8-KEarnings & Results

Interactive Brokers Group, Inc. 8-K Report, Financial Results (Oct 22, 2009)

Filed October 22, 2009For Securities:IBKR

Summary

Interactive Brokers Group, Inc. (IBKR) filed an 8-K on October 22, 2009, reporting its third-quarter 2009 financial results. The company announced diluted earnings per share (EPS) of $0.20 for the quarter ended September 30, 2009, a significant decrease from $0.65 in the same period of 2008. This decline was driven by lower net revenues of $272 million compared to $497 million in Q3 2008, and reduced income before taxes to $133 million from $348 million year-over-year. The company cited intensifying competition and compressed spreads in exchange-listed derivatives markets as key factors affecting performance, particularly impacting its Market Making segment. Despite the year-over-year decline in earnings and revenue, IBKR highlighted strong operational growth within its Electronic Brokerage segment. Customer accounts increased by 20% and customer equity saw a substantial 43% rise compared to the prior year. The company maintained a robust pre-tax profit margin of 49% overall for the quarter, with its Electronic Brokerage segment achieving a 51% margin. The report indicates a challenging environment for market makers due to tighter bid/offer spreads, leading to a 74% decrease in Market Making segment income before taxes compared to Q3 2008, though its pre-tax margin remained strong at 49%.

Key Highlights

  • 1Diluted Earnings Per Share (EPS) for Q3 2009 was $0.20, a significant decrease from $0.65 in Q3 2008.
  • 2Net revenues for Q3 2009 were $272 million, down from $497 million in Q3 2008.
  • 3Income before income taxes for Q3 2009 was $133 million, compared to $348 million in Q3 2008.
  • 4Customer accounts in the Electronic Brokerage segment grew by 20% year-over-year.
  • 5Customer equity in the Electronic Brokerage segment increased by 43% year-over-year.
  • 6Market Making segment income before taxes decreased by 74% year-over-year due to compressed spreads, though the pre-tax margin remained strong at 49%.
  • 7Electronic Brokerage segment pre-tax margin improved to 51% from 47% in the prior year period.

Frequently Asked Questions

The primary reasons cited for the decline were intensifying competition and historically low bid-offer spreads in the transparent, exchange-listed derivatives markets. This environment negatively impacted the company's Market Making segment's profitability and overall net revenues.

The Electronic Brokerage segment showed resilience and growth. Despite a slight decrease in segment income before taxes compared to the prior year, customer accounts grew by 20% and customer equity increased by 43%. The segment also improved its pre-tax profit margin to 51% from 47% in Q3 2008.

The report mentions that historically low Fed Funds rates negatively affected net interest income, which contributed to the decrease in income before taxes for the Electronic Brokerage segment.

The CEO, Thomas Peterffy, indicated that the ultra-low transaction costs in exchange-listed products would inevitably lead to higher trading volumes and better customer performance, suggesting a long-term positive view despite current margin pressures.