Interactive Brokers Group Announces 3Q2012 Results

Interactive Brokers Group, Inc. (NASDAQ GS: IBKR) an automated global electronic broker and market maker, today reported diluted earnings per share on a comprehensive basis of $0.30 for the quarter ended September 30, 2012, compared to diluted earnings per share on a comprehensive basis of $0.34 for the same period in 2011.

Reported results on a comprehensive basis reflect the GAAP convention adopted in 2011 that requires the reporting of currency translation results contained in Other Comprehensive Income as part of reportable earnings. Previously, currency translation results were reported as a component of changes in Total Equity in the Statement of Financial Condition.

On a non-comprehensive basis, which excludes the effect of changes in the U.S. dollar value of the Company’s non-U.S. subsidiaries, the Company reported diluted earnings per share on net income of $0.26 for the quarter ended September 30, 2012, compared to diluted earnings per share of $0.48 for the same period in 2011.

Net revenues were $319 million and income before income taxes was $173 million for this quarter, compared to net revenues of $386 million and income before income taxes of $218 million for the same period in 2011.

The Interactive Brokers Group, Inc. Board of Directors declared a quarterly cash dividend of $0.10 per share. This dividend is payable on December 14, 2012 to shareholders of record as of November 30, 2012.

Business Highlights
  • 54% pretax profit margin for this quarter.
  • $5.15 billion in equity.
  • 48% Electronic Brokerage pretax profit margin for this quarter.
  • 59% Market Making pretax profit margin for this quarter.
  • Customer equity grew 35% from the year-ago quarter to $31.5 billion and customer accounts increased 11% to 205 thousand.
  • Cleared DARTs decreased 19% from the year-ago quarter to 369,000.

Segment Overview

Electronic Brokerage

Electronic Brokerage segment income before income taxes decreased 23%, to $81 million, in the quarter ended September 30, 2012 compared to the same period last year. Commissions and execution fees decreased 23% from the year-ago quarter, reflecting subdued trading volumes. During the same period last year we observed a surge in volumes, driven by concerns over the European debt crisis. Annualized DARTs (1) per cleared customer account were 456 in this quarter, compared to 640 for the same period in 2011. Total DARTs for cleared and execution-only customers decreased 21% to 390,000 from the year-ago quarter. Cleared DARTs were 369,000 in this quarter, 19% lower than the same period last year. These declines were consistent with lower industry volumes.

Customer accounts grew 11% to 205,000 from the year-ago quarter. Customer equity increased 35%, to $31.5 billion, from the year-ago quarter. Compared to the same period last year customer borrowings to support trading positions were $2.4 billion higher, ending the quarter at $9.2 billion. Pretax profit margin was 48% for this quarter, down from 55% in the same period last year.

Market Making

Market Making segment income before income taxes decreased 30%, to $90 million, for the quarter ended September 30, 2012 from the same period in 2011. This decrease was driven by an unfavorable market making environment with lower exchange traded volumes, low actual to implied volatility, and tighter bid/offer spreads in options. As measured by the CBOE Volatility Index (VIX), market volatility was at one-half of its level of the same period last year. The ratio of actual to implied volatility was 71% compared to 111% during the year ago quarter. On the upside, currency translation gains were $42 million in this quarter, compared to a $23 million loss in the year-ago quarter. Currency translation effects are reported as a component of Trading Gains in the Market Making segment.

Pretax profit margin was 59% in this quarter, compared to 63% in the same quarter last year. Market Making options contract volume decreased 36%, with similar declines in futures and stock volumes from the year-ago quarter.

Effects of Foreign Currency Diversification

In connection with our currency strategy, we have determined to base our net worth in GLOBALs, a basket of major currencies in which we hold our equity. In this quarter, our currency hedging program increased our comprehensive earnings as the U.S. dollar value of the GLOBAL increased by approximately 1.3%. The effects of currency hedging are reported as components of (1) Market Making Trading Gains and (2) Other Comprehensive Income, described below. Year to date swings in the value of the GLOBAL resulted in a net gain of $11 million.

Comprehensive Income

Reported results on a comprehensive basis reflect the Company’s adoption of U.S. GAAP guidance (2) issued in June 2011 that requires the presentation of a Statement of Comprehensive Income, replacing the former Statement of Income. The Statement of Comprehensive Income reports currency translation results that are a component of Other Comprehensive Income (“OCI”) directly in this statement. Previously, OCI was reported as a component of changes in Total Equity in the Statement of Financial Condition.

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

(2) Accounting Standards Update 2011-05, Comprehensive Income.

Conference Call Information:

Interactive Brokers Group will hold a conference call with investors today, October 16, 2012, at 4:30 p.m. ET to discuss its quarterly 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 broker that specializes in catering to financial professionals by offering state-of-the-art trading technology, superior execution capabilities, worldwide electronic access, and sophisticated risk management tools at exceptionally low costs. The brokerage trading platform utilizes the same innovative technology as the Company’s market making business, which specializes in routing orders and executing and processing trades in securities, futures, foreign exchange instruments, bonds and funds on more than 100 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
2007 99,086 72,931 16,638 188,655

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
2011 63,602 -15% 160,567 20% 19,187 2% 243,356 7%

968
 
3Q2011 19,602 45,879 5,273 70,754

1,106
3Q2012 14,405 -27% 36,246 -21% 3,435 -35% 54,086 -24%

865
 
CONTRACT AND SHARE VOLUMES:
(in 000's, except %)
           
TOTAL Options % Futures* % Stocks %

Period

(contracts)

Change

(contracts)

Change

(shares)

Change
2007 673,144 83,134 47,324,798
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%
2011 789,370 16% 106,640 11% 77,730,974 -8%
 
3Q2011 254,904 31,835 20,598,631
3Q2012 169,745 -33% 24,020 -25% 15,364,650 -25%
           
MARKET MAKING Options % Futures* % Stocks %

Period

(contracts)

Change

(contracts)

Change

(shares)

Change
2007 447,905 14,520 24,558,314
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%
2011 ** 503,053 16% 15,519 1% 11,788,769 -38%
 
3Q2011 ** 171,731 4,835 3,921,841
3Q2012 ** 110,549 -36% 3,007 -38% 2,347,903 -40%
           
BROKERAGE TOTAL Options % Futures* % Stocks %

Period

(contracts)

Change

(contracts)

Change

(shares)

Change
2007 225,239 68,614 22,766,484
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%
2011 286,317 18% 91,121 13% 65,942,205 1%
 
3Q2011 83,173 27,000 16,676,790
3Q2012 59,196 -29% 21,013 -22% 13,016,747 -22%
 
* 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.

 
 

INTERACTIVE BROKERS GROUP, INC. AND SUBSIDIARIES

OPERATING DATA, CONTINUED
 
CONTRACT AND SHARE VOLUMES, continued:
(in 000's, except %)
           
BROKERAGE CLEARED Options % Futures* % Stocks %

Period

(contracts)

Change

(contracts)

Change

(shares)

Change
2007 51,586 66,278 20,353,584
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%
2011 145,993 42% 89,610 13% 63,098,072 2%
 
3Q2011 43,994 26,601 15,846,432
3Q2012 37,174 -16% 20,686 -22% 12,594,066 -21%
 
* Includes options on futures
 
BROKERAGE STATISTICS
(in 000's, except % and where noted)
 
 

3Q2012
 

3Q2011
 

% Change
Total Accounts 205 184 11%
Customer Equity (in billions) * $31.5 $23.3 35%
 
Cleared DARTs 369 457 -19%
Total Customer DARTs 390 495 -21%
 
 
 
Cleared Customers (in $'s, except DART per account)
Commission per DART $4.23 $4.29 -1%
DART per Avg. Account (Annualized) 456 640 -29%
Net Revenue per Avg. Account (Annualized) $3,216 $4,024 -20%
 
* Excludes non-customers
 
 

INTERACTIVE BROKERS GROUP, INC. AND SUBSIDIARIES

SEGMENT FINANCIAL INFORMATION

(UNAUDITED)
 
    Three Months   Nine Months
Ended September 30, Ended September 30,

2012
  2011 2012   2011

(in millions)
 
Electronic Brokerage Net revenues $167.6 $191.7 $498.3 $525.1
Non-interest expenses 86.8   86.2   243.9   240.5  
 
Income before income taxes $80.8   $105.5   $254.4   $284.6  
 
Pre-tax profit margin 48 % 55 % 51 % 54 %
 
Market Making Net revenues $154.1 $204.3 $387.8 $532.4
Non-interest expenses 63.9   75.8   207.6   210.0  
 
Income (loss) before income taxes $90.2   $128.5   $180.2   $322.4  
 
Pre-tax profit margin 59 % 63 % 46 % 61 %
 
Corporate* Net revenues ($3.1 ) ($10.4 ) ($2.7 ) ($7.1 )
Non-interest expenses (4.7 ) 5.8   1.1   11.0  
 
Income (loss) before income taxes $1.6   ($16.2 ) ($3.8 ) ($18.1 )
 
 
Total Net revenues $318.6 $385.6 $883.4 $1,050.4
Non-interest expenses 146.0   167.8   452.6   461.5  
 
Income before income taxes $172.6   $217.8   $430.8   $588.9  
 
Pre-tax profit margin 54 % 56 % 49 % 56 %
 
 
* Corporate includes corporate related activities as well as inter-segment eliminations.
 
 

INTERACTIVE BROKERS GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)
       
 
Three Months Nine Months
Ended September 30, Ended September 30,
2012 2011 2012 2011
(in millions, except share and per share data)
 
(As Restated) (As Restated)
 
Revenues:
Trading gains $149.7 $193.8 $372.0 $514.7
Commissions and execution fees 100.5 130.6 309.5 346.3
Interest income 65.4 73.8 200.6 211.8
Other income 17.2 10.7   50.8 43.1  
 
Total revenues 332.8 408.9 932.9 1,115.9
 
Interest expense 14.2 23.3   49.5 65.5  
 
Total net revenues 318.6 385.6   883.4 1,050.4  
 
Non-interest expenses:
Execution and clearing 61.7 82.1 192.5 214.4
Employee compensation and benefits 57.7 56.2 180.2 161.2
Occupancy, depreciation and amortization 9.0 9.0 28.9 27.3
Communications 6.0 5.7 17.2 17.8
General and administrative 11.6 14.8   33.8 40.8  
 
Total non-interest expenses 146.0 167.8   452.6 461.5  
 
Income before income taxes 172.6 217.8 430.8 588.9
 
Income tax expense 14.7 15.3   34.4 46.5  
 
Net income 157.9 202.5 396.4 542.4
 
Net income attributable to noncontrolling interests 145.4 180.0   364.8 494.1  
 
Net income (loss) attributable to common stockholders $12.5 $22.5   $31.6 $48.3  
 
 
Earnings (loss) per share :
Basic $0.26 $0.48   $0.70 $1.10  
Diluted $0.26 $0.48   $0.70 $1.09  
 
Weighted average common shares outstanding:
Basic 47,488,459 44,832,545 46,588,213 43,370,291
Diluted 47,679,818 45,208,557 46,865,770 43,832,558
 
Comprehensive income:
Net income (loss) attributable to common stockholders $12.5 $22.5 $31.6 $48.3
Other comprehensive income:
Cumulative translation adjustment, before income taxes 3.0 (10.1 ) 1.3 (2.1 )
Income taxes related to items of other comprehensive income 1.1 (3.7 ) 0.5 (0.8 )
Other comprehensive income (loss), net of tax 1.9 (6.4 ) 0.8 (1.3 )
Comprehensive income (loss) attributable to common stockholders $14.4 $16.1   $32.4 $47.0  
 
Comprehensive income attributable to noncontrolling interests:
Net income attributable to noncontrolling interests 145.4 $180.0 $364.8 $494.1
Other comprehensive income (loss) - cumulative translation adjustment 22.0 (75.9 ) 9.9 (9.2 )
Comprehensive income attributable to noncontrolling interests $167.4 $104.1   $374.7 $484.9  
 
 

INTERACTIVE BROKERS GROUP, INC. AND SUBSIDIARIES

EARNINGS PER SHARE ON COMPREHENSIVE INCOME

(UNAUDITED)
       
 
Three Months Nine Months
Ended September 30, Ended September 30,
2012 2011 2012 2011
(in millions, except share and per share data)
 
(As Restated) (As Restated)
 
Net income (loss) attributable to common stockholders $12.5 $22.5 $31.6 $48.3
Add (deduct) net income attributable to non-fair value redemption rights 0.0 (0.8 ) 1.1 (0.4 )
 
Net income (loss) available for common stockholders $12.5 $21.7 $32.7 $47.9
 
Other comprehensive income:
Cumulative translation adjustment, before income taxes 3.0 (10.1 ) 1.3 (2.1 )
Income taxes related to items of other comprehensive income 1.1 (3.7 ) 0.5 (0.8 )
Other comprehensive income (loss), net of tax 1.9 (6.4 ) 0.8 (1.3 )
 
Comprehensive income (loss) available for common stockholders $14.4 $15.3   $33.5 $46.6  
 
 
Comprehensive income (loss) per share:
Basic $0.30 $0.34   $0.72 $1.07  
Diluted $0.30 $0.34   $0.71 $1.06  
 
 
Weighted average common shares outstanding:
Basic 47,488,459 44,832,545 46,588,213 43,370,291
Diluted 47,679,818 45,208,557 46,865,770 43,832,558
 
 

INTERACTIVE BROKERS GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEET

(UNAUDITED)
   

September 30,2012

December 31,2011
(in millions)
(As Restated)
 
Assets
Cash and cash equivalents $1,659.5 $1,695.5
Cash and securities - segregated for regulatory purposes 12,325.8 10,069.9
Securities purchased under agreements to resell 344.2 375.4
Securities borrowed 2,966.1 2,661.7
Trading assets, at fair value 5,705.0 6,615.1
Receivables from customers, net of allowance 9,391.0 7,024.8
Receivables from brokers, dealers and clearing organizations 874.9 1,397.8
Other assets 595.2 564.2  
 
Total assets $33,861.7 $30,404.4  
 
Liabilities and equity
 
Liabilities
Trading liabilities - financial instruments sold but not yet purchased, at fair value $4,547.2 $6,156.1
Securities loaned 1,945.1 1,386.1
Short-term borrowings 16.9 6.5
Other payables:
Customers 21,281.3 17,300.1
Brokers, dealers and clearing organizations 496.4 247.4
Other payables 420.0 394.9  
22,197.7 17,942.4  
 
Senior notes payable and senior secured credit facility 0.0 101.4
 
Reedeemable noncontrolling interests 0.0 5,269.6
 
Equity
Stockholders' equity 629.6 (457.7 )
Noncontrolling interests 4,525.2 0.0  
Total equity 5,154.8 (457.7 )
 
Total liabilities and equity $33,861.7 $30,404.4  

The 2011 statement of comprehensive income, earnings per share on comprehensive income and statement of financial condition information reported in this earnings release are presented on an “as restated” basis to report the effect of the correction of an error in the accounting for noncontrolling interests as more fully disclosed in the Company’s Amended 2011 Annual Report on form 10-K/A filed with the Securities and Exchange Commission on August 31, 2012.

Copyright Business Wire 2010

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