Interactive Brokers reports net revenues of $374 million for 1Q2017 

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 quarer. 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.

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

Source: Interactive Brokers

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