10-QPeriod: Q1 FY2013

Interactive Brokers Group, Inc. Quarterly Report for Q1 Ended Mar 31, 2013

Filed May 10, 2013For Securities:IBKR

Summary

Interactive Brokers Group, Inc. (IBKR) reported its first-quarter 2013 financial results, showing a significant decrease in net revenues compared to the prior year, largely driven by a substantial drop in trading gains within its market-making segment. This decline was primarily attributed to a subdued market-making environment characterized by low volatility and tight spreads, further exacerbated by unfavorable currency translation effects due to a strengthening U.S. dollar. Despite these challenges, the company's electronic brokerage segment demonstrated robust growth, with income before income taxes increasing by 33% year-over-year, fueled by higher commissions, execution fees, and net interest income. Customer accounts and equity also saw considerable year-over-year growth in the brokerage segment. Overall, the company's financial performance reflects a divergence between its two core businesses: electronic brokerage, which is thriving, and market making, which is facing headwinds. While consolidated net revenues declined, the company maintained its strong regulatory capital position, with aggregate excess regulatory capital of $2.46 billion across its operating entities. Management indicated that despite the challenging market-making environment, the company has sufficient liquidity and expects its cash flows from operations, available cash, and credit facilities to meet future needs.

Financial Highlights

28 data points
Beta

Revenue

$228.94M

Net Income

$6.56M

2.9% Net Margin

EPS (Diluted)

$0.04

Total Assets

$35.14B

Cash & Equivalents

$1.02B

Free Cash Flow

-$208.91M

Financial Statements
Beta
Revenue$228.94M
Net Income$6.56M
EPS (Basic)$0.04
EPS (Diluted)$0.04
Shares Outstanding (Basic)190.00M
Shares Outstanding (Diluted)190.75M

Key Highlights

  • 1Net revenues decreased by 29% year-over-year to $216.1 million, primarily due to a 86% drop in trading gains.
  • 2The Market Making segment experienced a significant decline, reporting a pre-tax loss of $29.0 million compared to a pre-tax profit of $66.0 million in the prior year quarter.
  • 3The Electronic Brokerage segment showed strong performance, with income before income taxes increasing by 33% to $111.0 million, driven by higher commissions and net interest income.
  • 4Commissions and execution fees increased by 19% to $119.6 million, reflecting higher cleared customer volume.
  • 5Customer accounts grew by 11% year-over-year to approximately 217,000, and customer equity increased by 23% to $35.6 billion.
  • 6Diluted earnings per share (EPS) on a non-comprehensive basis were $0.14, down from $0.27 in the prior year quarter, largely impacted by lower trading gains.
  • 7The company maintained substantial regulatory capital, with aggregate excess regulatory capital of $2.46 billion across its operating entities.

Frequently Asked Questions

The substantial decrease in trading gains, particularly within the market making segment, was primarily attributed to a subdued market environment characterized by low volatility (as indicated by the VIX® being at its lowest levels) and tight bid/offer spreads. Additionally, unfavorable currency translation effects due to a strengthening U.S. dollar negatively impacted trading gains by $60.8 million in the current quarter compared to the prior year.

The two segments showed divergent performance. The Electronic Brokerage segment was strong, with income before income taxes up 33% year-over-year, driven by increased commissions, execution fees, and net interest income, along with growth in customer accounts and equity. In contrast, the Market Making segment struggled, with net revenues decreasing 83% and reporting a pre-tax loss of $29.0 million, primarily due to the challenging market conditions and currency headwinds.

Interactive Brokers manages its foreign currency exposure by maintaining its net worth in a basket of currencies called the 'GLOBAL.' This strategy aims to create a diversified currency base rather than being solely U.S. dollar-denominated. The strengthening U.S. dollar against several currencies in the GLOBAL basket negatively affected the company's reported earnings in dollars for the quarter.

The company maintains a highly liquid balance sheet, with approximately 98.8% of its assets considered liquid. It reported substantial aggregate excess regulatory capital of $2.46 billion across all operating entities, indicating a strong capital position. Management believes its current cash flows, available cash, and credit facilities are sufficient to meet future liquidity needs.