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Interactive Brokers Group Announces 3Q2014 Results

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Interactive Brokers Group, Inc. (NASDAQ GS:IBKR) an automated global electronic broker and market maker, today reported diluted loss per share on a comprehensive basis of $0.13 for the quarter ended September 30, 2014, compared to diluted earnings per share on a comprehensive basis of $0.39 for the same period in 2013.

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 $0.05 for the quarter ended September 30, 2014, compared to diluted earnings per share of $0.32 for the same period in 2013.

Net revenues were $171 million and income before income taxes was $40 million for this quarter, compared to net revenues of $326 million and income before income taxes of $196 million for the same period in 2013.

The Interactive Brokers Group, Inc. Board of Directors appointed Milan Galik as President of the Company.

The Board of Directors declared a quarterly cash dividend of $0.10 per share. This dividend is payable on December 12, 2014 to shareholders of record as of December 1, 2014.

Business Highlights

  • 63% Electronic Brokerage pretax profit margin for this quarter, up from 56% in the year-ago quarter.
  • 23% overall pretax profit margin for this quarter, down from 60% in the year-ago quarter. Year to date profit margin was 52%.
  • Customer equity grew 33% from the year-ago quarter to $54.9 billion and customer debits increased by 36%, to $17.3 billion.
  • Customer accounts grew 18% from the year-ago quarter to 272 thousand.
  • Total DARTs increased 13% from the year-ago quarter to 534 thousand.
  • Brokerage segment equity was $2.9 billion. Total equity was $5.2 billion.

Segment Overview

Electronic Brokerage

Electronic Brokerage segment income before income taxes increased 41%, to $152 million, in the quarter ended September 30, 2014 compared to the same period last year. Pretax profit margin was 63% for this quarter, up from 56% in the same period last year.

Commissions and execution fees increased 10% from the year-ago quarter, reflecting higher customer trading volumes. Net interest income grew 66% from the year-ago quarter, to $93 million in this quarter, driven by higher customer debit and credit balances.

Total DARTs(1) for cleared and execution-only customers increased 13% to 534 thousand from the year-ago quarter. Cleared DARTs were 485 thousand in this quarter, 14% higher than the same period last year.

Customer accounts grew 18% to 272 thousand from the year-ago quarter. Customer equity increased 33%, to $54.9 billion, from the year-ago quarter. The size of an average customer account grew 13% to $202 thousand in equity per cleared customer account at the end of this quarter. Customer margin borrowings were 36% higher than at the same time last year, ending the quarter at $17.3 billion.

In July 2014, Interactive Brokers began to publish daily financial information, including a summary of the money it segregates for its customers. This information can be found on the Interactive Brokers website(2), www.interactivebrokers.com/finregdat.

Market Making

Market Making segment loss before income taxes was $112 million, for the quarter ended September 30, 2014 a reversal from the gain of $88 million for the same period in 2013. Removing the effects of currency translation, the Market Making segment produced $21 million pretax income in this quarter, compared to $41 million for the same period last year and $31 million in the previous quarter. The decrease in market making profits, excluding currency translation effects, can be attributed to the ongoing difficult competitive environment, lower average volatility (as measured by the CBOE VIX index), higher global M&A activity and a trading error that resulted in a loss of approximately $16 million during the quarter. The ratio of actual to implied volatility was higher this quarter from the year ago quarter.

Currency translation loss was $133 million in this quarter, compared to a $46 million gain in 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 16 major currencies in which we hold our equity. In this quarter, our currency diversification program decreased our comprehensive earnings by $211 million, as the U.S. dollar value of the GLOBAL decreased by approximately 4.0%. The effects of currency diversification are reported as components of (1) Market Making Trading Gains and (2) Other Comprehensive Income (“OCI”). In this quarter 63% 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) Daily average revenue trades (DARTs) are based on customer orders.

(2) Under: About IB – IB Regulatory Reports – Financial Regulatory Information.

Board Appoints New President

The Board of Directors appointed Milan Galik as President of the Company. Mr. Galik, a 24-year veteran of the Company who most recently held the position of Senior Vice President, Software Development, has been instrumental in building the Company’s business. Thomas Peterffy, who will remain Chairman and Chief Executive Officer, said, “We are extremely pleased to take this meaningful step toward implementing an effective management structure into the future. I expect to remain strongly engaged as Chairman and CEO and I look forward to continuing to work closely with Milan and the rest of the management team.”

Conference Call Information:

Interactive Brokers Group will hold a conference call with investors today, October 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

2011 63,602 160,567 19,187 243,356 968
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
3Q2013 15,522 42,597 4,586 62,705 987
3Q2014 17,864 15% 49,636 17% 4,282 -7% 71,782 14% 1,130
2Q2014 14,897 48,622 4,290 67,809 1,076
3Q2014 17,864 20% 49,636 2% 4,282 0% 71,782 6% 1,130
CONTRACT AND SHARE VOLUMES:
(in 000’s, except %)
TOTAL Options % Futures* % Stocks %

Period

(contracts)

Change

(contracts)

Change

(shares)

Change

2011 789,370 106,640 77,730,974
2012 698,140 -12% 98,801 -7% 65,872,960 -15%
2013 659,673 -6% 121,776 23% 95,479,739 45%
3Q2013 153,153 29,666 22,989,713
3Q2014 151,768 -1% 29,352 -1% 36,040,255 57%
2Q2014 144,635 28,774 35,891,325
3Q2014 151,768 5% 29,352 2% 36,040,255 0%
MARKET MAKING Options % Futures* % Stocks %

Period

(contracts)

Change

(contracts)

Change

(shares)

Change

2011 503,053 15,519 11,788,769
2012 457,384 -9% 12,660 -18% 9,339,465 -21%
2013 404,490 -12% 18,184 44% 12,849,729 38%
3Q2013 93,254 4,263 3,169,320
3Q2014 81,395 -13% 3,542 -17% 3,137,329 -1%
2Q2014 78,641 4,088 2,836,471
3Q2014 81,395 4% 3,542 -13% 3,137,329 11%
BROKERAGE TOTAL Options % Futures* % Stocks %

Period

(contracts)

Change

(contracts)

Change

(shares)

Change

2011 286,317 91,121 65,942,205
2012 240,756 -16% 86,141 -5% 56,533,495 -14%
2013 255,183 6% 103,592 20% 82,630,010 46%
3Q2013 59,899 25,403 19,820,393
3Q2014 70,373 17% 25,810 2% 32,902,926 66%
2Q2014 65,994 24,686 33,054,854
3Q2014 70,373 7% 25,810 5% 32,902,926 0%
* 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

2011 145,993 89,610 63,098,072
2012 144,539 -1% 84,794 -5% 54,371,351 -14%
2013 180,660 25% 101,732 20% 78,829,785 45%
3Q2013 42,668 25,017 18,820,414
3Q2014 56,824 33% 25,559 2% 31,814,664 69%
2Q2014 50,732 24,262 32,041,810
3Q2014 56,824 12% 25,559 5% 31,814,664 -1%
* Includes options on futures
BROKERAGE STATISTICS
(in 000’s, except % and where noted)

Year over Year

3Q2014

3Q2013

% Change

Total Accounts 272 231 18%
Customer Equity (in billions)* $54.9 $41.4 33%
Cleared DARTs 485 426 14%
Total Customer DARTs 534 471 13%
Cleared Customers (in $’s, except DART per account)
Commission per DART $4.21 $4.32 -3%
DART per Avg. Account (Annualized) 455 469 -3%
Net Revenue per Avg. Account (Annualized) $3,532 $3,291 7%
Consecutive Quarters

3Q2014

2Q2014

% Change

Total Accounts 272 262 4%
Customer Equity (in billions)* $54.9 $53.9 2%
Cleared DARTs 485 484 0%
Total Customer DARTs 534 529 1%
Cleared Customers (in $’s, except DART per account)
Commission per DART $4.21 $4.00 5%
DART per Avg. Account (Annualized) 455 473 -4%
Net Revenue per Avg. Account (Annualized) $3,532 $3,360 5%
* Excludes non-customers.

INTERACTIVE BROKERS GROUP, INC. AND SUBSIDIARIES

SEGMENT FINANCIAL INFORMATION

(UNAUDITED)

Three Months Nine Months
Ended September 30, Ended September 30,
2014 2013 2014 2013
(in millions)
Electronic Brokerage Net revenues $243.0 $194.7 $687.3 $602.5
Non-interest expenses

90.6

86.3

269.2

259.8

Income before income taxes

$152.4

$108.4 $418.1 $342.7
Pre-tax profit margin 63% 56% 61% 57%
Market Making Net revenues ($70.4) $130.9 $154.6 $221.9
Non-interest expenses 41.4 43.4 131.8 155.8
Income (loss) before income taxes ($111.8) $87.5 $22.8 $66.1
Pre-tax profit margin -159% 67% 15% 30%
Corporate* Net revenues ($1.6) $0.7 ($6.7) $1.9
Non-interest expenses (0.5) 0.2 2.4 (1.8)
Income (loss) before income taxes ($1.1) $0.5 ($9.1) $3.7
Total Net revenues $171.0 $326.3 $835.2 $826.3
Non-interest expenses 131.5 129.9 403.4 413.8
Income before income taxes $39.5 $196.4 $431.8 $412.5
Pre-tax profit margin 23% 60% 52% 50%
* 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 Nine Months
Ended September 30, Ended September 30,
2014 2013 2014 2013
(in millions, except share and per share data)

Revenues:
Trading gains ($75.7) $123.3 $135.8 $201.4
Commissions and execution fees 132.6 120.4 393.6 378.0
Interest income 122.4 74.0 303.3 220.6
Other income 15.9 20.8 52.9 65.0
Total revenues 195.2 338.5 885.6 865.0
Interest expense 24.2 12.2 50.4 38.7
Total net revenues 171.0 326.3 835.2 826.3
Non-interest expenses:
Execution and clearing 52.2 56.0 158.0 180.3
Employee compensation and benefits 49.4 44.3 156.5 148.6
Occupancy, depreciation and amortization 9.4 9.3 28.9 28.6
Communications 6.0 6.2 18.2 17.4
General and administrative 14.5 14.1 41.8 38.9
Total non-interest expenses 131.5 129.9 403.4 413.8
Income before income taxes 39.5 196.4 431.8 412.5
Income tax expense 7.8 10.4 38.2 31.2
Net income 31.7 186.0 393.6 381.3
Net income attributable to noncontrolling interests 28.5 169.5 356.2 347.9
Net income available for common stockholders $3.2 $16.5 $37.4 $33.4
Earnings per share :
Basic $0.06 $0.33 $0.67 $0.68
Diluted $0.05 $0.32 $0.65 $0.67
Weighted average common shares outstanding:
Basic 57,099,052 49,966,050 55,956,615 48,807,321
Diluted 58,220,070 50,988,214 57,196,113 49,981,664
Comprehensive income:
Net income available for common stockholders $3.2 $16.5 $37.4 $33.4
Other comprehensive income:
Cumulative translation adjustment, before income taxes (11.1) 3.7 (9.0) (4.0)
Income taxes related to items of other comprehensive income (0.3) 0.1 (0.1) (0.3)
Other comprehensive income (loss), net of tax (10.8) 3.6 (8.9) (3.7)
Comprehensive income (loss) available for common stockholders ($7.6) $20.1 $28.5 $29.7
Comprehensive income attributable to noncontrolling interests:
Net income attributable to noncontrolling interests 28.5 $169.5 356.2 $347.9
Other comprehensive income (loss) – cumulative translation adjustment (67.2) 26.0 (54.5) (29.6)
Comprehensive income (loss) attributable to noncontrolling interests ($38.7) $195.5 $301.7 $318.3

INTERACTIVE BROKERS GROUP, INC. AND SUBSIDIARIES

EARNINGS PER SHARE ON COMPREHENSIVE INCOME

(UNAUDITED)

Three Months Nine Months
Ended September 30, Ended September 30,
2014 2013 2014 2013
(in millions, except share and per share data)

Comprehensive income (loss) available for common stockholders, net of tax ($7.6) $20.1 $28.5 $29.7
Comprehensive income (loss) per share:
Basic ($0.13) $0.40 $0.51 $0.61
Diluted ($0.13) $0.39 $0.50 $0.59
Weighted average common shares outstanding:
Basic 57,099,052 49,966,050 55,956,615 48,807,321
Diluted 58,220,070 50,988,214 57,196,113 49,981,664

INTERACTIVE BROKERS GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEET

(UNAUDITED)

September 30,

December 31,

2014

2013

(in millions)
Assets
Cash and cash equivalents $1,010.8 $1,213.2
Cash and securities – segregated for regulatory purposes 15,291.3 13,991.7
Securities purchased under agreements to resell 2,955.1 386.3
Securities borrowed 273.5 2,751.5
Trading assets, at fair value 3,396.2 4,448.8
Receivables from customers, net of allowance 17,261.4 13,596.7
Receivables from brokers, dealers and clearing organizations 885.3 858.2
Other assets 534.6 624.3
Total assets $41,608.2 $37,870.7
Liabilities and equity
Liabilities
Trading liabilities – financial instruments sold but not yet purchased, at fair value $2,649.7 $3,153.7
Securities loaned 3,116.4 2,563.7
Short-term borrowings 59.4 24.6
Other payables:
Customers 29,966.1 26,319.4
Brokers, dealers and clearing organizations 238.7 331.0
Other payables 385.3 386.2
30,590.1 27,036.6
Equity
Stockholders’ equity 750.8 707.3
Noncontrolling interests 4,441.8 4,384.8
Total equity 5,192.6 5,092.1
Total liabilities and equity $41,608.2 $37,870.7

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