TD Ameritrade Holding Corporation (AMTD)

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Ameritrade Holdings Corporation (AMTD)

F1Q13 Earnings Call

January 22, 2013 8:30 AM ET


Bill Murray – Managing Director, IR

Fred Tomczyk – President and CEO

Bill Gerber – EVP and CFO


Rich Repetto – Sandler O’Neill

Howard Chen – Credit Suisse

Patrick O’Shaughnessy – Raymond James

Roger Freeman – Barclays

Keith Murray – Nomura

Bill Katz – Citi

Alex Kramm – UBS

Chris Harris – Wells Fargo

Brian Bedell – ISI Group

Joel Jeffrey – KBW

Alex Blostein – Goldman Sachs

Chris Shutler – William Blair

Mac Sykes – Gabelli & Company



Good day, everyone, and welcome to the TD Ameritrade Holding Corporation’s December Quarter Earnings Results Conference Call. This call is being recorded. With us today from the company is President and Chief Executive Officer, Fred Tomczyk; and Chief Financial Officer, Bill Gerber.

At this time, I would like to turn the call over to Bill Murray, Managing Director of Investor Relations. Please go ahead, sir.

Bill Murray

Thank you, operator. Good morning, everyone, and welcome to the TD Ameritrade December Quarter Earnings Call. In a minute, we’ll be hearing from Fred and Bill, but first, hopefully you’ve seen our press release and located today’s slide presentation, which is found on

I also like to refer you to our Safe Harbor statement, which is on slide two of the presentation, as we will be referring to forward-looking statements. We will also be discussing some non-GAAP financial measures, such as EBITDA. Reconciliations of these financial measures to the most comparable GAAP financial measures are in the slide presentation. We also like you to review our description of risk factors contained in our most recent financial reports, Form 10-K and 10-Q.

As usual, the 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. We have a large number of covering analysts, as we normally do. Please limit your questions to two, so we can cover as many analysts as possible within the allotted time.

Thanks your cooperation and with that, I’ll turn the call over to Fred.

Fred Tomczyk

Thank you, Bill, and good morning, everyone, and welcome to our first quarterly earnings call of 2013. I’m pleased to report that we had a strong start to our fiscal year, despite a weak trading environment brought about by a prolonged state of industrial uncertainty. The events like November’s Presidential Election and concerns over the fiscal cliff kept trading volumes low throughout the industry during the quarter, but strengthened nearly every other aspect of our business from asset gathering, to developing a third revenue stream, to expense management helped us deliver a strong and in some areas, a record December quarter.

Let’s take a look at the quarter in more detail on slide three. Earnings per share for the quarter came in at $0.27, strong in the – strong results in the face of the trading environment and a $0.01 impact from losing two trading days from Superstorm Sandy. While we were able to get past these two events in the quarter, the election and the fiscal cliff uncertainty still remains high with new debates in Washington around the country’s debt ceiling and deficit looming ahead.

Trades for the December quarter averaged 334,000 per day, and while trading is improving in January, it remains sluggish compared to what we would normally expect this time of year. January month-to-date, we are averaging 370,000 trades per day. A major highlight for the quarter was our record net new client assets of almost $16 billion, a 13% annualized growth rate and up 53% from the same quarter a year ago.

Additionally, our market fee base revenue is up 28% year-over-year driven by record guidance in advice product sales. We maintained good expense discipline, ending quarter with operating expenses down 4% from the same quarter last year.

Ongoing efforts in our Lean initiative and other internal expense management initiatives are allowing us to continue investing in growth while keeping expenses in check. And we remain good stewards of shareholder capital. In the quarter, we used approximately $300 million to pay down a maturing tranche of debt and issue our quarterly dividend of $0.09 per share.

We also used our strong financial position to finance a special dividend of $0.50 per share, which we financed with our revolving credit facility. Following that deployment, we stand today with liquid assets of $774 million. Our balance sheet remained strong, and we preserved our ability to deal with unexpected issues or to take advantage of opportunities as they arise.

Let’s take a deeper look at how our growth strategy is performing starting with trading on slide four. Our activity rate for the December quarter was 5.8%, up slightly from the September quarter and a combination of low volatility and high uncertainty created an unusual environment for investors, and as a result, exchange volumes were at multiyear lows. The VIX was low averaging about 16.7 in the quarter and – actual intraday volatility was also low as there were only three days during the quarter where the market moved more than 2% during the day.

Derivatives trading continues to grow and was nearly 40% of our clients’ trades over the quarter. This quarter, we launched a new learning center for our thinkorswim platform, and we also launched the Strategy Roller, which allows both retail clients and RIAs to automatically roll their covered call positions. We’ll expand this to also include other option strategies over time.

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