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TradeStation Group, Inc. (TRAD)

Q1 2010 Earnings Call Transcript

April 22, 2010 11:00 am ET

Executives

David Fleischman – CFO, VP, Finance and Treasurer

Salomon Sredni – Chairman and CEO

Analysts

Mike Vinciquerra – BMO Capital Markets

Patrick O'Shaughnessy – Raymond James & Associates

Christopher Donat – Sandler O’Neill & Partners

John Rowan – Sidoti and Company

Edward Ditmire – Macquarie

Niamh Alexander – Keefe, Bruyette & Woods

Mickey Schleien – Ladenburg Thalmann

William Tanona – Collins Stewart

Operator

Good morning. My name is Louisa, and I will be your conference operator today. At this time, I would like to welcome everyone to the TradeStation Group first quarter 2010 conference call.

All lines have been placed on mute to prevent any background noise. After the speaker’s remarks, there will be a question-and-answer session. (Operator instructions) Thank you.

Mr David Fleischmann, you may begin your conference.

David Fleischman

Thank you Louise. Good morning and welcome to the TradeStation Group first quarter 2010 conference call.

Today’s conference call is being broadcast live over the Internet and will be archived for the next 90 days at www.tradestation.com. We would like to thank all of our listeners, including shareholders, customers, and analysts for joining us this morning. My name is David Fleischmann, Chief Financial Officer of TradeStation Group. Here with me today is Salomon Sredni, our Chairman of the Board and Chief Executive Officer.

By now, you should have seen our financial results released this morning. If you have not, they are available at our company Web site, www.tradestation.com in the Investors Relations section. Also, if you are accessing this call through our Web site, please note that some of the prepared comments you are about to hear are accompanied by graphs and charts, and we invite you to view them as you listen.

Before we start, I would like to emphasize that this conference call will include statements that are forward-looking and are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act. All forward-looking statements are based on current expectations and beliefs, and actual results may differ materially from the results suggested in this conference call.

Factors that may cause or contribute to such differences include those set forth in today’s earnings release, other press releases recently issued, and in the company’s filings with the Securities and Exchange Commission. Please note that the company undertakes no obligation to update any information presented in this conference call.

With that said, it is my pleasure to hand over the call to Salomon Sredni, Chairman of the Board and Chief Executive Officer of TradeStation Group.

Salomon Sredni

Thank you David and good morning everyone. Given the current environment, the 2010 first quarter was another one of solid performance by TradeStation. We once again demonstrated the strength, resiliency, and diversity of our product offering, client base and business model.

It is important here to note that over the last eight years, through both good times and bad in our economy and industry, and all of the ups and downs, TradeStation has continued to grow and be profitable. Despite a continuing tough environment, we generated a 7% increase in our brokerage accounts base year over year and reached record client assets of over $2.1 billion.

In a recent USA Today article on the online brokerage industry, TradeStation was recognized as measured by client trading volume as the seventh largest online brokerage firm in the US. And we have managed this eight-year accomplishment over the past several years buying back over 50 million of our own stock, which is continuing while we maintain no debt.

Let me share with you some of the metrics underlying our first quarter results. DARTs in the 2010 first quarter were over 80,000 indicating a robust level of activity during what is obviously a charging environment for the individual trader market. Please keep in perspective that our DARTs were produced by roughly an average of just 46,000 accounts, a powerful indicator of the leverage of our active trader business model. That is obviously a small fraction of the number of accounts our larger competitors require to produce that many trades. We attribute our strong DART results once again to the strength and diversity of our service offering across various asset classes and the robustness of our business model.

As I stated in earlier calls, our customer base is an important part of our overall growth strategy. We grew to over 47,000 accounts in the first quarter, a record total and a 7% increase in the size of our customer base year over year. Since we released the TradeStation brokerage platform in the third quarter of 2001, we have increased our TradeStation customer account base every quarter, 34 consecutive quarters of record total TradeStation brokerage accounts.

Our brokerage account metrics are once again among the very best in the industry. During the 2010 first quarter, on an annualized basis, our average account traded 434 times and produced over $2,650 in revenue, both substantially higher than the resource produced by the majority of our competitors. Again the (inaudible) client base was clearly demonstrated.

At this point, I would like to turn the call back to David who will review our first quarter 2010 performance from a financial perspective, and I will come back after that to review some more points. David?

David Fleischman

Thank you Sal. For those of you listening through our TradeStation Web site, we again invite you to view the graphs and charts accompanying my comments.

For the quarter ended March 31, 2010 TradeStation Group had a net income of $2.7 million or $0.07 per share. Included in net income was approximately $728,000 or almost $0.02 per share of mark-to-market unrealized gain on TradeStation securities marketable securities, old US Treasury bills and US Treasury notes. The pretax amount of this unrealized gain was $1.2 million. The company’s business outlook published on February 11, 2010 estimated a range for earnings per share of $0.05 to $0.07 and did not anticipate any mark-to-market unrealized gain or loss.

TradeStation Group’s 2010 first quarter net income of $2.7 million or $0.07 per share was the same as 2009 fourth quarter’s net income, and compared to 2009 first quarter net income of $4.7 million or $0.11 per share. Excluding the unrealized gains, we believe our 2010 first quarter’s net income compared to our 2009 fourth quarter’s net income, and 2009 first quarter’s net income was impacted primarily by lower volatility, which resulted in reduced brokerage commissions and fees.

During the 2010 first quarter, the average close of the VIX [ph] was 20.2, a decrease of 55% compared to the 45.0 VIX average during the 2009 first quarter. As compared to the 2009 fourth quarter VIX average of 23.1, the 2010 first quarter VIX average decreased by 13%. Our accounts, which we believe tend to trade actively both intraday and short term, tend to increase their trading substantially as the VIX increases, and more opportunities for intraday and short-term profit arise. Excluding the $1.2 million unrealized gain, first quarter 2010 net revenues of $30.9 million decreased by 14% when compared to first quarter 2009 net revenues of $36 million and decreased by 1% when compared to 2009 fourth quarter net revenues of $31.2 million. As compared to first quarter 2009 again, the variance was the result primarily of lower brokerage commissions and fees.

When looking at the year-over-year comparison, one should once again take into account the higher market volatility in the 2009 first quarter, particularly intraday volatility, and the higher exchange volume a year ago, which we believe resulted in our client base’s trading very actively during the 2009 first quarter. As compared to the 2009 fourth quarter net revenues, once again excluding the 2010 first quarter unrealized gain, the slight variance was due primarily to lower commissions and fees, partially offset by increased net interest income due to our going omnibus for futures on January 4, 2010.

First quarter 2010 net interest income of $2.3 million compared to $1 million in the 2009 first quarter, and $2 million in the 2009 fourth quarter, the year-over-year increase was due primarily to changing our cash investments to US Treasuries. The increase from the 2009 fourth quarter resulted mainly from approximately $280,000 of interest income we derived from our clients’ future accounts following our conversion to omnibus clearing on January 4, 2010. We estimate based on the size and nature of our customer assets as of March 31, 2010 that each basis point increase or decrease and the Treasury bills and notes yield would impact our annual net income by approximately $41,000. Increases or decreases in our aggregate customer cash balances, the weighted average maturity of the Treasury bills and notes, as well as interest we may decide to pay our customers will affect our net interest income, and could cause that $41,000 estimate to vary.

Also impacting our net interest income are fluctuations in customer equities account margin balances. During the 2010 first quarter, those customer margin balances averaged approximately $48 million, a 63% increase compared to $29.4 million during the 2009 first quarter, and a 9% increase compared to the $44 million average margin balances during the 2009 fourth quarter. In preparing our 2010 second quarter business outlook that was published today, we assume that the average customer equities account margin balances will remain at the 2010 first quarter average of approximately $48 million, and that Treasury bills and notes maturing will be reinvested at current treasury yields based upon our assumption that the Federal funds target rate of interest will remain at its current level through the end of 2010.

During the 2010 first quarter, total expenses were $27.6 million compared to $28.1 million in the 2009 first quarter, and $26.6 million in the 2009 fourth quarter. Compared to 2009 first quarter, the decrease was the result primarily of lower clearing and execution cost as a result of reduced trading volume. For the 2010 first quarter, complete compensation and benefits was $11.2 million compared to $10.5 million in the 2009 first quarter. At March 31, 2010, the company had 399 employees compared to 396 employees at December 31, 2009.

For the 2010 first quarter, clearing and execution of $7.2 million, 27% of brokerage commissions and fees compared to 2009 first quarter clearing and execution of $8.8 million, also 27% of brokerage commissions and fees. Decreased trading, mix of business and increased platform and other fees accounted for the dollar variance from the 2009 first quarter. First quarter 2010 data centers and communication costs of $3.5 million was $740,000 higher than the first quarter 2009 costs of $2.8 million. The variance was a result primarily of the increased cost for collocations and circuits.

Marketing, professional services, occupancy and equipment, depreciation cost, and other costs were approximately the same as in the 2009 first quarter. In the 2010 first quarter, the company pursuant to its full-year stock buyback plan spent approximately $3.7 million to purchase 518,169 shares of its common stock at an average per share price of $7.19. Since buying under the plan began November 13, 2006 through March 31, 2010, the company has spent approximately $50.6 million to purchase approximately 5 [ph] million shares at an average share price of $8.92. The buyback plan is scheduled to terminate in November 2010 and no decision has been made at this time whether to continue buyback company shares after that date.

In this morning’s earnings release, we issued our business outlook for the 2010 second quarter. We are estimating for the 2010 second quarter that net revenues will range from $32 million to $34 million, and earnings per share will range from $0.04 to $0.06. When preparing our current business outlook for the 2010 second quarter, we assumed among other things that accounts will average daily revenue per account for each asset class at approximately the same level they averaged during the nine-month period ending March 31, 2010.

We also assume that there will be no further changes to the yield on Treasury building notes through the end of 2010 based upon our assumption that the Federal funds target rate of interest will remain at its current level through the end of the year. If on January 1, 2011 interest rates were to increase by 1 basis point, and we were in a position to reinvest all of our Treasuries maturing between March 31, 2010 and December 31, 2010, we estimate the effect to our annual net income previously mentioned as approximately $41,000 would increase to approximately $54,000 for each basis point.

We also assume that our average customers equity accounts margin balances will remain at the 2010 first quarter average of approximately $48 million and that during the 2010 second quarter there will be no unrealized or mark-to-market gain or loss from our marketable securities. However by year-end December 31, 2010 the $1.2 million unrealized gains recorded in 2010 first quarter is assumed to be reversed. Variations in these or assumptions will likely result in material differences to the estimated results in the business outlook.

That concludes my prepared remarks today concerning our financial statements. I will now turn the call back over to Sal.

Salomon Sredni

Thank you David. Before I begin this part of my presentation, I believe it is important to emphasize the strength of our balance sheet, which reflected at March 31 over $120 million of thoroughly invested cash and marketable securities and shareholders’ equity of over $170 million for $4.24 per share.

I now want to take a few minutes to walk you through some of the things that are happening in the firm that I am excited about. Unlike many companies that cut personnel and other resources in the past two years to address recent economic conditions, TradeStation consciously embraced the opposite approach. We did this seeking to maximize our position to grow market share and revenues when the economy turned around, which by most indications it has started to do.

As part of our approach, we have aggressively worked in at least five major areas, which I will cover with you today. First, we have sought to increase head count in our product development department, the engine that drives the uniqueness and quality of our products and services. Cutting edge technology and features are what has made us the choice of the active trader and that must continue. From January 1 of 2007 through March 31 of 2010, we have grown our product development department from 85 people to 135, nearly a 60% increase. As I discuss some of the initiatives we have in place, you will begin to see some of the benefits of this investment.

Second, we have continued the process of launching and enhancing the quality of our new institutional prime services division, which focuses on smaller buy side institutional traders. This is a new, large market recently created by those traders’ needs for multiple custodians and their inability to obtain service from the large prime brokerage firms. We are already generating some revenues from this new division and continue to build out the systems and processes we believe are needed to succeed in this space. This new division intends to provide a valuable combination or state of the art execution platforms, reliable clearance and settlement of trades, first-class service and support, real time risk management, portfolio reporting, (inaudible) lending, commission sharing arrangements, and capital introduction to its clients. TradeStation securities also now has a full membership and direct access operation on the floor of the NYSE to accommodate clients who will make some of their trades on the NYSE floor, and we have recently opened the TradeStation prime services office at 400, Madison Avenue in New York City.

Third, this quarter we upgraded our futures offering by becoming an omnibus clearing futures commission merchant meaning that we no longer place our clients’ funds and assets with a third-party clearing firm. This allows our customers to maintain their accounts directly with TradeStation with no other futures firm in the picture. Our goal in futures clearance is to allow for the most flexible and comprehensive service to a new area of end users and to drive our clearing cost down as we did when we converted to self clearing for equities and options.

Four, we are in the process of transitioning our forex business by becoming a riskless principal to our clients using systems and relationships we will indeed offer at tighter price superior offering for the retail forex market. This means that we are transforming our forex business from our fully disclosed operation where we introduce clients to our third party to one of our TradeStation acts as a principal and directs aggregative pricing from a multitude of providers to our customers. This new structure should benefit our forex clients by offering even better pricing, more flexible clearing and settlement arrangements and giving them the comfort that they were dealing directly with TradeStation and no other firm. We are hoping that this new structure will be attractive to serve institutional forex traders, which will need to be a big new market opportunity for us.

Fifth is a TradeStation Strategy Network, which I hope everybody knows was launched in February after a close of two years of development. This electronic marketplace of strategies allows all of our brokerage customers to review and subscribe to third-party strategies, supplied by independent trading strategies and offers located throughout the United States. All of these developer strategies are back tested on a daily basis and daily cumulative performance rankings are posted so that our customer can see which cumulative result have looked the most successful like our Morning Star old strategies for the active traders. We look forward to increase interest and activity in the TradeStation platform as customers are presenting with numerous strategy trading ideas to evaluating corporate into their self-directed online trading. This offering is aimed at customers who believe in strategic trading and are looking for ideas to help them get started or to increase the trading activity.

Some early results are encouraging. So far, we have 113 trading software developers that have been approved by us to participate and 34 of them have delivered strategy trading products for us to display in our strategy network. Nearly 150 separate strategy trading products from those developers are now active on our site and an additional 80 are waiting on the wings. So far the site has had over 10,000 unique visitors. We are very excited about this offering and how we think it will grow and draw more and more accounts to our growing active trader community.

To summarize, this does together with numerous orders in progress and on the drawing board are aimed towards our goal to increase market share and move to the next step as a major electronic brokerage service provider in the United States. In today’s trading environment and investment environment, we have confidence and trust in investing investment advisors, market research, and other traditional brokerage services. At an all-time low, we believe active individual traders now more than ever will be seeking sub-directed unconflicted disciplined online trading services solutions to meet their needs, and we believe TradeStation should be their choice. I again want to thank our employees for their outstanding achievement and their continued dedication and focus and hard work. They deserve the credit for our success.

That concludes our prepared remarks for today and I will now ask the operator to open the floor for questions.

Question-and-Answer Session

Operator

(Operator instructions) Your first question comes from Mike Vinciquerra from BMO Capital Markets, your line is now open.

Mike Vinciquerra – BMO Capital Markets

Good morning guys.

David Fleischman

Good morning Mike.

Mike Vinciquerra – BMO Capital Markets

David, I just want to clarify on your comment on the rate sensitivity, just to make sure I have got it, you said it was $41,000 per basis point today but the $64,000 is essentially same and you have got some maturities that are longer than overnight, and therefore if you could re-price everything at the same time with the rate increase, you get $64,000 per basis point, is that right?

David Fleischman

That is correct. The maturities – it is those treasuries that would mature between March 31 and December 31 of this year.

Mike Vinciquerra – BMO Capital Markets

Got it.

David Fleischman

Okay, if those matured and we had them all available, then it would go up to $64,000.

Mike Vinciquerra – BMO Capital Markets

Okay, thank you. Just want to ask, I know one of your competitors, online competitors interactive had changed their futures pricing, and when I looked at it, it looked awfully similar to the way you guys price now for your high volume client. Any potential impact that you have seen from that or do you expect any impact from that higher level pricing competition?

Salomon Sredni

Hi it is Sal. We monitored and see what that does, so far it has not impacted us but our interactive brokers compete basically on the basis of price. We provide value with service and our technology, mostly technology driven and we feel that our pricing is certainly more than fair.

Mike Vinciquerra – BMO Capital Markets

Okay, good enough. Can you give us any sort of legal update on the situation in Canada?

Salomon Sredni

Nothing to update there. It is with the regulators we continue to believe that it is not a material item.

Mike Vinciquerra – BMO Capital Markets

Are you doing any business with Canadian clients at this point or is that essentially been completely cut off?

Salomon Sredni

Almost nothing.

Mike Vinciquerra – BMO Capital Markets

Very good, thank you guys.

David Fleischman

Thanks Mike.

Operator

Your next question comes from the line of Patrick O'Shaughnessy of Raymond James & Associates. Your line is now open.

Patrick O'Shaughnessy – Raymond James & Associates

Hi, good morning guys.

David Fleischman

Good morning Patrick.

Patrick O'Shaughnessy – Raymond James & Associates

So, if I looked at the guidance that you guys put out for the second quarter, revenue between $32 million and $34 million and then EPS between $0.04 and $0.06, if I take the mid point of that revenue as $33 million and to get to the mid point of EPS estimate, I am calculating about a 7% sequential growth in expenses, does that sound right to you and if so, can you kind of describe where that expense growth will be coming from?

David Fleischman

Actually, I cannot comment on the 7% but I will say this that next quarter we do anticipate some of our expenses going up, for instance this quarter we spent less on marketing than we originally anticipated and we think that that might go up next quarter. Also we have some built in additional employee comp, which depending on if we hire some additional people, which might or might not happen. But otherwise the rest of our expenses should be fairly consistent with the first quarter.

Salomon Sredni

I think as we look at the second half of this year just to add some color to that, we expect some of the stuff that we have that we have been baking to start making some contribution. So, one thing I will mention is prime brokerage services in getting that up and running and getting bigger contribution from that. We also expect to launch EUREX execution late this summer. And by the way, when we launch EUREX execution, customers will have the ability to fund an account in foreign currency, and make withdrawals, and track their balances in foreign currency. So we expect as you look at the second half for it to be more traction from that perspective, and see some greater contribution from those initiatives.

Patrick O'Shaughnessy – Raymond James & Associates

Understood and then touching on a point that David talked about, the advertising spend, when we looked at some of your larger competitors in the space (inaudible) really ratcheted up their marketing spend in the first quarter, they seem to have some success with that, and so David it sounds like going forward maybe off of what they did but maybe also just as you implement the new marketing strategy, you guys might be ramping up your activities as well?

Salomon Sredni

Yes, correct, we ratcheted it down first quarter, as you named it, we have a new ad agency, we have new creative out there, and as we fine tune that we intend to increase a little bit more what we are doing but again marking numbers compared to the competition for us are relatively small.

Patrick O'Shaughnessy – Raymond James & Associates

Yes, right and then the last one from me and then I will get back in the queue, you had a little bit of a bump in your net new account number this quarter as compared to the last two, are you seeing a pick up in gross new accounts, is that maybe something to do with attrition, and then I guess taking a little bit longer view, how do you feel about your pace in picking up new accounts, is this kind of a rate that you are comfortable with or do you expect to see some acceleration from here?

Salomon Sredni

The increase you see in net new accounts is directly related to an increase in gross accounts. Attrition has been fairly consistent. Although historically third quarter has been – we have seen attrition increase in prior years, it has been relatively consistent for the last two quarters. It is no secret that it is a tough environment out there I think if you look at what our competitors have reported, they have been done account ads [ph] to say that I would be happy with our account ads would be not right. I will continue to fine tune our message, continue to focus our marketing message so we can get more than a fresh air. We also intend to launch a brand new kind of opening process which is fairly state of the art later this summer, which will hopefully help us, and we just implemented this quarter a new CRM system, which we hope will help us fine tune our marketing spend.

Patrick O'Shaughnessy – Raymond James & Associates

Understood, thank you very much guys.

David Fleischman

Thank you.

Operator

Your next question comes from the line of Christopher Donat of Sandler O’Neill & Partners. Your line is now open.

Christopher Donat – Sandler O’Neill & Partners

Good morning Sal, good morning David.

David Fleischman

Good morning.

Salomon Sredni

Good morning.

Christopher Donat – Sandler O’Neill & Partners

Since no one else has asked it yet I might as well just ask how April is going to secure a comment on it.

David Fleischman

Sure. So far Tuesday our dots [ph] were about 76,000.

Christopher Donat – Sandler O’Neill & Partners

I do not know if you will provide the detail but I will ask it anyway, we had a spike in volatility about a week ago with the Goldman Sachs news from the SEC, then in terms of the guidance you give for the second quarter, is that sort of spike in volatility and I assume you had some pretty good trading around those couple of days, was that part of that – how you phrase it, your stub period for April?

Salomon Sredni

Remember that what we do is to the extent we have the data available, we include actual data but we assume in terms of trading for account metrics, the statistics are the last in effect nine months ending on March 31. I will tell you that volatility from Goldman was short-lived and not something that I think hits the radar?

Christopher Donat – Sandler O’Neill & Partners

Okay.

Salomon Sredni

If you look at the VIX, its stake is fairly low.

Christopher Donat – Sandler O’Neill & Partners

Yes, it looks like it –

David Fleischman

It is down.

Christopher Donat – Sandler O’Neill & Partners

Yes, back to normal unfortunately. And then in terms of the initiatives you talked about the omnibus FXCM, is that something that will affect your clearing and execution cost, is that the way we will be able to see it or will it be relatively small impact near term?

Salomon Sredni

In general terms, it gives us a little bit of savings but it is not much. We are doing it for in effect more on the side of customer quality and with experience and we see it gives us an ability to look at the unit over cost, which we will continue to focus on and build.

Christopher Donat – Sandler O’Neill & Partners

Okay and then lastly for me in terms of the TradeStation Strategy Network, you likened it to a morning star, I am just wondering is there also maybe a little bit of an ipod aps store [ph] and the reason I am asking is are there economics to you from that software if your customers or if anyone paying for it, you get a slice of that?

Salomon Sredni

The shortest answer to your question is yes, there is some quality comparable to the Apple store, the iStore, but the reality is that what we are doing is providing clients with trading ideas, the way we benefit is to the extent that they trade with those ideas. Obviously they trade here, we do not collect any revenue from the revolver.

Christopher Donat – Sandler O’Neill & Partners

Okay, thanks that is helpful.

Operator

Your next question comes from the line of John Rowan with Sidoti and Company. Your line is now open.

John Rowan – Sidoti and Company

Good morning.

David Fleischman

Good morning.

Salomon Sredni

Good morning.

John Rowan – Sidoti and Company

Just so I understand, you have maintained $0.27 to $0.46 earnings guidance for 2010, right?

David Fleischman

That is correct.

John Rowan – Sidoti and Company

But that assumes a reversal of mark-to-market gains by the end of the year so there would be one other quarter where you would basically take $0.02 out of earnings.

David Fleischman

That is correct.

John Rowan – Sidoti and Company

Okay. I was a little surprised the data and communication costs were a little bit higher than I was anticipated, is there anything kind of one-time in that number?

Salomon Sredni

No unfortunately data continued to increase just because the amount of data even though volatility is down and trading may be down, the amount of data we get from the exchanges continues to increase specially as they broke us more and more data. I think obviously we are always very focused in trying to bring cost down and that is an area where we are always trying to do and we are always doing stock but they have increased over time.

John Rowan – Sidoti and Company

And then one last question, can you just give me an update as to where the (inaudible) was at least or where we stand of in terms of the push to lower forex margins and have you seen impacting your business if that were to in fact happen?

Salomon Sredni

Good question. It is very difficult to predict, if you would have asked me two months ago, I would have told you it was virtually certain, and if you ask me today I will tell you the latest feedback I heard is that there has been so much push back that it is not likely to happen. The reality is that to the extent they limit leverage in the US what that would do is in effect push business outside the US, and I think that all of us who are interested in forex that would push the business outside the US. It is impossible to comment on what is going to happen but I think that there has been some significant push back in the US for limiting those margins.

John Rowan – Sidoti and Company

Thank you.

Salomon Sredni

You are welcome.

Operator

Your next question comes from the line of Edward Ditmire with Macquarie. Your line is now open.

Edward Ditmire – Macquarie

Good morning guys.

David Fleischman

Good morning.

Salomon Sredni

Good morning.

Edward Ditmire – Macquarie

I had a question here, based on your previous guidance on first quarter 2010 expectations, the trading slowed down and the revenue came in well below your guidance range, you guys were able to maintain your earnings guidance. Do you foresee enough flexibility in the cost base to maintain say the bottom end of your 2Q guidance even as the revenues fall materially outside the guidance range?

Salomon Sredni

You know Ed I think that whether or not we end up in that range will have to do with volatility and revenue. I think there is limited flexibility on the cost side. I mean, clearly given where trading has been, we are probably somewhere – we are comfortable with the lower end of that range but the reality is that remember that our current view is that volatility or trading activity will reflect that of the nine months ended March 31.

So I think the short answer to your question is that where we end up and obviously we will re-visit at the end of next quarter will largely depend on volatility and where our revenues end up not a cost players. You know we have large amount of fixed costs and we live and we die (inaudible) trading increases, we get a big bump, but as trading decreases, this is the impact we get.

Edward Ditmire – Macquarie

Got you. Like I said, the first quarter seems like it was materially – the revenues were materially below your guidance range, I would have felt the same thing last quarter.

David Fleischman

Mix of business also plays a part in that. So it depends on which asset class is trading more or less each quarter.

Edward Ditmire – Macquarie

Okay, thanks a lot guys.

David Fleischman

Thanks Ed.

Operator

Your next question comes from the line of Niamh Alexander with Keefe, Bruyette & Woods. Your line is now open.

Niamh Alexander – Keefe, Bruyette & Woods

Thank you and good morning.

David Fleischman

Good morning.

Niamh Alexander – Keefe, Bruyette & Woods

If I could just touch on M&A gentlemen, we saw cash in the balance sheet and a steady repurchase, how is the environment changed, how are maybe seller discussions? Because you talked before of maybe acquiring something (inaudible) in the institutional space, has anything kind of changed pace there in terms of discussions?

Salomon Sredni

We continue to always look at our potential opportunities but nothing to discuss today unfortunately.

Niamh Alexander – Keefe, Bruyette & Woods

Okay. And then the EUREX, so just to understand, you are rolling out ability for your US client base to trade I guess futures or equities or anything on, is it just futures that is on the EUREX or the entire (inaudible)?

Salomon Sredni

It is predominantly futures but it is not uniquely US based. Again, we are going to allow all of our customers whether here or in Europe to trade those futures in EUREX. So it opens up, I mean, there is obviously a large market and we have quite a presence in customer base in Europe that has been waiting for us throughout EUREX. So the idea is to leverage that and really to help with clients here, more importantly clients over there. It also opens an opportunity for clients here mostly institutional but also trade EUREX.

Niamh Alexander – Keefe, Bruyette & Woods

Great so just to understand that right now in Europe, is there a way so that I can measure maybe how much of your customers are already kind of trading US products in Europe that might be interested to trade a local product too.

David Fleischman

About 13% of all of our revenues does come from outside the United States. So, if you want any stats, a lot of it comes from brokerage customers who trade in US markets and the rest comes from people who just subscribe to our platform.

Niamh Alexander – Keefe, Bruyette & Woods

Okay that is helpful, thanks. We have seen some of the international exchanges benefit as they start rolling out US products so we would expect some of your guys to trade the products to abroad. I guess product mix, is there any way you could help me understand if there was much of a mixed shift in products this quarter versus last and then through the quarter because it also kind of helps us understand the fee like options versus futures versus equity.

Salomon Sredni

Sure. I think if you are comparing Q4 09 to Q1 10 we saw that equity DARTs were up slightly. Futures were flat to just slightly down, equities DARTs being up usually means that we have less commissions and fees and this goes to (inaudible) question, lower commissions and fees but we will have a higher profit margin on that.

Niamh Alexander – Keefe, Bruyette & Woods

Okay, that is helpful thanks. Just at the (inaudible) you mentioned last quarter that you typically have these successful classes for bringing in new customers but that you will run a webcast, were you able to kind of run another one or were there any conversion from the webcast versus more traditional class that where you have fewer people that can attend?

Salomon Sredni

I do not want to go into specific details outside of telling you that we have increased the frequency of our webinars that are free for customers and we hope by next quarter to have one a day. So that is clearly a strategy that we are implementing as we move forward with our marketing and it is basically people can attend at their leisure. We will have a daily call basically showing the benefits of other platform in real life trading environment.

Niamh Alexander – Keefe, Bruyette & Woods

That is a helpful thought, have you had any conversions of new accounts from those yet?

Salomon Sredni

Yes.

Niamh Alexander – Keefe, Bruyette & Woods

Anything you are willing to share?

Salomon Sredni

No.

Niamh Alexander – Keefe, Bruyette & Woods

Okay, got to ask anyway.

Salomon Sredni

Thank you for asking.

Niamh Alexander – Keefe, Bruyette & Woods

Thanks gentlemen, I will get back in queue.

David Fleischman

Take care.

Operator

Your next question comes from the line of Mickey Schleien with Ladenburg Thalmann. Your line is now open.

Mickey Schleien – Ladenburg Thalmann

Thank you. My question has already been answered.

David Fleischman

Thank you Mickey.

Operator

Your next question comes from the line of William Tanona with Collins Stewart. Your line is now open.

William Tanona – Collins Stewart

Good afternoon guys.

David Fleischman

Good afternoon Bill.

William Tanona – Collins Stewart

I apologize if some of you guys have already touched upon this, I know you talked about the net new account ads, but was there any change in terms of the gross new account ads versus the attrition? Obviously, we saw a pretty good uptick there from last quarter.

Salomon Sredni

Bill, it is all gross new accounts. The attrition was pretty much consistent quarter to quarter.

William Tanona – Collins Stewart

Okay that is helpful. And then as you guys think about the longer term strategy, obviously we have hit somewhat of a lull here on the net new account side of the business, I think undeniably you guys have great technology, you have a great platform and everybody would acknowledge that. I think the biggest issue that everybody would be concerned with is obviously the net new account growth. Just wondering if you have any type of longer-term strategy to try to appeal to the masses given that you have got such a strong platform to try to accelerate some of your net new account growth.

Salomon Sredni

Good question. The answer is that we are really focused on how we can leverage what we do best. I think that there are mass market brokerage firms out there that are doing a pretty good job and I think to go compete with them today will be something that quite frankly anybody who tells you that they are going to beat the big boys, I think you have to be unique and you need to find a way to differentiate and add value.

The way I feel we continue to grow is we are adding additional products like for example EUREX. I also think there is a tremendous opportunity as I have said in Forex, and the third thing we are adding to that is really this way of growing what I call off the food chain with the institutional, so you can grow by either going down to the mass market or try to generate more institutional business and I have chosen to go up rather than down. I think if we go up, given the power of platform, we can get better traction than trying to provide a ME2 product in a market that is already saturated today with some pretty big gorillas. Does that answer your question?

William Tanona – Collins Stewart

It does, it is like I guess, with that response I guess, I would interpret that you still feel that there is a huge opportunity for your niche market and that is what you want to focus on as opposed to having your market be saturated and look for other opportunities.

Salomon Sredni

I am always looking for other opportunities but at the end of the day, I want to make sure I have a differentiator product with some barriers of entry and make sure I can compete and win.

William Tanona – Collins Stewart

Thank you.

Operator

(Operator instructions) Your next question comes from the line of Christopher Donat with Sandler O’Neill & Partners. Your line is now open.

Christopher Donat – Sandler O’Neill & Partners

Hi guys, I just want to ask one follow-up on the (inaudible) plan. I know you said you have not made any decisions on what you will do with it when it terminates in November, but can you walk through sort of what the thought process is and what factors you are looking at as you consider that?

David Fleischman

Chris, we look at this, we discuss it all the time internally, what is the best use of our cash is and where we think it should be going forward, and when we have something to say about it that is when we will tell the world, but at this point it is just an ongoing discussion.

Christopher Donat – Sandler O’Neill & Partners

Okay, thanks for that.

Operator

There are no other further questions at this time. I would now like to turn the call back over to our presenters for closing remarks.

David Fleischman

Thank you. There being no further questions, we would like to thank all of you for joining us this morning. We appreciate your support and look forward to our next conference.

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