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

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.

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%.

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