AMTD IDEA Group (AMTD) Q2 2013 Earnings Report, Transcript and Summary

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 Jeff Goeser, Director of Investor Relations and Finance. Please go ahead, sir.

Good morning, everyone, and welcome to the TD Ameritrade March quarter earnings call. In a minute, we'll be hearing from Fred and Bill, but first, hopefully, you have seen our press release and located today's slide presentation. It can be found on amtd.com. I'd also like to refer you to our Safe Harbor statement, which is on Slide 2 of the presentation as we will be referring to forward-looking statements. We will also be discussing some non-GAAP financial measures such as EBITDA. Reconciliation of these financial measures to the most comparable GAAP financial measures are in the slide presentation. I would also like to -- you to review our description of risk factors contained in our most recent financial reports Form 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. [Operator Instructions] With that, we have Fred Tomczyk, CEO; and Bill Gerber, CFO, here to review our March quarter results and major accomplishments. Fred?

Thank you, Jeff, and good morning, everyone, and welcome to our second quarter earnings call for fiscal 2013. But before we begin, I'd like to say a few words about the terrible events that took place yesterday in Boston. We are fortunate that none of our branches in the area were impacted and that our associates who were participating in the marathon are safe. Our thoughts and prayers today are with those who were not so fortunate. Their sufferings weighs on all of our minds this morning. Now turning to the quarter, our earnings and business results continue to be impacted by the macroeconomic environment. While economic trends have improved, market uncertainty continues. As a result, while retail investor sentiment improved over the quarter, many investors remain cautious. And yet despite these challenges, we continue to execute well on our organic growth strategy. Our asset gathering and market fee-based revenue growth remain quite strong. This strength, combined with our continued efforts to remain disciplined on expenses and focused on what we can control, has helped us deliver another strong quarter. Let's take a look at the results in more detail on Slide 3. In the March quarter, we achieved an important milestone, surpassing $0.5 trillion in total client assets. While you can attribute some of the growth to the markets, we would not have grown this much without the success we've had in asset gathering. Over the last 5 years, in the midst of the most difficult market and economic conditions, we have gathered more than $170 billion in net new client assets, and that momentum continues today. We earned $0.26 per share in the quarter on $144 million of net income, which was up 5% or $7 million year-over-year. Trades per day were up 13% sequentially to $378,000, an activity rate of 6.5%. Net new client assets of $13 billion, our second best quarter ever, were up 19% year-over-year and our annualized growth rate remained in double digits at 11%. And our market fee-based revenue continues to grow nicely up 38% year-over-year. As we said heading into fiscal 2013, the key to our success will be maintaining our organic growth momentum while being disciplined on expenses. Now that work continued this quarter, as operating expenses were down 3% from the same quarter last year and down 1% excluding marketing expenses. We also used approximately $159 million to pay our quarterly dividend of $0.09 per share and to pay down a portion of the revolving credit balance. Let's now take a closer look at our growth strategy starting with trading on Slide 4. Retail investor sentiment improved over the quarter. Our activity rate for the March quarter was 6.5%, up from 5.8% in the December quarter and 5.7% in the September quarter. Our Investor Movement Index continues to demonstrate increased bullishness, showing upward movement in 8 of the last 9 months and is currently at its highest level since June of 2011. But while settlement has improved, engagement remains toughened as many investors hesitate to reenter the markets. April month-to-date through Friday trades per day were -- have averaged 364,000 per day. Yesterday with the volatility in the markets, trades were north of 500,000. The reality is that while those investors who are engaged in the markets are increasingly bullish and our RIAs continue -- are currently fully invested with record low levels of client cash as a percentage of client assets, many retail investors remain cautious. This is happening despite the fact that the S&P 500 is up 25% over the last 15 months. Investors reentering the markets these days tend to be those with a longer-term outlook and are more likely to favor equities. Equity trading volume increased at a higher rate than derivatives for the first time in quite a while, despite continued low actual and implied volatility. And our clients continue to embrace mobile as we average more than 2,500 new users per day in the quarter. Mobile trades at a record 31,000 per day, were up 25% year-over-year. The March quarter is also a time when third parties announce their annual awards and recognition. And this year, we're pleased with the recognition we received. Investor's Business Daily rated TD Ameritrade and our thinkorswim platform the best in several categories, including options trading platform and mobile platform. And Stockbrokers.com named TD Ameritrade the #1 online broker for the second straight year. We believe that we have a strong offering for retail traders and investors and from our superior client service to our innovative technology and our robust investor education programs. For example, in the quarter we launched a new Strategy Roller, which allows our clients using thinkorswim to roll existing option positions automatically. Today, it rolls covered calls but we'll add more strategies over time. Recognition like this validates our focus on innovation and our work and the work we do to provide better service to our clients. Let's now look at asset gathering on Slide 5. We have gathered -- so we gathered $13 billion in net new client assets in the quarter, our second best quarter ever. This is up 19% year-over-year and represents an 11% annualized growth rate. We are well on our way to achieving what will hopefully be our fifth consecutive year of double-digit asset gathering growth. These results are due to the ongoing success of our sales and service efforts in both our retail and our institutional channels. In our retail channel, we continue to perform well. With another retirement season behind us, new retirement accounts are up 8% year-over-year, and year-to-date, the average balance of the new funded account is up 17% from the same period last year. We also continue to make our referral processes more efficient. Assets from branch referrals were up year-over-year even though call volumes were down 10%. And our sales and service teams posted client satisfaction scores in excess of 90% in each month of the quarter. We're also beginning to see a correlation between guidance products and our ability to gather incremental assets from existing clients. As we continue to grow this part of our business, we would expect that trend to continue. Within the institutional channel, we hosted our annual National Conference, bringing together more than 3,000 advisers and exhibitors to network, educate and share new trends. Over the quarter, we brought on 94 new breakaway brokers, bringing our year-to-date number to 204, an average of almost 2 new breakaway brokers joining our platform each business day. Existing RIAs continued to grow their business, which also contributed significantly to our results. And as we get on the retail side of our business, we introduced the option Strategy Roller through our thinkpipes platform, making it increasingly or significantly easier and more efficient for advisers to utilize option strategies. We also received several accolades in the quarter from third parties that address our offerings for long-term investors. Kiplinger's Personal Finance named us the "Best brokerage firm for your IRA." And Barron's named us the "Best for novices" and "best for long-term investing." Let's now talk more about our sales efforts and how they affect our market fee-based revenue on Slide 6. The market continues to be very much an advice and guidance market. It's obvious in the growth of our institutional channel and it's fueling ongoing sales for Amerivest and AdvisorDirect. We also continue to see growth in mutual funds as growth in the adviser channel creates a natural trickle-down effect and an increased demand for the product. As a result, market fee-based balances were up 33% year-over-year to a record quarterly average of $106 billion, up 12% sequentially. We continue to see strong net inflows for both Amerivest and AdvisorDirect. Year-over-year market fee-based revenues were up 38% as we continue to build out this revenue stream. Turning to Slide 7. Now halfway through our fiscal year, the story of 2013 is strength in nearly every aspect of our business that we can control as we continue to fight through the headwinds of a sluggish trading environment and continued net interest margin compression. Year-to-date, after the 2 best quarters in our history, we have gathered nearly $29 billion in net new client assets, up 36% from the first 6 months of fiscal 2012 and an annualized growth rate of 12%. Our sales teams work together to produce strong guidance and advice product sales, leading to our record growth in our market fee-based revenues. Year-to-date, we've earned $116 million from this third revenue stream, up 32% from 2012. And we remain disciplined with expenses, which were down 3% year-to-date versus the same 6 months of 2012. Now the markets enjoyed a good run in the quarter with the S&P 500 up 10% since the start of the calendar year and the NASDAQ up 8%. Investors who are currently engaged in the markets and our RIAs continue to demonstrate an increasingly bullish attitude. Our trades per day improved by 13% sequentially but remain below our expectations in light of how the equity markets have done over the last 12 to 15 months as a large number of investors remain cautious. We have completed the first half of fiscal 2013 and, in that time, we delivered record asset gathering and record market fee-based revenue growth, and we've built client assets to more than $0.5 trillion for the first time in our history. Our balance sheet remains strong and we remain confident in our strategy and business model and will continue to take advantage of client and investor trends to grow our business and continue investing for the future. And with that, I'll turn the call over to Bill

Thank you, Fred, and good morning, everyone. As you can tell, Fred is suffering a little bit, claims he got it from his grandchildren. So at any rate, despite a challenging rate environment, we continue to execute on our game plan and perform to the best of our ability in those areas within our control. We recorded another strong quarter due to a nice rebound in trading, continued strong client asset growth and focused expense management. With that, let's begin with the financial overview on Slide 8. We'll start with the March-to-March comparisons on the left side of the page. Note that there were 2 fewer trading days and 1 less interest day this quarter. In essence, year-over-year, revenue is up, expenses are down and, as a result, net income and earnings per share increased. On line 1, transaction-based revenue is down $5 million, driven by 10,000 less trades per day and the fewer trading days. However, offsetting these, commission rates increased by $0.48 per trade due to trade mix and elevated payment for order flow. On line 2, asset-based revenue is up $14 million due to growth in market fee-based balances and continued growth in spread-based balances. As a result, revenue is up $6 million year-over-year. On line 7, total operating expenses are down $12 million or 3% primarily due to lower professional services as we continue to tightly manage consulting and contractor spend and lower advertising. This all resulted in net income of $144 million and earnings per share of $0.26 or $0.28 when excluding impact of our intangible amortization. On line 16, EBITDA as a percentage of revenue was 41%. Moving to the sequential quarter comparisons on the right side of the page. Note that there was 1 less trading day and 2 fewer interest days this quarter. Sequentially, revenue growth was offset by seasonal expense growth resulting in a slight decrease in net income and earnings per share. Revenue was up $28 million primarily on trading volumes. Total operating expense was up $32 million due to an increase in seasonal advertising expenses and the employment payroll tax reset, which occur at the beginning of each calendar year. The net result was earnings per share down $0.01. Year-to-date, earnings per share is $0.53 versus $0.52 last year. Now let's turn to spread-based revenue on Slide 9. Spread-based revenue remains remarkably resilient. On a year-over-year basis, this quarter we finished at $314 million in revenue, flat from last year. However, balances averaged $83 billion in the quarter, up $9 billion or 12% from last year. This growth was offset by 17 basis points of rate compression. Of note, margin lending revenue is up $4 million due to $600 million of higher average balances, partially offset by a lower rate due to the mix of clients. Margin balances ended the quarter at $8.7 billion versus $8.5 billion last year. Sequentially, the 2 fewer interest days drove a $7 million decline in revenue, so revenue was essentially flat. Now let's discuss the IDA on the next slide. As we've discussed in the past, it is difficult to outrun interest rate compression, and we saw that again in the March quarter. On a year-over-year basis, average balances are up $9 billion or 16%, but revenue is down $9 million as the balance growth contributed $31 million of higher revenue, offset by lower rates driving $38 million less revenue and 1 less day driving $2 million less revenue. Sequentially, balance growth fully mitigated rate compression, but 2 fewer interest days resulted in $5 million less revenue. Last quarter, we spent a considerable amount of time discussing the revised IDA agreement with TD Bank effective January 1, 2013. During the March quarter, the revised IDA agreement did contribute as expected, providing a sequential increase in yield of approximately 3 basis points. However, rate compression more than offset this increase. Of note, we carried an average of $11 billion or 17% on the portfolio in floating rate balances during the March quarter versus approximately $8 billion or 12% during the December quarter. While the new IDA agreement does provide better economics for the floating rate balances, these investments still earn less than balances extended on the yield curve. We did pick up the pace of extensions significantly in the March quarter versus the December quarter as we extended $4.8 billion in balances in March versus only $250 million in December as the yield curve slightly improved. The 5-year and the 7-year swap rates were up 15 basis points and 22 basis points, respectively, on average in the March quarter versus the December quarter. However, the yields on new extensions are still less than the yields in the balances rolling off the ladder. Given the new IDA agreement, we have much more flexibility by keeping balances in float versus extending at the 1- through 4-year points on the yield curve. Because of the increase in extensions during the quarter, our average duration is now 2.9 years versus 2.6 at the end of the last quarter. Now let's turn to Slide 11. Interest rate sensitive balances are up $8 billion or 10% from last year primarily due to organic growth. We finished the quarter with $88 billion in interest rate sensitive assets, a slight decrease from the prior quarter. There was a buildup of client cash at the end of the calendar year, which we believe is due to the uncertainty with the fiscal cliff. As the market continued to improve in the March quarter, some of our clients, particularly in the institutional channel, moved money back into the market as evidenced by the decline in the IDA balances. However, client cash as a percentage of client assets is approximately 16%, which remains within our historical range of 15% to 20%. Finally, as we have said many times before and we'll continue to emphasize, we remain very well positioned for rising rates. Our sensitivity, as shown on the slide, is unchanged. Now let's turn to the final slide. We continued with the last quarter's momentum and delivered yet another quarter of solid result. This was the second best quarter for asset gathering in the company's history. We have gathered $13 billion in the quarter, resulting in a record year-to-date net new assets of $29 billion. Amerivest and AdvisorDirect sales continue to fuel strong market fee-based revenue growth. We remain focused on maintaining our good expense discipline. While long-term investors remain cautious, sentiment is improving and trading levels rebounded. And finally, we have maintained a strong balance sheet and continue to generate strong cash flows. With another strong quarter behind us, we are now halfway through the fiscal year and on track to achieve continued solid results. We are succeeding in those areas that we can control in the face of a challenging macroeconomic environment, and we remain confident that our strategy and business model will continue to work well for us. As we move forward, we will continue to focus on maintaining our momentum. With that, I will turn the call back over to the operator for Q&A.

[Operator Instructions] Our first question comes from Rich Repetto of Sandler O'Neill.

I guess my first question has to do with the fee-based assets and the growth you're seeing. And it looks like the growth is accelerating here and not just a calendar 4Q phenomenon. And I guess the question is, what's -- I know Amerivest and AdvisorDirect are doing well, but do you see continued 12% sequential growth? And then, Fred, you mentioned some connection between the fee-based asset growth and, I guess, overall client asset or net new assets. I didn't quite understand that.

Well, there's a -- so let's back up for a second. So we separate out the market fee-based revenues. So most companies in the wealth business will -- they'll put in there like asset-based revenues, and we'll have money market funds and sort of equity funds and bond funds, balance funds. We are just -- we do not include the money market funds in that number. So these are all fee-based asset -- asset-based fee balances that are sensitive to the market environment. So first and foremost, the market is up. And so if you look over the last year or you look over the quarter, they're up. It's -- that's definitely contributing to the number. So to some extent, the ability to grow with these kinds of rates is dependent on the market environment. Secondly, yes, you're right. I mean, no question, Amerivest and AdvisorDirect continues to sell well. But the net new client assets in the institutional channel is what we call -- I called a trickle-down effect because a lot of the smaller RIAs will use mutual funds to put in their clients' portfolios. And in some cases, those mutual funds have 12b-1s attached to them.

Okay. That's helpful, the market impact on those. I guess my follow-up would be, this quarter you paid down debt and you had your dividend, Bill. We're getting to the point where I think there might be one more quarter of sort of debt paydown. So if I am correct, if you're generating somewhere around that $150 million in cash per quarter, so what do we do with the cash after next quarter, if we are going to -- I'm assuming we'll pay down debt again.

Right. Right. The plan on the debt, let me just comment on it real quick, the plan on the debt is to pay that down before the end of the fiscal year. So that is the plan, by September 30, it will be at 0. Certainly, we will continue to look at the dividend and we'll evaluate that again in the September quarter to ascertain if we're going to make any changes to it in the October call on our year-end results. But really, we're not -- outside of buying back any dilution, we're pretty much -- we're at a point right now where TD's ownership is to -- the buybacks will be limited.

Our next question comes from Bill Katz of Citi.

This is actually Steve Fullerton filling in for Bill. Can you provide some further detail into the slowing in trading margin April-to-date versus January and February? Is it typical seasonality or is there anything else at play?

Are you talking about trading or margin loans?

It was trading. Was that it?

Trading?

Trading, yes, exactly.

Well, yes. What I would say is, you can calculate it from our statistics and our press releases each month. January and February were better months. March definitely slowed down. We gave you that numbers month-to-date at 3 67 so far and it did -- note that, that was through Friday. Yesterday was a much bigger trading day, obviously, with the volatility. So I think what we saw is in January and February after the tax deal and the fiscal cliff, people started to reenter the markets, but then Europe started to become uncertain here again and it feels a bit like Groundhog Day. But we're having one of those markets where there's that uncertainty but there's not much volatility till yesterday. And I think that's really what's driving the markets here. Well, our people -- a lot of our clients are getting increasingly bullish here, the people that are active, there's just not a lot of volatility.

Okay. Great. And how would you characterize the trend of the cost of FA acquisitions? And how would increased disclosure that might get imposed by regulators around signing bonuses, how would that alter the dynamics in the industry?

I'm not -- to be quite honest, that's new news. That you're talking about the broker pay disclosures or whatnot. I don't think that would impact us much because of the way we pay people. And in the RIA space, we really don't give people bonuses or forgivable loans as a matter of principle. So we don't think it bothers us much. I mean if anything, it might be a net benefit from my perspective.

Our next question comes from Chris Harris of Wells Fargo Securities.

So one thing that really struck out to me in the quarter is you guys continue to deliver really, really strong growth and then expenses are in check here. I guess my question is I'm wondering how sustainable is that. If you guys keep getting these double-digit rates of growth on the asset side, are you going to be able to keep expense growth in check? Or at some point do you have to say, "Well, you know what, we need to spend a little bit more on headcount," or "We need to spend a little bit more on infrastructure or something," going forward?

Yes. We'll probably -- and what we said last quarter, too, Chris, is that we're looking to hire another 100 people in sales and we certainly did not get them all in yet. So we will see that continuing to grow over the next few quarters. But I think our expenses will stay in the $360 million, maybe low $370 million for a while here. And we are -- and by the way, if we continue to have fantastic asset gathering and we go through it -- we go much higher because we're paying our staff the bonuses that they've earned, I am more than happy to do that. So...

We do have a head office building coming on next quarter as well. So that will start to show.

Okay. Well, it's certainly a high-class problem. My follow-up question will be on the margin balances. A little bit surprised to see the slight tick down you guys had in this quarter, given the fact that the markets were up so much. Any comment there on what's happening with margin? I mean, it sounds like you're driven by the fact that you guys have more of your business driven by institutional which tends to borrow a little bit less. Any color you could share there would be great.

Yes, this is one of those trends that I would say the odds or the probability of margin loans going up with the market and buying power has been pretty consistent, but it happens probably 75% of the time. And there always is these 25% that it doesn't. And it didn't happen this quarter. So we've been watching and thought it would come. It didn't come. You could put some down to the RIAs. I'm not sure that's the -- what the real driving force here. I think the other thing that happened, there's no question, we did have pretty good margin loans on Apple. We got ahead of that curve and tightened the maintenance requirements and, of course, that stock's come off quite a bit. So that definitely has -- Apple's decline certainly has contributed to the margin loans.

Our next question comes from Howard Chen of Crédit Suisse.

Fred, you mentioned the notable growth in advisory offerings and fee-based growth. How much do you think that's additive or maybe a reallocation by your clients? What do you all look at to gain a sense of whether you're seeing maybe a different part of a client's wallet? Or is there some sense of maturation of someone who used to trade more actively with you but maybe now wants more advice?

Well, I'd say 2 points. Number one is, I do think right now, it's an advice and guidance market. We've gone through 3 years where the spring -- we've had a nice run-up in January, February and March and then things start to come unglued. So a lot of people remain concerned and conservative. So there's no question, I think, some of it is people just want advice. And that shows up in our results all the way through. The second thing is when I first came down to TD Ameritrade, 6 -- almost 6 years ago now, one of the main reasons people left us, because we didn't have the products they were looking for. That was mainly mutual funds and products like Amerivest and AdvisorDirect. We just didn't have those offerings and that was one of the main reasons they left us to consolidate their assets elsewhere. So I think that's -- well, we stopped that. That's why our assets or the percentage of client assets has actually improved quite a bit over the last 5 years. And thirdly, so we are seeing -- while we have the trading platform and we have a mutual funds and we have Amerivest and whatnot, clients just increasingly are more comfortable to put more of their business with us and that's a positive effect -- sign from our perspective.

Fred, yes, amazing it's 6 years already. Bill...

Not quite 6, but we're getting close.

Bill, on the IDA program, you mentioned some of the offsets to the compression this quarter, the expansion in 5 to 7s, the new transfers. I guess, I would have thought maybe you could have offset more of the IDA compression. So could you just give us a flavor for as you look at the ladder, what type of yields are rolling off over the next few quarters?

We don't certainly -- sure, Howard. We don't really talk about the levels that are rolling off, but we did have more float this quarter than we did last quarter. So that put a little bit of pressure on it, too. Still, we're sitting at 1.19%, which was the yield for the quarter, 1.25% last quarter, and we're looking at for the year, we're going to stay in the range and probably toward the higher end of the range that we have in our outlook statement.

Our next question comes from Patrick O'Shaughnessy of Raymond James.

So my first question is as we look at your market fee-based investments, the things that you point to as being big growth drivers, if I recall correctly, those are a little bit higher yield products. So I guess the question is, at what point do you think we're going to start to see some sort of acceleration or uptick in the yield on the overall base? I know that the higher yield products are probably still relatively small percentage, but are we getting close to an inflection point where that can start to drive the overall yield higher?

I don't know if we're at the inflection point yet but it certainly helped this quarter. There really is the 3 buckets. There's Amerivest, AdvisorDirect and mutual fund trailers and maybe some other ones in there, but they're relatively small. But the -- I mean, it's certainly helping, but I wouldn't say we're at the inflection point just yet.

Okay. And then my follow-up, so going back to the DARTs and trading, to what extent do you think, especially equity trades, have been permanently, I would say substituted with ETFs? So obviously, you guys have free ETF offering. Some of your peers are pushing them as well. It seems like maybe those are becoming just more often the investment tool of choice for retail investors and permanently substituting those for the equities that you actually receive commission on. How big of a concern is that for you guys?

We're not seeing that in our business trends. ETFs for a retail trader, yes, they're using the ETF. A lot of times, they leverage ones or certain popular indexes, which are not in our supermarket. Secondly, they continue to be very interested in equities, and mutual funds continue to do well, equity mutual funds or balanced mutual funds. So from my perspective, we're not seeing a significant change. Or in fact the ETF supermarket that -- where we go -- the market center that we have, which has 101 ETFs in it and are all marginable, the impact of that is less than $0.01 per share per year.

Our next question comes from Roger Freeman of Barclays.

I just wanted kind of come back to the net new asset growth. It continues to be strong not only for you but your peers as well, and kind of thinking about that versus through the activity levels. What's the nature of the flows that you're getting in, and I don't talk specifically channel RIA versus retail, but are you shifting more into the sort of RIA space? And also the RIA growth this year, how does that compare to last year? I think the 204 you said?

We -- well, I mean because of the asset mix, overall assets, and we've always said that the institutional side, which is predominantly the RIA channel, will grow twice as fast as the retail channel. And over time, when we started down this journey, we said it should be 50-50 if you follow that mathematically. More recently, that's probably more like 60% institutional, 40% retail. We'd be slightly above that right now, based, though, because it is an advice and guidance market. And so there's no question, the RIA channel is doing really nicely right now. With respect to year-over-year, their growth is actually pretty much consistent. It continues to do very well.

Okay. And then you commented just on activity that equity trading, volume growth, asset options, market-wide options were a little faster. Just, any read through there, particularly around sort of the penetration on thinkorswim? Are we reaching a point of stability there? Or is it just kind of a function of what happened this quarter?

I think it's -- I wouldn't draw a conclusion from one quarter at this point. Probably, the fastest growing category of trade volume right now is futures. We're seeing very good pickup there. But I think we just saw a quarter here where I think there are investors that are starting to see the market's gone up nicely here over the last 15 months, and people are finally taking notice.

Our next question comes from Alex Kramm of UBS.

Just a couple of follow-ups, I guess. One, just to come back on the expense and the comps. I mean, on a sequential basis, comp improved or was up a lot, and I think, Bill, you mentioned, obviously, that the tax and payments and everything else. But is some of that also the 100 sales people? So maybe you can parse it or point a little bit more how much of the comp increase was just seasonality? How much was new hiring? How much more should be coming from the hiring over the next couple of quarters? Basically, if you could just give a little bit more detail at the comp line, what drove it, how it's going to look going forward.

Yes, so the real breakout or the big piece is the incentive comp was up about $3 million, and the payroll tax was up about $7 million, sequentially. So that's the big driver. The -- we really with adds and with people attrition, the people in the branches really has not moved much yet. So we're looking for that growth to be over the next few quarters. Then we said, all-in debt would be roughly a $10 million-ish number once we get everybody on board, annually.

Great. And then secondly I don't think this has been mentioned yet, but, Fred, you mentioned, obviously, the year end 2012, all this -- lot of movement, lot of selling for tax reasons and you said you've seen some of the IDA balances move back into the market on the RIA side. Have you also seen, maybe in the last couple of weeks as we headed into tax payments, a spike up in just net outflows for tax reasons? Any comments there? And I think in general, people are expecting April to be pretty soft. But just want to make sure we're not getting too surprised here with some of the unusual things happening at the end of last year.

I would say like every year as we go towards the end of March, the asset gathering slows a bit and then the first part of April in particular like right now, you're definitely seeing -- you see it kind of go behind the curve and you do have some negative days and maybe even a negative week. And then you typically pick back up. So I would say, April will be soft just like it was last year and the year before.

But nothing that you would say is really like driving things much, much higher than usual because of what happened at the end of last year, that was pretty unusual?

No, we haven't -- I think it's too early to say I've seen anything unusual.

Our next question comes from Joel Jeffrey of KBW.

Just going back to the sort of the activity rate. I mean, you definitely showed some improvement this quarter. But thinking sort of longer term, I mean, what really needs to happen for that rate to get back above 7% and kind of stay there?

Well, I'd say it's 2 things: I think it's just attitude and uncertainty. So attitude and uncertainty, I think, and I think it's getting better, but we continue to have these bouts of uncertainty. But probably the biggest thing is just some volatility. As you can see, Joel, yesterday -- when we count the April month-to-date, we're at 3 67. And yesterday, we get a little bit more volatility and, guess what, trades go all the way back to north of 500,000 just like they've done in the past. So I think what we've got is a market that just is -- whether you're looking at actual volatility or implied volatility, it's just very low. And it's been low for a while.

Okay. Great. And then I apologize if I missed this earlier, but what percentage of your DART number was done in options and futures?

30% was options, 7% was futures and 1% was foreign exchange.

Our next question comes from Chris Allen of the Evercore.

I wonder if we could just, I guess, dig a little more on the IDA yield and kind of the outlook. Obviously, we've had a decent retracement of rates since about mid-March. Has this impacted your willingness to extend further here? And I'm not sure if I missed it, did you give the floating rate percentage at the end of the quarter versus the average?

Let me get the last one. I think $11 billion was the balance at the end of the quarter in float. And, yes, it did -- with the retracement rates, it did have a slowdown. We did hit the market pretty good with the $4.8 billion of extensions in the quarter when the rates were higher, as I said in my prepared remarks. And yes, we would look at the huge -- obviously always looking at the risk reward committing to something for 5 to 7 years and looking where the rates are. So a 22-basis-point retracement is expensive when you put it over 7 years. So it's something that we do look at and we monitor day by day.

Got it. Is it fair to say that the extensions you made this quarter, the full impact, will help offset some of the decline of floating rates out into the next quarter?

Yes.

Great. And then just one follow-up on the clearing and execution costs, just looking at them as a percentage of trading -- trades. They've been kind of trending up over the last few quarters, which we've been a little bit surprised given your investment in that space. Any color there?

Really, that's more due to mix and so as futures -- futures are a little more expensive and hit that line item a little bit harder than the other pieces.

Our next question comes from Alex Blostein, Goldman Sachs.

Just looking at the full year, I guess, and thinking about guidance that you provided a couple of quarters ago, it felt like the trading results is really the only unknown and everything else, you guys have a pretty good handle on. So looking at the outlook through the rest of the year, I guess, it feels like commissions and trading probably at the lower end of your guidance and then expenses are shaking out today, I guess, closer to the mid-end. Should we think about you guys pulling back, I guess, on expenses on the back half of the year more materially than I guess is what's currently implied through the first 6 months of the year?

No, I wouldn't draw that conclusion. So I think you hit it right: trading is a little bit at the low end, expenses in the middle. But I'd say that, that interest margin is at the higher end. So I think when you work all that out, we're pretty comfortable with the year. And we've been pretty clear that as long as we continue the kind of organic growth momentum that we're having, we're going to continue to keep our expenses in check but continue to invest in the growth in the future.

And certainly the ad spend in this quarter, if you extrapolate these 2 quarters together, would be over the top of our guidance. So you need to factor that in, as well in the last half of the year.

Yes, that's true. Advertising will come down in the fourth quarter in particular.

Got you. And then, on the fee-based product in Amerivest, I guess, is part of that. It's nice to see that those balances pick up as much as they did. Is there a way you guys can talk a little about the organic growth in that business? Or kind of like x market and then, what do expect to see there and then from a -- maybe a profitability perspective presumably, as you guys get bigger there are scale benefits. How much is that business, I guess, currently either contributing, sort of to the bottom line and as you get bigger in that business, how much more meaningful could that be for you guys?

Well, we obviously believe it could be much more meaningful but it is a long journey. I don't think we'll get into breaking it down into greater detail at this point and for the foreseeable future. It's still not a big enough revenue stream for us to get into that much detail. But maybe one day, but this is a long journey but, just like the asset gathering was a long journey, hopefully, 5 years from now, it'll be a very meaningful number towards our revenue and earnings.

If we can get this into, obviously, the double digits as a percentage of our revenue, obviously, pretty close this quarter, but we'll look at it and -- it will be dwarfed when the rates start moving, but at any rate, it's something that we're going to keep cranking them.

Growth and revenue is always a good thing, normally a good thing.

Yes, but as far as your organic growth goes, they're like a -- if you x out the market, you can back into kind of like a mid-single-digit organic growth. Is it a fair number to think about?

It's not unfair. I think you always have to understand the mix of the assets in there and the margin on each of them, and mix in the mutual fund trailers between equity and -- because you could get different rates so it's -- I wouldn't say that if you actually put the market in and you made an assumption of how much of the assets are in the market versus in fixed income that you can come up with a different answer. Okay, everyone, we have four more questions to answer and we've been informed that the New York Stock Exchange is going to have a moment of silence here at 8:20. What time have we got right now? 8:18. So why don't we take one more question and then we'll take a break. We'll have a moment of silence and then we'll come back.

Our next question comes from Brian Bedell of the ISI Group.

If you guys could just talk and you could do this after the moment of silence, could talk about the active traders versus the long-term investors segment in terms of what's growing faster in terms of client growth within your channel. And then some commentary, Fred, about how you think that dynamic will be as we sort of head into the summer of those 2 segments. Would you prefer more market volatility or would you prefer a stronger market backdrop, S&P going up overall?

Well, to your second question, what you like is an increasing market with a few corrections along the way for increased volatility. That's a perfect market environment for us. I mean, we've had a -- let's be -- I think we should all be honest. We've had a very good market run here without much volatility. So a correction would not be a surprise to anyone, I think, at this point. But at a minimum, at a little bit of an increase in volatility. I think to some extent, there is an issue going on here where the Fed's having its way where there's nowhere for money to go. So I think an increasing market with an increased volatility or the odd correction along the way would probably be the best for our perspective. I'm going to come back to your first question in a second, Brian. And now we're going to respect the moment of silence. Okay. Thank you. So your first question, Brian, remind me. It's was something about...

Trader versus long-term investor.

The growth in those client segments for you.

Well, I mean, those segments can change in a quarter because it's a definition and a way to think about our offerings. So it's not a nice neat segmentation. It's a way to cause people to think and develop products and tools and technologies. So -- but the reality is, I think, the one that's the fastest growth right now is certainly the long-term investor in the RIA channel. It is an advice and guidance market, and we are the biggest in the active trader. And when you get to a certain size, it just gets harder and harder.

And then just a follow-up on the payment for order flow bill. I think you mentioned that was a very good environment this quarter. Do you see the sort of the near-to-intermediate-term backdrop for payment for order flow improving? And what's the main driver of that?

I think it's going to stay pretty consistent here right now. I think that I wouldn't see much in a way of a change or a power down to be quite honest. So I think that the order flow is obviously very valuable, and we will continue to work that.

Our next question comes from Chris Shutler of William Blair.

As you look at the pipeline in the RIA business, I was hoping you could talk about what channels look particularly strong. So at a high level, could you just give us a sense how much of the NNA you think will come from wirehouses and other captive channels versus IBDs versus other existing RIAs that are just looking to add you as a custodian at a high level?

We don't get into that specific of a granularity, but this does tend to move around, and it just seems like there's always one, whether it's a wirehouse or one of the independent broker-dealers or one of the banks that may be in this part of the business doing something that's causing people to switch. And the art is -- and part of the science is making sure you're there and you capitalize when you see one of them that's in a bit of turmoil and disruption.

Okay. And then, Fred, can you give us a sense of how much of your growth in that channel is generally coming from existing advisers versus new advisers?

Well, people like to look at that number. But the reality is when you're comparing a gross number which would be new versus a net number which is the base, I think you're comparing apples and oranges. But the way that, that channel gets the kind of high growth is having existing advisers doing well, and you've got to have a strong breakaway broker pipeline and acquisition channel. That's the only way we're getting the kind of growth rates we're getting, is both those have to be doing well.

And our final question comes from Matt Fischer of CLSA. Matthew Fischer - Credit Agricole Securities (USA) Inc., Research Division On activity levels, you had mentioned the, I think, it's 2,500 new users per day on the mobile, and it looks like about 8% of your DARTs are now via mobile devices. Can you give us an idea of what percent of your clients are now using a mobile device, and how does activity rates or how do activity rates change when someone starts to use a mobile device to trade?

Well, the people that do use mobile, we do see an increase in activity rate. There's about a [ph] trade a month. So we have seen an increase if people who are on mobile, they have more opportunities and are more in tune with the market and they trade more. So we've definitely seen a trend there. In terms of the percentage of our clients that are engaged with mobile, unless I -- afraid I don't have that number right now. So I'm going to have to pass on that one. I think that's all the questions we have today. So we'll close the call at this time. Certainly, all our thoughts and prayers go with those in Boston and particularly those that have lost a loved one or have somebody that they know, a friend or family, that have been injured by that tragic event. And so more thoughts and prayers are with those people. Secondly, just on the quarter, we had another good quarter. Anything that we can control, we continue to execute well against. We're very focused there. And -- but we are subject to the market environment, but we're very happy with how we're executing against the items we can control and the strategy that we have laid for TD Ameritrade in this environment. With that, we'll talk to you next quarter.

Ladies and gentlemen, this does conclude today's conference. You may all disconnect and have a wonderful day.