Interactive Brokers Group, Inc.

Thank you for standing by. Welcome to the Interactive Brokers Group first quarter 2026 earnings call. At this time, all participants are in a listen-only mode. After the presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1-1 on your telephone. You will then hear a message advising your hand is raised. To withdraw your question, please press star 1-1 again. please be advised that today's conference is being recorded. Now, it's my pleasure to hand the conference over to the Director of Investor Relations, Nancy Stubbe.

Please proceed. Thank you. Good afternoon, and thank you for joining us for our first quarter of 2026 earnings call. Joining us today are Thomas Pederphy, our founder and chairman, Milan Galic, 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&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. 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 first quarter, markets began with a strong January, supported by solid equity performance, optimism around corporate earnings, expanding market breadth, and resilience despite geopolitical risks. However, that momentum did not persist. Most global market indices declined in February and fell further in March. broadly mirroring the kind of price movement we saw in the first quarter of 2025. The S&P 500 ended the quarter down 5%. Notably, each of the Magnificent Seven technology stocks declined by more than the broader market, resulting in relative outperformance by the rest of the index. Despite this backdrop, we continue to see strong interest from both institutional and individual investors globally in opening and funding accounts. Client engagement remained healthy, trading activity increased, and clients gradually took on more risk since last year's tariff-driven market decline, as reflected in higher darts and increased risk exposure fees over the past several quarters. We continue to set records across key metrics, including net revenue, total accounts, and account ads. Growth in new accounts has driven higher clients' uninvested cash balances, which increased 35% year-over-year to a record $169 billion. Client equity rose 38% to $789 billion and was up 1% sequentially, despite the 5% decline in the market, as continued account funding offset market performance. Across products, stocks, options, and futures all deliver double-digit year-over-year growth. Of note, Futures contract volumes increased 20% to a quarterly record, driven by higher volatility and increased demand for hedging. Turning to our strategic initiatives, we have been incorporating AI across the organization. We had introduced investment themes and connections, tools which use AI to streamline research and visualize relationships among trends, companies, and securities to give our clients actionable investment ideas. This quarter, we expanded international company coverage and integrated themes into market screeners, watch lists, and news summaries. We continued enhancing our Ask IBKR tool, which enables clients to query their portfolios for insights such as sector exposure, performance, tax lots, corporate actions, and fundamentals. It now provides more direct and relevant responses. We also expanded the number of news sources we are authorized to summarize using AI. Within client service, our AI-powered chatbot continues to improve, successfully addressing a growing share of client inquiries in multiple languages. We continue to increase its accuracy and coverage while enabling our reps to focus on more complex issues. We are also applying AI to further automate processes across areas like onboarding, compliance, and other operational areas. Expanding the use of AI remains a priority across the firm, both to enhance the client experience and to improve internal efficiency. While we have made meaningful progress, we see significant opportunities to extend it further. Our efforts translated into strong financial performance. Quarterly commission revenue and total net revenues both reached record levels. At the same time, we remained disciplined on expenses. Our pre-tax profit margin was 77%, maintaining our position as an industry leader and marking the sixth consecutive quarter with margins above 70%. In recognition of this, and as a sign of confidence in the strength of our business model, its growth potential, and of our capital base, we revisited our allocation of capital and decided to increase the amount of dividend we paid to 35 cents a year. Turning to our customer segments, our introducing broker pipeline remains exceptionally strong. We continue to maintain a robust pool of prospects while onboarding a substantial number of new introducing brokers and supporting the growth of existing ones. For larger introducing brokers, we offer customized solutions and have made it easier for them to launch with a wide range of configurable features. Many international brokers require specialized functionality to address their local investment, tax, and regulatory requirements. We have user interface enhancements in development that we look forward to discussing in future quarters. Within our hedge fund segment, our high-touch prime brokerage offering continues to gain traction, and we are particularly encouraged by referrals to new clients from existing clients. We've also received positive feedback on our ability to handle complex requirements, and several clients have launched additional strategies on our platform. We had a productive quarter for new product introductions. In cryptocurrency, we expanded our offering to clients in the EEA, significantly broadening our footprint. We also introduced crypto transfer-in capabilities. allowing clients to consolidate external holdings into their IVKR-linked accounts. In addition, we launched access to the Coinbase derivatives exchange, providing trading in nano-sized crypto contracts and perpetual-style futures. Our prediction markets have been live in trading 24-7. In anticipation of increased interest ahead of the 2026 U.S. midterm elections, we introduced ElectionBoard, a discovery and trading tool that helps clients browse and trade political event contracts. You may also have seen our client outperformance advertising campaign. As we shared previously, in 2025, the average account across each of our client segments outperformed the S&P on a net basis after fees and commissions. Our average individual account returned 19.2% versus 17.9% for the S&P, while our average hedge fund account returned 28.9%. The campaign began with digital channels and has since expanded into print and television globally. These outperformance results reflect our low-cost offering and high interest paid on client cash, the strength of our platform, and our focus on best execution. This focus means that we seek to maximize client outcomes by routing orders directly to the venues offering the best price, rather than selling order flow to third parties. We continue to see growth in overnight trading, which is increasingly important for our global customer base. Overnight trading volumes nearly tripled year over year in the first quarter, increasing to 8.1 million trades from 2.8 million and up from 6.2 million in the fourth quarter. We remain highly active across all areas of the business, with multiple initiatives underway across platforms and client segments. We look forward to sharing further updates in the coming quarters. With that, I will turn the call over to Paul Brody. Paul?

Thank you, Nancy, and good afternoon. Thanks, everyone, for joining the call. We will start with our revenue items on page three of the release. We are pleased with our financial results this quarter as we again produced record net revenues and strong results in our key operating metrics. Commissions rose 19% versus last year's first quarter, reaching over $600 million for the first time. We saw robust trading volumes from our growing base of active customers across stocks, options, and futures. Net interest income rose 17% year-on-year to $904 million, driven by higher balances and partially offset by lower benchmark interest rates. We saw strength from margin borrowing and from our segregated cash portfolio, partially offset by interest we paid on our customers' cash balances. Other fees and services generated $86 million of 10%, primarily driven by higher market data and FEIC sweep fees, as well as 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. Note that many of these non-core items are excluded in our adjusted earnings. Without these excluded items, other income was $77 million per quarter. Turning to expenses, execution, clearing, and distribution costs were $106 million in a quarter. down 12% over the year-ago quarter driven by lower SEC regulatory fees, which were set at zero in last year's second quarter. Versus the fourth quarter, execution and clearing was higher due to exchange fees on greater futures trading volumes. Because they were largely passed through, these fees increased both our commission revenue and execution costs. Execution and clearing costs were 13% of commission revenues in the first quarter for a gross transactional profit margin of 87%. We calculate this by excluding from execution, clearing, and distribution $24 million of non-transaction-based costs, predominantly market data fees, which do not have a direct commission revenue component. As a reminder, even for the upcoming quarters, the SEC raised its fee rate for securities from zero to $20.60 per million effective April 4th. For comparison, based on our volume in the first quarter of 2025, SEC fees then totaled $24 million when the fee rate was $27.80. And again, these fees are a pass-through for us, increasing both commission revenue and execution of clearing expense equally with no impact on the income we earn. Compensation benefits expense was $167 million for the quarter for a ratio of compensation expense to adjusted net revenues of 10%, down slightly from 11% last year. Note there are several calendar-based components that tend to increase comp and benefits expense modestly, such as additional U.S. FICA tax on salaries in the first quarter and on the vesting of stock incentive plan shares in the second quarter. Our headcount at March 31st was 3,232. E&A expenses were $68 million up from the year-ago quarter, mainly on expansion of advertising. Our pre-tax margin was 77% for the quarter as reported and as adjusted. Income taxes of $117 million reflects the sum of the public company's $56 million and the operating company's $61 million. This quarter, the public company's adjusted effective tax rate was 17.2% within its usual range. Going to our balance sheet on page five of the release, the consistent strength of our business and our healthy balance sheet support our raising the dividend from 32 cents to 35 cents per year, returning capital to shareholders while still maintaining an ample capital base for the current business and future opportunities. Our total assets were 39% higher than in the prior year at $219 billion, with growth driven by higher margin lending and segregated cash and securities balances. New account growth also helped guide our record customer credit balance. We continue to have no long-term debt, and profit growth drove our firm equity up 22% to $21.3 billion. 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, also considering overall capital allocation. Turning to operating data, we had new record customer activity and options with our contract volumes up 16% over the prior year. Futures contract volumes rose 20% for the quarter to a new quarterly record, and stock share volumes were up 25%. All were in line with industry volumes. Stock share volumes 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. Growth in the notional dollar value of shares traded in the quarter was significantly higher than the growth in share volumes. On page 7, you can see that total customer darts were 4.4 million trades per day in the quarter, up 24% from the prior year. Commissioned per clear commissionable order of $2.69, was off slightly from last year when the full SEC fee rate was being charged. Page 8 shows our net interest margin numbers. Total GAAP net interest income was $904 million for the quarter, up 17% on the year-ago quarter. And our NIM table net interest income was $953 million, up 20%. We include for NIM purposes certain income that is more appropriately considered interest, but that for GAAP purposes is classified as other fees and services or as other income. Our net interest income reflects strong annual increases in balances, as well as reductions in benchmark rates in most major currencies, including the full quarter impact of December's cuts in the U.S. The growth in balances resulted in a rise in interest income on margin loans and customer cash balances partially offset by higher interest expense on customer cash balances. This quarter, central banks in most major markets held their benchmarks constant. Year on year, the average U.S. Fed funds rate fell 69 basis points, or by 16%. Despite this decline, our margin loan interest was up 17%, and our segregated cash interest was up 3%, both bolstered by higher balances. The average duration of our investment portfolio remained at less than 30 days. During the quarter, the U.S. dollar yield curve inversion from the short to medium term substantially flattened. So, we continue to maximize what we earn by focusing on short-term yields rather than accept the uncertainty and higher duration risk of longer maturity. This strategy also allows us to maintain a relatively tight maturity mismatch between our assets and liabilities. Security lending net interest was higher than last year, though we did not see as much activity in hard-to-borrow names as in the fourth quarter. Contributors to annual growth include several factors. Our growing account base, which increases our inventory of attractive stocks to lend, including international securities. The interest we paid on short cash balances, which makes us attractive to investors who utilize short selling. Our fully paid lending program shares proceeds with clients generally on a 50-50 basis, which appeals to investors looking to maximize the return on their portfolios. And finally, more activity in some of the typical drivers of securities lending, including IPOs and M&A activity. A portion of what we earn from securities lending is classified as interest on segregated cash. We estimate that if the additional interest earned and paid on cash collateral were included under securities borrowed and loaned, then total net revenue related to securities lending would have been $270 million this quarter, up 45% over the prior year quarter. Fully rate-sensitive customer balances ended the current quarter at $27.8 billion versus $20.3 billion in the year-ago quarter. Now, for our estimates of the impact of changes in rates, we estimate the effect of a 25 basis point decrease in the benchmark Fed funds rate to be an $82 million reduction in annual net interest income. Note that our starting point for this estimate is March 31st. but the Fed funds effective rate is 3.64% and balances as of that date. Any growth in our balance sheet and interest-earning assets would reduce this impact. About a third of our customer interest-sensitive balances is not in U.S. dollars, so estimates of a U.S. rate change exclude those currencies. We estimate the effect of a 25 basis point decrease in all the relevant non-U.S. benchmark rates, would reduce annual net interest income by $35 million. In conclusion, we started the year with another financially strong quarter, reflecting 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 turn back to the moderator and open up the line for questions.