StoneX (SNEX) 7 Aug 24 2024 Q3 Earnings call transcript

In the recent earnings call of StoneX, the company showcased solid financial performance in the third quarter of 2024, reporting a net income of $61.9 million and EPS of $1.88 per diluted share. This performance represents a 15.7% ROE on stated book and 16.5% ROE on tangible book value, despite a 19% increase in book value over the year. The company's earnings power is expected to improve with better trading conditions, as evidenced by record operating revenues of $913.7 million, up 18% versus the prior year.

One of the key themes that emerged from the call is the impact of low volatility on the company's revenue capture. The VIX was close to all-time lows during much of the quarter, negatively affecting revenue capture in most of StoneX's products. However, the company remains optimistic about the future, hoping for better market conditions ahead. Despite the challenging market environment, StoneX has seen good client engagement and market share increases, which should translate into improved earnings with improved trading conditions.

Another theme that emerged is the company's focus on technology and digitization to enhance client engagement and increase scalability and margins. This initiative is expected to drive revenue growth by more effectively gaining market share, improve operational leverage, and achieve better margins on the execution side. StoneX has been actively pursuing this strategy, as evidenced by the acquisition of GAIN, a digital business.

During the call, management also addressed investor concerns about the company's fixed expense base growing faster than expected. While some of the increase is attributed to one-time items like severance costs, the company is working to improve operational efficiency and reduce fixed costs. This includes expanding offshore development and pushing costs to more efficient locations. StoneX aims to refactor its cost base to achieve operational leverage and increased margins as revenues grow.

Despite the current market challenges, StoneX remains confident about its long-term prospects, with strong client engagement and a growing client footprint in new markets. The company is well-positioned to capitalize on the industry's ongoing consolidation and the withdrawal of large banks from certain markets. StoneX's broad and unparalleled capability and product set make it an attractive destination for clients seeking a single partner to satisfy their trading needs.

In conclusion, StoneX's third-quarter earnings call highlights the company's resilience in the face of challenging market conditions and its strategic focus on technology and digitization to drive growth. With a strong financial position and a clear vision for the future, StoneX is well-positioned to continue delivering value to its shareholders and clients.