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Interactive Brokers Group Announces 2013 Results

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 $0.67 for the year ended December 31, 2013, compared to diluted earnings per share on a comprehensive basis of $1.13 for 2012.

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 $0.73 for the year ended December 31, 2013, compared to diluted earnings per share of $0.89 for the same period in 2012.

Net revenues were $1,076 million and income before income taxes was $451 million for the year, compared to net revenues of $1,131 million and income before income taxes of $527 million for 2012.

The Interactive Brokers Group, Inc. Board of Directors declared a quarterly cash dividend of $0.10 per share. This dividend is payable on March 14, 2014 to shareholders of record as of February 28, 2014.

Business Highlights

  • 42% pretax profit margin for 2013, or 48% without unusual item.
  • 48% Electronic Brokerage pretax profit margin for 2013, or 56% excluding unusual item.
  • 26% Market Making pretax profit margin for 2013.
  • Customer equity grew 39% from 2012 to $45.7 billion.
  • Customer accounts increased 14% in 2013 to 239,000.
  • Total DARTs increased 18% from 2012 to 486,000.
  • Brokerage segment equity was $2.5 billion. Total equity was $5.1 billion.

Segment Overview

Electronic Brokerage

Electronic Brokerage segment income before income taxes grew 15%, to $391 million, in 2013. Customer accounts grew 14% from the prior year and customer equity increased 39% during 2013(1). Commissions and execution fees increased 22%. Net interest income grew 24% from the prior year, to $228 million. Pretax profit margin was 48% in 2013, down from 51% in 2012. Excluding $64.3 million in expense related to an unusual item (see below), pretax profit margin was 56% in 2013.

Total DARTs(2), for cleared and execution-only customers, increased 18% to 486,000 in 2013, compared to 413,000 during 2012. Cleared DARTs were 441,000 in 2013, 15% higher than in 2012.

Market Making

Market Making segment income before income taxes decreased 62%, to $72 million, in 2013. This decrease was driven by a market making environment with persistent low volatility and low actual-to-implied volatility, and by a greater loss from holding our equity in a basket of currencies, as measured in U.S. dollars. In 2013, our currency diversification strategy resulted in a reported loss of $89 million, compared to a $39 million loss in 2012. Currency translation effects are reported as part of Trading Gains in the Market Making segment. Including balance sheet effects, our currency strategy resulted in a loss of $116 million in 2013, as compared to a loss of $19 million in the prior year. Pretax profit margin decreased to 26% in 2013 from 41% in 2012. Market Making options contract volume decreased 12% in 2013.

Unusual Item

As disclosed in the Company’s Form 10-Q for the quarter ended September 30, 2013, a small number of the Company’s brokerage customers had taken relatively large positions in four securities listed on the Singapore Exchange. In early October, within a very short timeframe, these securities lost over 90% of their value. The customer accounts were margined and fell into deficits prior to the time the Company took possession of their securities positions. At December 31, 2013, the Company has recognized an aggregate loss of approximately $73 million. The maximum aggregate loss, which would occur if the securities’ prices all fell to zero and none of the debts were collected, would be approximately $84 million. The Company is currently pursuing the collection of the debts. The ultimate effect of this incident on the Company’s results will depend upon market conditions and the outcome of the Company’s debt collection efforts.

Effects of Foreign Currency Diversification

In connection with our currency strategy, we have determined to base our net worth in GLOBALs, a basket of 16 major currencies in which we hold our equity. In 2013, our currency diversification program decreased our comprehensive earnings by $116 million, as the U.S. dollar value of the GLOBAL decreased by approximately 2.4%. The effects of currency diversification are reported as components of (1) Market Making Trading Gains and (2) Other Comprehensive Income (“OCI”). In this year 76% of the GLOBAL effect was captured in Market Making Trading Gains in the Net Income section of the Statement of Comprehensive Income, with the remainder reported as OCI in the separate Comprehensive Income section of the Statement of Comprehensive Income.

(1) Approximately 9% of the increase in customer equity was due to the reclassification of certain related accounts from “non-customer” to “customer”, which are regulatory distinctions.

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

_____________________

Conference Call Information:

Interactive Brokers Group will hold a conference call with investors today, January 21, 2014, 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

2009 93,550 127,338 13,636 234,524 934
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
2012 60,421 -5% 150,000 -7% 16,118 -16% 226,540 -7% 904
2013 65,320 8% 173,849 16% 18,489 15% 257,658 14% 1,029
 
4Q2012 14,477 37,300 3,532 55,309 878
4Q2013 14,437 0% 45,167 21% 4,585 30% 64,189 16% 1,019
 

CONTRACT AND SHARE VOLUMES:

(in 000's, except %)

 
TOTAL Options % Futures* % Stocks %

Period

(contracts)

Change

(contracts)

Change

(shares)

Change

2009 643,380 82,345 75,449,891
2010 678,856 6% 96,193 17% 84,469,874 12%
2011 789,370 16% 106,640 11% 77,730,974 -8%
2012 698,140 -12% 98,801 -7% 65,872,960 -15%
2013 659,673 -6% 121,776 23% 95,479,739 45%
 
4Q2012 159,048 25,591 17,278,459
4Q2013 155,216 -2% 28,724 12% 27,042,356 57%
 
MARKET MAKING Options % Futures* % Stocks %

Period

(contracts)

Change

(contracts)

Change

(shares)

Change

2009 ** 428,810 15,122 26,205,229
2010 ** 435,184 1% 15,371 2% 19,165,000 -27%
2011 ** 503,053 16% 15,519 1% 11,788,769 -38%
2012 ** 457,384 -9% 12,660 -18% 9,339,465 -21%
2013 ** 404,490 -12% 18,184 44% 12,849,729 38%
 
4Q2012 ** 102,703 3,203 2,361,442
4Q2013 ** 87,498 -15% 4,245 33% 2,776,564 18%
 
BROKERAGE TOTAL Options % Futures* % Stocks %

Period

(contracts)

Change

(contracts)

Change

(shares)

Change

2009 214,570 67,223 49,244,662
2010 243,672 14% 80,822 20% 65,304,874 33%
2011 286,317 18% 91,121 13% 65,942,205 1%
2012 240,756 -16% 86,141 -5% 56,533,495 -14%
2013 255,183 6% 103,592 20% 82,630,010 46%
 
4Q2012 56,345 22,388 14,917,017
4Q2013 67,718 20% 24,479 9% 24,265,792 63%
* 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

         
BROKERAGE CLEARED Options % Futures* % Stocks %

Period

(contracts)

Change

(contracts)

Change

(shares)

Change

2009 93,868 66,241 46,627,344
2010 103,054 10% 79,144 19% 62,077,741 33%
2011 145,993 42% 89,610 13% 63,098,072 2%
2012 144,539 -1% 84,794 -5% 54,371,351 -14%
2013 180,660 25% 101,732 20% 78,829,785 45%
 
4Q2012 36,602 21,952 14,348,785
4Q2013 49,181 34% 24,020 9% 23,208,208 62%
 
* Includes options on futures
 
BROKERAGE STATISTICS
(in 000's, except % and where noted)
 

4Q2013

 

4Q2012

 

% Change

Total Accounts 239 210 14%
Customer Equity (in billions) * $45.7 $32.9 39%
 
Cleared DARTs 453 378 20%
Total Customer DARTs 499 407 23%
 
 
Cleared Customers (in $'s, except DART per account)
Commission per DART $4.23 $4.24 0%
DART per Avg. Account (Annualized) 483 457 6%
Net Revenue per Avg. Account (Annualized) $3,375 $3,233 4%
* Excludes non-customers. Approximately 9% of the increase in customer equity was due to the reclassification of certain related accounts from “non-customer” to “customer”, which are regulatory distinctions.
 

INTERACTIVE BROKERS GROUP, INC. AND SUBSIDIARIES

SEGMENT FINANCIAL INFORMATION

(UNAUDITED)

         
Three Months Twelve Months
Ended December 31, Ended December 31,
2013   2012   2013   2012  

(in millions)

 
Electronic Brokerage Net revenues $211.5 $172.1 $814.0 $670.4
Non-interest expenses 162.9   84.8   422.7   328.7  
 
Income (loss) before income taxes $48.6   $87.3   $391.3   $341.7  
 
Pre-tax profit margin 23 % 51 % 48 % 51 %
 
Market Making Net revenues $52.6 $71.8 $274.5 $459.6
Non-interest expenses 46.8   63.4   202.6   271.0  
 
Income (loss) before income taxes $5.8   $8.4   $71.9   $188.6  
 
Pre-tax profit margin 11 % 12 % 26 % 41 %
 
Corporate* Net revenues ($14.2 ) $3.2 ($12.3 ) $0.5
Non-interest expenses 1.4   2.7   (0.4 ) 3.8  
 
Income (loss) before income taxes ($15.6 ) $0.5   ($11.9 ) ($3.3 )
 
 
Total Net revenues $249.9 $247.1 $1,076.2 $1,130.5
Non-interest expenses 211.1   150.9   624.9   603.5  
 
Income (loss) before income taxes $38.8   $96.2   $451.3   $527.0  
 
Pre-tax profit margin 16 % 39 % 42 % 47 %
* Corporate includes corporate related activities as well as inter-segment eliminations.
 

INTERACTIVE BROKERS GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)

           
Three Months Twelve Months
Ended December 31, Ended December 31,
2013   2012   2013   2012  

(in millions, except share and per share data)

 
Revenues:
Trading gains $43.8 $63.1 $245.2 $435.1
Commissions and execution fees 124.1 103.1 502.1 412.6
Interest income 79.1 67.8 299.7 268.4
Other income 15.9   25.6   80.9   76.4  
 
Total revenues 262.9 259.6 1,127.9 1,192.5
 
Interest expense 13.0   12.5   51.7   62.0  
 
Total net revenues 249.9   247.1   1,076.2   1,130.5  
 
Non-interest expenses:
Execution and clearing 62.2 58.5 242.5 251.0
Employee compensation and benefits 56.7 64.3 205.3 244.5
Occupancy, depreciation and amortization 10.3 9.9 38.9 38.8
Communications 5.7 6.1 23.1 23.3
General and administrative 76.2   12.1   115.1   45.9  
 
Total non-interest expenses 211.1   150.9   624.9   603.5  
 
Income before income taxes 38.8 96.2 451.3 527.0
 
Income tax expense 2.5   (4.4 ) 33.7   30.0  
 
Net income 36.3 100.6 417.6 497.0
 
Net income attributable to noncontrolling interests 32.7   91.5   380.6   456.3  
 
Net income (loss) attributable to common stockholders $3.6   $9.1   $37.0   $40.7  
 
 

Earnings (loss) per share :

Basic $0.07   $0.19   $0.74   $0.89  
Diluted $0.07   $0.19   $0.73   $0.89  
 
Weighted average common shares outstanding:
Basic 52,517,259 47,489,141 49,742,428 46,814,676
Diluted 53,729,140 47,680,329 50,924,736 47,070,522
 
Comprehensive income:
Net income (loss) attributable to common stockholders $3.6 $9.1 $37.0 $40.7
Other comprehensive income:
Cumulative translation adjustment, before income taxes 0.8 0.9 (3.2 ) 2.2
Income taxes related to items of other comprehensive income (0.2 ) (9.6 ) (0.5 ) (9.1 )
Other comprehensive income (loss), net of tax 1.0   10.5   (2.7 ) 11.3  
Comprehensive income (loss) attributable to common stockholders $4.6   $19.6   $34.3   $52.0  
 
Comprehensive income attributable to noncontrolling interests:
Net income attributable to noncontrolling interests 32.7 $91.5 $380.6 $456.3
Other comprehensive income (loss) - cumulative translation adjustment 4.9   7.1   (24.7 ) 17.0  
Comprehensive income attributable to noncontrolling interests $37.6   $98.6   $355.9   $473.3  
 
 

INTERACTIVE BROKERS GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

   
December 31, December 31,
2013 2012
(in millions)
 
Assets
Cash and cash equivalents $1,909.0 $1,614.6
Cash and securities - segregated for regulatory purposes 13,296.0 12,482.4
Securities purchased under agreements to resell 386.3 428.9
Securities borrowed 2,751.5 2,833.1
Trading assets, at fair value 4,448.8 4,544.7
Receivables from customers, net of allowance 13,596.7 9,851.0
Receivables from brokers, dealers and clearing organizations 858.2 844.6
Other assets 624.2 600.3
 
Total assets $37,870.7 $33,199.6
 
Liabilities and equity
 
Liabilities

Trading liabilities - financial instruments sold but not yet purchased,
at fair value

$3,153.7 $4,286.3
Securities loaned 2,563.7 1,839.3
Short-term borrowings 24.6 110.4
Other payables:
Customers 26,319.4 21,422.0
Brokers, dealers and clearing organizations 331.0 361.8
Other payables 386.2 366.7
27,036.6 22,150.5
 
Senior notes payable and senior secured credit facility 0.0 0.0
 
Equity
Stockholders' equity 707.3 598.5
Noncontrolling interests 4,384.8 4,214.6
Total equity 5,092.1 4,813.1
 
Total liabilities and equity $37,870.7 $33,199.6
 

INTERACTIVE BROKERS GROUP, INC. AND SUBSIDIARIES

EARNINGS PER SHARE ON COMPREHENSIVE INCOME

(UNAUDITED)

           
 
Three Months Twelve Months
Ended December 31, Ended December 31,
2013 2012 2013 2012
(in millions, except share and per share data)
 
Comprehensive income attributable to common stockholders, net of tax $4.6 $19.6 $34.3 $52.0
Add (deduct) net income attributable to non-fair value redemption rights 0.0 0.0 0.0 1.1
 
Comprehensive income available for common stockholders $4.6 $19.6 $34.3 $53.1
 
Comprehensive income (loss) per share:
Basic $0.09 $0.41 $0.69 $1.13
Diluted $0.09 $0.41 $0.67 $1.13
 
 
Weighted average common shares outstanding:
Basic 52,517,259 47,489,141 49,742,428 46,814,676
Diluted 53,729,140 47,680,329 50,924,736 47,070,522

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