StoneX Group Inc. Common Stock 2026 Q3 Earnings Call

Welcome to our earnings conference call for our quarter ended June 30th, 2026, our third quarter of fiscal 2026. After the market closed yesterday, we issued a press release reporting our results for the quarter. This press 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-Q 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 will now turn the call over to Philip Smith, the company's Chief Executive Officer, for a brief introduction.

Thank you, Bill. Good morning, everyone. Thank you for joining our third quarter earnings call for fiscal year 2026. While there's been a moderation in volatility this quarter, I'm pleased to report our third quarter results. Total net operating revenues of $719.7 million were up 47% versus a prior year, alongside net income of $127.9 million, up 102% year-on-year. We also recorded a diluted EPS of $1 per share, an 85% increase versus the previous year, taking our year-to-date EPS to $3.49 per share, up 82% against prior year. This quarter was driven by strong performance across our Commercial and Institutional segments, which reported a 90% and 56% increase, respectively, in net operating revenue year-on-year, underscoring our increasing relevance to a diverse set of clients.

In the Commercial Segment, strong performance in our global hedging business helped drive this quarter's results. Pleasingly, net operating revenue across all our products recorded double-digit growth, partly driven by the impact of the RGO and Benchmark acquisitions, as well as organic growth. This included listed derivatives up 62% to $68.6 million, OTC derivatives up 73% to $101.9 million, and physical contracts up 162% to $87.4 million. In the Institutional Segment, we recorded our highest-ever volumes in securities, with average daily volume up 33% versus last year, driven by the exceptional performances in our equities market-making business, a segment which we had highlighted last quarter with growth in both ADRs as well as U.S.-listed equities. Also bolstering our Institutional Segment, the acquired business of The Benchmark Company contributed $29.5 million in net operating revenues for the quarter, their best quarterly performance to date.

In the Payment Segment, we reported a 12% increase in net operating revenue and a 20% increase in ADV year-on-year to a record $96 million. In addition, we recorded the highest number of transactions going through the platform this quarter, validating our continued investment in proprietary technology and reinforcing our belief that the platform can support significantly higher volumes without material increases to our expense base. This scalability positions us to support large financial institutions like Shinhan Bank, where we recently announced a strategic partnership with one of South Korea's oldest and systemically important banks to leverage our global network for complex cross-border payments. Lastly, I wanted to give an update on the progress of R.J. O'Brien. The U.S. FCM consolidation work remains on track to be substantially completed later this fiscal year.

We completed the vast majority of RGO's remaining U.S.-based client migration this quarter, as of the end of the quarter, hold nearly $13 billion in required client assets, further strengthening our position as the number one non-bank FCM in the United States. More broadly, as anticipated, volatility moderated from the exceptional levels of the second quarter. Even so, client activity remains strong, supported by continued client engagement and pockets of elevated volatility, resulting in nearly all of our products delivering double-digit growth, reflecting the strength of our diversified business model, the investments we have made across our platform, and the scale of the ecosystem we have built. I will turn over to Bill for a more detailed discussion on our financials this quarter. Over to you, Bill. Thank you, Philip.

I'll start with slide five in the deck. Just a reminder, in July, we completed a three-for-two split of our common stock, and our shares began to trade on a split-adjusted basis at the market open on July 20, 2026. Because the stock split was effective prior to our release of the Q3 financial statements, all per-share metrics on this call will be on a split-adjusted basis. As Philip noted, we delivered strong third-quarter results, generating net income of $127.9 million, an increase of 102% compared with the prior year. This performance translated into a return on equity of 18.4%, significantly above our 15% ROE target, despite a 77% increase in book value over the last two years. On a tangible book value basis, we achieved a return on tangible equity of 25% for the quarter.

While third-quarter net income was 27% lower than the record earnings reported in the immediately preceding second quarter, our results continue to reflect the strength, scale, and diversity of our business. We had operating revenues of approximately $1.47 billion, up 43% versus the prior year. 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 to $231.4 million or 47% versus a year ago, while down 13% versus the immediately preceding quarter.

Total fixed compensation and other expenses were up $58.1 million or 22% versus the prior year quarter, with $48.5 million of this attributable to the acquisitions made over the last 12 months, most notably R.J. O'Brien and Benchmark. This increase was partially offset by an $18 million decrease in professional fees, largely due to the recovery of legal fees through insurance and reduced legal defense costs related to the BTIG matter. Total fixed compensation and other expenses, excluding bad debt expense, were down 7% or $23.2 million versus the immediately preceding quarter. Fixed compensation and benefits were up 21% versus a year ago, primarily as a result of the acquisitions noted, and include $4.2 million in severance and retention costs.

Fixed compensation and benefits were down 6% or $8.9 million versus the immediately preceding quarter, driven by a $6.9 million decline in severance and retention costs, a decrease in back-office and administrative salaries, along with a decrease in payroll taxes. Moving on, I've mentioned the acquisitions over the last 12 months and wanted to touch on the revenue contribution for two of them, R.J. O'Brien and Benchmark. The acquisition of R.J. O'Brien contributed $78.8 million in net operating revenues for the quarter, net of unrealized negative mark-to-market adjustment on their investment portfolio and exchange common stock of $9.8 million. While Benchmark contributed $29.5 million for the third quarter, as Philip noted, their best performance to date. Looking at it from a longer standpoint, our trailing 12 months results show operating revenues were up 48% to nearly $5.7 billion.

Net income was a record $526.9 million, up 77%, with diluted earnings per share of $4.19 and an ROE of 20.8% for the trailing 12-month period. For the third quarter, our average client equity and FDIC suite balances were $16.2 billion, up 108% versus the prior year and up 7% versus the immediately preceding quarter. Finally, we ended the third quarter of fiscal 2026 with a book value per share of $23.70. Turning to slide number six in the earnings deck, which compares quarterly operating revenues by product as well as key operating metrics versus a year ago. We experienced operating revenue growth across all products versus the prior year, with the exception of FX and CFDs, down 19%.

Transactional volumes were up across all of our product offerings, with the exception of FX CFDs, down 12%, and the spread in rate capture increased in listed derivative securities, while OTC derivatives, payments, and FX CFDs declined. Just touching on a few key highlights for the third quarter. We saw operating revenues derived from listed derivatives increase to $157.9 million or 125% versus the prior year, primarily due to the acquisition of RJO, which contributed $132.3 million, as well as a $10.4 million increase in base metals listed derivative revenues on LME markets versus the prior year. Listed derivative operating revenues decreased 11% versus the immediately preceding quarter. Operating revenues derived from OTC derivatives increased 73% versus the prior year, driven by an 89% increase in OTC derivative contract volumes.