10-QPeriod: Q2 FY2010

Interactive Brokers Group, Inc. Quarterly Report for Q2 Ended Jun 30, 2010

Filed August 9, 2010For Securities:IBKR

Summary

Interactive Brokers Group, Inc. (IBKR) reported its financial results for the quarter and six months ended June 30, 2010. The company experienced a significant decline in net income and earnings per share compared to the same periods in 2009. This was primarily driven by a sharp decrease in trading gains, largely attributed to adverse foreign currency fluctuations and tighter bid/offer spreads in the market-making segment. Despite these challenges, the electronic brokerage segment demonstrated resilience, with increased commission and execution fees, reflecting higher customer trading volumes and account growth. Total net revenues decreased in both the quarterly and year-to-date periods, reflecting the impact of reduced trading gains. However, the company saw a substantial increase in net interest income, driven by higher customer cash balances and margin borrowings. While the market-making segment's profitability was severely impacted by currency translation losses and challenging market conditions, the electronic brokerage segment continued its growth trajectory, showcasing the robustness of its business model. The company maintains a strong liquidity position and substantial excess regulatory capital.

Financial Highlights

27 data points
Beta

Revenue

$243.85M

Net Income

$3.84M

1.6% Net Margin

EPS (Diluted)

$0.02

Total Assets

$27.48B

Cash & Equivalents

$1.11B

Free Cash Flow

$591.02M

Financial Statements
Beta
Revenue$243.85M
Net Income$3.84M
EPS (Basic)$0.02
EPS (Diluted)$0.02
Shares Outstanding (Basic)167.21M
Shares Outstanding (Diluted)169.77M

Key Highlights

  • 1Diluted EPS decreased significantly by 71% to $0.09 for the three months ended June 30, 2010, compared to $0.31 in the prior year period.
  • 2Total net revenues declined by 32% to $226.1 million for the three months ended June 30, 2010, primarily due to a 65% decrease in trading gains.
  • 3The market-making segment's income before taxes dropped by 97% to $3.9 million for the quarter, heavily impacted by an estimated $72.0 million negative effect from U.S. dollar strengthening against other currencies.
  • 4The electronic brokerage segment saw a 17% increase in income before taxes to $72.3 million for the quarter, driven by higher commission revenues and net interest income.
  • 5Commissions and execution fees increased by 19% to $107.6 million for the quarter, signaling increased customer trading activity.
  • 6Net interest income surged by 117% to $23.2 million for the quarter, due to higher customer cash balances and margin borrowings.
  • 7Total assets grew to $27.48 billion as of June 30, 2010, with approximately 98.3% considered liquid.

Frequently Asked Questions

The primary reason for the significant decrease in net income and EPS was a substantial decline in trading gains, down 65% year-over-year for the quarter. This was largely driven by adverse foreign currency fluctuations, particularly the strengthening of the U.S. dollar against other major currencies, and tighter bid/offer spreads in the market-making segment.

The electronic brokerage segment performed strongly, with income before income taxes increasing by 17% year-over-year, driven by higher commission revenues and net interest income. In contrast, the market-making segment's income before income taxes decreased by 97%, significantly impacted by currency translation losses and challenging market conditions.

Interactive Brokers maintained a strong liquidity position with total assets of $27.48 billion, of which approximately 98.3% were considered liquid. The company also reported aggregate excess regulatory capital of $3.30 billion across its operating subsidiaries, indicating a robust capital base.

The significant increase in net interest income is attributed to growth in customer balances. Average customer cash balances increased by 40% and average customer fully secured margin borrowings increased by 104% for the quarter ended June 30, 2010, compared to the prior year period.