StoneX Group Inc. — Form 10-Q Summary
Business context and period. This fiscal third-quarter report covers the three and nine months ended June 30, 2020. StoneX, formerly INTL FCStone, is a global brokerage and financial services firm. The company’s name change became effective July 6, 2020, and its shares trade on Nasdaq as SNEX. Comparisons below are against the corresponding 2019 periods unless noted.
Financial performance
- Quarter revenue and earnings: Total revenue was $8.24 billion, up 5%; this includes gross physical-commodity sales. Operating revenue, after physical-commodity cost of sales, was $322.6 million, up 14%. Net operating revenue was $227.9 million, up 38%. Net income rose 125% to $36.6 million; diluted EPS was $1.87 versus $0.84.
- Nine-month results: Total revenue was $39.85 billion, up 84%; operating revenue was $966.2 million, up 18%; net operating revenue was $641.8 million, up 34%. Net income increased 59% to $92.2 million; diluted EPS was $4.71 versus $2.99.
- Quarterly segment drivers: Securities operating revenue increased 66% to $123.0 million, with segment income of $51.6 million versus $8.2 million. Physical Commodities operating revenue increased 167% to $39.2 million, with segment income of $20.3 million versus $2.8 million. Commercial Hedging operating revenue fell 25% to $65.1 million and segment income fell 35% to $19.2 million. Clearing and Execution Services operating revenue fell 13% to $68.9 million and segment income fell 69% to $3.7 million. Global Payments operating revenue declined 5% to $27.4 million.
- Margins and expenses: Consolidated net income was about 16% of quarterly net operating revenue, compared with about 10% a year earlier. Compensation and other expenses rose 24% to $178.9 million; compensation and benefits increased 31% to $132.5 million. Bad-debt expense was $1.8 million for the quarter and $6.2 million for nine months, versus $0.5 million and $1.5 million, respectively.
- Cash flow: Nine-month operating cash flow was $1.21 billion, investing cash outflow $15.3 million, and financing cash inflow $458.3 million. Cash, segregated cash, cash equivalents and segregated cash equivalents totaled $4.10 billion at June 30. This cash-flow measure includes client-segregated assets and should not be read as unrestricted corporate cash. Balance-sheet cash and equivalents were $465.2 million; another $350.0 million was restricted in escrow.
- Balance sheet and debt: Total assets were $12.39 billion versus $9.94 billion at September 30, 2019; equity was $688.8 million versus $594.2 million. Balance-sheet payables to lenders were $313.8 million and senior secured borrowings, net, were $518.9 million. The company reported total outstanding borrowings of $832.7 million. Senior secured notes issued in June had $350 million principal, an 8.625% coupon and a 2025 maturity.
- Liquidity and capital: Management reported $69.5 million of committed funds available for general working capital at June 30, and stated it believed liquidity was sufficient for the coming year. The company was in compliance with credit-facility covenants and subsidiaries were in compliance with regulatory requirements. Approximately 95% of assets were described as liquid, including substantial client and counterparty-related balances.
Changes, outlook and risks
- Management attributed stronger Securities and precious-metals results to pandemic-related volatility, customer flows and wider spreads. Lower short-term rates weighed on interest income and pressured Commercial Hedging and Clearing and Execution Services. COVID-19 also reduced travel and business-development expenses.
- COVID-19 effects remained uncertain. The filing identifies potential trading losses during extreme volatility, counterparty and client defaults, liquidity pressures, operational disruption, and heightened cybersecurity risks from remote work. Management provided no quantified earnings guidance.
- On July 31, 2020, after quarter-end, StoneX completed its acquisition of GAIN Capital for $6.00 per share, approximately $236.2 million in equity value. The $350 million note proceeds had been held in escrow and were released in connection with closing. GAIN noteholders had a September 1, 2020 repurchase right; any GAIN notes remaining outstanding could require a corresponding redemption of StoneX notes.
- StoneX reported a $29.0 million net receivable from OptionSellers-related client accounts, with no allowance recorded. It is pursuing collections and arbitration; client arbitrations against the company are also pending. Management considered a material adverse outcome remote, but said eventual bad-debt provisions or losses could be material.
- $100 million of committed facilities were scheduled to expire within 12 months of the filing. The company intended to renew or replace them, while acknowledging financing terms could be affected by market conditions and COVID-19.
- Other notable items include $35.6 million of receivables charged off against the allowance during the nine months, related to the exited physical coal business, and $7.5 million spent repurchasing 200,000 shares during the period.
Investor verification points
- Check post-quarter GAIN integration, acquisition accounting, financing uses and the resolution of GAIN convertible-noteholder rights.
- Assess whether heightened volatility continues to benefit trading businesses, and whether low rates continue to suppress interest income.
- Monitor collection progress and arbitration outcomes for the $29.0 million OptionSellers-related receivable, including any future allowance.
- Review renewal or replacement of facilities due to expire, borrowing costs, covenant headroom and the burden of 8.625% notes.
- Separate unrestricted corporate liquidity from client-segregated cash and other assets when evaluating reported cash flows and liquidity.