Interactive Brokers Group Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
July 18, 2023

There are 11 speakers on the call.

Operator

Good day, and thank you for standing by, and welcome to Interactive Brokers Group First Quarter 20 3 Earnings Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Nancy Stuebbe, Director of Investor Relations, please go ahead.

Speaker 1

Good afternoon, and thank you for joining us for our Q1 2023 earnings conference call. Once again, Thomas is on the call, but asked me to present his comments on the business. Also joining us today are Milan Galik, our CEO and Paul Brody, our CFO. After prepared remarks, we will have a Q and A. As a reminder, today's call may include forward looking statements, which represent the company's belief regarding future events, which by their nature are not certain and are outside of the company's control.

Speaker 1

Our actual results and financial condition may differ, possibly materially, from what is indicated in these forward looking statements. We ask that you refer to the disclaimers in our press release. You should also review a description of risk factors contained in our financial reports filed with the SEC. This quarter at IBKR had something for everybody. Account growth was strong, DARTs rose despite uncertain markets and commission revenue was the 2nd highest in our history.

Speaker 1

Meanwhile, our net interest income reached a record and our reported pretax margin reached 72%. We achieved this using our simple strategy, One that seems to be unique in our industry today. We run a conservative balance sheet with ample equity at an extremely short duration portfolio. That means we have over $12,000,000,000 in equity and our portfolio's duration is a matter of 3 to 4 weeks, not months, not years. This balance sheet Support the global business where we charge the lowest prices on commission and we pay the highest rates on uninvested client cash.

Speaker 1

We pay these rates on cash that you can use right now. You don't have to sweep it out and then wait if you need it back. With us, our clients' cash can do 2 things, be available and earn interest at the same time. Because of this, we do not and have not seen clients taking cash out of their Interactive Brokers accounts and moving it elsewhere. We do see them using their cash to invest in the markets.

Speaker 1

Because of our high rates and qualified client cash, we are paying more than most, if not all, banks. We also have active customers who want instant access to the markets. We simply do not see cash and client accounts moving elsewhere on a net basis. More and more investors are looking to the markets to earn a return that will allow them to build their wealth beyond the level of inflation. This has been true for us around the world.

Speaker 1

I still believe inflation is going to stay with us and as it has done will likely remain above 4%. U. S. Government debt is now about $31,000,000,000,000 120 percent of GDP. This is forecast to grow by $2,000,000,000,000 a year, thanks to rising interest costs that end up adding somewhat to the inflation sparked by extraordinary U.

Speaker 1

S. Government spending during COVID. Now, even though they contribute to inflation, we need higher rates to fight it. This is not a short term state of affairs that will soon result in rate cuts. We are still seeing retail engagement.

Speaker 1

12 month commissions for the individual client segment as well as for the hedge fund proprietary client segments rose this quarter versus last year. Hedge fund 12 month commissions alone grew 81%. Product wise, while stock share volumes did not keep pace with a Very active quarter last year. Futures and options contract volumes continue to rise with both reaching monthly volume records here in March. More activity in futures and options contributed to our higher cleared commissions per DART of $3.16 up over 20% as these products carry higher commissions.

Speaker 1

As a note, higher futures commissions As clients continue to want to engage with the options markets, we have made it even more appealing by introducing a new routing venue for our clients, IBOPT, where our customers can give us an order pegged to the midpoint or to the bid and offer and give us their parameters of how much above the bid or below the offer They're willing to pay and their options order floats as the bid and offer move. If we get a counter order, It gets executed. This is a unique product in the space, one that works especially well with very active liquid options and allows our customers to act like market makers. This is the heart of what we do, automate for client success. It is the complicated part of what we do.

Speaker 1

What we see in the future is more of what we already deliver. Our net new accounts are growing just over 20%, We are still looking to onboard the first of the 2 large introducing broker accounts this quarter. It will start slowly and we hope to see it completed by the end of the year. We also remain on track to start onboarding the 2nd large iBroker account sometime in Q3. We have also focused on appealing to financial advisors with several features.

Speaker 1

We are soon introducing customized indexing to make it easy for them to build stock portfolios modeled on ETFs, but customizable for tax efficiency and investment goals. Unlike a one size fits all ETF, with customized indexing, Clients will own fractional shares of each component stock, so an advisor can adjust weightings, capitalize on gains or losses for tax purposes or exclude specific stocks or sectors, personalizing as their clients need. We do not require minimums. We have no ticket charges and charge no custodial, technology, software, platform or reporting fees. We also save financial advisors money on their mutual fund investments.

Speaker 1

As just one example, at other firms, If an advisor chooses an allocation to a particular mutual fund for 100 customers, that means 100 separately charged ticket fees. At IBKR, you only pay one commission, dollars 14.95 and no ticket fees, no matter how many customers you put into a fund, even for 1,000 customers. And finally, we now offer 3rd party research from global independent research firm ISI Evercore Our financial advisor clients in the U. S. And several other countries.

Speaker 1

I have great confidence in Interactive Brokers' capabilities and strengths and in the secular trends that are taking place around the world. More people wanting to invest in securities markets, more investors globally looking to gain exposure to different countries, particularly the U. S, rising income levels in developing countries and the acceptance worldwide that investing in the markets is the way to build wealth. I have less confidence in the responses seen so far to inflation, bank sector troubles the mounting cost of U. S.

Speaker 1

Debt service. Interest expense in 2023 on U. S. Debt is expected to rise 35% this year to $640,000,000,000 to $0.75 trillion next year. This all gets added to our growing deficit.

Speaker 1

This means investors around the world look increasingly to the markets to stay ahead of inflation and uncertainty. It has grown clear to more and more people Holding on to cash when it is earning low or no interest is a losing proposition. We let all investors know that Interactive Brokers pays its clients our IBKR campus educational website to make it simple to use and easier for clients to find topics of interest to better understand the world of investing. We will serve our customers in over 200 countries and territories and educate them about their options, both their opportunities and the security. We continue to add accounts and are excited about where our position as a leader in international access with a strong and safe balance sheet, offering a good deal to people as well as comprehensive educational tools for all, will take us.

Speaker 1

With that, I will turn the call over to our CFO, Paul Brody, who will go through the numbers for the quarter. Paul?

Speaker 2

Thank you, Nancy. Thanks, everyone, for joining the call. As usual, we're going to review the Q1 operating results, then we'll open it up for questions. Starting with the revenue items on Page 3 of the release. We recorded another strong quarter with record net revenues that exceeded $1,000,000,000 in the quarter, The first time with ongoing customer account and balance sheet growth, we continue to expand our potential for both commission and interest revenues in the future.

Speaker 2

Commissions were strong, reaching $357,000,000 despite mixed equity markets worldwide. Futures and options volumes reached record levels, while stock share volumes declined from last year's quarter, once again driven by a drop in trading of lower priced stock. Net interest income of $637,000,000 reflected higher interest from margin loans and segregated cash owing to increases in benchmark rates and a larger segregated cash portfolio. U. S.

Speaker 2

Benchmark rates have moved from an average effective rate of 12 basis points in the Q1 of last year to 4 51 basis points this quarter. These gains were partially offset by the higher interest we paid on customer credit balances as our long standing policy is to pass through rate hikes above 50 basis points to our customers on their qualified funds. Other fees and services generated $43,000,000 with the biggest contributors being market data fees of $18,000,000 Options exchanged liquidity payments of $8,000,000 and risk exposure fee revenue of $6,000,000 The drop from the prior year quarter was driven primarily by the risk off positioning of customers, which led to a $9,000,000 reduction in risk exposure fees. Other income of $19,000,000 includes gains and losses on our investments, our currency diversification strategy and Principal Transaction. Note that many of these non core items are excluded in our adjusted earnings and without these excluded items, Other income was a $22,000,000 loss for the quarter as we removed realized and unrealized gains on our U.

Speaker 2

S. Treasury portfolio. Turning to expenses. Execution, clearing and distribution costs rose 34% versus last year led by higher volumes in options and futures, which carry higher fees, lower liquidity rebates and higher regulatory transaction fees. We find it useful to measure what we call gross transactional profit, which is commissions less the pure volume driven execution and clearing costs.

Speaker 2

As a percent of commission revenues, execution and clearing costs, which are driven by a combination of trading volume, exchange rebates and changing fee schedules, were 21% this quarter, in other words, a gross transactional profit of 79%. Market data expense, a pass through item, is included in execution clearing and distribution fees, while the corresponding market data revenue is reported in other fees and services rather than in commission. For this purpose, in the Q1, we exclude $18,000,000 in primarily market data expense. Compensation and benefits expense rose $17,000,000 or 15% over the prior year, driven by hiring in Europe and APAC and in versus 16% last year end, somewhat below its historical level. Our headcount at quarter end was 2,872.

Speaker 2

G and A expenses were down 5% versus last year's Q1, primarily on lower advertising and legal expense. Our adjusted pretax margin was a record 71%. While higher interest rates benefit us, Automation remains our key means of maintaining consistently high margins as well as continued expense control while we hire Income tax expense of $61,000,000 reflects the sum Of the public company's $31,000,000 and the operating company's $30,000,000 Moving to the balance sheet on Page 5 of the release. Our total assets were $119,000,000,000 at the end of the quarter, with growth over the last year driven by increases in our segregated cash and securities. We maintain a balance sheet aimed at supporting our growing business and providing ample financial resources during volatile markets With maximum flexibility and short term liquidity, we have no long term debt.

Speaker 2

The duration of our investment portfolio As of March 31st was 24 days. Turning to our operating data on Pages 67 of the release. Our contract volumes for all customers were strong, reaching their highest quarterly level in both options and futures, up 2% 4%, respectively, over the year ago quarter. Stock share volume was down 22% versus last year's Q1, And the drop off is largely attributable to investors moving to higher quality stocks as trading in Pink Sheet and other very low priced stocks was impacted most. On Page 7, you can see that our account growth remains robust with over 100,000 net account adds in the quarter and the total accounts at $2,200,000 of 21% over the prior year.

Speaker 2

Total customer DARTs were 2,100,000 trades per day, down 19% from the stronger prior year quarter and our cleared IBKR Pro customers paid an average of $3.16 commission per A cleared commissionable order, up 23% from last year as our clients' volume mix included higher per order contributions from all product categories and particularly from stocks and options. Page 8 presents our net interest margin numbers. Total GAAP net interest income more than doubled to $637,000,000 on the year ago quarter, reflecting stronger earnings on segregated cash and margin loans, partially offset by higher interest expense on customer cash balances. After a series of 7 target rate increases in 2022, the Federal Reserve raised interest rates twice this quarter by 25 basis points each in February March. Many other central banks also raised rates this quarter.

Speaker 2

This group includes the UK, Canada, Australia and Hong Kong as well as the Eurozone and Switzerland. Net interest on segregated cash was $603,000,000 primarily due to Federal Reserve rate hikes, but also to our managing to short duration on invested funds, which has allowed us to more closely match Asset liability maturities and to pick up benchmark rate increases quickly. At March 31, our U. S. Portfolio duration was Over the year ago quarter, an average segregated cash and securities balances also drove interest income higher.

Speaker 2

Margin loan interest rose to $477,000,000 up significantly from $149,000,000 last year, Despite average margin loan balances declining 17% from last year's Q1, higher rates in the U. S. And internationally have driven Securities Lending net interest was $88,000,000 down 20% from the year ago quarter. It's worth noting that while securities lending opportunities maintain a relatively strong pace, it's also the case that as benchmark rates rise, A greater portion of the revenue generated by lending securities is reflected in interest on segregated cash, because the cash collateral received is invested as segregated funds. We estimate this impact to be about $41,000,000 for the quarter versus last year.

Speaker 2

In other words, without this shift in reporting line item, net interest from securities lending would be $129,000,000 up 18% from the year ago quarter. Interest on customer credit balances or interest We pay our customers grew as higher rates in many currencies led to our paying interest on qualifying balances as we pass through rate increases. We paid $653,000,000 to our customers on these balances in the Q1. Fully rate sensitive balances were roughly unchanged at about $20,000,000,000 We consider our policy offering clients A full pass through of all rate hikes after the first fifty basis points on their qualified cash, a significant component in our success and one that sets us apart. We believe this leads to clients choosing to keep their cash with us, especially active clients who do not want to use sweep programs that prevent them from immediately accessing their cash to invest.

Speaker 2

Thomas mentioned on balance, we do not see clients moving their cash away from us. Now for our estimates of the impact of increases in rates. Given market expectations of possibly 1 or more rate hikes to come, We estimate the effects of increases in the Fed funds rate to produce an additional annual net interest income of approximately $50,000,000 for each 25 basis points increase in the benchmark. Note that our starting point for these estimates is March 31, with Fed Funds' effective rate at 4.83% and based on balances at that date. About 26% of our customer cash balances is not in U.

Speaker 2

S. Dollars, so estimates of U. S. Rate change In fact, include exclude those currencies. We estimate a 25 basis point increase in all the relevant non USD Benchmark rates would produce additional annual net interest income of $26,000,000 and rising to about 100,000,000 at a 100 basis point rate increase.

Speaker 2

In conclusion, the company generated a strong performance in the Q1 in a complex and volatile environment, reflecting our continued ability to grow our customer base and deliver our core services to customers, all at a low cost And while offering meaningful cash interest as we manage the business effectively with strong risk and expense controls. And with that, we'll open up the line for questions. Thank you.

Operator

And thank Please standby while we compile the Q and A roster. And one moment please. And our first question comes from Richard Repetto from Piper Sandler. Your line is now open.

Speaker 3

Good evening, Thomas. Good evening, Paul. I guess, first question sort of the accounting question and accounting question. And just trying to understand this, the $40,000,000 mark That I think you said, Paul, that you removed realized and unrealized gains. Is this a one time thing?

Speaker 3

I'm just trying to understand whether either I'm This is something that you is this a one time thing in the quarter or has this been done in other quarters as well?

Speaker 2

Sure. So, well, this quarter's effect is a one time effect. Let me explain it this way. As you know, we have considered our investment in the treasury portfolio to have temporary mark to market fluctuations, which are reflected in our financial statements, both the income statement and the balance sheet. By the end of the year, The accumulated losses on our treasury portfolio because of market movement were about $39,000,000 That was all in the income statement and the balance sheet.

Speaker 2

For non GAAP reporting, which is what we call non core to our operating results, it's in the earnings release every quarter, We pull out those mark to market effects. So cumulatively, by the end of the year, We had a $39,000,000 accumulated loss that we had pulled out for the purposes of the non core reporting. We have pulled out the losses and that raised the non core reporting. During the Q1, we liquidated some securities rather than holding them to maturity. And by liquidating them, It erases the previous accumulated loss, in effect putting it back in when it was realized upon the sale of those securities.

Speaker 2

So those were sold. That also played a role in reducing our duration on the remaining portfolio down to 24 days, extremely short. And we wouldn't expect much mark to market impact at all going forward because it's unlikely to be much on a very short duration portfolio.

Speaker 3

Okay. Just one quick follow-up to that on that point, Paul. So why weren't these securities held to maturity then?

Speaker 2

We make investment decisions from time to time based Market conditions, we felt that, it made sense to sell a security and reinvest in currently higher rates. And looking forward, it also reduced the fluctuation in our mark to market results. Had we held it to maturity, it would have approached it would have resulted in approaching par value each quarter Until what would have been the end of this year, they were not very long term. At the end of the year, they would have made it all the way back to par value and we would have recaptured the exact thing that we Declared this quarter all at once, we would have done it over 4 quarters toward maturity.

Speaker 4

It also allowed us to reduce our taxes little bit last year.

Speaker 3

Understood. And just one quick question away from Thomas, just on the introducing brokers that I guess you Expected to start this quarter, could you give us an update on, I guess, the you said it's going to go gradually. So I guess, Is it more the same just dealing with large financial institutions that it's difficult to deal with? Any other detail on the progress there?

Speaker 4

Milan, would you like to answer that?

Speaker 5

Sure. So the first of the 2 I brokers already Tried onboarding its employees. The employees are basically testing the quality of the integration Going through all the functionality, the aim currently is for them to onboard The entire set of their clients and move them from their existing vendor broker in the summer. So the first high broker should be fully onboarded in the summer. There could be some delay.

Speaker 5

So maybe latest Q3. The second of the 2 Ibrokers is moving a little That relationship is bigger. It involves more of their entities. They have not yet started onboarding. They will most likely start in Q3.

Speaker 3

Okay. Thank you very much. Thanks, Thomas And Paul and Milan.

Operator

And thank you. And our next question comes from Daniel Fannon from Jefferies. Your line is now open.

Speaker 6

Thanks. I was hoping you could expand upon the hedge fund segment. I know you've been taking share and growing there, but maybe I think you said commissions were up 80% year over year, but if there's other stats that you could provide to help us think about the success you're having and the contribution of that segment.

Speaker 4

So, what other steps do you have in mind?

Speaker 6

Well, I guess, in terms of number of customers, the And then I think you have some goals, I think you've said previously in terms of

Speaker 4

Yes. So look, we are number 6 as far as number of hedge funds. We think that we and Ahead of us was Credit Suisse that is not going to be there this quarter, so we'll be number 5. And then ahead of us also Bank of America barely ahead of us by number of hedge funds. So we believe they'll be number 4 or number 5.

Speaker 4

The next time prequin Issue is based that some prime brokers for hedge funds. And

Speaker 6

in terms of the size of the with the sweet spot you're or Where you're having the most success, what's the average size? And I assume it's mostly in the U. S, but is it also outside the U. S? Yes.

Speaker 4

The average size is around, I think $8,000,000 So they are the smaller funds and our hope is, of course, that As you know, many of them I mean, quite a few of them lose money and quite a few of them make money. So some of them drop out and some of them become large, And we hope that they'll stay with us. We also have large hedge funds, but We are probably the 2nd or 3rd or sometimes 4th prime broker. So they come to us because A, our executions, they like our executions. B, they like the fact that They can see our short inventory and the rates at which they can borrow various Equity issues from us and when they compare that to the primary hedge fund, They either use our rates to beat them up into giving them a better rate or they actually ask Ask to borrow the shares from.

Speaker 6

Understood. And then can you confirm just the other income excluding The movements in the one timers that you talked about with the portfolio and treasuries, what that would be on a kind of a run rate basis going forward?

Speaker 3

Paul?

Speaker 2

Well, other income includes investments and various other things. So it's a little difficult to say that it has a run rate. Investments will rise and fall over time, and it's difficult to pin that down.

Speaker 5

But I guess just if

Speaker 6

I look historically that there was no one time as we look at the $19,000,000 in the 4th quarter or the single digits And for most of the 3 quarters before, that's everything was that's how we should think about it going forward. Those are the clean numbers.

Speaker 2

Yes. Let's remember that our currency diversification strategy that we call the global, the results of currencies versus dollar going up and down are a component of other income. Sometimes that's a large component. This quarter, it was practically nothing. So that's at least for you because we disclose The composition of our global, that's for you a predictable number because you can imply exchange rates and make an estimate.

Speaker 5

Okay. Thank you.

Operator

And thank you. And our next question comes from Craig Siegenthaler from Bank of America. Your line is now open.

Speaker 7

Hey, good evening, Thomas.

Speaker 5

Hi.

Speaker 7

So the Fed provided a nice tailwind for IB Care on the way up. If we start seeing cuts over the next year, Is there any reason that the asset sensitivity on the way down would look any different than on the way up, just given the short duration of your assets and also the large equity position that partially funds your balance sheet?

Speaker 4

Well, on the way down, we would Decreased by the same amount we increased by, except for the fact that we are getting more and more accounts. So to the extent we'll have more clients to do more trades and to keep with us more cash, It is going to be moderated. But if we went back to 0 interest rates, of course, It would be the same as I mean, our interest income would be very similar to what it was A year ago. But I do not believe that we will get back to 0.

Operator

And our next question comes from Benjamin Budish from Barclays. Your line is now open.

Speaker 8

Hi. Thanks so much for taking the question. I wanted to circle back on the introducing broker clients that are going to be onboarding later this year. Think there's a sort of a general understanding that as retail clients that are new to the platform join, they sort of become more productive over time. But these are generally existing clients from a previous broker.

Speaker 8

What's your sort of expectation in terms of the activity from these customers? Do you think that you could see sort of a step up over time as they become more familiar with Perhaps new options that are offered with IBKR on the back end. And as part of that, how should we think about the cash balances coming over? Should we assume that it's a lot Fully rate sensitive cash, is that a fair assumption?

Speaker 4

So it is generally true that A new account starts at $3 and it grows to $6 In the 1st year and then goes to $9 after 2 or 3 years. So I don't I do not expect these customers to be any different from them.

Speaker 8

Okay. That's helpful. And then just thinking about sort of the strength in the quarter, particularly in March with futures and options activity, To what degree do you think that's sustainable? Was a lot of that just sort of in response to the volatility created by the packing crisis? Or do you think there's sort of A possibility for sort of this sort of sustained engagement from retail and options in futures to kind of continue over the next several months or

Speaker 4

Well, to tell you frankly, for the past 10 days or so, our commissions are certainly lower than they were in the preceding 10 days. So the banking crisis certainly contributed To some stronger activity that seems to have subsided now. But generally, When markets go down, the activity increases And then when they stop going down and start to slowly climb up, the activity decreases. So That's what we're seeing in the commission income side.

Speaker 5

And there is an additional component here. The options trading is getting generally more and more popular and the type of clientele that we attract Looks towards the option offering that we have as part of our platform. So the expectation is that the options trading and derivatives Trading in general is going to be growing over time even as the volatilities drop in the market.

Speaker 8

Got it. That's helpful. Thanks so much.

Operator

And thank you. And one moment for our next question. And our next question is Kyle Voigt from KBW. Your line is now open.

Speaker 9

Hi, good evening. Thomas, you started the call in the prepared remarks highlighting the yields you're paying on idle cash balances. And we've also been noticing that you're marketing this recently and comparing your yield to that of other brokers. I guess, have you ever have you seen evidence that clients are consolidating more cash or more assets at IBKR from other brokers or other accounts because of that yield differential and because of some of the marketing push that you've been making recently?

Speaker 4

Well, I unfortunately, I did not. So the incoming Monies are about the same as they were a month ago or 2 months ago or 3 months ago. So we have steadily it's very, very steady. So we haven't seen Any pickup, we also haven't seen any draw downs.

Speaker 9

Understood. And I just wanted to follow-up on the prior question. I know you've been quite positive on the growth trajectory for options, broadly speaking, and believe that growth is sustainable over the medium term. But I was wondering if you could comment on some of the growth in this SPX 0 day to Fiery options trading we've seen grow rapidly over the past few quarters. I understand that your customers are one of the larger users of the 0 day products.

Speaker 9

Just wondering if you could give us any detail on which client segments you're seeing utilize those products within IB? Then also just give us your thoughts broadly on this 0 day options trend and whether you see the volume growth in those Products are sustainable as we look out over the next few years as well?

Speaker 4

So it is certainly sustainable because People it's less expensive for people to take a position in one day options Head of one day, head of news, right? So whereas previously, they had to take a position That would have several days to run even though they would take the position that they read of the news. So it is cheaper for them to use the one day option. Also, when people want to Take a position in the larger portfolio, it's easier for them to accumulate, one day, say, standard and pools options and train the portfolio on the market and on close order. And that way they it's a lot cheaper for them to buy or sell that portfolio.

Speaker 9

Understood. Thank you for that. And I just have one follow-up, one last question. It's just regarding The balance sheet of the company, you now have, I think, close to $9,000,000,000 of capital in excess of your regulatory requirements. And that excess capital figure has grown significantly over the past few years.

Speaker 9

I know you've previously stated you wanted Excess capital to help support the prime brokerage operations and to help customers kind of feel safe, costing assets at IB. But I guess is there some level of excess capital where you'd feel it's an adequate level and therefore not needing to continue to build that as rapidly as it has over the past few years? Just updated thoughts there would be great.

Speaker 4

Well, it's strange that you should ask that question at the time that Many of our peers appear to have insufficient amount of capital. So no, we are very proud to have As much capital as we do, and we hope to keep growing it.

Speaker 9

Understood. Thanks, Thomas.

Operator

And we have one more question. Bear with me. And our next question comes from Chris Allen from Citi. Your line is now open.

Speaker 10

Yes, evening, everyone. Just wanted to touch on, you noted that advertising spending was down year over year, helping drive G and A Lower. Can you just give us an update on the marketing strategy here? I know in the past you talked about being a targeted marketing strategy. How has it evolved recently?

Speaker 10

And is it the pullback in advertising just a result of the environment or just lower opportunity set?

Speaker 4

So you will see that maybe you notice our ads Cropping up all over the place. We're trying to advertise our 4.33 percent interest that we pay on instantly available cash. And so that is we roughly have doubled our advertising roughly a month ago, so the next of our advertising spending. So You will see a much larger advertising spend in the next quarter.

Speaker 10

Understood. And then just one more quick one on headcount growth. The pace of growth has been moderating in recent quarters. Is that just because you're reaching scale in certain areas, whether it's from a country or regional perspective or just the near term opportunity. So just you don't need to grow as fast as you have in the past.

Speaker 4

I think this is a CEO question.

Speaker 5

So we are obviously paying a lot of attention to our expenses. The human capital cost is significant. What we have seen is, if I compare our numbers to 1 year ago quarter. The customer service personnel has decreased by 3%. Our compliance team has increased by, let's say, 10% and And our information technology personnel, which is programmers, technicians, system administrators and similar, that number went up by 16%.

Speaker 5

So these numbers are not bad. The fact that we are increasing the size of our information technology team Just signifies our commitment to being a leader in the financial services technology tools for our investors. So you can expect us to grow the team as we have increasing amount of work. The customer service, I think That team is at a good level. We are closely paying attention to the wait times of our Customers calling us how long they have to stay in the phone queue and that number is very low single digit minutes.

Speaker 5

We like that. So the size of the team seems to be appropriate to the level of business that we have and the number of accounts that we have. One of the reasons that we do not have to Grow that team has to do with the fact that our platform is over time becoming more user friendly and we have done a Very good job in providing self-service customer service to various FAQs and chatbots and that type of Technology. As far as the compliance staff, we had to increase it because there is a lot of surveillance that We have to do on both of the cashiering transactions that our customers perform as well as the trading activity. The operators that we have, there is a few 100 of them, pay attention to the various alerts that our systems Generate and then they check whether those alerts signify a problem or they're just false positives.

Speaker 5

We are putting significant amount of energy into making those alerts more targeted, decreasing the number of false positives as well as making it easier for the operators to service those alerts. So I would like The size of that team, the growth of that team to slow down as well, and I believe we will achieve that. So these numbers, I think, are good. The team is at the right size. Obviously, if it was smaller, our profit margin would be greater and that is what we would like to deliver to

Speaker 10

Great color. Just one quick follow-up. On the IT personnel side, Has the cost of talent got has moderated at all? Has there been more pressure in the tech sector?

Speaker 5

So very lately, it has become easier to hire good technologies. Obviously, there has been a layoff. We all can read about them in the news. So that made it easier. We now don't have to kill ourselves in making oversized Offers including the sign up bonuses.

Speaker 5

So yes, it became easier and we are taking advantage of that. Some of the talent that is available is very good And we would obviously like to get a hold of that, so we can do that. Great.

Speaker 3

Thanks a lot, guys.

Speaker 5

Pleasure.

Operator

And thank you. And I am showing no further questions. I would like to turn it back to Nancy Stuebbe for closing remarks.

Speaker 1

Thank you everyone for participating today. As a reminder, this call will be available for replay on our website and we will also be posting a clean version of our transcript on the site tomorrow. Thank you again and we will talk to you next quarter end.

Operator

This concludes today's conference call. Thank you for participating. You may now disconnect.

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Key Takeaways

  • Interactive Brokers reported record net revenues above $1 billion in Q1, driven by the second-highest commission revenue ever, a 71% adjusted pretax margin and strong account growth.
  • The firm maintains a conservative balance sheet with over $12 billion in equity and a 3–4 week portfolio duration, enabling it to charge industry-low commissions while paying some of the highest rates on instantly available client cash.
  • Average cleared commission per DART rose over 20% to $3.16 as futures and options volumes reached quarterly records in March, offsetting mixed equity share trades.
  • Net interest income hit a record $637 million, with management estimating an additional $50 million in annual NII for each 25 basis-point rise in Fed funds, even after passing hikes above 50 bp through to client cash balances.
  • Net new accounts grew over 20% to 2.2 million total, two large introducing broker platforms are slated to onboard by year-end, and new offerings like IBOPT midpoint options routing and customized indexing for advisors aim to drive further engagement.
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Earnings Conference Call
Interactive Brokers Group Q2 2023
00:00 / 00:00