TD Ameritrade Holding Corporation (AMTD)

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TD Ameritrade Holding (AMTD)

Q2 2013 Earnings Call

April 16, 2013 8:30 am ET

Executives

Jeffrey Goeser - Director of Finance & Investor Relations

Fredric J. Tomczyk - Chief Executive Officer, President, Director and Member of Non-Td Directors Committee

William J. Gerber - Chief Financial Officer, Principal Accounting Officer and Executive Vice President

Analysts

Richard H. Repetto - Sandler O'Neill + Partners, L.P., Research Division

Steven Fullerton

Christopher Harris - Wells Fargo Securities, LLC, Research Division

Howard Chen - Crédit Suisse AG, Research Division

Patrick J. O'Shaughnessy - Raymond James & Associates, Inc., Research Division

Roger A. Freeman - Barclays Capital, Research Division

Alex Kramm - UBS Investment Bank, Research Division

Joel Jeffrey - Keefe, Bruyette, & Woods, Inc., Research Division

Christopher J. Allen - Evercore Partners Inc., Research Division

Alexander Blostein - Goldman Sachs Group Inc., Research Division

Brian Bedell - ISI Group Inc., Research Division

Christopher Shutler - William Blair & Company L.L.C., Research Division

Matthew Fischer - Credit Agricole Securities (USA) Inc., Research Division

Presentation

Operator

Good day, everyone, and welcome to the TD Ameritrade Holding Corporation's March 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'd like to turn the call over Jeff Goeser, Director of Investor Relations and Finance. Please go ahead, sir.

Jeffrey Goeser

Good morning, everyone, and welcome to the TD Ameritrade March quarter earnings call. In a minute, we'll be hearing from Fred and Bill, but first, hopefully, you have seen our press release and located today's slide presentation. It can be found on amtd.com. I'd also like to refer you to our Safe Harbor statement, which is on Slide 2 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. Reconciliation of these financial measures to the most comparable GAAP financial measures are in the slide presentation. I would also like to -- you to review our description of risk factors contained in our most recent financial reports Form 10-Q and 10-K. As usual, the call is intended for the 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. [Operator Instructions] With that, we have Fred Tomczyk, CEO; and Bill Gerber, CFO, here to review our March quarter results and major accomplishments. Fred?

Fredric J. Tomczyk

Thank you, Jeff, and good morning, everyone, and welcome to our second quarter earnings call for fiscal 2013. But before we begin, I'd like to say a few words about the terrible events that took place yesterday in Boston. We are fortunate that none of our branches in the area were impacted and that our associates who were participating in the marathon are safe. Our thoughts and prayers today are with those who were not so fortunate. Their sufferings weighs on all of our minds this morning.

Now turning to the quarter, our earnings and business results continue to be impacted by the macroeconomic environment. While economic trends have improved, market uncertainty continues. As a result, while retail investor sentiment improved over the quarter, many investors remain cautious. And yet despite these challenges, we continue to execute well on our organic growth strategy. Our asset gathering and market fee-based revenue growth remain quite strong. This strength, combined with our continued efforts to remain disciplined on expenses and focused on what we can control, has helped us deliver another strong quarter.

Let's take a look at the results in more detail on Slide 3. In the March quarter, we achieved an important milestone, surpassing $0.5 trillion in total client assets. While you can attribute some of the growth to the markets, we would not have grown this much without the success we've had in asset gathering. Over the last 5 years, in the midst of the most difficult market and economic conditions, we have gathered more than $170 billion in net new client assets, and that momentum continues today. We earned $0.26 per share in the quarter on $144 million of net income, which was up 5% or $7 million year-over-year.

Trades per day were up 13% sequentially to $378,000, an activity rate of 6.5%. Net new client assets of $13 billion, our second best quarter ever, were up 19% year-over-year and our annualized growth rate remained in double digits at 11%. And our market fee-based revenue continues to grow nicely up 38% year-over-year.

As we said heading into fiscal 2013, the key to our success will be maintaining our organic growth momentum while being disciplined on expenses. Now that work continued this quarter, as operating expenses were down 3% from the same quarter last year and down 1% excluding marketing expenses. We also used approximately $159 million to pay our quarterly dividend of $0.09 per share and to pay down a portion of the revolving credit balance.

Let's now take a closer look at our growth strategy starting with trading on Slide 4. Retail investor sentiment improved over the quarter. Our activity rate for the March quarter was 6.5%, up from 5.8% in the December quarter and 5.7% in the September quarter. Our Investor Movement Index continues to demonstrate increased bullishness, showing upward movement in 8 of the last 9 months and is currently at its highest level since June of 2011. But while settlement has improved, engagement remains toughened as many investors hesitate to reenter the markets. April month-to-date through Friday trades per day were -- have averaged 364,000 per day. Yesterday with the volatility in the markets, trades were north of 500,000. The reality is that while those investors who are engaged in the markets are increasingly bullish and our RIAs continue -- are currently fully invested with record low levels of client cash as a percentage of client assets, many retail investors remain cautious. This is happening despite the fact that the S&P 500 is up 25% over the last 15 months.

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