Interactive Brokers Group, Inc. (NASDAQ:IBKR) Q3 2016 Earnings Conference Call Transcript

Oct 18, 2016 • 04:30 pm ET


Interactive Brokers Group, Inc. (NASDAQ:IBKR) Q3 2016 Earnings Conference Call Transcript


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Good day, ladies and gentlemen and welcome to the Interactive Brokers Group Third Quarter Financial Results Conference Call. At this time, all participants are in a listen-only mode.

(Operator Instructions) As a reminder, this conference call is being recorded. I would now like to turn the conference over to Nancy Stuebe, Director of Investor Relations. Please begin.

Nancy Stuebe

Thank you, operator and welcome everyone to our third quarter earnings call. Our earnings were released today after the market closed and are also available on our website. Our speakers today are Thomas Peterffy, our Chairman and CEO and Paul Brody, our Group CFO. They will start the call with some prepared remarks about the quarter and then we will take your questions.

(Forward-Looking Cautionary Statements).

I would now like to turn the call over to Thomas Peterffy.

Thomas Peterffy

Hello, everybody. Our pre-tax profits for the quarter were $183 million. This is composed of $162 million from brokerage, which in turn includes $3 million bad debt write-down and $3 million reserves for U.S. and foreign regulatory fines. The $183 million also includes $7 million for market making and $14 million from corporate, mostly favorable currency impact.

This summer, specifically July and August were dismally slow months. Intraday volatility was practically zero. We saw the market open and find its level for the day within the first few minutes of trading and then it would just sit there until the close. Looking at my screen, I use Interactive Brokers Mosaic, I often felt that I must have lost connection. But no, the market had just stopped moving.

Given that I was pleasantly surprised to see that we were still able to generate an average daily commission income above $2 million in those two extremely slow months. A year or two ago, this number would have been much smaller than account growth over the past few years would have indicated.

In other words, what we find is that our newer customers, while they trade less often than our traditional customers, their business is more steady and not dependent so much on market activity. They appear to follow our plan instead of reacting to price moves which is what our more traditional trading-oriented customer base does.

This, of course, has nothing to do with market making. The market making business had a very hard time covering expenses for the quarter. As I indicated in our last earnings call, we are examining in what form to continue this business or possibly to sell it. We have begun some conversations with potential partners or acquirers. That is all I have to say about this at this time.

Returning to our brokerage business, while commissions were low in July and August for the quarter, our number of accounts were up at an annualized rate of 16% and customer assets rose by an unprecedented annualized rate of 48%. This is due to our ability to attract larger accounts mostly comprised of larger accounts of the four major online brokers and