Interactive Brokers Group Announces 1Q2018 Results

Business Wire 17-Apr-2018 4:01 PM

Reports Comprehensive Earnings Per Share of $0.65, Income before Taxes of $340 Million on $527 Million in Net Revenues, and Earnings Per Share on Net Income of $0.63.

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 $0.65 for the quarter ended March 31, 2018, compared to diluted earnings per share on a comprehensive basis of $0.40 for the same period in 2017. Excluding other comprehensive income, the Company reported diluted earnings per share of $0.63 for the quarter, compared to diluted earnings per share of $0.34 for the same period in 2017.

Net revenues were $527 million and income before income taxes was $340 million this quarter, compared to net revenues of $374 million and income before income taxes of $213 million for the same period in 2017. The results for the quarter were positively impacted by strong growth in net interest income, which increased $75 million, or 53%, and higher commissions, which increased $66 million, or 43% from the year-ago quarter.

In addition, the results for the quarter include a $38 million gain on our currency diversification strategy, compared to a $49 million gain in the same period in 2017; and a $3 million net mark-to-market loss on our U.S. government securities portfolio, compared to a $1 million net mark-to-market loss in the same period in 2017.

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, 2018 to shareholders of record as of June 1, 2018.

Business Highlights

  • 65% pretax profit margin for this quarter, up from 57% in the year-ago quarter.
  • 63% Electronic Brokerage pretax profit margin for this quarter, up from 59% in the year-ago quarter.
  • Customer equity grew 33% from the year-ago quarter to $129.2 billion and customer debits increased 40% to $29.3 billion.
  • Customer accounts increased 27% from the year-ago quarter to 517 thousand.
  • Total DARTs1 increased 43% from the year-ago quarter to 939 thousand.
  • Brokerage segment equity was $5.1 billion. Total equity was $6.7 billion.

__________________________

1

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

Segment Overview

Electronic Brokerage

Electronic brokerage segment income before income taxes increased 57%, to $291 million in the quarter ended March 31, 2018, compared to the same period last year. Net revenues increased 48% to $465 million on higher net interest income and commissions revenue.

Net interest income increased 56% as average customer credit and margin loan balances and benchmark interest rates increased from the year-ago quarter. Commissions revenue increased 43% from the year-ago quarter on higher customer volumes in futures, options and stocks, which increased 53%, 48% and 28%, respectively, from the year-ago quarter. Pretax profit margin was 63% for the quarter ended March 31, 2018, up from 59% in the same period last year.

Customer accounts grew 27% to 517 thousand and customer equity increased 33% from the year-ago quarter to $129.2 billion. Total DARTs for cleared and execution-only customers increased 43% to 939 thousand from the year-ago quarter. Cleared DARTs were 876 thousand, 44% higher than in the same period last year.

Market Making

Market making segment income before income taxes increased to $9 million in the quarter ended March 31, 2018, as compared to a pretax loss of $22 million in the year-ago quarter, during which we began to wind down operations in this segment. The current quarter's results reflect higher trading gains and lower operating costs on the remaining operations. In the third quarter of 2017 we completed the transfer of our U.S. options market making business to Two Sigma Securities, LLC and by year-end we had exited the majority of our market making activities outside the U.S.

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 14 major currencies in which we hold our equity. In this quarter, our currency diversification strategy increased our comprehensive earnings by $46 million, as the U.S. dollar value of the GLOBAL increased by approximately 0.69%. 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").

Conference Call Information:

Interactive Brokers Group, Inc. will hold a conference call with investors today, April 17, 2018, 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 Account® to customers worldwide. We service individual investors, hedge funds, proprietary trading groups, financial advisors and introducing brokers. Focusing on technology and automation for over 41 years has enabled us to equip our customers with a uniquely sophisticated platform to manage their investment portfolios at the lowest cost. Due to our range of services, low costs and technology, IBKR is ranked the "Top Online Broker", according to Barron's Best Online Brokers review, March 24, 2018. We strive to provide our customers with advantageous execution prices and trading, risk and portfolio management tools, research facilities and investment products, all at low prices, positioning them to achieve superior returns on investments.

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
2017 31,282 (51%) 265,501 2% 14,835 (10%) 311,618 (8%) 1,246
 
1Q2017 12,224 62,914 3,665 78,803 1,271
1Q2018 4,469 (63%) 89,621 42% 4,695 28% 98,785 25% 1,619
 
4Q2017 4,263 71,502 3,800 79,565 1,273
1Q2018 4,469 5% 89,621 25% 4,695 24% 98,785 24% 1,619
 
CONTRACT AND SHARE VOLUMES:
(in 000's, except %)
 

TOTAL

      Options     %       Futures1       %       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%)
2017 395,885 (31%) 124,123 (13%) 220,247,921 42%
 
1Q2017 121,155 30,366 53,300,920
1Q2018 115,438 (5%) 43,449 43% 68,380,398 28%

 

4Q2017 89,381 31,445 58,373,129
1Q2018 115,438 29% 43,449 38% 68,380,398 17%
 

MARKET MAKING

Options % Futures1 % 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%)
2017 102,025 (67%) 5,696 (60%) 7,139,622 (45%)
 
1Q2017 52,291 2,511 1,954,775
1Q2018 13,256 (75%) 935 (63%) 2,817,831 44%
 
4Q2017 11,228 1,002 1,750,178
1Q2018 13,256 18% 935 (7%) 2,817,831 61%
 

BROKERAGE TOTAL

Options % Futures1 % 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%)
2017 293,860 11% 118,427 (8%) 213,108,299 50%
 
1Q2017 68,864 27,855 51,346,145
1Q2018 102,182 48% 42,514 53% 65,562,567 28%
 
4Q2017 78,153 30,443 56,622,951
1Q2018 102,182 31% 42,514 40% 65,562,567 16%

 

1 Includes options on futures.
 
 

INTERACTIVE BROKERS GROUP, INC. AND SUBSIDIARIES

OPERATING DATA, CONTINUED

 

BROKERAGE CLEARED

      Options       %       Futures1       %       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%)
2017 253,304 11% 116,858 (9%) 209,435,662 51%
 
1Q2017 60,366 27,528 50,397,970
1Q2018 87,705 45% 41,742 52% 64,494,943 28%
 
4Q2017 66,232 30,041 55,714,749
1Q2018 87,705 32% 41,742 39% 64,494,943 16%

 

1 Includes options on futures.
 
BROKERAGE STATISTICS
(in 000's, except % and where noted)
 
Year over Year      

1Q2018

     

1Q2017

     

% Change

Total Accounts 517 406 27%
Customer Equity (in billions)1 $ 129.2 $ 96.8 33%
Cleared DARTs 876 609 44%
Total Customer DARTs 939 657 43%
 
Cleared Customers (in $'s, except DART per account)
Commission per DART $ 4.04 $ 4.01 1%
DART per Avg. Account (Annualized) 439 385 14%
Net Revenue per Avg. Account (Annualized) $ 3,768 $ 3,157 19%
 
Consecutive Quarters

1Q2018

4Q2017

% Change

Total Accounts 517 483 7%
Customer Equity (in billions)1 $ 129.2 $ 124.8 4%
Cleared DARTs 876 681 29%
Total Customer DARTs 939 730 29%
 
Cleared Customers (in $'s, except DART per account)
Commission per DART $ 4.04 $ 3.92 3%
DART per Avg. Account (Annualized) 439 363 21%
Net Revenue per Avg. Account (Annualized) $ 3,768 $ 3,318 14%

 

1 Excluded non-customers.

 
 

INTERACTIVE BROKERS GROUP, INC. AND SUBSIDIARIES

NET INTEREST MARGIN

(UNAUDITED)

 
      Three Months
Ended March 31,
2018 2017
 
(in millions)
Average interest-earning assets
Segregated cash and securities $ 20,989 $ 24,637
Customer margin loans 29,428 19,802
Securities borrowed 3,019 3,973
Other interest-earning assets 3,943 2,258
FDIC sweeps1   781   35
$ 58,160 $ 50,705
 
Average interest-bearing liabilities
Customer credit balances $ 47,865 $ 43,115
Securities loaned   4,341   3,695
$ 52,206 $ 46,810
 
Net interest income
Segregated cash and securities, net $ 74 $ 43
Customer margin loans2 139 75
Securities borrowed and loaned, net 47 33
Customer credit balances, net2 (49) (13)
Other net interest income3   11   4
Net interest income $ 222 $ 142
 
Net interest margin ("NIM")   1.55%   1.12%
 
Annualized yields
Segregated cash and securities 1.43% 0.71%
Customer margin loans 1.92% 1.54%
Customer credit balances 0.42% 0.12%
 
 
 

1Represents the average amount of customer cash swept into FDIC-insured banks as part of our InsuredBank Deposit Sweep Program. This item is not recorded in the Company's consolidated statements offinancial condition. Income derived from program deposits is reported in other net interest income in thetable above.

 

2Interest income and interest expense on customer margin loans and customer credit balances,respectively, are calculated on daily cash balances within each customer's account on a net basis, whichmay result in an offset of balances across multiple account segments (e.g., between securities andcommodities segments).

 

3Includes income from financial instruments which has the same characteristics as interest, but is reportedin other income in the Company's consolidated statements of comprehensive income.

 
 

INTERACTIVE BROKERS GROUP, INC. AND SUBSIDIARIES

SEGMENT FINANCIAL INFORMATION

(UNAUDITED)

 
        Three Months
Ended March 31,
2018   2017
(in millions)
 
Electronic Brokerage Net revenues $ 465 $ 314
Non-interest expenses   174   129
 
Income before income taxes $ 291 $ 185
 
Pre-tax profit margin 63% 59%
 
Market Making Net revenues $ 21 $ 8
Non-interest expenses   12   30
 
Income (loss) before income taxes $ 9 $ (22)
 
Pre-tax profit (loss) margin 43% (275%)
 
Corporate 1 Net revenues $ 41 $ 52
Non-interest expenses   1   2
 
Income before income taxes $ 40 $ 50
 
 
Total Net revenues $ 527 $ 374
Non-interest expenses   187   161
 
Income before income taxes $ 340 $ 213
 
Pre-tax profit margin 65% 57%
 
 
 

1Corporate includes corporate related activities as well as inter-segment eliminations and gains and losses on positions held as part of ouroverall currency diversification strategy.

 
 

INTERACTIVE BROKERS GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)

 
      Three Months
Ended March 31,
2018   2017
(in millions, except share and per share data)
 
Revenues:
Trading gains $ 13 $ 2
Commissions 220 154
Interest income 311 177
Other income   77   76
 
Total revenues 621 409
 
Interest expense   94   35
 
Total net revenues   527   374
 
Non-interest expenses:
Execution and clearing 73 61
Employee compensation and benefits 70 62
Occupancy, depreciation and amortization 12 13
Communications 6 8
General and administrative 23 16
Customer bad debt   3   1
 
Total non-interest expenses   187   161
 
Income before income taxes 340 213
 
Income tax expense   21   18
 
Net income 319 195
 
Net income attributable to noncontrolling interests   273   171
 
Net income available for common stockholders $ 46 $ 24
 
Earnings per share:
Basic $ 0.64 $ 0.35
Diluted $ 0.63 $ 0.34
 
Weighted average common shares outstanding:
Basic 71,475,950 67,985,107
Diluted 72,512,462 69,157,614
 
Comprehensive income:
Net income available for common stockholders $ 46 $ 24
Other comprehensive income:
Cumulative translation adjustment, before income taxes 1 4
Income taxes related to items of other comprehensive income -   -
Other comprehensive income, net of tax   1   4
Comprehensive income available for common stockholders $ 47 $ 28
 
Comprehensive income attributable to noncontrolling interests:
Net income attributable to noncontrolling interests $ 273 $ 171
Other comprehensive income - cumulative translation adjustment 7   19
Comprehensive income attributable to noncontrolling interests $ 280 $ 190
 
 

INTERACTIVE BROKERS GROUP, INC. AND SUBSIDIARIES

EARNINGS PER SHARE ON COMPREHENSIVE INCOME

(UNAUDITED)

 
      Three Months
Ended March 31,
2018   2017
(in millions, except share and per share data)
 
Comprehensive income available for common stockholders, net of tax $ 47 $ 28
 
Comprehensive earnings per share:
Basic $ 0.66 $ 0.41
Diluted $ 0.65 $ 0.40
 
 
Weighted average common shares outstanding:
Basic 71,475,950 67,985,107
Diluted 72,512,462 69,157,614
 
 

INTERACTIVE BROKERS GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

 
            March 31,

2018

    December 31,

2017

(in millions)
 
Assets
Cash and cash equivalents $ 1,901 $ 1,732
Cash and securities - segregated for regulatory purposes 20,268 20,232
Securities borrowed 2,968 2,957
Securities purchased under agreements to resell 677 2,035
Financial instruments owned, at fair value 2,415 3,154
Receivables from customers, net of allowance for doubtful accounts 29,464 29,821
Receivables from brokers, dealers and clearing organizations 1,002 823
Other assets   398   408
 
Total assets $ 59,093 $ 61,162
 
Liabilities and equity
 
Liabilities
Short-term borrowings $ 19 $ 15
Securities loaned 4,171 4,444
Securities sold under agreements to repurchase - 1,316
Financial instruments sold but not yet purchased, at fair value 242 767
Other payables:
Customers 47,423 47,548
Brokers, dealers and clearing organizations 170 283
Other payables   362   356
  47,955   48,187
 
Total liabilities   52,387   54,729
 
Equity
Stockholders' equity 1,132 1,090
Noncontrolling interests   5,574   5,343
Total equity   6,706   6,433
 
Total liabilities and equity $ 59,093 $ 61,162
 
 
March 31, 2018 December 31, 2017
Ownership of IBG LLC Membership Interests

Interests

%

Interests

%

 
IBG, Inc. 71,481,136 17.4% 71,479,604 17.4%
Noncontrolling interests (IBG Holdings LLC) 340,229,444 82.6% 340,229,444 82.6%
 
Total IBG LLC membership interests 411,710,580 100.0% 411,709,048 100.0%

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