Loading, Please Wait...

CST: 25/01/2020 20:27:45   

LPL Financial Announces Third Quarter 2019 Results

93 Days ago

 Third Quarter 2019 Key Performance Indicators

  • Earnings per share ("EPS") increased 32% year-over-year to $1.57.
    • Net Income increased 23% year-over-year to $132 million.
  • EPS Prior to Amortization of Intangible Assets** increased 30% year-over-year to $1.71.
  • Total Brokerage and Advisory Assets increased 6% year-over-year to $719 billion.
  • Total organic net new assets(1) were an inflow of $7.0 billion, translating to a 4.0% annualized growth rate.
    • Prior to the impact of a hybrid firm that formed its own broker-dealer and departed, total organic net new assets were an inflow of $8.0 billion, translating to an annualized growth rate of 4.5%.
    • Organic net new advisory assets were an inflow of $8.2 billion, translating to a 10.0% annualized growth rate.
    • Organic net new brokerage assets were an outflow of $1.2 billion, translating to a (1.2)% annualized growth rate.
    • Recruited Assets(2) were $8.7 billion, contributing to a trailing twelve-month total of $32.9 billion.
    • Advisor count was 16,349, up 188 sequentially, and year-to-date production retention rate was 96.3%.
  • The Company closed its acquisition of Allen & Company*, which added $2.9 billion of total brokerage and advisory assets.
    • The Company expects to onboard the assets from Allen & Company onto its platform by the end of 2019.
    • The Company also retained 100% of the 36 Allen & Company advisors.
  • Total client cash balances were $31.2 billion, up $1.1 billion or 4% sequentially.
  • Gross Profit** increased 10% year-over-year to $543 million.
  • EBITDA** increased 15% year-over-year to $250 million.
    • EBITDA** as a percentage of Gross Profit** was 46%, up from 44% a year ago.
    • Core G&A** increased 3% year-over-year to $215 million, up 2% sequentially. This included $1 million of onboarding and operating expense related to Allen & Company.
  • Shareholder capital returns were $151 million, translating to $1.80 per share.
    • Share repurchases were $130 million for 1.7 million shares at an average purchase price of $78.09.
    • Weighted average fully diluted share count was 83.8 million, down 7% year-over-year.
    • Dividends were $20 million.
  • Cash available for corporate use was $227 million.
  • Credit Agreement Net Leverage Ratio(3) was 2.00x, in line with the prior quarter.

Key Updates

  • Closed the acquisition of Allen & Company on August 1, 2019, which added $2.9 billion in total brokerage and advisory assets and 36 advisors.
  • Lowered top end of 2019 Core G&A** outlook range by $5 million, resulting in an updated range of $860 to $870 million.
  • Completed $130 million of share repurchases in the third quarter.

SAN DIEGO, Oct. 24, 2019 (GLOBE NEWSWIRE) -- LPL Financial Holdings Inc. (Nasdaq: LPLA) (the “Company”) today announced results for its third quarter ended September 30, 2019, reporting net income of $132 million, or $1.57 per share. This compares with $107 million, or $1.19 per share, in the third quarter of 2018 and $146 million, or $1.71 per share, in the prior quarter.

“Our focus on our strategy positioned us to drive continued business and financial growth in the third quarter,” said Dan Arnold, president and CEO.  “Strength in advisor recruiting and retention drove $7 billion of organic net new assets, which translates to a 4% annualized growth rate. We also closed our acquisition of Allen & Company, and are excited that their advisors have joined our team.  Looking forward, we are focused on helping our advisors continue to win in the marketplace by delivering differentiated capabilities, an industry-leading service experience, and next generation wealth management solutions.”

“In Q3, we continued to grow assets, gross profit, and earnings per share as we work to create long-term shareholder value,” said Matt Audette, CFO.  “To support these outcomes, we actively deployed capital.  We invested for organic growth across recruiting and technology, completed the acquisition of Allen & Company, and returned capital to shareholders through share repurchases and dividends.  We believe our business and financial strength position us well to continue to deploy capital to drive growth and create long-term shareholder value.”

Dividend Declaration

The Company's Board of Directors declared a $0.25 per share dividend to be paid on November 21, 2019 to all stockholders of record as of November 7, 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, October 24.  To listen, call 877-677-9122 (domestic) or 708-290-1401 (international); passcode 3882976, 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 October 31 and November 14, respectively.  For telephonic replay, call 855-859-2056 (domestic) or 404-537-3406 (international); passcode 3882976.

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 1996-2019.

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

*Allen & Company of Florida, LLC (“Allen & Company”)

**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 35 on page 20 of this release.

Gross Profit is calculated as net revenues, which were $1,416 million for the three months ended September 30, 2019, less commission and advisory expenses and brokerage, clearing, and exchange fees, which were $857 million and $16 million, respectively, for the three months ended September 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 $1,206 million for the three months ended September 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 8 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 intangible 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, amortization of Intangible assets, 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. For a reconciliation of Credit Agreement EBITDA to Net Income, please see footnote 24 on page 19 of this release.

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 onboarding of assets of Allen & Company, future capabilities and solutions, future advisor service experience, future capital deployment 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 October 24, 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, acquisitions 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  September 30,       Nine Months Ended  September 30,    
  2019   2018   %  Change   2019   2018   %  Change
REVENUES                      
Commission $ 474,993     $ 486,875     (2 %)   $ 1,415,487     $ 1,449,771     (2 %)
Advisory 514,363     458,087     12 %   1,449,610     1,319,391     10 %
Asset-based 292,140     248,895     17 %   877,054     706,834     24 %
Transaction and fee 121,222     118,941     2 %   362,037     352,045     3 %
Interest income, net of interest expense 11,531     10,512     10 %   35,542     28,426     25 %
Other 1,276     7,687     n/m     37,231     14,891     n/m  
Total net revenues 1,415,525     1,330,997     6 %   4,176,961     3,871,358     8 %
EXPENSES                      
Commission and advisory 856,635     821,950     4 %   2,494,355     2,384,266     5 %
Compensation and benefits 138,300     128,007     8 %   407,000     373,884     9 %
Promotional 61,715     52,628     17 %   154,487     163,462     (5 %)
Depreciation and amortization 24,062     22,838     5 %   70,116     65,759     7 %
Amortization of intangible assets 16,286     15,676     4 %   48,703     44,580     9 %
Occupancy and equipment 34,417     30,308     14 %   100,843     84,848     19 %
Professional services 17,666     23,129     (24 %)   56,115     61,223     (8 %)
Brokerage, clearing and exchange 16,380     15,844     3 %   48,518     47,154     3 %
Communications and data processing 12,535     12,334     2 %   37,394     34,546     8 %
Other 27,599     29,219     (6 %)   83,977     88,175     (5 %)
Total operating expenses 1,205,595     1,151,933     5 %   3,501,508     3,347,897     5 %
Non-operating interest expense and other 31,944     31,705     1 %   98,617     93,267     6 %
INCOME BEFORE PROVISION FOR INCOME TAXES 177,986     147,359     21 %   576,836     430,194     34 %
PROVISION FOR INCOME TAXES 46,272     40,494     14 %   143,632     111,033     29 %
NET INCOME $ 131,714     $ 106,865     23 %   $ 433,204     $ 319,161     36 %
EARNINGS PER SHARE                      
Earnings per share, basic $ 1.61     $ 1.22     32 %   $ 5.20     $ 3.59     45 %
Earnings per share, diluted $ 1.57     $ 1.19     32 %   $ 5.07     $ 3.49     45 %
Weighted-average shares outstanding, basic 81,833     87,426     (6 %)   83,315     88,841     (6 %)
Weighted-average shares outstanding, diluted 83,844     89,878     (7 %)   85,421     91,447     (7 %)


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

  Quarterly Results
  Q3 2019   Q2 2019   Q1 2019
REVENUES          
Commission $ 474,993     $ 479,135     $ 461,359  
Advisory 514,363     481,309     453,938  
Asset-based 292,140     288,551     296,363  
Transaction and fee 121,222     118,335     122,480  
Interest income, net of interest expense 11,531     11,690     12,321  
Other 1,276     10,737     25,218  
Total net revenues 1,415,525     1,389,757     1,371,679  
EXPENSES          
Commission and advisory 856,635     838,022     799,698  
Compensation and benefits 138,300     131,788     136,912  
Promotional 61,715     41,423     51,349  
Depreciation and amortization 24,062     22,584     23,470  
Amortization of intangible assets 16,286     16,249     16,168  
Occupancy and equipment 34,417     33,320     33,106  
Professional services 17,666     18,837     19,612  
Brokerage, clearing and exchange expense 16,380     15,994     16,144  
Communications and data processing 12,535     12,532     12,327  
Other 27,599     29,975     26,403  
Total operating expenses 1,205,595     1,160,724     1,135,189  
Non-operating interest expense and other 31,944     33,957     32,716  
INCOME BEFORE PROVISION FOR INCOME TAXES 177,986     195,076     203,774  
PROVISION FOR INCOME TAXES 46,272     48,984     48,376  
NET INCOME $ 131,714     $ 146,092     $ 155,398  
EARNINGS PER SHARE          
Earnings per share, basic $ 1.61     $ 1.75     $ 1.84  
Earnings per share, diluted $ 1.57     $ 1.71     $ 1.79  
Weighted-average shares outstanding, basic 81,833     83,247     84,487  
Weighted-average shares outstanding, diluted 83,844     85,350     86,742  


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

    September 30, 2019   June 30, 2019   December 31, 2018
ASSETS
Cash and cash equivalents   $ 929,536     $ 403,813     $ 511,096  
Cash segregated under federal and other regulations   526,741     708,613     985,195  
Restricted cash   52,406     48,906     65,828  
Receivables from:            
Clients, net of allowance   418,976     462,327     412,944  
Product sponsors, broker-dealers, and clearing organizations   171,151     176,323     166,793  
Advisor loans, net of allowance   397,653     355,077     298,821  
Others, net of allowance   268,262     263,246     248,711  
Securities owned:            
Trading — at fair value   32,774     29,422     29,267  
Held-to-maturity — at amortized cost   13,043     11,771     13,001  
Securities borrowed   10,231     7,246     4,829  
Fixed assets, net of accumulated depreciation and amortization   504,410     485,571     461,418  
Operating lease assets   104,305     105,390      
Goodwill   1,502,679     1,490,247     1,490,247  
Intangible assets, net of accumulated amortization   456,469     451,945     484,171  
Other assets   351,912     364,059     305,147  
Total assets   $ 5,740,548     $ 5,363,956     $ 5,477,468  
LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES:            
Drafts payable   $ 141,423     $ 184,361     $ 225,034  
Payables to clients   1,119,575     760,120     950,946  
Payables to broker-dealers and clearing organizations   85,341     57,665     76,180  
Accrued commission and advisory expenses payable   162,104     152,697     164,211  
Accounts payable and accrued liabilities   487,399     439,679     478,644  
Income taxes payable   7,146     13,220     32,990  
Unearned revenue   85,003     94,579     80,524  
Securities sold, but not yet purchased — at fair value   206     82     169  
Long-term borrowing, net of unamortized debt issuance cost   2,360,218     2,363,441     2,371,808  
Operating lease liabilities   144,194     145,602      
Finance lease liabilities   107,184     107,084      
Leasehold financing and capital lease obligations           104,564  
Deferred income taxes, net   20,805     20,309     18,325  
Total liabilities   4,720,598     4,338,839     4,503,395  
STOCKHOLDERS’ EQUITY:            
Common stock, $.001 par value; 600,000,000 shares authorized; 126,186,912 shares issued at September 30, 2019   126     126     125  
Additional paid-in capital   1,687,021     1,673,155     1,634,337  
Treasury stock, at cost — 44,858,459 shares at September 30, 2019   (2,114,814 )   (1,984,223 )   (1,730,535 )
Retained earnings   1,447,617     1,336,059     1,070,146  
Total stockholders’ equity   1,019,950     1,025,117     974,073  
Total liabilities and stockholders’ equity   $ 5,740,548     $ 5,363,956     $ 5,477,468  


LPL Financial Holdings Inc.
Management's Statements of Operations (4)
(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
  Q3 2019   Q2 2019   %  Change   Q3 2018   %  Change
Gross Profit(4)                  
Sales-based commissions $ 194,342     $ 203,531     (5 %)   $ 193,545     %
Trailing commissions 280,651     275,604     2 %   293,330     (4 %)
Advisory 514,363     481,309     7 %   458,087     12 %
Commission and advisory fees 989,356     960,444     3 %   944,962     5 %
Production based payout(5) (857,384 )   (831,178 )   3 %   (817,211 )   5 %
Commission and advisory fees, net of payout 131,972     129,266     2 %   127,751     3 %
Client cash 162,517     161,815     %   127,174     28 %
Other asset-based(6) 129,623     126,736     2 %   121,721     6 %
Transaction and fee 121,222     118,335     2 %   118,941     2 %
Interest income and other, net(7) 13,556     15,583     (13 %)   13,460     1 %
Total net commission and advisory fees and attachment revenue 558,890     551,735     1 %   509,047     10 %
Brokerage, clearing, and exchange expense (16,380 )   (15,994 )   2 %   (15,844 )   3 %
Gross Profit(4) 542,510     535,741     1 %   493,203     10 %
                   
G&A Expense                  
Core G&A(8) 215,198     210,514     2 %   209,244     3 %
Regulatory charges 7,905     8,632     n/m     7,421     n/m  
Promotional 61,715     41,423     49 %   52,628     17 %
Employee share-based compensation 7,414     7,306     1 %   6,332     17 %
Total G&A 292,232     267,875     9 %   275,625     6 %
EBITDA(4) 250,278     267,866     (7 %)   217,578     15 %
Depreciation and amortization 24,062     22,584     7 %   22,838     5 %
Amortization of intangible assets 16,286     16,249     %   15,676     4 %
Non-operating interest expense and other 31,944     33,957     (6 %)   31,705     1 %
INCOME BEFORE PROVISION FOR INCOME TAXES 177,986     195,076     (9 %)   147,359     21 %
PROVISION FOR INCOME TAXES 46,272     48,984     (6 %)   40,494     14 %
NET INCOME $ 131,714     $ 146,092     (10 %)   $ 106,865     23 %
Earnings per share, diluted $ 1.57     $ 1.71     (8 %)   $ 1.19     32 %
Weighted-average shares outstanding, diluted 83,844     85,350     (2 %)   89,878     (7 %)
EPS Prior to Amortization of Intangible Assets(4)(35) $ 1.71     $ 1.85     (8 %)   $ 1.32     30 %


LPL Financial Holdings Inc.
Management's Statements of Operations Trend (4)
(In thousands, except per share data)
(Unaudited)

  Quarterly Results
  Q3 2019   Q2 2019   Q1 2019
Gross Profit(4)          
Sales-based commissions $ 194,342     $ 203,531     $ 190,999  
Trailing commissions 280,651     275,604     270,360  
Advisory 514,363     481,309     453,938  
Commission and advisory fees 989,356     960,444     915,297  
Production based payout(5) (857,384 )   (831,178 )   (777,889 )
Commission and advisory fees, net of payout 131,972     129,266     137,408  
Client cash 162,517     161,815     173,139  
Other asset-based(6) 129,623     126,736     123,224  
Transaction and fee 121,222     118,335     122,480  
Interest income and other, net (7) 13,556     15,583     15,730  
Total net commission and advisory fees and attachment revenue 558,890     551,735     571,981  
Brokerage, clearing, and exchange expense (16,380 )   (15,994 )   (16,144 )
Gross Profit(4) 542,510     535,741     555,837  
           
G&A Expense          
Core G&A(8) 215,198     210,514     212,520  
Regulatory charges 7,905     8,632     7,873  
Promotional 61,715     41,423     51,349  
Employee share-based compensation 7,414     7,306     7,967  
Total G&A 292,232     267,875     279,709  
EBITDA(4) 250,278     267,866     276,128  
Depreciation and amortization 24,062     22,584     23,470  
Amortization of intangible assets 16,286     16,249     16,168  
Non-operating interest expense and other 31,944     33,957     32,716  
INCOME BEFORE PROVISION FOR INCOME TAXES 177,986     195,076     203,774  
PROVISION FOR INCOME TAXES 46,272     48,984     48,376  
NET INCOME $ 131,714     $ 146,092     $ 155,398  
Earnings per share, diluted $ 1.57     $ 1.71     $ 1.79  
Weighted-average shares outstanding, diluted 83,844     85,350     86,742  
EPS Prior to Amortization of Intangible Assets(4)(35) $ 1.71     $ 1.85     $ 1.93  


LPL Financial Holdings Inc.
Operating Measures (4)
(Dollars in billions, except where noted) (Unaudited)

  Q3 2019   Q2 2019   Change   Q3 2018   Change
Market Drivers                  
S&P 500 Index (end of period) 2,977     2,942     1 %   2,914     2 %
Fed Funds Daily Effective Rate (FFER) (average bps) 220     240     (20bps )   192     28bps  
                   
Assets                  
Advisory Assets(9) $ 338.0     $ 327.3     3 %   $ 306.1     10 %
Brokerage Assets(10) 381.3     378.7     1 %   374.9     2 %
Total Brokerage and Advisory Assets $ 719.3     $ 706.0     2 %   $ 681.0     6 %
Advisory % of Total Brokerage and Advisory Assets 47.0 %   46.4 %   60bps     44.9 %   210bps  
                   
Assets Prior to Allen & Co.                  
Advisory Assets $ 337.0     $ 327.3     3 %   $ 306.1     10 %
Brokerage Assets 379.5     378.7     %   374.9     1 %
Total Brokerage and Advisory Assets $ 716.5     $ 706.0     1 %   $ 681.0     5 %
Advisory % of Total Brokerage and Advisory Assets 47.0 %   46.4 %   60bps     44.9 %   210bps  
                   
Assets by Platform                  
Corporate Platform Advisory Assets(11) $ 209.4     $ 201.9     4 %   $ 184.8     13 %
Hybrid Platform Advisory Assets(12) 128.6     125.4     3 %   121.3     6 %
Brokerage Assets 381.3     378.7     1 %   374.9     2 %
Total Brokerage and Advisory Assets $ 719.3     $ 706.0     2 %   $ 681.0     6 %
                   
Centrally Managed Assets                  
Centrally Managed Assets(13) $ 47.8     $ 45.7     5 %   $ 40.8     17 %
Centrally Managed  % of Total Advisory Assets 14.1 %   14.0 %   10bps     13.3 %   80bps  


LPL Financial Holdings Inc.

Operating Measures (4)
(Dollars in billions, except where noted) (Unaudited)

  Q3 2019   Q2 2019   Change   Q3 2018   Change
Net New Assets (NNA)                  
Net New Advisory Assets(14) $ 9.2     $ 6.6     n/m   $ 5.1     n/m
Net New Brokerage Assets(15) 0.6     (2.6 )   n/m   (0.8 )   n/m
Total Net New Assets $ 9.9     $ 4.0     n/m   $ 4.4     n/m
                   
Net New Assets (NNA) Prior to Allen & Co.                  
Net New Advisory Assets $ 8.2     $ 6.6     n/m   $ 5.1     n/m
Net New Brokerage Assets (1.2 )   (2.6 )   n/m   (0.8 )   n/m
Total Net New Assets $ 7.0     $ 4.0     n/m   $ 4.4     n/m
                   
Net Brokerage to Advisory Conversions(16) $ 1.7     $ 1.8     n/m   $ 1.7     n/m
Advisory NNA Annualized Growth Prior to Allen & Co. (17) 10.0 %   8.4 %   n/m   7.0 %   n/m
Total NNA Annualized Growth, Prior to Allen & Co.(17) 4.0 %   2.3 %   n/m   2.7 %   n/m
                   
Net New Advisory Assets                  
Corporate Platform Net New Advisory Assets(18) $ 6.6     $ 5.1     n/m   $ 5.9     n/m
Hybrid Platform Net New Advisory Assets(19) 2.6     1.4     n/m   (0.8 )   n/m
Total Net New Advisory Assets $ 9.2     $ 6.6     n/m   $ 5.1     n/m
Centrally Managed Net New Advisory Assets(20) $ 1.9     $ 1.2     n/m   $ 1.8     n/m
                   
Client Cash Balances                  
Insured Cash Account Balances $ 22.2     $ 21.3     4%   $ 21.0     6%
Deposit Cash Account Balances 4.6     4.3     7%   3.9     18%
Total Insured Sweep Balances 26.8     25.5     5 %   25.0     7 %
Money Market Account Cash Balances 2.6     3.5     (26%)   3.3     (21%)
Purchased Money Market Funds 1.8     1.0     80%       —%
Total Money Market Balances 4.4     4.5     (2%)   3.3     33%
Total Client Cash Balances $ 31.2     $ 30.1     4 %   $ 28.2     11 %
Client Cash Balances % of Total Assets 4.3 %   4.3 %   —bps   4.1 %   20bps
                   
Client Cash Balance Average Fees                  
Insured Cash Account Average Fee - bps(21) 241     249     (8)   189     52
Deposit Cash Account Average Fee - bps(21) 217     226     (9)   198     19
Money Market Account Average Fee - bps(21) 68     74     (6)   75     (7)
Purchased Money Market Fund Average Fee - bps(21) 29     29     n/m       n/m
Total Client Cash Balance Average Fee - bps(21) 211     217     (6 )   178     33
                   
Net Buy (Sell) Activity(22) $ 9.0     $ 9.7     n/m   $ 9.2     n/m


LPL Financial Holdings Inc.
Monthly Metrics (4)
(Dollars in billions, except where noted)
(Unaudited)

    September 2019   August 2019   Aug to Sep Change   July 2019   June 2019
Assets Served                    
Advisory Assets(9)   $ 338.0     $ 333.0     1.5%   $ 332.1     $ 327.3  
Brokerage Assets(10)   381.3     378.7     0.7%   381.3     378.7  
Total Brokerage and Advisory Assets   $ 719.3     $ 711.7     1.1 %   $ 713.4     $ 706.0  
                     
Net New Assets (NNA)                    
Net New Advisory Assets(14)   $ 2.2     $ 4.0     n/m   $ 2.9     $ 2.4  
Net New Brokerage Assets(15)   (0.4 )   1.3     n/m   (0.2 )   (0.5 )
Total Net New Assets   $ 1.8     $ 5.3     n/m   $ 2.7     $ 1.9  
Net Brokerage to Advisory Conversions(16)   $ 0.5     $ 0.5     n/m   $ 0.6     $ 0.4  
                     
Client Cash Balances                    
Insured Cash Account Balances   $ 22.2     $ 22.0     0.9%   $ 21.3     $ 21.3  
Deposit Cash Account Balances   4.6     4.5     2.2%   4.2     4.3  
Total Insured Sweep Balances   26.8     26.5     1.1 %   25.5     25.5  
Money Market Account Cash Balances   2.6     2.8     (7.1%)   3.0     3.5  
Purchased Money Market Funds   1.8     1.7     5.9%   1.3     1.0  
Total Money Market Balances   4.4     4.5     (2.2 %)   4.3     4.5  
Total Client Cash Balances   $ 31.2     $ 31.0     0.6 %   $ 29.9     $ 30.1  
                     
Net Buy (Sell) Activity(22)   $ 2.9     $ 2.8     3.6%   $ 3.3     $ 2.8  
                     
Market Indices                    
S&P 500 Index (end of period)   2,977     2,926     1.7%   2,980     2,942  
Fed Funds Effective Rate (average bps)   205     213     (8bps)   240     238  


LPL Financial Holdings Inc.
Financial Measures (4)
(Dollars in thousands, except where noted)
(Unaudited)

  Q3 2019   Q2 2019   % Change   Q3 2018   % Change
Commission Revenue by Product                  
Variable annuities $ 202,131     $ 196,884     3 %   $ 201,075     1 %
Mutual funds 148,672     149,380     %   155,579     (4 %)
Alternative investments 5,467     5,273     4 %   6,331     (14 %)
Fixed annuities 41,541     50,992     (19 %)   47,117     (12 %)
Equities 20,149     19,700     2 %   19,082     6 %
Fixed income 30,917     30,821     %   32,144     (4 %)
Insurance 17,004     17,009     %   16,155     5 %
Group annuities 8,761     8,795     %   9,064     (3 %)
Other 351     281     25 %   328     7 %
Total commission revenue $ 474,993     $ 479,135     (1 %)   $ 486,875     (2 %)
                   
Commission Revenue by Sales-based and Trailing Commission            
Sales-based commissions                  
Variable annuities $ 59,948     $ 58,158     3 %   $ 57,491     4 %
Mutual funds 36,358     38,095     (5 %)   33,319     9 %
Alternative investments 2,009     2,077     (3 %)   1,822     10 %
Fixed annuities 34,309     43,977     (22 %)   40,040     (14 %)
Equities 20,149     19,700     2 %   19,082     6 %
Fixed income 24,950     24,604     1 %   25,757     (3 %)
Insurance 15,289     15,449     (1 %)   14,433     6 %
Group annuities 979     1,190     (18 %)   1,273     (23 %)
Other 351     281     25 %   328     7 %
Total sales-based commissions $ 194,342     $ 203,531     (5 %)   $ 193,545     %
Trailing commissions                  
Variable annuities $ 142,183     $ 138,726     2 %   $ 143,584     (1 %)
Mutual funds 112,314     111,285     1 %   122,260     (8 %)
Alternative investments 3,458     3,196     8 %   4,509     (23 %)
Fixed annuities 7,232     7,015     3 %   7,077     2 %
Fixed income 5,967     6,217     (4 %)   6,387     (7 %)
Insurance 1,715     1,560     10 %   1,722     %
Group annuities 7,782     7,605     2 %   7,791     %
Total trailing commissions $ 280,651     $ 275,604     2 %   $ 293,330     (4 %)
Total commission revenue $ 474,993     $ 479,135     (1 %)   $ 486,875     (2 %)


LPL Financial Holdings Inc.

Financial Measures (4)
(Dollars in thousands, except where noted)
(Unaudited)

  Q3 2019   Q2 2019   Change   Q3 2018   Change
Payout Rate                  
Base Payout Rate 83.05 %   83.39 %   (34bps)   83.12 %   (7bps)
Production Based Bonuses 3.61 %   3.15 %   46bps   3.36 %   25bps
Total Payout Ratio 86.66 %   86.54 %   12bps   86.48 %   18bps


LPL Financial Holdings Inc.
Capital Management Measures (4)
(Dollars in thousands, except where noted)
(Unaudited)

  Q3 2019   Q2 2019
Cash Available for Corporate Use(23)      
Cash at Parent $ 86,987     $ 240,865  
Excess Cash at Broker-Dealer subsidiary per Credit Agreement 117,355     42,496  
Other Available Cash 22,601     12,889  
Total Cash Available for Corporate Use $ 226,943     $ 296,250  
       
Credit Agreement Net Leverage      
Total Debt (does not include unamortized premium) $ 2,370,000     $ 2,373,750  
Cash Available (up to $300 million) 226,943     296,250  
Credit Agreement Net Debt $ 2,143,057     $ 2,077,500  
Credit Agreement EBITDA (trailing twelve months) (24) $ 1,069,878     $ 1,042,984  
Credit Agreement Net Leverage Ratio 2.00 x   1.99 x



    September 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   1,470,000     LIBOR+225 bps(b)       4.30 %   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   $ 2,370,000             4.85 %    
  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 $9.0 million as of September 30, 2019.


LPL Financial Holdings Inc.
Key Business and Financial Metrics (4)
(Dollars in thousands, except where noted)
(Unaudited)

  Q3 2019   Q2 2019   Change   Q3 2018   Change
Advisors                  
Advisors 16,349     16,161     1 %   16,174     1 %
Net New Advisors 188     (28 )   n/m   125     n/m  
Annualized commission and advisory fees per Advisor(25) $ 243     $ 238     2 %   $ 235     3 %
Average Total Assets per Advisor ($ in millions)(26) $ 44.0     $ 43.7     1 %   $ 42.1     5 %
Transition assistance loan amortization ($ in millions)(27) $ 24.4     $ 22.6     8 %   $ 19.2     27 %
Total client accounts (in millions) 5.5     5.5     %   5.4     2 %
                   
Employees - period end 4,353     4,364     %   4,101     6 %
                   
Productivity Metrics                  
Advisory Revenue as a % of Corporate Advisory Assets (28) 1.02 %   1.03 %   (1 bps)   1.05 %   (3 bps)
Gross Profit ROA (29) 31.4 bps   31.1 bps   0.3 bps   28.8 bps   2.6 bps
OPEX as a % of Brokerage and Advisory Assets (30) 18.7 bps   18.6 bps   0.1 bps   18.9 bps   (0.2 bps)
EBIT ROA (31) 12.8 bps   12.5 bps   0.3 bps   9.9 bps   2.9 bps
Production Retention Rate (YTD annualized) (32) 96.3 %   96.2 %   10 bps   96.1 %   20 bps
Recurring Gross Profit Rate (33) 87.1 %   86.5 %   60 bps   85.0 %   210 bps
EBITDA as a % of Gross Profit 46.1 %   50.0 %   (390 bps)   44.1 %   200 bps
                   
Capital Expenditure ($ in millions) $ 40.7     $ 33.2     23 %   $ 36.4     12 %
                   
Share Repurchases ($ in millions) $ 130.3     $ 125.0     4 %   $ 122.5     6 %
Dividends ($ in millions) 20.5     20.8     (1 %)   21.9     (6 %)
Total Capital Allocated ($ in millions) $ 150.8     $ 145.9     3 %   $ 144.4     4 %
Weighted-average Share Count, Diluted 83.8     85.4     (2 %)   89.9     (7 %)
Total Capital Allocated per Share(34) $ 1.80     $ 1.71     5 %   $ 1.61     12 %

Endnote Disclosures

  1. Consists of total client deposits into advisory and brokerage accounts less total client withdrawals from advisory and brokerage accounts. This does not include $2.9 billion of total brokerage and advisory assets attributable to Allen & Company.
  2. 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.
  3. Compliance with the Credit Agreement Net Leverage Ratio is only required under the revolving credit facility.
  4. 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.
  5. 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):
  Q3 2019   Q2 2019   Q1 2019   Q3 2018
Production based payout $ 857,384     $ 831,178     $ 777,889     $ 817,211  
Advisor deferred compensation expense (749 )   6,844     21,809     4,739  
Commission and advisory expense $ 856,635     $ 838,022     $ 799,698     $ 821,950  
  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):
  Q3 2019   Q2 2019   Q1 2019   Q3 2018
Interest income, net of interest expense $ 11,531     $ 11,690     $ 12,321     $ 10,512  
Plus: Other revenue 1,276     10,737     25,218     7,687  
Less: Advisor deferred compensation expense 749     (6,844 )   (21,809 )   (4,739 )
Interest income and other, net $ 13,556     $ 15,583     $ 15,730     $ 13,460  

8. 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 expenses for the periods presented:

  Q3 2019   Q2 2019   Q1 2019   Q3 2018
Operating Expense Reconciliation (in thousands)
             
Core G&A $ 215,198     $ 210,514     $ 212,520     $ 209,244  
Regulatory charges 7,905     8,632     7,873     7,421  
Promotional 61,715     41,423     51,349     52,628  
Employee share-based compensation 7,414     7,306     7,967     6,332  
Total G&A 292,232     267,875     279,709     275,625  
Commissions and advisory 856,635     838,022     799,698     821,950  
Depreciation & amortization 24,062     22,584     23,470     22,838  
Amortization of intangible assets 16,286     16,249     16,168     15,676  
Brokerage, clearing and exchange 16,380     15,994     16,144     15,844  
Total operating expenses $ 1,205,595     $ 1,160,724     $ 1,135,189     $ 1,151,933  
  1. Consists of total advisory assets under custody at LPL Financial, plus advisory assets serviced by Allen & Company advisors.
  2. Consists of brokerage assets serviced by advisors licensed with LPL Financial or Allen & Company.
  3. Consists of total assets on LPL Financial's corporate advisory platform serviced by investment advisor representatives of LPL Financial or Allen & Company.
  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 including advisory assets serviced by Allen & Company advisors 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 including brokerage assets serviced by Allen & Company advisors 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 11) 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 12) less total client withdrawals from advisory accounts on its independent advisory platform.
  12. Consists of total client deposits into centrally managed assets accounts (FN 13) 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. Below is a reconciliation of Credit Agreement EBITDA to net income for the periods presented:
  Q3 2019   Q2 2019
Credit Agreement EBITDA (trailing twelve months)
     
Net income $ 553,502     $ 528,653  
Non-operating interest expense 130,373     130,134  
Provision for income taxes 185,777     179,999  
Depreciation and amortization 92,013     90,789  
Amortization of intangible assets 64,375     63,765  
EBITDA $ 1,026,040     $ 993,340  
Credit Agreement Adjustments:      
Employee share-based compensation expense $ 27,732     $ 26,650  
Advisor share-based compensation expense 2,889     3,342  
Other 13,217     19,652  
Credit Agreement EBITDA (trailing twelve months) $ 1,069,878     $ 1,042,984  
  1. Calculated based on the average advisor count from the current period and prior period.
  2. Calculated based on the end of period total brokerage and advisory assets divided by end of period advisor count.
  3. Represents the amortization expense amount of forgivable loans for transition assistance to advisors and financial institutions.
  4. Represents advisory revenue as a % of Corporate Advisory Assets for the trailing twelve month period.
  5. Represents Gross Profit (FN 4) for the trailing twelve month period, divided by average month-end total brokerage and advisory assets for the trailing twelve month period.
  6. Represents operating expenses for the trailing twelve month 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 8), regulatory, promotional, employee share based compensation, depreciation & amortization, and amortization of intangible assets.
  7. EBIT ROA is calculated as Gross Profit ROA less OPEX as a % of Total Brokerage and Advisory Assets.
  8. 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.
  9. 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.
  10. Capital Allocated per Share equals the amount of capital allocated for share repurchases and cash dividends divided by the diluted weighted-average shares outstanding.
  11. 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) Q3 2019
EPS $ 1.57
Amortization of Intangible Assets 16,286  
Tax Benefit (4,560 )
  Amortization of Intangible Assets Net of Tax Benefit $ 11,726  
Diluted Share Count 83,844  
EPS Impact $ 0.14  
EPS Prior to Amortization of Intangible Assets $ 1.71  

 

Is your business listed correctly on America’s largest city directory network of 1,000 portals?