Flow Traders Ltd. (FLOW.AS) Q3 FY2025 Earnings Call Transcript & Summary

Hello. Welcome to the Flow Traders Third Quarter 2025 Results Conference Call, hosted by Eric Pan, Head of Investor Relations. [Operator Instructions] I would now like to hand the call over to Eric Pan. Mr. Pan, please go ahead.

Good morning and thank you for joining Flow Traders' Third Quarter 2025 Trading Update Conference Call. As you will have no doubt already seen, we released our trading update first thing this morning, along with the financing announcement. I am joined here on the call by Flow Traders CEO, Nominee, Thomas Sitz, as well as our Co-Chief Trading Officers, Alex Kieft and Marc Jansen, who will run through this results presentation. We will be happy to take any questions you may have after the presentation. Before we begin, let me draw your attention to the disclaimer on Page 2. Please be advised that if you continue to listen to this presentation, you are bound by this disclaimer. Also, please note that the results we will discuss in this presentation are unaudited. With the formalities out of the way, I would now like to hand over to Thomas for his opening remarks.

Thank you, Eric. Good morning, everyone. First of all, I would like to honor to be nominated for election as Executive Director and CEO of Flow Traders at the Special General Meeting later today. I've met over the past 2 months, many talented and ambitious people, and I'm impressed by the achievements we have made over the past 2 decades, establishing Flow Traders as one of the leading market makers. I'm excited about the company's future growth and eager to contribute my experience and expertise to help Flow Traders to the next level. Moving to the trading update. In the third quarter of 2025, the trading environment was less active. Volatility continued to drop following the slowdown in May and June, impacting all asset classes and regions. This resulted in a decrease of our net trading income to EUR 78.3 million, lower compared to the second quarter and when compared to the same period a year ago. Both periods were marked by significant strikes of volatility. Flow Traders ETP value traded increased by 17% in the quarter compared to last year. Total income came in at EUR 80.5 million for the quarter, which included a EUR 2.1 million gain in other income. Our fixed operating expense this quarter came in 14% higher than the same quarter last year and 3% higher than the second quarter this year. This increase is in line with our plan, and we continue to invest in having talent in targeted areas and scale our technology. Additionally, this quarter, we had EUR 0.3 million in impairments on intangible assets tied to our digital assets trading group. Given our relatively fixed cost base and high operating leverage, we generated an EBITDA of EUR 19.4 million in the quarter. Year-to-date, EBITDA came in at EUR 149.8 million. Net profit for the quarter came in at EUR 10.9 million with a basic and diluted EPS of EUR 0.25. Year-to-date, net profit came in at EUR 98.5 million with basic EPS of EUR 2.26. Finally, earlier today, we announced in a separate press release that we secured 2 new credit facilities. I will now hand it over to Alex for the next few slides.

Thanks, Thomas. Good morning, all. As indicated at the top left of this slide, market ETP value traded increased by 47% year-over-year and by 5% compared to the previous quarter. Implied volatility measured by VIX decreased by 7% from last year and by 32% from last quarter. Furthermore, total ETP assets under management grew by 7% this quarter and 21% year-over-year. We're approaching EUR 16 trillion AUM, driven by ongoing fund inflows and overall market strength. ETP velocity slightly declined from last quarter, but remained higher than last year, driven mostly by the U.S. and Asia. In summary, the long-term industry trend within the ETP universe continues to be strong. I will now move on to the dynamics within the fixed income and crypto markets and hand it over to Marc.

Thanks, Alex. Over to the fixed income and crypto markets. Credit market trading volumes rose compared to last year but fell from the previous quarter. Volatility, as measured by the MOVE Index, significantly decreased both yearly and quarterly. Trading volumes in digital assets increased both compared to last year and last quarter. With cryptocurrency prices almost doubling, global crypto ETP turnover more than doubled compared to last year in the second quarter. However, Bitcoin volatility saw a significant decline, both annually and quarterly. Let's move to the next slide. Here, we present an overview of regional performance for the quarter. As mentioned earlier, the market ETP value traded increased substantially compared to the same period last year. This was largely driven by the Americas and Asia. Quarter-on-quarter, it saw a modest increase driven fully by China. Let's start with Europe. We kept our position as a leading ETP liquidity provider with over 25% market share. The quarter led to lower-than-expected results, resulting in a lower contribution from one of our key profit centers. Now to Americas. Volatility continued to decline over the summer months following a volatile start to the year. As a result, our third-quarter results came in below expectations versus last year, given the volume levels. Moving to Asia. The results reflect a more muted quarter compared to last year, largely because of the DOJ event in August and the anticipation of China's stimulus that boosted activity in 2024. Most of the volume increase in Asia came from onshore ETF trading in China. Our participation there is still limited due to capital constraints. The APAC region remains a key focus area for the firm. On digital assets, increased volumes and prices led to significant increases in crypto ETP value traded. However, this was offset by lower volatility, both year-on-year and quarter-on-quarter. Therefore, performance levels were relatively comparable to last year. We are focusing on expanding our partnerships to advance the tokenization of real-world assets and to deepen liquidity across key crypto platforms. Moving on to the next slide. Now let's look at expenses. Fixed operating expenses in the quarter increased by 14% year-on-year and 3% quarter-on-quarter. This was mostly due to increased employee and other expenses and was in line with our plan. We delivered a 24% EBITDA margin this quarter, and this reflects our flexible compensation philosophy, which aligns us with our shareholders. Moving on. At the end of the quarter, we had 622 full-time employees. This is up from 607 at the end of the second quarter. Looking ahead for the year, we expect our fixed operating expenses to be between EUR 200 million and EUR 205 million. The main drivers are investments in technology and hiring experts in key growth areas. We also expect some savings from better operational efficiency. I will now hand it over to Thomas for the next slide.

Thank you, Alex and Marc. Here, we are looking at the progression of our trading capital base, the return on trading capital, and respectively, the growth of shareholder equity. At the end of the third quarter, we have increased our trading capital 36% since the announcement of our trading capital expansion plan in July 2024. We have overall generated a 68% return on average trading capital over 12 months despite such a rapid increase. This does validate our decision to retain additional earnings for reinvestment into trading capital. Our shareholders' equity also continued to grow, increasing by EUR 13 million to EUR 830 million at the end of the quarter. Due to the more quiet market conditions during this quarter, our return on average trading capital slightly decreased to 68% and our return on equity decreased to 22%. In addition, and as mentioned earlier, we have just secured a EUR 200 million private credit facility and a EUR 75 million revolver from Benefit Street Partners and Stone Point Credit, 2 leading private asset managers. Altogether, these different initiatives increase our trading capital by more than 70%. This will allow us to increase our capacity to provide more liquidity, be more active as a market maker, and support our growth. We are also confident that we will continue to generate over 50% return on trading capital over the course of our business, given our existing trading strategies and capabilities. I will now hand the call back to Eric.

Thanks, Thomas. This concludes the formal part of our presentation. We would now like to open up the floor for any questions you may have. Operator?

[Operator Instructions] Our first question comes from Julian Dobrovolschi from ABN AMRO-ODDO BHF.

Maybe to start with, Thomas, a warm welcome from my side, and good luck at Flow Traders. Before diving into the numbers, can you kind of share with us what appeals to you at Flow Traders in the first place when you took the CEO role? And broadly, if you can speak about the company's strengths from your point of view now that your kind of in the job for a couple of weeks? And then also, if you already identified a couple of pockets of improvement in the business. Just curious how do you broadly look at the company? And then I have a couple of follow-ups on the quarterly performance.

Thank you, Julian. And thank you for the welcome. And overall, I'm going to use that call to thank all our employees and partners for the very warm welcome and support I have received over the past few weeks. I think Flow Trader has a unique USP, which is that we are an incredibly talented and knowledgeable company that has been a specialist in ETP for now 2 decades, with this market developing at accelerated pace, not only in the traditional environment, U.S., Europe, but also in new markets like Asia. And I believe that this historical strength is extremely important. The second element we have been very impressed about is that as much as we talk about investing more in technology, and we will continue to invest more in technology, I have found a team of professionals from front office to risk, to back office to legal, the team in Europe, Asia and the U.S. that are extremely committed to deliver on the commitment that we made to the Board when the capital expansion plan was delivered. So, we have a very motivated and enthusiastic team that is ready for the new challenge and the new development we're going through. If I were to pinpoint a few additional points that I find very interesting with Flow Traders, one of them is obviously our historical presence, not only in the U.S. but in Asia, which is a key area of focus for us for the next few years. And we've been a market maker in Asia for a long time. And I will also add the incredible connectivity both from a technical standpoint in terms of market and technical connectivity, but also the great relationship we have formed over the past few years and few decades with most of the strategic counterparts and players in the market we want to invest in. And last but probably not least, I think we also need to acknowledge that Flow has been one of the early movers and early believers into the digital assets and crypto market. And while maintaining our traditional risk profile, we've managed to develop knowledge and capabilities in this fast-developing market that are probably second to none today in the market.

Clear.

Have I answered everything, or did I forget something?

Yes. I think I was also curious if you already kind of identified some, let's say, low-hanging fruits in terms of improvement. And if you can share that with us already.

I think everybody wants low-hanging fruit. I would say that for me, the lowest hanging fruit, maybe the one I feel very comfortable with, is that we need to acknowledge that it's a company that, up until the summer of 2024, was used to work in a very capital-constrained environment. And thanks to the work by the Board, thanks to by the team, thanks to the work by the finance team, we are now in a world where our expansion in terms of capital is very, very rapid. And I think, to some extent, low-hanging fruit I can see is how to make sure that the way we organize our set, we allocate the capital dynamically, we get used to be a bigger trading firm and we maximize every single opportunity we have is probably one of the low-hanging fruit because we have the knowledge, we have the skill set, we have the product. We are still learning how to maximize this inflow of capital, and it will be a learning curve that I'm going to take with me and the leadership team. And also, I will use my background as a former trader and market guy for 20 years to really support the management team and the trading to make sure that we maximize these opportunities over the short term, while we also use that capital to build a number of new products, strategy, technology over the medium to long-term.

Clear. So, I think what you said in the last -- let's say, in the last sentences is pretty much kind of an extension to my questions, predominantly on the trading capital itself. So, if you can kind of run us through the strategy of this EUR 150 million net. So, if you take out also the EUR 25 million that you're going to pay back to the banks, so EUR 150 million net on trading capital strategy in terms of deployment. And maybe if you can say something extra on the regional allocation, asset class allocation, perhaps something on returns on trading capital, et cetera. So, anything that you can find interesting regarding the strategic deployment of this extra buffer, I'd appreciate that. And then also next to that, what kind of operating leverage do you think you can achieve after the full deployment of this trading capital? And perhaps operationally, what do you think Flow needs to change to be able to actually deploy successfully this extra capital buffer?

Alex, do you want to take it?

Yes, happy to take question, Julien, about the EUR 150 million net. So, we -- this is a facility we secured for the long term. So, it will be a -- it's a 6-year facility. So, we believe that if there's now a bound of volatility, we can deploy everything at very accretive returns. But at the same time, we will -- we aim to increase the baseline and to find new strategies where we gradually deploy the rest of the capital. So, in -- we're confident that also with the generation of additional profits and this facility that speed things up, we will grow into new strategies are able to trade bigger sizes. The ETF market alone still is growing 10% to 15% per year. So that warrants a bigger book and more trading capital. And then we have specific growth areas like, for example, crypto. Asia is a big strategic area for us. So there, we'll deploy the additional capital.

And maybe another question you had is that I don't feel like our current operational setup or organizational setup is not allowed to cater for this additional capital. We have -- obviously, as a market maker, we have a very much tech-orientated business. So, we can scale our operation, we can scale our volumes we can scale our sizes without significant additional cost to put in. Our risk framework and our risk management, our compliance framework and compliance management, our operational framework are more than capable of absorbing this additional trading activity.

Perfect. And is there then kind of an indication that it could give us regarding the cost guidance for '26?

Not yet. I've just been here for 2 months.

The next question comes from Mike Werner from UBS.

Welcome aboard, Thomas. Two questions, please. First, when you talk about the expansion into Asia, I think you mentioned earlier that a good portion of the volumes are currently happening within China. And obviously, there's certain capital controls there. How important is China to that expansion in Asia for you? That's the first question. And the second question, we've seen a number of companies reporting Q3 results. Trading activity, revenues tended to be pretty good, obviously, not as strong as Q2, but definitely higher than where we were last year. I saw from some of the listed market makers as well. And again, Flow Traders' decline in revenue is a bit of, I guess, kind of stands out given the trends that we have seen elsewhere. So, I was just wondering, was there anything specific in terms of the mix or products or strategies that Flow was implementing where, yes, on a year-on-year basis and relative to the past couple of quarters, and again, not just Q2, we saw a decline in NTI.

I will start to answer a bit and then I will let Alex and Marc complete. So, regarding Asia, and again, when we say Asia, as you rightly mentioned, Asia is a big continent with a lot of different countries. China is part of our strategic focus. We are very aware of the capital constraint and the capital controls. As part of our business development, we have also managed to set up new structure and financing capabilities for Asia in general that will be able to allocate our -- across different activities. To answer back to your specific question, yes, China is one -- will be one of our strategic country of focus. I've already been in Hong Kong meeting our teams in September, and we're going to have some dedicated focus. So, we're having some dedicated focus on the most efficient way to deploy over there. But Asia in general, China in particular, but not only is an area where the West is growing very fast and an area where the development of markets has caught up over the past few years to European and U.S. market. One of the key player in that market in Asia, including in the China market. Regarding the questions about our performance, and I will let Alex and Marc reply to a little bit better. Yes, we would have liked to do more. Is it the best quarter we have ever had, I would say, in terms of performance? No. On the other hand, we don't see that at all as a structural headwind. It does happen from time to time that for one quarter to another, we underperform our peer, or we underperformed our expectation, which has been the case in Q3. I don't see that the management team doesn't see that as a structural issue. And maybe Alex and Marc can say a bit more about it.

Yes. Yes, let's not forget, indeed, we have just had three running quarters over EUR 100 million. Our business, the quarter-on-quarter can be a bit more volatile. As said, we're not happy with the results. But Q4, while still young, already shows an improvement from the performance. So, we don't see it as a structural thing. We're still committed to our key markets as well as new growth initiatives that we have on the agenda.

All right. We can now head to the written questions that have been submitted. The first question reads, we know Flow Traders' model is well suited to periods of market volatility. I'm curious about the upper end of that spectrum. How do you manage and mitigate risks during moments of extreme market turbulence? Could you comment on how the firm managed through the crypto volatility on October 10?

Yes, I can take that question. The question is, I believe, from Igor. Great question. So let me help to explain the answer to the question. Our systems are optimized for any level of volatility, and we perform very well in those moments of volatility. Everything in our system is automated. Our risk management is optimized over decades, and the team has multiple decades of experience. After every event, we improve our strategies and risk controls such that we will be even better on the next event. In the crypto volatility of October 10, we saw extreme situations and our systems performed well. We came out with a profit.

Given that we don't have any more questions, I just wanted to add a few words before Eric can conclude the call, sorry. So, first of all, I would like really to thank the team and their commitment in welcoming me. I would like to give a special thanks to the -- all the teams in finance, legal and as well as our 2 partners who have successfully closed this strategic financing for Flow Traders that will help us accelerate our growth. I would also like to thank all the key partners that have been able to meet and have still much more to meet over the next few weeks that have shown their commitment and their trust in Flow Traders. As we have also mentioned in the document published, we will organize next year Capital Markets Day where we will be presenting an update of our strategy, our ambition and our expansion plan. Give me a few months. Again, I still have a lot to learn, and the team is really working hard to putting me up to speed. But overall, I'm extremely confident that we are one of the European and one of the global leader in our markets. I'm very comfortable. I'm very confident with the support I've received from the exec teams. I would like also to thank the Board for their support over the past 2 weeks, and I'm very much looking forward to the SGM in a couple of hours, who hopefully will confirm me as a new CEO. Thank you very much. Eric?

Great. So, thank you, everyone, for dialing in today. Please note that we will host our next analyst call when we release our fourth quarter results next February. Details and timing for the call will follow in due course. This now ends the call. Thanks, and have a great day.