Operating Revenues up 13%, to $197.6
million
INTL FCStone Inc. (the ‘Company’); (NASDAQ:INTL), a diversified
global financial services organization providing execution, risk
management and advisory services, market intelligence and clearing
services across asset classes and markets around the world, today
announced its financial results for the fiscal year 2017 third
quarter ended June 30, 2017.
Sean M. O’Connor, CEO of INTL FCStone Inc., stated “Despite
continued depressed volatility in our markets we achieved net
earnings of $0.66 per share, an increase of 14% over the
immediately preceding quarter but 15% below the prior year.
As compared to the prior year, highlights for the quarter include
strong growth in segment income in three of our operating segments:
Global Payments was up 30% as a result of a 54% increase in
payments and stable fixed expenses; Physical Commodities continued
its strong rebound in both the precious metals and agricultural
markets and was up nearly threefold; and Clearing and Execution
Services nearly doubled due largely to the acquisition of the
Derivative Voice Brokerage, Correspondent Clearing and Independent
Wealth Management businesses. However, aggregate segment income was
down 3% versus a year ago with Commercial Hedging, our largest
segment, declining primarily due to weaker OTC revenues and
Securities down, largely due to lower revenue capture in our
Equity-Market Making business, driven by lower volatility in the
equity markets.”
INTL FCStone Inc. Summary Financials
Consolidated financial statements for the Company will be
included in our Quarterly Report on Form 10-Q to be filed with the
SEC. The Quarterly Report on Form 10-Q will also be made available
on the Company’s website at www.intlfcstone.com.
|
Three Months Ended June 30, |
|
Nine Months Ended June 30, |
(Unaudited) (in
millions, except share and per share amounts) |
2017 |
|
2016 |
|
% Change |
|
2017 |
|
2016 |
|
% Change |
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
Sales of
physical commodities |
$ |
5,317.0 |
|
|
$ |
4,703.2 |
|
|
13 |
% |
|
$ |
16,486.3 |
|
|
$ |
11,503.8 |
|
|
43 |
% |
Trading
gains, net |
79.9 |
|
|
83.4 |
|
|
(4 |
)% |
|
246.9 |
|
|
243.8 |
|
|
1 |
% |
Commission and clearing fees |
73.0 |
|
|
58.2 |
|
|
25 |
% |
|
212.5 |
|
|
159.4 |
|
|
33 |
% |
Consulting and management fees |
16.3 |
|
|
8.0 |
|
|
104 |
% |
|
47.5 |
|
|
27.3 |
|
|
74 |
% |
Interest
income |
19.6 |
|
|
15.6 |
|
|
26 |
% |
|
47.7 |
|
|
42.8 |
|
|
11 |
% |
Other
income |
0.1 |
|
|
0.1 |
|
|
— |
|
|
0.2 |
|
|
0.2 |
|
|
— |
% |
Total revenues |
5,505.9 |
|
|
4,868.5 |
|
|
13 |
% |
|
17,041.1 |
|
|
11,977.3 |
|
|
42 |
% |
Cost of
sales of physical commodities |
5,308.3 |
|
|
4,693.5 |
|
|
13 |
% |
|
16,462.2 |
|
|
11,484.9 |
|
|
43 |
% |
Operating revenues |
197.6 |
|
|
175.0 |
|
|
13 |
% |
|
578.9 |
|
|
492.4 |
|
|
18 |
% |
Transaction-based clearing expenses |
33.9 |
|
|
35.2 |
|
|
(4 |
)% |
|
101.2 |
|
|
97.9 |
|
|
3 |
% |
Introducing broker commissions |
29.2 |
|
|
14.8 |
|
|
97 |
% |
|
86.1 |
|
|
40.8 |
|
|
111 |
% |
Interest
expense |
11.2 |
|
|
7.7 |
|
|
45 |
% |
|
30.1 |
|
|
20.8 |
|
|
45 |
% |
Net operating
revenues |
123.3 |
|
|
117.3 |
|
|
5 |
% |
|
361.5 |
|
|
332.9 |
|
|
9 |
% |
Compensation and other
expenses: |
|
|
|
|
|
|
|
|
|
|
|
Compensation and benefits |
75.5 |
|
|
69.4 |
|
|
9 |
% |
|
222.7 |
|
|
197.7 |
|
|
13 |
% |
Communication and data services |
9.8 |
|
|
7.9 |
|
|
24 |
% |
|
29.6 |
|
|
23.1 |
|
|
28 |
% |
Occupancy
and equipment rental |
3.9 |
|
|
3.2 |
|
|
22 |
% |
|
11.1 |
|
|
9.7 |
|
|
14 |
% |
Professional fees |
3.7 |
|
|
3.3 |
|
|
12 |
% |
|
11.9 |
|
|
8.9 |
|
|
34 |
% |
Travel
and business development |
3.0 |
|
|
2.9 |
|
|
3 |
% |
|
9.6 |
|
|
8.4 |
|
|
14 |
% |
Depreciation and amortization |
2.4 |
|
|
2.1 |
|
|
14 |
% |
|
7.2 |
|
|
6.2 |
|
|
16 |
% |
Bad
debts |
0.1 |
|
|
— |
|
|
n/m |
|
3.9 |
|
|
4.6 |
|
|
(15 |
)% |
Other |
9.9 |
|
|
7.1 |
|
|
39 |
% |
|
27.8 |
|
|
20.8 |
|
|
34 |
% |
Total compensation and
other expenses |
108.3 |
|
|
95.9 |
|
|
13 |
% |
|
323.8 |
|
|
279.4 |
|
|
16 |
% |
Income before tax |
15.0 |
|
|
21.4 |
|
|
(30 |
)% |
|
37.7 |
|
|
53.5 |
|
|
(30 |
)% |
Income
tax expense |
2.3 |
|
|
6.8 |
|
|
(66 |
)% |
|
7.7 |
|
|
15.6 |
|
|
(51 |
)% |
Net income |
$ |
12.7 |
|
|
$ |
14.6 |
|
|
(13 |
)% |
|
$ |
30.0 |
|
|
$ |
37.9 |
|
|
(21 |
)% |
Earnings per
share: |
|
|
|
|
|
|
|
|
|
|
|
Basic |
$ |
0.67 |
|
|
$ |
0.79 |
|
|
(15 |
)% |
|
$ |
1.59 |
|
|
$ |
2.03 |
|
|
(22 |
)% |
Diluted |
$ |
0.66 |
|
|
$ |
0.78 |
|
|
(15 |
)% |
|
$ |
1.58 |
|
|
$ |
2.00 |
|
|
(21 |
)% |
Weighted-average number
of common shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
Basic |
18,447,053 |
|
|
18,138,754 |
|
|
2 |
% |
|
18,365,939 |
|
|
18,461,063 |
|
|
(1 |
)% |
Diluted |
18,702,128 |
|
|
18,322,451 |
|
|
2 |
% |
|
18,659,138 |
|
|
18,655,672 |
|
|
— |
% |
Interest Income/Expense:
Overall interest income increased $4.0 million to $19.6 million
in the third quarter, as a result of both an increase in short term
interest rates and our recent acquisitions. The acquisition of the
Sterne Agee Correspondent Clearing business added an incremental
$1.2 million in interest income, and our domestic institutional
fixed income business increased interest income $2.7 million in the
third quarter over the prior year. In addition, average customer
equity in the Financial Ag & Energy and Exchange-traded Futures
& Options components of our Commercial Hedging and Clearing and
Execution Services (“CES”) segments increased 5% to $1.9 billion in
the third quarter compared to the prior year, which combined with
an increase in short-term interest rates resulted in an aggregate
$1.6 million increase in interest income in these businesses. These
increases were partially offset by a decline in our Corporate
unallocated segment.
In the third quarter, we recorded a minimal pre-tax unrealized
loss on our remaining U.S. Treasury notes held as part of our
interest rate management strategy. The prior year period included a
$2.7 million pre-tax unrealized gain on interest rate swaps and
U.S. Treasury notes held as part of the strategy. These
unrealized gains/losses are recorded in our Corporate unallocated
segment. During the first quarter of fiscal 2017, we liquidated all
of our interest rate swap positions held as part of the strategy.
During the second quarter of fiscal 2017, we sold $865.0 million of
U.S. Treasury notes under this strategy, leaving $290.0 million of
U.S. Treasury notes outstanding, which will mature in calendar
2017. We also maintain interest earning cash deposits with banks,
clearing organizations and counterparties.
The unrealized gains/losses on U.S. Treasury notes are reflected
in interest income on the Condensed Consolidated Income Statements,
while the unrealized gains/losses on interest rate swaps are
included in trading gains, net. On a segment basis, these
unrealized losses are reported in the Corporate unallocated
segment, while the amortized earnings on these investments are
included in the Commercial Hedging and CES segments. Under this
strategy, we do not actively trade in such instruments and
generally intend to hold these investments to their maturity date,
however as a broker-dealer, unrealized fluctuations in the
marked-to-market (“MTM”) valuations of these investments are
included in operating revenues in the current period. The table
below reflects the after-tax impact on net income of these MTM
fluctuations for the last seven fiscal quarters.
|
Three Months Ended |
(in
millions) |
June 30, 2017 |
|
March 31, 2017 |
|
December 31, 2016 |
|
September 30, 2016 |
|
June 30,2016 |
|
March 31, 2016 |
|
December 31, 2015 |
MTM (loss) gain on
interest rate swaps |
$ |
— |
|
|
$ |
— |
|
|
$ |
(1.0 |
) |
|
$ |
(1.5 |
) |
|
$ |
0.6 |
|
|
$ |
2.3 |
|
|
$ |
(2.7 |
) |
MTM (loss) gain on U.S.
Treasury notes |
— |
|
|
(0.2 |
) |
|
(4.6 |
) |
|
(2.1 |
) |
|
2.1 |
|
|
4.6 |
|
|
(4.0 |
) |
Gross MTM
(loss) gain |
— |
|
|
(0.2 |
) |
|
(5.6 |
) |
|
(3.6 |
) |
|
2.7 |
|
|
6.9 |
|
|
(6.7 |
) |
Tax effect (estimated
at 39%) |
— |
|
|
0.1 |
|
|
2.2 |
|
|
1.4 |
|
|
(1.0 |
) |
|
(2.7 |
) |
|
2.6 |
|
After tax
MTM (loss) gain on above |
$ |
— |
|
|
$ |
(0.1 |
) |
|
$ |
(3.4 |
) |
|
$ |
(2.2 |
) |
|
$ |
1.7 |
|
|
$ |
4.2 |
|
|
$ |
(4.1 |
) |
Interest expense increased 45% to $11.2 million in the third
quarter compared to $7.7 million in the prior year. The increase in
interest expense is primarily related to $2.4 million of higher
expense from our domestic institutional fixed income business as
well as increased activity and short-term rates resulting in higher
costs in our Exchange-Traded Futures & Options and Equity
Market-Making businesses. Additionally, increased credit line
capacity and higher average borrowings outstanding on our corporate
credit facility, available for working capital needs, and our
physical commodity financing facility resulted in increased
expense.
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 June 30, |
|
Nine Months Ended June 30, |
(in
millions) |
2017 |
|
2016 |
|
% Change |
|
2017 |
|
2016 |
|
% Change |
Variable compensation
and benefits |
$ |
34.0 |
|
|
$ |
38.4 |
|
|
(11 |
)% |
|
$ |
104.7 |
|
|
$ |
105.2 |
|
|
— |
% |
Transaction-based
clearing expenses |
33.9 |
|
|
35.2 |
|
|
(4 |
)% |
|
101.2 |
|
|
97.9 |
|
|
3 |
% |
Introducing broker
commissions |
29.2 |
|
|
14.8 |
|
|
97 |
% |
|
86.1 |
|
|
40.8 |
|
|
111 |
% |
Total
variable expenses |
97.1 |
|
|
88.4 |
|
|
10 |
% |
|
292.0 |
|
|
243.9 |
|
|
20 |
% |
Fixed compensation and
benefits |
41.5 |
|
|
31.0 |
|
|
34 |
% |
|
118.0 |
|
|
92.5 |
|
|
28 |
% |
Other fixed
expenses |
32.7 |
|
|
26.5 |
|
|
23 |
% |
|
97.2 |
|
|
77.1 |
|
|
26 |
% |
Bad debts |
0.1 |
|
|
— |
|
|
— |
% |
|
3.9 |
|
|
4.6 |
|
|
(15 |
)% |
Total
non-variable expenses |
74.3 |
|
|
57.5 |
|
|
29 |
% |
|
219.1 |
|
|
174.2 |
|
|
26 |
% |
Total non-interest
expenses |
$ |
171.4 |
|
|
$ |
145.9 |
|
|
17 |
% |
|
$ |
511.1 |
|
|
$ |
418.1 |
|
|
22 |
% |
The following table reflects key operating metrics used by
management in evaluating our product lines, for the periods
indicated.
|
Three Months Ended June 30, |
|
Nine Months Ended June 30, |
|
2017 |
|
2016 |
|
%Change |
|
2017 |
|
2016 |
|
%Change |
Volumes and
Other Data: |
|
|
|
|
|
|
|
|
|
|
|
Exchange-traded - futures and options (contracts, 000’s) |
24,190.3 |
|
|
26,245.5 |
|
|
(8 |
)% |
|
73,763.0 |
|
|
77,066.8 |
|
|
(4 |
)% |
OTC
(contracts, 000’s) |
382.8 |
|
|
462.7 |
|
|
(17 |
)% |
|
1,035.5 |
|
|
1,079.4 |
|
|
(4 |
)% |
Global
Payments (# of payments, 000’s) |
175.8 |
|
|
113.8 |
|
|
54 |
% |
|
476.1 |
|
|
310.6 |
|
|
53 |
% |
Gold
equivalent ounces traded (000’s) |
36,553.6 |
|
|
24,658.9 |
|
|
48 |
% |
|
88,122.2 |
|
|
69,798.0 |
|
|
26 |
% |
Equity
Market-Making (gross dollar volume, millions) |
$ |
21,298.1 |
|
|
$ |
19,717.8 |
|
|
8 |
% |
|
$ |
67,284.8 |
|
|
$ |
67,277.5 |
|
|
— |
% |
Debt
Trading (gross dollar volume, millions) |
$ |
32,176.4 |
|
|
$ |
30,674.5 |
|
|
5 |
% |
|
$ |
102,651.2 |
|
|
$ |
79,258.1 |
|
|
30 |
% |
FX Prime
Brokerage volume (U.S. notional, millions) |
$ |
145,679.8 |
|
|
$ |
149,593.4 |
|
|
(3 |
)% |
|
$ |
487,145.5 |
|
|
$ |
428,253.5 |
|
|
14 |
% |
Average
assets under management in Argentina (U.S. dollar, millions) |
$ |
653.4 |
|
|
$ |
541.4 |
|
|
21 |
% |
|
$ |
570.7 |
|
|
$ |
568.4 |
|
|
— |
% |
Average
customer equity - futures and options (millions) |
$ |
1,938.7 |
|
|
$ |
1,853.8 |
|
|
5 |
% |
|
$ |
2,010.8 |
|
|
$ |
1,831.9 |
|
|
10 |
% |
Balance Sheet Summary:
The following table below provides a summary of asset,
liability, and stockholders’ equity information for the periods
indicated.
(in millions,
except for per share amounts) |
June 30, 2017 |
|
September 30, 2016 |
Summary asset
information: |
|
|
|
Cash and
cash equivalents |
$ |
306.1 |
|
|
$ |
316.2 |
|
Cash,
securities and other assets segregated under federal and other
regulations |
$ |
678.7 |
|
|
$ |
1,136.3 |
|
Securities purchased under agreements to resell |
$ |
521.7 |
|
|
$ |
609.6 |
|
Securities borrowed |
$ |
119.6 |
|
|
$ |
— |
|
Deposits
with and receivables from: |
|
|
|
Exchange-clearing organizations |
$ |
1,988.6 |
|
|
$ |
1,524.4 |
|
Broker-dealers, clearing organizations and counterparties |
$ |
177.7 |
|
|
$ |
237.0 |
|
Receivables and notes receivable from customers, net |
$ |
260.6 |
|
|
$ |
213.4 |
|
Financial
instruments owned, at fair value |
$ |
1,779.1 |
|
|
$ |
1,606.1 |
|
Physical
commodities inventory |
$ |
172.5 |
|
|
$ |
123.8 |
|
Goodwill
and intangible assets, net |
$ |
60.5 |
|
|
$ |
56.6 |
|
Other |
$ |
130.8 |
|
|
$ |
126.9 |
|
|
|
|
|
Summary liability and
stockholders’ equity information: |
|
|
|
Payables
to customers |
$ |
2,799.5 |
|
|
$ |
2,854.2 |
|
Payables
to broker-dealers, clearing organizations and counterparties |
$ |
182.3 |
|
|
$ |
260.1 |
|
Payables
to lenders under loans and senior unsecured notes |
$ |
244.7 |
|
|
$ |
227.3 |
|
Accounts
payable and other accrued liabilities |
$ |
142.5 |
|
|
$ |
161.3 |
|
Securities sold under agreements to repurchase |
$ |
1,458.3 |
|
|
$ |
1,167.1 |
|
Securities loaned |
$ |
148.0 |
|
|
$ |
— |
|
Financial
instruments sold, not yet purchased, at fair value |
$ |
742.9 |
|
|
$ |
839.4 |
|
Income
taxes payable |
$ |
8.6 |
|
|
$ |
7.1 |
|
Stockholders’ equity |
$ |
469.1 |
|
|
$ |
433.8 |
|
|
|
|
|
Net asset value per
share |
$ |
25.08 |
|
|
$ |
23.53 |
|
Segment Results
The following table reflects operating revenues by segment for
the periods indicated.
|
Three Months Ended June 30, |
|
Nine Months Ended June 30, |
(in
millions) |
2017 |
|
2016 |
|
% Change |
|
2017 |
|
2016 |
|
% Change |
Segment
operating revenues (loss) represented by: |
|
|
|
|
|
|
|
|
|
|
|
Commercial Hedging |
$ |
57.1 |
|
|
$ |
71.9 |
|
|
(21 |
)% |
|
$ |
177.3 |
|
|
$ |
182.0 |
|
|
(3 |
)% |
Global
Payments |
22.5 |
|
|
18.4 |
|
|
22 |
% |
|
67.1 |
|
|
54.1 |
|
|
24 |
% |
Securities |
40.0 |
|
|
41.6 |
|
|
(4 |
)% |
|
115.3 |
|
|
136.0 |
|
|
(15 |
)% |
Physical
Commodities |
12.0 |
|
|
7.7 |
|
|
56 |
% |
|
33.0 |
|
|
21.5 |
|
|
53 |
% |
Clearing
and Execution Services |
65.4 |
|
|
33.3 |
|
|
96 |
% |
|
193.2 |
|
|
96.4 |
|
|
100 |
% |
Corporate
unallocated |
0.6 |
|
|
2.1 |
|
|
(71 |
)% |
|
(7.0 |
) |
|
2.4 |
|
|
n/m |
Operating revenues |
$ |
197.6 |
|
|
$ |
175.0 |
|
|
13 |
% |
|
$ |
578.9 |
|
|
$ |
492.4 |
|
|
18 |
% |
The following table reflects segment income by segment for the
periods indicated.
|
Three Months Ended June 30, |
|
Nine Months Ended June 30, |
(in
millions) |
2017 |
|
2016 |
|
% Change |
|
2017 |
|
2016 |
|
% Change |
Segment income
represented by: |
|
|
|
|
|
|
|
|
|
|
|
Commercial Hedging |
$ |
16.3 |
|
|
$ |
25.4 |
|
|
(36 |
)% |
|
$ |
50.4 |
|
|
$ |
54.2 |
|
|
(7 |
)% |
Global
Payments |
12.9 |
|
|
9.9 |
|
|
30 |
% |
|
37.8 |
|
|
29.2 |
|
|
29 |
% |
Securities |
12.9 |
|
|
14.4 |
|
|
(10 |
)% |
|
37.5 |
|
|
54.5 |
|
|
(31 |
)% |
Physical
Commodities |
4.3 |
|
|
1.3 |
|
|
231 |
% |
|
11.2 |
|
|
4.2 |
|
|
167 |
% |
Clearing
and Execution Services |
6.5 |
|
|
3.4 |
|
|
91 |
% |
|
20.1 |
|
|
10.4 |
|
|
93 |
% |
Total segment
income |
$ |
52.9 |
|
|
$ |
54.4 |
|
|
(3 |
)% |
|
$ |
157.0 |
|
|
$ |
152.5 |
|
|
3 |
% |
Reconciliation of segment income to income before tax: |
|
|
|
|
|
|
Segment income |
$ |
52.9 |
|
|
$ |
54.4 |
|
|
(3 |
)% |
|
$ |
157.0 |
|
|
$ |
152.5 |
|
|
3 |
% |
Costs not
allocated to operating segments |
37.9 |
|
|
33.0 |
|
|
15 |
% |
|
119.3 |
|
|
99.0 |
|
|
21 |
% |
Income before tax |
$ |
15.0 |
|
|
$ |
21.4 |
|
|
(30 |
)% |
|
$ |
37.7 |
|
|
$ |
53.5 |
|
|
(30 |
)% |
Commercial Hedging
In our Commercial Hedging segment, we provide risk management
consulting services in which we assist our customers in the
execution of their hedging strategies through a wide range of
products from listed exchange-traded futures and options on futures
contracts, to basic over-the-counter (“OTC”) instruments that offer
greater flexibility and structured OTC products designed for
customized solutions. These 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.
Operating revenues decreased 21% to $57.1 million in the third
quarter compared to $71.9 million in the prior year.
Exchange-traded revenues decreased 11%, to $32.7 million in the
third quarter, resulting primarily from declines in agricultural
and LME metals customer volumes. The decline in agricultural
volumes was primarily a result of the effect of low market
volatility in the global grain markets, particularly as compared to
a strong prior year. Lower volatility in the global metals markets
also led to the decline in the LME metals customer volumes. Energy
and renewable fuels experienced strong volume growth from the
addition of new institutional customers, albeit this new business
was at a lower rate per contract as compared to our agricultural
business, which resulted in modest growth in energy and renewable
fuels operating revenues. Overall exchange-traded contract
volumes declined 1%, as the increases in energy and renewable fuels
volumes were more than offset by the declines in agricultural and
LME metal volumes. The average rate per contract was $5.33, an 11%
decline versus the prior year quarter.
OTC revenues decreased 40%, to $17.6 million in the third
quarter with OTC volumes declining 17% and the average rate per
contract decreasing 29% compared to the prior year. These declines
were primarily the result of lower market volatility in the global
grain, food service and dairy markets as well as reduced activity
in our interest rate swap business.
Consulting and management fees declined $0.1 million versus the
prior year, while interest income, increased 50%, to $3.3 million
compared to the prior year. The increase in interest income was
primarily driven by an increase in short-term rates, as average
customer equity was relatively flat with the prior year period.
Segment income decreased to $16.3 million in the third quarter
compared to $25.4 million in the prior year, primarily as a result
of the decline in operating revenues and to a lesser extent a $0.3
million increase in non-variable direct expenses. The increase in
non-variable direct expenses was primarily related to non-variable
compensation and benefits, trade errors and dues and subscriptions.
Variable expenses, excluding interest, expressed as a percentage of
operating revenues increased to 43% compared to 42% in the prior
year, primarily as the result of increased transaction-based
clearing expenses as a result of product mix.
Global Payments
Our Global Payments segment provides global payment solutions to
banks and commercial businesses as well as charities,
non-governmental organizations and government organizations. We
offer payments services in more than 175 countries and 140
currencies, which we believe is more than any other payments
solution provider, and provide competitive and transparent
pricing.
Operating revenues increased 22% to $22.5 million in the third
quarter compared to $18.4 million in the prior year. The volume of
payments made increased 54% as we continued to benefit from an
increase in financial institutions and other customers utilizing
our electronic transaction order system, however this was partially
offset by a 21% decrease in the average revenue per
trade.
Segment income increased 30% to $12.9 million in the third
quarter compared to $9.9 million in the prior year. This increase
primarily resulted from the increase in operating revenues as
non-variable direct expenses remained flat with the prior year
period. Variable expenses, excluding interest, expressed as a
percentage of operating revenues were unchanged at 28% as compared
to the prior year.
Securities
In our Securities segment, we provide value-added solutions that
facilitate cross border trading in the equity markets as well as
act as an institutional dealer in fixed income securities,
including U.S. Treasuries, Federal Agency, Agency Mortgage-Backed
and Asset-Backed Securities to a customer base including asset
managers, commercial bank trust and investment departments,
broker-dealers, and insurance companies. In addition, we also
originate, structure and place debt instruments in the
international and domestic capital markets as well as operate an
asset management business in Argentina.
Operating revenues decreased 4% to $40.0 million in the third
quarter compared to $41.6 million in the prior year.
Operating revenues in our Securities segment are comprised of
activities in four product lines, Equity Market-Making, Debt
Trading, Investment Banking and Asset Management. Operating
revenues in Equity Market-Making decreased 9% in the third quarter
compared to the prior year. Gross dollar volume traded increased
8%, however more notably, the average revenue per $1,000 traded
declined 15% as current third quarter volatility was relatively
low, leading to a tightening of spreads. Equity Market-Making
operating revenues include the trading profits we earn before the
related expense deduction for ADR conversion fees. These ADR fees
are included in the consolidated income statements as
‘transaction-based clearing expenses’.
Operating revenues in Debt Trading declined 2% in the third
quarter compared to the prior year, as stronger performance in our
Argentina and Latin American businesses, were more than offset by
declines in our domestic institutional fixed income business.
Operating revenues in Investment Banking increased 75%, to $0.7
million as compared to the prior year, led by the performance in
our Argentina operations. Asset Management operating revenues
decreased 6% in the third quarter as compared to the prior year.
Assets under management increased 21% to $653.4 million in the
third quarter compared to $541.4 million in the prior year.
Segment income decreased 10% to $12.9 million in the third
quarter compared to $14.4 million in the prior year, as a result of
the decline in operating revenues as well as an increase in
interest expense. Variable expenses, excluding interest, expressed
as a percentage of operating revenues decreased to 32% in the third
quarter compared to 39% in the prior year, primarily as the result
of a decline in variable compensation due to product mix.
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.
Additionally, we act as 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.
Operating revenues for Physical Commodities increased 56% to
$12.0 million in the third quarter compared to $7.7 million in the
prior year.
Precious Metals operating revenues increased 71% to $7.2 million
in the third quarter compared to $4.2 million in the prior year.
Operating revenues increased from the prior year period as a result
of a 48% increase in the number of ounces traded as well as an 18%
increase in the average revenue per ounce traded.
Operating revenues in Physical Ag & Energy increased 37% to
$4.8 million in the third quarter compared to the prior year. The
increase in operating revenues is primarily due to business
expansion following an internal restructuring of the business,
resulting in increased operating revenues from both existing and
new customer relationships.
Segment income increased 231% to $4.3 million in the third
quarter compared to $1.3 million in the prior year, primarily as a
result of the increase in operating revenues, which was partially
offset by a $1.0 million increase in non-variable direct expenses,
primarily compensation and benefits, bad debt expense and
operations charges.
Clearing and Execution Services
Our CES segment provides 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. Following our acquisition of the Sterne Agee
correspondent securities clearing business, 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 customer
experience through the clearing and settlement process. Also
as part of this transaction, we acquired Sterne Agee’s independent
wealth management business which offers a comprehensive product
suite to retail customers nationwide.
Operating revenues increased 96% to $65.4 million in the third
quarter compared to $33.3 million in the prior year.
Operating revenues in our Exchange-traded Futures & Options
business were relatively flat at $28.7 million in the third quarter
compared to $28.8 million in the prior year despite a 10% decrease
in exchange-traded volumes as the average rate per contract
increased 8% compared to the prior year period. Interest income in
the Exchange-traded Futures & Options business increased $0.5
million to $1.9 million in the third quarter primarily as a result
of an increase in short-term rates and a 9% increase in average
customer equity to $1.0 billion.
Operating revenues in our FX Prime Brokerage business were flat
at $4.5 million in the third quarter compared to the prior year
despite a 3% decrease in foreign exchange volumes as spreads
widened modestly.
During the fourth fiscal quarter of 2016, we acquired the
correspondent clearing and independent wealth management businesses
of Sterne Agee. During the third quarter, the Correspondent
Clearing and Independent Wealth Management businesses generated
operating revenues of $6.4 million and $18.9 million, respectively.
Included within these operating revenues, Correspondent Clearing
and Independent Wealth Management businesses had interest income of
$1.2 million and $0.2 million, respectively.
On October 1, 2016, we acquired ICAP plc’s London-based EMEA oil
voice brokerage business. In the third quarter, the
Derivative Voice Brokerage business contributed $6.9 million in
operating revenues.
Segment income increased to $6.5 million in the third quarter
compared to $3.4 million in the prior year, primarily as a result
of the acquisition of the Correspondent Clearing, Independent
Wealth Management and Derivative Voice Brokerage businesses, which
were partially offset by a decline in segment income in our
Exchange-traded Futures & Options and FX Prime Brokerage
businesses. Segment income in the third quarter includes a $0.9
million quarterly charge to compensation and benefits per the terms
of the acquisition of the oil voice brokerage business which will
continue to be expensed through the end of fiscal 2018 based upon
the employees’ continued employment. Variable expenses, excluding
interest, as a percentage of operating revenues were 70% in the
third quarter compared to 75% in the prior year. The increase
in introducing broker commissions expense was primarily driven by
the acquisition of the Independent Wealth Management business which
added $14.9 million of expense in the third quarter, as well as a
$1.1 million increase in the Exchange-traded Futures & Options
business. Non-variable direct expenses increased $8.0 million
versus the prior year as the result of the acquisitions discussed
above, which collectively added $7.3 million in non-variable
expenses in the current period.
Conference Call & Web Cast
A conference call will be held tomorrow, Wednesday,
August 9, 2017 at 9:00 a.m. ET. A live webcast of the
conference call as well as additional information to review during
the call will be made available in PDF form on-line on the
Company’s corporate web site at http://www.intlfcstone.com.
Participants can also access the call by dialing 1-844-466-4112
(within the United States and Canada), or 1-408-337-0136
(international callers) approximately ten minutes prior to the
start time.
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 August 16, 2017.
To access the replay, dial 1-855-859-2056 (within the United States
and Canada), or 1-404-537-3406 (international callers) and enter
the replay passcode 6498 7756.
About INTL FCStone Inc.
INTL FCStone Inc., through its subsidiaries, is a leading
provider of execution, risk management and advisory services,
market intelligence, and clearing services across asset classes and
markets around the world.
Serving more than 20,000 customers 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
customers 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 New York
City, the company is listed on the Nasdaq under the ticker symbol
“INTL”.
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
INTL FCStone Inc., are intended to identify forward-looking
statements.
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 INTL FCStone Inc. with the Securities and Exchange Commission.
In light of these risks, uncertainties and assumptions, the
forward-looking statements in this press release may not occur and
actual results could differ materially from those anticipated or
implied in the forward-looking statements. When you consider these
forward-looking statements, you should keep in mind these risk
factors and other cautionary statements in this press release.
These forward-looking statements speak only as of the date of
this press release. INTL FCStone Inc. undertakes no obligation to
update or revise any forward-looking statements, whether as a
result of new information, future events or otherwise. Accordingly,
readers are cautioned not to place undue reliance on these
forward-looking statements.
INTL FCStone Inc.
Investor inquiries:
Bruce Fields
1-866-522-7188
bruce.fields@intlfcstone.com
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