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

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.

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.

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