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CST: 15/10/2019 09:47:27   

LPL Financial Announces Second Quarter 2019 Results

81 Days ago

Second Quarter 2019 Key Performance Indicators

  • Earnings per share ("EPS") increased 32% year-over-year to $1.71.
    º Net Income increased 23% year-over-year to $146 million.
  • EPS Prior to Amortization of Intangible Assets** increased 30% year-over-year to $1.85.
  • Total Brokerage and Advisory Assets increased 7% year-over-year to $706 billion.
  • Total Net New Assets were an inflow of $4.0 billion, translating to a 2.3% annualized growth rate.
    º Prior to the impact of a hybrid firm that formed its own broker-dealer, total net new assets were an inflow of $5.2 billion, translating to an annualized growth rate of 3.0%
    º Total Net New Assets increased throughout the quarter from $0.7 billion in April to $1.4 billion in May to $1.9 billion in June.
    º Net new advisory assets were an inflow of $6.6 billion, translating to a 8.4% annualized growth rate.
    º Net new brokerage assets were an outflow of $2.6 billion, translating to a (2.7)% annualized rate.
    º Recruited Assets(1) were $8.5 billion, contributing to a trailing twelve-month total of $33.3 billion.
    º Advisor count was 16,161, and production retention rate was 96%.
    • Prior to the impact of a hybrid firm that formed its own broker-dealer, advisor count increased by 161 sequentially and 372 year-over-year.
  • Total client cash balances were $30.1 billion, down $0.7 billion sequentially.
    º Total client cash balances increased throughout the quarter, from $29.6 billion in April to $29.8 billion in May to $30.1 billion in June.
  • Gross Profit** increased 11% year-over-year to $536 million.
  • EBITDA** increased 15% year-over-year to $268 million.
    º EBITDA** as a percentage of Gross Profit** was 50%, up from 48% a year ago.
    º Core G&A** increased 10% year-over-year to $211 million, down 1% sequentially.
  • Shareholder capital returns were $146 million, translating to $1.71 per share.
    º Share repurchases were $125 million for 1.6 million shares at an average purchase price of $78.54.
    º Weighted average fully diluted share count was 85.4 million, down 7% year-over-year.
    º Dividends were $21 million.
  • Cash available for corporate use was $296 million.
  • Credit Agreement Net Leverage Ratio(2) was 1.99x, down 0.06x from the prior quarter.

Key Updates

  • Anticipate Allen & Co.* acquisition will close by the end of Q3 2019.
  • Updated 2019 Core G&A** outlook range to $860 to $875 million by both tightening the range and adding $5 million related to the acquisition of Allen & Co.
  • Completed $125 million of share repurchases in the second quarter.

SAN DIEGO, July 25, 2019 (GLOBE NEWSWIRE) -- LPL Financial Holdings Inc. (Nasdaq: LPLA) (the “Company”) today announced results for its second quarter ended June 30, 2019, reporting net income of $146 million, or $1.71 per share. This compares with $119 million, or $1.30 per share, in the second quarter of 2018 and $155 million, or $1.79 per share, in the prior quarter.

“We believe a well-positioned strategy combined with extraordinary execution and a mission-driven culture will drive long-term growth and value,” said Dan Arnold, President and CEO.  “In the second quarter, this approach helped us deliver business and financial growth, including surpassing $700 billion in total brokerage and advisory assets served for the first time.  Going forward, we will continue to focus on our strategy as we work to innovate on new advisor affiliation models and capabilities, deliver an industry-leading service experience, and create a new layer of value in the independent marketplace.”

“We delivered solid business and financial results in the second quarter,” said Matt Audette, CFO. “Organic growth increased throughout the quarter, earnings per share grew year-over-year, and we continued our pace of capital return to shareholders.  We also ramped our investment in technology to support our advisors and drive future growth.  Looking forward, we believe our business and financial strength positions us well to drive long-term shareholder value.”

Dividend Declaration

The Company's Board of Directors declared a $0.25 per share dividend to be paid on August 23, 2019 to all stockholders of record as of August 13, 2019.

Conference Call and Additional Information

The Company will hold a conference call to discuss its results at 5:00 p.m. EDT on Thursday, July 25.  To listen, call 877-677-9122 (domestic) or 708-290-1401 (international); passcode 6269674, 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 August 1 and August 15, respectively.  For telephonic replay, call 855-859-2056 (domestic) or 404-537-3406 (international); passcode 6269674.

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.

*Allen & Company of Florida, Inc. (“Allen & Co.”)

**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 33 on page 19 of this release.

Gross Profit is calculated as net revenues, which were $1,390 million for the three months ended June 30, 2019, less commission and advisory expenses and brokerage, clearing, and exchange fees, which were $838 million and $16 million, respectively, for the three months ended June 30, 2019. 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 $1,161 million for the three months ended June 30, 2019, 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 7 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 and other expense, income tax expense, depreciation and  amortization and amortization of intangibles assets. 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. 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), the acquisition of Allen & Co., future advisor affiliation models and capabilities, future advisor service experience, future capital returns and long-term shareholder value, 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 July 25, 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 client cash programs, the Company's strategy and success in managing client cash program fees; changes in the growth and profitability of the Company's fee-based business; fluctuations in the levels of advisory and brokerage assets, including net new 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 regulators and self-regulatory organizations and the implementation of Regulation BI (Best Interest); the costs of settling and remediating issues related to regulatory matters or legal proceedings, including actual costs of reimbursing customers for losses in excess of our reserves; changes made to the Company’s 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 2018 Annual Report on Form 10-K, as may be amended or updated in the Company's 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.

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




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

  Three Months Ended  June 30,       Six Months Ended  June 30,    
  2019   2018   %  Change   2019   2018   %  Change
REVENUES                      
Commission $ 479,135     $ 488,085     (2 %)   $ 940,494     $ 962,896     (2 %)
Advisory 481,309     438,917     10 %   935,247     861,304     9 %
Asset-based 288,551     238,603     21 %   584,914     457,939     28 %
Transaction and fee 118,335     116,455     2 %   240,815     233,104     3 %
Interest income, net of interest expense 11,690     10,133     15 %   24,011     17,914     34 %
Other 10,737     6,611     n/m     35,955     7,204     n/m  
Total net revenues 1,389,757     1,298,804     7 %   2,761,436     2,540,361     9 %
EXPENSES                      
Commission and advisory 838,022     800,619     5 %   1,637,720     1,562,316     5 %
Compensation and benefits 131,788     122,360     8 %   268,700     245,877     9 %
Promotional 41,423     43,407     (5 %)   92,772     110,834     (16 %)
Depreciation and amortization 22,584     22,220     2 %   46,054     42,921     7 %
Amortization of intangible assets 16,249     15,682     4 %   32,417     28,904     12 %
Occupancy and equipment 33,320     26,904     24 %   66,426     54,540     22 %
Professional services 18,837     15,922     18 %   38,449     38,094     1 %
Brokerage, clearing and exchange 15,994     15,433     4 %   32,138     31,310     3 %
Communications and data processing 12,532     11,038     14 %   24,859     22,212     12 %
Other 29,975     30,370     (1 %)   56,378     58,956     (4 %)
Total operating expenses 1,160,724     1,103,955     5 %   2,295,913     2,195,964     5 %
Non-operating interest expense and other 33,957     31,940     6 %   66,673     61,562     8 %
INCOME BEFORE PROVISION FOR INCOME TAXES 195,076     162,909     20 %   398,850     282,835     41 %
PROVISION FOR INCOME TAXES 48,984     44,143     11 %   97,360     70,539     38 %
NET INCOME $ 146,092     $ 118,766     23 %   $ 301,490     $ 212,296     42 %
EARNINGS PER SHARE                      
Earnings per share, basic $ 1.75     $ 1.33     32 %   $ 3.59     $ 2.37     51 %
Earnings per share, diluted $ 1.71     $ 1.30     32 %   $ 3.50     $ 2.30     52 %
Weighted-average shares outstanding, basic 83,247   89,128   (7 %)   83,869   89,560   (6 %)
Weighted-average shares outstanding, diluted 85,350   91,684   (7 %)   86,052   92,236   (7 %)


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

  Quarterly Results
  Q2 2019   Q1 2019   Q4 2018
REVENUES                      
Commission $ 479,135     $ 461,359     $ 469,923  
Advisory 481,309     453,938     474,102  
Asset-based 288,551     296,363     265,681  
Transaction and fee 118,335     122,480     119,254  
Interest income, net of interest expense 11,690     12,321     11,784  
Other 10,737     25,218     (23,702 )
Total net revenues 1,389,757     1,371,679     1,317,042  
EXPENSES          
Commission and advisory 838,022     799,698     793,310  
Compensation and benefits 131,788     136,912     132,766  
Promotional 41,423     51,349     45,141  
Depreciation and amortization 22,584     23,470     21,897  
Amortization of intangible assets 16,249     16,168     15,672  
Occupancy and equipment 33,320     33,106     30,750  
Professional services 18,837     19,612     24,428  
Brokerage, clearing and exchange expense 15,994     16,144     16,000  
Communications and data processing 12,532     12,327     11,776  
Other 29,975     26,403     31,103  
Total operating expenses 1,160,724     1,135,189     1,122,843  
Non-operating interest expense and other 33,957     32,716     31,756  
INCOME BEFORE PROVISION FOR INCOME TAXES 195,076     203,774     162,443  
PROVISION FOR INCOME TAXES 48,984     48,376     42,145  
NET INCOME $ 146,092     $ 155,398     $ 120,298  
EARNINGS PER SHARE          
Earnings per share, basic $ 1.75     $ 1.84     $ 1.40  
Earnings per share, diluted $ 1.71     $ 1.79     $ 1.36  
Weighted-average shares outstanding, basic 83,247     84,487     85,976  
Weighted-average shares outstanding, diluted 85,350     86,742     88,163  


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

    June 30,
2019
  March 31,
2019
  December 31,
2018
ASSETS
Cash and cash equivalents   $ 403,813     $ 676,903     $ 511,096  
Cash segregated under federal and other regulations   708,613     708,241     985,195  
Restricted cash   48,906     42,827     65,828  
Receivables from:            
Clients, net of allowance   462,327     393,099     412,944  
Product sponsors, broker-dealers, and clearing organizations   176,323     156,915     166,793  
Advisor loans, net of allowance   355,077     320,379     298,821  
Others, net of allowance   263,246     269,153     248,711  
Securities owned:            
Trading — at fair value   29,422     27,361     29,267  
Held-to-maturity — at amortized cost   11,771     13,005     13,001  
Securities borrowed   7,246     2,670     4,829  
Fixed assets, net of accumulated depreciation and amortization   485,571     472,528     461,418  
Operating lease assets   105,390     106,821      
Goodwill   1,490,247     1,490,247     1,490,247  
Intangible assets, net of accumulated amortization   451,945     468,058     484,171  
Other assets   364,059     343,983     305,147  
Total assets   $ 5,363,956     $ 5,492,190     $ 5,477,468  
LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES:            
Drafts payable   $ 184,361     $ 186,116     $ 225,034  
Payables to clients   760,120     778,902     950,946  
Payables to broker-dealers and clearing organizations   57,665     134,375     76,180  
Accrued commission and advisory expenses payable   152,697     154,840     164,211  
Accounts payable and accrued liabilities   439,679     411,316     478,644  
Income taxes payable   13,220     74,740     32,990  
Unearned revenue   94,579     99,035     80,524  
Securities sold, but not yet purchased — at fair value   82     66     169  
Long-term borrowing, net of unamortized debt issuance cost   2,363,441     2,368,501     2,371,808  
Operating lease liabilities   145,602     147,326      
Finance lease liabilities   107,084     106,987      
Leasehold financing and capital lease obligations           104,564  
Deferred income taxes, net   20,309     20,291     18,325  
Total liabilities   4,338,839     4,482,495     4,503,395  
STOCKHOLDERS’ EQUITY:            
Common stock, $.001 par value; 600,000,000 shares authorized; 125,971,003 shares issued at June 30, 2019   126     126     125  
Additional paid-in capital   1,673,155     1,658,631     1,634,337  
Treasury stock, at cost — 43,192,521 shares at June 30, 2019   (1,984,223 )   (1,859,484 )   (1,730,535 )
Retained earnings   1,336,059     1,210,422     1,070,146  
Total stockholders’ equity   1,025,117     1,009,695     974,073  
Total liabilities and stockholders’ equity   $ 5,363,956     $ 5,492,190     $ 5,477,468  


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

Certain information presented on pages 8-16 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
  Q2 2019   Q1 2019   %  Change   Q2 2018   %  Change
Gross Profit(3)                  
Sales-based commissions $ 203,531     $ 190,999     7 %   $ 196,530     4 %
Trailing commissions 275,604     270,360     2 %   291,555     (5 %)
Advisory 481,309     453,938     6 %   438,917     10 %
Commission and advisory fees 960,444     915,297     5 %   927,002     4 %
Production based payout(4) (831,178 )   (777,889 )   7 %   (797,785 )   4 %
Commission and advisory fees, net of payout 129,266     137,408     (6 %)   129,217     %
Client cash 161,815     173,139     (7 %)   121,386     33 %
Other asset-based(5) 126,736     123,224     3 %   117,217     8 %
Transaction and fee 118,335     122,480     (3 %)   116,455     2 %
Interest income and other, net(6) 15,583     15,730     n/m     13,910     n/m  
Total net commission and advisory fees and attachment revenue 551,735     571,981     (4 %)   498,185     11 %
Brokerage, clearing, and exchange expense (15,994 )   (16,144 )   (1 %)   (15,433 )   4 %
Gross Profit(3) 535,741     555,837     (4 %)   482,752     11 %
                   
G&A Expense                  
Core G&A(7) 210,514     212,520     (1 %)   192,148     10 %
Regulatory charges 8,632     7,873     n/m     8,321     n/m  
Promotional 41,423     51,349     (19 %)   43,407     (5 %)
Employee share-based compensation 7,306     7,967     (8 %)   6,125     19 %
Total G&A 267,875     279,709     (4 %)   250,001     7 %
EBITDA(3) 267,866     276,128     (3 %)   232,751     15 %
Depreciation and amortization 22,584     23,470     (4 %)   22,220     2 %
Amortization of intangible assets 16,249     16,168     1 %   15,682     4 %
Non-operating interest expense and other 33,957     32,716     4 %   31,940     6 %
INCOME BEFORE PROVISION FOR INCOME TAXES 195,076     203,774     (4 %)   162,909     20 %
PROVISION FOR INCOME TAXES 48,984     48,376     1 %   44,143     11 %
NET INCOME $ 146,092     $ 155,398     (6 %)   $ 118,766     23 %
Earnings per share, diluted $ 1.71     $ 1.79     (4 %)   $ 1.30     32 %
Weighted-average shares outstanding, diluted 85,350   86,742     (2 %)   91,684   (7 %)
EPS Prior to Amortization of Intangible Assets(3)(33) $ 1.85     $ 1.93     (4 %)   $ 1.42     30 %


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

  Quarterly Results
  Q2 2019   Q1 2019   Q4 2018
Gross Profit(3)                      
Sales-based commissions $ 203,531     $ 190,999     $ 199,468  
Trailing commissions 275,604     270,360     270,455  
Advisory 481,309     453,938     474,102  
Commission and advisory fees 960,444     915,297     944,025  
Production based payout(4) (831,178 )   (777,889 )   (818,382 )
Commission and advisory fees, net of payout 129,266     137,408     125,643  
Client cash 161,815     173,139     147,774  
Other asset-based(5) 126,736     123,224     117,907  
Transaction and fee 118,335     122,480     119,254  
Interest income and other, net (6) 15,583     15,730     13,154  
Total net commission and advisory fees and attachment revenue 551,735     571,981     523,732  
Brokerage, clearing, and exchange expense (15,994 )   (16,144 )   (16,000 )
Gross Profit(3) 535,741     555,837     507,732  
           
G&A Expense          
Core G&A(7) 210,514     212,520     216,185  
Regulatory charges 8,632     7,873     9,593  
Promotional 41,423     51,349     45,141  
Employee share-based compensation 7,306     7,967     5,045  
Total G&A 267,875     279,709     275,964  
EBITDA(3) 267,866     276,128     231,768  
Depreciation and amortization 22,584     23,470     21,897  
Amortization of intangible assets 16,249     16,168     15,672  
Non-operating interest expense and other 33,957     32,716     31,756  
INCOME BEFORE PROVISION FOR INCOME TAXES 195,076     203,774     162,443  
PROVISION FOR INCOME TAXES 48,984     48,376     42,145  
NET INCOME $ 146,092     $ 155,398     $ 120,298  
Earnings per share, diluted   1.71     $ 1.79     $ 1.36  
Weighted-average shares outstanding, diluted 85,350     86,742     88,163  
EPS Prior to Amortization of Intangible Assets(3)(33) $ 1.85     $ 1.93     $ 1.49  


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

  Q2 2019   Q1 2019   Change   Q2 2018   Change
Market Drivers                  
S&P 500 Index (end of period) 2,942     2,834     4 %   2,718     8 %
Fed Funds Daily Effective Rate (FFER) (average bps) 240     240     —bps   174     66bps
                   
Assets                  
Advisory Assets(8) $ 327.3     $ 311.9     5 %   $ 291.5     12 %
Brokerage Assets(9) 378.7     372.1     2 %   367.5     3 %
Total Brokerage and Advisory Assets $ 706.0     $ 684.0     3 %   $ 659.1     7 %
Advisory % of Total Brokerage and Advisory Assets 46.4 %   45.6 %   80bps   44.2 %   220bps
                   
Assets by Platform                  
Corporate Platform Advisory Assets(10) $ 201.9     $ 191.8     5 %   $ 173.9     16 %
Hybrid Platform Advisory Assets(11) 125.4     120.1     4 %   117.7     7 %
Brokerage Assets 378.7     372.1     2 %   367.5     3 %
Total Brokerage and Advisory Assets $ 706.0     $ 684.0     3 %   $ 659.1     7 %
                   
Centrally Managed Assets                  
Centrally Managed Assets(12) $ 45.7     $ 42.9     7 %   $ 37.9     21 %
Centrally Managed  % of Total Advisory Assets 14.0 %   13.8 %   20bps   13.0 %   100bps

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

  Q2 2019   Q1 2019   Change   Q2 2018   Change
Net New Assets (NNA)                  
Net New Advisory Assets(13) $ 6.6     $ 4.6     n/m   $ 4.3     n/m
Net New Brokerage Assets(14) (2.6 )   (0.7 )   n/m   (1.9 )   n/m
Total Net New Assets $ 4.0     $ 4.0     n/m   $ 2.5     n/m
                   
Net Brokerage to Advisory Conversions(15) $ 1.8     $ 1.4     n/m   $ 1.8     n/m
Advisory NNA Annualized Growth(16) 8.4 %   6.5 %   n/m   6.1 %   n/m
Total NNA Annualized Growth(16) 2.3 %   2.5 %   n/m   1.5 %   n/m
                   
Net New Advisory Assets                  
Corporate Platform Net New Advisory Assets(17) $ 5.1     $ 4.2     n/m   $ 3.8     n/m
Hybrid Platform Net New Advisory Assets(18) 1.4     0.4     n/m   0.6     n/m
Total Net New Advisory Assets $ 6.6     $ 4.6     n/m   $ 4.3     n/m
Centrally Managed Net New Advisory Assets(19) $ 1.2     $ 1.0     n/m   $ 1.7     n/m
                   
Client Cash Balances                  
Insured Cash Account Balances $ 21.3     $ 21.7     (2 %)   $ 21.7     (2 %)
Deposit Cash Account Balances 4.3     4.3     %   4.0     8 %
Total Insured Sweep Balances 25.5     25.9     (2 %)   25.7     (1 %)
Money Market Account Cash Balances 3.5     4.8     (27 %)   2.9     21 %
Purchased Money Market Funds 1.0         %       %
Total Client Cash Balances $ 30.1     $ 30.7     (2 %)   $ 28.6     5 %
Client Cash Balances % of Total Assets 4.3 %   4.5 %   (20bps)   4.3 %   —bps
                   
Client Cash Balance Average Fees                  
Insured Cash Account Average Fee - bps(20) 249     250     (1 )   179     70  
Deposit Cash Account Average Fee - bps(20) 226     220     6     175     51  
Money Market Account Average Fee - bps(20) 74     77     (3 )   72     2  
Purchased Money Market Fund Average Fee - bps(20) 29         n/m       n/m
Total Client Cash Balance Average Fee - bps(20) 217     220     (3 )   168     49  
                   
Net Buy (Sell) Activity(21) $ 9.7     $ 12.9     n/m   $ 8.5     n/m


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

    June 2019   May 2019   May to Jun
Change
  April 2019   March 2019
Assets Served                                    
Advisory Assets(8)   $ 327.3     $ 311.3     5.1%   $ 320.5     $ 311.9  
Brokerage Assets(9)   378.7     366.0     3.5%   378.8     372.1  
Total Brokerage and Advisory Assets   $ 706.0     $ 677.3     4.2%   $ 699.3     $ 684.0  
                     
Net New Assets (NNA)                    
Net New Advisory Assets(13)   $ 2.4     $ 2.5     n/m   $ 1.6     $ 2.2  
Net New Brokerage Assets(14)   (0.5 )   (1.1 )   n/m   (1.0 )   0.1  
Total Net New Assets   $ 1.9     $ 1.4     n/m   $ 0.7     $ 2.3  
Net Brokerage to Advisory Conversions(15)   $ 0.4     $ 0.8     n/m   $ 0.6     $ 0.5  
                     
Client Cash Balances                    
Insured Cash Account Balances   $ 21.3     $ 20.9     1.9%   $ 20.7     $ 21.7  
Deposit Cash Account Balances   4.3     4.2     2.4%   4.1     4.3  
Total Insured Sweep Balances   25.5     25.1     1.6%   24.8     25.9  
Money Market Account Cash Balances   3.5     4.0     (12.5%)   4.4     4.8  
Purchased Money Market Funds   1.0     0.8     25.0%   0.4      
Total Client Cash Balances   $ 30.1     $ 29.8     1.0%   $ 29.6     $ 30.7  
                     
Net Buy (Sell) Activity(21)   $ 2.8     $ 3.4     (17.6%)   $ 3.5     $ 3.6  
                     
Market Indices                    
S&P 500 Index (end of period)   2,942     2,752     6.9%   2,946     2,834  
Fed Funds Effective Rate (average bps)   238     239     (1bps)   242     240  


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

  Q2 2019   Q1 2019   % Change   Q2 2018   % Change
Commission Revenue by Product                  
Variable annuities $ 196,884     $ 187,406     5 %   $ 196,496     %
Mutual funds 149,380     140,662     6 %   161,340     (7 %)
Alternative investments 5,273     6,786     (22 %)   6,704     (21 %)
Fixed annuities 50,992     51,573     (1 %)   46,116     11 %
Equities 19,700     18,364     7 %   19,388     2 %
Fixed income 30,821     29,742     4 %   30,898     %
Insurance 17,009     18,072     (6 %)   17,344     (2 %)
Group annuities 8,795     8,474     4 %   9,619     (9 %)
Other 281     280     %   180     56 %
Total commission revenue $ 479,135     $ 461,359     4 %   $ 488,085     (2 %)
                   
Commission Revenue by Sales-based and Trailing Commission            
Sales-based commissions                  
Variable annuities $ 58,158     $ 50,128     16 %   $ 57,095     2 %
Mutual funds 38,095     34,631     10 %   37,533     1 %
Alternative investments 2,077     1,890     10 %   1,805     15 %
Fixed annuities 43,977     44,230     (1 %)   39,333     12 %
Equities 19,700     18,364     7 %   19,388     2 %
Fixed income 24,604     24,195     2 %   24,474     1 %
Insurance 15,449     16,024     (4 %)   15,578     (1 %)
Group annuities 1,190     1,257     (5 %)   1,144     4 %
Other 281     280     %   180     56 %
Total sales-based commissions $ 203,531     $ 190,999     7 %   $ 196,530     4 %
Trailing commissions                  
Variable annuities $ 138,726     $ 137,278     1 %   $ 139,401     %
Mutual funds 111,285     106,031     5 %   123,807     (10 %)
Alternative investments 3,196     4,896     (35 %)   4,899     (35 %)
Fixed annuities 7,015     7,343     (4 %)   6,783     3 %
Fixed income 6,217     5,547     12 %   6,424     (3 %)
Insurance 1,560     2,048     (24 %)   1,766     (12 %)
Group annuities 7,605     7,217     5 %   8,475     (10 %)
Total trailing commissions $ 275,604     $ 270,360     2 %   $ 291,555     (5 %)
Total commission revenue $ 479,135     $ 461,359     4 %   $ 488,085     (2 %)

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

  Q2 2019   Q1 2019   Change   Q2 2018   Change
Payout Rate                  
Base Payout Rate 83.39 %   82.95 %   44bps   83.25 %   14bps
Production Based Bonuses 3.15 %   2.04 %   111bps   2.81 %   34bps
Total Payout Ratio 86.54 %   84.99 %   155bps   86.06 %   48bps


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

  Q2 2019   Q1 2019
Cash Available for Corporate Use(22)              
Cash at Parent $ 240,865     $ 263,122  
Excess Cash at Broker-Dealer subsidiary per Credit Agreement 42,496     103,369  
Other Available Cash 12,889     9,533  
Total Cash Available for Corporate Use $ 296,250     $ 376,024  
       
Credit Agreement Net Leverage      
Total Debt (does not include unamortized premium) $ 2,373,750     $ 2,377,500  
Cash Available (up to $300 million) 296,250     300,000  
Credit Agreement Net Debt $ 2,077,500     $ 2,077,500  
Credit Agreement EBITDA Trailing Twelve Months(23) $ 1,042,984     $ 1,012,397  
Credit Agreement Net Leverage Ratio 1.99 x   2.05 x



    June 30, 2019    
Total Debt   Balance   Current Applicable
Margin
  Yield At Issuance   Interest Rate   Maturity
Revolving Credit Facility(a)   $     LIBOR+125bps(b)       %   9/21/2022
Senior Secured Term Loan B   1,473,750     LIBOR+225 bps(b)       4.65 %   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   $ 2,373,750             5.07 %    
  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 $9.3 million as of June 30, 2019.


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

  Q2 2019   Q1 2019   Change   Q2 2018   Change
Advisors                  
Advisors 16,161   16,189   %   16,049   1 %
Net New Advisors (28 )   80     n/m     (18 )   n/m  
Annualized commission and advisory fees per Advisor(24) $ 238     $ 227     5 %   $ 231     3 %
Average Total Assets per Advisor ($ in millions)(25) $ 43.7     $ 42.2     4 %   $ 41.1     6 %
Transition assistance loan amortization($ in millions)(26) $ 22.6     $ 23.2     (3 %)   $ 18.1     25 %
Total client accounts (in millions) 5.5     5.5     %   5.4     2 %
                   
Employees - period end 4,364   4,269   2 %   4,005   9 %
                   
Productivity Metrics                  
Advisory Revenue as a percentage of Corporate Advisory Assets (trailing four-quarter average) 1.03 %   1.04 %   (1 bps)   1.04 %   (1 bps)
Gross Profit ROA(27) 30.9 bps   33.0 bps   (2.1 bps)   29.4 bps   1.5 bps
OPEX ROA(28) 17.7 bps   19.0 bps   (1.3 bps)   17.5 bps   0.2 bps
EBIT ROA(29) 13.2 bps   14.0 bps   (0.8 bps)   11.9 bps   1.3 bps
Production Retention Rate (YTD annualized)(30) 96.2 %   96.2 %   bps   96.0 %   20 bps
Recurring Gross Profit Rate (trailing twelve months) (31) 86.5 %   86.3 %   20 bps   84.7 %   180 bps
EBITDA as a percentage of Gross Profit 50.0 %   49.7 %   30 bps   48.2 %   180 bps
                   
Capital Expenditure ($ in millions) $ 33.2     $ 30.3     10 %   $ 25.8     29 %
                   
Share Repurchases $ 125.0     $ 125.0     %   $ 116.8     7 %
Dividends 20.8     21.1     (1 %)   22.3     (7 %)
Total Capital Allocated $ 145.9     $ 146.1     %   $ 139.1     5 %
Weighted-average Share Count, Diluted 85.4     86.7     (1 %)   91.7     (7 %)
Total Capital Allocated per Share(32) $ 1.71     $ 1.68     2 %   $ 1.52     13 %

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 8-16 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. Production based payout is an operating measure calculated as a commission and advisory expense less advisor deferred compensation expense. Below is a reconciliation of production based payout against the Company’s commission and advisory expense for the periods presented (in thousands):
  Q2 2019   Q1 2019   Q4 2018   Q2 2018
Production based payout $ 831,178     $ 777,889     $ 818,382     $ 797,785  
Advisor deferred compensation expense 6,844     21,809     (25,072 )   2,834  
Commission and advisory expense $ 838,022     $ 799,698     $ 793,310     $ 800,619  
  1. 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 client cash 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.
  2. Interest income and other, net is an operating measure calculated as interest income, net of interest expense plus other revenue, less advisor deferred compensation expense. Below is a reconciliation of interest income and other, net against the Company’s interest income, net of interest expense and other revenue for the periods presented (in thousands):
  Q2 2019   Q1 2019   Q4 2018   Q2 2018
Interest income, net of interest expense $ 11,690     $ 12,321     $ 11,784     $ 10,133  
Plus: Other revenue 10,737     25,218     (23,702 )   6,611  
Less: Advisor deferred compensation expense (6,844 )   (21,809 )   25,072     (2,834 )
Interest income and other, net $ 15,583     $ 15,730     $ 13,154     $ 13,910  
  1. 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:
  Q2 2019   Q1 2019   Q4 2018   Q2 2018
Operating Expense Reconciliation (in thousands)                              
Core G&A $ 210,514     $ 212,520     $ 216,185     $ 192,148  
Regulatory charges 8,632     7,873     9,593     8,321  
Promotional 41,423     51,349     45,141     43,407  
Employee share-based compensation 7,306     7,967     5,045     6,125  
Total G&A 267,875     279,709     275,964     250,001  
Commissions and advisory 838,022     799,698     793,310     800,619  
Depreciation & amortization 22,584     23,470     21,897     22,220  
Amortization of intangible assets 16,249     16,168     15,672     15,682  
Brokerage, clearing and exchange 15,994     16,144     16,000     15,433  
Total operating expense $ 1,160,724     $ 1,135,189     $ 1,122,843     $ 1,103,955  
  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 10) 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 11) less total client withdrawals from advisory accounts on its independent advisory platform.
  12. Consists of total client deposits into centrally managed assets accounts (FN 12) less total client withdrawals from centrally managed assets accounts. The Company does not consider conversions from or to advisory accounts on LPL Financial’s advisory platforms as deposits or withdrawals, respectively.
  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. Consists of cash unrestricted by the Credit Agreement and other regulations available for operating, investing, and financing uses.
  16. Credit agreement EBITDA is a non-GAAP financial measure. Please see a description of credit agreement EBITDA under “Non-GAAP Financial Measures” on page 3 of this release for additional information. 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.
  17. Calculated based on the average advisor count from the current period and prior period.
  18. Calculated based on the end of period total brokerage and advisory assets divided by end of period advisor count.
  19. Represents the amortization expense amount of forgivable loans for transition assistance to advisors and financial institutions.
  20. Represents annualized Gross Profit (FN 3) for the period, divided by average month-end total brokerage and advisory assets for the period.
  21. 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 7), regulatory, promotional, employee share based compensation, depreciation & amortization, and amortization of intangible Assets.
  22. EBIT ROA is calculated as Gross Profit ROA less OPEX ROA.
  23. 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.
  24. 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, client cash 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 on a pro-rata basis against specific revenue lines at its discretion.
  25. Capital Allocated per Share equals the amount of capital allocated for share repurchases and cash dividends divided by the diluted weighted-average shares outstanding.
  26. 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) Q2 2019
EPS $ 1.71  
Amortization of Intangible Assets 16,249  
Tax Benefit (4,550 )
  Amortization of Intangible Assets Net of Tax Benefit $ 11,699  
Diluted Share Count 85,350  
EPS Impact $ 0.14  
EPS Prior to Amortization of Intangible Assets $ 1.85  

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