Interactive Brokers Group Announces 3Q2012 Results

Interactive Brokers Group Announces 3Q2012 Results

Reports Comprehensive Earnings Per Share of $0.30, Income before Taxes of $173 Million on $319 Million in Net Revenues and Earnings Per Share on Net Income of $0.26; Equity Reaches $5.15 Billion

Declares Quarterly Dividend of $0.10 Per Share


GREENWICH, Conn.--(BUSINESS WIRE)-- Interactive Brokers Group, Inc. (NASDAQ GS: IBKR) an automated global electronic broker and market maker, today reported diluted earnings per share on a comprehensive basis of $0.30 for the quarter ended September 30, 2012, compared to diluted earnings per share on a comprehensive basis of $0.34 for the same period in 2011.

Reported results on a comprehensive basis reflect the GAAP convention adopted in 2011 that requires the reporting of currency translation results contained in Other Comprehensive Income as part of reportable earnings. Previously, currency translation results were reported as a component of changes in Total Equity in the Statement of Financial Condition.

On a non-comprehensive basis, which excludes the effect of changes in the U.S. dollar value of the Company's non-U.S. subsidiaries, the Company reported diluted earnings per share on net income of $0.26 for the quarter ended September 30, 2012, compared to diluted earnings per share of $0.48 for the same period in 2011.

Net revenues were $319 million and income before income taxes was $173 million for this quarter, compared to net revenues of $386 million and income before income taxes of $218 million for the same period in 2011.

The Interactive Brokers Group, Inc. Board of Directors declared a quarterly cash dividend of $0.10 per share. This dividend is payable on December 14, 2012 to shareholders of record as of November 30, 2012.

Business Highlights

  • 54% pretax profit margin for this quarter.

  • $5.15 billion in equity.

  • 48% Electronic Brokerage pretax profit margin for this quarter.

  • 59% Market Making pretax profit margin for this quarter.

  • Customer equity grew 35% from the year-ago quarter to $31.5 billion and customer accounts increased 11% to 205 thousand.

  • Cleared DARTs decreased 19% from the year-ago quarter to 369,000.

Segment Overview

Electronic Brokerage

Electronic Brokerage segment income before income taxes decreased 23%, to $81 million, in the quarter ended September 30, 2012 compared to the same period last year. Commissions and execution fees decreased 23% from the year-ago quarter, reflecting subdued trading volumes. During the same period last year we observed a surge in volumes, driven by concerns over the European debt crisis. Annualized DARTs(1) per cleared customer account were 456 in this quarter, compared to 640 for the same period in 2011. Total DARTs for cleared and execution-only customers decreased 21% to 390,000 from the year-ago quarter. Cleared DARTs were 369,000 in this quarter, 19% lower than the same period last year. These declines were consistent with lower industry volumes.

Customer accounts grew 11% to 205,000 from the year-ago quarter. Customer equity increased 35%, to $31.5 billion, from the year-ago quarter. Compared to the same period last year customer borrowings to support trading positions were $2.4 billion higher, ending the quarter at $9.2 billion. Pretax profit margin was 48% for this quarter, down from 55% in the same period last year.

Market Making

Market Making segment income before income taxes decreased 30%, to $90 million, for the quarter ended September 30, 2012 from the same period in 2011. This decrease was driven by an unfavorable market making environment with lower exchange traded volumes, low actual to implied volatility, and tighter bid/offer spreads in options. As measured by the CBOE Volatility Index (VIX), market volatility was at one-half of its level of the same period last year. The ratio of actual to implied volatility was 71% compared to 111% during the year ago quarter. On the upside, currency translation gains were $42 million in this quarter, compared to a $23 million loss in the year-ago quarter. Currency translation effects are reported as a component of Trading Gains in the Market Making segment.

Pretax profit margin was 59% in this quarter, compared to 63% in the same quarter last year. Market Making options contract volume decreased 36%, with similar declines in futures and stock volumes from the year-ago quarter.

Effects of Foreign Currency Diversification

In connection with our currency strategy, we have determined to base our net worth in GLOBALs, a basket of major currencies in which we hold our equity. In this quarter, our currency hedging program increased our comprehensive earnings as the U.S. dollar value of the GLOBAL increased by approximately 1.3%. The effects of currency hedging are reported as components of (1) Market Making Trading Gains and (2) Other Comprehensive Income, described below. Year to date swings in the value of the GLOBAL resulted in a net gain of $11 million.

Comprehensive Income

Reported results on a comprehensive basis reflect the Company's adoption of U.S. GAAP guidance (2) issued in June 2011 that requires the presentation of a Statement of Comprehensive Income, replacing the former Statement of Income. The Statement of Comprehensive Income reports currency translation results that are a component of Other Comprehensive Income ("OCI") directly in this statement. Previously, OCI was reported as a component of changes in Total Equity in the Statement of Financial Condition.

(1) Daily average revenue trades (DARTs) are based on customer orders.

(2) Accounting Standards Update 2011-05, Comprehensive Income.

Conference Call Information:

Interactive Brokers Group will hold a conference call with investors today, October 16, 2012, at 4:30 p.m. ET to discuss its quarterly results. Investors who would like to listen to the conference call live should dial 877-324-1965 (U.S. domestic) and 631-291-4512 (international). The number should be dialed approximately ten minutes prior to the start of the conference call. Ask for the "Interactive Brokers Conference Call."

The conference call will also be accessible simultaneously, and through replays, as an audio webcast through the Investor Relations section of the Interactive Brokers web site, www.interactivebrokers.com/ir.

About Interactive Brokers Group, Inc.:

Interactive Brokers Group, Inc., together with its subsidiaries, is an automated global electronic broker that specializes in catering to financial professionals by offering state-of-the-art trading technology, superior execution capabilities, worldwide electronic access, and sophisticated risk management tools at exceptionally low costs. The brokerage trading platform utilizes the same innovative technology as the Company's market making business, which specializes in routing orders and executing and processing trades in securities, futures, foreign exchange instruments, bonds and funds on more than 100 electronic exchanges and trading venues around the world. As a market maker, we provide liquidity at these marketplaces and, as a broker, we provide professional traders and investors with electronic access to stocks, options, futures, forex, bonds and mutual funds from a single IB Universal AccountSM. Employing proprietary software on a global communications network, Interactive Brokers is continuously integrating its software with a growing number of exchanges and trading venues into one automatically functioning, computerized platform that requires minimal human intervention.

Cautionary Note Regarding Forward-Looking Statements:

The foregoing information contains certain forward-looking statements that reflect the company's current views with respect to certain current and future events and financial performance. These forward-looking statements are and will be, as the case may be, subject to many risks, uncertainties and factors relating to the company's operations and business environment which may cause the company's actual results to be materially different from any future results, expressed or implied, in these forward-looking statements. Any forward-looking statements in this release are based upon information available to the company on the date of this release. The company does not undertake to publicly update or revise its forward-looking statements even if experience or future changes make it clear that any statements expressed or implied therein will not be realized. Additional information on risk factors that could potentially affect the company's financial results may be found in the company's filings with the Securities and Exchange Commission.

INTERACTIVE BROKERS GROUP, INC. AND SUBSIDIARIES

OPERATING DATA

TRADE VOLUMES:

(in 000's, except %)

Brokerage

Market

Brokerage

Non

Avg. Trades

Making

%

Cleared

%

Cleared

%

Total

%

per U.S.

Period

Trades

Change

Trades

Change

Trades

Change

Trades

Change

Trading Day

2007

99,086

72,931

16,638

188,655

752

2008

101,672

3%

120,195

65%

16,966

2%

238,833

27%

944

2009

93,550

-8%

127,338

6%

13,636

-20%

234,524

-2%

934

2010

75,169

-20%

133,658

5%

18,732

37%

227,559

-3%

905

2011

63,602

-15%

160,567

20%

19,187

2%

243,356

7%

968

3Q2011

19,602

45,879

5,273

70,754

1,106

3Q2012

14,405

-27%

36,246

-21%

3,435

-35%

54,086

-24%

865

CONTRACT AND SHARE VOLUMES:

(in 000's, except %)

TOTAL

Options

%

Futures*

%

Stocks

%

Period

(contracts)

Change

(contracts)

Change

(shares)

Change

2007

673,144

83,134

47,324,798

2008

757,732

13%

108,984

31%

55,845,428

18%

2009

643,380

-15%

82,345

-24%

75,449,891

35%

2010

678,856

6%

96,193

17%

84,469,874

12%

2011

789,370

16%

106,640

11%

77,730,974

-8%

3Q2011

254,904

31,835

20,598,631

3Q2012

169,745

-33%

24,020

-25%

15,364,650

-25%

MARKET MAKING

Options

%

Futures*

%

Stocks

%

Period

(contracts)

Change

(contracts)

Change

(shares)

Change

2007

447,905

14,520

24,558,314

2008 **

514,629

15%

21,544

48%

26,008,433

6%

2009 **

428,810

-17%

15,122

-30%

26,205,229

1%

2010 **

435,184

1%

15,371

2%

19,165,000

-27%

2011 **

503,053

16%

15,519

1%

11,788,769

-38%

3Q2011 **

171,731

4,835

3,921,841

3Q2012 **

110,549

-36%

3,007

-38%

2,347,903

-40%

BROKERAGE TOTAL

Options

%

Futures*

%

Stocks

%

Period

(contracts)

Change

(contracts)

Change

(shares)

Change

2007

225,239

68,614

22,766,484

2008

243,103

8%

87,440

27%

29,836,995

31%

2009

214,570

-12%

67,223

-23%

49,244,662

65%

2010

243,672

14%

80,822

20%

65,304,874

33%

2011

286,317

18%

91,121

13%

65,942,205

1%

3Q2011

83,173

27,000

16,676,790

3Q2012

59,196

-29%

21,013

-22%

13,016,747

-22%

* Includes options on futures

** In Brazil, an equity option contract typically represents 1 share of the underlying stock; however, the typical minimum trading quantity is 100 contracts. To make a fair comparison to volume at other exchanges, we have adopted a policy of reporting Brazilian equity options contracts divided by their trading quantity of 100.

INTERACTIVE BROKERS GROUP, INC. AND SUBSIDIARIES

OPERATING DATA, CONTINUED

CONTRACT AND SHARE VOLUMES, continued:

(in 000's, except %)

BROKERAGE CLEARED

Options

%

Futures*

%

Stocks

%

Period

(contracts)

Change

(contracts)

Change

(shares)

Change

2007

51,586

66,278

20,353,584

2008

77,207

50%

85,599

29%

26,334,752

29%

2009

93,868

22%

66,241

-23%

46,627,344

77%

2010

103,054

10%

79,144

19%

62,077,741

33%

2011

145,993

42%

89,610

13%

63,098,072

2%

3Q2011

43,994

26,601

15,846,432

3Q2012

37,174

-16%

20,686

-22%

12,594,066

-21%

* Includes options on futures

BROKERAGE STATISTICS

(in 000's, except % and where noted)

3Q2012

3Q2011

% Change

Total Accounts

205

184

11%

Customer Equity (in billions) *

$31.5

$23.3

35%

Cleared DARTs

369

457

-19%

Total Customer DARTs

390

495

-21%

Cleared Customers (in $'s, except DART per account)

Commission per DART

$4.23

$4.29

-1%

DART per Avg. Account (Annualized)

456

640

-29%

Net Revenue per Avg. Account (Annualized)

$3,216

$4,024

-20%