Interactive Brokers Group Q4 2024 Earnings Call Transcript

Quartr
Provided by Quartr
January 21, 2025
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Operator

Good day and thank you for standing by. Welcome to the Interactive Brokers Group 4th Quarter 2024 Earnings Conference 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 turn the conference over to your speaker for today, Nancy Stuebbe. Please go ahead.

Nancy Stuebe
Nancy Stuebe
Director of Investor Relations at Interactive Brokers Group

Thank you. Good afternoon and thank you for joining us for our Q4 2024 earnings call. Joining us today are Thomas Petterfi, our Founder and Chairman Milan Galik, our President and CEO and Paul Brody, our CFO. I will be presenting Milan's comments on the business and all three will be available at our 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.

Nancy Stuebe
Nancy Stuebe
Director of Investor Relations at Interactive Brokers Group

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 the Q4, Interactive Brokers clearly demonstrated the power and leverage of a diversified fully automated global platform. The international interest in securities markets continues.

Nancy Stuebe
Nancy Stuebe
Director of Investor Relations at Interactive Brokers Group

We added 775,000 accounts in 2024, a record number of annual adds. 217,000 came on board in the Q4 alone. Our client equity was up 33 percent to $568,000,000,000 an increase of $142,000,000,000 from last year and the first time we finished the year with over $500,000,000,000 Rising markets and the anticipation of lower rates led clients to actively trade securities and to be comfortable with taking on risk. In addition to increasing their exposure to various markets, they chose to take on more leverage using margin loans and to take on more assertive positions, which increased our exposure fee revenue. This translated into strength in our financials.

Nancy Stuebe
Nancy Stuebe
Director of Investor Relations at Interactive Brokers Group

Our quarterly pretax income was a record reaching over $1,000,000,000 for the first time, while our GAAP pretax margin rose to 75% for the quarter. For the full year, we earned over $5,000,000,000 in net revenues for the first time and achieved a 71% pre tax margin, by far the highest in the brokerage industry. Over the past several quarters, we have added multiple new products and enhancements worldwide. We have spent a great deal of time to understand the needs of our various client types. For financial advisor clients, we enhanced our advisor portal with features that improve portfolio management and client communication.

Nancy Stuebe
Nancy Stuebe
Director of Investor Relations at Interactive Brokers Group

We added a multi stock tax loss harvesting tool that helps reduce clients' tax burdens. We added models and model rebalanced tools that simplify applying consistent strategies across multiple accounts. We integrated a generative AI powered commentary builder feature, which automates the creation of personalized performance summaries and is integrated with our portfolio analyst tool, allowing FAs to generate reports showing clear, detailed portfolio data and commentary. To date, thousands of our users have generated commentaries. There will be more to come here in 2025.

Nancy Stuebe
Nancy Stuebe
Director of Investor Relations at Interactive Brokers Group

For our clients through trade options, we have added 4 new liquidity providers to our options ATS, increasing its steps and capability to achieve better pricing. For after hours traders, our stock scanners now support price movement in the overnight trading session, so our clients can see top gainers and losers and other groupings during the session. For international individual accounts, we have previously introduced an alphabet soup of popular savings products like ISA accounts in the UK and TPSC accounts in Hungary. And this year, we added PEA accounts in France, and we are the 1st non French brokers to do so. More will be coming.

Nancy Stuebe
Nancy Stuebe
Director of Investor Relations at Interactive Brokers Group

Broken down by geography, the majority of our accounts are based outside of the United States. To make it easier for prospective clients to come on board, we have translated our account application into more languages, including French, Italian, Arabic, Hebrew and Hungarian, opening doors for investors who may not be as comfortable with English. Our application is now available in 13 languages, facilitating global outreach for potential customers. By client geography, in the Q4, our accounts and client equity once again grew fastest in Asia, followed by Europe, as growing numbers of investors worldwide want access to international, and in particular, U. S.

Nancy Stuebe
Nancy Stuebe
Director of Investor Relations at Interactive Brokers Group

Markets. Of our 5 client segments, the fastest account growth was again seen with individuals, with introducing brokers a close second. On the client equity side, individuals again grew the fastest, followed by financial advisors and I brokers. Commission growth was fastest for our proprietary traders, while net interest income growth was led by individuals followed by financial advisors. Overall, we experienced another productive quarter.

Nancy Stuebe
Nancy Stuebe
Director of Investor Relations at Interactive Brokers Group

We launched trading on the Saudi exchange, which follows our launch in Malaysia last quarter. We added IB Algorithms for Hong Kong exchange options. As a note, we began offering cryptocurrencies in Hong Kong also this year back in May. We are focused on making it easier for clients to fund accounts. And this quarter began to offer EDDA for Hong Kong dollars and offshore Chinese yuan deposits, Open Banking for euro deposits and Plaid for euro and British pound account funding.

Nancy Stuebe
Nancy Stuebe
Director of Investor Relations at Interactive Brokers Group

Our clients around the world, particularly younger ones, are used to the convenience of trading crypto 20 fourseven and will expect the same from other asset classes. We consider meeting these expectations vital. We already offer over 10,000 U. S. Stocks and ETFs during overnight hours.

Nancy Stuebe
Nancy Stuebe
Director of Investor Relations at Interactive Brokers Group

And in 2024, we expanded ours to 20 fourfive for corporate and government bonds in U. S. Dollar, euro, British pound and Swiss franc denominations and expanded them for U. S. Stock contracts for difference.

Nancy Stuebe
Nancy Stuebe
Director of Investor Relations at Interactive Brokers Group

This quarter, we also expanded our order types and introduced a new one called Overnight Plus Smart to specifically cover overnight trading hours. For other products like Options and Futures, which trade only on exchanges, we await only the willingness of the exchanges to extend trading hours. We will be ready when they are. There are at least 8 different regulatory projects we are programming for around the world as the many numerous jurisdictions we operate in create, add to and update the regulations. We are on time or more often well ahead of schedule on all of them.

Nancy Stuebe
Nancy Stuebe
Director of Investor Relations at Interactive Brokers Group

Our close ties to over 20 very different regulatory regimes in multiple languages and our ability to react to and program or reprogram our systems to comply on a continuous basis is one of our advantages that we take extremely seriously with employees on the ground and programmers dedicated to these tasks. And finally, a special note on Forecast X. We created this exchange, which is regulated by the CFTC and allows trading on predictions that have measurable third party verified outcomes. This is an entirely new asset class, one that provides a market driven way to quantify real world expectations on measures like economic, political and climate outcomes. Another significant broker now offers access to our exchange.

Nancy Stuebe
Nancy Stuebe
Director of Investor Relations at Interactive Brokers Group

We were ready with election trading when it became permissible. We believe the greater ambition, Forecast X becoming the most accurate marketplace for predicting significant events will occur over time. Our pipeline of new business and new initiatives remains as strong as ever and our product set clearly has resonated with people around the globe. We are not stopping here to rest on our achievements. We have many projects to work on, goals to achieve and together with the Interactive Brokers team, we look forward to executing on them in 2025.

Nancy Stuebe
Nancy Stuebe
Director of Investor Relations at Interactive Brokers Group

We are eager to share our new products and enhancements as we introduce them. With that, I will turn the call over to our CFO, Paul Brody. Paul?

Paul Brody
Paul Brody
CFO, Treasurer, Secretary & Director at Interactive Brokers Group

Thanks very much, Nancy. Thank you everybody for joining the call. We're going to start with our revenue items on Page 3 of the release. We're pleased with our financial results this quarter as we again produced record net revenues and pre tax income for the quarter and also for the year. Commission revenues rose to a record $477,000,000 this quarter.

Paul Brody
Paul Brody
CFO, Treasurer, Secretary & Director at Interactive Brokers Group

For the full year, commissions were $1,700,000,000 up 25% from last year. In 2024, we saw higher trading volumes across the major product categories as well as 24% higher DARTs per account. Net interest income also reached a quarterly record of $807,000,000 and a yearly record of $3,100,000,000 despite multiple rate cuts in nearly all the major currencies. A continued risk on environment in the quarter led to a significant increase in margin borrowing and strong net customer deposits led to higher segregated funds balances. These revenues were partially offset by the interest paid to our customers on their cash balances.

Paul Brody
Paul Brody
CFO, Treasurer, Secretary & Director at Interactive Brokers Group

Other fees and services generated $81,000,000 for the quarter and $280,000,000 for the year, up 47% 42% respectively. This was primarily driven by the continued risk on positioning of customers, which has been reflected in rising risk exposure fees over the course of 2024. And to a lesser extent, by both higher FDIC sweep fees and by higher payments for order flow from options exchange mandated programs. Other income includes gains and losses on our investments, our currency diversification strategy and principal transactions. The primary factor here was our previously reported October sale of a portion of our interest in Tiger Brokers, which led to a one time realized gain of $34,000,000 Together with a $10,000,000 mark to market unrealized loss for the quarter, the Tiger investment contributed a net gain of $24,000,000 to other income.

Paul Brody
Paul Brody
CFO, Treasurer, Secretary & Director at Interactive Brokers Group

Several of the items in this line are considered non core and therefore excluded in our adjusted earnings. Without these excluded items, other income was a $59,000,000 gain for the quarter and $132,000,000

Paul Brody
Paul Brody
CFO, Treasurer, Secretary & Director at Interactive Brokers Group

for the year.

Paul Brody
Paul Brody
CFO, Treasurer, Secretary & Director at Interactive Brokers Group

Turning to expenses, execution, clearing and distribution costs were $115,000,000 in the quarter $447,000,000 for the year, up versus last year due to higher trade volumes in stocks and options. Overall, commissions rose faster than execution costs. However, thanks to higher rebates earned from the exchanges that pay for liquidity enhancing orders. Execution and clearing costs were 19% of commission revenues in the 4th quarter for a gross transactional profit margin of 81%. We calculate this by excluding from execution, clearing and distribution $21,000,000 of non transaction based costs, mainly market data fees, which do not have a direct commission revenue component.

Paul Brody
Paul Brody
CFO, Treasurer, Secretary & Director at Interactive Brokers Group

Compensation and benefits expense was $138,000,000 for the quarter, up slightly from the year ago quarter. Due to the capitalization rather than expensing under GAAP of some software development this quarter, compensation expense is about $5,000,000 lower than usual. Adjustments of this nature may be made periodically. For the quarter, the ratio of compensation expense to net revenues was 10% and would have been 10.3% had that $5,000,000 of capitalized software been included as comp expense. For the year, this ratio was 11%, down from 12% in 2023.

Paul Brody
Paul Brody
CFO, Treasurer, Secretary & Director at Interactive Brokers Group

Our headcount at December 31 was 2,998, up 2% for the year. G and A expenses were $59,000,000 up from the year ago quarter. For the full year, G and A was $314,000,000 up 49%, primarily due to a one time litigation expense in the Q3. Excluding this, G and A for the year was $236,000,000 up 12%, primarily on higher advertising expense. Our pre tax margin was a record 75% for the quarter as reported and 76% as adjusted.

Paul Brody
Paul Brody
CFO, Treasurer, Secretary & Director at Interactive Brokers Group

Income taxes of $71,000,000 reflects the sum of the public company's $34,000,000 dollars and the operating company's $37,000,000 Public company's effective tax rate was 14% below its typical range, primarily due to a benefit from the annual revaluation of our deferred tax asset. Moving to our balance sheet on Page 5 of the release. Our total assets ended the year 17% higher than last year at $150,000,000,000 driven by strong growth in margin lending. New account growth also helped propel our customer credit balances by 14% to a new record level. We believe that our strong financial standing and competitive interest rates provide customers with an attractive place to hold their uninvested cash.

Paul Brody
Paul Brody
CFO, Treasurer, Secretary & Director at Interactive Brokers Group

We continue to have no long term debt and healthy profitability drove our firm equity up 18% to $16,600,000,000 In recognition of this growth, we allocated capital due to a dividend increase in the Q2 of 2024. We maintain a balance sheet geared towards supporting growth in our existing business and helping us win new business by demonstrating our strength to prospective clients and partners. In our operating data on Pages 67, we had record customer volume in options with our contract volumes up 32% over the prior year and also up 32% for the full year, well ahead of industry volumes. Futures contract volumes declined 3% for the quarter, but rose 4% for the full year, while stock share volumes rose 65% for the quarter and 22% for the full year. Stock share volume generally increased versus last year as clients gravitated to larger higher quality names and traded relatively less in Pink Sheet and some other very low priced stocks.

Paul Brody
Paul Brody
CFO, Treasurer, Secretary & Director at Interactive Brokers Group

Growth in the notional dollar value of shares traded in the quarter was about even with the growth in our share volumes overall. On Page 7, you can see that total customer DARTs were 3,100,000 trades per day in the quarter, up 61% from the prior year and commission per cleared commissionable order of $2.72 was down from last year, primarily due to smaller average order sizes across all product classes and a shift to proportionally more trading in stocks versus options and futures from last year. Page 8 shows our net interest margin numbers. Total GAAP net interest income was $807,000,000 for the quarter, up $77,000,000 or 11% from the prior year, while our net interest margin net interest income was $830,000,000 or $91,000,000 higher. In the NIM computation, we include some income that is classified as other fees or other income on our income statement, but we believe is more appropriately considered interest.

Paul Brody
Paul Brody
CFO, Treasurer, Secretary & Director at Interactive Brokers Group

Our net interest income reflects strength in margin loan interest, partially offset by lower segregated cash interest and higher interest expense on customer cash balances. Many central banks made cuts to their benchmark rates this quarter, including the U. S, Europe, the UK, Switzerland, Canada and Hong Kong, reflecting multiple rate cuts in most benchmark rates this year. Our overall segregated cash interest income declined 2% despite a 10% increase in average balances, while margin loan interest rose by 26% on a 41% increase in average balances. The average duration of our U.

Paul Brody
Paul Brody
CFO, Treasurer, Secretary & Director at Interactive Brokers Group

S. Treasury portfolio remains at under 30 days. With the U. S. Dollar yield curve continuing to be inverted during the 1st part of the quarter, though flattening somewhat in the medium term by quarter end, we continue to maximize what we earn by focusing on higher short term yields rather than accepting the lower yields and added risk of longer maturities.

Paul Brody
Paul Brody
CFO, Treasurer, Secretary & Director at Interactive Brokers Group

This strategy allows us to maintain a relatively tight maturity match between our assets and liabilities. Securities lending net interest does not appear as strong as in prior years for 3 main reasons. First, as benchmark interest rates rose from near 0 beginning in 2022, more of what we earned from securities lending became classified as interest on segregated cash. We estimate that if the additional interest earned and paid on cash collateral or included under securities borrowed and loaned, then securities lending net revenue would have been about $182,000,000 this quarter versus $156,000,000 in last year's Q4 on the same basis. 2nd, we've seen strong stock market performance with the S and P up over 20% in each of the past year 2 years, which tends to reflect a smaller proportion of clients looking to put on shorts.

Paul Brody
Paul Brody
CFO, Treasurer, Secretary & Director at Interactive Brokers Group

3rd, there are fewer hard to borrow names industry wide, both because the overall market is rising sharply and due to weakness in some of the typical drivers of securities lending, including IPOs, market volatility and merger and acquisition activity. Despite this trend, we were successful in raising the total notional value of what we loaned out. Interest on customer credit balances, the interest we pay to our customers on the cash in their accounts rose on higher balances from new account growth. As we have noted in the past, the high interest rates we pay on customer cash currently 3.83 percent on qualified U. S.

Paul Brody
Paul Brody
CFO, Treasurer, Secretary & Director at Interactive Brokers Group

Dollar balances, is a significant attraction to new customers. Fully rate sensitive customer balances ended the current quarter at $19,100,000,000 versus $17,800,000,000 in the year ago quarter. Now for our estimates of the impact of changes in rates. Given market expectations of further rate cuts in the future, we estimate the effect of a 25 basis point decrease in the benchmark Fed funds rate to be a $64,000,000 reduction in annual net interest income. Note that our starting point for this estimate is December 31st with the Fed funds effective rate at 4.33% and balances as of that date.

Paul Brody
Paul Brody
CFO, Treasurer, Secretary & Director at Interactive Brokers Group

Any growth in our balance sheet and interest earning assets would reduce this impact. About 25% of our customer cash balances is not in U. S. Dollars. So estimates of the U.

Paul Brody
Paul Brody
CFO, Treasurer, Secretary & Director at Interactive Brokers Group

S. Rate change exclude those currencies. We estimate the effect of decreases in all the relevant non USD benchmark rates would reduce annual net interest income by about $22,000,000 for each 25 basis point decrease in those benchmarks. At a high level, a full 1% decrease in all benchmark rates would decrease our annual net interest income by about $339,000,000 This takes into account rate sensitive customer balances and also firm equity. In conclusion, we posted another financially strong quarter in net revenues and pre tax margin leading to a record year.

Paul Brody
Paul Brody
CFO, Treasurer, Secretary & Director at Interactive Brokers Group

This reflects our continued ability to grow our customer base and deliver on our core value proposition to customers, while simultaneously scaling the business. Our business strategy continues to be effective, automating as much of the brokerage business as possible, continuously improving and expanding on what we offer, while minimizing what we charge. And with that, we will open up the line for questions.

Operator

Thank you. And our first question for the day will be coming from Craig Siegenthaler of Bank of America. Your line is open.

Craig Siegenthaler
Craig Siegenthaler
Managing Director at Bank of America

Hey, good morning or good evening everyone. Hope you're all doing well. First one, I have a modeling one on expenses. So execution clearing distribution fees, as you pointed out in your prepared remarks, they did grow a lot slower than DARTs and commissions. In the press release, you kind of called out what looked like a few negatives.

Craig Siegenthaler
Craig Siegenthaler
Managing Director at Bank of America

In the prepared remarks, you called out rebates, but how should we think about this line item heading into 1Q? And then any high level thoughts on modeling it because a lot of us model it relative to commissions or DARTs? Thank you.

Paul Brody
Paul Brody
CFO, Treasurer, Secretary & Director at Interactive Brokers Group

Yes. So I'll take that one. Generally, yes, it's driven by volume. Obviously, those are all the variable costs. They're per share or per contract.

Paul Brody
Paul Brody
CFO, Treasurer, Secretary & Director at Interactive Brokers Group

But within that, there are things like order routing changes so that our systems that provide smart routing of say stock orders can have many different venues to route an order to get the best price for the customer. And it can do that while maximizing rebates, which are provided by some of the venues on liquidity enhancing orders. And then we generally pass those rebates through to the customers and that would show up in reducing commission revenue. So they're somewhat paired. But then therefore, if you only look at the expense side, it doesn't tell you the whole picture.

Craig Siegenthaler
Craig Siegenthaler
Managing Director at Bank of America

Got it. And then just for my follow-up, we keep watching equity build. It's almost at $17,000,000,000 now. I just wanted your thoughts on how fast we should expect this capital balance continue building? And is this really helping your hedge fund prime marketing after it's given the size?

Craig Siegenthaler
Craig Siegenthaler
Managing Director at Bank of America

And any updated thoughts on share repurchases in the future?

Milan Galik
Milan Galik
CEO , President & Director at Interactive Brokers Group

Well, there is no plan to do any type of share repurchasing. We will in the future consider increasing the dividend, but that of course assume that the stock price will be about $200 and it will remain there. As far as the strong capital, we like it that way for a couple of different reasons. For hedge fund clients, for institutional clients, we compete with large banks that have been in business for more than 100 years. They obviously have an established reputation and by many managers they're considered to be the safe choice.

Milan Galik
Milan Galik
CEO , President & Director at Interactive Brokers Group

They will never be blamed if something were to go wrong with a bulge bracket competing bank. We have to work hard to earn our reputation. We have been consistently growing the company and our capital base. It's visible. Our balance sheet is strong.

Milan Galik
Milan Galik
CEO , President & Director at Interactive Brokers Group

That is one way where we signal to the marketplace that we are a serious player and they should consider us for custody in their assets. The other way, the very high capital base is benefiting us is that unlike in the United States, where we can fund the margin loans using other customers' uninvested cash, all the banks are able to do so outside of the United States. So we fund a large portion of those loans by our own capital. Those are the two reasons why we like the number to be ever growing.

Craig Siegenthaler
Craig Siegenthaler
Managing Director at Bank of America

Thank you, Man.

Operator

Thank you. One moment for the next question. And our next question will be coming from the line of Benjamin Butish of Barclays. Your line is open.

Ben Budish
Ben Budish
Vice President at Barclays

Hi, good evening and thanks for taking the question. Maybe first, just I was curious to get your thoughts on what account growth could look like in 2025. I know you tend not to kind of give guidance on a per year basis, but it's just kind of remarkable the momentum we've seen over the course of the year and kind of accelerating as you're growing larger. So just curious, what do you think of the key factors in 2025? Can you maybe talk about the word-of-mouth momentum you're seeing?

Ben Budish
Ben Budish
Vice President at Barclays

And can you maybe unpack a little bit of kind of where you're leaning? And I think you in the prepared remarks and in the presser, you called out a bit of a pickup in advertising spend. So just curious what your thoughts there are on what account growth could look like this year?

Milan Galik
Milan Galik
CEO , President & Director at Interactive Brokers Group

Well, our marketing spend will be slowly increasing. Obviously, it's necessary to attract the individual accounts. So that's why it's going to go up. We expect a steady growth in the number of accounts. As you could see this past quarter, we really enjoyed a high number.

Milan Galik
Milan Galik
CEO , President & Director at Interactive Brokers Group

There is a lot of enthusiasm in the market, partially related to the ever increasing prices in the market, stock prices in the market, partially related to the change of the administration that is largely considered to be pro business and the U. S. Markets as a result are expected to continue to do well. So there are a lot of accounts, new accounts being opened. Some investors who were sitting on the sidelines decided to open an account and start investing.

Milan Galik
Milan Galik
CEO , President & Director at Interactive Brokers Group

So we are bullish on the continued growth of the accounts.

Ben Budish
Ben Budish
Vice President at Barclays

Got it. Maybe one quick modeling follow-up for Paul. I think for the employee comp and benefits line, you called out a capitalized expense. Just curious in Q1 and kind of going into the year, should we think about the level in the kind of the 1st couple of quarters of 2024 as the starting point? Or does it kind of reset lower?

Ben Budish
Ben Budish
Vice President at Barclays

Just any guidance you could give there would be helpful. Thank you.

Paul Brody
Paul Brody
CFO, Treasurer, Secretary & Director at Interactive Brokers Group

Right. Well, it does go along with our hiring, which was only 2% higher than prior year. I think the best way to look at it is on the full year, because the capitalization is measured only periodically, and can be added in a given quarter. Our average for all of 2024 was $143,000,000 a quarter. And that's probably your best starting point for going forward.

Ben Budish
Ben Budish
Vice President at Barclays

Okay. All right. Great. Thanks so much.

Operator

Thank you. One moment for the next question. And our next question will be coming from the line of James Yaro of Goldman Sachs. Your line is open.

James Yaro
James Yaro
Vice President Equity Research at Goldman Sachs

Thanks, Milan and Paul for taking the questions here. Maybe just starting on aspirations in the high touch part of the prime brokerage offering, which you've obviously expanded in 2024. If there's deregulation of the bulge bracket prime brokers, which the market clearly expects, could this present a more meaningful threat to growth of the business? And then just what are you is on the product road map for this business in 2025?

Milan Galik
Milan Galik
CEO , President & Director at Interactive Brokers Group

I would not expect the regulation to really have an impact. As I explained a bit earlier, the what we're dealing with is competing with very large established banks, Goldman Sachs, Morgan Stanley. I cannot see how a small newcomer would really be able to make a significant dent in our business. So the regulation, I do not think, would impact our business that way. As far as the products, did you mean within this white glove offering for the hedge funds?

James Yaro
James Yaro
Vice President Equity Research at Goldman Sachs

That's right.

Milan Galik
Milan Galik
CEO , President & Director at Interactive Brokers Group

Well, I can tell you that one of the things that we have done is we have revamped the way we do the capital introduction events in the past quarter. We do those events approximately once every 3 months. We changed the name of the event. We changed the way it's organized. We advertise it back.

Milan Galik
Milan Galik
CEO , President & Director at Interactive Brokers Group

And the result of that was that the last event, we had doubled the number of participants. Instead of 120, we had 240 accredited investors participating in the capital introduction event. Otherwise, we are pleased with how the white glove offering is going. We have 34 hedge funds onboarded with the average assets of $160,000,000 The goal here is to provide them with better service. They all appreciate Terecht access to the subject matter experts.

Milan Galik
Milan Galik
CEO , President & Director at Interactive Brokers Group

They are like talking to us. We handle approximately 50 different issues on a particular week. And as we talk to them more, we make adjustments. For example, just recently, we have started offering algorithms, rewrap and similar algorithms for the stocks in APAC region and therefore directly due to the fact that the hedge funds that are now more openly talking to us were requesting that feature. We're pleased with the way it's going so far.

James Yaro
James Yaro
Vice President Equity Research at Goldman Sachs

Excellent. That's very clear. Maybe just turning to the margins. Your adjusted margin did rise to best in class 75.6%. Can it continue to rise off

James Yaro
James Yaro
Vice President Equity Research at Goldman Sachs

of these levels? Is there

James Yaro
James Yaro
Vice President Equity Research at Goldman Sachs

an efficient horizon that you see for the margin?

Milan Galik
Milan Galik
CEO , President & Director at Interactive Brokers Group

Well, I would not expect that number to go up. That is not the number that we're optimizing for. What we're trying to do is delivering value to our clients. We obviously have to pay attention to not just automating everything we can so that we can offer our services at the lowest prices, but we also have to make sure that when our clients need help, we have sufficient personnel to answer their questions to help them on the customer service line. And they are obviously the ongoing costs of the compliance, which are ever increasing given the very large number of jurisdictions where we operate.

Milan Galik
Milan Galik
CEO , President & Director at Interactive Brokers Group

So I would not expect that number to go higher.

James Yaro
James Yaro
Vice President Equity Research at Goldman Sachs

Okay. That's very clear. Thank you.

Operator

Thank you. One moment for the next question. And our next question will be coming from the line of Brennan Hawken of UBS. Your line is open.

Brennan Hawken
Brennan Hawken
Senior Analyst & Equity Research at UBS Group

Good afternoon. Thanks for taking my question. Margin balances have really shown very, very solid growth despite the volatility in the market. So how should we be thinking about that on a go forward basis? What trends have you seen quarter to date?

Brennan Hawken
Brennan Hawken
Senior Analyst & Equity Research at UBS Group

And And maybe taking a step back, when you think about how your customer base has changed in recent years, how should we be thinking about margin penetration for you versus history?

Milan Galik
Milan Galik
CEO , President & Director at Interactive Brokers Group

Margin balances have been increasing. That's due to the risk on appetite of our clients. Their positions have been more assertive, not only by trading stocks on margin, but by putting on aggressive positions in the derivatives. We feel remember back in August of last year that there was a rather sharp sell off and we quickly saw our clients reducing their risk positions. But as the stock market turned and the things come down, they quickly came back on.

Milan Galik
Milan Galik
CEO , President & Director at Interactive Brokers Group

So I would expect some amount of correlation with what the stock market is doing. But for now, we seem to be in the least calm mode because of the change over the administration, for example. So margin balance, all things being equal, I think will be maintained at this level or slightly go higher.

Brennan Hawken
Brennan Hawken
Senior Analyst & Equity Research at UBS Group

And when you think about some of the different cohorts of your customer base, advisors are a larger portion. When we think about penetration versus prior cycles and we compare margin balances maybe to client equity, what impact do you expect that could have on those metrics?

Milan Galik
Milan Galik
CEO , President & Director at Interactive Brokers Group

Well, financial advisors, some of them obviously trade on margin, majority of them do not. We have the prop traders, I would expect them to continue to trade aggressively. We have all sorts of individual accounts, small ones, large ones, more sophisticated ones, less sophisticated ones. So obviously, the more sophisticated ones, I would expect to continue to deploy leverage. And then you have the hedge funds, which again, I would expect to continue addressing.

Brennan Hawken
Brennan Hawken
Senior Analyst & Equity Research at UBS Group

Thanks for taking my questions.

Operator

Thank you. One moment for the next question. And our next question will be coming from the line of Dan Fannon of Jefferies. Your line is open.

Dan Fannon
Managing Director - Research Analyst at Jefferies & Company Inc

Thanks. Good evening. So just following up on areas of investment and product development as you think about 2025, you've talked a bit about the prime brokerage as well as some of the things that were in that you've come to market with here in the Q4. So curious to just about the areas of investment and really on that product development side for the individual that you see or focused on into 2025?

Milan Galik
Milan Galik
CEO , President & Director at Interactive Brokers Group

Well, all the time we look at all the segments that we all the client segments that we service. We carefully listen to the feedback we're receiving from them, what is it that they're looking for and we continuously parse that feedback and ask ourselves the question, how is it that we can improve our offering. So that is what really a bulk of the work goes into when we are discussing the client facing investments. And then there is obviously a lot of work that we're doing on the back end. The number of accounts is increasing fast.

Milan Galik
Milan Galik
CEO , President & Director at Interactive Brokers Group

The trading activity is going up fast. We have to make sure that our systems can handle the load spiky, which can be very often in spikes. You can have a normal day and all of a sudden you have a really busy day when all the computers are running hot, so to speak. We have to pay attention to making sure that our systems are reliable, that we have no outages, that we have very significant backups. And then we have to work on systems that our operators is, both the client service and our compliance departments, significant number of employees working those departments.

Milan Galik
Milan Galik
CEO , President & Director at Interactive Brokers Group

And so that we do not have to hire as many of them as a less automated competing front of wood, we have to give them the right tools. So that is sort of where the attention is being paid to all these different directions.

Dan Fannon
Managing Director - Research Analyst at Jefferies & Company Inc

Understood. And then as a follow-up, Man, you've talked at previous periods about M and A and kind of inorganic growth. Can you give us an update on your thoughts today and maybe kind of the current market opportunity for inorganic potential combinations?

Milan Galik
Milan Galik
CEO , President & Director at Interactive Brokers Group

We remain open to M and A. So far as you know, we have not been really successful. There was one significant competitor we were looking at in the last quarter of last year. We did not succeed in completing a transaction. But we remain open to it.

Milan Galik
Milan Galik
CEO , President & Director at Interactive Brokers Group

We will consider any opportunity that comes our way.

Dan Fannon
Managing Director - Research Analyst at Jefferies & Company Inc

Understood. Thank you.

Operator

Thank you. One moment for the next question please. And our next question will be coming from the line of Patrick Moly of Piper Sandler. Your line is open.

Patrick Moley
Patrick Moley
Vice President at Piper Sandler Companies

Yes, good evening. Thanks for taking the question. So I had one on the just prediction markets and the forecast X platform. It seemed like the election brought a lot of people into the prediction markets. So just

Patrick Moley
Patrick Moley
Vice President at Piper Sandler Companies

was hoping you could give us

Patrick Moley
Patrick Moley
Vice President at Piper Sandler Companies

an update on kind of the traction that you're seeing there, your outlook for next year and whether there's any kind of milestones or things we should be looking out for on the product roadmap there? Thanks.

Thomas Peterffy
Thomas Peterffy
Chairman at Interactive Brokers Group

Well, the prediction markets

Thomas Peterffy
Thomas Peterffy
Chairman at Interactive Brokers Group

are going slowly. We are being very careful not to step on the wrong foot. And we believe that this is going to be a huge market, but we want to do it slowly and carefully and build out our personnel and our systems so that we can do it in a really, really big way. And that's what we are that's what I'm devoting my time to.

Patrick Moley
Patrick Moley
Vice President at Piper Sandler Companies

All right, great. Thanks. And then maybe just a follow-up on crypto. There's a lot of excitement around crypto here. It seems like the incoming administration, the change in leadership in the SEC is going to foster a new kind of era of more favorable to the crypto trading firms, I guess, if you will.

Patrick Moley
Patrick Moley
Vice President at Piper Sandler Companies

Your offering right now is relatively robust compared to some of the others. How are you feeling right now about that offering? And if there was to be more comprehensive legislation, what areas, if at all, would you look to expand the offering? Thanks.

Milan Galik
Milan Galik
CEO , President & Director at Interactive Brokers Group

Well, what our immediate plan is to offer cryptocurrency trading to the customers in the European Union, but that's obviously not affected by the changes in the administration. I am cautiously optimistic about what's going to happen next. I think the regulations in this area need to be firmed up and the task force was announced today and I think they will work hard to make sure that the rules are clear and that will obviously improve the area for the investors as well as the companies that service them like ours. There are obviously things that are somewhat concerning. There are these meme coins, for example, there have been 2 of them issued just in the last few days.

Milan Galik
Milan Galik
CEO , President & Director at Interactive Brokers Group

I'm not really pleased with that development. I think it looks a little strange. It may give the cryptocurrency industry somewhat of a bad name if things like that continue to happen. But overall, I'm optimistic about the regulation that is going to be clarified and firmed up. All right.

Milan Galik
Milan Galik
CEO , President & Director at Interactive Brokers Group

Thanks for that. That's it for me.

Operator

Thank you. One moment for the next question. And our next question will be coming from the line of Chris Allen from Citi. Your line is open. Chris, your line is open.

Christopher Allen
Christopher Allen
MD - Exchanges, Brokers, and Asset Managers at UBS Group

Oh, apologies. My headphone went out. Good evening, everyone. Maybe to just follow-up on the crypto question. Any color you could provide in terms of your customer base, how like any percentage rough percentage that is actually trading crypto on your platform currently?

Christopher Allen
Christopher Allen
MD - Exchanges, Brokers, and Asset Managers at UBS Group

And if there was a regulation, where would be the opportunity set to expand in the U. S. Maybe from a product offering perspective?

Milan Galik
Milan Galik
CEO , President & Director at Interactive Brokers Group

At the moment, there are 4 coins that are really heavily traded on our platform, if I can call it heavily. It's the Bitcoin, Ethereum and Stablecoin and Bitcoin Cash. I would expect us to increase the number of tokens we would make available on the platform, which would make our platform more attractive to the run of the mill cryptocurrency traders. They have interest in trading, for example, Solana, which we are currently not able to offer because there wasn't sufficient regulatory clarity as to whether that would be considered a security or not. So those kinds of questions will be will get clarified.

Milan Galik
Milan Galik
CEO , President & Director at Interactive Brokers Group

So as a result, I expect us to be able to risk more tokens in the future and attract cryptocurrency traders who really focus on trading cryptocurrencies. Another thing that I would expect is for us to be able to increase the percentage of assets we allow a single account to invest in the crypto assets. At the moment, that number is set to 1%. It's a very conservative figure, but as the crypto assets become more widely accepted, we would raise that number higher.

Christopher Allen
Christopher Allen
MD - Exchanges, Brokers, and Asset Managers at UBS Group

Thanks. And then just as a follow-up, on sec lending, recognize the headwinds from low levels of IPO and M and A activity. Just kind of curious, how does your capacity to lend for securities lending compare now versus the end of 2023 and even 20 22? Has it expanded with the account growth? I'm trying to think about what the potential could look like in a better environment, which many expect as we move through 2025 and it's 2026?

Paul Brody
Paul Brody
CFO, Treasurer, Secretary & Director at Interactive Brokers Group

Yes. It absolutely expands with our account growth and simply more participation in the markets by our clients who tend to go long and hold the stocks that are attractive for lending out, primarily on to other broker dealers and banks. And yes, we would expect that to continue to rise because our customer base is simply going to hold more of those positions.

Christopher Allen
Christopher Allen
MD - Exchanges, Brokers, and Asset Managers at UBS Group

Thanks guys.

Operator

Thank you. One moment for our next question. And our next question will be coming from the line of Kyle Voalte of KBW. Your line is open.

Kyle Voigt
Managing Director - Equity Research at Keefe, Bruyette & Woods (KBW)

Hi, good evening. So I know you gave some commentary on pre tax margin and investments for 2025, but maybe I could just ask a question specifically on fixed expense growth. We exclude some of the one time items that you had in the Q3 and even the $5,000,000 of 4Q comp that you noted earlier in the call, we're kind of calculating fixed expense growth of roughly 12% for the full year 2024. So I think that's generally in line with that low double digit expense growth rate you posted historically. I guess relative to that bogey, is there any way to frame whether core fixed expense growth should accelerate or decelerate versus that low double digit level as we look out into 2025?

Milan Galik
Milan Galik
CEO , President & Director at Interactive Brokers Group

I would not expect it to accelerate. I think you are likely to see in next year what you have just seen. That obviously assumes that the inflation doesn't kick in and we will have to pay more for the human resources than before. We will obviously remain competitive. It is our job to attract the best talent that we can.

Milan Galik
Milan Galik
CEO , President & Director at Interactive Brokers Group

We pay attention to the market rates and we either pay market rates or above to attract the best talent and we will continue to do that. Given our focus on automation. We do not have a choice just to do that.

Paul Brody
Paul Brody
CFO, Treasurer, Secretary & Director at Interactive Brokers Group

I might just add to that, that advertising is a component of that. And so to the extent that we expect to do more, that will be somewhat of a driver.

Kyle Voigt
Managing Director - Equity Research at Keefe, Bruyette & Woods (KBW)

Thank you. And then for my follow-up, and I know this was asked last quarter as well, but the stock continues to perform very strongly even since then. But for Thomas, just curious as to whether you would consider any stock sales to help increase the public float? And if so, would that still only be in blocks and not in open market transactions?

Milan Galik
Milan Galik
CEO , President & Director at Interactive Brokers Group

I do not see Thomas in this year.

Thomas Peterffy
Thomas Peterffy
Chairman at Interactive Brokers Group

It would be blocked, and I will do that when the price reaches what I believe is the right price.

Kyle Voigt
Managing Director - Equity Research at Keefe, Bruyette & Woods (KBW)

Understood. Thank you.

Operator

Thank you. And that does conclude today's question and answer session. I would like to turn the call back over to Nancy for closing remarks. Please go ahead.

Nancy Stuebe
Nancy Stuebe
Director of Investor Relations at Interactive Brokers Group

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

Thank you for joining today's conference call. You may now disconnect. Have a good evening.

Executives
    • Nancy Stuebe
      Nancy Stuebe
      Director of Investor Relations
    • Paul Brody
      Paul Brody
      CFO, Treasurer, Secretary & Director
    • Milan Galik
      Milan Galik
      CEO , President & Director
    • Thomas Peterffy
      Thomas Peterffy
      Chairman
Analysts
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Key Takeaways

  • Interactive Brokers reported record quarterly pretax income of over $1 billion and full-year net revenues exceeding $5 billion, achieving industry-leading pre-tax margins of 75% in Q4 and 71% for 2024.
  • The firm added a record 775,000 new accounts in 2024 (217,000 in Q4), driving client equity up 33% year-over-year to $568 billion, with Asia and Europe showing the fastest regional growth.
  • IBKR introduced major product enhancements, including a generative AI-powered commentary builder for advisors, a multi-stock tax-loss harvesting tool, expanded overnight trading for bonds and U.S. stocks, and added four liquidity providers to its options ATS.
  • International expansion continued with the launch of PEA accounts in France as the first non-French broker, an account application now in 13 languages, and new market entries like Saudi exchange trading and Hong Kong options algorithms.
  • ForecastX, IBKR’s CFTC-regulated prediction market exchange, secured additional broker access and aims to become the most accurate marketplace for trading real-world economic, political, and climate outcomes.
AI Generated. May Contain Errors.
Earnings Conference Call
Interactive Brokers Group Q4 2024
00:00 / 00:00

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