StoneX Group Inc. — FY2022 Form 10-K
Reporting period: Fiscal year ended September 30, 2022. This is an annual report, not a standalone calendar fourth-quarter filing. StoneX is a global financial services company serving commercial, institutional, retail, and global-payments clients.
Financial performance
| Metric | FY2022 | FY2021 | Change |
|---|---|---|---|
| Total revenues | $66.0 billion | $42.5 billion | +55% |
| Operating revenues | $2,107.4 million | $1,673.1 million | +26% |
| Net operating revenues | $1,475.9 million | $1,150.0 million | +28% |
| Income before tax | $277.2 million | $154.1 million | +80% |
| Net income | $207.1 million | $116.3 million | +78% |
| Diluted EPS | $10.01 | $5.74 | Up from prior year |
| Operating cash flow | $(229.5) million | $2,122.7 million | Declined |
| Total assets | $19.9 billion | $18.8 billion | +5% |
| Stockholders’ equity | $1,070.1 million | $904.0 million | +18% |
Total revenues include large gross physical-commodity sales and related costs; operating revenues, which deduct physical-commodity cost of sales, provide a more useful view of revenue generation. Net income was approximately 9.8% of operating revenues, versus 7.0% in FY2021. Compensation and other expenses rose 21% to $1,205.1 million. Variable costs remained 56% of total non-interest expenses.
Business drivers and changes versus FY2021
- Management attributed record operating revenues across all four segments to increased client activity and spreads amid inflation, higher short-term interest rates, and volatility following Russia’s invasion of Ukraine.
- Interest and fee income on client balances increased 243% to $89.3 million; average client equity rose 48% and average money-market/FDIC sweep balances rose 21%.
- Commercial operating revenues grew 29% to $692.1 million; segment income rose 50% to $288.3 million.
- Institutional operating revenues grew 24% to $831.8 million, but segment income increased only 4% to $174.6 million. Higher trading activity and client-balance income were partly offset by sharply higher interest expense and other costs.
- Retail operating revenues grew 23% to $426.7 million, with segment income up 70% to $115.4 million, primarily reflecting stronger FX/CFD activity and spreads.
- Global Payments operating revenues grew 25% to $172.0 million; segment income rose 24% to $97.4 million.
- Bad-debt expense, net of recoveries, increased $5.4 million to $15.8 million. Total interest expense rose 98% to $180.2 million, including trading-related and corporate funding costs.
Cash, debt, liquidity, and capital
- Cash, segregated cash, and cash equivalents totaled $6,285.1 million at year-end, down $224.4 million. These amounts include substantial client funds and should not be treated as unrestricted corporate cash.
- Operating activities used $229.5 million, reflecting significant working-capital and trading-balance movements; investing activities used $49.5 million, mainly capital expenditures. Financing activities provided $65.8 million.
- Total consolidated borrowings were $824.2 million, versus $755.6 million a year earlier. This included $485.1 million under loans and $339.1 million of senior secured notes, net. The notes carry an 8.625% coupon and mature in June 2025.
- Committed facilities totaled $1.0 billion, with $477.0 million outstanding. Of borrowings, $485.1 million were variable-rate. Management stated that the company was in compliance with debt covenants and believed operating cash flow, available cash, and facilities would meet future liquidity needs.
- Regulated subsidiaries were reported in compliance with capital requirements. Client assets and some subsidiary funds are restricted by regulation and may not be freely available to the parent.
Outlook, risks, and unusual items
- The filing provides no numerical earnings or revenue guidance. Management’s positive liquidity assessment is not a guarantee; results remain sensitive to trading volumes, market volatility, interest rates, and client balances.
- Management cautioned that extreme or prolonged market dislocation can make hedging harder and cause trading losses. Lower volatility, lower trading activity, or falling short-term rates could reduce revenue and profitability; rising rates also increase costs on variable-rate debt.
- Key risks include client and counterparty defaults, short-notice margin funding needs, dependence on credit facilities, market-making and OTC derivative exposures, regulatory requirements, cybersecurity and operational disruption, foreign-exchange movements, and acquisition integration.
- The 2018 OptionSellers matter remained unresolved. Net receivables from affected accounts were $25.9 million, with a $7.6 million allowance. Some arbitrations were resolved during FY2022; the outcome of remaining proceedings and ultimate collections was uncertain. Management considered a material adverse outcome remote.
- A $6.4 million foreign-exchange antitrust class-action settlement was recorded as a nonrecurring gain in FY2022. Reported comprehensive income was $141.6 million, including $65.5 million of other comprehensive loss, principally cash-flow hedge and currency effects.
- After year-end, StoneX acquired Swiss cotton merchant CDI on October 31, 2022, for approximately $40 million. A $1 million share-repurchase authorization for FY2023 was approved; no shares were repurchased in FY2022. Cash dividends are not planned and are restricted by credit agreements.
- KPMG issued unqualified opinions on the financial statements and internal controls; management also concluded internal control over financial reporting was effective.
Important facts for investors to verify
- How much of FY2022’s earnings growth is sustainable if volatility and short-term interest rates decline, and how much came from unusually favorable market conditions?
- Whether the negative operating cash flow reflects temporary trading-related working-capital movements or a more persistent funding requirement; distinguish corporate liquidity from segregated client assets.
- Facility renewal and refinancing status, covenant headroom, variable-rate debt exposure, and the company’s capacity to fund margin calls in stressed markets.
- Collections, allowance adequacy, and remaining arbitration exposure in the OptionSellers matter.
- Whether increased expenses, including marketing, compensation, technology, and interest costs, remain proportionate to revenue as market activity changes.
- Integration and performance of the CDI acquisition, and the terms and actual execution of the FY2023 repurchase authorization.