TD Ameritrade Holding Earnings Call Nuggets: Guidance and Rollover

On Monday, TD Ameritrade Holding Corporation (NASDAQ:AMTD) reported its fourth quarter earnings and discussed the following topics in its earnings conference call. Take a look.

Guidance

Richard Repetto – Sandler O’Neill: I guess the first question is on the guidance and I guess you spent a fair amount of time talking about your optimism on trading and hopefully we don’t see what we had at least in the recent past. But I guess at the midpoint of guidance the DARTs are up about 6.25%, and I guess, is this just the reflection of actually put into the guidance of the optimism, anything else that we can rely on to tell us that that’s a reasonable forecast? The activity rate, I think, was below 6% in the last quarter. So, just how you got to that midpoint of the DART guidance, because that drives I think the biggest change in the year-over-year guidance?

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Fred Tomczyk – President and CEO: So, if you look at the average activity rate over the last three years, it’s (struck) about 7.2%, 7.3% in that range, and if you went back to guidance a year ago, we would have been at 6.5% to 7.5%, and that we consider more normal. And we’ve always said; if it’s inside the range of 6.5% to 7.5%, that’s pretty much a normal activity rate. When you get below 6.5%, it’s unusual. When you get above 7.5%, it’s also highly unusual and rarely consistent. And I (wouldn’t) look to the September quarter, which is historically the slowest trading quarter of the fiscal year as being indicative of how you should look at activity rates. We think the activity rate we have in there, I think at the midpoint is 6.5%. If you went back, I mean, we would say that’s at the low end of the range that we would consider normal. But you also got to remember, I think, we actually got to get this election behind us. I’d also remind people that the last time we had the fiscal cliff debate – or, I’m sorry, the debt ceiling debate, was a year ago in August, and in that month, we had four of the top trading days of our history and a record quarter at 484,000 trades per day in the month of August alone. So, there is some – some of it is just getting back to what we would consider a normal trading range and 6.5% would be at the low end, but on top of that we do think, after we get the election behind us and some of the uncertainty gets clear, things should get better. It may not happen until the second quarter, however, I’d say, Rich.

Richard Repetto – Sandler O’Neill: My one follow-up question would be, you outlined as far as the capital strategy, the five, I guess, different options open to you and you sort of ruled out I believe – the share repurchase, you already up the recurring dividend, I guess, you could again. But I guess the question would be could you talk about the other three, a little bit more color as far as where are the investment and growth and I don’t know whether there is any more potential debt pay down, because then you are right to the one time dividend, I guess. So, just sort of addressing those three that haven’t been ruled out, I guess, yet.

Fred Tomczyk – President and CEO: In terms of investments in organic growth, we have made those – we’re going to continue to make those. What we are telling you is that we’re going to self-fund those because we’re having good success with our Lean initiative. We also launched the sourcing initiative and we are just keeping expenses very tight in light of the environment and that has given us room to make those investments without increasing expenses. I would tell you, all successful organic growth companies are able to continue to invest in the next wave of growth in the future by keep their expenses in check. I’m not sure you can do it flat forever but if you can keep inflation or to your organic growth rate you are doing pretty well and so we think we can beat that this year given the health – and progress we have made on Lean, number one. Number two, recurring dividend obviously I think when we looked at that we have confidence that we can sustain that and we also have confidence that we can increase that over time. There is no question that in the market right now there is an appetite for yield and so getting our dividend yield up over the average of the S&P 500 and S&P 500 financials we thought was the right strategic move. Debt pay down, I don’t think you should read that. We will do further re-pay-downs of debt. We have always said, we wanted to maintain a balance sheet that had one times EBITDA in terms of debt to EBITDA after 250 we are right in that range, so we feel good about that and after the $250 million repaid, as I said, it’s an odd lot, you are basically right at $750 million in liquid assets which is right in the target range of $500 million to $1 billion. So, when you put that all together we feel very good about where we are at. Do we have flexibility to increase the recurring dividend or do special dividends? Yes, we do. But I think what we have done right now is where we came out as the right thing to do given the situation we see right now.

Rollover

Roger Freeman – Barclays: Just I guess, Bill, on the IDA rollover you said you are basically 3 year blended duration now. Do you plan to stay at the upper end of that range and as you kind of roll forward over the next year, what is the duration of slots that will be rolling off look like and are those thing going into seven years or so to kind of balance that out?

Bill Gerber – EVP and CFO: Yeah, so the – let me answer your – the first question first, but the IDA rollover, we’re probably going to stay in the 2 to 3 range, but naturally of course when you’re starting the year at 3, it’s going to – if you changed anything, it’s going to drift a little bit down, but – so I would expect we’re going to stay in the upper end of that two to three-year range, probably even, (I would say) even 2.6, 2.7 plus. We are still investing the moneys the same way that we have before, primarily in the four to seven-year range of the curve on the retail, and institutional moneys – the 60% that we identified that is institutional like versus the 40% we talked about last couple of quarters which we said is more retail. So that 40% institutional also be invested in four to seven, but the 60% that we see as being shorter will stay in the one to two. So that’s – hope that helps you?

Roger Freeman – Barclays: It does. Then I guess my second question would be, just on NITE; two things, is there – the increase in payment for order flow; is that driven in part or mostly by NITE; and also, forget how these investments are being held, but is there any gain from that running through the P&L?

Bill Gerber – EVP and CFO: No. On the second part, no, there is no gain from NITE going to the P&L and we have had and continue to have order flow agreements with NITE, but I would say there’s nothing unusual at all in there relative to NITE.

A Closer Look: TD Ameritrade Holding Earnings Cheat Sheet>>