Merix (MRX) Q3 2025: Prime Services Now 25% of Profit as Diversification Accelerates
Merix’s third quarter confirms a structural shift in earnings quality, with prime services now contributing nearly a quarter of profits, up from virtually zero pre-acquisition, and business mix diversification driving resilience despite softer exchange volumes. Management’s conviction in sustained double-digit profit growth is underpinned by robust client pipelines, accretive M&A, and expanding international reach. Guidance and commentary point to a record-setting Q4, with margin stability and capital discipline in focus as the next phase of expansion unfolds.
Summary
- Prime Services Profit Surge: Prime services now generate nearly 25% of group profit, transforming earnings durability.
- Resilience Amid Volume Headwinds: Diversified business mix offset lower exchange activity and market making softness.
- Record Q4 Trajectory: Management expects record profit and revenue in Q4, citing robust client onboarding and M&A tailwinds.
Performance Analysis
Merix delivered a standout third quarter, with revenue up 24% year over year and adjusted pre-tax profit rising 25%, despite a challenging backdrop of lower exchange volumes and volatility. Clearing, agency and execution, and solutions all posted strong growth, more than offsetting a 16% revenue decline in market making. Clearing revenue rose 14% on record client balances and higher commission, while agency and execution surged 52%, led by an 82% jump in securities, largely from prime services. Solutions revenue climbed 36%, reaching a record, as hedging and structured products outperformed.
Cost growth tracked revenue at 24%, with front office and support costs reflecting both performance-linked compensation and ongoing investment in infrastructure and compliance. Margins held firm at 20.7%, and adjusted return on equity remained robust at 27.6%. Despite a 100 basis point drop in interest rates, clearing net interest income was stable, as client balance growth offset rate headwinds. The balance sheet expanded to $33 billion, with 80% supporting client activity and surplus liquidity of $1.5 billion above regulatory minimums.
- Business Mix Shift: Share of profit linked to exchange volumes fell from 70% in 2023 to 54% this quarter.
- Prime Services Scale: Prime services revenue hit $57 million in Q3, more than doubling since acquisition.
- Cost Discipline: Cost increases were matched to revenue, preserving margin and funding expansion.
Across segments, market making lagged due to tariff and commodity volatility, but this was offset by record solutions activity and continued pipeline strength in clearing and prime. The group’s ability to grow client balances and cross-sell new services is increasingly central to its profit engine.
Executive Commentary
"Over the past two years, we have looked to strengthen our earnings resilience through product and geographic expansion. Our evolving business mix is now more diverse than it was at the time of our IPO. The most significant incremental contribution has come from prime services, which now accounts for nearly a quarter of our total profits. Prime profits are like clearing, recurring and dependable, and based on client balances. They are high-quality, durable earnings that generate high returns."
Ian Lowett, Group CEO
"Total reported costs grew 24% in line with revenues. Front office costs were up 23%, reflecting strong revenue performance and continued investments in future growth... Our adjusted return on equity remained very strong at 27.6%, all of which meant we delivered an adjusted basic EPS of $1.01 per share, up 23% year-on-year."
Rob Irvin, Group CFO
Strategic Positioning
1. Prime Services as a Core Growth Driver
Prime services, a bundled offering of outsourced trading, Prime of Prime (access to aggregated liquidity), and on-balance sheet prime brokerage, has rapidly become a cornerstone of Merix’s profitability. Since acquiring the business from TD Cowan, prime services revenue has more than doubled, with the segment now accounting for nearly a quarter of group profit. This shift enhances earnings durability, as prime profits are recurring, balance-driven, and less sensitive to market volumes than legacy exchange-driven businesses.
2. Diversification Across Products and Geographies
Merix has deliberately reduced its reliance on exchange-linked revenues by expanding into solutions (custom hedging and structured products), FX, and international markets. Recent M&A, including Winterflood and Hamilton Court, is accelerating penetration in UK equities, Abu Dhabi, and Brazil. The company’s product and geographic diversification is evidenced by a drop in exchange volume-linked profit share and by new client wins in APAC and the Middle East.
3. Balance Sheet and Capital Allocation Discipline
80% of the balance sheet is dedicated to client activity, supporting Merix’s agency business model, which intermediates rather than takes principal risk. Surplus liquidity and regular debt issuance in the US market are strategic, giving the company flexibility for opportunistic M&A and organic growth. Management targets >20% returns on equity investments and maintains excess capital to support expansion without dilution.
4. Technology and Platform Investment
Ongoing investment in technology platforms, compliance (notably Sarbanes-Oxley), and new desks is driving both cost growth and future scalability. Solutions and FX desks are seeing productivity gains, and the integration of acquired businesses is expected to lift margins as they mature.
5. M&A Pipeline and Integration
The M&A pipeline remains robust, with 2026 expected to be an active year. Management is focused on accretive deals that expand product reach, client base, and geographic footprint. Early results from recent acquisitions are positive, with Hamilton Court outperforming expectations and Winterflood poised to transform UK equity market making upon regulatory approval.
Key Considerations
This quarter marked a clear inflection in Merix’s business model, shifting from volume-dependent earnings to a more balanced, recurring revenue base. The implications for valuation and risk are material, as are the operational levers now available to management.
Key Considerations:
- Client Pipeline Quality: New client onboarding in clearing and prime is at record levels, with long lead times and high retention, supporting future revenue visibility.
- Margin Trajectory: While group margins held steady, segment-level improvement is expected as new desks and acquisitions mature, though management is prioritizing growth investment over near-term margin expansion.
- Interest Rate Sensitivity: Net interest income stability is now driven more by client balance growth than rate levels, reducing macro sensitivity.
- Crypto and Tokenization Readiness: Merix is building infrastructure for crypto clearing, settlement, and collateral services, positioning for regulatory shifts and 24-7 trading.
- Capital Flexibility: Regular debt issuance and excess equity provide optionality for M&A and organic scaling without shareholder dilution.
Risks
Key risks include further declines in exchange volumes, persistent softness in market making (especially metals and agriculture), and integration challenges from ongoing M&A. Regulatory uncertainty around crypto, tokenization, and capital requirements could impact business lines. While class action lawsuits following the short report are considered immaterial by management, they remain a potential distraction. Cost discipline and margin management will be tested as the company balances growth investment with profitability targets.
Forward Outlook
For Q4, Merix guided to:
- Record profit and revenue, driven by continued client additions and strong October results.
- Continued strong client pipelines in clearing and prime services, with improved mix and larger mandates.
For full-year 2025, management reiterated:
- Sustainable profit growth in the 10% to 20% range, with 10% organic and the balance from M&A.
Management highlighted:
- Momentum across all business lines, with Q4 off to a record start.
- Margin improvement expected in 2026 as acquisitions and new desks mature, though not a dramatic shift as investment continues.
Takeaways
Merix is executing a deliberate transformation, shifting toward recurring, high-return profit streams and reducing reliance on market volumes.
- Prime Services Scale: The rapid growth and diversification of prime services have made Merix’s earnings more resilient and less cyclical, supporting higher ROE and valuation multiples.
- Investment Discipline: Management is balancing cost growth and margin stability with platform investment and M&A, signaling confidence in long-term scalability.
- Strategic Watchpoint: Investors should monitor the integration of Winterflood and Hamilton Court, the pace of international expansion, and the evolution of crypto and tokenization services as next-stage growth levers.
Conclusion
Merix’s third quarter marks a pivotal advance in its evolution from a volume-driven intermediary to a diversified, recurring-revenue platform. Management’s focus on prime services, geographic expansion, and disciplined capital allocation positions the company for sustained double-digit profit growth. Margin stability, robust client pipelines, and a strong M&A pipeline underpin a bullish outlook as the company enters Q4 and looks to 2026.
Industry Read-Through
Merix’s results highlight a major trend among agency brokers and financial intermediaries: the shift toward recurring, balance-driven profit streams and away from pure volume or volatility dependence. The rapid scaling of prime services and solutions underscores growing client demand for bundled, cross-asset services and the competitive advantage of integrated platforms. The firm’s proactive stance on crypto clearing, tokenization, and 24-7 trading points to future industry shifts, with implications for traditional exchanges, custodians, and fintechs. Margin discipline amid heavy investment signals that scalable, diversified platforms will be best positioned as regulatory and market structures evolve.