10-QPeriod: Q2 FY2011

Interactive Brokers Group, Inc. Quarterly Report for Q2 Ended Jun 30, 2011

Filed August 9, 2011For Securities:IBKR

Summary

Interactive Brokers Group, Inc. (IBKR) reported a significant increase in financial performance for the second quarter and the first half of 2011 compared to the prior year. Diluted earnings per share surged to $0.22 in Q2 2011 from $0.09 in Q2 2010, and to $0.60 for the first six months of 2011 from $0.18 in the same period last year. This growth was driven by substantial increases in net revenues, particularly from net interest income and trading gains. The company's electronic brokerage segment saw income growth fueled by rising customer cash balances and margin borrowings, while the market-making segment experienced a dramatic increase in income due to reduced currency translation losses and wider bid/offer spreads in options. The company highlighted strong growth in customer accounts (up 21%) and customer equity (up 57% to $25.7 billion), which significantly boosted net interest income. Despite a decrease in overall trading volumes for derivatives and stocks in certain segments, IBKR demonstrated robust profitability. Non-interest expenses decreased overall, particularly in the market-making segment, contributing to improved margins and profitability.

Financial Highlights

28 data points
Beta

Revenue

$321.38M

Net Income

$9.56M

3.0% Net Margin

EPS (Diluted)

$0.06

Total Assets

$30.64B

Cash & Equivalents

$1.42B

Free Cash Flow

$452.94M

Financial Statements
Beta
Revenue$321.38M
Net Income$9.56M
EPS (Basic)$0.06
EPS (Diluted)$0.06
Shares Outstanding (Basic)172.07M
Shares Outstanding (Diluted)173.88M

Key Highlights

  • 1Diluted EPS increased significantly to $0.22 in Q2 2011 ($0.09 in Q2 2010) and $0.60 for H1 2011 ($0.18 for H1 2010).
  • 2Net revenues grew by 31% in Q2 2011 to $296.9 million and by 52% in H1 2011 to $664.8 million.
  • 3Net interest income saw a substantial increase of 136% in Q2 and 114% in H1, driven by higher customer cash balances and margin borrowings.
  • 4Market making segment income before taxes surged by 1,421% in Q2 and 1,963% in H1, largely due to reduced currency translation losses and wider bid/offer spreads.
  • 5Customer accounts grew by 21% year-over-year, reaching approximately 176,000 by June 30, 2011.
  • 6Customer equity increased by 57% to $25.7 billion, reflecting strong client asset growth.
  • 7Consolidated pre-tax margin improved to 50% in Q2 2011 (32% in Q2 2010) and 56% in H1 2011 (31% in H1 2010).

Frequently Asked Questions

The substantial increase in earnings per share was primarily driven by a significant rise in net revenues, fueled by a robust increase in net interest income from higher customer cash and margin balances, and a dramatic improvement in trading gains within the market-making segment. Reduced currency translation losses and wider bid/offer spreads also contributed significantly to the improved profitability, alongside a reduction in overall non-interest expenses as a percentage of revenue.

The electronic brokerage segment showed solid growth, with income before taxes increasing by 23% in Q2 and 31% in H1 2011, driven mainly by increased net interest income due to higher customer balances. The market-making segment experienced exceptional growth, with income before taxes surging by 1,421% in Q2 and 1,963% in H1 2011, largely attributable to a significant reduction in currency translation losses and improved trading gains.

Currency fluctuations, particularly the weakening of the U.S. dollar against other major currencies, had a positive impact on IBKR's comprehensive income. The company actively manages its global currency exposure by maintaining its net worth in a basket of major currencies (the 'GLOBAL'). While this strategy generally benefits the company, specific translation losses and gains are reported, with a significant reduction in translation losses contributing positively to market-making earnings in the reported periods.

Key revenue drivers include net interest income from customer cash and margin balances, and trading gains from market-making activities. While customer accounts and equity grew significantly, overall trading volumes in options and futures contracts saw decreases in Q2 2011 compared to Q2 2010, attributed partly to a general market decline and the elevated activity in Q2 2010 due to the 'flash crash.' The company also noted a decrease in market share in the market-making segment as they selectively pare down less profitable activities, emphasizing that market share is not directly correlated with profitability.