TD Ameritrade Holding Corporation (AMTD)

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TD AMERITRADE Holding Corporation (AMTD)

Q3 2008 Earnings Call

July 17, 2008 8:30 am ET

Executives

Joe Moglia – CEO

Bill Gerber – EVP & CFO

Bill Murray – IR

Analysts

Richard Repetto - Sandler O'Neill

Prashant Bhatia – Citigroup Global Markets

Howard Chen - Credit Suisse

Roger Freeman – Lehman Brothers

Michael Vinciquerra - BMO Capital Markets

Michael Carrier - UBS

Brian Bedell – Merrill Lynch

Michael Hecht - Banc of America Securities

Matt Snowling – Friedman, Billings, Ramsey

Presentation

Operator

Good morning, and welcome to the TD AMERITRADE June quarter earnings call. And now for opening remarks and introductions I would like to turn today’s conference over to Mr. Bill Murray, Managing Director of Investor Relations, Corporate Communications; please go ahead sir.

Bill Murray

Good morning everyone and welcome to our June quarter earnings call. We’ll be getting started in a minute. I’ll just cover a couple of administrative details but if you haven’t seen our press release you can find it on our website at www.amtd.com and as well as our presentation that we’ll be going over this morning.

I’d also 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 Report Form 10-K and Quarterly Report Form 10-Q for descriptions 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 on our website at www.amtd.com.

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.

At this time I’ll be turning the call over to our CEO, Joe Moglia and our CFO, Bill Gerber will be followed by some Q&A and then we’ll turn it back to Joe for some closing comments.

Joe Moglia

Thanks very much Bill, good morning everybody. Over the span of the last seven years you’ve probably heard me say a hundred times that I truly believe it’s our job to be able to manage our company in good times and in bad times. With the completion of the June quarter and with that under our belt, we have already earned about as much this year in three quarters as we did the entire year in 2007.

When you take a look at the current market environment and the current economic picture, if you are anyhow related to the financial service sector or the housing industry, this is far more challenging and environment then what we had to face when the bubble burst in the early part of this decade and its as difficult an environment as our country has seen in this sector over the span of the last three to four decades.

With all that as a backdrop I’ve got to tell you that I am incredibly proud of what our team has gone through with regards to the integration, the rollout of the client segmentation strategy, the effort to become asset gatherers, the movement to more of a sales organization, focused with education. I’m incredibly proud of what we have done and what we have accomplished in a difficult market environment.

With regard to this quarter specifically some reasons why we think we did well, the individual investor continue to be engaged in the marketplace. Our organic asset growth continues to receive good traction from our clients as well as from our prospects and we��ve always said that one of our competitive advantages is both our ability to scale and at the power of our operating leverage and I think you’re going to be able to see that pretty clearly as far as this quarter goes.

As far as the actual numbers, earnings for the quarter came in at $0.34, that’s the second best in our firm’s history. Net revenues came in at $624 million; almost 60% of those were driven by our assets. Pre-tax income came in at $328 million, pre-tax margins were 53%, net income $204 million, EBITDA about $370 million, ROE around 31% and our client assets are $309 billion which is a record for us.

However, to give you a little better clarity around that, if you take away the Fiserv assets, that number would be $288 billion. Relative to where we were a year ago, that number is down about 4%. Relative to an S&P that’s down 15%. Those numbers would be accurate through the end of the June quarter.

As part of those assets, assets are cash and money market funds, are about $50 billion, that’s about 16% of our overall client assets and that’s in line where we have generally been historical and our net new assets for the quarter are at $4 billion.

Now earnings per share growth we think for the quarter is certainly an example of the power of our overall operating leverage especially in the market environment that we are currently facing. From last year to this year, the $0.34 represents a 31% increase, in terms of where we are but through the first three quarters our cumulative earnings is $1.05. The number for all of 2007 was $1.06.

I think you can see the operating leverage probably most clearly when you look at the year-over-year change with regards to both revenue percent versus our expenses which are up about 3% and certainly our pre-tax margin as well has improved about six percentage points from where we were a year ago. Now to take a closer look at our revenues, our revenues overall are up around 15% but we always break down for you what the drivers behind those, revenues that are driven by transactions came in at about $259 million, which is up 25%. And revenues that are driven by assets came in up about 9%.

The break down between revenues driven by assets versus transactions is about 60/40 and remember to put that in perspective a few years ago that same ratio would have been 30/70. Now with regards to trades per day, we continue to be the market leader with regards to trades. Year-over-year for the quarter we were up about 22% at a number for the quarter of almost 300,000 per day. Now if you take a look at where we are right now as far as July goes, through either yesterday or it was the day before yesterday, for July we’re averaging 321,000 trades a day.

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