Interactive Brokers Group, Inc. ( IBKR) Q2 2011 Earnings Call July 21, 2011 4:30 pm ET Executives Deborah Liston – Director, IR Thomas Peterffy – Chairman, CEO and President Paul Brody – CFO, Treasurer and Secretary Analysts Niamh Alexander – Keefe, Bruyette & Woods Ed Ditmire – Macquarie Rich Repetto – Sandler O’Neill Mac Sykes – Gabelli & Company Presentation Operator
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With that, I’ll turn the call over to Thomas Peterffy.Thomas Peterffy Good evening. Before I get into the quarterly results, I would like to start regarding the global effect on OCI auto delay. In the past quarter downward movement of the US dollar against our basket of currencies the global had a favorable impact on our earnings to the tune of $50 million. This was counterbalanced by OCI or Other Comprehensive Income. That deducted $56 million of reported earnings but not from comprehensive income or net earnings. Had none of this had happened, our pre-tax earnings for the quarter would have been 155 million instead of 149 million reported. So this is one of those rare quarters in which the currency effects almost balance each other, our and reported earnings are fairly close to the actual operating remarks. Pre-tax profit from our Brokerage segment increased by 23% year-over- year. Over the life of trading volumes our global exchanges kept commissioned at roughly the same level. We had an increase in the net interest income which rose 109% over the prior year and now accounts for nearly a third of Brokerage net revenues. This is directly related to the 111% increase in customer margin balances that have grown in response to our extremely low financing rates, which currently range from half of 1% to 1.6%. Customer account growth remains strong and steady growing 21% year-over-year to 176,000 accounts. The equity our customers hold grew by 57% to 25.7 billion. We typically see account growth slow in the second quarter and dip in June, which was the case this quarter. Still our growth rates continue to exceed our peers by a wide margin and the reason is quite simple. We offer our customers an unraveled value by allowing them to trade a multitude of asset classes globally in several currencies using sophisticated training tools and the very fine technology of the industry low cost.
And importantly, we do not sell our customer to internalize theirs which ensures that we achieve the best prices execution. Operating in the best interest of our customers is the principle we have built our business around, and we have never afraid from this strategy. The results speak for themselves.If you have been following our progress over the past several quarters, specifically the graph we published that show the growth of our broker expenses compared to other e-brokers over the past few years, you will see that we have exceeded our peers on all measures. This includes percentage growth in DARTs, number of accounts, customers’ deposits, margin loans and (inaudible). You also may recall that in my comments at the recent investor conference I have stated that one of our goals is to become the largest online broker in terms of total trades. Well, I’m pleased to report that we have accomplished this goal for the first time in May when our DARTs or daily average revenue trades exceeded those of every one of the largest e-brokers, and this also happens to be the case for the entire second quarter, so that as of the second quarter of this year Interactive Brokers is the largest electronic broker as measured by daily average revenue sales. We reached this goal despite only having a small fraction of the number of accounts they have. We’ve been able to attain the status because we have always focused on attracting quality accounts to us that means financially sophisticated active traders and investors. To illustrate, our typical customer in the second quarter made an average of about 143 compared that to our larger peers who have millions of accounts, but they have each customer made only an average of three or four trades in the latest quarter. Thanks to our highly automated business model we can service our active customer base efficiently and realize significant economies of scale, as we continue to grow this business. In fact, the Brokerage profit margin rose to 52% for the quarter compared to 50% in the year-ago quarter. Read the rest of this transcript for free on seekingalpha.com