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CST: 17/06/2019 00:12:14   

LPL Financial Announces Fourth Quarter and Full Year 2018 Results

136 Days ago

Fourth Quarter 2018 Key Performance Indicators

  • Earnings per share ("EPS") increased 97% year-over-year to $1.36.
    • Net Income increased 88% year-over-year to $120 million.
  • EPS prior to Amortization of Intangible Assets** increased 96% year-over-year to $1.49.
  • Total Brokerage and Advisory Assets increased 2% year-over-year to $628 billion.
  • Total Net New Assets were an inflow of $5.9 billion, translating to a 3.5% annualized growth rate.
    • Net new advisory assets were an inflow of $5.0 billion, translating to a 6.5% annualized growth rate.
    • Net new brokerage assets were an inflow of $0.9 billion, translating to a 1.0% annualized rate.
    • Recruited Assets(1) were $8.6 billion in Q4, and $27.3 billion for the year, up 9% from the prior year.
    • Advisor count was 16,109 and production retention rate for the year was 96%.
  • Total client cash sweep balances increased 24% sequentially to $34.9 billion.
    • Total client cash sweep balances as a percent of total assets was 5.6%, up from 4.1% in the prior quarter.
  • Gross Profit** increased 26% year-over-year to $508 million.
  • EBITDA** increased 67% year-over-year to $232 million.
    • EBITDA** as a percentage of Gross Profit** was 46%, up from 35% a year ago.
    • Core G&A** increased 11% year-over-year to $216 million, up 3% sequentially, including $2 million of expenses related to the acquisition of AdvisoryWorld.
  • Shareholder capital returns were $139 million, translating to $1.58 per share.
    • Share repurchases were $118 million for 1.9 million shares at an average purchase price of $61.19.
    • Weighted average fully diluted share count was 88.2 million, down 2% sequentially and down 5% year-over-year.
    • Dividends were $22 million.
  • Cash available for corporate use was $339 million.
  • Credit Agreement Net Leverage Ratio(2) was 2.15x, down 0.09x from the prior quarter.

Full Year 2018 Key Performance Indicators

  • EPS increased 87% year-over-year to $4.85.
    • Net Income increased 84% year-over-year to $439 million. 
  • EPS prior to Amortization of Intangible Assets** increased 88% year-over-year to $5.33.
  • Gross Profit** increased 25% year-over-year to $1,948 million.
  • EBITDA** increased 40% year-over-year to $866 million.
    • EBITDA** as a percentage of Gross Profit** was 44%, up from 40% a year ago.
    • Core G&A** was $819 million, including $2 million of expenses related to the acquisition of AdvisoryWorld.
  • Shareholder capital returns were $506 million, translating to $5.59 per share.
    • Share repurchases were $418 million for 6.5 million shares at an average purchase price of $63.96.
    • Dividends were $88 million.
Key Updates
  • Increased fixed ICA balances to ~35% of total ICA portfolio, up from ~10% in Q3.
  • Updated 2019 Core G&A** Outlook range to $850 to $875 million to include ~$5 million of costs related to AdvisoryWorld.
  • Provided capital plan updates in 8-K filed on December 4, 2018:
    • Lowered target credit agreement net leverage ratio to a range of 2.00x to 2.75x, from 3.25x to 3.5x.
    • Increased share repurchase authorization to $1 billion as of December 31, 2018.

SAN DIEGO, Jan. 31, 2019 (GLOBE NEWSWIRE) -- LPL Financial Holdings Inc. (Nasdaq: LPLA) (the “Company”) today announced results for its fourth quarter ended December 31, 2018, reporting net income of $120 million, or $1.36 per share. This compares with $64 million, or $0.69 per share, in the fourth quarter of 2017 and $107 million, or $1.19 per share, in the prior quarter.

"Over the past year, we delivered solid business and financial results as we increased organic growth and completed our acquisition of NPH," said Dan Arnold, President and CEO.  "As we look forward, we remain focused on serving our advisors and helping them differentiate and win in the marketplace.  Our efforts include delivering best-in-class digital capabilities and tools, including our acquisition of AdvisoryWorld. We believe our strategy positions us to continue driving long-term growth and shareholder value.”

“In 2018, we grew assets and gross profit, remained disciplined on expenses while increasing our investments in organic growth, and returned capital to shareholders," said Matt Audette, CFO. “As a result, we grew earnings per share over 80 percent for the year. In Q4, we continued to enhance our financial strength and stability by increasing the duration of our ICA portfolio and lowering our target leverage, while also establishing a new share repurchase authorization. Looking forward, we believe our business results and financial strength position us well to continue creating long-term shareholder value.”

Dividend Declaration
The Company's Board of Directors declared a $0.25 per share dividend to be paid on March 29, 2019 to all stockholders of record as of March 15, 2019.

Conference Call and Additional Information
The Company will hold a conference call to discuss its results at 5:00 p.m. EST on Thursday, January 31.  To listen, call 877-677-9122 (domestic) or 708-290-1401 (international); passcode 4798087, or visit investor.lpl.com (webcast).  Replays will be available by phone and on investor.lpl.com beginning two hours after the call and until February 7 and February 21, respectively.  For telephonic replay, call 855-859-2056 (domestic) or 404-537-3406 (international); passcode 4798087.

About LPL Financial
LPL Financial is a leader in the retail financial advice market and the nation’s largest independent broker-dealer*. We serve independent financial advisors and financial institutions, providing them with the technology, research, clearing and compliance services, and practice management programs they need to create and grow their practices.  LPL enables them to provide objective guidance to millions of American families seeking wealth management, retirement planning, financial planning and asset management solutions.  LPL.com

*Based on total revenues, Financial Planning magazine June 1996-2018.

Securities and Advisory Services offered through LPL Financial. A Registered Investment Advisor, Member FINRA/SIPC.

**Non-GAAP Financial Measures

Management believes that presenting certain non-GAAP financial measures by excluding or including certain items can be helpful to investors and analysts who may wish to use this information to analyze the Company’s current performance, prospects, and valuation. Management uses this non-GAAP information internally to evaluate operating performance and in formulating the budget for future periods. Management believes that the non-GAAP financial measures and metrics discussed below are appropriate for evaluating the performance of the Company.

EPS Prior to Amortization of Intangible Assets is defined as GAAP EPS plus the per share impact of Amortization of Intangible Assets. The per share impact is calculated as Amortization of Intangible Assets expense, net of applicable tax benefit, divided by the number of shares outstanding for the applicable period. The Company presents EPS Prior to Amortization of Intangible Assets because management believes that the metric can provide investors with useful insight into the Company’s core operating performance by excluding non-cash items that management does not believe impact the Company’s ongoing operations. EPS Prior to Amortization of Intangible Assets is not a measure of the Company's financial performance under GAAP and should not be considered as an alternative to GAAP EPS or any other performance measure derived in accordance with GAAP. For a reconciliation of EPS Prior to Amortization of Intangible Assets to GAAP EPS, please see footnote 34 on page 20 of this release.

Gross Profit is calculated as net revenues, which were $1,317 million for the three months ended December 31, 2018, less commission and advisory expenses and brokerage, clearing, and exchange fees, which were $793 million and $16 million, respectively, for the three months ended December 31, 2018. All other expense categories, including depreciation and amortization of fixed assets and amortization of intangible assets, are considered general and administrative in nature. Because the Company’s gross profit amounts do not include any depreciation and amortization expense, the Company considers its gross profit amounts to be non-GAAP financial measures that may not be comparable to those of others in its industry. Management believes that Gross Profit can provide investors with useful insight into the Company’s core operating performance before indirect costs that are general and administrative in nature.

Core G&A consists of total operating expenses, which were $1,123 million for the three months ended December 31, 2018, excluding the following expenses: commission and advisory, regulatory charges, promotional, employee share-based compensation, depreciation and amortization, amortization of intangible assets, and brokerage, clearing, and exchange. Management presents Core G&A because it believes Core G&A reflects the corporate operating expense categories over which management can generally exercise a measure of control, compared with expense items over which management either cannot exercise control, such as commission and advisory expenses, or which management views as promotional expense necessary to support advisor growth and retention including conferences and transition assistance. Core G&A is not a measure of the Company’s total operating expenses as calculated in accordance with GAAP. For a reconciliation of Core G&A against the Company’s total operating expenses, please see footnote 5 on page 18 of this release. The Company does not provide an outlook for its total operating expenses because it contains expense components, such as commission and advisory expenses, that are market-driven and over which the Company cannot exercise control. Accordingly a reconciliation of the Company’s outlook for Core G&A to an outlook for total operating expenses cannot be made available without unreasonable effort.

EBITDA is defined as net income plus interest expense, income tax expense, depreciation, amortization and loss on extinguishment of debt. The Company presents EBITDA because management believes that it can be a useful financial metric in understanding the Company’s earnings from operations. EBITDA is not a measure of the Company's financial performance under GAAP and should not be considered as an alternative to net income or any other performance measure derived in accordance with GAAP, or as an alternative to cash flows from operating activities as a measure of profitability or liquidity. In addition, the Company’s EBITDA can differ significantly from EBITDA calculated by other companies, depending on long-term strategic decisions regarding capital structure, the tax jurisdictions in which companies operate, and capital investments.

Credit Agreement EBITDA is defined in, and calculated by management in accordance with, the Company's credit agreement (“Credit Agreement”) as “Consolidated EBITDA,” which is Consolidated Net Income (as defined in the Credit Agreement) plus interest expense, tax expense, depreciation and amortization and further adjusted to exclude certain non-cash charges and other adjustments, including unusual or non-recurring charges and gains, and to include future expected cost savings, operating expense reductions or other synergies from certain transactions, including the Company's acquisition of the broker/dealer network of National Planning Holdings, Inc. ("NPH"). The Company presents Credit Agreement EBITDA because management believes that it can be a useful financial metric in understanding the Company’s debt capacity and covenant compliance under its Credit Agreement. Credit Agreement EBITDA is not a measure of the Company's financial performance under GAAP and should not be considered as an alternative to net income or any other performance measure derived in accordance with GAAP, or as an alternative to cash flows from operating activities as a measure of profitability or liquidity. In addition, the Company’s Credit Agreement-defined EBITDA can differ significantly from adjusted EBITDA calculated by other companies, depending on long-term strategic decisions regarding capital structure, the tax jurisdictions in which companies operate, capital investments, and types of adjustments made by such companies.

Forward-Looking Statements
Statements in this press release regarding the Company's future financial and operating results, growth, priorities and business strategies, including forecasts and statements relating to future expenses (including 2019 Core G&A** outlook), enhanced capabilities and tools, long-term growth and shareholder value, and capital deployment, as well as any other statements that are not related to present facts or current conditions or that are not purely historical, constitute forward-looking statements. These forward-looking statements are based on the Company's historical performance and its plans, estimates, and expectations as of January 31, 2019. Forward-looking statements are not guarantees that the future results, plans, intentions, or expectations expressed or implied will be achieved. Matters subject to forward-looking statements involve known and unknown risks and uncertainties, including economic, legislative, regulatory, competitive, and other factors, which may cause actual financial or operating results, levels of activity, or the timing of events, to be materially different than those expressed or implied by forward-looking statements. Important factors that could cause or contribute to such differences include: changes in general economic and financial market conditions, including retail investor sentiment; changes in interest rates and fees payable by banks participating in the Company's cash sweep program, the Company's strategy and success in managing cash sweep program fees; changes in the growth and profitability of the Company's fee-based business; fluctuations in the levels of advisory and brokerage assets and the related impact on revenue; effects of competition in the financial services industry and the success of the Company in attracting and retaining financial advisors and institutions; whether the retail investors served by newly-recruited advisors choose to move their respective assets to new accounts at the Company; the effect of current, pending and future legislation, regulation and regulatory actions, including disciplinary actions imposed by federal and state securities regulators and self-regulatory organizations; the costs of settling and remediating issues related to regulatory matters or legal proceedings, including actual costs of repurchasing securities from investors in excess of our estimates; changes made to the Company’s offerings, services, and pricing, and the effect that such changes may have on the Company’s gross profit streams and costs; execution of the Company's plans and its success in realizing the synergies, expense savings, service improvements, and/or efficiencies expected to result from its initiatives and programs, and the other factors set forth in Part I, “Item 1A. Risk Factors” in the Company's 2017 Annual Report on Form 10-K, as may be amended or updated in the Company's 2018 Annual Report on Form 8-K, Quarterly Reports on Form 10-Q or other filings with the SEC. Except as required by law, the Company specifically disclaims any obligation to update any forward-looking statements as a result of developments occurring after the date of this earnings release, even if its estimates change, and you should not rely on statements contained herein as representing the Company's views as of any date subsequent to the date of this press release.


LPL Financial Holdings Inc.
Condensed Consolidated Statements of Income
(In thousands, except per share data)
(Unaudited)

  Three Months Ended  December 31,       Years Ended  December 31,    
  2018   2017   %  Change   2018   2017   %  Change
REVENUES                      
Commission $ 469,923     $ 425,943     10%   $ 1,919,694     $ 1,670,824     15%
Advisory 474,102     375,928     26%   1,793,493     1,409,247     27%
Asset-based 265,681     193,707     37%   972,515     708,333     37%
Transaction and fee 119,254     103,145     16%   471,299     424,667     11%
Interest income, net of interest expense 11,784     6,542     80%   40,210     24,473     64%
Other (23,702 )   11,177     n/m   (8,811 )   43,937     n/m
Total net revenues 1,317,042     1,116,442     18%   5,188,400     4,281,481     21%
EXPENSES                      
Commission and advisory 793,310     697,725     14%   3,177,576     2,669,599     19%
Compensation and benefits 132,766     119,748     11%   506,650     456,918     11%
Promotional 45,141     60,066     (25%)   208,603     171,661     22%
Depreciation and amortization 21,897     20,138     9%   87,656     84,071     4%
Amortization of intangible assets 15,672     9,997     57%   60,252     38,293     57%
Occupancy and equipment 30,750     26,343     17%   115,598     97,332     19%
Professional services 24,428     20,675     18%   85,651     71,407     20%
Brokerage, clearing and exchange 16,000     15,480     3%   63,154     57,047     11%
Communications and data processing 11,776     12,416     (5%)   46,322     44,941     3%
Other 31,103     25,070     24%   119,278     96,210     24%
Total operating expenses 1,122,843     1,007,658     11%   4,470,740     3,787,479     18%
Non-operating interest expense 31,756     28,894     10%   125,023     107,025     17%
Loss on extinguishment of debt         n/m       22,407     n/m
INCOME BEFORE PROVISION FOR INCOME TAXES 162,443     79,890     103%   592,637     364,570     63%
PROVISION FOR INCOME TAXES 42,145     15,792     167%   153,178     125,707     22%
NET INCOME $ 120,298     $ 64,098     88%   $ 439,459     $ 238,863     84%
EARNINGS PER SHARE                      
Earnings per share, basic $ 1.40     $ 0.71     97%   $ 4.99     $ 2.65     88%
Earnings per share, diluted $ 1.36     $ 0.69     97%   $ 4.85     $ 2.59     87%
Weighted-average shares outstanding, basic   85,976       89,921     (4%)     88,119       90,002     (2%)
Weighted-average shares outstanding, diluted   88,163       92,386     (5%)     90,619       92,115     (2%)
                       


LPL Financial Holdings Inc.
Condensed Consolidated Statements of Income Trend
(In thousands, except per share data)
(Unaudited)

  Quarterly Results
  Q4 2018   Q3 2018   Q2 2018
REVENUES          
Commission $ 469,923     $ 486,875     $ 488,085  
Advisory 474,102     458,087     438,917  
Asset-based 265,681     248,895     238,603  
Transaction and fee 119,254     118,941     116,455  
Interest income, net of interest expense 11,784     10,512     10,133  
Other (23,702 )   7,687     6,611  
Total net revenues 1,317,042     1,330,997     1,298,804  
EXPENSES          
Commission and advisory 793,310     821,950     800,619  
Compensation and benefits 132,766     128,007     122,360  
Promotional 45,141     52,628     43,407  
Depreciation and amortization 21,897     22,838     22,220  
Amortization of intangible assets 15,672     15,676     15,682  
Occupancy and equipment 30,750     30,308     26,904  
Professional services 24,428     23,129     15,922  
Brokerage, clearing and exchange expense 16,000     15,844     15,433  
Communications and data processing 11,776     12,334     11,038  
Other 31,103     29,219     30,370  
Total operating expenses 1,122,843     1,151,933     1,103,955  
Non-operating interest expense 31,756     31,705     31,940  
INCOME BEFORE PROVISION FOR INCOME TAXES 162,443     147,359     162,909  
PROVISION FOR INCOME TAXES 42,145     40,494     44,143  
NET INCOME $ 120,298     $ 106,865     $ 118,766  
EARNINGS PER SHARE          
Earnings per share, basic $ 1.40     $ 1.22     $ 1.33  
Earnings per share, diluted $ 1.36     $ 1.19     $ 1.30  
Weighted-average shares outstanding, basic   85,976       87,426       89,128  
Weighted-average shares outstanding, diluted   88,163       89,878       91,684  
                       


LPL Financial Holdings Inc.
Condensed Consolidated Statements of Financial Condition
(Dollars in thousands, except par value)
(Unaudited)

    December 31, 2018   December 31, 2017
ASSETS
Cash and cash equivalents   $ 511,096     $ 811,136  
Cash segregated under federal and other regulations   985,195     763,831  
Restricted cash   65,828     50,688  
Receivables from:        
Clients, net of allowance of $640 at December 31, 2018 and $466 at December 31, 2017   412,944     344,230  
Product sponsors, broker-dealers, and clearing organizations   166,793     196,207  
Advisor loans, net of allowance of $5,080 at December 31, 2018 and $3,264 at December 31, 2017   298,821     219,157  
Others, net of allowance of $8,099 at December 31, 2018 and $6,115 at December 31, 2017   248,711     228,986  
Securities owned:        
Trading — at fair value   29,267     17,879  
Held-to-maturity — at amortized cost   13,001     11,833  
Securities borrowed   4,829     12,489  
Fixed assets, net of accumulated depreciation and amortization of $308,155 at December 31, 2018 and $427,344 at December 31, 2017   461,418     412,684  
Goodwill   1,490,247     1,427,769  
Intangible assets, net of accumulated amortization of $479,319 at December 31, 2018 and $419,066 at December 31, 2017   484,171     414,093  
National Planning Holdings acquisition       162,500  
Other assets   305,147     285,269  
Total assets   $ 5,477,468     $ 5,358,751  
LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES:        
Drafts payable   $ 225,034     $ 185,929  
Payables to clients   950,946     962,891  
Payables to broker-dealers and clearing organizations   76,180     54,262  
Accrued commission and advisory expenses payable   164,211     147,095  
Accounts payable and accrued liabilities   478,644     461,149  
Income taxes payable   32,990     469  
Unearned revenue   80,524     72,222  
Securities sold, but not yet purchased — at fair value   169     1,182  
Long-term borrowing, net of unamortized debt issuance cost of $19,525 at December 31, 2018 and $22,812 at December 31, 2017   2,371,808     2,385,022  
Leasehold financing and capital lease obligations   104,564     107,518  
Deferred income taxes, net   18,325     16,004  
Total liabilities   4,503,395     4,393,743  
STOCKHOLDERS’ EQUITY:        
Common stock, $.001 par value; 600,000,000 shares authorized; 124,909,796 shares issued at December 31, 2018 and 123,030,383 shares issued at December 31, 2017   125     123  
Additional paid-in capital   1,634,337     1,556,117  
Treasury stock, at cost — 39,820,646 shares at December 31, 2018 and 33,262,115 shares at December 31, 2017   (1,730,535 )   (1,309,568 )
Retained earnings   1,070,146     718,336  
Total stockholders’ equity   974,073     965,008  
Total liabilities and stockholders’ equity   $ 5,477,468     $ 5,358,751  
                 


LPL Financial Holdings Inc.
Management's Statements of Operations (3)
(In thousands, except per share data)
(Unaudited)

Certain information presented on pages 8-17 of this release is presented as reviewed by the Company’s management and includes information derived from the Company’s Unaudited Condensed Consolidated Statements of Income, non-GAAP financial measures, and operational and performance metrics. For information on non-GAAP financial measures, please see the section titled "Non-GAAP Financial Measures" that begins on page 3 of this release. 

 

  Quarterly Results
  Q4 2018   Q3 2018   %  Change   Q4 2017   %  Change
Gross Profit(3)                      
Sales-based commissions $ 199,468     $ 193,545     3 %   $ 174,052     15 %
Trailing commissions 270,455     293,330     (8 %)   251,891     7 %
Advisory 474,102     458,087     3 %   375,928     26 %
Commission and advisory fees 944,025     944,962     %   801,871     18 %
Commission and advisory expense (793,310 )   (821,950 )   (3 %)   (697,725 )   14 %
Commission and advisory fees, net of payout 150,715     123,012     23 %   104,146     45 %
Cash sweep 147,774     127,174     16 %   88,333     67 %
Other asset-based(4) 117,907     121,721     (3 %)   105,374     12 %
Transaction and fee 119,254     118,941     %   103,145     16 %
Interest income and other (11,918 )   18,199     n/m     17,719     n/m  
Total net commission and advisory fees and attachment revenue 523,732     509,047     3 %   418,717     25 %
Brokerage, clearing, and exchange expense (16,000 )   (15,844 )   1 %   (15,480 )   3 %
Gross Profit(3) 507,732     493,203     3 %   403,237     26 %
                       
G&A Expense                      
Core G&A(5) 216,185     209,244     3 %   194,607     11 %
Regulatory charges 9,593     7,421     n/m     5,433     n/m  
Promotional 45,141     52,628     (14 %)   60,066     (25 %)
Employee share-based compensation 5,045     6,332     (20 %)   4,212     20 %
Total G&A 275,964     275,625     %   264,318     4 %
EBITDA(3) 231,768     217,578     7 %   138,919     67 %
Depreciation and amortization 21,897     22,838     (4 %)   20,138     9 %
Amortization of intangible assets 15,672     15,676     %   9,997     57 %
Non-operating interest expense 31,756     31,705     %   28,894     10 %
INCOME BEFORE PROVISION FOR INCOME TAXES 162,443     147,359     10 %   79,890     103 %
PROVISION FOR INCOME TAXES 42,145     40,494     4 %   15,792     167 %
NET INCOME $ 120,298     $ 106,865     13 %   $ 64,098     88 %
Earnings per share, diluted $ 1.36     $ 1.19     14 %   $ 0.69     97 %
Weighted-average shares outstanding, diluted   88,163     89,878     (2 %)     92,386     (5 %)
EPS Prior to Amortization of Intangible Assets $ 1.49     $ 1.32     13 %   $ 0.76     96 %
                                   


LPL Financial Holdings Inc.
Management's Statements of Operations Trend (3)
(In thousands, except per share data)
(Unaudited)

 

  Quarterly Results
  Q4 2018   Q3 2018   Q2 2018
Gross Profit(3)          
Sales-based commissions $ 199,468     $ 193,545     $ 196,530  
Trailing commissions 270,455     293,330     291,555  
Advisory 474,102     458,087     438,917  
Commission and advisory fees 944,025     944,962     927,002  
Commission and advisory expense (793,310 )   (821,950 )   (800,619 )
Commission and advisory fees, net of payout 150,715     123,012     126,383  
Cash sweep 147,774     127,174     121,386  
Other asset-based(4) 117,907     121,721     117,217  
Transaction and fee 119,254     118,941     116,455  
Interest income and other (11,918 )   18,199     16,744  
Total net commission and advisory fees and attachment revenue 523,732     509,047     498,185  
Brokerage, clearing, and exchange expense (16,000 )   (15,844 )   (15,433 )
Gross Profit(3) 507,732     493,203     482,752  
           
G&A Expense          
Core G&A(5) 216,185     209,244     192,148  
Regulatory charges 9,593     7,421     8,321  
Promotional 45,141     52,628     43,407  
Employee share-based compensation 5,045     6,332     6,125  
Total G&A 275,964     275,625     250,001  
EBITDA(3) 231,768     217,578     232,751  
Depreciation and amortization 21,897     22,838     22,220  
Amortization of intangible assets 15,672     15,676     15,682  
Non-operating interest expense 31,756     31,705     31,940  
INCOME BEFORE PROVISION FOR INCOME TAXES 162,443     147,359     162,909  
PROVISION FOR INCOME TAXES 42,145     40,494     44,143  
NET INCOME $ 120,298     $ 106,865     $ 118,766  
Earnings per share, diluted $ 1.36     $ 1.19     $ 1.30  
Weighted-average shares outstanding, diluted   88,163       89,878       91,684  
EPS Prior to Amortization of Intangible Assets $ 1.49     $ 1.32     $ 1.42  
                       


LPL Financial Holdings Inc.
Operating Measures (3)
(Dollars in billions, except where noted) (Unaudited)

  Q4 2018   Q3 2018   Change   Q4 2017   Change
Market Drivers                  
S&P 500 Index (end of period) 2,507     2,914     (14 %)   2,674     (6 %)
Fed Funds Daily Effective Rate (FFER) (average bps) 222     192     30bps   120     102bps
                   
Assets                  
Advisory Assets(6) $ 282.0     $ 306.1     (8 %)   $ 273.0     3 %
Brokerage Assets(7) 346.0     374.9     (8 %)   342.1     1 %
Total Brokerage and Advisory Assets $ 628.1     $ 681.0     (8 %)   $ 615.1     2 %
Advisory % of Total Brokerage and Advisory Assets 44.9 %   44.9 %   —bps   44.4 %   50bps
                   
Assets by Platform                  
Corporate Platform Advisory Assets(8) $ 172.3     $ 184.8     (7 %)   $ 160.0     8 %
Hybrid Platform Advisory Assets(9) 109.7     121.3     (10 %)   113.0     (3 %)
Brokerage Assets 346.0     374.9     (8 %)   342.1     1 %
Total Brokerage and Advisory Assets $ 628.1     $ 681.0     (8 %)   $ 615.1     2 %
                   
Centrally Managed Assets                  
Centrally Managed Assets(10) $ 38.5     $ 40.8     (6 %)   $ 32.9     17 %
Centrally Managed % of Total Advisory Assets 13.7 %   13.3 %   40bps   12.1 %   160bps
                         


LPL Financial Holdings Inc.
Operating Measures (3)
(Dollars in billions, except where noted) (Unaudited)

  Q4 2018   Q3 2018   Change   Q4 2017   Change
Net New Assets (NNA)                  
Net New Advisory Assets(11) $ 5.0     $ 5.1     n/m   $ 14.0     n/m
Net New Brokerage Assets(12) 0.9     (0.8 )   n/m   23.5     n/m
Total Net New Assets $ 5.9     $ 4.4     n/m   $ 37.5     n/m
                   
Net Brokerage to Advisory Conversions(13) $ 1.4     $ 1.7     n/m   $ 2.1     n/m
Advisory NNA Annualized Growth(14) 6 %   7 %   n/m   22 %   n/m
Total NNA Annualized Growth(14) 3 %   3 %   n/m   27 %   n/m
                   
Net New Advisory Assets                  
Corporate Platform Net New Advisory Assets(15) $ 5.1     $ 5.9     n/m   $ 11.1     n/m
Hybrid Platform Net New Advisory Assets(16) (0.2 )   (0.8 )   n/m   2.9     n/m
Total Net New Advisory Assets $ 5.0     $ 5.1     n/m   $ 14.0     n/m
Centrally Managed Net New Advisory Assets(17) $ 1.4     $ 1.8     n/m   $ 2.5     n/m
                   
Cash Sweep Balances                  
Insured Cash Account Balances $ 24.8     $ 21.0     18 %   $ 22.9     8 %
Deposit Cash Account Balances 5.1     3.9     31 %   4.2     21 %
Money Market Account Cash Balances 4.9     3.3     48 %   2.7     81 %
Total Cash Sweep Balances $ 34.9     $ 28.2     24 %   $ 29.8     17 %
Cash Sweep % of Total Assets 5.6 %   4.1 %   150bps   4.8 %   80bps
                   
Cash Sweep Average Fees                  
Insured Cash Account Average Fee - bps(18) 215     189     26     132     83  
Deposit Cash Account Fee Average Fee - bps(18) 207     198     9     113     94  
Money Market Account Average Fee - bps(18) 75     75         69     6  
Total Cash Sweep Average Fee - bps(18) 196     178     18     124     72  
                   
Net Buy (Sell) Activity(19) $ 2.3     $ 9.2     (75 %)   $ 7.3     (68 %)
                                   


LPL Financial Holdings Inc.
Monthly Metrics (3)
(Dollars in billions, except where noted)
(Unaudited)

    December 2018   November 2018   Nov to Dec Change   October 2018   September 2018
Assets Served                    
Advisory Assets(6)   $ 282.0     $ 297.0     (5.1%)   $ 291.7     $ 306.1  
Brokerage Assets(7)   346.0     362.7     (4.6%)   357.5     374.9  
Total Brokerage and Advisory Assets   $ 628.1     $ 659.7     (4.8%)   $ 649.3     $ 681.0  
                     
Net New Assets                    
Net New Advisory Assets(11)   $ 0.9     $ 2.0     n/m   $ 2.1     $ 2.2  
Net New Brokerage Assets(12)   (0.1 )   0.9     n/m   0.1     0.5  
Total Net New Assets   $ 0.8     $ 2.9     n/m   $ 2.2     $ 2.7  
Net Brokerage to Advisory Conversions(13)   $ 0.3     $ 0.5     n/m   $ 0.6     $ 0.5  
                     
Cash Sweep Balances                    
Insured Cash Account Balances   $ 24.8     $ 21.8     13.8%   $ 21.4     $ 21.0  
Deposit Cash Account Balances   5.1     4.3     18.6%   4.2     3.9  
Money Market Account Cash Balances   4.9     3.9     25.6%   3.5     3.3  
Total Client Cash Sweep Balances   $ 34.9     $ 29.9     16.7%   $ 29.1     $ 28.2  
                     
Market Indices                    
S&P 500 Index (end of period)   2,507     2,760     (9.2%)   2,712     2,914  
Fed Funds Effective Rate (average bps)   227     220     7bps   219     195  
                             


LPL Financial Holdings Inc.
Financial Measures
(Dollars in thousands, except where noted)
(Unaudited)

  Q4 2018   Q3 2018   % Change   Q4 2017   % Change
Commission Revenue by Product                  
Variable annuities $ 188,439     $ 201,075     (6 %)   $ 174,209     8 %
Mutual funds 145,780     155,579     (6 %)   137,316     6 %
Alternative investments 5,414     6,331     (14 %)   6,547     (17 %)
Fixed annuities 50,807     47,117     8 %   32,054     59 %
Equities 22,752     19,082     19 %   20,659     10 %
Fixed income 29,201     32,144     (9 %)   26,373     11 %
Insurance 19,232     16,155     19 %   19,998     (4 %)
Group annuities 7,966     9,064     (12 %)   8,638     (8 %)
Other 332     328     1 %   149     123 %
Total commission revenue $ 469,923     $ 486,875     (3 %)   $ 425,943     10 %
                   
Commission Revenue by Sales-based and Trailing Commission            
Sales-based commissions                  
Variable annuities $ 54,744     $ 57,491     (5 %)   $ 51,523     6 %
Mutual funds 33,687     33,319     1 %   32,318     4 %
Alternative investments 2,049     1,822     12 %   2,940     (30 %)
Fixed annuities 43,744     40,040     9 %   26,767     63 %
Equities 22,752     19,082     19 %   20,659     10 %
Fixed income 23,504     25,757     (9 %)   20,548     14 %
Insurance 17,703     14,433     23 %   18,512     (4 %)
Group annuities 953     1,273     (25 %)   636     50 %
Other 332     328     1 %   149     123 %
Total sales-based commissions $ 199,468     $ 193,545     3 %   $ 174,052     15 %
Trailing commissions                  
Variable annuities $ 133,695     $ 143,584     (7 %)   $ 122,686     9 %
Mutual funds 112,093     122,260     (8 %)   104,998     7 %
Alternative investments 3,365     4,509     (25 %)   3,607     (7 %)
Fixed annuities 7,063     7,077     %   5,287     34 %
Fixed income 5,697     6,387     (11 %)   5,825     (2 %)
Insurance 1,529     1,722     (11 %)   1,486     3 %
Group annuities 7,013     7,791     (10 %)   8,002     (12 %)
Total trailing commissions $ 270,455     $ 293,330     (8 %)   $ 251,891     7 %
Total commission revenue $ 469,923     $ 486,875     (3 %)   $ 425,943     10 %
                                   


LPL Financial Holdings Inc.
Financial Measures (3)
(Dollars in thousands, except where noted)
(Unaudited)

  Q4 2018   Q3 2018   Change   Q4 2017   Change
Payout Rate                  
Base Payout Rate 82.75 %   83.02 %   (27bps)   82.56 %   19bps
Production Based Bonuses 3.88 %   3.36 %   52bps   3.28 %   60bps
GDC Sensitive Payout 86.63 %   86.38 %   25bps   85.84 %   79bps
Non-GDC Sensitive Payout (2.60 )%   0.60 %   (320bps)   1.17 %   (377bps)
Total Payout Ratio 84.03 %   86.98 %   (295bps)   87.01 %   (298bps)
Production Based Bonuses Ratio (Trailing Twelve Months) 3.03 %   2.88 %   15bps   2.65 %   38bps
                         


LPL Financial Holdings Inc.
Capital Management Measures (3)
(Dollars in thousands, except where noted)
(Unaudited)

  Q4 2018   Q3 2018
Credit Agreement EBITDA Trailing Twelve Months(3)(20)      
Net income $ 439,459     $ 383,259  
Non-operating interest expense 125,023     122,161  
Provision for income taxes 153,178     126,825  
Depreciation and amortization 87,656     85,897  
Amortization of intangible assets 60,252     54,577  
EBITDA(3) $ 865,568     $ 772,719  
Credit Agreement Adjustments:      
Employee share-based compensation expense $ 23,108     $ 22,274  
Advisor share-based compensation expense 6,054     7,886  
NPH run-rate EBITDA accretion(21) 92,000     92,000  
Realized NPH EBITDA Offset(22) (75,500 )   (50,500 )
NPH onboarding costs 41,789     70,132  
Other(23) 16,269     17,294  
Credit Agreement EBITDA Trailing Twelve Months(3)(20) $ 969,288     $ 931,805  
       
Cash Available for Corporate Use(24)      
Cash at Parent $ 272,450     $ 276,657  
Excess Cash at Broker-Dealer subsidiary per Credit Agreement 56,248     105,578  
Other Available Cash 10,302     9,373  
Total Cash Available for Corporate Use $ 339,000     $ 391,608  
       
Credit Agreement Net Leverage      
Total Debt (does not include unamortized premium) $ 2,381,250     $ 2,385,000  
Cash Available (up to $300 million) 300,000     300,000  
Credit Agreement Net Debt $ 2,081,250     $ 2,085,000  
Credit Agreement EBITDA Trailing Twelve Months(20) $ 969,288     $ 931,805  
Credit Agreement Net Leverage Ratio 2.15 x   2.24 x
           


LPL Financial Holdings Inc.
Debt Schedule
(Dollars in thousands, except where noted)
(Unaudited)

Total Debt   Outstanding (end of period)   Current Applicable  Margin   Yield At Issuance   Interest Rate (end of period)   Maturity
Revolving Credit Facility(a)   $     LIBOR+125bps(b)       %   9/21/2022
Senior Secured Term Loan B   1,481,250     LIBOR+225 bps(b)       4.73 %   9/21/2024
Senior Unsecured Notes(c)   500,000     5.75% Fixed   5.750%   5.75 %   9/15/2025
Senior Unsecured Notes(c)   400,000   (d) 5.75% Fixed   5.115%   5.75 %   9/15/2025
Total / Weighted Average   $ 2,381,250             5.12 %    
  1. The Revolving Credit Facility has a borrowing capacity of $500 million.
  2. The LIBOR rate option is one-month LIBOR rate and subject to an interest rate floor of 0 basis points.
  3. The Senior Unsecured Notes were issued in two separate transactions; $500 million in notes were issued in March 2017 at par; the remaining $400 million were issued in September 2017 and priced at 103% of the aggregate principal amount.
  4. Does not include unamortized premium of approximately $10.1 million as of December 31, 2018.


LPL Financial Holdings Inc.
Key Business and Financial Metrics (3)
(Dollars in thousands, except where noted)
(Unaudited)

  Q4 2018   Q3 2018   Change   Q4 2017   Change
Advisors                  
Advisors 16,109   16,174   %   15,210   6 %
Net New Advisors (65 )   125     n/m     957     n/m  
Annualized commission and advisory fees per Advisor(25) $ 234     $ 235     %   $ 218     7 %
Average Total Assets per Advisor ($ in millions)(26) $ 39.0     $ 42.1     (7 %)   $ 40.4     (3 %)
Transition assistance loan amortization($ in millions)(27) $ 21.3     $ 19.2     11 %   $ 14.5     47 %
Total client accounts (in millions) 5.4     5.4     %   4.8     13 %
                   
Employees - period end 4,229   4,101   3 %   3,736   13 %
                   
Productivity Metrics                  
Annualized Advisory Revenue as a percentage of Corporate Advisory Assets 1.03 %   1.05 %   (2 bps)   1.04 %   (1 bps)
Gross Profit ROA(28) 31.5 bps   29.2 bps   2.3 bps   27.5 bps   4.0 bps
OPEX ROA(29) 19.4 bps   18.6 bps   0.8 bps   20.1 bps   (0.7 bps)
EBIT ROA(30) 12.1 bps   10.6 bps   1.5 bps   7.4 bps   4.7 bps
Production Retention Rate (YTD annualized)(31) 95.9 %   96.1 %   (20 bps)   95.0 %   90 bps
Recurring Gross Profit Rate (trailing twelve months) (32) 86.7 %   85.0 %   170 bps   82.6 %   410 bps
EBITDA as a percentage of Gross Profit 45.6 %   44.1 %   150 bps   34.5 %   1,110 bps
                   
Capital Expenditure ($ in millions) $ 47.5     $ 36.4     30 %   $ 26.3     81 %
                   
Share Repurchases $ 117.8     $ 122.5     (4 %)   $ 30.0     293 %
Dividends 21.5     21.9     (2 %)   22.5     (4 %)
Total Capital Allocated $ 139.3     $ 144.4     (4 %)   $ 52.5     165 %
Weighted-average Share Count, Diluted 88.2     89.9     (2 %)   92.4     (5 %)
Total Capital Allocated per Share(33) $ 1.58     $ 1.61     (2 %)   $ 0.57     177 %
                                   


Endnote Disclosures

  1. Represents the estimated total brokerage and advisory assets expected to transition to the Company's broker-dealer subsidiary, LPL Financial LLC ("LPL Financial"), associated with advisors who transferred their licenses to LPL Financial during the period. The estimate is based on prior business reported by the advisors, which has not been independently and fully verified by LPL Financial. The actual transition of assets to LPL Financial generally occurs over several quarters including the initial quarter of the transition, and the actual amount transitioned may vary from the estimate.
  2. Compliance with the Credit Agreement Leverage Ratio is only required under the revolving credit facility.
  3. Certain information presented on pages 8-17 includes non-GAAP financial measures and operational and performance metrics. For more information on non-GAAP financial measures, please see the section titled “Non-GAAP Financial Measures” on page 3.
  4. Consists of revenues from the Company's sponsorship programs with financial product manufacturers and omnibus processing and networking services, but does not include fees from cash sweep programs. Other asset-based revenues are a component of asset-based revenues and are derived from the Company's Unaudited Condensed Consolidated Statements of Income.
  5. Core G&A is a non-GAAP financial measure. Please see a description of Core G&A under “Non-GAAP Financial Measures” on page 3 of this release for additional information. Below is a reconciliation of Core G&A against the Company’s total operating expense for the periods presented:
  Q4 2018   Q3 2018   Q2 2018   Q4 2017
Operating Expense Reconciliation (in thousands)              
Core G&A $ 216,185     $ 209,244     $ 192,148     $ 194,607  
Regulatory charges 9,593     7,421     8,321     5,433  
Promotional 45,141     52,628     43,407     60,066  
Employee share-based compensation 5,045     6,332     6,125     4,212  
Total G&A 275,964     275,625     250,001     264,318  
Commissions and advisory 793,310     821,950     800,619     697,725  
Depreciation & amortization 21,897     22,838     22,220     20,138  
Amortization of intangible assets 15,672     15,676     15,682     9,997  
Brokerage, clearing and exchange 16,000     15,844     15,433     15,480  
Total operating expense $ 1,122,843     $ 1,151,933     $ 1,103,955     $ 1,007,658  

 

  1. Consists of total advisory assets under custody at LPL Financial.
  2. Consists of brokerage assets serviced by advisors licensed with LPL Financial.
  3. Consists of total assets on LPL Financial's corporate advisory platform serviced by investment advisor representatives of LPL Financial.
  4. Consists of total assets on LPL Financial's independent advisory platform serviced by investment advisor representatives of separate investment advisor firms ("Hybrid RIAs"), rather than of LPL Financial.
  5. Represents those Advisory Assets in LPL Financial’s Model Wealth Portfolios, Optimum Market Portfolios, Personal Wealth Portfolios, and Guided Wealth Portfolios platforms.
  6. Consists of total client deposits into advisory accounts less total client withdrawals from advisory accounts. The Company considers conversions from and to brokerage accounts as deposits and withdrawals respectively.
  7. Consists of total client deposits into brokerage accounts less total client withdrawals from brokerage accounts. The Company considers conversions from and to advisory accounts as deposits and withdrawals respectively.
  8. Consists of existing custodied assets that converted from brokerage to advisory, less existing custodied assets that converted from advisory to brokerage.
  9. Calculated as annualized current period net new assets divided by preceding period assets in their respective categories of advisory assets or total brokerage and advisory assets.
  10. Consists of total client deposits into advisory accounts on LPL Financial's corporate advisory platform (FN 8) less total client withdrawals from advisory accounts on its corporate advisory platform.
  11. Consists of total client deposits into advisory accounts on LPL Financial's independent advisory platform (FN 9) less total client withdrawals from advisory accounts on its independent advisory platform.
  12. Consists of total client deposits into Centrally Managed Assets accounts (FN 10) less total client withdrawals from Centrally Managed Assets accounts.
  13. Calculated by dividing revenue for the period by the average balance during the period.
  14. Represents the amount of securities purchased less the amount of securities sold in client accounts custodied with LPL Financial. Reported activity does not include any other cash activity, such as deposits, withdrawals, dividends received, or fees paid.
  15. Under the Credit Agreement, management calculates Credit Agreement EBITDA for a trailing twelve month period at the end of each fiscal quarter, and in doing so may make further adjustments to prior quarters.
  16. Represents estimated potential future cost savings, operating expense reductions or other synergies included in Credit Agreement EBITDA in accordance with the Credit Agreement relating to the acquisition of NPH.  Such amounts do not represent actual performance and there can be no assurance that any such cost savings, operating expense reductions or other synergies will be realized.
  17. Represents the portion of Credit Agreement EBITDA that management estimates to be attributable to the NPH acquisition, which is added back to offset NPH run-rate EBITDA accretion, in accordance with the Credit Agreement.
  18. Represents items that are adjustable in accordance with the Credit Agreement to calculate Credit Agreement EBITDA, including employee severance costs, employee signing costs, employee retention or completion bonuses, and other non-recurring costs.
  19. Consists of cash unrestricted by the Credit Agreement and other regulations available for operating, investing, and financing uses.
  20. Calculated based on the average advisor count from the current period and prior period.
  21. Calculated based on the end of period Total Brokerage and Advisory Assets divided by end of period Advisor count.
  22. Represents the amortization expense amount of forgivable loans for transition assistance to advisors and financial institutions.
  23. Represents annualized Gross Profit (FN 3) for the period, divided by average month-end Total Brokerage and Advisory Assets for the period.
  24. Represents annualized operating expenses for the period, excluding production-related expense, divided by average month-end Total Brokerage and Advisory Assets for the period. Production-related expense includes commissions and advisory expense and brokerage, clearing and exchange expense. For purposes of this metric, operating expenses includes Core G&A (FN 5), Regulatory, Promotional, Employee Share Based Compensation, Depreciation & Amortization, and Amortization of Intangible Assets.
  25. EBIT ROA is calculated as Gross Profit ROA less OPEX ROA.
  26. Reflects retention of commission and advisory revenues, calculated by deducting the prior year production of the annualized year-to-date attrition rate, over the prior year total production.
  27. Recurring Gross Profit Rate refers to the percentage of the Company’s gross profit, a non-GAAP financial measure, that was recurring for the trailing twelve month period. Management tracks recurring gross profit, a characterization of gross profit and a statistical measure, which is defined to include the Company’s revenues from asset-based fees, advisory fees, trailing commissions, cash sweep programs, and certain other fees that are based upon client accounts and advisors, less the expenses associated with such revenues and certain other recurring expenses not specifically associated with a revenue line. Management allocates such other recurring expenses, such as non-GDC sensitive production expenses, on a pro-rata basis against specific revenue lines at its discretion.
  28. Capital Allocation per Share equals the amount of capital allocated for share repurchases and cash dividends divided by the diluted weighted-average shares outstanding.
  29. EPS prior to amortization of intangible assets is a non-GAAP financial measure. Please see a description of EPS prior to amortization of intangible assets under “Non-GAAP Financial Measures” on page 3 of this release for additional information. Below is a reconciliation of EPS prior to amortization of intangible assets to the Company’s GAAP EPS for the periods presented:
EPS Reconciliation (in thousands, except per share data) Q4 2018
EPS $ 1.36  
Amortization of Intangible Assets 15,672  
Tax Benefit (4,388 )
  Amortization of Intangible Assets Net of Tax Benefit $ 11,284  
Diluted Share Count 88,163  
EPS Impact $ 0.13  
EPS Prior to Amortization of Intangible Assets $ 1.49  
       


Investor Relations - Chris Koegel, (617) 897-4574
Media Relations - Jeff Mochal, (704) 733-3589
investor.lpl.com/contactus.cfm

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