Interactive Brokers Group Announces 4Q2018 Results

Interactive Brokers Group, Inc. (IEX: IBKR), an automated global electronic broker, reported diluted earnings per share on net income of $0.57 for the quarter ended December 31, 2018, compared to a diluted loss per share of $0.02 for the same period in 2017, and diluted earnings per share on comprehensive income of $0.56 for the quarter, compared to a diluted loss per share of $0.02 for the same period in 2017.

Net revenues were $492 million and income before income taxes was $309 million this quarter, compared to net revenues of $515 million and income before income taxes of $364 million for the same period in 2017. The results for the quarter were positively impacted by strong growth in net interest income, which increased $39 million, or 19%, and higher commissions, which increased $35 million, or 21%, from the year-ago quarter. The increase in our results for this quarter was counterbalanced by an $18 million reversal on our currency diversification strategy, which swung from a $6 million gain in the year-ago quarter to a $12 million loss this quarter.

In addition, the Company’s earnings for the year-ago quarter were significantly impacted by the Tax Cuts and Jobs Act (the “Tax Act”), which revised U.S. corporate income tax law by, among other things, reducing the corporate income tax rate to 21% and implementing a modified territorial tax system that includes a one-time transition tax on deemed repatriated earnings of foreign subsidiaries. The results for the year-ago quarter were negatively impacted by the effects of the Tax Act, which decreased diluted earnings per share by $0.45.

For the year ended December 31, 2018, diluted earnings per share on net income were $2.28, compared to $1.07 in 2017, and diluted earnings per share on comprehensive income were $2.09, compared to $1.22 in 2017. The results for 2017 were negatively impacted by the effects of the Tax Act, which decreased diluted earnings per share by $0.46. Net revenues were $1,903 million and income before income taxes was $1,196 million for 2018, compared to net revenues of $1,702 million and income before income taxes of $1,049 million in 2017.

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, 2019 to shareholders of record as of March 1, 2019.

Business Highlights

Fourth Quarter 2018:

• 63% pretax profit margin for this quarter, down from 71% in the year-ago quarter.
• 63% Electronic Brokerage pretax profit margin for this quarter, down from 65% in the year-ago quarter.
• Customer equity grew 3% from the year-ago quarter to $128.4 billion and customer debits decreased 9% to $26.9 billion.
• Customer accounts increased 24% from the year-ago quarter to 598 thousand.
• Total DARTs¹ increased 30% from the year-ago quarter to 951 thousand.
• Brokerage segment equity was $5.8 billion. Total equity was $7.2 billion.

Full Year 2018:

• 63% pretax profit margin for 2018, up from 62% in 2017.
• 64% Electronic Brokerage pretax profit margin for 2018, up from 61% in 2017.
• Total DARTs increased 25% from 2017 to 862 thousand.

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

Segment Overview

Electronic Brokerage

Electronic brokerage segment income before income taxes increased 23% to $311 million in the quarter ended December 31, 2018, compared to the same period last year. Net revenues increased 26% to $490 million on higher net interest income, commissions revenue and other income.

Net interest income increased 20% as average customer credit and margin loan balances and benchmark interest rates increased from the year-ago quarter. Commissions revenue increased 21% from the year-ago quarter on higher customer DARTs across all product types. Other income increased 104% on higher net mark-to-market gains on other investments and higher fees earned from our FDIC sweep program. Pretax profit margin was 63% for the quarter ended December 31, 2018, down from 65% in the same period last year.

Customer accounts grew 24% to 598 thousand and customer equity increased 3% from the year-ago quarter to $128.4 billion, despite a 6% drop in the S&P 500 index for the year. Total DARTs for cleared and execution-only customers increased 30% to a record high 951 thousand from the year-ago quarter. Cleared DARTs were 856 thousand, 26% higher than in the same period last year.

Market Making

Market making segment income before income taxes increased 13% to $9 million in the quarter ended December 31, 2018, as compared to the year-ago quarter, primarily due to lower operating costs on the remaining operations.

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 $18 million, as the U.S. dollar value of the GLOBAL decreased by approximately 0.16%. In 2018, our currency diversification strategy decreased our comprehensive earnings by $99 million, as the U.S. dollar value of the GLOBAL decreased by approximately 1.14%. 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, January 22, 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 IB Universal Account^SM 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, March 26, 2018. 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.

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
2016		64,038				259,932				16,515				340,485				1,354
2017		31,282		(51%)		265,501		2%		14,835		(10%)		311,618		(8%)		1,246
2018		18,663		(40%)		328,099		24%		21,880		47%		368,642		18%		1,478
4Q2017		4,263				71,502				3,800				79,565				1,273
4Q2018		4,825		13%		88,806		24%		7,251		91%		100,882		27%		1,627
3Q2018		4,795				71,646				5,293				81,734				1,308
4Q2018		4,825		1%		88,806		24%		7,251		37%		100,882		23%		1,627

CONTRACT AND SHARE VOLUMES:
(in 000's, except %)
TOTAL		Options		%		Futures1		%		Stocks		%
Period		(contracts)		Change		(contracts)		Change		(shares)		Change
2016		572,834				143,287				155,439,227
2017		395,885		(31%)		124,123		(13%)		220,247,921		42%
2018		408,406		3%		151,762		22%		210,257,186		(5%)
4Q2017		89,381				31,445				58,373,129
4Q2018		107,417		20%		41,684		33%		44,933,688		(23%)
3Q2018		92,297				29,936				45,572,711
4Q2018		107,417		16%		41,684		39%		44,933,688		(1%)
MARKET MAKING		Options		%		Futures1		%		Stocks		%
Period		(contracts)		Change		(contracts)		Change		(shares)		Change
2016		307,377				14,205				13,082,887
2017		102,025		(67%)		5,696		(60%)		7,139,622		(45%)
2018		49,554		(51%)		3,277		(42%)		11,347,811		59%
4Q2017		11,228				1,002				1,750,178
4Q2018		12,680		13%		828		(17%)		3,091,834		77%
3Q2018		11,805				758				2,995,942
4Q2018		12,680		7%		828		9%		3,091,834		3%
BROKERAGE TOTAL		Options		%		Futures1		%		Stocks		%
Period		(contracts)		Change		(contracts)		Change		(shares)		Change
2016		265,457				129,082				142,356,340
2017		293,860		11%		118,427		(8%)		213,108,299		50%
2018		358,852		22%		148,485		25%		198,909,375		(7%)
4Q2017		78,153				30,443				56,622,951
4Q2018		94,737		21%		40,856		34%		41,841,854		(26%)
3Q2018		80,492				29,178				42,576,769
4Q2018		94,737		18%		40,856		40%		41,841,854		(2%)
1 Includes options on futures.

INTERACTIVE BROKERS GROUP, INC. AND SUBSIDIARIES OPERATING DATA, CONTINUED
BROKERAGE CLEARED		Options		%		Futures1		%		Stocks		%
Period		(contracts)		Change		(contracts)		Change		(shares)		Change
2016		227,413				128,021				138,523,932
2017		253,304		11%		116,858		(9%)		209,435,662		51%
2018		313,795		24%		146,806		26%		194,012,882		(7%)
4Q2017		66,232				30,041				55,714,749
4Q2018		83,984		27%		40,463		35%		40,271,369		(28%)
3Q2018		70,233				28,922				41,406,443
4Q2018		83,984		20%		40,463		40%		40,271,369		(3%)
1 Includes options on futures.

BROKERAGE STATISTICS
(in 000's, except % and where noted)
Year over Year		4Q2018			4Q2017			% Change
Total Accounts		598			483			24%
Customer Equity (in billions)1		$128.4			$124.8			3%
Cleared DARTs		856			681			26%
Total Customer DARTs		951			730			30%
Cleared Customers (in $'s, except DART per account)
Commission per DART		$3.79			$3.92			(3%)
DART per Avg. Account (Annualized)		364			363			0%
Net Revenue per Avg. Account (Annualized)		$3,225			$3,318			(3%)
Consecutive Quarters		4Q2018			3Q2018			% Change
Total Accounts		598			576			4%
Customer Equity (in billions)1		$128.4			$142.5			(10%)
Cleared DARTs		856			696			23%
Total Customer DARTs		951			763			25%
Cleared Customers (in $'s, except DART per account)
Commission per DART		$3.79			$3.78			0%
DART per Avg. Account (Annualized)		364			312			17%
Net Revenue per Avg. Account (Annualized)		$3,225			$3,109			4%
1 Excludes non-customers.

INTERACTIVE BROKERS GROUP, INC. AND SUBSIDIARIES NET INTEREST MARGIN (UNAUDITED)
		Three Months						Twelve Months
		Ended December 31,						Ended December 31,
		2018			2017			2018			2017
		(in millions)
Average interest-earning assets
Segregated cash and securities		$	21,957		$	22,803		$	20,911		$	23,824
Customer margin loans			28,805			26,982			29,253			23,289
Securities borrowed			3,407			3,757			3,310			3,964
Other interest-earning assets			4,825			3,553			4,362			2,930
FDIC sweeps1			1,673			292			1,259			124
		$	60,667		$	57,387		$	59,095		$	54,131
Average interest-bearing liabilities
Customer credit balances		$	49,153		$	47,561		$	48,179		$	45,515
Securities loaned			3,729			4,350			3,982			3,917
		$	52,882		$	51,911		$	52,161		$	49,432
Net interest income
Segregated cash and securities, net2/3		$	104		$	58		$	337		$	201
Customer margin loans4			192			122			677			392
Securities borrowed and loaned, net			24			49			140			161
Customer credit balances, net2/4			(95)			(38)			(286)			(106)
Other net interest income1/3/5			27			16			90			40
Net interest income		$	252		$	207		$	958		$	688
Net interest margin ("NIM")			1.65%			1.43%			1.62%			1.27%
Annualized yields
Segregated cash and securities			1.88%			1.01%			1.61%			0.84%
Customer margin loans			2.64%			1.79%			2.31%			1.68%
Customer credit balances			0.77%			0.32%			0.59%			0.23%

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1		Represents the average amount of customer cash swept into FDIC-insured banks as part of our Insured Bank Deposit Sweep Program. This item is not recorded in the Company's consolidated statements of financial condition. Income derived from program deposits is reported in other net interest income in the table above.
2		We have recategorized components of net interest income related to currencies with negative interest rates and as such, prior period amounts have been adjusted to conform to the current period presentation. For the quarter and twelve months ended December 31, 2017, $5 million and $17 million have been recategorized from net interest income on “Segregated cash and securities, net” to “Customer credit balances, net”, respectively.
3		We have reclassified certain components of net interest income related to investments in U.S. Treasury notes and reverse repurchase agreements and as such, prior period amounts have been adjusted to conform to the current period presentation. For the quarter and the twelve months ended December 31, 2017, $3 million and $8 million have been reclassified from net interest income on "Segregated cash and securities, net" to "Other net interest income, net", respectively.
4		Interest income and interest expense on customer margin loans and customer credit balances, respectively, are calculated on daily cash balances within each customer’s account on a net basis, which may result in an offset of balances across multiple account segments (e.g., between securities and commodities segments).
5		Includes income from financial instruments which has the same characteristics as interest, but is reported in other income.

INTERACTIVE BROKERS GROUP, INC. AND SUBSIDIARIES SEGMENT FINANCIAL INFORMATION (UNAUDITED)
				Three Months						Twelve Months
				Ended December 31,						Ended December 31,
				2018			2017			2018			2017
				(in millions)
Electronic Brokerage		Net revenues		$	490		$	390		$	1,842		$	1,405
		Non-interest expenses			179			138			665			545
		Income before income taxes		$	311		$	252		$	1,177		$	860
		Pre-tax profit margin			63%			65%			64%			61%
Market Making		Net revenues		$	17		$	25		$	76		$	86
		Non-interest expenses			8			17			42			113
		Income (loss) before income taxes		$	9		$	8		$	34		$	(27)
		Pre-tax profit (loss) margin			53%			32%			45%			(31%)
Corporate 1		Net revenues		$	(15)		$	100		$	(15)		$	211
		Non-interest expenses			(4)			(4)			-			(5)
		Income (loss) before income taxes		$	(11)		$	104		$	(15)		$	216
Total		Net revenues		$	492		$	515		$	1,903		$	1,702
		Non-interest expenses			183			151			707			653
		Income before income taxes		$	309		$	364		$	1,196		$	1,049
		Pre-tax profit margin			63%			71%			63%			62%

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1		Corporate includes corporate related activities as well as inter-segment eliminations and gains and losses on positions held as part of our overall currency diversification strategy.

INTERACTIVE BROKERS GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
		Three Months						Twelve Months
		Ended December 31,						Ended December 31,
		2018			2017			2018			2017
		(in millions, except share and per share data)
Revenues:
Commissions		$	205		$	170		$	777		$	647
Interest income			385			282			1,392			908
Trading gains			7			14			39			40
Other income			37			127			158			332
Total revenues			634			593			2,366			1,927
Interest expense			142			78			463			225
Total net revenues			492			515			1,903			1,702
Non-interest expenses:
Execution, clearing and distribution fees			73			56			269			241
Employee compensation and benefits			63			57			264			249
Occupancy, depreciation and amortization			14			13			49			47
Communications			5			6			25			28
General and administrative			26			19			96			86
Customer bad debt			2			-			4			2
Total non-interest expenses			183			151			707			653
Income before income taxes			309			364			1,196			1,049
Income tax expense			19			200			71			256
Net income			290			164			1,125			793
Net income attributable to noncontrolling interests			247			166			956			717
Net income (loss) available for common stockholders		$	43		$	(2)		$	169		$	76
Earnings (loss) per share:
Basic		$	0.58		$	(0.02)		$	2.30		$	1.09
Diluted		$	0.57		$	(0.02)		$	2.28		$	1.07
Weighted average common shares outstanding:
Basic			75,097,578			71,473,863			73,438,209			69,926,933
Diluted			75,810,322			72,373,829			74,266,370			70,904,921
Comprehensive income:
Net income (loss) available for common stockholders		$	43		$	(2)		$	169		$	76
Other comprehensive income:
Cumulative translation adjustment, before income taxes			-			-			(14)			11
Income taxes related to items of other comprehensive income			-			-			(1)			-
Other comprehensive income (loss), net of tax			-			-			(13)			11
Comprehensive income (loss) available for common stockholders		$	43		$	(2)		$	156		$	87
Comprehensive income attributable to noncontrolling interests:
Net income attributable to noncontrolling interests		$	247		$	166		$	956		$	717
Other comprehensive income - cumulative translation adjustment			(6)			(1)			(66)			54
Comprehensive income attributable to noncontrolling interests		$	241		$	165		$	890		$	771

INTERACTIVE BROKERS GROUP, INC. AND SUBSIDIARIES EARNINGS PER SHARE ON COMPREHENSIVE INCOME (UNAUDITED)
		Three Months						Twelve Months
		Ended December 31,						Ended December 31,
		2018			2017			2018			2017
		(in millions, except share and per share data)
Comprehensive income (loss) available for common stockholders, net of tax		$	43		$	(2)		$	156		$	87
Comprehensive earnings (loss) per share:
Basic		$	0.56		$	(0.02)		$	2.12		$	1.24
Diluted		$	0.56		$	(0.02)		$	2.09		$	1.22
Weighted average common shares outstanding:
Basic			75,097,578			71,473,863			73,438,209			69,926,933
Diluted			75,810,322			72,373,829			74,266,370			70,904,921

INTERACTIVE BROKERS GROUP, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
						December 31, 2018			December 31, 2017
						(in millions)
Assets
Cash and cash equivalents						$	2,597		$	1,732
Cash - segregated for regulatory purposes							7,503			6,547
Securities - segregated for regulatory purposes							15,595			13,685
Securities borrowed							3,331			2,957
Securities purchased under agreements to resell							1,242			2,035
Financial instruments owned, at fair value							2,119			3,154
Receivables from customers, net of allowance for doubtful accounts							27,017			29,821
Receivables from brokers, dealers and clearing organizations							706			823
Other assets							437			408
Total assets						$	60,547		$	61,162
Liabilities and equity
Liabilities
Short-term borrowings						$	17		$	15
Securities loaned							4,037			4,444
Securities sold under agreements to repurchase							-			1,316
Financial instruments sold but not yet purchased, at fair value							681			767
Other payables:
Customers							47,993			47,548
Brokers, dealers and clearing organizations							298			283
Other payables							365			356
							48,656			48,187
Total liabilities							53,391			54,729
Equity
Stockholders' equity							1,282			1,090
Noncontrolling interests							5,874			5,343
Total equity							7,156			6,433
Total liabilities and equity						$	60,547		$	61,162
		December 31, 2018					December 31, 2017
Ownership of IBG LLC Membership Interests		Interests		%			Interests			%
IBG, Inc.		75,100,955		18.1%			71,479,604			17.4%
Noncontrolling interests (IBG Holdings LLC)		338,691,717		81.9%			340,229,444			82.6%
Total IBG LLC membership interests		413,792,672		100.0%			411,709,048			100.0%

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