Interactive Brokers Group Inc

NASDAQ:IBKR

Earnings Call Transcript 2023-Q1

[Operator]

Good day, and thank you for standing by. And welcome to Interactive Brokers Group First Quarter '23 Earnings Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there'll be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded.

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

[Nancy Stuebe, Director of IR]

Good afternoon. And thank you for joining us for our first quarter 2023 earnings conference call. Once again, Thomas is on the call, but asked me to present his comments on the business. Also joining us today are Milan Galik, our CEO, and Paul Brody, our CFO. After prepared remarks, we will have a Q&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 in financial condition may differ possibly materially from what is indicated in these forward-looking statements. We ask that you refer to the disclaimers in our press release. You should also review a description of risk factors contained in our financial reports filed with the SEC.

This quarter at IBKR had something for everyone, everybody. Account growth was strong, DART rose despite uncertain markets, and commission revenue was the second highest in our history. Meanwhile, our net interest income reached a record and our reported pretax margin reached 72%.

We achieved this using our simple strategy, one that seems to be unique in our industry today. We run a conservative balance sheet with ample equity and an extremely short duration portfolio. That means we have over $12 billion in equity, and our portfolios duration is a matter of three to four weeks, not months, not years. This balance sheet supports a global business where we charge the lowest prices on commission, and we pay the highest rates and uninvested client cash. We pay these rates on cash that you can use right now. You don't have to sweep it out and then wait if you need it back. With us, our clients cash can do two things be available and earn interest at the same time.

Because of this, we do not have not seen clients taking cash out of their Interactive Brokers accounts and moving it elsewhere. We do see them using their cash to invest in the markets. Because of our high rates and qualified client cash, we are paying more than most if not all banks. We also have active customers who want instant access to the markets. We simply do not see cash and client accounts moving elsewhere on a net basis.

More and more investors are looking to the markets to earn a return that will allow them to build their wealth beyond the level of inflation. This has been true for us around the world. I still believe inflation is going to stay with us, and as it has done will likely remain above 4%.

U.S. government debt is now about $31 trillion 120% of GDP. This is forecast to grow by $2 trillion a year, thanks to rising interest costs that ended up adding somewhat to the inflation sparked by extraordinary U.S. government spending during COVID. Now, even though they contribute to inflation, we need higher rates to fight it. This is not a short term state of affairs that will soon result in rate cuts.

We are still seeing retail engagement. 12-month commissions for the individual client segment as well as for the hedge fund a proprietary client segments rose this quarter versus last year. Hedge Fund 12-month commissions alone grew 81%. Product wise, while stocks sure volumes did not keep pace with a very active quarter last year. Futures and options contract volumes continue to rise, with both reaching monthly volume records here in March.

More activity in futures and options contributed to our higher clear commissions per DART of $3.16, up over 20% as these products carry higher commissions. As a note, higher futures commissions include very high exchange and regulatory fees, which in part explain our higher execution and clearing direct expense.

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

What we see in the future is more of what we already deliver. Our net new accounts are growing just over 20% and we are still looking to onboard the first of the two large introducing broker accounts this quarter. It will start slowly and we hope to see it completed by the end of the year. We also remain on track to start onboarding the second large i-broker account sometime in the third quarter.

We've also focused on appealing to financial advisors with several features. We are soon introducing customized indexing to make it easy for them to build stock portfolios modeled on ETF but customizable for tax efficiency and investment goals.

Unlike a one size fits all ETF with customized indexing, clients will own fractional shares of each component stock so that advisor can adjust weighting, Capitalize on gains or losses for tax purposes or exclude specific stocks or sectors personalizing as their clients need. We do not require minimums, we have no ticket charges and charge no custodial technology software platform or reporting fees.

We also say financial advisors money on their mutual fund investments. That's just one example. At other firms, if an advisor chooses an allocation to a particular mutual fund for 100 customers that means 100 separately charged ticket fees. At IBKR, you only pay one commission $14.95 and no ticket fees, no matter how many customers you put into a fund even for 1,000 customers. And finally, we now offer third party research from global independent research firm ISI Evercore to our financial advisor clients in the U.S. and several other countries.

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

Interest expense in 2023 on U.S. debt is expected to rise 35% this year to $640 billion and to three quarters of a trillion dollars next year. This all gets added to our growing deficit. This means investors around the world look increasingly to the markets to stay ahead of inflation and uncertainty. It is going to clear to more and more people that holding on to cash when it is earning low or no interest is a losing proposition. We let all investors know that Interactive Brokers pays its clients 4.33% on their cash balances without having to sweep.

We continuously add relevant content to our IBKR Campus educational website to make it simple to use and easier for clients to find topics of interest to better understand the world of investing. We will serve our customers in over 200 countries and territories and educate them about their options, both their opportunities and the security. We continue to add accounts and are excited about where position as a leader and international access with a strong and safe balance sheet, offering a good deal to people as well as comprehensive educational tools for all will take us.

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

[Paul Brody, CFO]

Thank you, Nancy. Thanks, everyone for joining the call. As usual, I'm going to review the first quarter operating results. Then we'll open it up for questions.

Starting with the revenue items on Page 3 of the release, we recorded another strong quarter with record net revenue that exceeded $1 billion in a quarter the first time, with ongoing customer account and balance sheet growth. We continue to expand our potential for both commission and interest revenues in the future. Commissions are strong, reaching $357 million despite mixed equity markets worldwide. Futures and Options volumes reached record levels, while stock share volumes declined from last year's quarter, once again driven by a drop in trading of lower priced stocks,

Net interest income of $637 million, reflected higher interest from margin loans and segregated cash owing to increases in benchmark rates and a larger segregated cash portfolio. U.S. benchmark rates have moved from an average effective rate of 12 basis points in the first quarter of last year to 451 basis points this quarter. These gains were partially offset by the higher interest we paid on customer credit balances, as our long standing policy is to pass through rate hikes above 50 basis points to our customers on their qualified funds.

Other fees and services generated $43 million, with biggest contributors being market data fees of $18 million, options exchange liquidity payments of $8 million and risk exposure fee revenue of $6 million. The drop from the prior year quarter was driven primarily by the risk off positioning of customers, which led to a $9 million reduction in risk exposure fees.

Other income of $19 million includes the gains and losses on our investments, our currency diversification strategy, and principle transaction. Note that many of these non-core items are excluded in our adjusted earnings. And without these excluded items, other income was a $22 million loss for the quarter, as we removed realized and unrealized gains on our U.S. reasury portfolio.

Turning to expenses, execution, clearing and distribution costs rose 34% versus last year led by higher volumes in options and futures, which carry higher fees, lower liquidity rebate and higher regulatory transaction. We find it useful to measure what we call gross transactional profit, which is commissions less the pure volume driven execution and clearing costs. As a percent of commission revenue execution and clearing costs, which are driven by a combination of trading volume exchange rebates and changing fee schedules were 21% this quarter, in other words, a gross transactional profit of 79%.

Market data expense, the pass through item is included in execution, clearing and distribution fees. While the corresponding market data revenue is reported in other fees and services rather than in commission. For this purpose, in the first quarter, we exclude $18 million in primarily market data expense.

Compensation and benefits expense rose $17 million or 15% over the prior year, driven by hiring in Europe and APAC and in part by inflation, while up in dollar terms for the quarter comp and benefits expense fell to 13% of our adjusted net revenue, versus 16% last year and somewhat below its historical level. Our headcount at quarter end was 2,872.

G&A expenses were down 5% versus last year's first quarter, primarily on lower advertising and legal expense. Our adjusted pre tax margin was a record 71%, while higher interest rate benefit us, automation remains our teammate means of maintaining consistently high margins, as well as continued expense control while we hire talented people and invest in the future of our business.

Income tax expense of $61 million reflects the sum of the public companies $31 million and the operating companies $30 million.

Moving to the balance sheet on Page 5 of the release. Our total assets were $119 billion at the end of the quarter, with growth over the last year driven by increases in our segregated cash and securities. We maintained a balance sheet aimed at supporting our growing business and providing ample financial resources during volatile markets. With maximum flexibility and short term liquidity, we have no long-term debt. The duration of our investment portfolio as of March 31, was 24 days.

Turning to our operating data on Pages 6 and 7 of the release. Our contract volumes for all customers was strong, reaching their highest quarterly level in both options and futures, up 2% and 4% respectively over the year ago quarter. Stock share volume was down 22% versus last year's first quarter and the drop off is largely attributable to investors moving to higher quality stocks as trading and pink sheet and other very low priced stocks was impacted most.

On Page 7 you can see that our account growth remains robust with over 100,000 net account add in the quarter, and total accounts that 2.2 million up 21% over the prior year. Total customer DARTs were 2.1 million trades per day down 19% from the stronger prior year quarter and are cleared IBKR Pro customers paid an average of $3.16 commission per cleared commissionable order up 23% from last year, as our clients volume mix included higher per order contributions from all product categories and particularly on stocks and options.

Page 8 presents our net interest margin numbers. Total GAAP net interest income more than doubled to $637 million on the year ago quarter, reflecting stronger earnings on segregated cash and margin loan, partially offset by higher interest expense on customer cash balance. After a series of seven target rate increases in 2022, the Federal Reserve raised interest rates twice this quarter by 25 basis points each in February and March. Many other central banks also raised rates this quarter. This group includes the UK, Canada, Australia and Hong Kong as well as the Euro zone and Switzerland.

Net interest on segregated cash was $603 million, primarily due to Federal Reserve rate hikes, but also to our managing to short duration on invested funds, which has allowed us to more closely match asset liability maturities and to pick up benchmark rate increases quickly.

At March 31, our U.S. portfolio duration was 24 days, so the investments rollover into new higher rates with fairly short lifetime. 38% increase over the year ago quarter in average segregated cash and securities balances also drove interest income higher.

Margin loan interest rose to $177 million, up significantly from $149 million last year, despite average margin loan balance is declining 17% from last year's first quarter, higher rates in the U.S. and internationally have driven higher margin interest income.

Securities lending net interest was $88 million, down 20% from the year ago quarter. It's worth noting that while securities lending opportunities maintain a relatively strong pace. It's also the case that as benchmark rates rise, a greater portion of the revenue generated by lending securities is reflected in interest on segregated cash, because the cash collateral received is invested in segregated funds. We estimate this impact to be about $41 million for the quarter versus last year. In other words, without this shift and reporting line item, then interest from securities lending would be $129 million, up 18% from the year ago quarter.

Interest on customer credit balances or the interest we pay our customers grew as higher rates in many currencies led to our paying interest on qualifying balances as we pass through rate increases. We paid $653 million to our customers on these balances in the first quarter.

Fully rate sensitive balances were roughly unchanged at about $20 billion. We consider our policy offering clients a full pass through of all rate hikes after the first 50 basis points on their qualified cash, a significant component in our success and one that does the part. We believe this leads to clients choosing to keep their cash with us, especially active clients who do not want to use sweep programs that prevent them from immediately accessing their cash to invest. Thomas mentioned on balance, we do not see clients moving their cash away from us.

Now for our estimates of the impact of increases in rates. Given market expectations of possibly one or more rate hikes to come, we estimate the effect of increases in the Fed funds rate to produce an additional annual net interest income of approximately $50 million for each 25 basis points increase in the benchmark. Note that our starting point for these estimates is March 31, with Fed Funds effective rate at 4.83% and based on balances at that date. About 26% of our customer cash balances is not in U.S. dollars, so estimates the U.S. rate change effects include or exclude those currencies.

We estimate a 25 basis point increase in all the relevant non-USD benchmark rates which produce additional annual net interest income of $26 million and rising to about $100 million at a 100 basis point rate increase.

In conclusion, the company generated a strong performance in the first quarter in a complex and volatile environment, reflecting our continued ability to grow our customer base and deliver our core services to customers, all at a low cost, and while offering meaningful cash interest as we manage the business effectively with strong risk and expense controls.

And with that, we'll open up the line for questions. Thank you.

[Operator]

And thank you. [Operator Instructions] And our first question comes from Richard Repetto from Piper Sandler. Your line is now open.

[Richard Repetto, Piper Sandler]

Good evening, Thomas. Good evening, Paul. I guess first question, sort of the accounting question and accounting question. And just kind of understand this the $40 million mark, that I think you said, Paul, that you removed realized and unrealized gains? Is this a onetime thing? I'm just trying to understand whether you're missing something? Is this a onetime thing in the quarter? Or this has been done in other quarters as well?

[Paul Brody, CFO]

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

For non-GAAP reporting, which is what we call non-core to our operating results in the release, in the earnings release every quarter, we pull out those mark-to-market effect. So, cumulatively, by the end of the year, we had a $39 million accumulated loss that we had pulled out for the purposes of the non-core reporting. We had pulled out the losses, and that raised the non-core reporting.

During the first quarter, we liquidated some securities rather than holding them to maturity. And by liquidating them erases the previous accumulated loss, in effect, putting it back in when it's reached -- when it was realized upon the sale of those securities. So those were sold. That also played a role in reducing our duration on the remaining portfolio down to 24 days extremely short. And we wouldn't expect much mark-to-market impact at all going forward because there's unlikely to be much on a very short duration portfolio.

[Richard Repetto, Piper Sandler]

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

[Paul Brody, CFO]

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

[Thomas Peterffy, Chairman]

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

[Richard Repetto, Piper Sandler]

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

[Thomas Peterffy, Chairman]

Milan, would you like to answer that?

[Milan Galik, President, CEO & Director]

Sure. So the first of the two i-brokers already started onboarding its employees. The employees are basically testing the quality of the integration, going through all the functionality. The aim currently is for them to onboard the entire set of their clients and move them from their existing vendor broker in the summer. So the first i-broker should be fully on boarded in the summer. There could be some delay, so maybe latest Q3. The second of the two i-brokers is moving a little slower, that relationship is bigger. It involves more of their entities. They have not yet started onboarding, they will most likely start in Q3.

[Richard Repetto, Piper Sandler]

Okay, thank you very much. Thanks, Thomas, and Paul, and Milan.

[Operator]

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

[Daniel Fannon, Jefferies]

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

[Thomas Peterffy, Chairman]

So what other stats you have in mind?

[Daniel Fannon, Jefferies]

Well, I guess in terms of number of customers, the customer count and the growth. And then I think you have some goals. I think you've said previously in terms of ---

[Thomas Peterffy, Chairman]

Yeah, so look, we have a number six, as far as number of hedge funds, we think that we -- and ahead of us was Credit Suisse that is not going to be there this quarter. So we will be number five. And then ahead of us also Bank of America barely ahead of us by number of hedge funds. So we believe that we will be number four or number five the next time [indiscernible] issue is based at some prime brokers for hedge funds. It will probably in the fall.

[Daniel Fannon, Jefferies]

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

[Thomas Peterffy, Chairman]

The average size is, I think $8 billion. So they are the smaller funds, and our hope is of course, as you know, many of them, I mean, quite a few of them, lose very few of them make money. So some of them are bad, and some of them become large. And we hope that does stay with us. We also have large hedge funds, but that are probably the second or third or sometimes fourth prime broker. So they come to us because, A, our executions, they like or executions; B, they like the fact that they can see our short inventory and the rates at which they can borrow various equity issues from us. And when they compare that to the primary hedge fund, they either use our hedge to beat them up into giving them a better rate, or they actually ask us to borrow the shares from.

[Daniel Fannon, Jefferies]

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

[Thomas Peterffy, Chairman]

Paul.

[Paul Brody, CFO]

Well, other income includes investments and various other things. So it's a little difficult to say that it has a run rate. No investments will rise and fall over time. And, it's difficult to pin that down.

[Daniel Fannon, Jefferies]

But I guess if I look historically, there was no onetime as we look at the $19 million in the fourth quarter, or the single digits, and for most of the three quarters before, that's everything was, that's how we should think about it going forward. Those are the queen numbers.

[Paul Brody, CFO]

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

[Daniel Fannon, Jefferies]

Okay, thank you.

[Operator]

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

[Craig Siegenthaler, Bank of America Merrill Lynch]

Hey, good evening, Thomas.

[Thomas Peterffy, Chairman]

Hi.

[Craig Siegenthaler, Bank of America Merrill Lynch]

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

[Thomas Peterffy, Chairman]

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

[Craig Siegenthaler, Bank of America Merrill Lynch]

Right, thank you, Thomas.

[Operator]

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

[Benjamin Budish, Barclays]

Hi, thanks so much for taking the question. I wanted to circle back on the introducing broker clients that are going to be onboarding later this year. I think there's a sort of general understanding that as retail clients that are new to the platform join, they sort of become more productive over time. But these are generally existing clients from a previous broker. What's your sort of expectation in terms of, the activities from these customers? Do you think that you could see sort of a step up over time, as they become more familiar with perhaps new options that are offered with IBKR on the back end? And as part of that, how should we think about the cash balances coming over? Should we be assumed that it's a lot of fully rate sensitive cash? Is that a fair assumption?

[Thomas Peterffy, Chairman]

So it is generally to that, a new account starts with $3, and it grows to $6 in the first year, and then goes to $9 after two or three years. So I don't I do not expect these customers to be any different from them.

[Benjamin Budish, Barclays]

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

[Thomas Peterffy, Chairman]

To tell you frankly, for the past 10 days or so. Our commissions are certainly lower than they were in the preceding 10 days. So the banking crisis certainly contributed to do some stronger activity that seems to have subsided not. But generally, when markets go down, they activity increases. And then when they start going down and start to slowly climb up, the activity decreases. So that's what we're seeing in the commission income side.

[Paul Brody, CFO]

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

[Benjamin Budish, Barclays]

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

[Operator]

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

[Kyle Voigt, KBW]

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

[Thomas Peterffy, Chairman]

Well, unfortunately, I did not. So the incoming moneys are about the same as they were a month ago, two months ago or three months ago. So we have steadily -- it's very, very steady. So we haven't seen any pick up. We also haven't seen any drawdowns.

[Kyle Voigt, KBW]

Understood. And I just wanted to follow up on the prior question. I know you've been quite positive on the growth trajectory for options, broadly speaking, and believe that growth is sustainable over the medium term. But I was wondering if you could comment on some of the growth in this FTX [ph] zero day to expiry options trading we've seen grow rapidly over the past few quarters. I understand that your customers are one of the larger users of the zero day products. Just wondering if you could give us any detail on which client segments you're seeing, utilize those products within IB. And then also just give us your thoughts broadly on this zero day options trend, and whether you see the volume growth in those products as sustainable as we look out over the next few years as well.

[Thomas Peterffy, Chairman]

So it is certainly sustainable, because people are -- it's less expensive for people to take a position in one day options as of Monday ahead of us, right. So that was there previously, they had to take a position that would have several days to run, even though they or they would take the position that they read of the news. So it is cheaper for them to use the one day option. Also, when people want to take a position in a larger portfolio, it's easier for them to accumulate one day say and then impose options and bring the portfolio on the market and close order. And that way they -- that it's a lot cheaper for them to buy or sell their portfolio.

[Kyle Voigt, KBW]

Understood. Thank you for that. And I just one follow up one last question. Just regarding the balance sheet of the company. You now have, I think close to $9 billion of capital in excess of your regulatory requirements. And that excess capital figure has grown significantly over the past few years. I know you've previously stated you want to that excess capital to help support the prime brokerage operations and to help customers kind of feel safe costing assets at IB. But I guess if there's some level of excess capital where you feel is an adequate level, and therefore not needing to continue to build that as rapidly as it has over the past few years? And just updated thoughts, there would be great.

[Thomas Peterffy, Chairman]

But I just think that you should ask that question all the time, then. Many of our peers appear to have insufficient amount of capital. So no, we are very proud to have as much capital as we do. And we hope to keep growing it.

[Kyle Voigt, KBW]

Understood. Thanks, Thomas.

[Operator]

And thank you. [Operator Instructions] And we have one more question. Bear with me. And our next question comes from Chris Allen from Citi. Your line is now open.

[Chris Allen, Citi]

Yeah. Good evening, everyone. Just wanted to touch on, you noted that the advertising spending was down year-over-year helping drive G&A lower. Can you just give us an update on the marketing strategy here? I know in the past, talked about being targeted marketing strategy. How has that evolved recently? And what is the pullback in advertising just the result of the environment or just a less -- lower opportunity so

[Thomas Peterffy, Chairman]

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

[Chris Allen, Citi]

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

[Thomas Peterffy, Chairman]

I think this is a CEO question.

[Milan Galik, President, CEO & Director]

So we are obviously paying a lot of attention to our expenses. The human capital costs is significant. What we have seen is, if I compare our numbers to one year ago quarter, the customer service personnel has decreased by 3%. Our compliance team has increased by let's say 10% and our Information Technology personnel, which is programers, technicians, system, system administrators and similar, that number went up by 16%. So these numbers are not bad. The fact that we are increasing the size of our Information Technology team just signifies our commitment to being a leader in the financial services technology tools for our investors. So you can expect us to grow the team as we have increasing amount of work.

The customer service, I think that team is at a good level. We are closely paying attention to the wait times of our customers calling us how long they have to stay in the phone queue. And that number is very low single digit minutes. We like that so the size of the team seems to be appropriate to the level of business that we have and the number of accounts that we have. One of the reasons that we do not have to grow that team has to do with the fact that our platform is over time becoming more user friendly and we have done a very good job in providing self-service customer service to various FAQs and chatbots and that type of technology.

As far as a compliance staff, we have to increase it because there is a lot of surveillance that we have to do on both of the assuring transactions that our customers perform, as well as the trading activity. The operators that we that we have, there is a few 100 of them pay attention to the various alerts that our systems generate. And then they check whether those alerts signify a problem, or they're just false positives. We are putting significant amount of energy into making those alerts more targeted, decreasing the number of false positives, as well as making it easier for the operators to service those alerts. So I would like the size of that team, the growth of that team to slow down as well. And I believe we will achieve that.

So these numbers I think are good. The team is at the right size. Obviously if it was smaller, our profit margin would be greater. And that is what we would like to deliver to our customer -- our investors.

[Chris Allen, Citi]

Great, great color. Just one quick follow up on the IT personnel side, as the cost of talent that is moderated all, as there's been more pressure in the tech sector.

[Milan Galik, President, CEO & Director]

So very lately, it has become easier to hire good technologists. Obviously there have been layoffs. We all can read about them in the news. So that made it easier. We now don't have to kill ourselves in making oversize offers, including the signup bonuses. So yes, it became easier and we are taking advantage of that. Some of the talent that is available is very good. And we would obviously like to get a hold of that so we can do that.

[Chris Allen, Citi]

Great. Thanks a lot, guys.

[Milan Galik, President, CEO & Director]

Pleasure.

[Operator]

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

[Nancy Stuebe, Director of IR]

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

[Operator]

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