Market Overview

TD Ameritrade Reports Strong Results in Third Quarter

Share:

GAAP Diluted EPS $0.79; Non-GAAP Diluted EPS $0.89 (1)

Net New Client Assets of $20B

Average Client Trades per Day of 784,000

TD Ameritrade Holding Corporation (NASDAQ:AMTD) has released results
for the third quarter of fiscal 2018. Earnings increased sequentially
due to significant expense reductions. The Company gathered $20 billion
in net new client assets for the quarter and reported client trading
activity of approximately 784,000 client trades per day, on average.

Financial results for the quarter ended June 30, 2018, include the
following:(2)

  • Net new client assets of approximately $20 billion, down 10 percent
    year over year, annualized growth rate of 7 percent
  • Average client trades per day of approximately 784,000, up 54 percent
    year over year
  • Net revenues of $1.4 billion, 62 percent of which were asset-based
  • Client assets of approximately $1.2 trillion, up 39 percent year over
    year
  • $0.79 in GAAP earnings per diluted share, up 80 percent year over
    year, on net income of $451 million
  • $0.89 in Non-GAAP earnings per diluted share(1), up 85
    percent year over year
  • Pre-tax GAAP income of $603 million, or 44 percent of net revenues
  • Interest rate-sensitive assets(3) of $149 billion, up 24
    percent year over year

"Thanks to outstanding operational and business performance, we
delivered strong profitability in the quarter," said Tim Hockey, TD
Ameritrade president and chief executive officer. "We're on a mission to
leverage our size, scale and know-how to make investing simpler and more
personal than ever before. We rounded out our advice continuum in the
third quarter with the launch of Personalized Portfolios(4)
a compelling 'digital-plus-human' guidance experience. Additionally, our
advanced technology efforts, such as Apple Business Chat, are gaining
traction with clients and we will continue to expand the ways in which
our clients can interact with us online. TD Ameritrade is leveraging
technology and people to break down barriers, bringing greater ease and
accessibility to investing. It's about what we offer, and how
we offer it."

"It was an excellent quarter as substantial expense reductions drove
record net income and EPS. Investor engagement was robust, with strong
client net buying," said Steve Boyle, executive vice president and chief
financial officer. "At the same time, we're clearly seeing the expected
benefits of our Scottrade acquisition. In fact, we achieved many cost
savings sooner than expected, with approximately $212 million in
synergies realized through June. The strength of these results more than
offset a slight decline in trading revenue compared to the prior record
quarter."

Capital Management
The Company paid $119 million,
or $0.21 per share, in cash dividends in its third fiscal quarter.

The Company has declared a $0.21 per share quarterly cash dividend,
payable on August 21, 2018 to all holders of record of common stock as
of August 7, 2018.

As of July 23, 2018, the Company has 26 million shares remaining for
share repurchases under its stock repurchase program.

Company Hosts Conference Call
TD Ameritrade will hold its
June Quarter conference call tomorrow morning, July 24, 2018, at 8:30
a.m. EDT (7:30 a.m. CDT) to take questions from analysts. Participants
may listen to the conference call by dialing 866-393-4306. A complete
audio recording of management's remarks, an abridged text version of the
remarks and a company fact sheet are now available on the "
Financial
Reports
" page of www.amtd.com under
the header "Investor Relations' Highlights."
Conference call
participants are encouraged to reference these materials prior to the
call.

A replay of the phone call will be available by dialing 855-859-2056 and
entering the Conference ID 4886779 beginning at 11:30 a.m. EDT (10:30
a.m. CDT) on July 24, 2018. The replay will be available until 11:59
p.m. EDT (10:59 p.m. CDT) on July 31, 2018. A transcript of the call
will be available on the Company's corporate web site, www.amtd.com,
via the "Financial
Reports
" page beginning Wednesday, July 25, 2018.

More information about TD Ameritrade's upcoming corporate events and
management speaking engagements, such as quarterly earnings conference
calls, are available on the Company's Corporate
Event Calendar
. Look for the link "Where are we?" on the "Investor
Relations
" page of www.amtd.com.

Interested parties should visit or subscribe
to newsfeeds at www.amtd.com
for the most up-to-date information on corporate financial reports,
press releases, SEC filings and events. The Company also communicates
this information via Twitter, @TDAmeritradePR.
Website links, corporate titles and telephone numbers provided in this
release, although correct when published, may change in the future.

Source: TD Ameritrade Holding Corporation

About TD Ameritrade Holding Corporation
TD Ameritrade
provides investing
services
and education
to more than 11 million client accounts totaling more than $1.2 trillion
in assets, and custodial
services
to more than 6,000 registered investment advisors. We are a
leader in U.S. retail trading, executing an average of more than 780,000
trades per day for our clients, more than a quarter of which come from
mobile devices. We have a proud history
of innovation
, dating back to our start in 1975, and today our team
of nearly 10,000-strong is committed to carrying it forward. Together,
we are leveraging the latest in cutting edge technologies and one-on-one
client care to transform lives, and investing, for the better. Learn
more by visiting TD Ameritrade's newsroom
at www.amtd.com,
or read our stories at Fresh
Accounts
.

Safe Harbor
This document contains forward-looking
statements within the meaning of the federal securities laws. We intend
these forward-looking statements to be covered by the safe harbor
provisions of the federal securities laws. In particular, any
projections regarding our future revenues, expenses, earnings, capital
expenditures, effective tax rates, client trading activity, accounts,
stock price or any projections or expectations regarding the acquisition
of Scottrade Financial Services, Inc., as well as the assumptions on
which such expectations are based, are forward-looking statements. These
statements reflect only our current expectations and are not guarantees
of future performance or results. These statements involve risks,
uncertainties and assumptions that could cause actual results or
performance to differ materially from those contained in the
forward-looking statements. These risks, uncertainties and assumptions
include, but are not limited to: economic, social and political
conditions and other securities industry risks; interest rate risks;
liquidity risks; credit risk with clients and counterparties; risk of
liability for errors in clearing functions; systemic risk; systems
failures, delays and capacity constraints; network security risks;
competition; reliance on external service providers; new laws and
regulations affecting our business; net capital requirements; extensive
regulation, regulatory uncertainties and legal matters; difficulties and
delays in integrating the Scottrade Financial Services, Inc.
("Scottrade") business or fully realizing cost savings and other
benefits from the acquisition; business disruption following the
Scottrade acquisition; disruptions due to Scottrade integration-related
uncertainty or other factors making it more difficult to maintain
relationships with employees, customers, other business partners or
governmental entities; the inability to achieve synergies or to
implement integration plans and other consequences associated with other
acquisitions; and the other risks and uncertainties set forth under
Item 1A. – Risk Factors of the Company's annual report on Form 10-K for
the fiscal year ended September 30, 2017. These forward-looking
statements speak only as of the date on which the statements were made.
We undertake no obligation to publicly update or revise these
statements, whether as a result of new information, future events or
otherwise, except to the extent required by the federal securities laws.

1 See attached reconciliation of non-GAAP financial
measures.

2 Please see the Glossary of Terms, located in
"Investor" section of
www.amtd.com
for more information on how these metrics are calculated.

3 Interest rate-sensitive assets consist of
spread-based assets and money market mutual funds. Ending balances as of
June 30, 2018.

4 Personalized Portfolios and other advisory
services are offered through TD Ameritrade Investment Management, LLC, a
registered investment advisor affiliate of TD Ameritrade, Inc. ("TD
Ameritrade") and a subsidiary of TD Ameritrade Holding Corporation.

Brokerage services provided by TD Ameritrade, Inc., member FINRA (www.FINRA.org)
/SIPC (
www.SIPC.org).

Advisory services are provided by TD Ameritrade Investment
Management, LLC ("TD Ameritrade Investment Management"), a registered
investment advisor. Brokerage services provided by TD Ameritrade, Inc.
TD Ameritrade Investment Management provides discretionary advisory
services for a fee. Risks applicable to any portfolio are those
associated with its underlying securities. For more information, please
see the Disclosure Brochure (Form ADV Part 2A)
http://www.tdameritrade.com/forms/TDA4855.pdf

 
TD AMERITRADE HOLDING CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
In millions, except per share amounts
(Unaudited)
         
Quarter Ended Nine Months Ended
June 30, 2018 Mar. 31, 2018 June 30, 2017 June 30, 2018 June 30, 2017
Revenues:
Transaction-based revenues:
Commissions and transaction fees $ 490 $ 556 $ 335 $ 1,487 $ 1,054
Asset-based revenues:
Bank deposit account fees 387 381 286 1,149 800
Net interest revenue 332 308 175 916 480
Investment product fees   140   141   112   414   309
Total asset-based revenues 859 830 573 2,479 1,589
Other revenues   33   29   23   88   50
Net revenues   1,382   1,415   931   4,054   2,693
 
Operating expenses:
Employee compensation and benefits 352 461 234 1,228 677
Clearing and execution costs 46 56 38 149 111
Communications 42 46 34 141 98
Occupancy and equipment costs 67 79 44 226 133
Depreciation and amortization 37 35 25 106 74
Amortization of acquired intangible assets 32 37 19 107 57
Professional services 70 86 67 230 178
Advertising 63 90 58 218 195
Other   42   129   18   286   65
Total operating expenses   751   1,019   537   2,691   1,588
 
Operating income 631 396 394 1,363 1,105
 
Other expense:
Interest on borrowings 28 24 20 72 48
Loss on sale of investments - - - 11 -
Other   -   -   1   2   1
Total other expense   28   24   21   85   49
 
Pre-tax income 603 372 373 1,278 1,056
 
Provision for income taxes(1)   152   101   142   259   395
 
Net income $ 451 $ 271 $ 231 $ 1,019 $ 661
 
Earnings per share - basic $ 0.79 $ 0.48 $ 0.44 $ 1.80 $ 1.25
Earnings per share - diluted $ 0.79 $ 0.48 $ 0.44 $ 1.79 $ 1.25
 
Weighted average shares outstanding - basic 568 567 528 567 528
Weighted average shares outstanding - diluted 570 570 530 570 530
 
Dividends declared per share $ 0.21 $ 0.21 $ 0.18 $ 0.63 $ 0.54
 

(1) The provision for income taxes was lower for the nine months ended
June 30, 2018, primarily due to the realization of approximately $78
million of after-tax benefits recognized during the quarter ended
December 31, 2017. These after-tax benefits were primarily attributable
to the enactment of the Tax Cuts and Jobs Act for which we recorded a
provisional estimate for the remeasurement of our deferred income tax
balances.

TD AMERITRADE HOLDING CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
In millions
(Unaudited)
       
June 30, 2018 Sept. 30, 2017
Assets:
Cash and cash equivalents $ 1,343 $ 1,472
Segregated cash and investments 4,609 10,446
Broker/dealer receivables 1,572 1,334
Client receivables, net 22,306 17,151
Investments available-for-sale, at fair value 487 746
Goodwill and intangible assets 5,561 5,683
Other   1,633   1,795
Total assets $ 37,511 $ 38,627
 
Liabilities and stockholders' equity:
 
Liabilities:
Broker/dealer payables $ 3,516 $ 2,504
Client payables 22,554 25,107
Long-term debt and other borrowings 2,553 2,652
Other   952   1,117
Total liabilities 29,575 31,380
 
Stockholders' equity   7,936   7,247
Total liabilities and stockholders' equity $ 37,511 $ 38,627
 

NOTE: The Condensed Consolidated Balance Sheets include provisional
estimates related to property acquired and liabilities assumed in the
Scottrade acquisition. These provisional estimates may be prospectively
adjusted in the event new information becomes available regarding facts
and circumstances which existed at the date of acquisition.

TD AMERITRADE HOLDING CORPORATION
SELECTED OPERATING DATA
(Unaudited)
  Quarter Ended   Nine Months Ended
June 30, 2018   Mar. 31, 2018   June 30, 2017 June 30, 2018   June 30, 2017

Key Metrics:

Net new assets (in billions) $19.8 $22.2 $22.0 $68.4 $60.2
Net new asset growth rate (annualized) 7% 8% 10% 8% 10%
Average client trades per day 783,665 943,058 510,358 816,445 504,700
 

Profitability Metrics:

Operating margin 45.7% 28.0% 42.3% 33.6% 41.0%
Pre-tax margin 43.6% 26.3% 40.1% 31.5% 39.2%
Return on average stockholders' equity (annualized) 23.3% 14.4% 17.2% 18.0% 16.8%
Net profit margin 32.6% 19.2% 24.8% 25.1% 24.5%
EBITDA(1) as a percentage of net revenues 50.7% 33.1% 46.9% 38.6% 45.9%
 

Liquidity Metrics:

Interest on borrowings (in millions) $28 $24 $20 $72 $48
Interest coverage ratio (EBITDA(1)/interest on borrowings) 25.0 19.5 21.9 21.7 25.7
Cash and cash equivalents (in billions) $1.3 $1.4 $2.9 $1.3 $2.9
Liquid assets(1)(2) (in billions) $0.9 $0.8 $2.7 $0.9 $2.7
 

Transaction-Based Revenue Metrics:

Total trades (in millions) 50.2 57.5 32.2 153.1 94.6
Average commissions per trade(3) $7.40 $7.50 $7.83 $7.48 $8.55
Trading days 64.0 61.0 63.0 187.5 187.5
Order routing revenue (in millions) $119 $125 $83 $341 $245
 

Spread-Based Asset Metrics:

Average bank deposit account balances (in billions) $116.3 $118.3 $92.3 $117.9 $93.5
Average interest-earning assets (in billions) 30.3 32.0 25.5 31.3 24.9
Average spread-based balances (in billions) $146.6 $150.3 $117.8 $149.2 $118.4
 
Bank deposit account fee revenue (in millions) $387 $381 $286 $1,149 $800
Net interest revenue (in millions) 332 308 175 916 480
Spread-based revenue (in millions) $719 $689 $461 $2,065 $1,280
 
Avg. annualized yield - bank deposit account fees 1.32% 1.29% 1.23% 1.28% 1.13%
Avg. annualized yield - interest-earning assets 4.34% 3.86% 2.71% 3.86% 2.55%
Net interest margin (NIM) 1.94% 1.83% 1.55% 1.83% 1.43%
 

Fee-Based Investment Metrics:

Money market mutual fund fees:

Average balance (in billions) $4.1 $4.0 $3.6 $4.0 $3.6
Average annualized yield 0.41% 0.42% 0.43% 0.42% 0.42%
Fee revenue (in millions) $4 $4 $4 $12 $12

Market fee-based investment balances:

Average balance (in billions) $252.7 $247.7 $186.1 $242.1 $176.6
Average annualized yield 0.21% 0.22% 0.23% 0.22% 0.22%
Fee revenue (in millions) $136 $137 $108 $402 $297
Average fee-based investment balances (in billions) $256.8 $251.7 $189.7 $246.1 $180.2
Average annualized yield 0.22% 0.22% 0.23% 0.22% 0.23%
Investment product fee revenue (in millions) $140 $141 $112 $414 $309
 

(1) See attached reconciliation of non-GAAP financial
measures.

(2) In June 2018, the presentation of the liquid assets
metric was revised in order to provide a consolidated view of our
liquidity, which management may utilize, as necessary, to meet corporate
cash flow needs, fund potential operational contingencies and to support
our business strategies. The prior period, which provided a view of our
liquidity net of operational contingencies and other obligations, has
been updated to conform to the current presentation.

(3) Effective in September 2017, the average commissions per
trade metric was revised to exclude order routing revenue. Prior periods
have been updated to conform to the current presentation.

NOTE: See Glossary of Terms on the Company's website at www.amtd.com
for definitions of the above metrics.

TD AMERITRADE HOLDING CORPORATION
SELECTED OPERATING DATA
(Unaudited)
  Quarter Ended   Nine Months Ended
June 30, 2018   Mar. 31, 2018   June 30, 2017 June 30, 2018   June 30, 2017

Client Account and Client Asset Metrics:

Funded accounts (beginning of period) 11,266,000 11,129,000 7,189,000 11,004,000 6,950,000
Funded accounts (end of period) 11,399,000 11,266,000 7,279,000 11,399,000 7,279,000
Percentage change during period 1% 1% 1% 4% 5%
 
Client assets (beginning of period, in billions) $1,185.7 $1,178.8 $846.7 $1,118.5 $773.8
Client assets (end of period, in billions) $1,229.6 $1,185.7 $882.4 $1,229.6 $882.4
Percentage change during period 4% 1% 4% 10% 14%
 

Net Interest Revenue:

Segregated cash:

Average balance (in billions) $5.6 $8.7 $8.0 $8.1 $8.5
Average annualized yield 1.61% 1.31% 0.67% 1.29% 0.47%
Interest revenue (in millions) $23 $28 $14 $79 $30
 

Client margin balances:

Average balance (in billions) $20.6 $19.1 $12.6 $19.1 $12.1
Average annualized yield 4.69% 4.45% 3.81% 4.47% 3.68%
Interest revenue (in millions) $244 $213 $121 $648 $338
 

Securities borrowing/lending:

Average securities borrowing balance (in billions) $0.8 $0.9 $1.0 $0.9 $1.0
Average securities lending balance (in billions) $3.1 $2.8 $2.1 $2.9 $1.9
Net interest revenue - securities borrowing/lending (in millions) $55 $61 $34 $168 $99
 

Other cash and interest-earning investments:

Average balance (in billions) $3.3 $3.3 $3.9 $3.2 $3.3
Average annualized yield 1.49% 1.03% 0.67% 1.12% 0.56%
Interest revenue - net (in millions) $12 $8 $6 $27 $14
 

Client credit balances:

Average balance (in billions) $19.6 $21.5 $15.9 $20.8 $16.0
Average annualized cost 0.04% 0.04% 0.01% 0.03% 0.01%
Interest expense (in millions) ($2) ($2) ($0) ($6) ($1)
 
 
 
Average interest-earning assets (in billions) $30.3 $32.0 $25.5 $31.3 $24.9
Average annualized yield 4.34% 3.86% 2.71% 3.86% 2.55%
Net interest revenue (in millions) $332 $308 $175 $916 $480

 

NOTE: See Glossary of Terms on the Company's website at www.amtd.com
for definitions of the above metrics.

TD AMERITRADE HOLDING CORPORATION
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
Dollars in millions, except per share amounts
(Unaudited)
                   
 
Quarter Ended Nine Months Ended
June 30, 2018 Mar. 31, 2018 June 30, 2017 June 30, 2018 June 30, 2017

Non-GAAP Net Income and Non-GAAP Diluted
EPS (1)

Amount Diluted EPS Amount Diluted EPS Amount Diluted EPS Amount Diluted EPS Amount Diluted EPS
 
Net income and diluted EPS - GAAP $ 451 $ 0.79 $ 271 $ 0.48 $ 231 $ 0.44 $ 1,019 $ 1.79 $ 661 $ 1.25
Non-GAAP adjustments:
Amortization of acquired intangible assets 32 0.06 37 0.06 19 0.04 107 0.19 57 0.11
Acquisition-related expenses 46 0.08 158 0.28 15 0.03 384 0.67 27 0.05
Income tax effect of above adjustments   (21 )   (0.04 )   (52 )   (0.09 )   (13 )   (0.03 )   (133 )   (0.23 )   (32 )   (0.06 )
Non-GAAP net income and non-GAAP diluted EPS $ 508   $ 0.89   $ 414   $ 0.73   $ 252   $ 0.48   $ 1,377   $ 2.42   $ 713   $ 1.35  
 
 
Quarter Ended Nine Months Ended
June 30, 2018 Mar. 31, 2018 June 30, 2017 June 30, 2018 June 30, 2017
$ % of Net Rev. $ % of Net Rev. $ % of Net Rev. $ % of Net Rev. $ % of Net Rev.

EBITDA (2)

Net income - GAAP $ 451 32.6 % $ 271 19.2 % $ 231 24.8 % $ 1,019 25.1 % $ 661 24.5 %
Add:
Depreciation and amortization 37 2.7 % 35 2.5 % 25 2.7 % 106 2.6 % 74 2.7 %
Amortization of acquired intangible assets 32 2.3 % 37 2.6 % 19 2.0 % 107 2.6 % 57 2.1 %
Interest on borrowings 28 2.0 % 24 1.7 % 20 2.1 % 72 1.8 % 48 1.8 %
Provision for income taxes   152   11.0 %   101   7.1 %   142   15.3 %   259   6.4 %   395   14.7 %
EBITDA - non-GAAP $ 700   50.7 % $ 468   33.1 % $ 437   46.9 % $ 1,563   38.6 % $ 1,235   45.9 %
 
 
As of
June 30, Mar. 31, Dec. 31, Sept. 30, June 30,
2018 2018 2017 2017 2017

Liquid Assets (3)

Cash and cash equivalents - GAAP $ 1,343 $ 1,373 $ 1,644 $ 1,472 $ 2,880

Less: Non-corporate cash and cash equivalents

  (1,044 )   (1,013 )   (844 )   (1,174 )   (973 )
Corporate cash and cash equivalents 299 360 800 298 1,907
Corporate investments 388 292 - 714 747
Excess regulatory net capital over management targets   166     119     85     46     8  
Liquid assets - non-GAAP $ 853   $ 771   $ 885   $ 1,058   $ 2,662  
 
Note: The term "GAAP" in the following explanation refers to
generally accepted accounting principles in the United States.
 
 
(1) Non-GAAP net income and non-GAAP diluted earnings per share (EPS)
are non-GAAP financial measures as defined by SEC Regulation G. We
define non-GAAP net income as net income adjusted to remove the
after-tax effect of amortization of acquired intangible assets and
acquisition-related expenses. We consider non-GAAP net income and
non-GAAP diluted EPS as important measures of our financial
performance because they exclude certain items that may not be
indicative of our core operating results and business outlook and
may be useful in evaluating the operating performance of the
business and facilitating a meaningful comparison of our results in
the current period to those in prior and future periods.
Amortization of acquired intangible assets is excluded because
management does not believe it is indicative of our underlying
business performance. Acquisition-related expenses are excluded as
these costs are not representative of the costs of running the
Company's on-going business. Non-GAAP net income and non-GAAP
diluted EPS should be considered in addition to, rather than as a
substitute for, GAAP net income and diluted EPS.
 
(2) EBITDA (earnings before interest, taxes, depreciation and
amortization) is considered a non-GAAP financial measure as defined
by SEC Regulation G. We consider EBITDA to be an important measure
of our financial performance and of our ability to generate cash
flows to service debt, fund capital expenditures and fund other
corporate investing and financing activities. EBITDA is used as the
denominator in the consolidated leverage ratio calculation for
covenant purposes under our senior revolving credit facility. EBITDA
eliminates the non-cash effect of tangible asset depreciation and
amortization and intangible asset amortization. EBITDA should be
considered in addition to, rather than as a substitute for, GAAP
pre-tax income, net income and cash flows from operating activities.
 
(3) Liquid assets is considered a non-GAAP financial measure as defined
by SEC Regulation G. We consider liquid assets to be an important
measure of our liquidity, including our ability to meet corporate
cash flow needs, fund potential operational contingencies and
support our business strategies. Liquid assets represents available
capital, including any capital from our regulated subsidiaries in
excess of established management operational targets. We include the
excess capital of our regulated subsidiaries in the calculation of
liquid assets, rather than simply including regulated subsidiaries'
cash and cash equivalents, because capital requirements may limit
the amount of cash available for dividend from the regulated
subsidiaries to the parent company. Excess capital, as defined
below, is generally available for dividend from the regulated
subsidiaries to the parent company. Liquid assets should be
considered as a supplemental measure of liquidity, rather than as a
substitute for GAAP cash and cash equivalents.
 
We define liquid assets as the sum of (a) corporate cash and cash
equivalents, (b) corporate investments, less securities sold under
agreements to repurchase, and (c) our regulated subsidiaries' net
capital in excess of minimum operational targets established by
management. Corporate cash and cash equivalents includes cash and
cash equivalents from our investment advisory subsidiaries. Liquid
assets is based on more conservative measures of net capital than
regulatory requirements because we generally manage to higher levels
of net capital at our regulated subsidiaries than the regulatory
thresholds require. Please see footnote (2) within the selected
operating data metrics regarding the change in presentation from
prior periods.

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