Interactive Brokers

Interactive Brokers Group Announces Record 2007 Results

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REPORTS PRO FORMA INCOME BEFORE TAXES AND MINORITY INTEREST OF $931.6 MILLION ON $1,468.2 MILLION IN NET REVENUES, EARNINGS PER SHARE OF $1.59

Interactive Brokers Group, Inc. (NASDAQ GS: IBKR) an automated global electronic market maker and broker, today reported pro forma diluted earnings per share of $1.59 for the year ended December 31, 2007, compared to pro forma $1.22 for the same period in 2006.

Net revenues were $1,468.2 million and income before income taxes and minority interest was $931.6 million for the year, compared to net revenues of $1,252.4 million and income before income taxes of $761.4 million in 2006.

Business Highlights
  • Earnings per share increased by 30.3% from the prior year and 58.6% from the year ago quarter.
  • 63.5% pre-tax margin for 2007 and 67.6% pre-tax margin for the 4th quarter.
  • Market Making pre-tax income grew 8.6% from the prior year and 45.4% from the year ago quarter.
  • 69.8% Market Making pre-tax margin for 2007 and 73.2% pre-tax margin for the 4th quarter.
  • Electronic Brokerage pre-tax income up 100.7% from the prior year and 194.3% from the year ago quarter.
  • 46.5% Electronic Brokerage pre-tax margin in 2007 and 52.5% pre-tax margin for the 4th quarter.
  • Cleared DARTs increased to 259,000, or 64.1%, from the year ago quarter.

"2007 has been our best year, an all time record for us, both in our brokerage and in our market making businesses, as both segments benefited from increased volatility and trading volumes in the exchange-listed derivatives space," said Thomas Peterffy, Chairman and CEO. "In our brokerage business we were able to achieve a 100% pretax income growth for the year, resulting in our brokerage income rising to 21% of the total in 2007 and 23% of the total in the fourth quarter of 2007 vs. 13% for the full year and the fourth quarter of 2006. As the credit crises unfolded during the course of the year, more and more market participants came to realize the importance of the safety provided by clearing houses for exchange-traded contracts as opposed to OTC products.

"We believe that this trend was in part responsible for the growth in exchange volumes and it will continue for the foreseeable future, driving further growth for our business. Our primary focus in the past year has been on growing our cleared options business. We developed the best order-routing and trading technology in the industry and were rewarded for our efforts by a 94% increase in our cleared options volume from the year ago quarter.

"In our market making business we succeeded in overcoming some setbacks in the early part of the year and finished with an 8.6% increase in pretax earnings over 2006.

"We continue to place great emphasis on gaining efficiency through the use of automation across all of our businesses. This strategy has resulted in our pretax profit margin climbing to 63.5% in 2007 from 60.8% in 2006."

Segment Overview

Electronic Brokerage
Electronic Brokerage segment income before income taxes grew 100.7% in 2007 and 194.3% in the quarter ended December 31, 2007 compared to the same periods in 2006. This growth was driven by higher revenues from commission and execution fees and growth in net interest income. Pre-tax margin increased from 33.0% in 2006 to 46.5% for 2007, reflecting leverage from automation. Total DARTs for cleared and execution-only customers increased 53.8% to 307,000 during the three months ended December 31, 2007, compared to 199,000 during the three months ended December 31, 2006. Cleared DARTs increased by 64.1% to 259,000 for the three months ended December 31, 2007 compared to the same period in 2006.

Market Making
Market Making segment income before income taxes increased 8.6% in 2007 and 45.4% in the quarter ended December 31, 2007 compared to the same periods in 2006. Pre-tax margin edged up to 69.8% in 2007 from 69.4% in 2006. High market volumes and increased volatility demonstrated the benefits of our automated trading system and integrated real time risk management. Market Making options contract volume grew by 20.4% in 2007. In addition, our strong capital base was helpful at a time of constrained liquidity in the markets.

Conference Call Information:
Interactive Brokers Group will hold a conference call with investors today, January 24, 2008, at 5:30 p.m. EST to discuss its year end results. Investors who would like to listen to the conference call live should dial 888-663-2254 (U.S. domestic) and 913-312-0856 (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 is an automated global electronic market maker and broker specializing in routing orders and executing and processing trades in securities, futures and foreign exchange instruments on more than 70 electronic exchanges and trading venues around the world. As a market maker, we provide liquidity at these marketplaces and, as a broker, we provide professional traders and investors with direct access to stocks, options, futures, forex and bonds from a single IB Universal AccountSM. Employing proprietary software on a global communications network, Interactive Brokers Group continuously integrates its software with a growing number of exchanges and trading venues into one automatically functioning, computerized platform that requires minimal human intervention.

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.

For Interactive Brokers Group, Inc. Media: Caitlin Duffy, 203-913-1369 or Investors: Deborah Liston, 203-618-4070.

Interactive Brokers Group, Inc. And Subsidiaries Operating Data

Interactive Brokers Group, Inc. And Subsidiaries Segment Financial Information (Unaudited)

Interactive Brokers Group, Inc. And Subsidiaries Consolidated Statements Of Income (Unaudited)

Interactive Brokers Group, Inc. And Subsidiaries 4Q06 Pro Forma Consolidated Statement Of Income (Unaudited)

See accompanying notes to unaudited pro forma consolidated statement of income.

Interactive Brokers Group, Inc. And Subsidiaries Year Ended December 31, 2006 Pro Forma Consolidated Statement Of Income (Unaudited)

Interactive Brokers Group, Inc. And Subsidiaries Year Ended December 31, 2007 Pro Forma Consolidated Statement Of Income (Unaudited)

See accompanying notes to unaudited pro forma consolidated statement of income.

Interactive Brokers Group, Inc. And Subsidiaries Notes To Pro Forma Consolidated Statements Of Income

Represents adjustments to reflect the following:

(1) Pro forma earnings per share calculations (i) include the restricted shares of Common Stock that have been issued or are to be issued pursuant to the 2007 ROI Unit Stock Plan and (ii) issuance of restricted shares of Common Stock pursuant to the 2007 Stock Incentive Plan, but excludes shares of Common Stock that are issuable in the future pursuant to the 2007 Stock Incentive Plan.
(2) Adjusted for Delaware franchise taxes that will be payable, estimated at $0.165 million annually.
(3) The income tax adjustments of $4.1 million for the three month period ended December 31, 2006, and $25.2 million and $24.9 million for the years ended December 31, 2007 and 2006, respectively, represent the sum of the current income tax expense adjustment for this period and the deferred income tax expense adjustment for this period (referenced in footnote 4 below).
(4) Additional deferred income tax expense will be $16.6 million annually, resulting from the straight-line amortization of the deferred tax asset of $248.3 million arising from the acquisition of the 10.0% member interest in IBG LLC (see footnote 3 above) over 15 years.
(5) Adjusted for the approximate 89.7% interest in IBG LLC that IBG Holdings LLC holds arising from the Recapitalization and the IPO, including initial share issuances pursuant to employee equity incentive plans (see footnote 1 above). The adjustments are equal to 89.7% of total net income for the respective three and twelve periods presented.
(6) Basic pro forma earnings per share are calculated based on 40.1 million shares of Common Stock and 100 shares of Class B common stock being outstanding, including 0.1 million shares issued pursuant to the 2007 Stock Incentive Plan and the 2007 ROI Unit Stock Plan. Diluted earnings per share are calculated based on an assumed purchase by us of all remaining IBG LLC membership interests held by IBG Holdings LLC and the issuance by us of 360 million shares of Common Stock, resulting in a total of 401.3 million shares deemed outstanding as of the beginning of each period. There is no impact on earnings per share for such purchase and issuance because 100% of net income before minority interest would be available to common stockholders as IBG Holdings LLC would no longer hold a minority interest, and the full difference between the book and tax basis of IBG LLC’s assets would also be available for reducing income tax expense. Therefore, the net income utilized to calculate diluted earnings per share would be $114 million for the three month period ended December 31, 2006, and $640 million and $491 million for the years ended December 31, 2007 and 2006, respectively.

Diluted weighted average common shares outstanding of 401.3 million shares also includes 1.2 million shares of Common Stock to be issued pursuant to the 2007 ROI Unit Stock Plan. Shares of Common Stock to be issued in connection with the 2007 Stock Incentive Plan have been excluded from diluted weighted average common shares outstanding because such shares are non-dilutive.