INTL FCStone Inc. (NASDAQ:INTL) Q1 2016 Earnings Conference Call - Preliminary Transcript

Feb 10, 2016 • 09:00 am ET

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INTL FCStone Inc. (NASDAQ:INTL) Q1 2016 Earnings Conference Call - Preliminary Transcript

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Presentation
Executive
Sean O'Connor

mentioned previously, we have invested in a ladder portfolio of treasuries to enhance the interest earnings from our client segregated funds. Under this program, we don't actively trade in such instruments and intend to hold these investments to the maturity date. The impact of this approach has been to enhance our cash interest earnings on these assets by some $7.2 million per annum, using the current run rate. However, since merging the FCM with the broker-dealer, we now have to mark these and other investments to market, which resulted in positive unrealized earnings impact for the immediately preceding fourth quarter and a similar unrealized negative impact in this current quarter.

We have always managed our business to achieve the best long-term commercial results and believe that this is the correct approach to monetizing our interest earnings from these clients' assets. While volatility in the interest rate markets may cause some short-term noise in our quarterly earnings, our medium term earnings and cash flow is enhanced.

Our operating revenues were up 10%, driven by strong gains in securities and global payments, offset again by weaker revenues in the commodity-related segments. We continue to see very strong growth in our global payments volumes and smaller steady volume gains in all other areas, except exchange-traded instruments and physical gold.

We reported net quarterly earnings of $8.8 million or $0.46 per share, down 6% from a year ago. This resulted in an ROE of nearly 9% despite the impact of the negative mark-to-market adjustments mentioned above. Our trailing 12-month earnings declined slightly to $55.1 million while our trailing EBITDA increased slightly to just over $104 million.

As we mentioned last time, during the fourth quarter we took the decision to exit from our investment banking advisory activities, and this should be largely be completed during the upcoming quarter.

I'll now hand you over to Bill for a discussion of the financial results. Bill?

Executive
William Dunaway

Thank you, Sean. I'd like to start my discussion with a review of the quarterly results. I'll be referring to slides and the information we have made available as part of the webcast, specifically starting with Slide No. 3, which represents a bridge between operating revenues for the first quarter of last year to the current year fiscal first quarter.

As noted on the slide, first quarter revenues were $151.3 million, which represents a 10% increase as compared to the $137.5 million in the prior year. Looking at the performance in our operating segments, the most notable change was a $31.6 million or 184% increase in securities segment operating revenues. The largest driver of this increase within this segment was the performance of our debt trading business, which added $26.3 million in operating revenues versus the prior year.

There were two main drivers of this performance, with the first being the acquisition of GX Clarke & Company at the beginning of our second fiscal quarter of 2015, which added $12.8 million in incremental operating revenues. In addition, strong performance in our