This summary is based on the third quarter fiscal 2008 earnings call conducted by TD Ameritrade Corp. (AMTD) on July 17, 2008.
Management:
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CEO: Joe Moglia
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EVP & CFO: Bill Gerber
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IR: Bill Murray
Key Investors Issues
- Earnings rose 28% from $159 million or 27 cents a share in 2007 to $204 million or 34 cents a share.
- Revenues came in at $624 million, up 15% from $542 million in 2007.
- Record client assets of $309 billion, including $49 billion in client cash and money market funds.
Year to Date Highlights:
- The firm has earned nearly $1.9 billion in revenue, an 18% increase over the prior year.
- Earnings increased 44% to $632 million or $1.05 per share.
Third Quarter Highlights
Net revenues came in at $624 million, up 15% from $542 million in 2007 with almost 60% of these driven by assets.
- As part of those assets, assets are cash and money market funds, are about $50 billion, that’s about 16% of the overall client assets.
- Transaction based revenue of $249 million increased $50 million or 25% year-over-year as client engagement has continued as increased trading activity was the primary reason for the additional revenue.
- Average trades per day came in at 298,000 or a 4.4% activity rate, up 53,000 trades per day from last year.
- The average commission rate was up 16 cents to $13.07 as the percentage of options trades continues to remain strong at 12% of trades, stronger fixed income activity and payment for order flow remains solid.
Asset based revenue came in at $365 million, up $31 million year-over-year as approximately 59% of total revenues are asset based reinforcing the stability of the overall revenue stream.
- There was a $17 million or 28% increase in fee based revenue, three-quarters of which is due to organic growth and the remainder is due to the Fiserv acquisition.
- Spread based revenues were up $14 million or 5% to $287 million and these are from the MMDA program, margin loans and stock borrows stock loan business.
- About 70% of the increase is growth due to favorable spreads from the MMDA program and the stock lending business while the remaining 30% comes from the Fiserv acquisition.
Revenue earning assets are up around 12%, excluding Fiserv, driven by fee based balances which are up around 20% and also driven by the spread based balances which are about flat.
- Overall funded accounts year-over-year are up around 6%, with the annualized revenue per average funded account year-over-year up about 8%.
- The firm continues to be the market leader with regards to trades per day, as year-over-year, these were up about 22% to almost 300,000 per day.
- The firm believes it has got a good solid options platform and 75% of clients receive price improvement when they get orders executed.
Earnings grew 28% from $159 million or 27 cents a share in 2007 to $204 million or 34 cents a share reflecting the power of the overall operating leverage especially in the market environment that we are currently facing.
- Despite the Fed cuts over the past year, the firm was able to expand net interest margin by nine basis points driven by the extension strategy put in place on the MMDA portfolio over the past two years.
- The firm spent $37 million in advertising, an increase of $4 million year-over-year resulting in 148,000 new accounts with a cost per account of $248.00.
- This spend was about $2 million above the outlook range primarily due to higher success levels of some of the promotional campaigns anticipated.
TD Ameritrade has recently extended the MMDA agreement with TD Bank USA to a new five year term with a two year cancellation notice period, from the former two year term with a one year notice period.
- Additionally it has agreed to a LIBOR based fee for all new cash investments in the portfolio and this will help mitigate NIM compression going forward.
- On sensitivity, an upward movement of 25 basis points will amount to an additional 1 cent of earnings growth, however, a downward movement of 25 basis points will equal a decrease of about 2 cents, with the larger decrease related to the spread compression pressures.
- The firm raised EPS guidance to $1.34, 26% ahead of where it was a year ago.
Key questions and answers from the third quarter earnings call conducted by TD Ameritrade Corp. (AMTD) on July 17, 2008.
Richard Repetto (Sandler O''Neill):
How do you look at your return on investment spending thus far?
Joe Moglia: $100 million was the original number we talked about and then there was another $50 million. We have incredible pre-tax margins because we do a good job of managing our business.
As part of managing the business we look at being able to reallocate, we have got an opportunity we think to be able to grow sustainable quality long-term earnings, if that means potentially reallocating some of the pre-tax margins into our investments for growth we will do that.
