IBKR Interactive Brokers Group Inc

Reports Comprehensive Earnings Per Share of $0.40, Income before Taxes of $213 Million on $374 Million in Net Revenues, and Earnings Per Share on Net Income of $0.34.

Declares Quarterly Dividend of $0.10 Per Share.

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 $0.40 for the quarter ended March 31, 2017, compared to diluted earnings per share on a comprehensive basis of $0.60 for the same period in 2016.

Excluding other comprehensive income, the Company reported diluted earnings per share of $0.34 for the quarter ended March 31, 2017, compared to diluted earnings per share of $0.51 for the same period in 2016.

Net revenues were $374 million and income before income taxes was $213 million this quarter, compared to net revenues of $489 million and income before income taxes of $337 million for the same period in 2016.

The results for the quarter were positively impacted by strong growth in net interest income, which increased $15 million, or 12% from the year-ago quarter. Trading gains decreased 96% from the year-ago quarter on lower market making trading volumes and decreases in volatility and in the actual-to-implied volatility ratio.

In addition, the results for the quarter include a $73 million gain on our currency diversification strategy, compared to a $123 million gain in the same period in 2016; and a $1 million net mark-to-market loss on our U.S. government securities portfolio compared to a $37 million net mark-to-market gain in the same period in 2016.

On March 8, 2017, the Company announced its intention to discontinue its options market making activities globally. The Company expects to phase out these operations substantially over the coming months and estimates that it will incur approximately $25 million in one-time restructuring costs, a substantial portion of which is expected to be defrayed by continuing certain market making activities until the restructuring is complete. As a result of discontinuing its options market making operations, the Company expects that approximately $39 million in annual net expenses will be absorbed by the electronic brokerage segment.

The Interactive Brokers Group, Inc. Board of Directors declared a quarterly cash dividend of $0.10 per share. This dividend is payable on June 14, 2017 to shareholders of record as of June 1, 2017.

Business Highlights

• 57% pretax profit margin for this quarter.
• 59% Electronic Brokerage pretax profit margin for this quarter, down from 68% in the year-ago quarter.
• (275)% Market Making pretax profit (loss) margin for this quarter, down from 34% profit margin in the year-ago quarter.
• Customer equity grew 38% from the year-ago quarter to $96.8 billion and customer debits increased 39% to $20.9 billion.
• Customer accounts increased 18% from the year-ago quarter to 406 thousand.
• Total DARTs decreased 12% from the year-ago quarter to 657 thousand.
• Brokerage segment equity was $4.3 billion. Total equity was $6.0 billion.

Segment Overview

Electronic Brokerage

Electronic brokerage segment income before income taxes decreased 21%, to $185 million in the quarter ended March 31, 2017, compared to the same period last year. Net revenues decreased 10% to $314 million on lower commissions and execution fees revenue and lower net mark-to-market gains on our U.S. government securities portfolio, partially offset by higher net interest income.

Other income decreased 59% over the year-ago quarter, driven by a non-recurrence of net mark-to-market gains on investments in U.S. government securities in the year-ago quarter. Commissions and execution fees revenue decreased 7% from the year-ago quarter on lower customer volumes in options and futures, which decreased 1% and 24%, respectively, from the year-ago quarter. Net interest income increased 13% from the year-ago quarter. Pretax profit margin was 59% for the quarter ended March 31, 2017, down from 68% in the same period last year.

Customer accounts grew 18% to 406 thousand and customer equity increased 38% from the year-ago quarter to $96.8 billion. Total DARTs1 for cleared and execution-only customers decreased 12% to 657 thousand from the year-ago quarter. Cleared DARTs were 609 thousand, 11% lower than in the same period last year.

Market Making

Market making segment income before income taxes decreased to a loss of $22 million in the quarter ended March 31, 2017, due to lower trading volumes and decreases in volatility and in the actual-to-implied volatility ratio. For the year to date through the Company’s announcement on March 8, 2017, the market making segment had incurred net losses, and the segment was not expected to return to meaningful profitability; however, the rate of continuing losses was substantially reduced after the Company began taking action to discontinue its options market making activities. Pretax profit (loss) margin was (275)% for the quarter ended March 31, 2017, down from 34% profit margin in the same period last year.

Effects of Foreign Currency Diversification

In connection with our currency diversification strategy, we have determined to base our net worth in GLOBALs, a basket of 15 major currencies in which we hold our equity. In this quarter, our currency diversification strategy increased our comprehensive earnings by $73 million, as the U.S. dollar value of the GLOBAL increased by approximately 1.27%. The effects of the currency diversification strategy are reported as components of (1) Other Income in the Corporate segment and (2) Other Comprehensive Income (“OCI”).

In light of our decision to discontinue our options market making activities globally, we removed the Singapore dollar (SGD) and realigned the relative weights of the U.S. dollar (USD) versus the other currency components to better reflect the global diversification of our businesses going forward.

The new composition contains 14 currencies, one fewer than the prior composition. The new composition was effective as of the close of business on March 31, 2017 and the conversion to the new targeted currency holdings took place shortly thereafter. The detailed component changes were disclosed with the March Monthly Brokerage Metrics on April 3, 2017. A copy of that press release is available through the Investor Relations section of the Interactive Brokers website at www.interactivebrokers.com/ir.

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

Conference Call Information:

Interactive Brokers Group will hold a conference call with investors today, April 18, 2017, 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 affiliates provide automated trade execution and custody of securities, commodities and foreign exchange around the clock on over 120 markets in numerous countries and currencies from a single IB Universal AccountSM to customers worldwide. We service individual investors, hedge funds, proprietary trading groups, financial advisors and introducing brokers. Our four decades of focus on technology and automation has enabled us to equip our customers with a uniquely sophisticated platform to manage their investment portfolios at extremely low cost relative to the financial services industry. We strive to provide our customers with advantageous execution prices and trading, risk and portfolio management tools, research facilities and investment products, all at unusually low prices, positioning them to achieve superior returns compared to our competitors.

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 2014 64,530 206,759 18,055 289,344 1,155 2015 65,937 2% 242,846 17% 18,769 4% 327,553 13% 1,305 2016 64,038 -3% 259,932 7% 16,515 -12% 340,485 4% 1,354   1Q2016 17,255 71,145 4,731 93,131 1,527 1Q2017 12,224 -29% 62,914 -12% 3,665 -23% 78,803 -15% 1,271   4Q2016 15,253 63,074 3,933 82,260 1,316 1Q2017 12,224 -20% 62,914 0% 3,665 -7% 78,803 -4% 1,271     CONTRACT AND SHARE VOLUMES: (in 000's, except %)                     TOTAL Options % Futures* % Stocks % Period (contracts) Change (contracts) Change (shares) Change 2014 631,265 123,048 153,613,174 2015 634,388 0% 140,668 14% 172,742,520 12% 2016 572,834 -10% 143,287 2% 155,439,227 -10%   1Q2016 151,912 41,238 38,350,112 1Q2017 121,155 -20% 30,366 -26% 53,300,920 39%   4Q2016 141,695 34,173 41,805,268 1Q2017 121,155 -14% 30,366 -11% 53,300,920 27%     MARKET MAKING Options % Futures* % Stocks % Period (contracts) Change (contracts) Change (shares) Change 2014 344,741 15,668 12,025,822 2015 335,406 -3% 14,975 -4% 15,376,076 28% 2016 307,377 -8% 14,205 -5% 13,082,887 -15%   1Q2016 82,345 4,344 4,618,495 1Q2017 52,291 -36% 2,511 -42% 1,954,775 -58%   4Q2016 73,843 3,481 2,249,744 1Q2017 52,291 -29% 2,511 -28% 1,954,775 -13%     BROKERAGE TOTAL Options % Futures* % Stocks % Period (contracts) Change (contracts) Change (shares) Change 2014 286,524 107,380 141,587,352 2015 298,982 4% 125,693 17% 157,366,444 11% 2016 265,457 -11% 129,082 3% 142,356,340 -10%   1Q2016 69,567 36,894 33,731,617 1Q2017 68,864 -1% 27,855 -24% 51,346,145 52%   4Q2016 67,852 30,692 39,555,524 1Q2017 68,864 1% 27,855 -9% 51,346,145 30%     * Includes options on futures      

INTERACTIVE BROKERS GROUP, INC. AND SUBSIDIARIES

OPERATING DATA, CONTINUED

              BROKERAGE CLEARED   Options   % Futures* % Stocks % Period (contracts) Change (contracts) Change (shares) Change 2014 225,662 106,074 137,153,132 2015 244,356 8% 124,206 17% 153,443,988 12% 2016 227,413 -7% 128,021 3% 138,523,932 -10%   1Q2016 58,531 36,546 32,617,117 1Q2017 60,366 3% 27,528 -25% 50,397,970 55%   4Q2016 59,354 30,452 38,598,113 1Q2017 60,366 2% 27,528 -10% 50,397,970 31%   * Includes options on futures               BROKERAGE STATISTICS (in 000's, except % and where noted)   Year over Year 1Q2017 1Q2016 % Change Total Accounts 406 345 18% Customer Equity (in billions)* $ 96.8 $ 70.1 38%   Cleared DARTs 609 688 -11% Total Customer DARTs 657 748 -12%       Cleared Customers (in $'s, except DART per account) Commission per DART $ 4.01 $ 3.86 4% DART per Avg. Account (Annualized) 385 513 -25% Net Revenue per Avg. Account (Annualized) $ 3,157 $ 3,709 -15%   Consecutive Quarters 1Q2017 4Q2016 % Change Total Accounts 406 385 5% Customer Equity (in billions)* $ 96.8 $ 85.5 13%   Cleared DARTs 609 591 3% Total Customer DARTs 657 640 3%       Cleared Customers (in $'s, except DART per account) Commission per DART $ 4.01 $ 4.01 0% DART per Avg. Account (Annualized) 385 394 -2% Net Revenue per Avg. Account (Annualized) $ 3,157 $ 3,205 -1%   * Excludes non-customers.      

INTERACTIVE BROKERS GROUP, INC. AND SUBSIDIARIES

SEGMENT FINANCIAL INFORMATION

(UNAUDITED)

      Three Months Ended March 31, 2017   2016 (in millions)   Electronic Brokerage Net revenues $ 314 $ 347 Non-interest expenses   129   112   Income before income taxes $ 185 $ 235   Pre-tax profit margin 59% 68%   Market Making Net revenues $ 8 $ 59 Non-interest expenses   30   39   Income (loss) before income taxes $ (22) $ 20   Pre-tax profit (loss) margin -275% 34%   Corporate (1) Net revenues $ 52 $ 83 Non-interest expenses   2   1   Income before income taxes $ 50 $ 82     Total Net revenues $ 374 $ 489 Non-interest expenses   161   152   Income before income taxes $ 213 $ 337   Pre-tax profit margin 57% 69%   (1)   Corporate includes corporate related activities as well as inter-segment eliminations and gains and losses on positions held as part of our overall currency diversification strategy.      

INTERACTIVE BROKERS GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)

      Three Months Ended March 31, 2017 2016 (in millions, except share and per share data)   Revenues: Trading gains $ 2 $ 52 Commissions and execution fees 154 166 Interest income 177 145 Other income   76   144   Total revenues 409 507   Interest expense   35   18   Total net revenues   374   489   Non-interest expenses: Execution and clearing 61 62 Employee compensation and benefits 62 58 Occupancy, depreciation and amortization 13 12 Communications 8 7 General and administrative 16 13 Customer bad debt   1   -   Total non-interest expenses   161   152   Income before income taxes 213 337   Income tax expense   18   27   Net income 195 310   Net income attributable to noncontrolling interests   171   277   Net income available for common stockholders $ 24 $ 33   Earnings per share: Basic $ 0.35 $ 0.52 Diluted $ 0.34 $ 0.51   Weighted average common shares outstanding: Basic 67,985,107 63,985,477 Diluted 69,157,614 65,255,903   Comprehensive income: Net income available for common stockholders $ 24 $ 33 Other comprehensive income: Cumulative translation adjustment, before income taxes 4 6 Income taxes related to items of other comprehensive income -   - Other comprehensive income, net of tax   4   6 Comprehensive income available for common stockholders $ 28 $ 39   Comprehensive income attributable to noncontrolling interests: Net income attributable to noncontrolling interests $ 171 $ 277 Other comprehensive income - cumulative translation adjustment 19   33 Comprehensive income attributable to noncontrolling interests $ 190 $ 310    

INTERACTIVE BROKERS GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

              March 31,

2017

  December 31,

2016

(in millions)   Assets Cash and cash equivalents $ 1,656 $ 1,925 Cash and securities - segregated for regulatory purposes 24,710 24,017 Securities borrowed 3,923 3,629 Securities purchased under agreements to resell 112 111 Financial instruments owned, at fair value 3,023 4,037 Receivables from customers, net of allowance for doubtful accounts 21,273 19,409 Receivables from brokers, dealers and clearing organizations 1,052 1,040 Other assets   508   505   Total assets $ 56,257 $ 54,673   Liabilities and equity   Liabilities Short-term borrowings $ 38 $ 74 Securities loaned 3,967 4,293 Financial instruments sold but not yet purchased, at fair value 1,366 2,145 Other payables: Customers 44,301 41,731 Brokers, dealers and clearing organizations 192 239 Other payables   383   371   44,876   42,341   Total liabilities   50,247   48,853   Equity Stockholders' equity 997 974 Noncontrolling interests   5,013   4,846 Total equity   6,010   5,820   Total liabilities and equity $ 56,257 $ 54,673       March 31, 2017 December 31, 2016 Ownership of IBG LLC Membership Interests

Interests

%

Interests

%

  IBG, Inc. 67,991,929 16.6% 67,989,967 16.6% Noncontrolling interests (IBG Holdings LLC) 341,444,304 83.4% 341,444,304 83.4%   Total IBG LLC membership interests 409,436,233 100.0% 409,434,271 100.0%      

INTERACTIVE BROKERS GROUP, INC. AND SUBSIDIARIES

EARNINGS PER SHARE ON COMPREHENSIVE INCOME

(UNAUDITED)

        Three Months Ended March 31, 2017 2016 (in millions, except share and per share data)     Comprehensive income available for common stockholders, net of tax $ 28 $ 39   Comprehensive earnings per share: Basic $ 0.41 $ 0.61 Diluted $ 0.40 $ 0.60     Weighted average common shares outstanding: Basic 67,985,107 63,985,477 Diluted 69,157,614 65,255,903  

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Interactive Brokers Group, Inc.Investors:Nancy Stuebe, 203-618-4070orMedia:Kalen Holliday, 203-913-1369