Interactive Brokers Group, Inc. (NASDAQ GS: IBKR) an automated global electronic market maker and broker, today reported a diluted loss per share of $(0.22) for the year ended December 31, 2010, compared to diluted earnings per share of $0.87 in 2009. Reported results include the effects of a special dividend to shareholders paid in December 2010. Reported results also reflect the GAAP convention that shifted currency hedging results from reportable earnings to Other Comprehensive Income, which is reported in the Statement of Financial Condition. The Company considers these items to be non-operating in nature. Excluding the effects of the dividend and the currency reporting convention together, the Company estimates, on a non-GAAP basis, diluted earnings per share of $0.73 for 2010 ($1.04 for 2009).

Net revenues were $922 million and income before income taxes was $341 million for the year, compared to net revenues of $1,100 million and income before income taxes of $545 million in 2009. Adjusted for the dividend and currency reporting convention described above, on a non-GAAP basis, 2010 net revenues were $1,070 million ($1,205 million in 2009) and 2010 income before income taxes was $499 million ($649 million in 2009).

Business Highlights
  • 37% pre-tax profit margin for 2010 (47% on a non-GAAP basis).
  • 50% Electronic Brokerage pre-tax margin for 2010.
  • Customer equity increased 45% from 2009 to $22.1 billion and customer accounts increased 18%.
  • Cleared DARTs increased 9% from 2009 to 343,000.
  • Market Making pre-tax income decreased 73% from 2009 (decreased 45% on a non-GAAP basis).
  • 24% Market Making pre-tax profit margin for 2010 (45% on a non-GAAP basis).

"2010 was the year in which our rapidly growing, global brokerage business surpassed our market making business," said Thomas Peterffy, our CEO. “We look forward to continuing this momentum into the coming year."

Segment Overview

Electronic Brokerage

Electronic Brokerage segment income before income taxes grew 19% in 2010. Customer accounts grew 18% from the prior year and customer equity increased 45% during 2010. Commissions and execution fees increased by 10% and net interest income grew by 78% from prior year. Pre-tax profit margin was 50% for 2010. Total DARTs (1) for cleared and execution-only customers increased 9% to 379,000 in 2010, compared to 347,000 during 2009. Cleared DARTs were 343,000 in 2010, 9% higher than in 2009.

Market Making

Market Making segment income before income taxes decreased 73% (decreased 45% on a non-GAAP basis) in 2010 and pre-tax profit margin narrowed to 24% (45% on a non-GAAP basis) in 2010 from 53% (60% on a non-GAAP basis) in 2009. Low market volatility, compressed bid/offer spreads in options and heightened competition from high-frequency traders reduced trading opportunities for our automated market making system. Our currency hedging program performed well in a volatile foreign exchange rate environment. The net change in the U.S. dollar value of the global basket of currencies in which we hold our equity was less than $15 million on $4.9 billion average equity for the year. As described above, GAAP reporting convention shifted currency gains from reported earnings to Other Comprehensive Income, which is reported as a direct increase to shareholders’ equity in our balance sheet. Market Making options contract volume increased by 1% and futures volume increased by 2% in 2010.

Effects of Non-GAAP Measures

Non-GAAP measures are used to isolate items that the Company’s management views as non-operating in nature, which is intended to give a clearer presentation of operating results. Given their material impact on our reported financial results, the following two non-GAAP measures are presented for 2010:

In December 2010, the Company effected a series of dividend payments, including a dividend of $1.79 per share, which was paid to holders of the Company’s common stock. On a consolidated reporting basis, the dividends had no effect on the Company’s reported income. However, the U.S. federal income tax liability triggered by one of the dividends is reported as income tax expense in the Statement of Income. This income tax liability was funded by reserving a portion of the dividend received by Interactive Brokers Group, Inc. from IBG LLC, the holding company for the Group’s operating companies. The remaining amount was paid to the Company’s public shareholders. The purpose of this non-GAAP measure is to separate the effects of the special dividend from the Company’s regular operating results.

In connection with our currency hedging strategy, we have determined to base our net worth in GLOBALs, a basket of major currencies in which we hold our equity. Pursuant to GAAP convention, a portion of our currency translation gains and losses is reported as Other Comprehensive Income in the Statement of Financial Condition. This income is, in effect, shifted from the reported earnings to the Statement of Financial Condition. The purpose of this non-GAAP measure is to report all currency translation gains and losses as if they were included in the Statement of Income. This analysis contains certain assumptions about tax rates and should, therefore, be considered an estimate.

Management believes that it is appropriate to adjust these non-operating items in the Statement of Income in order to achieve a proper representation of the Company’s financial performance. Please see the tables on pages 9-11 for the reconciliation of our GAAP to Non-GAAP results.

(1) Daily average revenue trades (DARTs) are based on customer orders.

_____________________

Conference Call Information:

Interactive Brokers Group will hold a conference call with investors today, January 20, 2011, at 4:30 p.m. ET to discuss its 2010 results. Investors who would like to listen to the conference call live should dial 877-324-1965 (U.S. domestic) and 631-291-4512 (international). The number should be dialed approximately ten minutes prior to the start of the conference call. Ask for the “Interactive Brokers Conference Call.”

The conference call will also be accessible simultaneously, and through replays, as an audio webcast through the Investor Relations section of the Interactive Brokers web site, www.interactivebrokers.com/ir.

About Interactive Brokers Group, Inc.:

Interactive Brokers Group, Inc., together with its subsidiaries, is an automated global electronic market maker and broker specializing in routing orders and executing and processing trades in securities, futures, foreign exchange instruments, bonds and funds on more than 80 electronic exchanges and trading venues around the world. As a market maker, we provide liquidity at these marketplaces and, as a broker, we provide professional traders and investors with electronic access to stocks, options, futures, forex, bonds and mutual funds from a single IB Universal Account SM. Employing proprietary software on a global communications network, Interactive Brokers is continuously integrating its software with a growing number of exchanges and trading venues into one automatically functioning, computerized platform that requires minimal human intervention.

Cautionary Note Regarding Forward-Looking Statements:

The foregoing information contains certain forward-looking statements that reflect the company's current views with respect to certain current and future events and financial performance. These forward-looking statements are and will be, as the case may be, subject to many risks, uncertainties and factors relating to the company's operations and business environment which may cause the company's actual results to be materially different from any future results, expressed or implied, in these forward-looking statements. Any forward-looking statements in this release are based upon information available to the company on the date of this release. The company does not undertake to publicly update or revise its forward-looking statements even if experience or future changes make it clear that any statements expressed or implied therein will not be realized. Additional information on risk factors that could potentially affect the company's financial results may be found in the company's filings with the Securities and Exchange Commission.
                             

INTERACTIVE BROKERS GROUP, INC. AND SUBSIDIARIES

OPERATING DATA
 
TRADE VOLUMES:
(in 000's, except %) Brokerage
    Market Brokerage Non Avg. Trades
Making % Cleared % Cleared % Total % per U.S.

Period

Trades

Change

Trades

Change

Trades

Change

Trades

Change

Trading Day
2006 66,043 51,238 12,828 130,109 518
2007 99,086 50% 72,931 42% 16,638 30% 188,655 45% 752
2008 101,672 3% 120,195 65% 16,966 2% 238,833 27% 944
2009 93,550 -8% 127,338 6% 13,636 -20% 234,524 -2% 934
2010 75,169 -20% 133,658 5% 18,732 37% 227,559 -3% 905
 
4Q2009 19,671 31,664 4,590 55,925 888
4Q2010 17,402 -12% 33,391 5% 4,450 -3% 55,243 -1% 870
               
CONTRACT AND SHARE VOLUMES:
(in 000's, except %)
       
TOTAL Options % Futures* % Stocks %

Period

(contracts)

Change

(contracts)

Change

(shares)

Change
2006 563,623 62,419 34,493,410
2007 673,144 19% 83,134 33% 47,324,798 37%
2008 757,732 13% 108,984 31% 55,845,428 18%
2009 643,380 -15% 82,345 -24% 75,449,891 35%
2010 678,856 6% 96,193 17% 84,469,874 12%
 
4Q2009 156,058 19,687 19,521,440
4Q2010 164,692 6% 23,021 17% 23,107,351 18%
 
 
MARKET MAKING Options % Futures* % Stocks %

Period

(contracts)

Change

(contracts)

Change

(shares)

Change
2006 371,929 14,818 21,180,377
2007 447,905 20% 14,520 -2% 24,558,314 16%
2008 ** 514,629 15% 21,544 48% 26,008,433 6%
2009 ** 428,810 -17% 15,122 -30% 26,205,229 1%
2010 ** 435,184 1% 15,371 2% 19,165,000 -27%
 
4Q2009 ** 97,520 3,446 5,378,987
4Q2010 ** 102,162 5% 3,663 6% 4,270,319 -21%
 
BROKERAGE TOTAL Options % Futures* % Stocks %

Period

(contracts)

Change

(contracts)

Change

(shares)

Change
2006 191,694 47,601 13,313,033
2007 225,239 17% 68,614 44% 22,766,484 71%
2008 243,103 8% 87,440 27% 29,836,995 31%
2009 214,570 -12% 67,223 -23% 49,244,662 65%
2010 243,672 14% 80,822 20% 65,304,874 33%
 
4Q2009 58,538 16,241 14,142,453
4Q2010 62,530 7% 19,358 19% 18,837,032 33%
 

BROKERAGE CLEARED
                     

 
Options % Futures* % Stocks %

Period

(contracts)

Change

(contracts)

Change

(shares)

Change
2006 32,384 45,351 12,492,870
2007 51,586 59% 66,278 46% 20,353,584 63%
2008 77,207 50% 85,599 29% 26,334,752 29%
2009 93,868 22% 66,241 -23% 46,627,344 77%
2010 103,054 10% 79,144 19% 62,077,741 33%
 
4Q2009 23,679 15,977 13,335,438
4Q2010 27,323 15% 18,968 19% 18,088,111 36%
 
* Includes options on futures
** In Brazil, an equity option contract typically represents 1 share of the underlying stock; however, the typical minimum trading quantity is 100 contracts. To make a fair comparison to volume at other exchanges, we have adopted a policy of reporting Brazilian equity options contracts divided by their trading quantity of 100.
           
BROKERAGE STATISTICS
(in 000's, except % and where noted)
 
4Q2010 4Q2009 % Change
Total Accounts 158 134 18%
Customer Equity (in billions) * $22.1 $15.2 45%
 
Cleared DARTs 337 309 9%
Total Customer DARTs 373 346 8%
 
 
(in $'s, except DART per account)
Commission per DART $4.35 $4.36 0%
DART per Avg. Account (Annualized) 550 597 -8%
Net Revenue per Avg. Account (Annualized) $3,569 $3,529 1%
 
* Excludes non-customers
               

INTERACTIVE BROKERS GROUP, INC. AND SUBSIDIARIES

SEGMENT FINANCIAL INFORMATION

(UNAUDITED)
 
Three Months Twelve Months
Ended December 31, Ended December 31,
2010 2009 2010 2009

(in millions)
 
Market Making Net revenues $ 44.0 $ 75.2 $ 379.2 $ 626.4
Non-interest expenses   67.8     78.7     289.7     295.6  
 
Income before income taxes

$

(23.8
)

$

(3.5
) $ 89.5   $ 330.8  
 
Pre-tax profit margin -54 % -5 % 24 % 53 %
 
Electronic Brokerage Net revenues $ 146.2 $ 125.1 $ 547.3 $ 474.4
Non-interest expenses   71.5     63.5     272.5     243.2  
 
Income before income taxes $ 74.7   $ 61.6   $ 274.8   $ 231.2  
 
Pre-tax profit margin 51 % 49 % 50 % 49 %
 
Corporate* Net revenues

$

(3.9
) $ 0.1

$

(4.4
)

$

(0.5
)
Non-interest expenses   5.1     6.0     19.1     17.0  
 
Income before income taxes

$

(9.0
)

$

(5.9
)

$

(23.5
)

$

(17.5
)
 
 
Total Net revenues $ 186.3 $ 200.4 $ 922.1 $ 1,100.3
Non-interest expenses   144.4     148.2     581.3     555.8  
 
Income before income taxes $ 41.9   $ 52.2   $ 340.8   $ 544.5  
 
Pre-tax profit margin 22 % 26 % 37 % 49 %
 

* Corporate includes corporate related activities as well as inter-segment eliminations.
                   

INTERACTIVE BROKERS GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)
 
Three Months Twelve Months
Ended December 31, Ended December 31,
2010 2009 2010 2009
(in millions, except share and per share data)
 
Revenues:
Trading gains $ 41.7 $ 75.1 $ 368.6 $ 633.9
Commissions and execution fees 97.4 89.5 386.8 353.0
Interest income 52.5 31.9 172.5 121.6
Other income   12.0     19.3   60.4     61.3
 
Total revenues 203.6 215.8 988.3 1,169.8
 
Interest expense   17.3     15.4   66.2     69.5
 
Total net revenues   186.3     200.4   922.1     1,100.3
 
Non-interest expenses:
Execution and clearing 65.5 71.8 272.6 273.2
Employee compensation and benefits 50.6 47.5 200.2 175.8
Occupancy, depreciation and amortization 9.8 10.9 37.3 40.4
Communications 5.9 6.2 23.5 22.8
General and administrative   12.6     11.8   47.7     43.6
 
Total non-interest expenses   144.4     148.2   581.3     555.8
 
Income before income taxes 41.9 52.2 340.8 544.5
 
Income tax expense   34.7     4.3   60.4     54.4
 
Net income 7.2 47.9 280.4 490.1
 
Net income attributable to non-controlling interests   35.3     45.6   289.7     453.9
 
Net income available for common shareholders

$

(28.1
) $ 2.3

$

(9.3
) $ 36.2
 
 
Earnings per share
Basic

$

(0.67
) $ 0.06

$

(0.22
) $ 0.88
Diluted

$

(0.66
) $ 0.06

$

(0.22
) $ 0.87
 
Weighted average common shares outstanding
Basic 42,226,873 41,214,762 41,870,926 40,973,290
Diluted 42,787,723 41,973,635 42,498,705 41,799,489
       

INTERACTIVE BROKERS GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

December 31,

December 31,

2010

2009
(in millions)
Assets
Cash and cash equivalents $ 1,358.4 $ 806.6
Cash and securities - segregated for regulatory purposes 7,881.2 6,728.9
Securities purchased under agreements to resell 336.3 413.0
Securities borrowed 3,292.3 5,063.0
Trading assets, at fair value 7,422.4 9,344.0
Receivables from customers, net of allowance 6,973.0 3,239.6
Receivables from brokers, dealers and clearing organizations 735.6 493.1
Other assets   499.6   517.4
 
Total assets $ 28,498.8 $ 26,605.6
 
Liabilities and equity
 
Liabilities
Trading liabilities - financial instruments sold but not yet purchased, at fair value $ 6,125.2 $ 8,763.2
Securities loaned 1,659.6 1,133.7
Short-term borrowings 187.4 320.8
Other payables:
Customers 15,060.5 10,587.7
Brokers, dealers and clearing organizations 248.7 164.5
Other payables   702.3   552.8
  16,011.5   11,305.0
 
Senior notes payable and senior secured credit facility 294.6 205.8
 
Equity
Stockholders' equity 523.9 574.9
Non-controlling interests   3,696.6   4,302.2
Total equity   4,220.5   4,877.1
 
Total liabilities and equity $ 28,498.8 $ 26,605.6
                     
 

INTERACTIVE BROKERS GROUP, INC. AND SUBSIDIARIES

GAAP TO NON-GAAP PERFORMANCE MEASURES RECONCILIATION

(UNAUDITED)
 

 
4Q2010 2010 Full Year
                             

(In thousands, except for shares or per share amounts)

 

 
Non-GAAP

 

 

Non-GAAP

 
Financial

 

Financial

Non-GAAP
Performance

Non-GAAP

Performance

As Reported

Adjustments
Measures

As Reported

Adjustments

Measures
 
Net Revenues:
As reported $ 186,263   $ 922,108  
Non-GAAP Adjustments for non-operating activities -
Other Comprehensive Income (a)   $ 62,362      

$

148,338
   
$ 186,263   $ 62,362   $ 248,625   $ 922,108   $ 148,338   $ 1,070,446  
 
 
Income Before Income Taxes:
As reported $ 41,910   $ 340,820  
Non-GAAP Adjustments for non-operating activities -
Payments in lieu of dividends on unvested shares of the Company's Class A Common Stock (b) $ 9,456 $ 9,456
Other Comprehensive Income (a)     62,362         148,338    
$ 41,910   $ 71,818   $ 113,728   $ 340,820   $ 157,794   $ 498,614  
 
Pre-tax profit margin:   23 %   46 %   37 %   47 %
 
 
Income Tax Expense:
As reported $ 34,678   $ 60,413  
Non-GAAP Adjustments for non-operating activities -
Income taxes on payments in lieu of dividends (b) $ 678 $ 678
The Company's share of taxes payable arising from the payment of dividends by THE AG to IBG LLC (c) (46,112 ) (46,112 )
U.S. foreign tax credits for Swiss taxes paid (d) 16,608 16,608
Other Comprehensive Income (a)     11,547         27,443    
$ 34,678   $ (17,279 ) $ 17,399   $ 60,413   $ (1,383 ) $ 59,030  
 
 
Net Income (loss) attributable to common stockholders:
As reported $ (28,083 ) $ (9,316 )
Non-GAAP Adjustments for non-operating activities -
Payments in lieu of dividends on unvested shares of the Company's Class A Common Stock (b) $ 1,010 $ 1,010
Income taxes on payments in lieu of dividends (b) (368 ) (368 )
The Company's share of taxes payable arising from the payment of dividends by THE AG to IBG LLC (c) 46,112 46,112
U.S. foreign tax credits for Swiss taxes paid (d) (16,608 ) (16,608 )
Other Comprehensive Income (a)   $ 4,363       $ 10,295    
$ (28,083 ) $ 34,509   $ 6,426   $ (9,316 ) $ 40,441   $ 31,125  
 
Earnings per Share:
Basic $ (0.67 ) $ 0.82   $ 0.15   $ (0.22 ) $ 0.96   $ 0.74  
Diluted $ (0.66 ) $ 0.81   $ 0.15   $ (0.22 ) $ 0.95   $ 0.73  
 
 
Weighted Average Shares:
Basic   42,226,873     42,226,873     41,870,926     41,870,926  
Diluted   42,787,723     42,787,723     42,498,705     42,498,705  
 
 

(a) Reporting the effect of currency rate changes on the Company's financial statements directly through equity as a component of Other Comprehensive Income is a U.S. GAAP reporting convention. Management measures the Company's performance by including such currency effects in trading gains, a component of net revenues, and in income, net of the effective tax rates paid by foreign subsidiaries and net of U.S. Corporate Taxes on the Company's share of such income. The combined effective tax rate for foreign subsidiaries was 16.5% and the Company's effective U.S. Corporate Tax Rate was 36.8%.
 

(b) Holders of unvested Class A shares of the Company's common stock were paid $1.79 per share in lieu of the cash dividend paid on outstanding shares on December 23, 2010. The Company's share of these payments was $1.0 million, on which it realized a tax benefit of $0.4 million.
 

(c) On December 21, 2010, Timber Hill Europe AG ("THE AG") paid its sole shareholder, IBG LLC, a dividend of $990.3 million. THE AG's pretax earnings had not previously been subject to taxation in the United States. U.S. federal income taxes on the Company's share of this dividend were $40.8 million. In addition, the Company incurred $5.3 million in non-refundable taxes withheld by the Swiss government.
 

(d) The provision for income taxes is reported net of available foreign tax credits of $16.6 million.
                       

INTERACTIVE BROKERS GROUP, INC. AND SUBSIDIARIES

GAAP TO NON-GAAP PERFORMANCE MEASURES RECONCILIATION

(UNAUDITED)
 
4Q2009 2009 Full Year

 
                               

(In thousands, except for shares or per share amounts)

 

 
Non-GAAP

 

 
Non-GAAP

 
Financial

 
Financial

Non-GAAP
Performance

Non-GAAP
Performance

As Reported

Adjustments
Measures

As Reported

Adjustments
Measures
 
Net Revenues:
As reported $ 200,409   $ 1,100,340  
Non-GAAP Adjustments for non-operating activities -
Other Comprehensive Income (a)   $ 6,899     $ 104,767  
$ 200,409   $ 6,899 $ 207,308   $ 1,100,340   $ 104,767 $ 1,205,107  
 
 
Income Before Income Taxes:
As reported $ 52,171   $ 544,493  
Non-GAAP Adjustments for non-operating activities -
Other Comprehensive Income (a)  

$
6,899    

$
104,767  
$ 52,171   $ 6,899 $ 59,070   $ 544,493   $ 104,767 $ 649,260  
 
Pre-tax profit margin:   26 %   28 %   49 %   54 %
 
 
Income Tax Expense:
As reported $ 4,188   $ 54,379  
Non-GAAP Adjustments for non-operating activities -
Other Comprehensive Income (a)  

$
1,789    

$
27,169  
$ 4,188   $ 1,789 $ 5,977   $ 54,379   $ 27,169 $ 81,548  
 
 
Net Income (loss) attributable to common stockholders:
As reported $ 2,352   $ 36,202  
Non-GAAP Adjustments for non-operating activities -

Other Comprehensive Income
(a)  

$
472    

$
7,138  
$ 2,352   $ 472 $ 2,824   $ 36,202   $ 7,138 $ 43,340  
 
Earnings per Share:
Basic $ 0.06   $ 0.01 $ 0.07   $ 0.88   $ 0.18 $ 1.06  
Diluted $ 0.06   $ 0.01 $ 0.07   $ 0.87   $ 0.17 $ 1.04  
 
 
Weighted Average Shares:
Basic   41,214,762     41,214,762     40,973,290     40,973,290  
Diluted   41,973,635     41,973,635     41,799,489     41,799,489  
 
 

(a) Reporting the effect of currency rate changes on the Company's financial statements directly through equity as a component of Other Comprehensive Income is a U.S. GAAP reporting convention. Management measures the Company's performance by including such currency effects in trading gains, a component of net revenues, and in income, net of the effective tax rates paid by foreign subsidiaries and net of U.S. Corporate Taxes on the Company's share of such income. The combined effective tax rate for foreign subsidiaries was 24.9% in 2009 and the Company's effective U.S. Corporate Tax Rate was 36.8%.
 

INTERACTIVE BROKERS GROUP, INC., MARKET MAKING SEGMENT

GAAP TO NON-GAAP PERFORMANCE MEASURES RECONCILIATION

(UNAUDITED)
               

(In thousands, except for shares or per share amounts)

 

 
Non-GAAP  

 
   

 
    Non-GAAP

 
Financial

 

 
Financial

Non-GAAP
Performance

Non-GAAP
Performance

As Reported

Adjustments
Measures

As Reported

Adjustments
Measures
                           
4Q2010 2010 Full Year
 
Net Revenues:
As reported $ 44,028   $ 379,181  
Non-GAAP Adjustments for non-operating activities -
Other Comprehensive Income (a)   $ 62,362     $ 148,338  
$ 44,028   $ 62,362 $ 106,390   $ 379,181   $ 148,338 $ 527,519  
 
Income Before Income Taxes:
As reported $ (23,806 ) $ 89,530  
Non-GAAP Adjustments for non-operating activities -

Other Comprehensive Income
(a)  

$

62,362
   

$

148,338
 
$ (23,806 ) $ 62,362 $ 38,556   $ 89,530   $ 148,338 $ 237,868  
 
Pre-tax profit margin:   -54 %   36 %   24 %   45 %
 
                           

4Q2009

2009 Full Year
 
Net Revenues:
As reported $ 75,278   $ 626,395  
Non-GAAP Adjustments for non-operating activities -
Other Comprehensive Income (a)   $ 6,899     $ 104,767  
$ 75,278   $ 6,899 $ 82,177   $ 626,395   $ 104,767 $ 731,162  
 
 
Income Before Income Taxes:
As reported $ (3,536 ) $ 330,795  
Non-GAAP Adjustments for non-operating activities -
Other Comprehensive Income (a)  

$

6,899
   

$

104,767
 
$ (3,536 ) $ 6,899 $ 3,363   $ 330,795   $ 104,767 $ 435,562  
 
Pre-tax profit margin:   -5 %   4 %   53 %   60 %
 
 

(a) Reporting the effect of currency rate changes on the Company's financial statements directly through equity as a component of Other Comprehensive Income is a U.S. GAAP reporting convention. Management measures the Market Making segment's performance by including such currency effects in trading gains, a component of net revenues, and in income before taxes.

Copyright Business Wire 2010