Interactive Brokers Group, Inc. Q4 FY2025 earnings call

• In 2025, the firm added over 1,000,000 net new accounts, a record, with client equity rising 37% to $780 billion. - Clients outperformed the market, with individual investors up 19.2%, financial advisers up 20.57%, and hedge fund clients up 28.91% on average. - Continued to invest in platform improvement: Global Trader 2.0 mobile platform had a UI/UX revamp; IBKR desktop platform had enhancements like multi-monitor support, new screener filters, etc. - Launched AI-powered features such as investment themes, AI-generated news summaries, and Ask IBKR. - Expanded market access to new countries, added tax-advantaged funds in various regions, and enabled funding via Stablecoin. - Increased advertising spending, expanded liquidity provider network, and translated investor education courses into multiple languages.

In the fourth quarter, commission revenues reached a record $582 million, with full-year commissions at $2.1 billion, up 27% from the prior year. Net interest income was $966 million for the quarter and a yearly record of $3.6 billion. Other fees and services generated $85 million for the quarter and $291 million for the year. Execution, clearing, and distribution costs were $91 million in the quarter, down 21% from the year-ago quarter. Compensation and benefits expense was $153 million for the quarter, with a ratio of compensation expense to adjusted net revenues of 9%. G&A expenses were $62 million, up 5% from the year-ago quarter. Commission revenues contributed significantly to overall revenue, with net interest income also being a major component. For example, commission revenues accounted for a substantial portion of the total revenue, while net interest income grew due to factors like higher margin lending and segregated cash balances.

The management mentioned that the bank charter application process with the OCC is ongoing, expecting to be operational by the end of the year. Regarding prediction markets, they stated that ForecastX is growing with increased trading volumes and they are working on expanding into institutional areas like tying temperature contracts to electricity and natural gas contracts. There was no significant downward or upward revision of key guidance but rather an indication of ongoing business developments and expansion plans.

• Regulatory uncertainty related to prediction markets, such as potential issues with sports contracts and how regulators or courts will view them. - Uncertainty in the bank charter application process with the OCC, including the position in the queue for approval and potential delays. - Risks associated with the adoption and growth of new offerings like crypto, where current adoption is small and regulatory or market acceptance could pose challenges.

Q: Curious about the pull on customer credit balances and the impact of lower rates not flowing through as expected A: Paul Brody said the strong performance in margin lending balances vastly overcame the drop in general benchmark rates, with a repricing lag on some asset side Q: Update on bank charter application process A: Paul Brody said they have been in contact with the OCC, filed the application, and expect to be operational by the end of the year, with a bank charter allowing custody of mutual fund and ETF assets Q: Update on prediction markets, especially sports contracts and institutional adoption A: Paul Brody mentioned uncertainty due to Massachusetts ruling against Kashi, and Thomas Peterffy said ForecastX is growing with 10,000+ instruments and working on tying temperature contracts to electricity/natural gas contracts for institutional onboarding Q: Thoughts on expanding crypto offering and appetite for adoption A: Milan Galik said crypto revenues are small relative to overall company revenues, iBrokers haven't asked for crypto access, targeting investment advisers and multi-asset clients with competitive offering Q: Account growth specifics and how long it can continue A: Thomas Peterffy said he doesn't see reason for account growth to slow down as the platform is attractive to many Q: Investment and spend on initiatives A: Milan Galik said overall expense growth has been consistent, around 6% headcount growth last year, with AI initiatives potentially affecting future expense growth rate Q: Account growth sources and future growth areas A: Milan Galik said they have been universally doing well across different account types and client segments, attracted by technology, fair pricing, and global access Q: Plans to drive engagement on prediction markets and boost account growth A: Thomas Peterffy said advertising is a key, and they are increasing advertising spending; Paul Brody said it's a matter of selling prediction markets to institutions