Interactive Brokers Group Announces 2Q2014 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 $0.29 for the quarter ended June 30, 2014, compared to diluted earnings per share on a comprehensive basis of $0.14 for the same period in 2013.

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 June 30, 2014, compared to diluted earnings per share of $0.21 for the same period in 2013.

Net revenues were $309 million and income before income taxes was $174 million for this quarter, compared to net revenues of $284 million and income before income taxes of $134 million for the same period in 2013.

The Interactive Brokers Group, Inc. Board of Directors declared a quarterly cash dividend of $0.10 per share. This dividend is payable on September 12, 2014 to shareholders of record as of August 29, 2014.

Business Highlights
  • 56% pretax profit margin for this quarter, up from 47% in the year-ago quarter and 42% average for prior year.
  • 60% Electronic Brokerage pretax profit margin for this quarter, up from 58% in the year-ago quarter.
  • Customer equity grew 44% from the year-ago quarter to $53.9 billion and customer debits increased by 38%, to $15.4 billion.
  • Customer accounts grew 17% from the year-ago quarter to 262 thousand.
  • Total DARTs increased 5% from the year-ago quarter to 529 thousand.
  • Brokerage segment equity was $2.7 billion. Total equity was $5.3 billion.

Segment Overview

Electronic Brokerage

Electronic Brokerage segment income before income taxes increased 7%, to $131 million, in the quarter ended June 30, 2014 compared to the same period last year. Commissions and execution fees decreased 10% from the year-ago quarter, reflecting lower customer volumes in foreign exchange and futures. Volatility in this quarter was near historic lows, as measured by the CBOE Volatility Index.

Net interest income grew 32% from the year-ago quarter, to $77 million in this quarter. Pretax profit margin was 60% for this quarter, up from 58% in the same period last year.

Total DARTs (1) for cleared and execution-only customers increased 5% to 529,000 from the year-ago quarter. Cleared DARTs were 484,000 in this quarter, 5% higher than the same period last year.

Customer accounts grew 17% to 262,000 from the year-ago quarter. Customer equity increased 44%, to $53.9 billion, from the year-ago quarter. The size of an average customer account grew 23% to $206 thousand in equity per cleared customer account at the end of this quarter. Customer margin borrowings were 38% higher than at the same time last year, ending the quarter at $15.4 billion.

On July 14, 2014, Interactive Brokers began to publish daily financial information, including a summary of the money it segregates for its customers. This information can be found on the Interactive Brokers web site (2), www.interactivebrokers.com/finregdat.

Market Making

Market Making segment income before income taxes increased to $47 million, for the quarter ended June 30, 2014 from $8 million for the same period in 2013. Removing the effects of currency translation, the Market Making segment produced $31 million pretax income in this quarter, compared to $50 million for the same period last year. The decrease in market making profits, excluding currency translation effects, was driven by lower volatility, a lower actual to implied volatility ratio and lower trading volumes.

Currency translation gains were $15 million in this quarter, compared to a $43 million loss in 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 16 major currencies in which we hold our equity. In this quarter, our currency diversification program increased our comprehensive earnings by $26 million, as the U.S. dollar value of the GLOBAL increased by approximately 0.5%. The effects of currency diversification are reported as components of (1) Market Making Trading Gains and (2) Other Comprehensive Income (“OCI”). In this quarter 58% of the GLOBAL effect was captured in Market Making Trading Gains in the Net Income section of the Statement of Comprehensive Income, with the remainder reported as OCI in the separate Comprehensive Income section of the Statement of Comprehensive Income.

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

(2) Under: About IB -> IB Regulatory Reports -> Financial Regulatory Information.

Conference Call Information:

Interactive Brokers Group will hold a conference call with investors today, July 15, 2014, 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
2011 63,602 160,567 19,187 243,356 968
2012 60,421 -5% 150,000 -7% 16,118 -16% 226,540 -7% 904
2013 65,320 8% 173,849 16% 18,489 15% 257,658 14% 1,029
 
2Q2013 18,794 46,509 4,968 70,271 1,098
2Q2014 14,897 -21% 48,622 5% 4,290 -14% 67,809 -4% 1,076
 
1Q2014 15,643 50,727 4,862 71,232 1,168
2Q2014 14,897 -5% 48,622 -4% 4,290 -12% 67,809 -5% 1,076
 
           
CONTRACT AND SHARE VOLUMES:
(in 000's, except %)

 
 
TOTAL
Options % Futures* % Stocks %
Period (contracts) Change (contracts) Change (shares) Change
2011 789,370 106,640 77,730,974
2012 698,140 -12% 98,801 -7% 65,872,960 -15%
2013 659,673 -6% 121,776 23% 95,479,739 45%
 
2Q2013 184,215 34,824 23,792,808
2Q2014 144,635 -21% 28,774 -17% 35,891,325 51%
 
1Q2014 161,578 30,661 44,707,956
2Q2014 144,635 -10% 28,774 -6% 35,891,325 -20%

 
 
MARKET MAKING
 
Options % Futures* % Stocks %
Period (contracts) Change (contracts) Change (shares) Change
2011 503,053 15,519 11,788,769
2012 457,384 -9% 12,660 -18% 9,339,465 -21%
2013 404,490 -12% 18,184 44% 12,849,729 38%
 
2Q2013 116,898 5,325 3,912,368
2Q2014 78,641 -33% 4,088 -23% 2,836,471 -27%
 
1Q2014 89,079 4,575 2,958,853
2Q2014 78,641 -12% 4,088 -11% 2,836,471 -4%

 
 
BROKERAGE TOTAL
Options % Futures* % Stocks %
Period (contracts) Change (contracts) Change (shares) Change
2011 286,317 91,121 65,942,205
2012 240,756 -16% 86,141 -5% 56,533,495 -14%
2013 255,183 6% 103,592 20% 82,630,010 46%
 
2Q2013 67,317 29,499 19,880,440
2Q2014 65,994 -2% 24,686 -16% 33,054,854 66%
 
1Q2014 72,499 26,086 41,749,103
2Q2014 65,994 -9% 24,686 -5% 33,054,854 -21%
 
* Includes options on futures
 

INTERACTIVE BROKERS GROUP, INC. AND SUBSIDIARIES

OPERATING DATA, CONTINUED
           
BROKERAGE CLEARED
 
 
Options % Futures* % Stocks %
Period (contracts) Change (contracts) Change (shares) Change
2011 145,993 89,610 63,098,072
2012 144,539 -1% 84,794 -5% 54,371,351 -14%
2013 180,660 25% 101,732 20% 78,829,785 45%
 
2Q2013 46,962 28,938 18,932,615
2Q2014 50,732 8% 24,262 -16% 32,041,810 69%
 
1Q2014 54,367 25,694 40,576,558
2Q2014 50,732 -7% 24,262 -6% 32,041,810 -21%
 
* Includes options on futures
 
     
BROKERAGE STATISTICS
(in 000's, except % and where noted)
 
 
Year over Year

2Q2014
2Q2013 % Change
Total Accounts 262 224 17%
Customer Equity (in billions) * $ 53.9 $ 37.4 44%
 
Cleared DARTs 484 463 5%
Total Customer DARTs 529 506 5%
 
 
Cleared Customers (in $'s, except DART per account)
Commission per DART $ 4.00 $ 4.50 -11%
DART per Avg. Account (Annualized) 473 526 -10%
Net Revenue per Avg. Account (Annualized) $ 3,360 $ 3,659 -8%
 
 
Consecutive Quarters

2Q2014

1Q2014
% Change
Total Accounts 262 252 4%
Customer Equity (in billions) * $ 53.9 $ 49.0 10%
 
Cleared DARTs 484 527 -8%
Total Customer DARTs 529 582 -9%
 
 
Cleared Customers (in $'s, except DART per account)
Commission per DART $ 4.00 $ 4.14 -3%
DART per Avg. Account (Annualized) 473 539 -12%
Net Revenue per Avg. Account (Annualized) $ 3,360 $ 3,661 -8%
 
 
* Excludes non-customers.
 

INTERACTIVE BROKERS GROUP, INC. AND SUBSIDIARIES

SEGMENT FINANCIAL INFORMATION

(UNAUDITED)
         
Three Months Ended Six Months Ended
June 30, June 30,
2014   2013   2014   2013  
 
(in millions)
Electronic Brokerage Net revenues $ 220.6 $ 212.5 $ 444.3 $ 407.8
Non-interest expenses   89.2     89.2     178.6     173.5  
Income before income taxes $ 131.4   $ 123.3   $ 265.7   $ 234.3  
 
Pre-tax profit margin 60 % 58 % 60 % 57 %
 
Market Making Net revenues $ 91.9 $ 67.4 $ 225.0 $ 91.0
Non-interest expenses   45.4     59.8     90.4     112.4  

Income (loss) before income taxes
$ 46.5   $ 7.6   $ 134.6   $ (21.4 )
 
Pre-tax profit margin 51 % 11 % 60 % -24 %
 
Corporate* Net revenues $ (3.2 ) $ 4.0 $ (5.1 ) $ 1.2
Non-interest expenses   0.5     1.0     2.9     (2.0 )

Income (loss) before income taxes
$ (3.7 ) $ 3.0   $ (8.0 ) $ 3.2  
 
Total Net revenues $ 309.3 $ 283.9 $ 664.2 $ 500.0
Non-interest expenses   135.1     150.0     271.9     283.9  
Income before income taxes $ 174.2   $ 133.9   $ 392.3   $ 216.1  
 
Pre-tax profit margin 56 % 47 % 59 % 43 %
 
 
* 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 Ended Six Months Ended
June 30, June 30,
2014 2013 2014 2013
(in millions except share and per share data)
Revenues:
Trading gains $ 84.0 $ 59.1 $ 211.5 $ 78.1
Commissions and execution fees 124.4 138.0 261.0 257.6
Interest income 94.9 76.1 180.9 146.6
Other income   17.9   24.3     37.0   44.2  
Total revenues 321.2 297.5 690.4 526.5
 
Interest expense   11.9   13.6     26.2   26.5  
 
Total net revenues   309.3   283.9     664.2   500.0  
 
Non-interest expenses:
Execution and clearing 51.6 64.8 105.8 124.3
Employee compensation and benefits 53.6 58.0 107.1 104.3
Occupancy, depreciation and amortization 9.7 9.2 19.5 19.3
Communications 6.2 5.7 12.2 11.2
General and administrative   14.0   12.3     27.3   24.8  
Total non-interest expenses   135.1   150.0     271.9   283.9  
 
Income before income taxes 174.2 133.9 392.3 216.1
Income tax expense   13.5   13.9     30.4   20.8  
Net income 160.7 120.0 361.9 195.3

Less net income attributable to noncontrolling interests
145.6   109.7     327.7   178.4  
Net income available for common stockholders

$
15.1 $ 10.3   $ 34.2 $ 16.9  
 
Earnings per share:
Basic $ 0.27 $ $0.21   $ $0.62 $ $0.35  
Diluted $ 0.26 $ $0.21   $ $0.60 $ $0.35  
Weighted average common shares outstanding:
Basic   56,079,813   48,929,348     55,375,929   48,218,572  
Diluted   57,300,230   49,012,567     56,674,666   48,354,098  
 
Comprehensive income:
Net income available for common stockholders

$
15.1

$
10.3  

$
34.2

$
16.9  
Other comprehensive income:
Cumulative translation adjustment, before income taxes 1.6 (3.9 ) 2.1 (7.7 )

Income taxes related to items of other comprehensiveincome
0.1   (0.4 )   0.2   (0.4 )
Other comprehensive income (loss), net of tax   1.5   (3.5 )   1.9   (7.3 )
Comprehensive income available for common stockholders $ 16.6 $ 6.8   $ 36.1 $ 9.6  
 

Comprehensive income attributable tononcontrolling interests:

Net income attributable to noncontrollinginterests
$ 145.6 $ 109.7 $ 327.7 $ 178.4

Other comprehensive income (loss) -cumulative translation adjustment
9.6   (28.0 )   12.7   (55.6 )

Comprehensive income attributable tononcontrolling interests
$ 155.2 $ 81.7   $ 340.4 $ 122.8  
 
 

INTERACTIVE BROKERS GROUP, INC. AND SUBSIDIARIES

EARNINGS PER SHARE ON COMPREHENSIVE INCOME

(UNAUDITED)
       
Three Months Ended Six Months Ended
June 30, June 30,
2014 2013 2014 2013
(in millions except share and per share data)
 

Comprehensive income available for common stockholders,net of tax
$ 16.6 $ 6.8 $ 36.1 $ 9.6
 
Earnings per share:
Basic $ 0.30 $ 0.14 $ 0.65 $ 0.20
Diluted $ 0.29 $ 0.14 $ 0.64 $ 0.20
Weighted average common shares outstanding:
Basic   56,079,813   48,929,348   55,375,929   48,218,572
Diluted   57,300,230   49,012,567   56,674,666   48,354,098
 
 

INTERACTIVE BROKERS GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEET

(UNAUDITED)
   
 
June 30, December 31,
2014 2013
(in millions)
Assets
Cash and cash equivalents $ 999.6 $ 1,213.2
Cash and securities - segregated for regulatory purposes 15,520.1 13,991.7

Securities purchased under agreements to resell

274.3

386.3
Securities borrowed 3,499.2 2,751.5
Trading assets, at fair value 3,238.1 4,448.8
Receivable from customers, net of allowance 15,326.9 13,596.7
Receivable from brokers, dealers and clearing organizations 765.3 858.2
Other assets   532.0   624.3
 
Total assets $ 40,155.5 $ 37,870.7
 

Liabilities and equity
Liabilities

Trading liabilities - financial instruments soldbut not yet purchased, at fair value
$ 2,630.8 $ 3,153.7
Securities loaned 2,932.4 2,563.7
Short-term borrowings 15.2 24.6
Other payables:
Customers 28,411.1 26,319.4
Brokers, dealers and clearing organizations 382.3 331.0
Other payables   508.1   386.2
  29,301.5   27,036.6
 
Equity
Stockholders' equity 762.4 707.3
Noncontrolling interests   4,513.2   4,384.8
Total Equity   5,275.6   5,092.1
 
Total liabilities and equity $ 40,155.5 $ 37,870.7
 

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