01—Abstract
Summary
Summary of the 10-K filed March 1, 2018. Cited figures are marked; the original filing is the authoritative source.
Interactive Brokers Group, Inc. (IBKR) reported its 2017 annual results on February 28, 2018.
The company demonstrated strong growth in its electronic brokerage segment, which continued to be the primary driver of revenue and profit. This segment benefited from increased customer account growth, higher interest income due to rising interest rates, and robust commission revenue driven by increased trading volumes. While the market making segment experienced a significant decline in revenue as the company executed its strategy to wind down these operations, particularly in options market making, the overall financial performance remained positive, supported by the electronic brokerage segment's strength.
The company also highlighted its proprietary technology as a key competitive advantage, enabling low costs and efficient operations across its global platform. Investors should note the company's ongoing efforts to streamline its business by exiting market making activities and focusing on its core electronic brokerage services.
02—Key points
Key Highlights
- Strong growth in electronic brokerage segment with a 25% increase in customer accounts and a 46% increase in customer equity year-over-year.
- Net revenues increased by 22% to $1.702 billion, driven by a 30% increase in net interest income and a 6% increase in commissions.
- Significant reduction in market making segment revenue by 55% due to the strategic wind-down of operations, including the sale of U.S. options market making business.
- Diluted earnings per share were $1.07, a decrease from $1.25 in the prior year, partly impacted by the Tax Cuts and Jobs Act.
- The company has a strong liquidity position, with approximately 99.3% of its total assets ($60.8 billion) considered liquid as of December 31, 2017.
- As of December 31, 2017, aggregate excess regulatory capital for all operating companies was $4.5 billion, indicating strong compliance with capital requirements.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2017filed March 1, 2018Financial Statements
FY2017 against FY2016
| Line item | FY2017FY2016 | Change |
|---|---|---|
| Revenue | $1.93B$1.48B | +30.6% |
| Net Income | $76.00M$84.00M | −9.5% |
| EPS (Basic) | $0.27$0.32 | −14.8% |
| EPS (Diluted) | $0.27$0.31 | −14.4% |
| Shares Outstanding (Basic) | 279.71M264.05M | +5.9% |
| Shares Outstanding (Diluted) | 283.62M269.20M | +5.4% |
05—Questions
Frequently Asked Questions
What was the primary driver of Interactive Brokers' financial performance in 2017?
The primary driver of Interactive Brokers' financial performance in 2017 was the strong growth and profitability of its electronic brokerage segment. This segment benefited from increased customer accounts, higher net interest income due to rising interest rates and increased customer balances, and a rise in commission revenue.
What is the company's strategy regarding its market making business?
Interactive Brokers announced its intention to discontinue its options market making activities globally and has substantially wound down these operations. This includes the sale of its U.S. options market making operations. The company intends to continue certain proprietary trading activities in stocks and related instruments to support its electronic brokerage customers, but does not expect this to be a significant segment.
How did the Tax Cuts and Jobs Act affect Interactive Brokers' financial results?
The Tax Cuts and Jobs Act, enacted in December 2017, had a significant impact. It reduced the U.S. corporate income tax rate to 21% and included a one-time transition tax on deemed repatriated earnings of foreign subsidiaries. For IBKR, this resulted in an additional income tax expense of $62 million for the transition tax and a net $22 million related to the remeasurement of deferred tax assets, partially offset by a $93 million gain from the remeasurement of the Tax Receivable Agreement liability.
What is the company's approach to managing its global currency exposure?
Interactive Brokers actively manages its global currency exposure by maintaining its equity in a basket of 14 currencies called the 'GLOBAL,' designed to diversify risk and align with the currencies used in its business. This strategy aims to minimize the fluctuation of the company's net worth as expressed in GLOBALs.
06—Continue