EX-99.1 2 ibkr_8k-20201231er.htm 4Q20 EARNINGS RELEASE
INTERACTIVE BROKERS GROUP ANNOUNCES 4Q2020 RESULTS

— — —

DILUTED EARNINGS PER SHARE OF $0.81, ADJUSTED DILUTED EARNINGS PER SHARE OF $0.69.
PRETAX INCOME OF $392 MILLION ON $599 MILLION IN NET REVENUES.
ADJUSTED PRETAX INCOME OF $375 MILLION ON $582 MILLION IN ADJUSTED NET REVENUES1.
DECLARES QUARTERLY DIVIDEND OF $0.10 PER SHARE.

GREENWICH, CONN, January 19, 2021 — Interactive Brokers Group, Inc. (Nasdaq: IBKR), an automated global electronic broker, reported diluted earnings per share of $0.81 for the quarter ended December 31, 2020 compared to $0.57 for the same period in 2019, and adjusted diluted earnings per share of $0.69 for this quarter compared to $0.58 for the year-ago quarter.

Net revenues were $599 million and income before income taxes was $392 million for this quarter, compared to net revenues of $500 million and income before income taxes of $312 million for the same period in 2019. Adjusted net revenues were $582 million and adjusted income before income taxes was $375 million for this quarter, compared to adjusted net revenues of $503 million and adjusted income before income taxes of $315 million for the same period in 2019.

Financial Highlights

•
Commission revenue showed strong growth, increasing $120 million, or 71%, from the year-ago quarter on higher customer trading volumes within an active trading environment worldwide.

•
Net interest income decreased $62 million, or 22%, from the year-ago quarter as the average Federal Funds effective rate decreased to 0.09% from 1.65% in the year-ago quarter.

•
Other income increased $25 million from the year-ago quarter. This increase was mainly comprised of  $39 million related to our strategic investment in Up Fintech Holding Limited (“Tiger Brokers”), which swung to a $32 million mark-to-market gain this quarter from a $7 million mark-to-market loss in the same period in 2019; partially offset by $25 million related to our currency diversification strategy, which lost $13 million this quarter compared to a gain of $12 million in the same period in 2019.

•
65% pretax profit margin for this quarter, up from 62% in the year-ago quarter. 64% adjusted pretax profit margin for this quarter, up from 63% in the year-ago quarter.

•
Total equity of $9.0 billion.

The Interactive Brokers Group, Inc. Board of Directors declared a quarterly cash dividend of $0.10 per share. This dividend is payable on March 12, 2021 to shareholders of record as of March 1, 2021.
1 See the reconciliation of non-GAAP financial measures starting on page 10.
1
Business Highlights

•
Customer accounts increased 56% from the year-ago quarter to 1.07 million.
•
Customer equity grew 66% from the year-ago quarter to $288.6 billion.
•
Total DARTs2 increased 165% from the year-ago quarter to 2.11 million.
•
Cleared DARTs increased 160% from the year-ago quarter to 1.87 million.
•
Customer credits increased 34% from the year-ago quarter to $77.7 billion.
•
Customer margin loans increased 26% from the year-ago quarter to $39.0 billion.

COVID-19 Pandemic

In March 2020, the World Health Organization recognized the outbreak of Coronavirus Disease 2019 (COVID-19) caused by a novel strain of the coronavirus as a pandemic. The pandemic affects all countries in which we operate. The response of governments and societies to the COVID-19 pandemic, which includes temporary closures of certain businesses; social distancing; travel restrictions, “shelter in place” and other governmental regulations; and reduced consumer spending due to job losses, has significantly impacted market volatility and general economic conditions.

The COVID-19 pandemic has precipitated unprecedented market conditions with equally unprecedented social and community challenges. Amid these challenges:

•
The Company is committed to ensuring the highest levels of service to its customers so they can effectively manage their assets, portfolios and risks. The Company’s technical infrastructure has withstood the challenges presented by the extraordinary volatility and increased market volume.

•
The Company can run its business from alternate office locations and/or remotely if a Company office must temporarily close due to the spread of the COVID-19 pandemic.

•
As announced on April 9, 2020, during the second quarter of 2020 the Company donated $5 million to assist efforts to provide food and support for people affected by the COVID-19 pandemic in the United States as well as to advance medical solutions.

The initial effects of the COVID-19 pandemic on the Company’s financial results, which may have continued through the fourth quarter of 2020, can be summarized as follows: (1) higher commission revenue due to increased trading activity and a higher rate of customer accounts opened throughout 2020; and (2) lower net interest income resulting from lower benchmark interest rates.

The impact of the COVID-19 pandemic on the Company’s future financial results could be significant but currently cannot be quantified, as it depends on numerous evolving factors that currently cannot be accurately predicted, including, but not limited to the duration and spread of the pandemic; its impact on our customers, employees and vendors; governmental actions in response to the pandemic; and the overall impact of the pandemic in the economy and society; among other factors. Any of these events could have a materially adverse effect on the Company’s financial results.
2 Daily average revenue trades (DARTs) are based on customer orders.
2

Effects of Foreign Currency Diversification

In connection with our currency diversification strategy, we base our net worth in GLOBALs, a basket of 10 major currencies in which we hold our equity. In this quarter, our currency diversification strategy increased our comprehensive earnings by $82 million, as the U.S. dollar value of the GLOBAL increased by approximately 1.01%. The effects of the currency diversification strategy are reported as components of (1) Other Income (loss of $13 million) and (2) Other Comprehensive Income (gain of $95 million).

Conference Call Information:
Interactive Brokers Group, Inc. will hold a conference call with investors today, January 19, 2021, 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 135 markets in numerous countries and currencies, from a single IBKR Integrated Investment Account to clients 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 clients with a uniquely sophisticated platform to manage their investment portfolios. We strive to provide our clients 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. Barron’s ranked Interactive Brokers #1 with 5 out of 5 stars in its February 24, 2020, Best Online Broker Review.

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. Investors: Nancy Stuebe, 203-618-4070 or Media: Kalen Holliday, 203-618-4069.
3
INTERACTIVE BROKERS GROUP, INC. AND SUBSIDIARIES
OPERATING DATA
TRADE VOLUMES:
(in 000's, except %)
   
Cleared
      
Non-Cleared
                  
Avg. Trades
   
Customer
  
%
  
Customer
  
%
  
Principal
  
%
  
Total
  
%
  
per U.S.
Period
  
Trades
  
Change
  
Trades
  
Change
  
Trades
  
Change
  
Trades
  
Change
  
Trading Day
2018
  
              328,099
      
       21,880
      
       18,663
      
     368,642
      
            1,478
2019
  
              302,289
  
 (8%)
  
       26,346
  
20%
  
       17,136
  
 (8%)
  
     345,771
  
 (6%)
  
            1,380
2020
  
              620,405
  
105%
  
       56,834
  
116%
  
       27,039
  
58%
  
     704,278
  
104%
  
            2,795
                                     
4Q2019
  
                73,291
      
         6,284
      
         4,204
      
       83,779
      
            1,330
4Q2020
  
              178,614
  
144%
  
       17,008
  
171%
  
         7,455
  
77%
  
     203,077
  
142%
  
            3,223
                                     
3Q2020
  
              160,015
      
       14,701
      
         7,453
      
     182,169
      
            2,846
4Q2020
  
              178,614
  
12%
  
       17,008
  
16%
  
         7,455
  
0%
  
     203,077
  
11%
  
            3,223
CONTRACT AND SHARE VOLUMES:
(in 000's, except %)
 
TOTAL
   
Options
  
%
  
Futures1
  
%
  
Stocks
  
%
Period
  
(contracts)
  
Change
  
(contracts)
  
Change
  
(shares)
  
Change
2018
  
     408,406
      
     151,762
      
   210,257,186
    
2019
  
     390,739
  
 (4%)
  
     128,770
  
 (15%)
  
   176,752,967
  
 (16%)
2020
  
     624,035
  
60%
  
     167,078
  
30%
  
   338,513,068
  
92%
                         
4Q2019
  
     100,520
      
       29,078
      
     39,391,536
    
4Q2020
  
     170,191
  
69%
  
       35,295
  
21%
  
   121,062,599
  
207%
                         
3Q2020
  
     163,972
      
       39,186
      
     87,514,614
    
4Q2020
  
     170,191
  
4%
  
       35,295
  
 (10%)
  
   121,062,599
  
38%

ALL CUSTOMERS
   
Options
  
%
  
Futures1
  
%
  
Stocks
  
%
Period
  
(contracts)
  
Change
  
(contracts)
  
Change
  
(shares)
  
Change
2018
  
     358,852
      
     148,485
      
   198,909,375
    
2019
  
     349,287
  
 (3%)
  
     126,363
  
 (15%)
  
   167,826,490
  
 (16%)
2020
  
     584,195
  
67%
  
     164,555
  
30%
  
   331,263,604
  
97%
                         
4Q2019
  
       91,562
      
       28,630
      
     37,988,125
    
4Q2020
  
     160,953
  
76%
  
       34,851
  
22%
  
   119,654,910
  
215%
                         
3Q2020
  
     153,612
      
       38,685
      
     85,893,357
    
4Q2020
  
     160,953
  
5%
  
       34,851
  
 (10%)
  
   119,654,910
  
39%

CLEARED CUSTOMERS
   
Options
  
%
  
Futures1
  
%
  
Stocks
  
%
Period
  
(contracts)
  
Change
  
(contracts)
  
Change
  
(shares)
  
Change
2018
  
     313,795
      
     146,806
      
   194,012,882
    
2019
  
     302,068
  
 (4%)
  
     125,225
  
 (15%)
  
   163,030,500
  
 (16%)
2020
  
     518,965
  
72%
  
     163,101
  
30%
  
   320,376,365
  
97%
                         
4Q2019
  
       81,468
      
       28,307
      
     36,969,492
    
4Q2020
  
     144,378
  
77%
  
       34,459
  
22%
  
   116,538,527
  
215%
                         
3Q2020
  
     137,660
      
       38,405
      
     83,246,086
    
4Q2020
  
     144,378
  
5%
  
       34,459
  
 (10%)
  
   116,538,527
  
40%

1
Includes options on futures.
4
INTERACTIVE BROKERS GROUP, INC. AND SUBSIDIARIES
OPERATING DATA, CONTINUED

PRINCIPAL TRANSACTIONS
   
Options
  
%
  
Futures1
  
%
  
Stocks
  
%
Period
  
(contracts)
  
Change
  
(contracts)
  
Change
  
(shares)
  
Change
2018
  
       49,554
      
         3,277
      
     11,347,811
    
2019
  
       41,452
  
 (16%)
  
         2,407
  
 (27%)
  
       8,926,477
  
 (21%)
2020
  
       39,840
  
 (4%)
  
         2,523
  
5%
  
       7,249,464
  
 (19%)
                         
4Q2019
  
         8,958
      
           448
      
       1,403,411
    
4Q2020
  
         9,238
  
3%
  
           444
  
 (1%)
  
       1,407,689
  
0%
                         
3Q2020
  
       10,360
      
           501
      
       1,621,257
    
4Q2020
  
         9,238
  
 (11%)
  
           444
  
 (11%)
  
       1,407,689
  
 (13%)

1
Includes options on futures.
CUSTOMER STATISTICS
Year over Year
    
4Q2020
    
4Q2019
  
% Change
   Total Accounts (in thousands)
    
                      1,073
    
                         690
  
56%
   Customer Equity (in billions)1
  
$
288.6
  
$
174.1
  
66%
                 
   Cleared DARTs (in thousands)
    
                      1,871
    
                         719
  
160%
   Total Customer DARTs (in thousands)
    
                      2,109
    
                         797
  
165%
                 
Cleared Customers
                
   Commission per Cleared Commissionable Order2
  
$
                        2.46
  
$
                        3.63
  
 (32%)
   Cleared Avg. DART per Account (Annualized)
    
                         459
    
                         266
  
73%
   Net Revenue per Avg. Account (Annualized)
  
$
                      2,151
  
$
                      2,801
  
 (23%)
                 
Consecutive Quarters
    
4Q2020
    
3Q2020
  
% Change
   Total Accounts (in thousands)
    
                      1,073
    
                         981
  
9%
   Customer Equity (in billions)1
  
$
288.6
  
$
232.7
  
24%
                 
   Cleared DARTs (in thousands)
    
                      1,871
    
                      1,629
  
15%
   Total Customer DARTs (in thousands)
    
                      2,109
    
                      1,832
  
15%
                 
Cleared Customers
                
   Commission per Cleared Commissionable Order2
  
$
                        2.46
  
$
                        2.69
  
 (9%)
   Cleared Avg. DART per Account (Annualized)
    
                         459
    
                         442
  
4%
   Net Revenue per Avg. Account (Annualized)
  
$
                      2,151
  
$
                      2,154
  
 (0%)

1
Excludes non-customers.
   
2
Commissionable Order - a customer order that generates commissions.
 
5
INTERACTIVE BROKERS GROUP, INC. AND SUBSIDIARIES
NET INTEREST MARGIN
(UNAUDITED)

       
Three Months
  
Twelve Months
       
Ended December 31,
  
Ended December 31,
       
2020
  
2019
  
2020
  
2019
       
(in millions)
Average interest-earning assets
                        
 
Segregated cash and securities
  
$
                  43,128
  
$
                  29,437
  
$
                  41,898
  
$
                  27,812
 
Customer margin loans
    
                  32,775
    
                  27,529
    
                  28,960
    
                  26,483
 
Securities borrowed
    
                    3,808
    
                    4,026
    
                    4,235
    
                    3,930
 
Other interest-earning assets
    
                    5,799
    
                    5,887
    
                    5,593
    
                    5,407
 
FDIC sweeps1
    
                    2,919
    
                    2,298
    
                    2,882
    
                    2,075
       
$
                  88,429
  
$
                  69,177
  
$
                  83,568
  
$
                  65,707
                             
Average interest-bearing liabilities
                        
 
Customer credit balances
  
$
                  71,190
  
$
                  55,185
  
$
                  67,540
  
$
                  52,625
 
Securities loaned
    
                    6,499
    
                    4,292
    
                    5,702
    
                    4,088
 
Other interest-bearing liabilities
    
                         17
    
                       495
    
                       215
    
                       211
       
$
                  77,706
  
$
                  59,972
  
$
                  73,457
  
$
                  56,924
                             
Net interest income
                        
 
Segregated cash and securities, net
  
$
                           7
  
$
                       126
  
$
                       166
  
$
                       560
 
Customer margin loans2
    
                         93
    
                       157
    
                       380
    
                       694
 
Securities borrowed and loaned, net
    
                       115
    
                         80
    
                       343
    
                       257
 
Customer credit balances, net2
    
                           9
    
                       (94)
    
                       (46)
    
                     (515)
 
Other net interest income1/3
    
                           8
    
                         27
    
                         55
    
                       121
   
Net interest income3
  
$
                       232
  
$
                       296
  
$
                       898
  
$
                    1,117
                             
Net interest margin ("NIM")
    
1.04%
    
1.70%
    
1.07%
    
1.70%
                             
Annualized yields
                        
 
Segregated cash and securities
    
0.06%
    
1.70%
    
0.40%
    
2.01%
 
Customer margin loans
    
1.13%
    
2.26%
    
1.31%
    
2.62%
 
Customer credit balances
    
-0.05%
    
0.68%
    
0.07%
    
0.98%


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
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).   
                             
3
Includes income from financial instruments that has the same characteristics as interest, but is reported in other fees and services and other income in the Company’s consolidated statements of comprehensive income. For the three and twelve months ended December 31, 2020 and 2019, $7 million, $5 million, $21 million, and $15 million were reported in other fees and services, respectively. For the three and twelve months ended December 31, 2020 and 2019, $0 million, $4 million, $5 million, and $19 million were reported in other income, respectively.
6
INTERACTIVE BROKERS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)

       
Three Months
  
Twelve Months
       
Ended December 31,
  
Ended December 31,
       
2020
  
2019
  
2020
  
2019
         (in millions, except share and per share data)  
                             
Revenues:
                        
 
Commissions
  
$
288
  
$
168
  
$
1,112
  
$
706
 
Other fees and services1/2
    
52
    
36
    
175
    
141
 
Other income 1/3
    
34
    
9
    
59
    
7
   
Total non-interest income
    
374
    
213
    
1,346
    
854
                             
 
Interest income
    
280
    
418
    
1,133
    
1,726
 
Interest expense
    
(55)
    
(131)
    
(261)
    
(643)
   
Total net interest income
    
225
    
287
    
872
    
1,083
                             
   
Total net revenues
    
599
    
500
    
2,218
    
1,937
                             
Non-interest expenses:
                        
 
Execution, clearing and distribution fees
    
66
    
59
    
293
    
251
 
Employee compensation and benefits
    
86
    
75
    
325
    
288
 
Occupancy, depreciation and amortization
    
18
    
17
    
69
    
60
 
Communications
    
7
    
6
    
26
    
25
 
General and administrative
    
30
    
32
    
236
    
112
 
Customer bad debt
    
-
    
(1)
    
13
    
44
   
Total non-interest expenses
    
207
    
188
    
962
    
780
                             
Income before income taxes
    
392
    
312
    
1,256
    
1,157
Income tax expense
    
12
    
18
    
77
    
68
                             
Net income
    
380
    
294
    
1,179
    
1,089
Net income attributable to noncontrolling interests
    
309
    
250
    
984
    
928
                             
Net income available for common stockholders
  
$
71
  
$
44
  
$
195
  
$
161
                             
Earnings per share:
                        
 
Basic
  
$
0.82
  
$
0.58
  
$
2.44
  
$
2.11
 
Diluted
  
$
0.81
  
$
0.57
  
$
2.42
  
$
2.10
                             
Weighted average common shares outstanding:
                    
 
Basic
    
87,076,038
    
76,749,142
    
79,939,289
    
76,121,570
 
Diluted
    
87,772,443
    
77,357,093
    
80,638,908
    
76,825,863

                             
1
In the first quarter of 2020, we changed the presentation of our consolidated statements of income to better align with our business strategy. Previously reported amounts have been adjusted to conform with the new presentation.
                             
2
Includes market data fees, account activity fees, risk exposure fees, order flow income from options exchange mandated programs, and revenues from other fees and services.
                             
3
Includes gains (losses) from principal transactions; the impact of our currency diversification strategy; gains (losses) from our equity method investments, other revenue not directly attributable to our core business offerings.
7
INTERACTIVE BROKERS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)

       
Three Months
  
Twelve Months
       
Ended December 31,
  
Ended December 31,
       
2020
  
2019
  
2020
  
2019
         (in millions, except share and per share data)
                             
Comprehensive income:
                        
 
Net income available for common stockholders
  
$
71
  
$
44
  
$
195
  
$
161
 
Other comprehensive income:
                        
   
Cumulative translation adjustment, before income taxes
  
                          21
    
                            7
    
                   26
    
                     4
   
Income taxes related to items of other comprehensive income
  
                             -
    
                             -
    
                      -
    
                      -
 
Other comprehensive income, net of tax
    
                          21
    
                            7
    
                   26
    
                     4
Comprehensive income available for common stockholders
$
92
  
$
51
  
$
221
  
$
165
                             
Comprehensive earnings per share:
                        
 
Basic
  
$
1.05
  
$
0.67
  
$
2.77
  
$
2.18
 
Diluted
  
$
1.05
  
$
0.66
  
$
2.74
  
$
2.16
                             
Weighted average common shares outstanding:
                        
 
Basic
    
87,076,038
    
76,749,142
    
79,939,289
    
76,121,570
 
Diluted
    
87,772,443
    
77,357,093
    
80,638,908
    
76,825,863
                             
Comprehensive income attributable to noncontrolling interests:
                      
    Net income attributable to noncontrolling interests
  
$
309
  
$
250
  
$
984
  
$
928
    Other comprehensive income - cumulative translation adjustment
  
74
    
31
    
98
    
20
Comprehensive income attributable to noncontrolling interests
$
383
  
$
281
  
$
1,082
  
$
948


8
INTERACTIVE BROKERS GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(UNAUDITED)

         
December 31,
2020
  
December 31,
2019
         
(in millions)
                   
Assets
                
Cash and cash equivalents
      
$
                 4,292
  
$
2,882
Cash - segregated for regulatory purposes
        
               15,903
    
                 9,400
Securities - segregated for regulatory purposes
      
               27,821
    
               17,824
Securities borrowed
        
                 4,956
    
                 3,916
Securities purchased under agreements to resell
      
                    792
    
                 3,111
Financial instruments owned, at fair value
        
                    630
    
                 1,916
Receivables from customers, net of allowance for doubtful accounts
  
               39,333
    
               31,304
Receivables from brokers, dealers and clearing organizations
  
                 1,254
    
                    685
Other assets
        
                    698
    
                    638
                   
 
Total assets
      
$
95,679
  
$
71,676
                   
Liabilities and equity
                
                   
Liabilities
                
Short-term borrowings
      
$
                    118
  
$
16
Securities loaned
        
                 9,838
    
                 4,410
Securities sold under agreements to repurchase
      
                      -
    
                 1,909
Financial instruments sold but not yet purchased, at fair value
  
                    153
    
                    457
Other payables:
                
 
Customers
        
               75,882
    
               56,248
 
Brokers, dealers and clearing organizations
      
                    182
    
                    220
 
Other payables
        
                    503
    
                    476
           
               76,567
    
               56,944
                   
 
Total liabilities
        
               86,676
    
               63,736
                   
Equity
                
Stockholders' equity
        
                 1,951
    
                 1,452
Noncontrolling interests
        
                 7,052
    
                 6,488
 
Total equity
        
                 9,003
    
                 7,940
                   
 
Total liabilities and equity
      
$
95,679
  
$
71,676
                   
                   
   
December 31, 2020
  
December 31, 2019
Ownership of IBG LLC Membership Interests
Interests
  
 %
  
Interests
    
 %
                   
IBG, Inc.
90,780,444
  
21.8%
  
76,759,595
    
18.5%
Noncontrolling interests (IBG Holdings LLC)
325,960,034
  
78.2%
  
338,670,642
    
81.5%
                   
Total IBG LLC membership interests
416,740,478
  
100.0%
  
415,430,237
    
100.0%
9
INTERACTIVE BROKERS GROUP, INC. AND SUBSIDIARIES
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(UNAUDITED)

     
Three Months
  
Twelve Months
     
Ended December 31,
  
Ended December 31,
     
2020
  
2019
  
2020
  
2019
     
(in millions)
                           
Adjusted net revenues1
                        
Net revenues - GAAP
  
$
599
  
$
500
  
$
2,218
  
$
1,937
                           
Non-GAAP adjustments
                        
 
Currency diversification strategy, net
    
13
    
(12)
    
19
    
60
 
Mark-to-market on investments2
    
(33)
    
15
    
(36)
    
(13)
 
Remeasurement of TRA liability3
    
3
    
                         -
    
3
    
                         -
Total non-GAAP adjustments
    
(17)
    
3
    
(14)
    
47
Adjusted net revenues
  
$
582
  
$
503
  
$
2,204
  
$
1,984
                           
Adjusted income before income taxes1
                        
Income before income taxes - GAAP
  
$
392
  
$
312
  
$
1,256
  
$
1,157
                           
Non-GAAP adjustments
                        
 
Currency diversification strategy, net
    
13
    
(12)
    
19
    
60
 
Mark-to-market on investments2
    
                     (33)
    
                       15
    
                     (36)
    
                     (13)
 
Remeasurement of TRA liability3
    
3
    
                         -
    
3
    
                         -
 
Customer compensation expense4
    
                         -
    
                         -
    
103
    
                         -
 
Bad debt expense5
    
                         -
    
                         -
    
1
    
                       42
Total non-GAAP adjustments
    
                     (17)
    
                         3
    
                       90
    
                       89
Adjusted income before income taxes
  
$
375
  
$
315
  
$
1,346
  
$
1,246
                           
Adjusted pre-tax profit margin
    
64%
    
63%
    
61%
    
63%


10

     
Three Months
  
Twelve Months
     
Ended December 31,
  
Ended December 31,
     
2020
  
2019
  
2020
  
2019
     
(in millions)
Adjusted net income available for common stockholders1
                  
Net income available for common stockholders - GAAP
$
71
  
$
44
  
$
195
  
$
161
                           
Non-GAAP adjustments
                        
 
Currency diversification strategy, net
    
                         3
    
(2)
    
4
    
11
 
Mark-to-market on investments2
    
                       (7)
    
                         3
    
                       (7)
    
(2)
 
Remeasurement of TRA liability3
    
                         3
    
                         -
    
                         3
    
                         -
 
Customer compensation expense4
    
                         -
    
                         -
    
                       20
    
                         -
 
Bad debt expense5
    
                         -
    
                         -
    
                         0
    
8
 
Income tax effect of above adjustments6
    
                         1
    
                         -
    
                       (3)
    
(3)
 
Remeasurement of deferred income taxes7
    
                     (11)
    
                         -
    
                     (11)
    
                         -
Total non-GAAP adjustments
    
                     (11)
    
                         1
    
                         6
    
                       13
Adjusted net income available for common stockholders
$
60
  
$
45
  
$
201
  
$
174
Note: Amounts may not add due to rounding.
     
Three Months
  
Twelve Months
     
Ended December 31,
  
Ended December 31,
     
2020
  
2019
  
2020
  
2019
     
(in dollars)
Adjusted diluted EPS1
                        
Diluted EPS - GAAP
  
$
0.81
  
$
0.57
  
$
2.42
  
$
2.10
                           
Non-GAAP adjustments
                        
 
Currency diversification strategy, net
    
0.03
    
(0.03)
    
0.05
    
0.14
 
Mark-to-market on investments2
    
(0.08)
    
0.03
    
(0.08)
    
(0.03)
 
Remeasurement of TRA liability3
    
0.04
    
0.00
    
0.04
    
0.00
 
Customer compensation expense4
    
0.00
    
0.00
    
0.24
    
0.00
 
Bad debt expense5
    
0.00
    
0.00
    
0.00
    
0.10
 
Income tax effect of above adjustments6
    
0.01
    
0.00
    
(0.04)
    
(0.04)
 
Remeasurement of deferred income taxes7
    
(0.12)
    
0.00
    
(0.14)
    
0.00
Total non-GAAP adjustments
    
(0.12)
    
0.01
    
0.08
    
0.17
Adjusted diluted EPS
  
$
0.69
  
$
0.58
  
$
2.49
  
$
2.27
                           
Diluted weighted average common shares outstanding
87,772,443
    
77,357,093
    
80,638,908
    
76,825,863
Note: Amounts may not add due to rounding.

11
Note: The term “GAAP” in the following explanation refers to generally accepted accounting principles in the United States.
1 Adjusted net revenues, adjusted income before income taxes, adjusted net income available for common stockholders and adjusted diluted earnings per share (“EPS”) are non-GAAP financial measures as defined by SEC Regulation G.
•
We define adjusted net revenues as net revenues adjusted to remove the effect of our GLOBAL currency diversification strategy, our net mark-to-market gains (losses) on investments2, and the remeasurement of our Tax Receivable Agreement (“TRA”) liability3.
•
We define adjusted income before income taxes as income before income taxes adjusted to remove the effect of our GLOBAL currency diversification strategy, our net mark-to-market gains (losses) on investments, the remeasurement of our TRA liability, customer compensation expenses4, and unusual bad debt expense5.
•
We define adjusted net income available to common stockholders as net income available for common stockholders adjusted to remove the after-tax effects attributable to IBG, Inc. of our GLOBAL currency diversification strategy, the mark-to-market gains (losses) on investments, the remeasurement of our TRA liability, customer compensation expenses, unusual bad debt expense, and the remeasurement of certain deferred tax assets7.
Management believes these non-GAAP items are important measures of our financial performance because they exclude certain items that may not be indicative of our core operating results and business outlook and may be useful to investors and analysts in evaluating the operating performance of the business and facilitating a meaningful comparison of our results in the current period to those in prior and future periods. Our GLOBAL currency diversification strategy, our mark-to-market on investments, the remeasurement of our TRA liability, customer compensation expense, unusual bad debt expense, and the remeasurement of certain deferred tax assets are excluded because management does not believe they are indicative of our underlying core business performance. Adjusted net revenues, adjusted income before income taxes, adjusted net income available to common stockholders and adjusted diluted EPS should be considered in addition to, rather than as a substitute for, GAAP net revenues, income before income taxes, net income attributable to common stockholders and diluted EPS.
2 Mark-to-market on investments represents the net mark-to-market gains (losses) on our U.S. government securities portfolio, which are typically held to maturity, investments in equity securities that do not qualify for equity method accounting which are measured at fair value, and equity securities taken over by the Company from customers related to losses on margin loans described below.
3 Remeasurement of our TRA liability represents the change in the amount payable to IBG Holdings LLC under the TRA as a result of changes in the Company’s effective corporate tax rates. For further information refer to Note 4 – Equity and Earnings per Share under Part II, Item 8 – Financial Statements and Supplementary Data of the Company’s Annual Report on Form 10-K filed with the Securities Exchange Commission (“SEC”) on February 28, 2020.
4 Customer compensation expenses were incurred to compensate certain affected customers in connection with their losses resulting from the West Texas Intermediate Crude Oil event. On April 20, 2020, the energy markets exhibited extraordinary price activity in the New York Mercantile Exchange (“NYMEX”) West Texas Intermediate Crude Oil contract. The price of the May 2020 physically-settled contract dropped to an unprecedented negative price of $37.63.
5 Unusual bad debt expense includes material losses on margin loans resulting from unusual events that occur in the marketplace. For the twelve months ending December 31, 2019, unusual bad debt expense reflects losses recognized on margin lending to a small number of our brokerage customers that had taken relatively large positions in a security listed on a major U.S. exchange, which lost a substantial amount of its value in a very short timeframe. For the twelve months ended December 31, 2020, unusual bad debt expense reflects losses incurred by futures customers in excess of the equity in their accounts related to the West Texas Intermediate Crude Oil event described above.
6 The income tax effect is estimated using the corporate income tax rates applicable to the Company.


12
7 Remeasurement of certain deferred tax assets represents the change in the unamortized balance of deferred tax assets related to the step-up in basis arising from the acquisition of interests in IBG LLC as a result of changes in the Company’s effective corporate tax rates. For further information refer to Note 4 – Equity and Earnings per Share under Part II, Item 8 – Financial Statements and Supplementary Data of the Company’s Annual Report on Form 10-K filed with the Securities Exchange Commission (“SEC”) on February 28, 2020.



13