TD Ameritrade Holding's CEO Discusses F2Q 2012 Results - Earnings Call Transcript

TD Ameritrade Holding Corporation (AMTD)

F2Q 2012 Earnings Conference Call

April 17, 2012 8:30 AM ET

Executives

Fred Tomczyk - President and CEO

Bill Gerber - EVP and CFO

Bill Murray - MD, IR

Analysts

Richard Repetto - Sandler O'Neill

William Katz - Citigroup

Christopher Harris - Wells Fargo Securities

Patrick O'Shaughnessy - Raymond James

Joel Jeffrey - KBW

Mac Sykes - Gabelli & Company

Howard Chen - Credit Suisse

Alex Kramm - UBS

Alexander Blostein - Goldman Sachs Group, Inc

Michael Carrier - Deutsche Bank

Keith Murray - Nomura Securities International, Inc

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 to Bill Murray, Managing Director of Investor Relations. Please go ahead, sir.

Bill Murray

Thanks, operator. Good morning everyone, and welcome to our March quarter earnings call. In a minute, we’ll be hearing from Fred and Bill, but first hopefully you’ve had seen our press release and located today’s slide presentation, which can be found on amtd.com.

I’d also like to refer you to our Safe Harbor statement, which is on Slide 2 in the presentation and we will be referring to some 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'd also like you to review our description of risk factors contained in our most recent financial reports Forms 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 as we normally do, please limit your questions to two, so we can cover as many analysts as possible within the allotted time.

With that, we have Fred Tomczyk, our CEO and Bill Gerber, our CFO, here to review our March quarter results and major accomplishments. Fred?

Fred Tomczyk

Thanks, Bill, and good morning everyone, and thanks for joining us today to discuss our March quarter results.

As we cross the half way point in our 2012 fiscal year, we see several things that are worth pointing out. First, organic growth at TD Ameritrade remained strong. We continued to outpace our peers with double-digit net new client asset growth with good momentum in both our retail and institutional channels.

Second, while organic growth is strong, there remains a sense of caution on the part of the retail investor, but despite the improvement in the markets over the course of the quarter. Third, we remain focused on tight operating expense management and we’re expanding initiatives to drive greater efficiency, productivity, and cost containment in order to handle our strong organic growth while keeping expenses in check.

And lastly we remained financially strong and sound. Our clean balance sheet and unique business model that drives strong cash generation gives us a great deal of flexibility in a strategic and financial decision making. And while we can’t predict how the environment will change from one quarter to the next, we do know that in uncertain times you have to prioritize. Identifying those things which you can control and are most important to position your firm for long-term growth and increased shareholder value. That’s what we’ve been doing and that’s what we will continue to do at TD Ameritrade.

So let’s take a look at our results on slide 3. We ended the March quarter with record client assets of $452 billion, double what we had in March of 2009, just three years ago. Earnings per share for the quarter was $0.25, down $0.02 from last quarter, due to increased marketing spend for the retirement season and the launch of our new advertising program.

It’s also down $0.05 from the March quarter last year, which was the best quarter for trading volumes in the history of our firm. Last year at this time we were looking at a number of positive economic indicators and there was a general sense that the economy was headed in the right direction. Retail investor sentiment was actually quite bullish. However, the tone in economic environment soon changed dramatically as we entered late spring and summer months.

A year later, in the aftermath of such widespread economic uncertainty and despite the strong market in the March quarter, today’s investor is much more cautious. With many remaining on the sidelines, waiting to see if the economy and the markets are for real this time.

We are net revenues of $673 million, up 3% from the December quarter. Our operating expenses excluding advertising were flat sequentially. Net new client assets for the quarter came in at $10.8 billion and 11% annualized growth rate. Our interest sensitive assets are a record $79 billion, a direct result of our strong asset gathering and increased margin balances.

Client trades came in at an average of 388,000 trades per day, up 5% from the December quarter. And we used our balance sheet to repurchase 775,000 shares of our common stock this quarter at an average price of $19.02. These buybacks combined with our $0.06 quarterly dividend totaled over – totaled return of 35% of earnings back to the shareholders during the quarter.

Fiscal year-to-date we have bought back 7.5 million shares at an average price of $16.23. And we’ve now returned 65% of our year-to-date earnings to our shareholders, just above our forecasted annual range of 40% to 60%.

And finally, Standard & Poor’s upgraded our credit rating to single A. Our third credit rating increase from them since the financial crisis began 3.5 years ago. In fact, TD Ameritrade has been upgraded more – by more notches than any financial company in the S&P 500 since the beginning of 2009.

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