Interactive Brokers Q2 revenues off 24% QoQ and 4.7% YoY as FX diversification strategy takes loss


Interactive Brokers Group, Inc. (NASDAQ: IBKR) an automated global electronic broker and market maker, reported diluted earnings per share on a comprehensive basis of $0.36 for the quarter ended June 30, 2016, compared to diluted earnings per share on a comprehensive basis of $0.44 for the same period in 2015.

Excluding other comprehensive income, the Company reported diluted earnings per share of $0.40 for the quarter ended June 30, 2016, compared to diluted earnings per share of $0.37 for same period in 2015.

Traders sold off the stock in after-hours trading close to 3%.
Traders sold off the stock in after-hours trading close to 3%. Source: Google Finance

Net revenues were $369 million and income before income taxes was $213 million this quarter, compared to net revenues of $387 million, a decrease of 4.7% and income before income taxes of $240 million for the same period in 2015. Meanwhile Q1 2016 revenues stood at a record breaking $489 million, good for a 24% MoM decrease.

The results for the quarter were positively impacted by strong growth in net interest income, which increased 17% from the same period in 2015.

In addition, the results for the quarter include a $2 million loss on our currency diversification strategy due to the strengthening of the U.S. dollar against other major currencies, compared to a $53 million gain recognized in the same period in 2015.

The Interactive Brokers Group, Inc. Board of Directors declared a quarterly cash dividend of $0.10 per share. This dividend is payable on September 14, 2016 to shareholders of record as of September 1, 2016.

Business Highlights

  • 62% Electronic Brokerage pretax profit margin for this quarter, down from 65% in the year-ago quarter.
  • 12% Market Making pretax profit margin for this quarter, down from 42% in the year-ago quarter.
  • Customer equity grew 12% from the year-ago quarter to $73.7 billion while customer debits decreased by 21% to $15.0 billion.
  • Customer accounts increased 15% from the year-ago quarter to 357 thousand.
  • Total DARTs increased 5% from the year-ago quarter to 648 thousand.
  • Brokerage segment equity was $3.8 billion. Total equity was $5.7 billion.

Segment Overview

Electronic Brokerage

Electronic Brokerage segment income before income taxes increased 2%, to $191 million in the quarter ended June 30, 2016, compared to the same period last year. Net revenues increased 8% to $310 million on higher net interest income and marked-to-market gains on our U.S. government securities portfolio.

Net interest income increased 11% from the year-ago quarter and other income grew 56% over the same period driven higher by marked-to-market gains on investments of customer funds. Commission and execution fees decreased 3% from the year-ago quarter driven by lower customer option contracts and stock shares volume, which decreased 8% and 40%, respectively, from the same period last year. Pretax profit margin was 62% in the quarter ended June 30, 2016, down from 65% in the same period last year.

Customer accounts grew 15% to 357 thousand and customer equity increased 12% to $73.7 billion from the year-ago quarter. Total DARTs for cleared and execution-only customers increased 5% to 648 thousand from the year-ago quarter. Cleared DARTs were 597 thousand, 6% higher than the same period last year.

Market Making

Market Making segment income before income taxes decreased 83% to $5 million in the quarter ended June 30, 2016, compared to the same period last year, on mixed trading volumes despite modest increases in volatility and in the actual-to-implied volatility ratio. Pretax profit margin decreased to 12% in the current quarter from 42% 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 16 major currencies in which we hold our equity. In this quarter, our currency diversification strategy decreased our comprehensive earnings by $2 million, as the U.S. dollar value of the GLOBAL decreased by approximately 0.03%. 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”).

As a result of a periodic assessment, and in light of the increasing importance of China to our business, we added the Chinese renminbi (CNH), removed the South Korean won (KRW) and Brazilian real (BRL) components, and realigned the relative weights of the U.S. dollar (USD) and Japanese yen (JPY) components to better reflect the global diversification of our businesses.

The new composition contains 15 currencies, one fewer than the prior composition. The new composition was effective as of the close of business on June 30, 2016 and the conversion to the new targeted currency holdings took place shortly thereafter. The detailed component changes were disclosed with the June Monthly Brokerage Metrics on July 1, 2016.

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Interactive Brokers Q2 revenues off 24% QoQ and 4.7% YoY as FX diversification strategy takes loss

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