TD Ameritrade Holding Corporation (AMTD)

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TD Ameritrade Holding (AMTD)

Q3 2013 Earnings Call

July 23, 2013 8:30 am ET

Executives

Bill Murray - Head of Investor Relations and Managing Director of Communications & Public Affairs

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

William R. Katz - Citigroup Inc, Research Division

Howard Chen - Crédit Suisse AG, Research Division

Alex Kramm - UBS Investment Bank, Research Division

Christopher Harris - Wells Fargo Securities, LLC, Research Division

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

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

Michael Carrier - BofA Merrill Lynch, 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

Macrae Sykes - Gabelli & Company, Inc.

David J. Chiaverini - BMO Capital Markets U.S.

Kenneth Hill - Barclays Capital, Research Division

Presentation

Operator

Good day, everyone, and welcome to the TD Ameritrade Holding Corporation's June 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. And good morning, everyone, and welcome to the June quarter earnings call. I'm sure you've had a chance to look at our press release in the June quarter earnings presentation, which can be found on amtd.com. Our Safe Harbor statement and reconciliation of certain non-GAAP financial measures to the most comparable GAAP financial measures are included in this presentation as well. Descriptions of risk factors are included in our most recent financial reports, Forms 10-Q and 10-K. As usual, the call is intended for investors and analysts and may not be reproduced in the media or -- in whole or in part without prior consent of TD Ameritrade. As is our normal caution, please limit your questions to 2 so that we can get through as many covering analysts as possible in the allotted time. With that, we have Fred Tomczyk, our CEO; and Bill Gerber, our CFO, here to review the June quarter results and major accomplishments. So now, let me turn the call over to Fred.

Fredric J. Tomczyk

Thanks, Bill, and good morning, everyone, and welcome to our third quarter earnings call for fiscal 2013. We had a strong quarter on virtually all metrics as we continue to focus on executing our strategy to lead the industry in trading and be a premier asset gatherer. Our core business is performing well and investor sentiment continues to improve. There are many things to feel good about as we start the last quarter of our fiscal year. Let's take a look at our results in more detail on Slide 3.

Total client assets ended the quarter at $524 billion, up 18% year-over-year. Interest-sensitive assets were at a record $94 billion, up 19% year-over-year. We earned record net revenues of $725 million, up 9% year-over-year. And we had another record quarter with market fee-based revenue of $65 million, which was up 23% year-over-year. That brings us to earnings per share of $0.33 for the quarter on $184 million net income, which was up 19% year-over-year as our revenues grew nicely, while expenses were kept in check. Trades per day for the quarter were the highest we've seen in nearly 2 years, up 6% sequentially to 399,000. And net new client assets were $11 billion, an 8% annualized growth rate and up 11% year-over-year.

Finally, we received another credit rating upgrade when Moody's adjusted our rating from Baa1 to A3. This move, like the others that came before it, is a reflection of the success we've had in strengthening our balance sheet, growing our business and mitigating the impact of the low interest-rate environment.

Let's now look at our growth strategy in more detail, starting with trading on Slide 4. In the June quarter, we had an average 399,000 trades per day, an activity rate of 6.7% and right around the average activity rate of the last 3 years. We saw an increase in intraday volatility and the VIX after the Fed suggested that it might begin unwinding quantitative easing sooner than the market was expecting. We do expect that as the Fed unwinds its unprecedented stimulus, we will see increased volatility in the market, which should help trading levels.

Our Investor Movement Index, which retracks the activity of our clients' portfolios, remained in relatively bullish territory throughout the quarter. And in June, our clients were buyers -- were buying under declines in the market, increasing their equity market exposure.

In July, trades have dropped back to an average of 366,000 trades per day, but that slowness is not abnormal for the month of July. We also continue to see good growth in mobile engagement, which now makes up 10% of our daily trades. We expect this trend to continue as more people use smartphones and tablets to conduct business in the place of PCs. And derivatives now made up 40% of our trades per day in the quarter, the first time we've reached that milestone.

We continue to see interest in these products from both our retail and institutional clients. In fact, our independent advisor clients set a new record for option contracts executed through for our thinkpipes platform. More than 80% of option trades from RIAs came from advisors that are using the tools, education and support offered through our Options Market Center.

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