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TD Ameritrade Holding Corp (AMTD) Q3 2019 Earnings Call Transcript

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TD Ameritrade Holding Corp (NASDAQ: AMTD)
Q3 2019 Earnings Call
Jul 22, 2019, 8:30 a.m. ET

Contents:

  • Prepared Remarks

  • Questions and Answers

  • Call Participants

Prepared Remarks:

Operator

Good day, everyone, and welcome to the TD Ameritrade Holding Corporation's June Quarter Earnings Results Conference Call. This call is being recorded. With us today from the company is President and Chief Executive Officer, Tim Hockey; and Chief Financial Officer, Steve Boyle.

At this time, I would like to turn the call over to Jeff Goeser, Managing Director of Investor Relations. Please go ahead sir.

Jeff Goeser -- Managing Director, Investor Relations

Hello. This is Jeff Goeser, Managing Director of Investor Relations for TD Ameritrade. Thank you for joining us on such short notice. I'm here with TD Ameritrade, President and CEO, Tim Hockey; and CFO, Steve Boyle to share with you some perspective on today's announcements. You can find everything related to those announcements on our corporate website amtd.com, just click on Investor Relations.

A reminder that these documents include our Safe Harbor statement and the reconciliation of certain non-GAAP financial measures to our most comparable GAAP financial measures. Information about relevant risk factors can be found in our Forms 10-Q and 10-K, which are also available online.

This call is intended for investors and analysts. Questions from reporters can be directed to our Media Relations team, or you can follow our Twitter handle @TDAmeritradePR, which will be live tweeting today's call. We have 20 covering analysts and a lot to cover. So for those of you planning to participate in the Q&A, we ask that you limit yourself to one question so that we can get to as many of you as possible.

And now, I'd like to turn it over to Tim Hockey. Tim?

Tim Hockey -- President and Chief Executive Officer

Great. Thanks, Jeff. Before we dive into the Q&A, I'd like to spend a few moments talking to you about the leadership change announcement that we released earlier today. After my quarterly meeting with our Board of Directors this past week, the culmination of discussions about the best path forward for the future was an important conclusion, that it's time to transition to a new CEO to guide the next phase of our growth.

As you're all well aware, Boards and Management teams regularly discuss plans for the future. There are many factors that go into these discussions and the decision was not taken lightly by the Board or myself. Instead of providing you with the standard vague explanation of you leaving to pursue other interests, in the interest of providing an extra level of clarity, I can tell you what I'm leaving is not. I'm not leaving for another job, or to spend more time with my family, or because of my health, or because I've done something contrary to our core values. My leaving is also not a reflection on the performance or health of TD Ameritrade.

Those of you who have followed us for the last few years should understand this more than anyone. When I started in 2016, our non-GAAP EPS that fiscal year was $1.68, this year consensus for fiscal 2019 is around $4. That's the best three-year pure EPS performance improvement at this company going back more than 20 years. In 2016, our return on equity was approximately 17%, today, we're at more than 25%. Our funded accounts were $7 million in 2016, they are approximately $12 million today. Client assets were $774 billion, now they're $1.3 trillion.

2016 DARTs were 463,000 and this year-to-date, we're averaging 871,000 trades per day. Total net new assets in 2016 were $60 billion and this year, we believe, we could exceed $90 billion. Along with hard work, strong organic growth and a great acquisition in that time period, we had some tailwinds in generating these results. All in all, I'm very proud of the team's performance these past three years.

You can see the underlying strength of our model in the numbers we released this quarter, like near record client experience scores and a robust institutional sales pipeline. These are all indicative of the strong momentum we built. Add to that, all of the cultural change we've injected into the organization with a refreshed purpose, strong associate engagement and a steady return to our technology innovation roots. These are all great accomplishments and it was in discussing the best path forward for this company, that the Board and I came to the decision that it's time for a new CEO to lead next chapter.

Decisions like this don't come easily. But I and the Board remain committed to our strategy, and I'm 100% focused on the steps ahead of us. We are in the final weeks of fiscal 2020 planning and that will continue. We have a lot to do to push our board approved strategy forward and a strong management bench committed to see it through. I have agreed to stay on until the end of February 2020, through our Annual Shareholders Meeting, while the Board conducts a comprehensive search for my successor. They will engage in executive search firm to help and they'll consider internal and external candidates.

The good thing about announcing this now is that it's like sending a gigantic help wanted ad to the world. They'll spread the net wide in search of the right CEO to take TD Ameritrade forward. And if they find that person before February, I will move into an advisory role to help with the transition. I've asked our management team to maintain an open dialogue with our associates and to keep efforts focused on what we need to do to deliver on our 2019 goals and start 2020 ready to do even more. Until the day I officially leave this company, I'm focused on one thing, driving our strategy forward.

It's very important for me to leave with our momentum intact and to set up my successor, my management team and all 10,000 of our associates for long term success. These last 3.5 years that I've been at TD Ameritrade have been one of the highlights of my career. I'm tremendously proud of what this team has done. And as I prepare to leave, I do so with a lot of optimism for the future.

And now, in the spirit of business as usual, I've said just about all I can say on the subject. So Steve and I are happy to take your questions on the quarter.

Questions and Answers:

Operator

Let me take a moment to compile the questions. Your first question is from Brennan Hawken with UBS. Your line is open.

Brennan Hawken -- UBS -- Analyst

Good morning. Thanks, Rick. Good afternoon, thanks for taking the question. Tim, I appreciate that your comments and the noted points about how there are certain things that this is not about, which is very helpful to clear the record. But the announcement is a bit surprising. And your tenure, while it feels like you're just sort of starting to hit your pace in the CEO role and so it comes a little surprising. Was there disagreement in between what the -- where you wanted to go versus the Board, did it have to do with potential acquisition? Was there anything -- is there any additional information that you can give us to help us understand, where this very important decision came down to and where the major friction points were?

Tim Hockey -- President and Chief Executive Officer

Thanks, Brennan for the question. Obviously, it's difficult to find the right balance between discretion and disclosure. But I can tell you that, as I said there is no one thing. These were conversations that I held with our Board over a period of time. They were open and honest conversations about the way forward. And at this time, we just agreed that this is the right time for a transition and to be public about it. And to that, I will stick around until February of 2020. It's not really that much more interesting than that, honestly.

Brennan Hawken -- UBS -- Analyst

Okay. Well, thanks so much and best of luck to you, Tim.

Tim Hockey -- President and Chief Executive Officer

Thank you.

Operator

Your next question is from Rich Repetto with Sandler O'Neill. Your line is open.

Richard Repetto -- Sandler O'Neill & Partners LP -- Analyst

Yeah, good evening, Tim. Good evening, Steve. I guess my question, since I only have one is that -- can you tell us how the strategy of Ameritrade might change going forward? How -- why is the strategy of the Board? Why does it require a leadership change, I guess?

Tim Hockey -- President and Chief Executive Officer

Yeah. Thanks, Rich. So great question and I should've been more clear in my last answer, and that is, the Board has approved our strategy and in discussions with the management team, we are more than energized around delivery of that. So there's been no change in direction. And as we all know, the environment that's facing our entire industry has gotten a little more interesting. So if anything, just being even more expeditious about execution of a winning strategy. And as I said from the quarterly results, the strategy so far is winning. We have the luxury right now of having reported laughs. So we got to see our relative competitors and we're feeling pretty good about the delivery of the strategy so far. And so the team and I are united to keep doing exactly that and the Board is supportive.

Richard Repetto -- Sandler O'Neill & Partners LP -- Analyst

Okay. Thank you, Tim. I appreciate the answer.

Tim Hockey -- President and Chief Executive Officer

Thanks, Rich.

Operator

Your next question is from Chris Harris with Wells Fargo. Your line is open.

Chris Harris -- Wells Fargo Securities -- Analyst

Thanks. So your BDA balances were down in the quarter and it looks like they were down a bit more in the month of June. How are you guys feeling about the outlook for the growth in these balances?

Steve Boyle -- Executive Vice President, Chief Financial Officer

Yeah. So thanks, Chris. This is Steve. The -- there's definitely some mixed indicators out there. But what we're seeing is in June, the balances are actually up from May and in July, they're up from June. And so we take that as a positive sign and you're actually going to continue to monitor this. But with rates potentially coming down in July, you would expect that, that some of the pressure that we felt over the last couple of quarters should continue to obey.

Chris Harris -- Wells Fargo Securities -- Analyst

Okay. Thank you.

Operator

Your next question is from Devin Ryan with JMP Securities. Your line is open.

Devin Ryan -- JMP Securities LLC -- Analyst

Great. Good afternoon, Tim and Steve, and thanks for the perspective. Obviously, not expected, but best wishes, Tim. My question is on just the retail net new asset growth, obviously trends there have been a little bit slower and a little bit -- little slower than we've expected. I just love to go maybe a little bit deeper into what you're seeing there and whether, you know, its activity slowing on kind of the gross side coming in? Or if it's kind of maybe higher gross clients moving out to try to think about kind of maybe on a gross flow basis, if you can give us any perspective?

Steve Boyle -- Executive Vice President, Chief Financial Officer

Sure. I'll take that one. So as everybody has seen, as an industry, the net new asset growth was down in both retail and institutional end of the Fed. We've had the benefit of taking a look at what the numbers were for the competitors. Good news is we've gained -- where we measure ourselves in terms of share of that growth in any given quarter and year-over-year. And we're up in share both in retail and in institutional, and obviously, then combined both linked-quarter and year-over-year. And it's -- as we surmised, right? Which is we are still continuing to, believe it or not, continue to put in place the changes that in our comp strategy, in our relationship model, in the branches post Scottrade acquisition. And so it takes a little bit of time to move forward. I'd be remiss if I didn't announce or didn't talk a little bit about the announcement we made about some branch closures today, because that was a reflection of the number of branches that we had opened originally at the time of the merger. We thought, OK, this is a good opportunity to watch for a year or two. And we made the decision that it was more effective to have a smaller number of higher density branches and these are more effective and productive. But I'm actually quite pleased in a slower economic environment and a slower M&A environment for the entire industry of our progress.

Tim Hockey -- President and Chief Executive Officer

Yeah, I think, you asked specifically about -- this is our best third quarter for retention ever. And on a year -- it's not keeping a slower, but on a year-to-date basis, it's our record M&A number two for retail.

Devin Ryan -- JMP Securities LLC -- Analyst

It's helpful. Thank you.

Operator

Your next question is from Michael Carrier with Bank of America Merrill Lynch. Your line is open.

Michael Carrier -- Bank of America Merrill Lynch -- Analyst

All right. Thanks, guys, for taking the question. Maybe just one on expenses, given the announcement that you guys made on the branch closures and then some of the investments that you guys have made over the past few years, whether it's been on the technology side, the automation. Just wanted to get a little bit more perspective on how you guys are thinking about expenses over the next one to two years, if we're in a tougher rate backdrop and maybe where you have some levers versus where you want to continue to invest?

Tim Hockey -- President and Chief Executive Officer

Yeah, I'll start and then kick it over to Steve. Our philosophy that you've heard is to try and have positive operating leverage over a cycle. And so we had the benefit of some amazing growth, some amazing tailwinds. So as, we were investing more in the technology that has helped to improve our client satisfaction scores, is up to our innovation quotient, if you will, and started to deliver on the things that we think will help us continue even in a tougher environment, some of that growth we've been talking about.

Having said that, we try not to in a tougher environment, just as we call it, peanut butter. The expense cuts around the organization so that you're equally starving in a lower rate revenue environment every business. We think everybody can do a little bit of belt tightening, but at the end of the day, it's about making the right choices that double down your investments on your growth opportunities and cutting back further on the opportunities that you think you might have. So we want to be very judicious and call it more like a scalpel as opposed to an axe in terms of the decisions we make around expenses. But having said that, we will certainly reflect the overall revenue environment. So, Steve?

Steve Boyle -- Executive Vice President, Chief Financial Officer

Yeah. So I just add, we did mention on last quarter's call that we would be bringing our rate of growth and expenses down to more of our historic 2% to 4% range where, as Tim mentioned, we're in the process of our annual planning right now. And so anything I think you'll see that range a little bit lower. But we'll give you an update in October.

Michael Carrier -- Bank of America Merrill Lynch -- Analyst

Okay, thanks a lot.

Operator

Your next question is from Dan Fannon with Jefferies. Your line is open.

Dan Fannon -- Jefferies -- Analyst

Thanks. Good afternoon. Can you talk about the trend in commission rates that we're seeing this across the industry in terms of the decline? Obviously, there's a mixed component, but just wondering about the promotions you guys were doing, if there's anything different that's driving this down or what would make that stabilize in this environment?

Tim Hockey -- President and Chief Executive Officer

Sure. So this quarter we saw little bit slower decline in commission rates than we had seen, but pretty close to the trend. I think, a lot of the factors that we've been seeing are pretty consistent. So from a headline rate perspective, things feel pretty stable. I'm sure all the revenue pressure on everyone is going to probably make that even more so. But there is still a fair amount of hand-to-hand combat out there. A lot of people targeting, especially, thus clients were making sure that we defend those client. So I think you'll continue to see commission rates probably decline at a less of a slower pace in the future. And there wasn't anything too spectacular in mix this quarter. Mix hurt us just a little bit on balance. But it wasn't the biggest factor.

Dan Fannon -- Jefferies -- Analyst

Great, Thank you.

Operator

Your next question is from Bill Katz with Citigroup. Your line is open.

William Katz -- Citigroup -- Analyst

Okay. Thank you very much and sorry, to go back to the CEO change. But -- and thank you for your perspective on, Tim, and also best of luck. I guess from question I have is, when you think about the sort of the disparate views by you and the Board. Can you talk a little bit about whether you were seeking an independent path or one that will be more consolidation oriented? And I know I can't speak for the Board, but what kind of profile do you think the Board might be looking for incrementally?

Tim Hockey -- President and Chief Executive Officer

Yeah, I mean, as I said, those types of conversations, especially those types of conversations would be very confidential. So I really can't comment on them. Other than to say what we always have, vis-a-vis M&A, which is -- the I'm sure, me, my successor and the Board will always take a look at something that makes strategic and financial sense.

William Katz -- Citigroup -- Analyst

Okay. Thank you.

Operator

Your next question is from Chris Shutler with William Blair. Your line is open.

Chris Shutler -- William Blair -- Analyst

Hey, guys, good afternoon and best of luck, Tim.

Tim Hockey -- President and Chief Executive Officer

Thank you.

Chris Shutler -- William Blair -- Analyst

Could you just -- so kind of a minor question. But you got to give us a sense roughly how much of your retail NNA? And your I guess your institutional NNA has been coming from new versus existing clients?

Tim Hockey -- President and Chief Executive Officer

I don't think we disclose it. No, we don't and even if I knew it, I couldn't tell you. But I don't actually know an offsite man. We don't disclose it, sorry.

Chris Shutler -- William Blair -- Analyst

All right, yes. You expect nothing?

Tim Hockey -- President and Chief Executive Officer

No. Let's call it a Mulligan. Why don't you ask another question, because we couldn't answer it?

Chris Shutler -- William Blair -- Analyst

I'm good for now. All the other ones were about your decision, Tim. I think.

Tim Hockey -- President and Chief Executive Officer

Okay. Well, then let's go to the next question. Somebody else. Thanks.

Operator

Your next question is from Kyle Voigt with KBW. Your line is open.

Kyle Voigt -- Keefe, Bruyette & Woods, Inc. -- Analyst

Hi, good evening. Maybe just one of the BDA, the fix float mix and the duration there. Just wonder if we start to see those balances begin to grow more meaningfully from here, should we expect that fixed float mix that change materially? And should we continue to expect a duration to remain relatively I guess on the shorter range of where you've been historically?

Steve Boyle -- Executive Vice President, Chief Financial Officer

Yeah. Thanks, Kyle. I don't think you'll see the fixed float mix change dramatically over time. The fact that we have a pretty disciplined ALM strategy and have been able to deploy lot of our balances and fixed investments, I think will help us to the extent that we end up in a down rate cycle here. So that's been a positive for us. So I think we'll stick with that. We have been extending a little bit shorter because there's really been no slope between the five and the seven-year. We're starting to see that increased little bit. And I think if we get some meaningful lift between the five and the seven-year part of the curve, you'll probably see us go a little bit longer. You'll see the duration tick up a little bit.

Kyle Voigt -- Keefe, Bruyette & Woods, Inc. -- Analyst

Okay. Thank you.

Operator

Your next question is from Brian Bedell with Deutsche Bank. Your line is open.

Brian Bedell -- Deutsche Bank -- Analyst

Great. Thanks very much. We want to come back to question about you Tim, sorry to see you go. Best of luck. But maybe if you could share, maybe your personal view of the industry that now that you've been at Ameritrade for quite some time. And even just putting aside Ameritrade and just thinking about the online brokerage industry in terms of what you see personally as sort of the next phase of development for the industry and whether you believe, given the potential rate environment, the pressures in the industry that consolidation does make a lot of sense? Or do you think companies should really go their own?

Tim Hockey -- President and Chief Executive Officer

Wow. So I wouldn't have thought that one on this call. That's probably on my next call or the one after that -- I'm here for. But look, the reason why I came to this industry is because it's a spectacular industry. We actually did some fun math. So I'll see if I can get this right. So I'm going from memories, went back to 1997. And we said when we went public, we had 4,600 companies or something like that. I'll be slightly off that were public at that time. And in the intervening years since then, if you scrub out the companies who have either gone, delisted or been consolidated, and then you say who is at about $200 million market cap or above in 1997? And that's your list. So then you get down to about 650, or something like that companies. And out of those 650 companies, TD Ameritrade, in terms of total shareholder return over those intervening years, is number 11. And the company that is number one was Apple. And so, I mean, what a fantastic industry over a large period of time. I mean, market impacts up and down. But we have so many incredible, secular, long term tailwinds at our back, there's no reason to believe that won't continue. Whether it be the trends to RIA's for our institutional business, whether it'd be the do it yourself trend, whether it'd be the wanting to be aware of how much you're paying for investments and therefore, do it, with a high education delivery system like ours, where we -- I mean it's just so many things that are in our back. So I absolutely see this as a great industry to have been in. And I'm glad to have participated in it. And I will continue to for the next little while.

Brian Bedell -- Deutsche Bank -- Analyst

And it sounds like you don't think consolidation industry wide is necessary. So to speak, because of the great fundamentals.

Tim Hockey -- President and Chief Executive Officer

Well, there has been a significant amount of consolidation to date. The question is whether we will continue. I mean, my predecessor used to like to talk about it in terms of baseball innings, and I have no idea what inning we're in. But we participated in one just a couple of years ago and we're very happy with our scale and we have been for quite some time.

Operator

Your next question is from Will Nance with Goldman Sachs. Your line is open.

Will Nance -- Goldman Sachs -- Analyst

Hey, guys. Good afternoon. Maybe I'll try one on the BDA portfolio. I was wondering, you guys mentioned that you think pricing on these is relatively elastic and you see some room to kind of cut costs relatively quickly on the back of Fed cuts. Could you just give us a sense of ballpark what the weighted average cost is in the BDA? Just so we have a sense for what your flexibility is as we contemplate a number of rate cuts over the next 12 months?

Tim Hockey -- President and Chief Executive Officer

Yes. So our criteria, you can kind of inferred is around 25 basis points. And we've given you the range of disclosures of what we think the -- a beta 20 to a beta 40 would look like if that were to take place.

Will Nance -- Goldman Sachs -- Analyst

Got it, appreciate that.

Operator

Your next question is from Craig Siegenthaler with Credit Suisse. Your line is open.

Craig Siegenthaler -- Credit Suisse -- Analyst

Thanks. Good evening, everyone. Tim, I heard the comment that the Board is looking at both internal and external candidates. But I'm just wondering, will the Board also be evaluating candidates from TD Bank?

Tim Hockey -- President and Chief Executive Officer

Well, I think if you look at internal and external, that's pretty much the entire universe. So I think never wanted to preclude anything, but that'll be up to the discretion and the choice of the Board to try to go after the best candidate.

Operator

Your next question is from Steven Chubak with Wolfe. Your line is open.

Steven Chubak -- Wolfe Research LLC -- Analyst

Hi, just had a question on the reinvestment ladder. So based on the current forward curve in the management remarks, you noted that over the next 12 months the current reinvestment yield is tracking only slightly below 123 basis points on maturing balances. It sounds like there's no plan changes in terms of the duration profile and how that will be managed either. But as we look out for a year or two, that reinvestment pressure is going to become much greater. It gets a headwind of about 35 to 40 basis points. I don't know if you could provide some perspective on how you might alter the strategy around how you're managing the duration profile if the forward curve proves to be right and that reinvestment headwind starts to become much greater in the out years?

Tim Hockey -- President and Chief Executive Officer

Yeah. So, Stephen. Thanks for the question. We don't really want to get into speculating too much about the future. I don't think we've -- we're not wants to change dramatically from our ALM profile. We do make some modest changes and we're certainly not ones to take a lot of undue risk. I think one of the things you'll see here as we go through this cycle is, we have no risk to prepayments, no negative convexity on our balance sheet. And so my sense is that we're likely to stay the course here.

Steven Chubak -- Wolfe Research LLC -- Analyst

Great. Thanks very much. And best of luck, Tim.

Tim Hockey -- President and Chief Executive Officer

Thank you.

Operator

Your next question comes from Michael Cyprys with Morgan Stanley. Your line is open.

Michael Cyprys -- Morgan Stanley -- Analyst

Hey, good evening. And Tim, sorry to hear that you're moving on, I wish you all the best.

Tim Hockey -- President and Chief Executive Officer

It's my pleasure.

Michael Cyprys -- Morgan Stanley -- Analyst

Just a question here on synergies from Scottrade, I'm just hoping to get a little bit of an update on the expense and revenue synergy side. I think last time you said you were about one-third through the $300 million that you expected over five years. Just wonder where you think we are today? And on the expense synergy side, I think last time you said, we were around maybe 68%, if I'm not mistaken. Just curious where we are today and then where the branch closures would take you to?

Tim Hockey -- President and Chief Executive Officer

So on the expense side, let's start with the easy one. We were all right through that easily. And these branch closures that we've just announced today are in addition to that. On the revenue side, the way we thought of it was the $300 million was sort of over the five years. And we're not quite till the end of the second year period yet, but we're already sort of somewhere tracking somewhere between two and three-year type results. So call it halfway through, even though we're less than two years into five. So we're feeling very good that we absolutely achieved the expenses already. And any further synergies we get would be sort of second order and we're over and above.

Michael Cyprys -- Morgan Stanley -- Analyst

Great. Thank you.

Operator

This concludes the Q&A period. I'll now turn it back over to Tim Hockey for any closing remarks.

Tim Hockey -- President and Chief Executive Officer

Great. Thanks, everybody. I really appreciate everybody coming together, and I know we sort of ruined your evening and -- but we gave you an hour back tomorrow morning. So thanks, again. Great quarter. We're thrilled with it. And we'll see you next quarter for earnings. Take care.

Operator

[Operator Closing Remarks]

Duration: 27 minutes

Call participants:

Jeff Goeser -- Managing Director, Investor Relations

Tim Hockey -- President and Chief Executive Officer

Steve Boyle -- Executive Vice President, Chief Financial Officer

Brennan Hawken -- UBS -- Analyst

Richard Repetto -- Sandler O'Neill & Partners LP -- Analyst

Chris Harris -- Wells Fargo Securities -- Analyst

Devin Ryan -- JMP Securities LLC -- Analyst

Michael Carrier -- Bank of America Merrill Lynch -- Analyst

Dan Fannon -- Jefferies -- Analyst

William Katz -- Citigroup -- Analyst

Chris Shutler -- William Blair -- Analyst

Kyle Voigt -- Keefe, Bruyette & Woods, Inc. -- Analyst

Brian Bedell -- Deutsche Bank -- Analyst

Will Nance -- Goldman Sachs -- Analyst

Craig Siegenthaler -- Credit Suisse -- Analyst

Steven Chubak -- Wolfe Research LLC -- Analyst

Michael Cyprys -- Morgan Stanley -- Analyst

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