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Good day, everyone, and welcome to the TD Ameritrade Holding Corporation's December 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. An audio file containing Mr. Hockey's and Mr. Boyle's comments on the quarter can be found on the company's corporate website, amtd.com, under Investor Relations.
This call is intended to address related questions from investors and analysts. Questions from reporters can be directed to the company's media relations team, or you can follow their Twitter handle @TDAmeritradePR, which will be live tweeting this morning's call.
Let me take a moment to compile the questions.
And your first question comes from the line of Devin Ryan with JMP Securities.
First question here just on the BDA and some of the moving parts there and I’m just curious, is the higher percentage of floating rates a function of just what you guys were seeing in the yield curve, trying to be patient as you deploy or is it prudent to just hold a higher percentage, just given that we had a pretty strong spike up in cash in the quarter and so that may revert, I’m just trying to get a sense of your thought process there?
I think more of the latter, Devin. So although we have moved from the 7-year to the 5-year product curve, we generally don’t try to make calls on interest rates and when we do see big movements in cash, we tend to redeploy those over time rather than all immediately.
Got it. Okay. And then just a follow-up here on the really strong net new assets in the quarter, you cited kind of a number of things that helped there, I’m just trying to get a sense of maybe orders of magnitude if you can, you had the changes at the branch level, you had less [Technical Difficulty] how material was that and how helpful do you think that could be going forward?
Yeah. As you say Devin, there is lots of factors. I hope everybody can hear us okay. The line was breaking out a little bit, but I think I got the gist of the question. Listen, as we said, we’re thrilled with our NNA growth in both our retail and our institutional business. Lots of different factors, on the institutional side, it's the continuation of a great trend, great client experience, great technology and the continuing long term trend to shift to the RIA channel.
On the retail front, there was a number of factors as you say. First, we are having ever lower attrition from the Scottrade clients. There is all of the, call it, reestablishment of our branch network and our distribution system post that integration even though that's almost a year ago, it does take quite a while for people to get settled into new routines, new branches, new locations, that's just the associates. And then as we said in the call, there was the, call it, reseating as it was the internal term we used to put clients closer to where they potentially might be.
It might be more convenient for them. And so they were establishing new relationships, they were using the branch that was now closer to them. Remember, we, TD Ameritrade, used to have 100 branches for the majority of our clients and now we have 364 locations. So, there's a lot of opportunities to get more convenient for our clients as well. So it's all of those factors, but we were thrilled with the growth rate and it's nice to get back to double digits overall.
Next question comes from Rich Repetto with Sandler O'Neill.
As we get into it very quickly here, so my question is around trading in December, because it seemed like a very different month, but if you look at Schwab, their DARTs were up 29%, Interactive Brokers were up 5%, you sort of fell in the middle. And I guess, you kind of attributed, I was trying to figure out why you think you fell in the middle, is it something to do with the advisors and the tax loss selling that occurred in the quarter or -- and we know the mix I guess shifted towards equity trading and your -- the stuff you put out, but just some insight into maybe advisor trading in December and how much of an impact that had on DARTs?
Yeah. I think Rich, there are a lot of things going on in this quarter and I think with the changes in the market, clearly saw more tax loss harvesting, you also saw more of a shift towards futures versus options within the quarter. So I think there's a lot of things going on there. We feel really good about our DART share and we think it's going to bounce around from quarter to quarter, but we're very positive about the momentum in our business.
Okay. I mean, you don't usually see that big of a difference between the three anyway, but okay. So the next question would be, I think Tim's favorite, one of his favorite topics, but is around revenue synergies. A few quarters ago, you talked about how you were well ahead of the plan and somewhere between year two and year three and I guess could you update us on where we are with the Scottrade and on the revenue side, synergy side?
Roughly Rich, as we said, we're thrilled and we're basically complete on the expense synergy side and on the revenue synergy side, we got off to an incredibly strong start and here we are less than a year post the integration itself and we're still in that, depending on which metric of the, I think, the 11 that we've got, we're still in the -- in between year 2 and year 3 in total. So we're thrilled that we continue the momentum.
A couple of other interesting insights, our education usage is up dramatically year-over-year. Some of that is just the interest in the market activity obviously over the last quarter, but also it's another metric that we use to say, what's the engagement like of our Scottrade clients and I think our usage is -- our education is up something like 60% driven. So lots of good indicators, still very strong and it doesn't seem to be abating.
Your next question comes from Mike Carrier with Bank of America Merrill Lynch.
Maybe first question, just on the spread revenues, so during the quarter, there was a lot of volatility on balances, I think you guys pointed out that the BDA at the end of period was up maybe 7% and then I think the margin balance as you mentioned being down, maybe 20% from the highs. I just wanted to kind of get some maybe color or insight on how maybe quickly some of those moves can normalize, as markets start to stabilize. I know it's -- it can vary, but just what you've seen maybe historically and how you kind of expect that to play out, if markets are more stable than what we saw in the fourth quarter?
So I think, the first point is, we’re just really happy with the diversity in our business model. So in a very volatile quarter, we saw margin balances go down, but cash balances went up. Trading was great. And so we think, in all environments, the model does really well. To your specific question, it's hard to predict the markets going forward, but early on in the quarter, we did see markets start to pick back up again, volatility start to drop a bit. And in that environment, you would expect margin balances to start coming back and cash balances to start coming down. And so I think it's going to depend on how the markets play out here over the rest of the quarter and the rest of the year, but generally, the things tend to move inversely with each other.
Yeah. The only other thing I'd add would be that margin tends to go down almost directly correlated with market activity. In fact, I just saw something the other day that says the total market drop in margin was the most it's ever been since the Lehman event way back when – by the way, on the other hand, our history shows that, yes, it tends to normalize back at a slightly slower pace and that's what we're already seeing.
And then, so maybe just one on the expenses, so you mentioned the levels this quarter, pretty good run rate. I guess, just how should we think about if the revenue backdrop continues to maybe exceed some of the expectations. I know you guys mentioned on the last call around that 200 basis points for operating leverage, but when you think about, like the expense initiatives that you have in place, some of the investments that you can make to drive future growth, like how much maybe, I don’t know if you want to call it flexibility, but how much could you spend, you mean in a strong revenue environment versus how much would you expect that more to drop to the bottom line?
Yeah. It’s a great question. So the way we think about it is, look, there are great environments and there are less great environments. And up until last quarter, the outlook for lots more rate hikes, et cetera, et cetera seem to be pretty rosy and so we were ramping up to stand still inside a nice operating leverage multiple, but to make sure we were investing appropriately to establish a stronger franchise for times when it gets leaner.
Now if you ask most people, you'd say the outlook is a little less rosy than it was a quarter ago, but it's maybe just more uncertain, it might return. The good news is that many of these investments we've made over the last couple of years, we've said many times, we think are virtuous on two fronts. They improve the client experience and they lower your overall cost run rate. So many of the investments we've made with work flow automation and content, digestion engines which basically take out the manual keying, all of these are starting to come online and so we get to see the benefits on both the experience as well as the expense run rate.
So the good news is that we have already made investments, which will help us lower our run rate. If we have the opportunity to the framing of your question that revenue continues to go up, the limiter there is can you invest in the right things at the right pace of growth. We've said that we're comfortable growing, but if you -- for example, if you doubled your revenue, you wouldn't double your investment rate, because you just don't have enough subject matter experts and capabilities in the system. So you have to make sure you're doing it prudently. So we're quite comfortable with our opportunities in the future should revenue go up, but we're also very comfortable with our ability to bring expenses down, if revenue growth comes down.
Your next question comes from Chris Harris with Wells Fargo.
Just a couple of questions on your interest earning assets in the quarter, I know there's this weird dynamic going on, where seg cash actually went down and other cash and interest earning investments went up, but you're talking about seg cash going up in the March quarter and then the other cash interest turning investments going down. So I guess the question is, the yield on a seg cash is higher. So should we automatically be assuming a pickup in NII as a result of that mix shift, so that’s part one of the question.
Then part two of the question is, why did the yield on seg cash only go up a basis point in the quarter.
So, a couple, mostly idiosyncratic things in those numbers, Chris. So, we did have last quarter the revenue was correct, but we had an average balance issue. So I focused on this quarter's as right and a good number going forward. At year end, just due to the timing of our 33 calculation, we did have more money in corporate cash that ultimately is going to end up being seg cash going forward. So that was just really due to the timing of the 33 calculation that moved in the next day or a couple of days later.
And then in terms of the yield, we do get a slightly richer yield on the 33 cash, so that's a decent thing to model going forward.
Okay. And thoughts on why the said cash yield only went up a bit in the December quarter?
Yes. So the last quarter was [thought] [ph] correct on a yield basis.
Next question comes from Bill Katz with Citigroup.
So thanks for the guidance on deposit beta and the sensitivity around next forward rate hike. If we move into more of a flat backdrop from here as expected, how do you think core deposit beta behavior may change, if at all?
Yeah. So I'd be extremely surprised if we changed any pricing on deposits that we passed anything through to the customers in a flat rate environment. And we're really not seeing anything dramatic on the money moving out of cash either so we saw a little bit of movement a quarter or two ago, that's been pretty steady. So we really don't anticipate that there's a big catch-up or anything coming, though, we feel really good about betas, both in terms of how our customers are reacting in this environment, they consider this operational cash and how our competitors are reacting, they seem to be pretty rational here. So we don't expect any big changes.
And just as a follow-up, just in terms of capital management. I guess just tactically surprising us to see a little more buyback, given the sort of the move down in the stock price in the fourth quarter, how do you think about just sort of the pacing as you look forward, obviously, you give some guidance in terms of - ratio targets, but what are some of the priorities you're thinking about, as you look out to the full calendar year.
Yeah. So really, there were just some anomalies in the last couple of quarters. So we’ve had both an accelerated share repurchase and an algorithmic 10b-5 plan in each quarter and the way the accounting for that works and the programs work, you could end up pushing a settlement into one quarter, which is what we had in the fourth quarter of last year versus in this quarter, it's spanning over into the next quarter. So I think, we feel really good about our capital, we're growing our capital, we have a little bit more excess capital because of the drop in margin balances and we're comfortable with the guidance that we've given on share repurchase.
And we're going to [indiscernible] try to increase the denominator, so it makes it hard to catch up, which we did this last quarter.
Next question comes from Christian Bolu with Bernstein.
I wanted to dig into technology, just TD Ameritrade seems to have a sustained technology advantage over peers, [indiscernible] seems like all examples we get are ahead of the curve. I presume all your peers listen to these calls, they see your growth numbers and I'm just curious why they haven't been able to replicate your success or more broadly compete with your technology advantage. Is there something about your underlying technology architecture or your process to just make the innovation easier, again just trying to understand in plain English why you believe Ameritrade’s technology advantage can be sustained over time?
Yeah. Thanks for the very kindly worded question, Christian. I'd say a few things. This has been a journey we've been on for the last few years. The organization understands that a focus on innovation and extending our historic lead as being a great innovator is really important. As you know, we're investing in this. I talked about this a little while ago. We spent a lot of time focusing on things like agility, simplification of our systems, moving from, call it, one big architected system at the center to breaking up more into services. We experiment more, you name it, there's a series of things that the entire organization is doing.
It's no one thing and I think it's cultural. I think it's about having a sense of orientation towards what new technologies can do to transform the client experience. And so if you do it, it has sort of -- it's more like a flywheel, you just try to get the organization moving faster and faster and being creative about how they can deploy technology to help clients and associates. It's really, I can say, it’s as simple as that, it's not simple, but it is just something you just continue to emphasize.
And then just on the institutional business, another strong quarter of asset gathering. Can you remind us like, where you’re taking share from and then if you will ever just tell us what the actual number in terms of institutional assets are?
We're taking share -- I think it's pretty much across the board and has been for quite some time. We don't actually disclose the -- are you talking about the shift between, sorry, the relative allocation of assets, we don't tend to disclose that between the two, but it's call it 50-50, somewhere around it.
Next question comes from Michael Cyprys with Morgan Stanley.
Just wanted to follow up on Asia, I saw flagged in the release that trading activity there was about 13% sequentially. Just can you talk a little bit about the profile of the clients that you're going after in Asia, how that compares versus your US client base and then more broadly, if you could just kind of give an update on the strategy and progress of the business in Asia. I think you mentioned the WeChat experience logic, if you could talk about that as well.
Yeah. Well, first of all, let’s say, we’re thrilled with our growth in our Asian business, it started off as you know with Singapore and recently just this past year actually about a year ago now, we opened up Hong Kong. In terms of a profile, they are multiple times more active and engaged than our average US client and they're very interested in being active in the US markets. That's what we provide is a portal into investing in the US. They use higher percentages of mobile devices. That's true of society in Asia versus America. And our growth rate, albeit on a small basis, is very strong. So we're thrilled, it's up significantly. I think DARTs were up 13% as you said quarter-over-quarter, about 28% year-over-year. So -- but we're pretty thrilled.
And then can you just talk about the overall strategy and prognosis of the new initiatives? I think WeChat launch there, if you could talk about that as well.
Yeah. There was -- the innovation in this past quarter was actually turning on WeChat, believe it or not in America, because we have not an insignificant number of clients of Asian descent that trade with us here in America and they communicate using the WeChat platform, which is not as predominant obviously here in America as it is in Asia, but there, it is integral to living your life using WeChat.
So our approach, given that we really only have two outlets and two physical outlets, one in Singapore and one in Hong Kong is to be -- to use that as a bit of a beachhead for much of our purely automated straight through processing approaches that we can then bring back to America, because if you want to scale up through using these broad social media networks, then you really need to be able to handle the volume that you can get, when you start to turn it on. So we're crawl, walk, run, I would say in building out the capabilities to allow us to really tap into the WeChats and the Tencents and other initiatives that we're working on there. So we're quite confident in our growth and our ability to grow in a scalable way.
Your next question comes from Chris Shutler with William Blair.
Can you maybe just give us an update on where you think both RIAs and retail investors are in the process of sort of in between their operational cash and their investing cash? I know the market volatility makes it probably tougher to decipher, but just any thoughts on where you think we're at in that cash sorting cycle?
Yeah. I think we're probably pretty far down the road. I think rates moved up pretty well over the last couple years. We saw an increase in movement over the last couple of quarters. It seems to pretty much normalize this quarter, as you said, folks are more focused on volatility. So, I don't know that we want to call the end, but my sense is that with rates leveling off here and whatnot that it's going to be a phenomenon that's sort of past us here.
And then just to get a little bit more specific on I think Mike's question earlier, is it fair to think that so far in the quarter, both BDA -- BDA balances have gone down a little bit and margin balances have gone up, versus where they were at December 31?
Yeah. I think so. Yeah.
Your next question comes from Kyle Voigt with KBW.
Just one on the – the SEC approved the transaction fee pilot in the quarter with some revisions versus its initial proposal, just wondered if you can comment on what the potential impact you see from the pilot program as it was approved and specifically, do you think there could be some direct or indirect impacts to [indiscernible] revenue for the stocks that are included in the pilot?
Yeah. So, the pilot as you know was revised down to be a much smaller number of stocks, which is what we would -- we thought was appropriate to run a pilot. The impact itself on us of the pilot is going to be relatively immaterial. We've found over the last number of years that having these very strict pilots with metrics that are being tracked with a defined end date are certainly things that have been easily measurable.
We’re working closely with the SEC to give them our observations and we tell them when we see notably clients themselves bearing some additional costs, which is what we've seen and we expect that, for example in the TICK pilot, the clients bore about $24 million in cost of that pilot and the SEC has listened to that, heard it and revised it as a result. So, that's our view. It's a good thing to try and figure out how to make the structure of our markets better, but we've got to learn from it as opposed to just lavishly implement something without trying it first.
And in terms of potential impacts, do you see impacts to order routing directly or indirectly from the pilot program, revenue?
No.
And then just one more follow-up for me, I guess, just on the institutional channel. I believe in the prepared remarks, you mentioned that the inflows slowed in the latter half of the quarter, as the market turned. Can you just talk about if that slower inflow dynamic has carried over into this quarter thus far? Thanks.
It's a little early to tell. What we've found in the past when there is the degree of volatility and the market decline that you saw right up until Christmas that frankly RIAs are spending more time, talking to their clients about the market dynamics and they are talking to us about potentially moving their business over. So, it is a natural dynamic, here we are in, call it, middle of January and you're just coming out of the holiday season, not sure, but I would expect that we would have a pick up as market stabilizes and they've got more time to talk to us.
Next question comes from Brian Bedell with Deutsche Bank.
Maybe just back on the BDA balances, the ending level of 122, I guess, Tim, for the client activity, I think you said that they were -- clients were net buyers of securities in October and net sellers in November and December. So it sounds like for January, so far, there are net buyers, if you can confirm that and then as we think about the quarter for those BDA balances, starting off at 122, probably going down a little bit like you said, on the -- on buying, if we think about NNA typically coming in as a reasonable chance that we could still stay above 120 on an average basis in 1Q? I know it's always hard to predict that, but just want to get a sense of your thoughts on that.
Yeah. It is hard to predict that. It does go up and down, but as Steve said, generally, what we're seeing with these markets that the margin is going back up and the cash levels are coming back down. In terms of net buying, I think that's true frankly in the – in so far this quarter from retail clients. Yes. So just had confirmed that we have net buyers for both the quarter and -- for this quarter, for both retail and institutional. So again, it confirms that the activity is happening.
And then for the NNA that comes in, what portion on average comes in, in cash, so we should think about that sort of organic growth component of BDA balance growth.
Good question, I don't have that fact.
Okay. And just a follow up on the fee based balances. Obviously, pretty good growth there, I don't know if you gave and end of – I don’t know if I missed it, an end of period balance for fee based balances for December that would show the market decline and then maybe if you can just also just talk about sort of the main drivers of where you're seeing that organic growth in fee based balances, with particular products and is it mostly in the ETF area or the advised products?
Yeah. So, we don't disclose the period end number on that. There's a lot of different things in there, so we're seeing good growth in our market channel, we're seeing growth in asset based pricing and we're seeing good growth overall that's driving those fee based balances.
And money market fund balances as well within that?
So money market fund balances are pretty modest for us, so I think we ended the period still under like $6 billion in money market borrowing, money market suite fee balances and then money market – money market funds overall are, not sure.
Next question comes from Brennan Hawken with UBS.
One on expenses, so you referenced in your releases last night that you have some expense flexibility in the event of a difficult revenue environment, of course, we haven't seen those revenue headwinds yet, but could you help us frame out how to think about flexibility and maybe use last quarter's results as the baseline, because it does seem like there's a lot of noise year-over-year and also can you help us frame out what would be a normal seasonal uplift to comp, because we just haven't experienced in the last few years, given all the noise with Scottrade and such, we haven't been able to distill what a normal seasonal uplift would be?
Yeah. So a few things I'd say. I think I gave the sort of color around the general approach around over more of a cycle, at least 200 points of operating leverage, we can flex up or flex down. There's a bunch of levers in that. I would say, call it, 10 million to 15 million is probably due to comp, relative to, if you had slowing revenues, you have conservatism there. If you have, we've used the phrase when the fish are biting, we tend to advertise more. Well if the fish stop biting, then you tend to advertise a little less.
And so there's some flexibility there. As we said, there's the ability to not invest in growth in technology, if you feel like the revenue doesn't support it. So we feel there's a significant number of levers that add up over time. It's – the key for us is no fire drills, slamming on the brakes on expenses, because you are worried about revenue as a very deleterious effect on the firm overall and your ability to continue to be just be smart about what you invest in for the future. So that's the approach, but –
Yeah. So just, I think, it's great overall, just in terms of expenses, we do -- just to sort of remind everybody, we do tend to see a spike in our second fiscal quarter, the first calendar quarter of the year, as we have FICA kicks in for all the employees and stuff like that. So that's where the 10 million to 15 million came from. Generally, we raise comp with the market and so right now, you're seeing market increases in the around 3% plus or minus. So we'll determine that as we get into next year, but that would be a good sort of rule of thumb.
And just a response to an earlier question we didn't answer, we just got it. On the retail side, 84% of inflows are cash, but then of course, they’re quickly deployed to reestablished positions, so that's how it can come in.
And then for my second question here, I know that you guys have spoken at a high level about the counterbalancing dynamics with cash margin and such, but it seemed like year end was a pretty unusual time, maybe the bottom of what at least so far has been, what looks like a checkmark shaped rebound in the markets, maybe hopefully we can get it to a V shape. But can you help us -- given that it's a bit of an unusual environment, it might be helpful if you could let us know maybe month to date margin balance, just so we can help to frame and consider what some of the dynamics could be in margin, when we consider that slow rebuild that I think can be referenced earlier?
Yeah. So let me take that, it's a bit of a slippery slope, it’s a little dangerous I think in any given quarter or year, there's always something we'd like to give you more color. We get that it's tough to build your models, given that sort of effect, it's sort of tough for us too frankly. We just like to point at it and say, look, it’s a good example of the diversity and resilience of our business model, but you can't really help on the quarter to date type, that's just not something we disclose.
Next question comes from Will Nance with Goldman Sachs.
I was wondering if you could talk about some of the moving pieces on the BDA yields going forward, just with the flatter yield curve, the FDIC benefit obviously came through this quarter, but I guess when you think about a flatter yield curve and a little bit lower accretion on the reinvestments obviously trending above the full year guidance already, how would you think about the trajectory of BDA yields for the rest of the year.
So, the good news you started out with the FDIC, the benefit on that we think is going to stay at that level for the foreseeable future, so that's terrific. It's a very flat yield curve, so although we'll probably be redeploying some funds at the five year, 8-year, now this doesn't matter whether it's slowed or fixed right now or anything about the same amount across the curve and the good news is, it's all higher than what's maturing in our BDA right now, so we'll continue to see pickups of the BDA yield as we go forward this year.
And then can you just maybe bifurcate between the institutional and the retail channel, what you saw in terms of client behavior, as the markets were selling off, I guess particularly in December and I guess do you think that that helped with any of the attrition rates on the retail side?
Let’s see, on the retail side, I think it might have had an impact on the attrition rate. Again, same phenomenon, are people going to move their broker while the markets are acting this way? In terms of the actual client behavior…
Yeah. I think you saw that that our retail clients were a little bit more into the market and positive on equities, particularly early in the quarter and the institutional clients probably repositioned a little bit more quickly.
And then any biases in terms of the institutional behavior in terms of cash balances? I mean I guess we’ve seen also in the industry, a preference -- a stronger preference towards money market funds, are you seeing the same thing among your institutional clients?
Yeah. As we said, we’ve seen some money move into money market funds, but nothing pronounced this quarter relative to the other quarter. So I wouldn't say anything really different.
Next question comes from Dan Fannon with Jefferies.
Question on ad spend, just the slow start to the year. I assume that was a function of the environment and you talked about it ramping, I guess, should we think about you making that up here in the context of your full year guidance, understanding obviously the sequential build that we normally see here in the March quarter, but just thinking about how conservative maybe now the full year guidance looks, given the slow start to the year?
Yeah. So as I mentioned earlier, our marketing spend obviously is probably the most flexible thing we have, especially given that we are highly digital and you can dial it up and dial it down literally in minutes. So as we said, we had a bit of a slow start to the year on the marketing spend, it's partly seasonal, but it’s also partly reacting to this sort of slower year-over-year environment.
We will -- we fully expect the Q2 number to go up. The team very much measures the return on the investments made and as the return for that spend changes, then they dial up and dial down, but we certainly hope to be able to, I mean the thing I love about marketing is it drives new revenue growth in the future. So even though it's easy to dial it down, you've got to be very careful about dialing it down, because you don't want to curtail future revenue growth. I would much rather be more judicious in applying some of the savings on the investments that we were talking about earlier to take our expense run rate down to just provide better service at lower cost than curtailing future revenue growth.
Got it. And then just as a follow up, maybe Tim, if you could go in a little more detail on the members exchange and kind of why you think adding another execution venue to a pretty fragmented market is beneficial at this point?
Well, the point is, if you look at the members who have formed together, we are the heavy hitters in the industry and it's largely retail oriented. You're right, it's -- there are 13 equity exchanges, but in fact 12 of the 13 are owned by just three exchange groups. So we think this is actually additive to competition in this space and as you know, best execution remains our absolute top priority and it will be the case and it will be the centerpiece of the members exchange. So early days yet, we're still forming it up, but we think additional competition is good.
Your next question comes from Steven Chubak with Wolfe Research.
So wanted to ask a follow up question on some of the expense commentary, I'm still getting quite a bit of inbound from folks, so I was hoping to maybe unpack some of the guidance. In the prepared remarks, you know that advertising was at normally low, you have the impact of FICO seasonality of about 10 million to 15 million and Tim, you alluded to expectation for comp growth with higher markets. I'm just wondering barring any negative shocks of the revenue environment, with the other expense items expected to be flattish, is 720 million or so the right run rate for non-GAAP expense versus the 690 in 1Q, I'm just trying to guess at just how we should think about that run rate for the remainder of the year, given all the different moving pieces?
Yes. I think if you look at the year, we remain comfortable with our guidance for the year, even though we had a much higher revenue recognition standard than we thought, so we should be within the range and the quarter, there was a little bit of noise on a couple of unusual items, but nothing really that we think affects the trend or our prospects for the year. We've mentioned already seasonal -- Q2 is always seasonally our highest quarter in terms of expenses and so you should see a comeback down after that.
Okay. And then just a question on the capital structure, you issued some additional long term debt in the quarter, I'm wondering how you're thinking about managing that debt going forward, I mean, what's the appropriate target level you're comfortable with and how much of the issuance that we recently saw in the month impacted the quarterly results? I don't think it was the full three months, I was hoping for an update there as well?
Yes. So we think of debt a few different ways, so we are trying to have an efficient capital stack, so we try to keep our debt to EBITDA ratio between 1 and 1.5, sort of maxing out, keeping it under 2. We think you start getting below 1, you probably are not being as efficient as you could be, we also obviously want to make sure that we keep the appropriate amount of liquidity in the system, so we added a little bit of liquidity as margin balances were high and we saw some stresses in the February 5 event. So we’re pretty comfortable with where we are right now. I don't have the exact date, but I'm sure you can look at our disclosures and find out exactly when we issued that debt.
At this time, I'll turn the call over to the presenters.
Great. Thank you. So listen everybody, thanks for calling in. As you saw, a fantastic quarter, we're thrilled with it, we didn't talk about it, but our pretax operating margins continue to be nice and strong, talks to the profitability of the business, we're absolutely thrilled with the record NNA in both of our main businesses, expenses are being well managed so far and will be in the future. So, the outlook is bright and we're thrilled. So, we look forward to hearing from you all in April.
This concludes today's conference call. You may now disconnect.