10-QPeriod: Q3 FY2014

Interactive Brokers Group, Inc. Quarterly Report for Q3 Ended Sep 30, 2014

Filed November 10, 2014For Securities:IBKR

Summary

Interactive Brokers Group, Inc. (IBKR) reported its third quarter and year-to-date results for 2014. The company saw a significant decrease in total net revenues primarily driven by lower trading gains, particularly in the market-making segment, which was impacted by currency translation effects due to a strengthening U.S. dollar and a trading error. Despite the decline in market-making profitability, the electronic brokerage segment showed robust growth, with increased net interest income and commissions. This growth was fueled by higher customer cash and margin balances and increased trading volumes. The company maintained strong regulatory capital levels and a liquid balance sheet, aiming to navigate the challenging market environment through its automated platform and global diversification strategy.

Financial Highlights

28 data points
Beta

Revenue

$196.00M

Net Income

$3.00M

1.5% Net Margin

EPS (Diluted)

$0.01

Total Assets

$41.61B

Cash & Equivalents

$1.01B

Free Cash Flow

$243.22M

Financial Statements
Beta
Revenue$196.00M
Net Income$3.00M
EPS (Basic)$0.01
EPS (Diluted)$0.01
Shares Outstanding (Basic)228.40M
Shares Outstanding (Diluted)232.88M

Key Highlights

  • 1Net revenues for the three months ended September 30, 2014, decreased by 48% to $171.0 million compared to $326.3 million in the prior year period, largely due to a significant drop in trading gains.
  • 2The market-making segment experienced a substantial decline, reporting a loss of $111.8 million before income taxes for the quarter, compared to a profit of $87.5 million in the prior year, heavily influenced by currency translation effects.
  • 3The electronic brokerage segment demonstrated resilience, with net revenues increasing 25% to $243.0 million for the quarter, driven by a 66% increase in net interest income and a 10% rise in commissions and execution fees.
  • 4Customer equity grew by 33% year-over-year to $54.9 billion as of September 30, 2014, and total customer accounts increased by 18% to 272,000, indicating strong client acquisition.
  • 5Customer margin loans reached a record $17.26 billion, contributing to the rise in net interest income within the brokerage business.
  • 6The company maintained strong regulatory capital, with aggregate excess regulatory capital for all operating companies totaling $3.25 billion.
  • 7Diluted earnings per share on a comprehensive basis saw a decrease, reporting a loss of $0.13 for the quarter, compared to earnings of $0.39 in the prior year, primarily due to currency translation effects.

Frequently Asked Questions

The primary driver for the decrease in net revenues was a significant decline in trading gains, particularly within the market-making segment. This was exacerbated by negative currency translation effects due to the strengthening U.S. dollar, as well as a trading error.

The electronic brokerage segment performed strongly, showing a 25% increase in net revenues for the quarter, driven by higher net interest income and commissions. In contrast, the market-making segment experienced a substantial decline, reporting a loss for the quarter.

Interactive Brokers manages foreign currency risk by maintaining its net worth in a basket of 16 currencies called the 'GLOBAL'. This strategy aims to diversify risk across major global currencies. The effects of this strategy are reflected in both trading gains and other comprehensive income (OCI).

Customer activity and equity have shown significant growth. Customer equity increased by 33% year-over-year to $54.9 billion as of September 30, 2014, and the total number of customer accounts grew by 18% to 272,000, with a notable portion of new accounts coming from outside the U.S.