INTL FCStone Inc. Reports Fiscal 2019 First Quarter Financial Results
Record Operating Revenues of
Net Income of
EPS of
Sean M. O’Connor, CEO of
Condensed consolidated financial statements for the Company will be included in our Quarterly Report on Form 10-Q to be filed with the
Three Months Ended December 31, | ||||||||||
(Unaudited) (in millions, except share and per share amounts) | 2018 | 2017 | % Change |
|||||||
Revenues: | ||||||||||
Sales of physical commodities | $ | 6,295.8 | $ | 7,714.4 | (18)% | |||||
Principal gains, net | 94.9 | 78.3 | 21% | |||||||
Commission and clearing fees | 97.4 | 85.3 | 14% | |||||||
Consulting, management and account fees | 19.1 | 16.6 | 15% | |||||||
Interest income | 45.0 | 24.0 | 88% | |||||||
Total revenues | 6,552.2 | 7,918.6 | (17)% | |||||||
Cost of sales of physical commodities | 6,287.5 | 7,706.0 | (18)% | |||||||
Operating revenues | 264.7 | 212.6 | 25% | |||||||
Transaction-based clearing expenses | 50.1 | 36.9 | 36% | |||||||
Introducing broker commissions | 32.6 | 31.1 | 5% | |||||||
Interest expense | 33.0 | 14.3 | 131% | |||||||
Net operating revenues | 149.0 | 130.3 | 14% | |||||||
Compensation and other expenses: | ||||||||||
Compensation and benefits | 89.1 | 77.2 | 15% | |||||||
Trade systems and market information | 9.2 | 8.2 | 12% | |||||||
Occupancy and equipment rental | 4.4 | 4.1 | 7% | |||||||
Professional fees | 5.3 | 4.7 | 13% | |||||||
Travel and business development | 3.8 | 3.5 | 9% | |||||||
Non-trading technology and support | 4.2 | 3.1 | 35% | |||||||
Depreciation and amortization | 2.9 | 2.7 | 7% | |||||||
Communications | 1.3 | 1.4 | (7)% | |||||||
Bad debts | 0.3 | 0.1 | 200% | |||||||
(Recovery) bad debt on physical coal | (2.4) | 1.0 | n/m | |||||||
Other | 6.5 | 5.7 | 14% | |||||||
Total compensation and other expenses | 124.6 | 111.7 | 12% | |||||||
Income before tax | 24.4 | 18.6 | 31% | |||||||
Income tax expense | 6.2 | 25.5 | (76)% | |||||||
Net income (loss) | $ | 18.2 | $ | (6.9) | n/m | |||||
Earnings (loss) per share: | ||||||||||
Basic | $ | 0.96 | $ | (0.37) | n/m | |||||
Diluted | $ | 0.94 | $ | (0.37) | n/m | |||||
Weighted-average number of common shares outstanding: | ||||||||||
Basic | 18,659,748 | 18,419,072 | 1% | |||||||
Diluted | 18,993,046 | 18,419,072 | 3% | |||||||
n/m = not meaningful to present as a percentage | ||||||||||
Effects of the Tax Cuts and Jobs Act
On
For the three months ended
Recent Events Affecting the Company
During the week ended
INTL FCStone Financial’s client agreements hold account holders liable for all losses in their accounts, and obligate the account holders to reimburse INTL FCStone Financial for any account deficits in their accounts. As of
We have done an assessment of the collectability of these accounts and have concluded that we do not have a sufficient basis to determine an allowance against these uncollected balances. As we move through the collection process and additional information becomes available, we will continue to evaluate the likelihood of collection and consider the need for an allowance against the carrying value of these uncollected balances. Depending on future collections and our ongoing assessments, any provisions for bad debts and actual losses ultimately may or may not be material to our financial results. Currently, we do not believe that any potential losses from amounts not collected would impact our ability to comply with our ongoing liquidity, capital, and regulatory requirements.
Interest Income/Expense
Interest income increased
Interest expense increased
The increase in interest expense is primarily related to the trading activities of our institutional dealer in fixed income securities, which resulted in higher interest expense of
Non-interest Expenses and Key Operating Metrics
The following table reflects a breakout of total non-interest expenses by variable and non-variable components, which is used by management in evaluating our non-interest expenses, for the periods indicated.
Three Months Ended December 31, | ||||||||||
(in millions) | 2018 | 2017 | % Change | |||||||
Variable compensation and benefits | $ | 47.7 | $ | 36.9 | 29% | |||||
Transaction-based clearing expenses | 50.1 | 36.9 | 36% | |||||||
Introducing broker commissions | 32.6 | 31.1 | 5% | |||||||
Total variable expenses | 130.4 | 104.9 | 24% | |||||||
Fixed compensation and benefits | 41.4 | 40.3 | 3% | |||||||
Other fixed expenses | 37.6 | 33.4 | 13% | |||||||
Bad debts | 0.3 | 0.1 | 200% | |||||||
(Recovery) bad debt on physical coal | (2.4) | 1.0 | n/m | |||||||
Total non-variable expenses | 76.9 | 74.8 | 3% | |||||||
Total non-interest expenses | $ | 207.3 | $ | 179.7 | 15% | |||||
The following table reflects key operating metrics used by management in evaluating our product lines, for the periods indicated.
Three Months Ended December 31, | |||||||||
2018 | 2017 | % Change | |||||||
Volumes and Other Data: | |||||||||
Exchange-traded - futures and options (contracts, 000’s) | 37,527.1 | 25,862.1 | 45% | ||||||
Over-the-counter (“OTC”) (contracts, 000’s) | 409.3 | 327.9 | 25% | ||||||
Global Payments (# of payments, 000’s) | 166.6 | 156.3 | 7% | ||||||
Gold equivalent ounces traded (000’s) | 95,219.6 | 33,503.1 | 184% | ||||||
Equity Capital Markets (gross U.S. dollar volume, millions) | $ | 43,308.7 | $ | 24,734.3 | 75% | ||||
Debt Capital Markets (gross U.S. dollar volume, millions) | $ | 60,677.2 | $ | 33,233.7 | 83% | ||||
FX Prime Brokerage volume (U.S. dollar notional, millions) | $ | 89,944.7 | $ | 114,302.0 | (21)% | ||||
Average assets under management in Argentina (U.S. dollar, millions) | $ | 282.8 | $ | 473.7 | (40)% | ||||
Average client equity - futures and options (millions) | $ | 2,332.5 | $ | 2,125.8 | 10% | ||||
Balance Sheet Summary
The following table below provides a summary of asset, liability, and stockholders’ equity information for the periods indicated.
(Unaudited) (in millions, except for share and per share amounts) | December 31, 2018 |
September 30, 2018 |
|||||
Summary asset information: | |||||||
Cash and cash equivalents | $ | 358.2 | $ | 342.3 | |||
Cash, securities and other assets segregated under federal and other regulations | $ | 1,020.2 | $ | 1,408.7 | |||
Securities purchased under agreements to resell | $ | 1,191.4 | $ | 870.8 | |||
Securities borrowed | $ | 963.3 | $ | 225.5 | |||
Deposits with and receivables from broker-dealers, clearing organizations and counterparties, net | $ | 2,364.0 | $ | 2,234.5 | |||
Receivables from clients, net and notes receivable, net | $ | 353.9 | $ | 291.8 | |||
Financial instruments owned, at fair value | $ | 2,054.5 | $ | 2,054.8 | |||
Physical commodities inventory, net | $ | 222.5 | $ | 222.5 | |||
Goodwill and intangible assets, net | $ | 59.3 | $ | 59.8 | |||
Other | $ | 123.2 | $ | 114.0 | |||
Summary liability and stockholders’ equity information: | |||||||
Payables to clients | $ | 3,275.9 | $ | 3,639.6 | |||
Payables to broker-dealers, clearing organizations and counterparties | $ | 223.2 | $ | 89.5 | |||
Payables to lenders under loans | $ | 435.4 | $ | 355.2 | |||
Accounts payable and other accrued liabilities | $ | 130.4 | $ | 145.4 | |||
Securities sold under agreements to repurchase | $ | 2,239.3 | $ | 1,936.7 | |||
Securities loaned | $ | 1,031.0 | $ | 277.9 | |||
Financial instruments sold, not yet purchased, at fair value | $ | 839.7 | $ | 866.5 | |||
Income taxes payable | $ | 9.6 | $ | 8.6 | |||
Stockholders’ equity | $ | 526.0 | $ | 505.3 | |||
Common stock outstanding - shares | 19,032,108 | 18,908,540 | |||||
Net asset value per share | $ | 27.64 | $ | 26.72 | |||
Segment Results
The following table reflects operating revenues by segment for the periods indicated.
Three Months Ended December 31, | ||||||||||
(in millions) | 2018 | 2017 | % Change |
|||||||
Segment operating revenues (loss) represented by: | ||||||||||
Commercial Hedging | $ | 59.8 | $ | 61.5 | (3)% | |||||
Global Payments | 29.7 | 24.6 | 21% | |||||||
Securities | 69.0 | 43.0 | 60% | |||||||
Physical Commodities | 14.3 | 10.6 | 35% | |||||||
Clearing and Execution Services | 95.2 | 72.2 | 32% | |||||||
Corporate unallocated | (3.3) | 0.7 | n/m | |||||||
Operating revenues | $ | 264.7 | $ | 212.6 | 25% | |||||
The following table reflects segment income by segment for the periods indicated.
Three Months Ended December 31, | ||||||||||
(in millions) | 2018 | 2017 | % Change |
|||||||
Segment income represented by: | ||||||||||
Commercial Hedging | $ | 13.3 | $ | 21.1 | (37)% | |||||
Global Payments | 18.6 | 14.6 | 27% | |||||||
Securities | 16.0 | 11.0 | 45% | |||||||
Physical Commodities | 5.9 | 1.1 | 436% | |||||||
Clearing and Execution Services | 17.7 | 10.5 | 69% | |||||||
Total segment income | $ | 71.5 | $ | 58.3 | 23% | |||||
Reconciliation of segment income to income before tax: | ||||||||||
Segment income | $ | 71.5 | $ | 58.3 | 23% | |||||
Net costs not allocated to operating segments | 47.1 | 39.7 | 19% | |||||||
Income before tax | $ | 24.4 | $ | 18.6 | 31% | |||||
Commercial Hedging
We serve our commercial clients through our team of risk management consultants, providing a high-value-added service that we believe differentiates us from our competitors and maximizes the opportunity to retain our clients. Our risk management consulting services are designed to quantify and monitor commercial entities’ exposure to commodity and financial risk. Upon assessing this exposure, we develop a plan to control and hedge these risks with post-trade reporting against specific client objectives. Our clients are assisted in the execution of their hedging strategies through a wide range of products from listed exchange-traded futures and options, to basic OTC instruments that offer greater flexibility and structured OTC products designed for customized solutions.
Our services span virtually all traded commodity markets, with the largest concentrations in agricultural and energy commodities (consisting primarily of grains, energy and renewable fuels, coffee, sugar, cotton, and food service) and base metals products listed on the LME. Our base metals business includes a position as a Category One ring dealing member of the LME, providing execution, clearing and advisory services in exchange-traded futures and OTC products. We also provide execution of foreign currency forwards and options and interest rate swaps as well as a wide range of structured product solutions to our commercial clients who are seeking cost-effective hedging strategies. Generally, our clients direct their own trading activity, and our risk management consultants do not have discretionary authority to transact trades on behalf of our clients.
Operating revenues decreased 3% to
OTC revenues declined 39%, to
Consulting, management, and account fees increased 8% over the prior year, to
Segment income decreased 37% to
We provide global payment solutions to banks and commercial businesses as well as charities and non-governmental and government organizations. We offer payments services in more than 170 countries and 140 currencies, which we believe is more than any other payments solution provider, and provide transparent pricing.
Our proprietary FXecute global payments platform is integrated with a financial information exchange (“FIX”) protocol. This FIX protocol is an electronic communication method for the real-time exchange of information, and we believe it represents one of the first FIX offerings for cross-border payments in exotic currencies. FIX functionality allows clients to view real time market rates for various currencies, execute and manage orders in real-time, and view the status of their payments through the easy-to-use portal.
Additionally, as a member of the
Through this single comprehensive platform and our commitment to client service, we believe we are able to provide simple and fast execution, ensuring delivery of funds in any of these countries quickly through our global network of approximately 300 correspondent banks. In this business, we primarily act as a principal in buying and selling foreign currencies on a spot basis. We derive revenue from the difference between the purchase and sale prices.
We believe our clients value our ability to provide exchange rates that are significantly more competitive than those offered by large international banks, a competitive advantage that stems from our years of foreign exchange expertise focused on smaller, less liquid currencies.
Operating revenues increased 21% to a record
Segment income increased 27% to
Securities
We provide value-added solutions that facilitate cross-border trading and believe our clients value our ability to manage complex transactions, including foreign exchange, utilizing our understanding of local market convention, liquidity and settlement protocols around the world. Our clients include U.S.-based regional and national broker-dealers and institutions investing or executing client transactions in international markets and foreign institutions seeking access to the U.S. securities markets. We are one of the leading market makers in foreign securities, including unlisted American Depository Receipts (“ADRs”), Global Depository Receipts (“GDRs”) and foreign ordinary shares. We make markets in over 5,000 ADRs, GDRs and foreign ordinary shares, of which over 3,600 trade in the OTC market. In addition, we will, on request, make prices in more than 10,000 unlisted foreign securities. We are also a broker-dealer in
We act as an institutional dealer in fixed income securities, including U.S. Treasury, U.S. government agency, agency mortgage-backed and asset-backed securities to a client base including asset managers, commercial bank trust and investment departments, broker-dealers, and insurance companies.
We originate, structure and place debt instruments in the international and domestic capital markets. These instruments include complex asset-backed securities (primarily in
Operating revenues increased 60% to
Operating revenues in
Operating revenues in
Segment income increased 45% to
Physical Commodities
In our Physical Commodities segment, we provide a full range of trading and hedging capabilities, including OTC products, to select producers, consumers and investors in precious metals. In Precious Metals, we provide a full range of trading and hedging capabilities, including OTC products, to select producers, consumers, and investors. In our trading activities, we act as a principal, committing our own capital to buy and sell precious metals on a spot and forward basis.
In our Physical Ag & Energy commodity business, we act as a principal to facilitate financing, structured pricing and logistics services to clients across the commodity complex, including energy commodities, grains, oil seeds, cotton, coffee, cocoa, edible oils and feed products. We provide financing to commercial commodity-related companies against physical inventories. We use sale and repurchase agreements to purchase commodities evidenced by warehouse receipts, subject to a simultaneous agreement to sell such commodities back to the original seller at a later date.
Operating revenues for Physical Commodities increased 35% to
Precious Metals operating revenues increased 45% to
Operating revenues in Physical Ag & Energy increased 25% to
During the quarter ended
Segment income increased 436% to
Clearing and Execution Services
We provide competitive and efficient clearing and execution in all major futures and securities exchanges globally as well as prime brokerage in all major foreign currency pairs and swap transactions. Through our platform, client orders are accepted and directed to the appropriate exchange for execution. We then facilitate the clearing of client transactions. Clearing involves the matching of client trades with the exchange, the collection and management of client margin deposits to support the transactions, and the accounting and reporting of the transactions to clients.
As of
We are an independent full-service provider to introducing broker-dealers (“IBD’s”) of clearing, custody, research, syndicated and security-based lending products and services, including a proprietary technology platform which offers seamless connectivity to ensure a positive client experience through the clearing and settlement process. Our independent wealth management business, which offers a comprehensive product suite to retail clients nationwide, clears through this platform. We believe we are one of the leading mid-market clearers in the securities industry, with approximately 60 correspondent clearing relationships with over
Within this segment, we also maintain what we believe is one of the largest non-bank prime brokers and swap dealers in the world. Through this offering, we provide prime brokerage foreign exchange (“FX”) services to financial institutions and professional traders. We provide our clients with the full range of OTC products, including 24-hour a day execution of spot, forwards and options as well as non-deliverable forwards in both liquid and exotic currencies. We also operate a proprietary foreign exchange desk that arbitrages the exchange-traded foreign exchange markets with the cash markets.
Through our
Operating revenues increased 32% to
Operating revenues in our Exchange-Traded Futures & Options business increased 40% to
Operating revenues in our FX Prime Brokerage increased 60% compared to the prior year to
Correspondent Clearing operating revenues increased 38% compared to the prior year to
Segment income increased to
Conference Call & Web Cast
A conference call will be held tomorrow, Thursday, February 7, 2019 at
A replay of the call will be available at http://www.intlfcstone.com approximately two hours after the call has ended and will be available through February 14, 2019. To access the replay, dial 1-855-859-2056 (within
About
Serving more than 20,000 clients in 130 countries on five continents, the company provides products and services across five market segments: commercial hedging, global payments, securities, physical commodities, and clearing and execution services. Our clients include the producers, processors and end users of virtually every major traded commodity, as well as asset managers, introducing broker-dealers, insurance companies, brokers, institutional and retail investors, commercial and investment banks, and governmental, non-governmental and charitable organizations. A Fortune 500 company headquartered in
Further information on INTL is available at www.intlfcstone.com.
Forward Looking Statements
This press release includes forward-looking statements including statements regarding the combined company. All statements other than statements of current or historical fact contained in this press release are forward-looking statements. The words “believe,” “expect,” “anticipate,” “should,” “plan,” “will,” “may,” “could,” “intend,” “estimate,” “predict,” “potential,” “continue” or the negative of these terms and similar expressions, as they relate to
These forward-looking statements are largely based on current expectations and projections about future events and financial trends that may affect the financial condition, results of operations, business strategy and financial needs of the company. They can be affected by inaccurate assumptions, including the risks, uncertainties and assumptions described in the filings made by
These forward-looking statements speak only as of the date of this press release.
Investor inquiries:
1-866-522-7188
bruce.fields@intlfcstone.com
INTL-G
Source: INTL FCStone Inc.