivatives. We believe we have one of the most comprehensive OTC platforms in the market today. These are just a few examples of our recent organic rollout of products and services, and we will continue to grow our ecosystem by launching adjacent products and services to better serve our clients. Moving back to RJO, we'd like to provide some time giving an update on the integration.

As mentioned earlier, I would like to introduce a new one of our executives to you all, Abby Perkins, who is a member of our executive committee. Earlier this year, we asked her to lead our M&A integration efforts, in particular the RJO integration, given its importance and its financial impact to our company. She'll be providing a more detailed update on our integration plans, actions taken, and key milestones ahead. Abby, over to you. Thank you, Sean. For those I haven't met, I'm Abby Perkins. I've been with StoneX for nine years and in finance for over two decades. For the past five years, I've served on the executive committee, and until recently, I was the Chief Information Officer overseeing infrastructure, IT services, procurement, and cybersecurity. As Sean mentioned, I stepped into a new role leading our M&A integration efforts with a primary focus on the RJ O'Brien initiative.

This is where I am spending the majority of my time and energy today. To get started, please turn to slide 16. We remain very excited by the potential value creation for StoneX from the RJ O'Brien transaction, our most transformative acquisition of 2025, and the largest one we have done in terms of deal size. As we noted in the announcement, the acquisition rationale rests on four pillars. First is the transformational nature of the acquisition and the significant scale we have added as a result. With this combination, we are now the largest non-bank US FCM by client assets and one of the largest FCMs globally. We are seeing a positive trend in growth in balances, with RJO's average client equity increasing from $5.5 billion to $5.8 billion since close, principally due to inflows from IB and institutional clients.

This increase has helped drive our combined client equity balances to the highest ever at $13.7 billion at the end of September. In addition, during the trailing 12 months ended September 30, 2025, RJO cleared 156 million derivative contracts, which will now be consolidated on a single combined infrastructure, truly achieving substantial scale. Ultimately, we know that the long-term transformative value will rest on the quality of the RJO clients and its people, and both have exceeded StoneX leadership's expectations. Our second pillar was the strong opportunity to expand both our products and capabilities across the combined bases of both organizations and to reach new markets. We are seeing numerous opportunities to offer new products and services to the legacy RJO and StoneX clients alike.

These include offering new OTC and physical products to existing listed derivative clients, interest rate derivatives and relative value trading strategies to fixed income clients, and new hedging products and strategies to agricultural and other commercial clients. We're also quickly moving to leverage RJO's footprint in new markets, with the regulated presence in the Dubai International Financial Center becoming a key focus. StoneX has had a long-standing and successful presence in Dubai, offering precious metals trading in the Emirate Metal Zone and operating a branch office for retail products in the Dubai Mainland Zone. The addition of RJO's business in the DIFC, the Emirates Financial Institution Hub, has provided a valuable complement to our efforts in this key growth market through the opportunity to compete with other financial brokerage firms by offering the full complement of StoneX products, which is an important enhancement to RJO's offering there.

Lastly, we are able to achieve a combined and optimized technical ecosystem, taking the best from our worlds. The benefit to the StoneX complex of the combined technical offering will be significant. Our third pillar focused on the achievement of significant cost synergies. Our work since the closing of the transaction has strongly validated our cost synergy estimates, and we are working actively to achieve these cost savings. We have established a robust governance framework with a dedicated cross-functional team leading the numerous integration workstreams. I will touch base more on the timelines for these cost synergies, as well as an update on capital synergies on the next slide. One more pillar to cover. The fourth pillar is that the acquisition will be accretive to both EPS and ROE.

I want to say that first, across the board, our top priority is delivering a powerful combination that strengthens outcomes for our clients and supports both our internal and external brokers. In line with that focus, the integration planning and progress we've achieved so far underscores our confidence that RJO will be accretive to both EPS and ROE over both the near and long term, creating lasting value for our shareholders. Moving to the next slide, we summarize our integration objectives and results. I'll be starting with our cost synergies. At the time of the transaction, we estimated $50 million of annual run rate in potential cost synergies. We now have a detailed plan with over 100 people involved in the process, with over 50 defined workstreams and are in full execution mode.

We are first prioritizing the savings that are more readily achievable through the combination of the overlapping non-U.S. entities in the U.K., Hong Kong, France, and Singapore. This can be achieved relatively quickly, as the RJO activities and business in these jurisdictions are well understood and more modest than StoneX activities in these regions. We are also prioritizing combining our U.S. broker-dealer footprints, as it is a relatively easy process as well, as RJO's activities encapsulate just one pillar of the activities we have in our diverse U.S. broker-dealer offering. These two initiatives can happen relatively swiftly, and we anticipate completing them in Q2 of fiscal 2026, accounting for roughly 25% of the aggregate synergy target. Our focus then turns to the integration of our two U.S. FCMs, the most complex of the entity combinations, which is currently being planned and will follow the non-U.S. integrations.

Combination is set for around Q4 2026. While we both operate in the same system of record and the underlying products are identical, RJO has built customer tools whose migration of which we need to make sure is as seamless as possible from a client perspective to ensure no revenue is lost as a result. We will err on the side of caution here and may delay if we feel it's warranted. We estimate that the merging of the two US FCMs will account for roughly 40-50% of the synergy target. The remaining 25-35% results from the runoff of contracts and space, and as such, may take a further 6-12 months to fully realize. Based on our work to date, we are confident that we will achieve our targets of $50 million in run rate cost synergies within 24 months of deal close.

Indeed, just four months from the closing of the transaction, we have realized approximately $20 million in annualized cost savings. We believe that the remainder of the cost synergies are well defined and achievable. We will move on now to capital synergies. These synergies will be achieved as we collapse the operations that we set out before. We anticipate a $20 million-$30 million release of excess capital following the first set of business integrations of the U.K. business and the broker-dealer business, which is to be realized in approximately Q2 2026. The remaining capital synergies will be realized from the merger of the U.S. FCMs in the approximate fourth quarter of 2026. We anticipate this to be north of $30 million.

Lastly, and in addition to this, while technically not a capital synergy, we recently executed a $42 million dividend of excess cash from the RJO parent entity, providing additional liquidity to the StoneX group of companies. In terms of revenue synergies, we did not disclose a specific target because these synergies are both hard to realize in the short term and very hard to track when they happen, as revenue gets split between teams, etc. Despite this, we continue to have a high conviction around the revenue synergies opportunity over time. A first significant driver is that StoneX's equity and balance sheet is around five times larger than RJO's, which should enable us to win more wallet share from the larger RJO clients. Alongside this is our position as a public company eases onboarding activities. Both of these were constraints experienced by RJO.

To this end, we have already held and continue to hold numerous teach-ins and cross-desk meetings. On the fixed income side, we have seen extremely strong cross-group collaboration, already resulting in the deepening of relationships and placement of new trades in from clients of both firms. On the IB side, where RJO has a major presence, we've introduced many of these brokers. Did we lose Abby? Operator? It looks like we lost her sound, but she's still connected, sir. Okay, let's give it a second and see if she reconnects. Otherwise, I can finish up her comments. All right. Operator, I'll carry on, okay? All right, sir. Go ahead. Okay. I think Abby was talking about where we are with the IBs, so I will just follow on from there. We've introduced many of our brokers and end clients to our OTC and physical capabilities.

Many of them have asked for the necessary paperwork or are going through the paperwork, and many of them have signed up with our swap dealer and our physical entity. Very encouraging signs there. People do not do the paperwork if they do not see an opportunity. On the metal side, we see clients expanding the business they have with us into new products. On the negative side, there was always a risk of some revenue attrition, either due to revenue producers leaving or due to the fact that there was client duplication. At the time of evaluating the deal, this was a key consideration for us, and our view was that the client overlap was limited, and thus the risk of revenue attrition was not material. We are happy to report at this stage the overall attrition is limited.

Overall, we're tracking very well against all of the metrics related to the integration of RJO. Summary, we continue to believe as a management team that the RJO transaction will prove to be transformational for StoneX and this expanded group of clients as the integration of our collective client focus, the ability to leverage our combined scale, and the complementary product expertise positions us as the leading franchise around the globe. We are highly encouraged by the early results and are pleased with and grateful to our teams affecting this work. We remain focused on executing with discipline and precision that have become the hallmarks of StoneX. In the end, the common thread across all our acquisitions is the exceptional collaboration between company leadership teams and the exceptional work being performed by our talented and dedicated employees.

We are pleased with the value these transactions provide to StoneX and remain optimistic about our long-term growth. With that, let's move to slide 18, closing summary. This quarter was a record for us to close out what was, in fact, a record 2025. The quarter included two months of the RJO results, as well as some of the one-off acquisition and related costs, which diluted EPS by approximately $0.13 per share. The quarter saw strong results across most of our segments, especially equities, prime brokerage, and fixed income, and improved results in physical commodities. We recorded $85.7 million net earnings or $1.57 in EPS with an ROE of 15.2% on book value and just over an ROE of 20% on tangible book value.

We achieved another record quarter for the year with operating revenues of just over $4 billion and net earnings of $305.9 million, giving us an EPS for the year of $5.89 and an ROE of 15.6% on book value and 17.9% on tangible book value. In addition, RJO, Benchmark, and our other acquisitions should be strongly accretive, and together with strong organic growth should drive our results for 2026. There has been a notable growth in our client assets that we custody, whether segregated funds on the exchange or through clearing and prime brokerage to storage of precious metals. This has significantly grown our recurring income stream, providing a stable and predictable underpinning to our financial results. Our unique and best-in-class ecosystem, underpinned by a fortress balance sheet, diverse offerings, and exceptional client service, enables us to deliver innovative solutions that provide clients with market access and create long-term value.

I'm very proud of the StoneX team who continue to propel us to new heights, and we'd like to thank them for the exceptional work during 2025. I would like to thank our bankers for their support and our board for both their support and guidance, and an amazing all-round StoneX team. With that, Operator, let's see if we have any questions. Thank you. As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. One moment while we compile our Q&A roster. Our first question is going to come from the line of West Smith. Your line is open. Please go ahead. Hi, good morning. How are early cross-selling efforts with RJO clients going? I know it's pretty early innings, but anything that's kind of standing out there?

When can we expect your estimate, I guess, for revenue synergies overall? Sean, are you? Sorry, Dan. How about you? Yeah, I'm on. Sorry. On the revenue synergies, I think it's going about as well as we expected. Obviously, this takes a lot of education. I think it takes time for people to understand the products, make sure that the products are suitable for their clients. Obviously, people are always—and we've gone through this 30 times, so we know how this works, right? Oftentimes, the relationship people are reluctant to open up a relationship to new people, to products they're not certain of. This just takes a lot of education. I think there's been a tremendous amount of interest from RJO in learning about all the new products we have, so they've been engaged.

I think in certain parts of RJO, there's been tremendous uptake. I mean, we already have people on the fixed income side going together to meetings, pitching products together, the actual transactions happening that are generating revenue. I think, as I said, with IBs, we have a ton of IBs who've asked for documentation. A bunch of them have signed the documentation. I think a couple of trades have happened. All of those things are all very encouraging, and I think sort of validate our thought that this is going to provide us with a big boost. In terms of putting out a hard estimate, as Abby said in her comments, it's really, really hard to do that because this stuff becomes really hard to track.

If someone does more treasury business with us because they sort of like the fact we can do something with them on the RJO side, how do we measure that if they're already a customer, right? It becomes pretty arbitrary to sort of measure this so we can report back on a target. Our reticence in doing that is it just becomes very hard to audit and provide sort of a detailed feedback. The revenue often gets split between groups, and it's hard to track that as well. I'm not sure we are going to give you a target just because I don't think we can accurately report back on that. What I think we will see, though, is just a revenue uptick generally, and I think that's what we should be watching for.

I don't know, Bill, if you think differently, but I think that's sort of where we stand on it. I think our view is very happy about it. I think, if anything, there's been sort of quicker uptick and better interest from everyone in sort of taking on new products. As I say, we are already seeing tangible signs across various desks of new clients trading with us, existing clients doing more with us. The other thing with RJO is I do think the fact that all those clients are now, particularly their sort of larger clients, we have a much bigger balance sheet. If there was ever a sort of a constraint around RJO's size, maybe they really liked RJO, but were limiting what they did just because of the size of RJO, that's gone, right? Because we like 5X their size.

Onboarding is very hard when you're a private company in the world today. You have to do all your KYC. You have to get verification of who the owners of the company are, and it's just very hard. A lot of people just don't want to do it. If you're a US public company, it's the easiest possible route to onboard. I think we've made things very easy, and I think that's going to, just of itself, is going to drive some additional revenue. I'll stop there and see if Bill has anything to add. I think you summarized it, Sean, very well, and I think we'll continue to just try to point out kind of the overall growth from RJO here over these next couple of quarters, and we'll be able to demonstrate some of that growth that Sean's talking about. Yep. Okay. That makes sense.

It looks like there was still some weakness in precious metals trading in the quarter. Did that improve after gold was officially exempted from tariffs in September? Maybe how did you see that trend in October and November? Yeah. We had a lot of people, the people we normally speak to, shareholders and you guys, asking us sort of last quarter what happened on the commercial side because obviously it was a reasonably big delta. It was really affected by three things, right? You had just low volatility in the ag space generally, which has sort of continued into this quarter. Metals, notwithstanding, but if you look at the ag side, it has been pretty muted. General tariffs have sort of disrupted the underlying commercial flows.

People do not know or are not sure whether they should export, what the price is, should they hold on to their product. Those kinds of disruptions just lead to a sort of lack of hedging. On the margin, one of the biggest factors was our precious metals business because of the dislocation in the CME metals price, which started to impute a value for tariffs. Obviously, everyone around the world, including us, used to use the CME derivative contract as the most liquid contract, as the best way to hedge your precious metals. If you were delivering precious metals to someone in Europe, you now had an ineffective hedge because the hedge was imputing a percentage of tariffs being imposed. If you completed that transaction, you would have to close your hedge out at a loss.

That created a lot of dislocation in the market. Our way of handling that was to deliver our metal into the CME. In that way, we had an effective hedge, effectively, because you can deliver metal into a contract. What it meant is a lot of additional costs for us because we had to hold on to that metal for a good number of days. We had to ship that metal. That cost money. All of that significantly eroded the profitability of that business. It was better than what we would have taken as a loss on the hedge, so it was economic to do that. It led to the precious metals business in Q3 being sort of close to break even, right, when it is generally a pretty profitable business for us. That carried on into this quarter.

Obviously, the business sort of adjusted, so the impact was not as great as it was in Q3. We are now not using the CME hedge, so we now have the flexibility. In fact, it has now given us an opportunity to take advantage of this dislocation. What was a negative is starting now to turn into a positive. That is the story behind the metals. It was sort of much worse in Q3. It was better in Q4. I think you will see in Q1 that it has actually turned into a pretty positive environment for us. I think that has sort of gone full circle for us. Does that help? Yeah. Perfect. If I could just slip in one quick one on the institutional business, the RPC for listed derivatives jumped quite a bit. Just curious what drove that or how sustainable that is.

Thanks. Now, we want to say, Sethville. Sure. I'll take that. That would be the introduction, Jeff, of the RJO business. So they came in. They were incrementally higher than what we were doing. That's really kind of what's driving it up. I think they were incrementally about a dollar higher on average on their institutional rate per contract than we were. The combination of the two drove that up. Okay. Great. Thank you. Sure. It's kind of a business mix issue, I guess, between us and RJO. Correct. Right. Yep. Right. Thank you. One moment for our next question. Our next question comes from the line of Dan Fannon with Jefferies. Your line is open. Please go ahead. Great. Yeah. Thanks. Good morning. I guess just sticking with the institutional business. The other question is just on the security side.

The rate per million also went up pretty significantly, quarter over quarter. Just curious about the sustainability of that. Bill, do you want to handle that? Sure. I think we've seen, Dan, I think we've kind of talked about this a bit last year, right, with some of the conditions that we saw in equity markets with some of the lower volatility and also kind of us expanding into more US stocks that we kind of expected to see a bit of a trough there and continue to increase from there. We have seen that, right? The conditions have improved. Then the fixed income space as well, right, with that becoming a bit more volatile with the rates moving around, the Fed actions.

I think we've started to see where last year we kind of dipped as well when it came to the addition of more and more US treasury activity. Now we're seeing spreads widen a bit in those markets. We've seen a nice uptick both on the equity side as well as the fixed income. Also, really nice contribution from our overall prime brokerage business on the security side, contributing more and more revenue there, which is helpful. I would say, Brad, one thing, and if you remember back over the last two years, we spoke about this a lot. As both the equities and the fixed income teams, and this started probably three years ago, expanded into sort of lower margin but higher volume products, we saw a continual erosion of the rate per million, but an increase in revenue, right?

Because they were doing lower margin business, a lot of it making money, but it was really affecting those numbers. As that business ramped up, it continually sort of dragged down the higher margin that we saw previously. I think we've now got to sort of—I could be wrong here, but I think you've sort of got to a point where that business is now large enough that it's sort of averaged out. I think that sort of ongoing sort of slide as we built the business up, we've now sort of troughed out. I think what's now going to affect it is sort of market conditions, right? I think the sort of business mix argument, as that adjusted over the last three years, I think is sort of kind of close to the bottom and at the end now.

Now, hopefully, that number reflects sort of a more clean view of the underlying market conditions available in the business, if that makes sense. Yeah. No, that's helpful. Just another question on the integration. I just want to make sure what I heard in the roadmap. I think you said roughly $20 million has been realized in terms of the expense synergies. I guess middle of Q2 of this year with the U.K., we should get, I think, another—I just want to make sure what the next wave of—and then you have the FCMs in the U.S. Can you just kind of walk through the amounts that kind of, if you've already got $20 million, that means there's only $30 million left, or are you raising the amount of synergies? Bill, do you want me to take that? Yeah. Go ahead. Abby, you're back with us.

Thank you for your patience. We have achieved synergies from sort of natural movement and the ability to do some streamlining inside the organization. Right now, that annualized run rate is about $20 million going forward. We will then see the next uptick really in the springtime, a bit more that we expect from the U.K. combinations. We will get capital synergies at that point as well. The dominance will come post the U.S. integrations, which are late Q4 2026. You are talking sort of June, July, August timeframe. Does that help, Dan? Yeah. No change in the aggregate amount. I guess as you guys have gone in, do you think that $50 million is conservative? Do you think there will be more in the context of what you will be able to save as a result of the combination?

I think we're comfortable with the—oh, go ahead, Abby. Sorry. Okay. We're pretty comfortable with the $50 million. We are very focused on ensuring that we do client support with added flow. There is a big chunk of the organization that is not impacted within StoneX on this. So we're pretty comfortable with the $50 million right now. Okay. Cool. And then just a follow-up for you, Bill, just looking at the balances now from an interest rate sensitivity perspective. They're higher. And as you look into next year, obviously, you've got some rate cuts. Any thoughts on a hedging strategy or other things to do to limit the impact or fluctuation from rates and the movements there? Yeah. I mean, we'll continue to be active, Dan, like we have in the past, of kind of looking out and trying to lock some of that in.

We're taking a bit of a view, right, that we may want to lock some in around that kind of two-year window-ish. This isn't anything new. We've kind of done this a couple of different times over the last 10 years. We've kind of viewed that two-year, two, three-year window as kind of a good space for us. We will continue to kind of monitor that market and potentially go out on the curve a little bit with swaps, kind of almost like an insurance policy on this new group of assets that we've brought in in order to kind of put a floor there. What we're excited about is just kind of bringing in the capabilities of RJO that's been more active on managing the portfolio.

It has seemed to where they've been able to typically exceed kind of the one-month treasury rate, which has kind of been our benchmark. The combination of the two, trying to lock some in to keep a floor for us and incrementally increase kind of over that one-month target, I think, is what we expect to do on a go-forward basis. We never will be hedging all of it or never be locking in all of it, but we will look to be active to try to put roll into some floors there that kind of protect us to the downside. Got it. You're not doing that currently? That's prospective? We've been active in doing that since the integration, right?

We did not have anything, any activity on it in the September quarter, but we have been starting to do some of that since then, modest amounts at this point. Okay. Lastly, just reflective in the sensitivity that we have put out there. I think, Dan, not to be repetitive, but maybe just to sort of clarify Bill's comments, I guess there are two ways to think about this, right? One is all of our contractual arrangements with our clients in terms of how we pay interest are referenced off the one-month or the three-month T-bill rate. That is the sort of benchmark rate. Typically, what we did is we invested that float in the one-month or three-month T-bill rate, right?

What RJO was very good at and was sort of a market leader is they were more actively managing that money, and they were earning a spread to the one-month and three-month T-bill by going into floaters and things like that. To the extent you can do that, 100% of that excess basis comes to us. That can be quite impactful. Now, it is not a huge amount of money. You are never going to make 75 basis points extra, but I think the target is somewhere around sort of 20 basis points potentially on some of that float. On a $13 billion float, if we can add 15-20 basis points on top of that base rate, which we get to keep 100% of, I mean, that can be quite meaningful.

Secondly, do we try to protect ourselves by taking out swaps and taking some duration, protect ourselves against possible downside in the short-term rates? When we took on RJO, they had done that with—I cannot remember the amount, but it was sort of a billion dollars or something of their float that actually locked into the two, three-year range. We have taken that position on. As Bill said, we are now starting to add to that position opportunistically when we see rates that we like. I would like to think that at some point, if the world stayed where it is today, we would probably like to maybe sort of hedge out something like 30-40% of our underlying float to sort of the two-year rate. Obviously, the world does not stay as it is.

We still have to sort of keep looking at that as rates change. That feels to me to sort of be prudent. Maybe you earn less because in a negative yield curve environment, you're paying a bit of a price for that. It does give you certainty over that period as to what that underlying revenue source is. As I said in my comments, what's quite notable now at StoneX and something that over time we'll probably try to give you more clarity on is we are growing as a custodian of client assets everywhere. Safe funds in OTC products, clients are leaving more money with us. We are actually now a custodian for gold, and we charge just like we do on safe funds. We earn interest on the gold deposits we have. We have prime brokerage. We have equity steering.

Everywhere you look, we are growing our underlying asset pool. Those assets kick off now a really large number, which gives us a fantastic underpinning to our business, right? All the sort of transactional revenue, which is affected by sort of volatility and so on, is sort of the gravy on the top here for us. If we can get to a point where, as a custodian, we've sort of got the cost covered, we've got a stable underlying flow of revenue, and then the sort of more volatile forms of revenue, which, again, we've diversified pretty broadly, but those tend to be the incremental revenues. I think we're getting to an interesting sort of situation where it's starting to look like that. Something to watch and something we're working hard to do. Great. That's very helpful. Just, yes, it does.

Lastly, just on the retail business, know that volatility has been pretty subdued, but obviously, the fee per million or rate per million came in a lot. Anything else of note outside of just vol within that segment to think about on a kind of go-forward basis? I think this has come up a few times over the last maybe two years, I would say, that we generally sort of budget. The way we look at the vol in this business, and I'm talking about this self-directed retail business, is we look at it as sort of a long-term average, right? Because the revenue capture number there can move around pretty materially. I mean, Bill, correct me if I'm wrong, but I think we are up at sort of 130 in recent quarters as the high, right? No, no.

We actually have been as high as 185 back in December, but that was December. Oh my God. That was an exceptional quarter. If you go back a couple of years, we were 82-95 range back in 2023, 2022. The long-term average range for us is sort of in the 80s, right? I think over time, we've lifted that from, I think, in the game days, they were more like 75 is what they used. I think we've lifted that into the mid-80s because of all the things we've chatted about, right? We're combining flow better. There's more internalization. All of that stuff is helping. I don't think this is necessarily a bad revenue capture number. I think what was happening previously is we were outperforming a little bit on the revenue capture.

Obviously, we'd like it to be a little bit higher than it is now, but this is sort of the long-term average. I don't think you should look at this and say, "Oh my God, what happened?" I think this is sort of the business as it sort of has performed over the long period, maybe slightly undertrend. I think we were significantly overtrend when we were sort of reporting numbers 120 and higher. I think that's sort of unsustainable. I don't know if that helps, but that's my thought on it. Yep. Great. Thanks for taking my questions. Yeah. Okay. Thank you so much. Any more questions? I'm showing no further questions, and I would like to hand the conference back over to Sean O'Connor for closing remarks. All right. Thanks, everyone. Thanks for your time. We appreciate it.

We're very happy with the results that we have managed to deliver to all of you in 2025. As you gather, I think we're all pretty excited about what's coming in 2026. We've had a busy year, a lot of great acquisitions. Obviously, RJO, very significant. I think Abby and her team have really got their arms around that. We feel really good with the way that's tracking up. Benchmarks are also doing great, and some of these other acquisitions are all sort of kicking in. We are very excited about the prospects for 2026. Looking forward to that. With that, all I can say is to those who celebrate and are in the States, Happy Thanksgiving and happy holidays to everyone. I guess next time we speak to you will be in the new year. Thanks again. This concludes today's conference call.

Thank you for participating, and you may now disconnect. Everyone, have a great day.