Interactive Brokers Group Inc IBKR
Q2 2013 Earnings Call Transcript

Transcript Call Date 07/16/2013

Operator: Good day, everyone and welcome to the Interactive Brokers' Second Quarter 2013 Earnings Results Conference Call. This call is being recorded.

At this time, for opening remarks and introductions, I would like to turn the call over to Ms. Deborah Liston, Director of Investor Relations. Please go ahead.

Deborah Liston - IR: Thank you, operator. Welcome everyone. Hopefully, by now you've seen our second quarter earnings release which was released today after market close and is also available on our website.

Our speakers today are Thomas Peterffy, our Chairman and CEO; and Paul Brody, our Group CFO. They'll start the call with some prepared remarks about the quarter and then we'll take Q&A.

Today's call may include forward-looking statements which represent the Company's belief regarding future events and by their nature are not certain and outside the Company's control. Our actual results and financial condition may differ possibly materially from what's indicated in these forward looking statements. We just ask that you refer to disclaimer in our press release and you should also review a description of the risk factors contained in our financial reports filed with the SEC.

And now I'd like to turn the call over to Thomas Peterffy.

Thomas Peterffy - Chairman, CEO and President: Good afternoon and thank you for joining us to review our second quarter results. Before I get into other complexities I want to simply state operating results without any currency impacts, for the quarter our pre-tax income excluding currency effects was $176 million. This is composed of $123 million in Brokerage, $51 million in Market Making, and $2 in corporate. Our currency losses are $75 million which corresponds to 1.5% decrease in the volume of the global relative to the U.S. dollar on our capital of $4.8 billion.

And now to the details. I'm pleased to report that this was another record breaking quarter for our Brokerage segment which achieved pre-tax profits of $123 million, a 37% increase from a year ago and our pre-tax profit margin climbed to a new high of 58%. This performance is obscured in our consolidated results due to the lackluster performance of the Market Making unit which earned only $7.6 million. However, after removing currency effect, which I'll explain shortly, Market Making still earned a respectable $51 million in pre-tax earnings.

Our results in this segment have suffered for the past several quarters due to competitive pressures to such extent that the future of this segment has become quite a hot topic of discussion among our investors and we continue to evaluate what is in the best interest of our business as a whole and shareholder volumes. I will discuss more on this later.

But first, I would like to highlight our achievements in the Brokerage segment. In addition to record profits, we also achieved a record DART or daily average revenue trade of 506,000 this quarter, a 9% increase over the first quarter and a 19% increase over the prior year quarter.

Total customer equity grew 31% to $37.4 billion year-on-year, while this is partly attributable to the increase in market values as illustrated by the 18% year-over-year rise in the S&P. It is also the result or ability to continue attracting larger institution like (ours), which is demonstrated by the average equity per customer account, which grew by 17% to $167,000. Customers are taking advantage of our extremely low margin rates. In the first half of this year, we lent over $11 billion to our customers, at an average rate of 1.14%. In total, margin loans have growth 32% year-over-year boosting net interest income by 27%.

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