Interactive Brokers Group Q4 2023 Earnings Call Transcript

Quartr
Provided by Quartr
January 16, 2024

There are 12 speakers on the call.

Operator

Good day and thank you for standing by. Welcome to the Interactive Brokers Group 4Q 'twenty three 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.

Operator

I would now like to hand the conference over to your speaker today, Nancy Stuebe, Director of Investor Relations.

Speaker 1

Good afternoon. Happy New Year, and thank you for joining us for our Q4 2023 earnings call. Thomas is on the call and 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.

Speaker 1

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. 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. In 2023, we added over 470,000 net new accounts.

Speaker 1

Our client equity at year end was up 39 percent to $426,000,000,000 an increase of over $100,000,000,000 from last year. We earned over $4,000,000,000 in net revenues and over $3,000,000,000 in pretax income, both for the first time. Our pre tax margin was 71% for the full year, by far the highest in the industry. In fact, very few public companies in any industry have that kind of profit margin. If market conditions continue as they are, Even with the 3 interest rate cuts being predicted, I see no reason why we wouldn't be able to maintain pre tax margin at the 70% level.

Speaker 1

We saw stronger markets in 2023 with the same focus on options and on the magnificent seven names that we have seen for a year now. We see options being traded actively both traditionally as a means to offset risk and a standalone 0 data expiry. Regarding interest rates, we are not willing to argue with the market. If the market believes that long term rates will be under 4%, we don't think it's our business to dispute it. However, there are several long term trends that, in my opinion, call for higher inflation and higher rates in the long run.

Speaker 1

First is deglobalization. Over the past few decades, where goods are manufactured has been reallocated around the globe, Prices of some goods were driven down 50% to 90%. But now, as we have been predicting, Geopolitical uncertainty has driven transportation costs up, with insurance or transport rising every day as vessels are attacked and routes become unsafe. To start producing closer to consumers, where labor is often more expensive means higher costs and prices. 2nd is demographics.

Speaker 1

For the most part, skilled labor is produced in developed countries like the U. S. And Europe, and some extent in Asia. Population growth, however, is occurring in those countries where skilled labor is not produced. Birth rates and population growth have dramatically reversed in developed countries to decreasing instead of growing, meaning that skilled labor will cost more and more

Speaker 2

3rd are

Speaker 1

deficits. Deficits contribute to inflation as interest payments get funded through deficit spending, which then means bigger deficits and higher interest, which gets added on to the deficit on and on, so it is unclear to me how inflation can substantially decrease as the deficit grows. 4th, the ever increasing demand for spending on environmental projects Combining these factors, it is hard to see how inflation will subside over the long term, even if in the next several months it may ameliorate somewhat. These trends are inescapable. And while you may see long term rates of 4% for now, They could go back to 5%, 6%, 7% or more as costs, deficit spending and the national debt keep increasing.

Speaker 1

Turning to our business, our client accounts and client equity grew fastest in Europe and Asia As more and more people worldwide want to access international markets, invest in securities they feel offer the most upside, regardless of type of security it is or where it is traded and hold what they perceive as safer currencies. In 2023, individuals saw the fastest account growth among our 5 client segments and the 2nd highest commission in net interest growth. Proprietary Traders had the fastest client equity and commission growth. Introducing Brokers had the highest net interest growth, followed by individuals and financial advisors, all well over 50%. While we saw growth in hedge fund accounts and significantly higher client equity.

Speaker 1

It showed a smaller increase in commission and interest activity than our proprietary traders or individuals. This is likely due to so many funds holding the same Magnificent Seven names. But as many of you are on the call, maybe you can expand on this. We had one of our busiest years ever of programming. During 2023, we added a wide range of features and capabilities, including those for financial advisors and enhanced IBKR Mobile, Portfolio Analyst, our CRM and Student Training Lab, plus added comprehensive new content at our Traders Academy, Quant Blog and Traders Insight.

Speaker 1

Our new Discover tool lets you see technical insights using actionable analysis and alerts with a market buzz bubble map to identify the companies most in the news, allowing clients to go more in-depth analytics and sentiment and has proven quite popular. For our long short hedge fund of proprietary trading clients, We added features like a securities lending dashboard, which gives an expanded universe of securities lending data like borrower and lender depth among other items. For financial advisors, we are significantly less expensive than competitors. To give an idea of the value add we offer to financial advisors, When an advisor buys a mutual fund for his or her clients at Interactive Brokers, we charge a maximum of $14.95 for the entire trade and nothing for allocating a mutual fund among any number of clients after the trade. In contrast, competitors charge $45 per account to allocate a trade.

Speaker 1

Our biggest issue is that SAs do not believe us and we tell them that they can save 1,000 of dollars each time they update their customers' portfolios. For options traders who do not absolutely need an immediate fill, we built a facility to trade at the mid price against our marketable order flow. Option orders and frequently traded options have a very good chance of being filled within a few minutes. A growing percentage of our options order flow gets This is in addition to our similar facility for equities, which we've had for some time now and which we continue to build. As we onboard more and more institutional clients, we get more and more liquidity in our ATS, especially for Ultimately, we believe that the most a broker can do for its customers who trade frequently is to give them the best possible execution prices.

Speaker 1

This has always been the most important consideration as we have developed our platform over the years. In 2024, we have another active year of programming projects planned, and you will see further upgrades to our platform with more features and capabilities. We are also adding new countries where our clients can trade. I will not say more to avoid tipping off our competitors. Finally, we are well aware that we have now reached $14,000,000,000 on equity on our balance sheet.

Speaker 1

We are considering possible opportunities in the space that would help us grow the business. Our public float is small, so we are unlikely to buy back shares. And personally speaking, I would hope that an opportunity presents itself as raising the dividend is not something I think helps the company grow in the long run. There is much to look forward to. The Interactive Brokers platform is built with the purpose of bringing investors and marketplaces together to interact with each other all over the world optimizing the allocation of capital and resources.

Speaker 1

It is our job to educate current and beginning investors to develop the best tools and capabilities to facilitate their investing journey. We are as busy programming as we've ever been. This and our much lower cost structure is what sets us apart and will continue to do so in the years ahead. With that, I will turn the call over to Paul Brody. Paul?

Speaker 2

Thank you, Nancy. Good afternoon, everybody, and thanks for joining the call. I'll review the Q4 results and then we'll open it up for questions. Starting with our revenue items on Page 3 of the release. We're pleased with our financial results this quarter, roughly matching the record adjusted net revenues and pre tax income of the prior quarter.

Speaker 2

And for the full year 2023, we achieved record results in every major financial measure. Commissions rose versus last year's Q4 reaching $348,000,000 For the full year, commissions were $1,400,000,000 up 3% from 2022. In 2023, we saw higher trading volumes in options and futures coming from our large base of sophisticated and active traders, investors and advisors. Net interest income of $730,000,000 for the quarter and a record $2,800,000,000 for the year reflected a risk on environment It led to steadily higher margin lending as well as higher yields on our margin loans and segregated cash portfolio. This is partially offset by the higher interest paid to our customers on their cash balances as Interactive Brokers passes through to them all rate hikes above the first fifty basis Other fees and services generated $55,000,000 for the quarter $197,000,000 for the year.

Speaker 2

The increase in the prior year quarter was driven by the risk on positioning of customers, which led to a rise in risk exposure fees to $17,000,000 as well as higher FDIC sweeps fees, which rose to $6,000,000 this quarter. Market data fees of $17,000,000 and exchange liquidity payments of $8,000,000 were the other factors in this category. Other income This includes gains and losses on our investments, our currency diversification strategy and principal transactions. Note that many of these non core items are excluded in our adjusted earnings. Without these excluded items, other income was $16,000,000 for both the quarter and the full year.

Speaker 2

Turning to expenses. Execution, clearing and distribution costs were $100,000,000 in the quarter $386,000,000 for the year, up versus last year primarily due to higher volumes in options and futures, which carry higher fees. As a percent of commission revenues, execution and clearing costs were 23% in the 4th quarter for a gross transactional profit margin of 77 We calculate this by excluding from execution and clearing $20,000,000 of costs, predominantly market data, without a direct commission revenue component. Compensation And benefits expense was $136,000,000 for the quarter for a ratio of compensation expense to adjusted net revenues of 12%, unchanged from last year. For the year, this ratio was also 12%, down from 14% in 2022.

Speaker 2

We are always focused on expense discipline, while improving our strong top line. Our headcount at year end was 2,932. G and A expenses were $45,000,000 down from the year ago quarter. For the full year, Recall that 2023's numbers is inflated due to a previously disclosed regulatory settlement in the 2nd quarter. Without that, full year G and A would have been even with 2022.

Speaker 2

Our pretax margin was 72% for quarter 71% for the year. Automation and expense control, along with thoughtful management of our balance sheet, reflects the sum of the public company's $45,000,000 and the operating company's $32,000,000 The public company's taxes Included a decrease in the deferred tax asset, which reflects an annual remeasurement of future tax benefits. Together with some other items, these had an $8,000,000 impact on income taxes. Removing these onetime non cash items, The public company's adjusted effective tax rate was 17.9%, within its usual range. For the year, taxes of $257,000,000 by the sum of the public company's $142,000,000 and the operating company's $115,000,000 Moving to our balance sheet on Page 5 of the release.

Speaker 2

Our total assets ended the year 12% higher at $128,000,000,000 with growth driven by higher customer cash and margin loan balances from both new and existing customers. We maintain a balance sheet geared towards Our ample capital base is deployed primarily in running our current business, and our liquidity positions us to support our customers during periods of high market stress. It also helps us win new business by showing the strength and depth of our balance sheet to current and prospective In our operating data on Pages 6 and 7, our contract volumes Options for all customers rose 21% over the prior year quarter, well above industry growth. Futures contract volumes rose 4%, while stock share volume declined for us as it did across the industry. For the full year, options and futures contract volumes rose 12% and 1%, respectively.

Speaker 2

The decrease in stock share volume is largely attributable to lower trading in Pink Sheet and other very low priced stocks. Notional value of brokerage shares traded, however, was up in most markets, particularly in the U. S, as clients gravitated to larger, higher quality names. On Page 7, you can see the total customer DARTs We're 1,900,000 trades per day, up 2% from the prior year and reflecting a more risk on period for investors. Commission per cleared commissionable order of $3.19 was up slightly from last year, driven by increases in futures volume and average trade size.

Speaker 2

Options contributed higher volume, but a lower average trade size and stock trade volume and average trade size both declined. Page 8 shows our net interest margin numbers. Total GAAP net interest income was $730,000,000 for the quarter, up 29% and $2,800,000,000 for the year, up 68%. Our net interest margin, net interest income as displayed in our NIM was $9,000,000 higher worth $739,000,000 as we include income here that for GAAP purposes is classified as other fees or other income, but that we feel is more appropriately considered interest. These results reflect strength in margin loan and segregated cash interest, partially offset by higher interest expense on customer cash balances.

Speaker 2

Most central banks around the world, including the Federal Reserve, held The Federal Reserve raised interest rates 4 times over the year, raising the average U. S. Fed funds rate for the 4th quarter to 5.33 percent from 3.65 percent in the prior year. Our segregated cash interest income rose 67% on a 4% increase in average balances, while margin loan interest rose by 50% on a 9% increase in average balances. The average duration of our portfolio remained at under 30 days.

Speaker 2

With the U. S. Dollar yield curve inverting further over the 4th quarter, We have been maximizing what we earn by capturing higher short term yields rather than accept the significantly lower yields of longer maturities. In this rate environment, this strategy allows us to maintain a relatively tight maturity match with the rate we pay our customers. Securities Lending net interest has not been as strong as in prior quarters for two main reasons.

Speaker 2

1st, Overall, customer demand for shorting stocks has fallen. There are fewer hard to borrow names industry wide, which With the market's low volatility are the drivers of securities lending. 2nd, as we have noted on previous calls, Higher average interest rates versus prior periods means more of what we earn from securities lending is classified as interest on segregated cash. To more accurately compare our securities lending revenue with the year ago quarter, we estimate that if the interest earned on this cash collateral So under securities borrowed and loaned, it would have been $18,000,000 higher or $61,000,000 Interest on customer credit balances, the interest we pay to our customers on the cash in their account, Rose on both higher rates in nearly all currencies and higher balances from new account growth. As we've noted many times in the past, The high interest rates we pay on customer cash, currently 4.83% on qualified U.

Speaker 2

S. Dollar balances, is a significant driver of new customers. Fully rate sensitive balances were about $18,000,000,000 this quarter. Now for our estimates Given market expectations of rate cuts in 2024, we estimate the effect of such changes in the Fed funds rate to be a $56,000,000 reduction in annual net interest income for each 25 basis point decrease in the benchmark. Note that our starting point for these estimates is year end with the Fed Funds' effective rate of 5.33 percent About 25% of our customer cash balances is not in U.

Speaker 2

S. Dollars, so estimates of the U. S. Rate change exclude those currencies. We estimate the effect of decreases in all the relevant non U.

Speaker 2

S. Dollar benchmark rates would further reduce annual net interest income In conclusion, we had a financially strong quarter to close out a record year in net revenues and pre tax margin, reflecting our continued ability to grow our customer base And with that, we'd like to open it up for questions.

Operator

Thank you. One moment for questions. Our first question comes from James Yaro with Goldman Sachs. You may proceed.

Speaker 3

Good afternoon and thanks for taking my questions. I'd like to start with your outlook for deploying your excess capital. Maybe you could just speak to how you think about the balance between organic investment and inorganic growth. And then perhaps if you could just speak to the timeline over which you might contemplate that inorganic growth and what sort of businesses you might be looking for?

Speaker 4

So as you know, we have a Significant cash reserve, significant amount of capital that we could deploy and would like to deploy. We have been looking For possible acquisition targets, they are all in our industry. They tend to be brokers Either find the price to be too high for acquisition or find that The acquisition would represent very significant amount of work in terms of the integration. So, so far we have not found any target that we would actively go after, but we hope that that will change in the future.

Speaker 3

Okay, thanks. That's very helpful. Maybe if we could just touch quickly on the prime brokerage and prop trading opportunity. Maybe if you could just speak to where you see where you are in the growth ramp For Prime, and what do you think the business could look like on your platform over the next few years? You have talked about adding new hedge funds, both small and large.

Speaker 3

So maybe you could just speak about when you talk to those clients, what attracts the larger hedge funds to your platform?

Speaker 4

Interactive Brokers has been successful in attracting smaller hedge funds. These are typically the hedge funds that the Bigger primes decline to do business with because of the higher cost structure that they have. And then what we find is as the hedge funds get bigger, they start to look around and consider these larger competitors of ours. We would obviously like to reverse that trend, but it's not going to be easy. Part of the problem that we are dealing with is That the large primes are banks that had been in business for 100 years or more, and they have created a very significant brand recognition.

Speaker 4

That is what we are up against. So we hope that the significant amount of capital that we have on our balance sheet will Be attractive for the manager that looks at our large competitors. They will consider us because they will Walk away with the belief that their assets are safe with us.

Speaker 3

That's very clear. Thank you so much.

Operator

Thank you. One moment for questions. Our next question comes from Craig Siegenthaler with Bank of America. You may proceed.

Speaker 5

Good afternoon, everyone. We wanted your perspective on the potential money in motion in the Active Trader segment. So, your biggest Active Trader will be integrated into a larger financial services firm in a few months. And I'm wondering if you think this is an opportunity for IB Care to pick up share in the Active Trader segment?

Speaker 4

Are we talking about Syncorswim and Schwab?

Speaker 6

Yes.

Speaker 4

So to my knowledge, the Syncor Swim platform is going to be made available To the active traders on the Schwab platform. So I would not necessarily see this as an opportunity for the Accounts to move from Schwab to Interactive Brokers, but you might have heard something different. I'm not sure.

Speaker 5

Okay. For my follow-up, can you provide us your outlook for margin loan balances? Are we at a point where you think they can start to grow?

Speaker 4

Well, the margin loan balances are somewhat related To the interest rates, how expensive it is to put the positions on Margin positions on. They also depend on the market opportunities that are in the market. So the higher the Volatility, the greater these balances tend to be. As the number of accounts is growing, That should also increase the margin balances. So I'm optimistic that they will increase over time.

Speaker 5

Great. Thanks for taking my questions.

Operator

Thank you. One moment for questions. Our next question comes from Benjamin Butch with Barclays. You may proceed.

Speaker 7

Hi. Thank you so much for taking the question. You made the comment earlier in the prepared remarks about the 70% margin for this year. And I think earlier at a public appearance, you talked about sort of high single digit operating expense growth for the year. Can you maybe talk about what that means for the top line?

Speaker 7

How do you think about sort of the interplay between lower rates potentially impacting net interest income? Maybe this is offset by higher commissions. We've seen cash balances come up a little bit. How do you think about those 2 sort of the interplay between those 2 and how that could evolve over the year? And perhaps how you think about that a little bit longer term, I know in the past you've sort of commented while the margin could maybe be in the low 60s to high 60s.

Speaker 7

It sounds like there's a little bit more confidence on that sort of 70% mark. So Just curious your thoughts there.

Speaker 6

So I think it's going to be a race, a debt heat So that's how I see

Speaker 7

it. Got it. And maybe any Last year, you sort of gave us an early look on the expected account growth into 2023. And I understand your position on introducing brokers at this point, but any thoughts on what to or sort of 20% the right way to think about it, any potentially large partners onboarding that might come on at any point?

Speaker 4

Well, I think the best piece of guidance we can give you is that you can look at how we have been growing over time and you can sort of jump to your own conclusions as to how that is going to look. The mix of the business, the various segments That segments of the business that we have, individual clients, introducing brokers, hedge funds, prop trading firms, Financial advisors, it's not obvious to me how that mix should change over time. So I would expect roughly the same growth numbers for the next year.

Speaker 7

Helpful. Thanks so much.

Operator

Thank you. One moment for questions. Our next question comes from Brennan Hawken with UBS. You may proceed.

Speaker 8

Good afternoon. Thanks for taking my questions. Thomas, you just talked about this sort of briefly, but I'm curious if you could drill down into it a little bit In more detail, Sue, and how we should be thinking about the offsets and Obviously, there's a $56,000,000 impact for each 25 basis point rate cut. But how do you think about lower rates and how that It translates into volumes and commissions and higher cash balances and margin loans. Like how do you anticipate that Interpolia to actually develop.

Speaker 6

So I expect rates to be cut by 75 basis points in the course of the year. As you heard, our interest income would come down by $300,000,000 actually $304,000,000 if you extrapolate what Paul said, putting U. S. That our deposits and foreign deposits together. So If we come down by 3 quarters, that will be 220 About $230,000,000 And I think that I mean, look, I believe that our earnings increased due to Continuing increasing activity and increasing number of accounts and new accounts being onboarded We'll outstrip that, but I can't promise you that it's just what I think.

Speaker 6

So I do believe that on balance our earnings in 2024 will be higher than they were in 2023.

Speaker 8

Okay. Thanks for that. And then when we think about the margin balances, the margin balances continue to show Good growth. How much of the growth in margin balance is coming from new accounts, right? And therefore, that doesn't really have to do with any change in risk appetite in the existing customer base versus new accounts that are coming on and growing the margin organically.

Speaker 6

We slice and dice our accounts in many ways, but we don't look at new accounts versus old accounts.

Speaker 3

Sorry.

Speaker 8

Fair enough. Maybe let me try and say it another way. The increase in the margin balances that we've been seeing here recently. Do you believe that this growth is sustainable?

Speaker 6

Of course. Look, we are the least expensive provider of margin loans to especially to retail customers, but also to institutional traders.

Speaker 8

Thanks for taking my questions.

Operator

Thank you. One moment for questions. Our next question comes from Dan Fannon with Jefferies. You may proceed.

Speaker 9

Thanks. My question is on sec lending and outlook there understanding that hard to borrows have declined, but are you seeing replacement through other options, futures that Behavior is changing or as you think about markets normalizing engagement picking up, but we should see a natural pickup in the demand for sec lending.

Speaker 2

So there's 2 things that work there really. There's the baseline of What are the general shorts in the marketplace, which have been down and those are not under our control, but When things get more volatile, maybe more stocks get more interesting, look overvalued and the shorts go up. And then what really drives the P and L there Is that particular stocks get very hot for a while, get the demand outstrips the supply for borrowing those stocks because the shorts go up. And the rates go very high on those and we make much more money lending them as do our customers when They are signed up for our fully paid lending program and they get generally about half of what we earned by lending to The Street. So it's very opportunity driven.

Speaker 2

The best we can do is what we've been doing for years. We've developed really expert systems at Managing that inventory and trying to maximize the profitability of the when the opportunities come up.

Speaker 4

Maybe as the IPO space becomes more active, there are going to be some Overpriced stocks trading out there with relatively small float and that could act as an increase of this activity.

Speaker 9

Understood. That's helpful. And then just to follow-up on the inorganic discussion. Could we maybe put some financial metrics around what you guys would be looking to get in terms of returns? Obviously, your pre tax margins are, as You mentioned industry high, so the ability to replicate that through M and A It's probably very difficult, but just is there a return threshold, accretion, other kind of financial

Speaker 4

So There are various factors that we take into consideration. Number 1 would be how big the acquisition is, How much of our capital would we have to spend? Obviously, we would not want to spend our energy on something too small. And at the same time, we would be too worried about getting into something very large. We would look at what is the overlap Between the financial services company, we are looking at acquiring with what we are currently offering to our clients.

Speaker 4

How much synergies can we recognize? The amount of work that we would have to do to integrate The acquired company systems with ours. So all these things are closely looked at Apart from the pricing structure that the to be acquired company has, in other words, how much would we have to adjust The commissions and interest they charge, would the revenues significantly change if the company becomes associated with Interactive Brokers? So there is a whole bunch of different factors that we look at and we have done that a number of times. We have gotten close to 2 purchases in both of the cases.

Speaker 4

We were not able to agree on the price with the target.

Speaker 9

Understood. Thank you.

Operator

Thank you. One moment for questions. Our next question comes from Kyle Voigt with KBW. You may proceed.

Speaker 5

Hi, good evening. First question is on expenses. If we exclude the $45,000,000 I think one time expense that was realized in the Q2 of 2023, I'm calculating that your fixed expense growth was Roughly 12% for full year 2023. Is that the best run rate expense growth rate that we should be thinking about for 2024 as well? And if we get into an environment where the Fed is significantly cutting interest rates, would that expense growth trajectory change at all in order to maintain that 70% pretax margin that you mentioned in your prepared remarks.

Speaker 4

So 70% profit margin would get somewhat affected by the The decrease in interest rates, you have already heard a little earlier, Paul Brody talking about the impact of the quarter percent cut on our net interest income. However, as Thomas alluded to, we hope that the commission income would offset these decreases In net interest income. So probably the revenue wouldn't change. What we have to pay very close Attention to is our expenses. We have a very significant headcount.

Speaker 4

There is 2,900 employees working for the company. We have recently, over the past several years, we have had to increase the compensation every year because of the significant inflation. That inflation may stay with us, which would mean that we could expect the compensation expense To increase next year as well, and this is something that we really need to pay attention to, we would like to keep The headcount the same if possible, but obviously that could change. If we ever see that we are falling behind In customer service, we would have to adjust. But with the advances in, for example, AI, we hope that we can keep this number

Speaker 5

Understood. Then just a follow-up, just going back to the M and A discussion. I think now you have over $10,000,000,000 of excess regulatory capital. But historically, you wanted to keep some of that as an additional above your regulatory minimums, to support the prime brokerage business. I guess, when we're thinking about potential acquisition sizes that you are evaluating, I guess how much of that $10,000,000,000 excess regulatory capital could theoretically be deployed for M and A?

Speaker 5

And anything you could share with Back to general size of assets that you're looking at relative to this excess capital level.

Speaker 4

Well, I would not necessarily look at 10,000,000,000 Access as the guidance towards the size of acquisitions we would be willing to make, It would be most likely the case that the acquired company would be paid for as a mix of Stock and cash, so we would not use up all the cash. We like to have this strong balance sheet. We had seen what happened to Robinhood a few years ago. We have seen what happened to Knight Trading, I don't know whether you remember them more than a decade ago. We like the safety that comes We have strong balance sheet, so we would not want to spend anywhere near to the entire excess capital that we have.

Speaker 5

Understood. Thank you very much.

Operator

Thank you. Our next question comes from Chris Allen with Citi. You may proceed.

Speaker 10

Yes. Evening, everyone. Just have a couple of follow ups. Just on the M and A discussion, the turrets you're looking at, is Any preference from a regional perspective or a product or capability perspective that you're looking at? Or is it more just about efficiencies?

Speaker 4

It's about efficiency. There is no preference. We are a global company, so it really doesn't matter way.

Speaker 10

And then, obviously, headcount has increased at healthy levels, which has driven some of the compensation increases. What's the outlook for hiring going forward? Do you need to continue to hire at a healthy pace to expand internationally in other areas? And what's the pressure In terms of compensation from a competitive dynamic.

Speaker 4

So We are of the view that we are sufficiently staffed on the technology staff. As far as the customer service is concerned, we are paying very close attention to our metrics, The abandoned calls, calls in queue, wait times, they have looked sufficiently healthy That we are running at the levels that we are comfortable with. If all of a sudden we receive either by acquisitions or By organic growth significantly higher number of accounts, we may have to adjust, but we are trying to Counteracted as much as possible by automating the customer service as much as possible. And I could probably say similar things about The surveillance employees and operators that we have, there are hundreds of them that we currently employ. We constantly work on making the tools that they use more efficient, so that even if the market If it picks up and number of accounts increases, we would like to be able to operate with the same

Operator

Thank you. One moment for questions. Our next question comes from Patrick Molyneux with Piper Sandler. You may proceed.

Speaker 11

Yes. Hi. I was just Hoping to get your thoughts on the recent spot Bitcoin ETF approval, what impact, if any, it's had on your business, maybe any sort of Behavioral shift you're seeing among your customer base and how, you think you're positioned, I guess, in overall crypto digital asset space going forward? Thanks.

Speaker 4

So we were one of the firms and maybe the only broker that was making These 11 ETFs available on their platform on day 1, our customers immediately started trading these ETFs. Obviously, this is going to make the cryptocurrency investing More mainstream because the investors that were reluctant to jump into this space before Having these ETFs in existence made that easier for them. So I think they are going to The cryptocurrencies are going to become a portion of a greater number of investors out there. As to what it's going to mean to our investors, our customers, it's hard to tell. As you know, our clientele Tends to be a little bit more active, more sophisticated.

Speaker 4

I think some of them will recognize the opportunity to trade The cryptocurrency trading itself as well as the ETF on our platform, there may be some arbitrage opportunities that develop. I think it's too early to tell how it will play out.

Speaker 11

Okay. Thanks for the color. That's it for me.

Operator

Thank you. I would now like to turn the call back over to Nancy Scooby for any 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

Powered by Quartr

Key Takeaways

  • Record 2023 financial performance: Interactive Brokers added over 470,000 net new accounts, grew client equity 39% to $426 B and delivered net revenues >$4 B with pretax income >$3 B and a 71% pretax margin (highest in industry).
  • Robust net interest income: Net interest earned $2.8 B for the year (up 68% YoY) on higher margin lending and cash yields, noting each 25 bp Fed cut could lower annual NII by ~$56 M, offset by expected trading volume growth.
  • Global account expansion: Europe and Asia saw the fastest client account and equity growth, while individual clients led in account adds and net interest gains, and proprietary traders topped commission and equity advances.
  • Accelerated platform innovation: The firm rolled out major upgrades—enhanced mobile app, Portfolio Analyst, CRM, Discover analytics tool, securities‐lending dashboard and mid‐price execution facilities—to deepen engagement and execution quality.
  • Capital deployment strategy: With over $14 B of equity capital, IBKR plans to pursue broker‐focused acquisitions to fuel growth but has no share buybacks or dividend hikes planned, citing valuation and integration challenges.
AI Generated. May Contain Errors.
Earnings Conference Call
Interactive Brokers Group Q4 2023
00:00 / 00:00