10-QPeriod: Q1 FY2020

Interactive Brokers Group, Inc. Quarterly Report for Q1 Ended Mar 31, 2020

Filed May 11, 2020For Securities:IBKR

Summary

Interactive Brokers Group, Inc. (IBKR) reported its first quarter 2020 financial results, a period marked by significant market volatility due to the COVID-19 pandemic. Despite a slight decrease in total net revenues to $532 million from $558 million in the prior year quarter, the company saw a substantial increase in commission revenue, up 55% to $269 million, driven by a surge in customer trading volumes across options, futures, and stocks. This surge in activity was directly correlated with heightened market volatility, as indicated by the spike in the VIX index. The company's net income available for common stockholders decreased to $46 million ($0.60 per diluted share) from $49 million ($0.64 per diluted share) in the prior year quarter. This was largely due to a significant $135 million decrease in 'Other Income,' primarily stemming from a mark-to-market loss on its investment in Tiger Brokers and a negative impact from its currency diversification strategy. However, adjusted figures excluding these volatile items showed a strong performance, with adjusted diluted EPS rising to $0.69 from $0.55. IBKR maintained a strong liquidity position, with total assets of $75.8 billion, of which approximately 99.2% were considered liquid, and robust regulatory capital exceeding $6.4 billion.

Financial Statements
Beta
Revenue$307.00M
Interest Expense$113.00M
Net Income$46.00M
EPS (Basic)$0.15
EPS (Diluted)$0.15
Shares Outstanding (Basic)307.00M
Shares Outstanding (Diluted)310.27M

Key Highlights

  • 1Commission revenue surged by 55% to $269 million due to a 69% increase in cleared DARTs (Daily Average Revenue Trades) and a 71% increase in total customer DARTs, driven by heightened market volatility and increased trading activity.
  • 2Total net revenues decreased slightly by 5% to $532 million, primarily due to a significant $135 million decrease in 'Other Income,' largely attributable to a mark-to-market loss on its investment in Tiger Brokers and unfavorable currency diversification strategy results.
  • 3Net income available for common stockholders declined to $46 million ($0.60 per diluted share) from $49 million ($0.64 per diluted share) year-over-year.
  • 4Adjusted diluted EPS showed a strong increase to $0.69 from $0.55, highlighting the underlying operational strength when volatile items are excluded.
  • 5Customer accounts grew by 22% year-over-year to 760,000, and customer equity increased by 9% to $160.7 billion, indicating continued customer acquisition and asset growth despite market downturns.
  • 6The company maintained a highly liquid balance sheet with total assets of $75.8 billion, approximately 99.2% of which were considered liquid.
  • 7Excess regulatory capital across all operating subsidiaries stood at a strong $6.4 billion as of March 31, 2020, demonstrating robust financial health and compliance with regulatory requirements.

Frequently Asked Questions

The COVID-19 pandemic significantly increased market volatility and customer trading activity. This led to a substantial rise in commission revenue as customers engaged in more frequent trading. However, it also negatively impacted 'Other Income' due to mark-to-market losses on investments and the currency diversification strategy. Lower benchmark interest rates also compressed net interest income, although this was partially offset by increased customer credit balances.

The decrease in 'Other Income' was mainly due to a $111 million mark-to-market loss on the company's investment in Tiger Brokers and a $30 million loss from its currency diversification strategy. These items are volatile and not indicative of core operations. The company's 'adjusted' financial metrics, which exclude these items, show a more favorable performance, with adjusted diluted EPS increasing significantly year-over-year, highlighting the underlying strength of its brokerage business.

Interactive Brokers maintained a very strong liquidity position with $75.8 billion in total assets, of which approximately 99.2% were considered liquid. Furthermore, the company had substantial excess regulatory capital of $6.4 billion across its operating subsidiaries as of March 31, 2020, indicating a robust financial foundation and adherence to regulatory requirements.

Commission revenue increased by 55% due to a dramatic rise in customer trading activity, reflected in a 71% increase in total customer Daily Average Revenue Trades (DARTs). This surge in volume was a direct response to the unprecedented market volatility experienced during the first quarter of 2020, driven by the COVID-19 pandemic.