Interactive Brokers Group Announces 1Q2019 Results

Business Wire 16-Apr-2019 4:01 PM

Income before Taxes of $339 Million on $558 Million in Net Revenues,Earnings Per Share on Net Income of $0.64 and Earnings Per Share onComprehensive Income of $0.64.

Declares Quarterly Dividend of $0.10 Per Share.

Interactive Brokers Group, Inc. (IEX:IBKR), an automated global electronic broker, reported diluted earnings per share on net income of $0.64 for the quarter ended March 31, 2019 compared to $0.63 for the same period in 2018, and diluted earnings per share on comprehensive income of $0.64 for the quarter, compared to $0.65 for the same period in 2018.

Net revenues were $558 million and income before income taxes was $339 million this quarter, compared to net revenues of $527 million and income before income taxes of $340 million for the same period in 2018. The results for the quarter were positively impacted by strong growth in net interest income, which increased $29 million, or 13%, from the year-ago quarter; which was counterbalanced by lower commissions revenue, which decreased $47 million, or 21%, and a $57 million reversal on our currency diversification strategy, which swung from a $38 million gain in the year-ago quarter to a $19 million loss this quarter. The results for the quarter also included two unusual items: a $103 million mark-to-market gain on our investment in Tiger Brokers, following its initial public offering on March 20, 2019, and $42 million of bad debt expense.

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, 2019 to shareholders of record as of May 31, 2019.

Business Highlights

• 61% pretax profit margin for this quarter, down from 65% in the year-ago quarter.
• 55% Electronic Brokerage pretax profit margin for this quarter, down from 63% in the year-ago quarter.
• Customer equity grew 14% from the year-ago quarter to $147.6 billion and customer debits decreased 13% to $25.5 billion.
• Customer accounts increased 21% from the year-ago quarter to 623 thousand.
• Total DARTs¹ decreased 10% from the year-ago quarter to 848 thousand.
• Brokerage segment equity was $6.2 billion. Total equity was $7.4 billion.

Segment Overview

Electronic Brokerage

Electronic brokerage segment income before income taxes decreased 14% to $250 million in the quarter ended March 31, 2019, compared to the same period last year. Net revenues decreased 2% to $456 million on lower commissions revenue, largely counterbalanced by higher net interest and other income.

Commissions revenue decreased 21% from the year-ago quarter on lower customer trading volume across most product types. Net interest income increased 13% as average customer credit balances and benchmark interest rates increased from the year-ago quarter. Other income increased 29% on higher net mark-to-market gains on our U.S. government securities portfolio and other investments. Pretax profit margin was 55% for the quarter ended March 31, 2019, down from 63% in the same period last year.

Customer accounts grew 21% to 623 thousand and customer equity increased 14% from the year-ago quarter to $147.6 billion. Total DARTs for cleared and execution-only customers decreased 10% to 848 thousand from the year-ago quarter. Cleared DARTs were 757 thousand, 14% lower than in the same period last year.

As previously disclosed, over an extended period in 2018, a small number of our brokerage customers had taken relatively large positions in a security listed on a major U.S. exchange. We extended margin loans against the security at a conservatively high collateral requirement. In December 2018, within a very short timeframe, this security lost a substantial amount of its value. The customer accounts were well margined and at December 31, 2018 they had incurred losses but had not fallen into any deficits. During the current quarter, subsequent price declines in the stock caused these accounts to fall into deficits, despite our efforts to liquidate the customers' positions. For the quarter ended March 31, 2019, we have recognized an aggregate loss of approximately $42 million. The ultimate effect of this incident on our results will depend upon market conditions and the outcome of the our debt collection efforts.

Market Making

Market making segment income before income taxes decreased 33% to $6 million in the quarter ended March 31, 2019, as compared to the year-ago quarter, primarily due to lower net revenues from the remaining operations.

Corporate

In June 2018 we consummated a strategic investment in Up Fintech Holding Limited ("Tiger Brokers") by purchasing preferred shares that represented a 7.4% beneficial ownership interest. On March 20, 2019, Tiger Brokers' priced its initial public offering ("IPO") of American Depositary Shares listed on NASDAQ Global Select market and, concurrently with the IPO, we purchased unregistered ordinary shares in Tiger Brokers through a private placement offering which transactions resulted in a beneficial ownership interest of 7.6%. We are bound to a customary lockup agreement preventing any disposition of our investment in Tiger Brokers for a period of 180 days from the date of the IPO. For the quarter ended March 31, 2019, we have recognized a mark-to-market gain of approximately $103 million.

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 decreased our comprehensive earnings by $21 million, as the U.S. dollar value of the GLOBAL decreased by approximately 0.19%. 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 16, 2019, 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 IBKR Integrated Investment Account 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 the lowest cost according to Barron's Best Online Brokers review, February 25, 2019. 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 or no cost, 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.

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

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