TD Ameritrade Holding Corporation (AMTD)

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TD Ameritrade (AMTD)

F4Q08 Earnings Call

October 23, 2008 8:30 pm ET

Executives

Bill Murray - Managing Director, Investor Relations, Communications and Public Affairs

Joseph H. Moglia - Chairman of the Board

Fredric J. Tomczyk - President, Chief Executive Officer, Director

William J. Gerber - Chief Financial Officer, Senior Vice President

Analysts

Prashant Bhatia - Citigroup Global Markets

Richard Repetto - Sandler O'Neill & Partners

Howard Chen - Credit Suisse

William Tanona - Goldman Sachs

Roger Freeman - Barclays Capital

Michael Vinciquerra - BMO Capital Markets

Michael Carrier - UBS

Patrick O'Shaughnessy - Raymond James

Michael Goldberg - Desjardins Securities

Brian Bedell - Merrill Lynch

Presentation

Operator

Good day, everyone, and welcome to the TD Ameritrade Holding Corporation fourth quarter and fiscal year-end 2008 earnings results conference call. Today’s conference is being recorded. With us today from the company is Chairman of the Board, Joe Moglia; and President and Chief Financial Officer, Fred Tomczyk; and Chief Financial Officer, Bill Gerber. At this time, I would like to turn the conference over to Mr. Bill Murray, Managing Director of Investor Relations, Communications, and Public Affairs. Please go ahead, sir.

Bill Murray

Thank you. Good morning, everyone and welcome to the TD Ameritrade fiscal year ’08 and September quarter earnings call. We have released our earnings earlier this morning. Hopefully you have had a chance to look at it. A copy of our press release in today’s presentation is on our website, if you need to go grab it.

Before we begin, I would like to note that this call contains forward-looking statements that are made pursuant to the Safe Harbor provisions of the federal securities laws. These statements involve risks, uncertainties, and assumptions that may cause actual results to differ materially from those anticipated. You are advised to review the risk factors contained in our most recent annual and quarterly report Forms 10-K and 10-Q for a description of risks, uncertainties and assumptions related to the forward-looking statements.

Management will be discussing some non-GAAP financial measures, such as EBITDA and liquid assets. You can find a reconciliation of these financial measures to the most comparable GAAP financial measures in the slide presentation.

This call is intended for investors and analysts and may not be reproduced in the media in whole or in part without prior consent of TD Ameritrade. This morning we will be covering fiscal year ’08 results and fiscal year ’09 guidance. Our Chairman, Joe Moglia, will review fiscal year ’08 and Bill Gerber, our CFO, will comment on the September quarter results. Then we will focus on fiscal year ’09 -- Fred Tomczyk, our CEO, will frame our guidance and approach to ’09 and Bill Gerber will comment on the detailed assumptions supporting the outlook statement.

At this time, I would like to turn the call over to Joe.

Joseph H. Moglia

Thanks very much, Bill. Good morning, everybody. My name is Joe Moglia. I can’t tell you how proud I am of our sixth record year. Earnings were compounded at 33%. We’ve told you that every decision that we made in 2006 and 2007 was geared so we’d be able to deliver in 2008. I believe we have delivered on that promise.

There are three reasons for why we had a record 2008 -- first, the active trader has been engaged the entire year. Secondly, we are finding that we have legitimate traction in the asset gathering space, and thirdly, we’ve managed our balance sheet in a way where it’s been a benefit to our shareholders. We had record earnings at $1.33. That’s up 25% of where we were a year ago, when the vast majority of financial services are significantly down, and this includes a one-time charge to keep our clients whole when the reserve fund broke the dollar.

We’ve got record net revenues at $2.5 billion -- 59% of those revenues were driven by our assets. We’ve got record pretax income of $1.3 billion and we’ve got 50% pretax margins. We’ve got record net income of $804 million and record EBITDA of $1.4 billion, and our ROE came in at 31% for the year.

When you take a look at the operating metrics for ’08, we had trades per day that were also a record of 312,000 and by the way, so far October to date, our number is 433,000. Our average spread-based balances were also a record at $25.5 billion. Our average fee-based balances were also a record at over $70 billion. Client assets came in at $279 million and our cash and money market funds also at a record of $52 billion. Net new assets -- guess what? Also a record, $23 billion, and that almost doubled the number that we had for 2007, which by the way was also a record year.

Now with regard to just some general corporate matters, I want to focus specifically on the reserve fund. When they broke the buck, and even at that time the government said they wouldn’t help them out, TD Ameritrade was there. We’ve said again and again that we will always do what we believe is the right thing for our clients and our shareholders and this was just the right thing to do.

With regard to the overall transition, the transition from me to Fred has been seamless and that’s taken place while we are going through the greatest debacle the financial industry has seen since the Great Depression. We’ve made some incredible risk reward decisions. We’ve protected our shareholders. We’ve stepped up for our clients. We are number one in the transaction business. We’ve gained real traction as asset gatherers and we had a record ’08 because we made the right choices in ’06 and ’07.

And while it’s a tough environment today, we are also part of the most resilient economy in the world. The federal reserve, the Treasury of the United States, and the FDIC are working hard to minimize any systemic risk that has plagued the marketplace. Now, while there will still be tough markets ahead, great firms distinguish themselves in those times, and I firmly believe that TD Ameritrade is positioned to come out much stronger when the markets and economy returns to stability.

I am proud to entrust our firm to Fred and our great management team. It has been an honor for me and I thank all of you who have supported us over the years. With that, let me turn it over to Bill.

William J. Gerber

Thanks, Joe. As you all know, we are experiencing unprecedented market conditions and the American consumer continues to exhibit signs of considerable stress. However, despite those things, TD Ameritrade has again delivered strong financial results. A record year and a strong fourth quarter are quite a feat for any company these days, especially if you are in the financial services industry.

In the September quarter, we earned nearly $650 million of revenue, a 13% increase over the same period last year, and our EPS was $0.29. However, it was $0.32 if you exclude the $36 million one-time charge for the reserve fund issue. This amount is comprised of $27 million for our client commitments plus $9 million from the effect on our corporate funds. This $0.32 is down a penny from last year, primarily due to investments for growth and other one-time costs, which I will explain in a couple of minutes.

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