StoneX Group Inc. — FY2020 Form 10-K
Business context and reporting period. This annual report covers the fiscal year ended September 30, 2020; it is not a standalone fourth-quarter filing. StoneX operates a global financial-services network across Commercial, Institutional, Retail and Global Payments businesses. It completed the acquisition of GAIN Capital in July 2020, materially expanding retail forex and CFD trading, and changed its name from INTL FCStone Inc. to StoneX Group Inc. (Nasdaq: SNEX).
Financial results and liquidity
| Metric | FY2020 | FY2019 | Change |
|---|---|---|---|
| Total revenue | $54.14 billion | $32.90 billion | +65% |
| Operating revenue | $1,308.3 million | $1,106.1 million | +18% |
| Net operating revenue | $868.0 million | $653.2 million | +33% |
| Income before tax | $206.7 million | $111.0 million | +86% |
| Net income | $169.6 million | $85.1 million | +99% |
| Diluted EPS | $8.61 | $4.39 | +96% |
| Operating cash flow | $1,950.6 million | $195.6 million | — |
| Total assets | $13.47 billion | $9.94 billion | +36% |
| Stockholders’ equity | $767.5 million | $594.2 million | +29% |
- Total revenue includes large physical-commodity sales and associated costs. Operating revenue, which deducts physical-commodity cost of sales, and net operating revenue are more useful measures of the company’s underlying revenue base. Net operating revenue was about 66% of operating revenue.
- Interest income fell 34% to $130.9 million, and interest and fee income on client balances declined 49%, reflecting lower short-term rates. Average client equity rose 33% to $2.8 billion and average money-market/FDIC sweep balances rose 43% to $1.1 billion.
- Net cash, segregated cash, cash equivalents and segregated cash equivalents rose to $4.47 billion from $2.45 billion. FY2020 cash flow included substantial movements in client balances and other trading-related assets and liabilities; it should not be read as ordinary free cash flow.
- At September 30, 2020, total consolidated indebtedness was $783.6 million: $268.1 million under loans, $179.5 million under the senior secured term loan and $336.0 million carrying value of secured notes. Stockholders’ equity was $767.5 million. The filing reports $736.6 million of committed facilities, of which $427.6 million was outstanding; availability and borrowing capacity are subject to facility terms.
- Management reported $173.5 million available under the general working-capital facility and said it believed liquidity was sufficient. Approximately 97% of assets were in cash, collateralized transactions, client/counterparty balances, marketable financial instruments or physical inventory, though substantial balances relate to clients and regulated operations.
Material changes versus the prior year
- Institutional segment income increased 73% to $152.9 million, led by stronger securities activity amid market volatility. Commercial segment income declined 2% to $141.9 million as lower interest income, bad debts, inventory adjustments and the prior-year coal recovery offset revenue growth.
- Retail segment income increased to $31.7 million from $6.4 million, primarily reflecting the GAIN acquisition and stronger precious-metals demand. GAIN contributed $49.0 million of revenue and $1.8 million of net income after acquisition during FY2020; it was included for only part of the year.
- Global Payments segment income rose 4% to $68.6 million. Average daily payment volume was broadly flat, with pandemic-related weakness in some large banking-client transactions.
- Compensation and other expenses rose 36% to $743.2 million, including acquisition and new-business costs. Bad-debt expense, net of recoveries and impairment, increased to $18.7 million from $2.5 million. Compensation and benefits reached 39.6% of operating revenue, compared with 35.5%.
Outlook, commentary and risks
- No specific numerical earnings or revenue guidance is provided. Management cited uncertainty about the duration and effects of COVID-19, market conditions and interest rates.
- COVID-related volatility supported securities, precious-metals and some trading activity, but lower rates reduced interest-related income. Management warned that prolonged market disruption, client losses or defaults, and difficulty hedging could hurt results and liquidity.
- The $81.8 million GAIN bargain-purchase gain was a major unusual item in FY2020 income before tax; it was non-taxable. The filing also reports $9.6 million of acquisition-related investment-banking and legal fees and a $5.7 million software impairment associated with the acquisition/integration. The gain should be separated from recurring operating performance when assessing earnings.
- The company recorded a $7.6 million lower-of-cost-or-net-realizable-value adjustment for certain crude-oil and low-sulfur-fuel-oil inventory and said recovery from its supplier was substantially uncertain; it is pursuing legal remedies.
- StoneX reported a $29.0 million net receivable from OptionSellers-related client accounts at September 30, 2020, with no allowance recorded. Collection and client arbitration outcomes remain uncertain.
- Management identified risks from market and counterparty exposure, short-notice margin calls, financing access and debt covenants, regulation, cybersecurity, international operations, Brexit and acquisition integration. The 8.625% senior secured notes mature in 2025; some committed facilities were due to expire in fiscal 2021, and management intended to renew or replace them.
- The company reported compliance with subsidiary regulatory-capital requirements and debt covenants at year-end. The auditor gave unqualified opinions on the financial statements and internal control over financial reporting; management also concluded controls were effective, while acquired businesses were excluded from the controls assessment.
Investor verification priorities
- Assess earnings excluding the $81.8 million bargain-purchase gain and consider acquisition costs, impairment and the short post-acquisition contribution period.
- Review the GAIN purchase-price allocation, including the appraisal claims by holders of 3.6 million shares and the $21.6 million accrued merger consideration.
- Track interest-rate sensitivity: management estimated that an immediate 25-basis-point short-term rate decrease would reduce annual pretax income by about $6.4 million.
- Verify the collectability and potential litigation exposure of the $29.0 million OptionSellers receivable, and the outcome of the $7.6 million inventory write-down recovery claim.
- Reconcile reported cash and operating cash flow with segregated client funds, margin requirements, facility availability, debt maturities and covenant obligations.