10-QPeriod: Q3 FY2010

Interactive Brokers Group, Inc. Quarterly Report for Q3 Ended Sep 30, 2010

Filed November 9, 2010For Securities:IBKR

Summary

Interactive Brokers Group, Inc. (IBKR) reported its third quarter and nine-month results for the period ending September 29, 2010. For the third quarter, the company saw a 10% increase in total net revenues to $299.1 million, driven by a strengthening of foreign currencies against the U.S. dollar and increased net interest income. Diluted Earnings Per Share (EPS) for the quarter rose 30% to $0.26. The electronic brokerage segment showed strong growth in customer accounts and equity, while the market-making segment experienced currency tailwinds but faced contracting bid/offer spreads and lower volatility. For the nine-month period, total net revenues decreased by 18% to $735.8 million, primarily due to a significant decline in trading gains. This was partially offset by strong growth in commissions and execution fees, and a 100% increase in net interest income. Diluted EPS for the nine months was $0.44, a 46% decrease compared to the prior year, reflecting the challenging market-making environment. The company maintained strong liquidity, with cash and cash equivalents increasing to $1.29 billion and substantial excess regulatory capital.

Financial Highlights

26 data points
Beta

Revenue

$315.10M

Net Income

$11.04M

3.5% Net Margin

EPS (Diluted)

$0.07

Total Assets

$29.66B

Cash & Equivalents

$1.29B

Free Cash Flow

$206.55M

Financial Statements
Beta
Revenue$315.10M
Net Income$11.04M
EPS (Basic)$0.07
EPS (Diluted)$0.07
Shares Outstanding (Basic)168.89M
Shares Outstanding (Diluted)171.14M

Key Highlights

  • 1Total net revenues for Q3 2010 increased 10% to $299.1 million, compared to $271.5 million in Q3 2009.
  • 2Diluted EPS for Q3 2010 rose 30% to $0.26, from $0.20 in the prior year's third quarter.
  • 3The electronic brokerage segment experienced an 18% increase in customer accounts and a 41% increase in customer equity year-over-year.
  • 4Market making segment income was positively impacted by foreign currency fluctuations, despite facing tighter bid/offer spreads and lower market volatility.
  • 5Net interest income for the nine months ended September 30, 2010, doubled to $71.1 million, driven by higher customer cash balances and margin borrowings.
  • 6Cash and cash equivalents increased significantly to $1.29 billion as of September 30, 2010, up from $859.9 million at the end of 2009.
  • 7The company maintained substantial excess regulatory capital of $3.39 billion across all operating entities.

Frequently Asked Questions

In Q3 2010, Interactive Brokers Group saw a healthy 10% increase in total net revenues to $299.1 million, boosted by foreign currency movements and higher net interest income. However, for the first nine months of 2010, total net revenues decreased by 18% to $735.8 million, primarily due to a significant drop in trading gains from the market-making segment, although this was partially offset by growth in commissions and a doubling of net interest income.

Currency fluctuations had a significant positive impact on Interactive Brokers' results, particularly in the third quarter of 2010. The strengthening of the Euro and other major currencies against the U.S. dollar generated substantial translation gains, which positively affected trading gains in the market-making segment. The company actively manages this exposure by maintaining its equity in proportion to a basket of major currencies.

The electronic brokerage segment demonstrated robust growth. Customer accounts increased by 18% year-over-year to approximately 151,000 by September 30, 2010, and customer equity grew by 41% to $18.9 billion. This growth was driven by increased customer trading activity, higher net interest income from customer balances and margin borrowings, and a 4% increase in Daily Average Revenue Trades (DARTs) for cleared and execution-only customers in Q3 2010.

Key challenges include intense competition in market making from high-frequency traders, contracting bid/offer spreads, and low market volatility. The company is also exposed to dividend risk and potential losses from extending margin credit to customers. Regulatory changes, such as those stemming from the Dodd-Frank Act, and market structure changes also present ongoing risks.