10-QPeriod: Q1 FY2012

Interactive Brokers Group, Inc. Quarterly Report for Q1 Ended Mar 31, 2012

Filed May 15, 2012For Securities:IBKR

Summary

Interactive Brokers Group, Inc. (IBKR) filed its quarterly report for the period ending March 30, 2012, with a significant caveat: the financial statements were not reviewed by an independent registered public accounting firm. This omission stems from an unresolved accounting issue regarding the classification of non-controlling interests, for which the company sought SEC guidance. This issue does not affect reported earnings or total equity but impacts the presentation of non-controlling interests as permanent or temporary equity. Financially, the company reported a decrease in diluted earnings per share on a comprehensive basis to $0.30 from $0.41 in the prior year. On a non-comprehensive basis (excluding currency translation effects), diluted EPS was $0.24, down from $0.38. Net revenues decreased to $303.9 million from $367.9 million year-over-year, primarily due to lower trading gains driven by an unfavorable swing in currency translation and a less favorable trading environment characterized by lower volatility. Expenses also increased, notably in employee compensation and benefits, partly due to a special stock grant and a revision in accounting for the Stock Incentive Plan. Despite these challenges, the company maintained substantial excess regulatory capital of $2.71 billion and a strong liquidity position with over 98.7% of assets considered liquid.

Financial Highlights

28 data points
Beta

Revenue

$323.06M

Net Income

$11.08M

3.4% Net Margin

EPS (Diluted)

$0.07

Total Assets

$32.70B

Cash & Equivalents

$1.55B

Free Cash Flow

-$53.93M

Financial Statements
Beta
Revenue$323.06M
Net Income$11.08M
EPS (Basic)$0.07
EPS (Diluted)$0.07
Shares Outstanding (Basic)182.31M
Shares Outstanding (Diluted)183.81M

Key Highlights

  • 1Financial statements for the quarter ended March 30, 2012, were not reviewed by an independent auditor due to an ongoing accounting interpretation request to the SEC regarding non-controlling interests.
  • 2Diluted EPS (comprehensive basis) decreased to $0.30 from $0.41 in Q1 2011; non-comprehensive basis diluted EPS fell to $0.24 from $0.38.
  • 3Total net revenues declined 17% to $303.9 million from $367.9 million year-over-year, driven by a significant drop in trading gains.
  • 4Trading gains decreased 31% to $137.3 million, largely impacted by an unfavorable currency translation swing and lower market volatility.
  • 5Employee compensation and benefits expenses increased 20% due to a special stock grant and a change in SIP accounting, contributing to higher overall expenses.
  • 6The company maintains substantial excess regulatory capital of $2.71 billion across its operating entities.
  • 7Despite a decrease in profitability, customer equity grew 17% to $28.9 billion, and the number of customer accounts increased 16%.

Frequently Asked Questions

The company's independent registered public accounting firm, Deloitte & Touche LLP, was unable to complete its review because Interactive Brokers Group, Inc. was requesting an interpretation from the SEC regarding the accounting for its non-controlling interests. This issue concerns whether these interests should be classified as permanent or temporary equity. The company expects to file an amended report once this matter is resolved and the review is completed.

The company experienced a decline in financial performance. Diluted earnings per share on a comprehensive basis decreased to $0.30 from $0.41 in Q1 2011. Similarly, on a non-comprehensive basis (excluding currency translation effects), diluted EPS dropped to $0.24 from $0.38. Net revenues fell by 17% to $303.9 million due to lower trading gains, while total non-interest expenses increased by 6%.

The decrease in trading gains was primarily driven by an unfavorable swing in currency translation, a decrease in the ratio of actual to implied volatility, and a general decrease in market volatility as measured by the VIX. An unfavorable currency translation swing contributed significantly to the decline, moving from a gain in the prior year to a loss in the current quarter.

Interactive Brokers maintains a highly liquid balance sheet, with approximately 98.7% of its assets considered liquid. As of March 31, 2012, the company reported aggregate excess regulatory capital of $2.71 billion across its operating subsidiaries, indicating a strong capital position. They also have access to a $100 million senior secured revolving credit facility, though no borrowings were outstanding under it at the quarter's end.