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LPL Financial Announces Fourth Quarter and Full Year 2019 Results

Fourth Quarter 2019 Key Performance Indicators

  • Earnings per share ("EPS") increased 13% year-over-year to $1.53.
    • Net Income increased 5% year-over-year to $127 million.
  • EPS Prior to Amortization of Intangible Assets** increased 13% year-over-year to $1.68.
  • Total Brokerage and Advisory Assets increased 22% year-over-year to $764 billion.
  • Total organic net new assets were an inflow of $8.8 billion, translating to a 4.9% annualized growth rate.
    • Organic net new advisory assets were an inflow of $9.6 billion, translating to an 11.4% annualized growth rate.
    • Organic net new brokerage assets were an outflow of $0.8 billion, translating to a (0.9)% annualized growth rate.
    • Recruited Assets(1) were $10.6 billion, contributing to a trailing twelve-month total of $35.0 billion.
    • Advisor count was 16,464, up 115 sequentially, and year-to-date production retention rate was 96.5%.

      • Advisor count was up 554 year-over-year prior to the impact of a hybrid firm that formed its own broker-dealer and departed.

  • Total client cash balances were $33.7 billion, up $2.5 billion or 8% sequentially.
    • Client cash balances as a percentage of total assets were 4.4%, up from 4.3% in Q3.
  • Gross Profit** increased 6% year-over-year to $538 million.
  • EBITDA** increased 4% year-over-year to $242 million.
    • EBITDA** as a percentage of Gross Profit** was 45%, down from 46% a year ago.
    • Core G&A** increased 6% year-over-year to $230 million, up 7% sequentially.
  • Shareholder capital returns were $140 million, translating to $1.70 per share.
    • Share repurchases were $120 million for 1.4 million shares at an average purchase price of $85.06.
    • Weighted-average fully diluted share count was 82.7 million, down 6% year-over-year.
    • Dividends were $20 million.
  • Cash available for corporate use was $204 million.
  • Credit Agreement Net Leverage Ratio(2) was 2.05x.

Full Year 2019 Key Performance Indicators

  • EPS increased 36% year-over-year to $6.62.
    • Net Income increased 27% year-over-year to $560 million.
  • EPS prior to Amortization of Intangible Assets** increased 35% year-over-year to $7.17.
  • Total organic net new assets were $23.8 billion, translating to a 3.8% annualized growth rate, up from 2.3% in 2018.
  • Gross Profit** increased 12% year-over-year to $2.17 billion.
  • EBITDA** increased 20% year-over-year to $1.04 billion.
    • EBITDA** as a percentage of Gross Profit** was 48%, up from 44% a year ago.
    • Core G&A** was $868 million, up 6% year-over-year. This included $3 million of expenses related to the acquisition of Allen & Company*.
  • Shareholder capital returns were $583 million, translating to $6.89 per share.
    • Share repurchases were $500 million for 6.4 million shares at an average purchase price of $77.96.
    • Weighted-average fully diluted share count was 84.6 million, down 7% year-over-year.
    • Dividends were $83 million.

Key Updates

  • Shifted $3.3 billion of Insured Cash Accounts (ICA) balances to fixed rate contracts in Q4 which brought fixed rate balances to $12.3 billion, or ~50% of the total ICA portfolio, up from ~40% in Q3.
  • 2019 Core G&A** was $868 million, which translates to a ~6% growth rate from 2018 and within our outlook range of $860 to $870 million.
  • Established 2020 Core G&A** outlook range of $915 to $940 million, which translates to a ~5.5% to 8% growth rate from 2019.

SAN DIEGO, Jan. 30, 2020 (GLOBE NEWSWIRE) -- LPL Financial Holdings Inc. (LPLA) (the “Company”) today announced results for its fourth quarter ended December 31, 2019, reporting net income of $127 million, or $1.53 per share. This compares with $120 million, or $1.36 per share, in the fourth quarter of 2018 and $132 million, or $1.57 per share, in the prior quarter.

“In 2019, we delivered another year of solid business and financial growth, including increases in assets, organic growth, and earnings,” said Dan Arnold, President and CEO. “As we look ahead to 2020, we remain focused on executing our strategy of winning in our traditional markets, deploying new affiliation models, creating an industry-leading service experience, and innovating on a new layer of value for our advisors’ practices.  We believe this approach will drive long-term value across our stakeholders.”

“We continued to build financial and balance sheet strength in 2019,” said Matt Audette, CFO. “We invested to drive growth while staying disciplined on expenses, extended the duration of our cash sweep portfolio, refinanced our debt, and returned capital to our shareholders. Going forward, we plan to continue to deploy capital to drive growth, take advantage of M&A opportunities when appropriate, 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 March 31, 2020 stockholders of record as of March 18, 2020.

Conference Call and Additional Information

The Company will hold a conference call to discuss its results at 5:00 p.m. EST on Thursday, January 30.  To listen, call 877-677-9122 (domestic) or 708-290-1401 (international); passcode 4628048, or visit investor.lpl.com (webcast).  Replays will be available by phone and on investor.lpl.com beginning two hours after the call and until February 6 and February 20, respectively.  For telephonic replay, call 855-859-2056 (domestic) or 404-537-3406 (international); passcode 4628048.

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 34 on page 20 of this release.

Gross Profit is calculated as net revenues, which were $1,448 million for the three months ended December 31, 2019, less commission and advisory expenses and brokerage, clearing, and exchange fees, which were $894 million and $16 million, respectively, for the three months ended December 31, 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 $1,248 million for the three months ended December 31, 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 17 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 23 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 2020 Core G&A** outlook), future capabilities and affiliation models, 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 January 30, 2020. 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 2019 Annual Report on Form 10K, Quarterly Reports on Form 10-Q or other filings with the SEC. Except as required by law, the Company specifically disclaims any obligation to update any forward-looking statements as a result of developments occurring after the date of this earnings release, even if its estimates change, and you should not rely on statements contained herein as representing the Company's views as of any date subsequent to the date of this press release.


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

  Three Months Ended  December 31,       Years Ended  December 31,    
  2019   2018   %  Change   2019   2018   %  Change
REVENUES                      
Commission $ 476,920     $ 469,923     1 %   $ 1,892,407     $ 1,919,694     (1 %)
Advisory 533,259     474,102     12 %   1,982,869     1,793,493     11 %
Asset-based 288,925     265,681     9 %   1,165,979     972,515     20 %
Transaction and fee 118,291     119,254     (1 %)   480,328     471,299     2 %
Interest income, net of interest expense 10,966     11,784     (7 %)   46,508     40,210     16 %
Other 19,534     (23,702 )   n/m     56,765     (8,811 )   n/m  
Total net revenues 1,447,895     1,317,042     10 %   5,624,856     5,188,400     8 %
EXPENSES                      
Commission and advisory 893,831     793,310     13 %   3,388,186     3,177,576     7 %
Compensation and benefits 149,128     132,766     12 %   556,128     506,650     10 %
Promotional 51,050     45,141     13 %   205,537     208,603     (1 %)
Depreciation and amortization 25,663     21,897     17 %   95,779     87,656     9 %
Amortization of intangible assets 16,631     15,672     6 %   65,334     60,252     8 %
Occupancy and equipment 35,320     30,750     15 %   136,163     115,598     18 %
Professional services 17,772     24,428     (27 %)   73,887     85,651     (14 %)
Brokerage, clearing and exchange 15,927     16,000     %   64,445     63,154     2 %
Communications and data processing 12,465     11,776     6 %   49,859     46,322     8 %
Other 30,569     31,103     (2 %)   114,546     119,278     (4 %)
Total operating expenses 1,248,356     1,122,843     11 %   4,749,864     4,470,740     6 %
Non-operating interest expense and other 31,384     31,756     (1 %)   130,001     125,023     4 %
Loss on extinguishment of debt 3,156         n/m     3,156         n/m  
INCOME BEFORE PROVISION FOR INCOME TAXES 164,999     162,443     2 %   741,835     592,637     25 %
PROVISION FOR INCOME TAXES 38,323     42,145     (9 %)   181,955     153,178     19 %
NET INCOME $ 126,676     $ 120,298     5 %   $ 559,880     $ 439,459     27 %
EARNINGS PER SHARE                      
Earnings per share, basic $ 1.57     $ 1.40     12 %   $ 6.78     $ 4.99     36 %
Earnings per share, diluted $ 1.53     $ 1.36     13 %   $ 6.62     $ 4.85     36 %
Weighted-average shares outstanding, basic 80,701   85,976   (6 %)   82,552   88,119   (6 %)
Weighted-average shares outstanding, diluted 82,695   88,163   (6 %)   84,624   90,619   (7 %)


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

  Quarterly Results
 
   Q4 2019    Q3 2019   Q2 2019
REVENUES
         
Commission $ 476,920     $ 474,993     $ 479,135  
Advisory 533,259     514,363     481,309  
Asset-based 288,925     292,140     288,551  
Transaction and fee 118,291     121,222     118,335  
Interest income, net of interest expense 10,966     11,531     11,690  
Other 19,534     1,276     10,737  
Total net revenues 1,447,895     1,415,525     1,389,757  
EXPENSES          
Commission and advisory 893,831     856,635     838,022  
Compensation and benefits 149,128     138,300     131,788  
Promotional 51,050     61,715     41,423  
Depreciation and amortization 25,663     24,062     22,584  
Amortization of intangible assets 16,631     16,286     16,249  
Occupancy and equipment 35,320     34,417     33,320  
Professional services 17,772     17,666     18,837  
Brokerage, clearing and exchange expense 15,927     16,380     15,994  
Communications and data processing 12,465     12,535     12,532  
Other 30,569     27,599     29,975  
Total operating expenses 1,248,356     1,205,595     1,160,724  
Non-operating interest expense and other 31,384     31,944     33,957  
Loss on extinguishment of debt 3,156          
INCOME BEFORE PROVISION FOR INCOME TAXES 164,999     177,986     195,076  
PROVISION FOR INCOME TAXES 38,323     46,272     48,984  
NET INCOME $ 126,676     $ 131,714     $ 146,092  
EARNINGS PER SHARE          
Earnings per share, basic $ 1.57     $ 1.61     $ 1.75  
Earnings per share, diluted $ 1.53     $ 1.57     $ 1.71  
Weighted-average shares outstanding, basic   80,701       81,833       83,247  
Weighted-average shares outstanding, diluted
    82,695   83,844   85,350


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

    December 31, 2019   September 30, 2019   December 31, 2018
ASSETS
Cash and cash equivalents   $ 590,209     $ 929,536     $ 511,096  
Cash segregated under federal and other regulations   822,697     526,741     985,195  
Restricted cash   58,872     52,406     65,828  
Receivables from:            
Clients, net of allowance   433,986     418,976     412,944  
Product sponsors, broker-dealers, and clearing organizations   177,654     171,151     166,793  
Advisor loans, net of allowance   441,743     397,653     298,821  
Others, net of allowance   298,790     268,262     248,711  
Securities owned:            
Trading — at fair value   46,447     32,774     29,267  
Held-to-maturity — at amortized cost   11,806     13,043     13,001  
Securities borrowed   17,684     10,231     4,829  
Fixed assets, net of accumulated depreciation and amortization   533,044     504,410     461,418  
Operating lease assets   102,477     104,305      
Goodwill   1,503,648     1,502,679     1,490,247  
Intangible assets, net of accumulated amortization   439,838     456,469     484,171  
Other assets   401,343     351,912     305,147  
Total assets   $ 5,880,238     $ 5,740,548     $ 5,477,468  
LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES:            
Drafts payable   $ 218,636     $ 141,423     $ 225,034  
Payables to clients   1,058,873     1,119,575     950,946  
Payables to broker-dealers and clearing organizations   92,002     85,341     76,180  
Accrued commission and advisory expenses payable   174,330     162,104     164,211  
Accounts payable and accrued liabilities   557,969     487,399     478,644  
Income taxes payable   20,129     7,146     32,990  
Unearned revenue   82,842     85,003     80,524  
Securities sold, but not yet purchased — at fair value   176     206     169  
Long-term borrowing, net of unamortized debt issuance cost   2,398,818     2,360,218     2,371,808  
Operating lease liabilities   141,900     144,194      
Finance lease liabilities   108,592     107,184      
Leasehold financing and capital lease obligations           104,564  
Deferred income taxes, net   2,098     20,805     18,325  
Total liabilities   4,856,365     4,720,598     4,503,395  
STOCKHOLDERS’ EQUITY:            
Common stock, $.001 par value; 600,000,000 shares authorized; 126,494,028 shares issued at December 31, 2019   126     126     125  
Additional paid-in capital   1,703,973     1,687,021     1,634,337  
Treasury stock, at cost — 46,259,989 shares at December 31, 2019   (2,234,793 )   (2,114,814 )   (1,730,535 )
Retained earnings   1,554,567     1,447,617     1,070,146  
Total stockholders’ equity   1,023,873     1,019,950     974,073  
Total liabilities and stockholders’ equity   $ 5,880,238     $ 5,740,548     $ 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 9-16 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 4 of this release. 

  Quarterly Results
 
  Q4 2019
  Q3 2019   %  Change   Q4 2018   %  Change
Gross Profit(3)                  
Sales-based commissions $ 193,980     $ 194,342     %   $ 199,468     (3 %)
Trailing commissions 282,940     280,651     1 %   270,455     5 %
Advisory 533,259     514,363     4 %   474,102     12 %
Commission and advisory fees 1,010,179     989,356     2 %   944,025     7 %
Production based payout(4) (876,654 )   (857,384 )   2 %   (818,382 )   7 %
Commission and advisory fees, net of payout 133,525     131,972     1 %   125,643     6 %
Client cash 155,322     162,517     (4 %)   147,774     5 %
Other asset-based(5) 133,603     129,623     3 %   117,907     13 %
Transaction and fee 118,291     121,222     (2 %)   119,254     (1 %)
Interest income and other, net(6) 13,323     13,556     (2 %)   13,154     1 %
Total net commission and advisory fees and attachment revenue 554,064     558,890     (1 %)   523,732     6 %
Brokerage, clearing, and exchange expense (15,927 )   (16,380 )   (3 %)   (16,000 )   %
Gross Profit(3) 538,137     542,510     (1 %)   507,732     6 %
                   
G&A Expense                  
Core G&A(7) 230,182     215,198     7 %   216,185     6 %
Regulatory charges 7,893     7,905     n/m     9,593     n/m  
Promotional 51,050     61,715     (17 %)   45,141     13 %
Employee share-based compensation 7,179     7,414     (3 %)   5,045     42 %
Total G&A 296,304     292,232     1 %   275,964     7 %
EBITDA(3) 241,833     250,278     (3 %)   231,768     4 %
Depreciation and amortization 25,663     24,062     7 %   21,897     17 %
Amortization of intangible assets 16,631     16,286     2 %   15,672     6 %
Non-operating interest expense and other 31,384     31,944     (2 %)   31,756     (1 %)
Loss on extinguishment of debt 3,156         n/m         n/m  
INCOME BEFORE PROVISION FOR INCOME TAXES 164,999     177,986     (7 %)   162,443     2 %
PROVISION FOR INCOME TAXES 38,323     46,272     (17 %)   42,145     (9 %)
NET INCOME $ 126,676     $ 131,714     (4 %)   $ 120,298     5 %
Earnings per share, diluted $ 1.53     $ 1.57     (3 %)   $ 1.36     13 %
Weighted-average shares outstanding, diluted 82,695   83,844     (1 %)   88,163   (6 %)
EPS Prior to Amortization of Intangible Assets(3)(34) $ 1.68     $ 1.71     (2 %)   $ 1.49     13 %


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

  Quarterly Results
 
  Q4 2019
  Q3 2019   Q2 2019
Gross Profit(3)
         
Sales-based commissions $ 193,980     $ 194,342     $ 203,531  
Trailing commissions 282,940     280,651     275,604  
Advisory 533,259     514,363     481,309  
Commission and advisory fees 1,010,179     989,356     960,444  
Production based payout(4) (876,654 )   (857,384 )   (831,178 )
Commission and advisory fees, net of payout 133,525     131,972     129,266  
Client cash 155,322     162,517     161,815  
Other asset-based(5) 133,603     129,623     126,736  
Transaction and fee 118,291     121,222     118,335  
Interest income and other, net (6) 13,323     13,556     15,583  
Total net commission and advisory fees and attachment revenue 554,064     558,890     551,735  
Brokerage, clearing, and exchange expense (15,927 )   (16,380 )   (15,994 )
Gross Profit(3) 538,137     542,510     535,741  
           
G&A Expense          
Core G&A(7) 230,182     215,198     210,514  
Regulatory charges 7,893     7,905     8,632  
Promotional 51,050     61,715     41,423  
Employee share-based compensation 7,179     7,414     7,306  
Total G&A 296,304     292,232     267,875  
EBITDA(3) 241,833     250,278     267,866  
Depreciation and amortization 25,663     24,062     22,584  
Amortization of intangible assets 16,631     16,286     16,249  
Non-operating interest expense and other 31,384     31,944     33,957  
Loss on extinguishment of debt 3,156          
INCOME BEFORE PROVISION FOR INCOME TAXES 164,999     177,986     195,076  
PROVISION FOR INCOME TAXES 38,323     46,272     48,984  
NET INCOME $ 126,676     $ 131,714     $ 146,092  
Earnings per share, diluted $ 1.53     $ 1.57     $ 1.71  
Weighted-average shares outstanding, diluted   82,695     83,844       85,350  
EPS Prior to Amortization of Intangible Assets(3)(34)
$ 1.68   $ 1.71   $ 1.85


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

  Q4 2019   Q3 2019   Change   Q4 2018   Change
Market Drivers                  
S&P 500 Index (end of period) 3,231     2,977     9 %   2,507     29 %
Fed Funds Daily Effective Rate (FFER) (average bps) 165     220     (55bps)   222     (57bps)
                   
Assets                  
Advisory Assets(8) $ 365.8     $ 338.0     8 %   $ 282.0     30 %
Brokerage Assets(9) 398.6     381.3     5 %   346.0     15 %
Total Brokerage and Advisory Assets $ 764.4     $ 719.3     6 %   $ 628.1     22 %
Advisory % of Total Brokerage and Advisory Assets 47.8 %   47.0 %   80bps   44.9 %   290bps
                   
Assets by Platform                  
Corporate Platform Advisory Assets(10) $ 228.3     $ 209.4     9 %   $ 172.3     33 %
Hybrid Platform Advisory Assets(11) 137.5     128.6     7 %   109.7     25 %
Brokerage Assets 398.6     381.3     5 %   346.0     15 %
Total Brokerage and Advisory Assets $ 764.4     $ 719.3     6 %   $ 628.1     22 %
                   
Centrally Managed Assets                  
Centrally Managed Assets(12) $ 52.4     $ 47.8     10 %   $ 38.5     36 %
Centrally Managed  % of Total Advisory Assets 14.3 %   14.1 %   20bps   13.7 %   60bps

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

  Q4 2019   Q3 2019   Change   Q4 2018   Change
Net New Assets (NNA)                  
Net New Advisory Assets(13) $ 9.6     $ 9.2     n/m   $ 5.0     n/m
Net New Brokerage Assets(14) (0.8 )   0.6     n/m   0.9     n/m
Total Net New Assets $ 8.8     $ 9.9     n/m   $ 5.9     n/m
                   
Net New Assets (NNA) Prior to Allen & Co.                  
Net New Advisory Assets $ 9.6     $ 8.2     n/m   $ 5.0     n/m
Net New Brokerage Assets (0.8 )   (1.2 )   n/m   0.9     n/m
Total Net New Assets $ 8.8     $ 7.0     n/m   $ 5.9     n/m
                   
Net Brokerage to Advisory Conversions(15) $ 1.9     $ 1.7     n/m   $ 1.4     n/m
Advisory NNA Annualized Growth Prior to Allen & Co.(16) 11.4 %   10.0 %   n/m   6.5 %   n/m
Total NNA Annualized Growth, Prior to Allen & Co.(16) 4.9 %   4.0 %   n/m   3.5 %   n/m
                   
Net New Advisory Assets                  
Corporate Platform Net New Advisory Assets(17) $ 7.5     $ 6.6     n/m   $ 5.1     n/m
Hybrid Platform Net New Advisory Assets(18) 2.1     2.6     n/m   (0.2 )   n/m
Total Net New Advisory Assets $ 9.6     $ 9.2     n/m   $ 5.0     n/m
Centrally Managed Net New Advisory Assets(19) $ 2.0     $ 1.9     n/m   $ 1.4     n/m
                   
Client Cash Balances                  
Insured Cash Account Balances $ 24.4     $ 22.2     10 %   $ 24.8     (2 %)
Deposit Cash Account Balances 5.0     4.6     9 %   5.1     (2 %)
Total Insured Sweep Balances 29.4     26.8     10 %   29.9     (2 %)
Money Market Account Cash Balances 1.9     2.6     (27 %)   4.9     (61 %)
Purchased Money Market Funds 2.4     1.8     33 %       %
Total Money Market Balances 4.3     4.4     (2 %)   4.9     (12 %)
Total Client Cash Balances $ 33.7     $ 31.2     8 %   $ 34.9     (3 %)
Client Cash Balances % of Total Assets 4.4 %   4.3 %   10bps   5.6 %   (120bps)
                   
Client Cash Balance Average Fees                  
Insured Cash Account Average Fee - bps(20) 222     241     (19 )   215     7  
Deposit Cash Account Average Fee - bps(20) 184     217     (33 )   207     (23 )
Money Market Account Average Fee - bps(20) 69     68     1     75     (6 )
Purchased Money Market Fund Average Fee - bps(20) 29     29     n/m       n/m
Total Client Cash Balance Average Fee - bps(20) 193     211     (18 )   196     (3 )
                   
Net Buy (Sell) Activity(21) $ 9.8     $ 9.0     n/m   $ 2.3     n/m


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

    December 2019   November 2019   Nov to Dec Change   October 2019   September 2019
Assets Served
                   
Advisory Assets(8)   $ 365.8     $ 354.9     3.1%   $ 345.3     $ 338.0  
Brokerage Assets(9)   398.6     392.9     1.5%   386.5     381.3  
Total Brokerage and Advisory Assets   $ 764.4     $ 747.8     2.2%   $ 731.7     $ 719.3  
                     
Net New Assets (NNA)                    
Net New Advisory Assets(13)   $ 3.8     $ 2.9     n/m   $ 3.0     $ 2.2  
Net New Brokerage Assets(14)   (0.9 )   (0.3 )   n/m   0.3     (0.4 )
Total Net New Assets   $ 2.9     $ 2.6     n/m   $ 3.3     $ 1.8  
Net Brokerage to Advisory Conversions(15)   $ 0.6     $ 0.7     n/m   $ 0.6     $ 0.5  
                     
Client Cash Balances                    
Insured Cash Account Balances   $ 24.4     $ 22.9     6.6%   $ 22.6     $ 22.2  
Deposit Cash Account Balances   5.0     4.6     8.7%   4.6     4.6  
Total Insured Sweep Balances   29.4     27.5     6.9%   27.2     26.8  
Money Market Account Cash Balances   1.9     2.0     (5.0%)   2.3     2.6  
Purchased Money Market Funds   2.4     2.2     9.1%   2.1     1.8  
Total Money Market Balances   4.3     4.3     —%   4.4     4.4  
Total Client Cash Balances   $ 33.7     $ 31.8     6.0%   $ 31.6     $ 31.2  
                     
Net Buy (Sell) Activity(21)   $ 3.2     $ 3.3     (3.0%)   $ 3.3     $ 2.9  
                     
Market Indices                    
S&P 500 Index (end of period)   3,231     3,141     2.9%   3,038     2,977  
Fed Funds Effective Rate (average bps)   155     155     —bps   183     205  


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

  Q4 2019   Q3 2019   Change   Q4 2018   Change
Commission Revenue by Product                  
Annuities $ 244,249     $ 252,433     (3 %)   $ 247,212     (1 %)
Mutual funds 150,697     148,672     1 %   145,780     3 %
Fixed income 34,647     30,917     12 %   29,201     19 %
Equities 21,233     20,149     5 %   22,752     (7 %)
Other 26,094     22,822     14 %   24,978     4 %
Total commission revenue $ 476,920     $ 474,993     %   $ 469,923     1 %
                   
Commission Revenue by Sales-based and Trailing Commission            
Sales-based commissions                  
Annuities $ 86,141     $ 95,236     (10 %)   $ 99,441     (13 %)
Mutual funds 37,611     36,358     3 %   33,687     12 %
Fixed income 28,642     24,950     15 %   23,504     22 %
Equities 21,233     20,149     5 %   22,752     (7 %)
Other 20,353     17,649     15 %   20,084     1 %
Total sales-based commissions $ 193,980     $ 194,342     %   $ 199,468     (3 %)
Trailing commissions                  
Annuities $ 158,108     $ 157,197     1 %   $ 147,771     7 %
Mutual funds 113,086     112,314     1 %   112,093     1 %
Fixed income 6,005     5,967     1 %   5,697     5 %
Other 5,741     5,173     11 %   4,894     17 %
Total trailing commissions $ 282,940     $ 280,651     1 %   $ 270,455     5 %
Total commission revenue $ 476,920     $ 474,993     %   $ 469,923     1 %
                   
Payout Rate                  
Base Payout Rate 82.82 %   83.05 %   (23bps)   82.81 %   1bps
Production Based Bonuses 3.96 %   3.61 %   35bps   3.88 %   8bps
Total Payout Ratio 86.78 %   86.66 %   12bps   86.69 %   9bps


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

  Q4 2019   Q3 2019
Cash Available for Corporate Use(22)
     
Cash at Parent $ 115,252     $ 86,987  
Excess Cash at Broker-Dealer subsidiary per Credit Agreement 66,842     117,355  
Other Available Cash 21,597     22,601  
Total Cash Available for Corporate Use $ 203,691     $ 226,943  
       
Credit Agreement Net Leverage      
Total Debt (does not include unamortized premium) $ 2,415,000     $ 2,370,000  
Cash Available (up to $300 million) 203,691     226,943  
Credit Agreement Net Debt $ 2,211,309     $ 2,143,057  
Credit Agreement EBITDA (trailing twelve months) (23) $ 1,080,847     $ 1,069,878  
Credit Agreement Net Leverage Ratio 2.05 x   2.00 x



    December 31, 2019    
Total Debt   Balance   Current Applicable
Margin
  Yield At Issuance   Interest Rate   Maturity
Revolving Credit Facility(a)   $ 45,000     ABR+25bps(b)       5.000 %   11/12/2024
Senior Secured Term Loan B   1,070,000     LIBOR+175 bps(c)       3.542 %   11/12/2026
Senior Unsecured Notes(d)   500,000     5.75% Fixed   5.750 %   5.750 %   9/15/2025
Senior Unsecured Notes(d)   400,000   (e) 5.75% Fixed   5.115 %   5.750 %   9/15/2025
Senior Unsecured Notes(f)   400,000     4.625% Fixed   4.625 %   4.625 %   11/15/2027
Total / Weighted Average   $ 2,415,000             4.571 %    
  1. The Revolving Credit Facility has a borrowing capacity of $750 million.
  2. The alternate base rate (ABR) was the effective PRIME rate on December 31, 2019, the date of the borrowing.
  3. The LIBOR rate option is one-month LIBOR rate and subject to an interest rate floor of 0 basis points.
  4. 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.
  5. Does not include unamortized premium of approximately $8.6 million as of December 31, 2019.
  6. The Senior Unsecured Notes were issued in November 2019 at par.


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

  Q4 2019   Q3 2019   Change   Q4 2018   Change
Advisors                  
Advisors 16,464   16,349   1 %   16,109   2 %
Net New Advisors 115     188     n/m     (65 )   n/m  
Annualized commission and advisory fees per Advisor(24) $ 246     $ 243     1 %   $ 234     5 %
Average Total Assets per Advisor ($ in millions)(25) $ 46.4     $ 44.0     5 %   $ 39.0     19 %
Transition assistance loan amortization ($ in millions)(26) $ 26.1     $ 24.4     7 %   $ 21.3     23 %
Total client accounts (in millions) 5.7     5.5     4 %   5.4     6 %
                   
Employees - period end 4,343   4,353   %   4,229   3 %
                   
Productivity Metrics                  
Advisory Revenue as a % of Corporate Advisory Assets (27) 1.02 %   1.02 %   bps   1.05 %   (3 bps)
Gross Profit ROA (28) 30.7 bps   31.4 bps   (0.7 bps)   29.7 bps   1.0 bps
OPEX as a % of Brokerage and Advisory Assets (29) 18.3 bps   18.7 bps   (0.4 bps)   18.8 bps   (0.5 bps)
EBIT ROA (30) 12.4 bps   12.8 bps   (0.4 bps)   10.9 bps   1.5 bps
Production Retention Rate (YTD annualized) (31) 96.5 %   96.3 %   20 bps   95.9 %   60 bps
Recurring Gross Profit Rate (32) 85.9 %   87.1 %   (120 bps)   86.7 %   (80 bps)
EBITDA as a % of Gross Profit 44.9 %   46.1 %   (120 bps)   45.6 %   (70 bps)
                   
Capital Expenditure ($ in millions) $ 52.1     $ 40.7     28 %   $ 47.5     10 %
                   
Share Repurchases ($ in millions) $ 120.0     $ 130.3     (8 %)   $ 117.8     2 %
Dividends ($ in millions) 20.2     20.5     (1 %)   21.5     (6 %)
Total Capital Allocated ($ in millions) $ 140.2     $ 150.8     (7 %)   $ 139.3     1 %
Weighted-average Share Count, Diluted 82.7     83.8     (1 %)   88.2     (6 %)
Total Capital Allocated per Share(33) $ 1.70     $ 1.80     (6 %)   $ 1.58     8 %

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 Net Leverage Ratio is only required under the revolving credit facility.
  3. Certain information presented on pages 9-16 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 4.
  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):
  Q4 2019   Q3 2019   Q2 2019   Q4 2018
Production based payout
   876,654   $    857,384   $    831,178   $    818,382
Advisor deferred compensation expense 17,177     (749 )   6,844     (25,072 )
Commission and advisory expense $ 893,831     $ 856,635     $ 838,022     $ 793,310  
  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):
  Q4 2019   Q3 2019   Q2 2019   Q4 2018
Interest income, net of interest expense
   10,966     $  11,531     $  11,690     $  11,784
Plus: Other revenue 19,534     1,276     10,737     (23,702 )
Less: Advisor deferred compensation expense (17,177 )   749     (6,844 )   25,072  
Interest income and other, net $ 13,323     $ 13,556     $ 15,583     $ 13,154  

7.       Core G&A is a non-GAAP financial measure. Please see a description of Core G&A under “Non-GAAP Financial Measures” on page 4 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:

  Q4 2019   Q3 2019   Q2 2019   Q4 2018
Operating Expense Reconciliation (in thousands)
             
Core G&A $ 230,182     $ 215,198     $ 210,514     $ 216,185  
Regulatory charges 7,893     7,905     8,632     9,593  
Promotional 51,050     61,715     41,423     45,141  
Employee share-based compensation 7,179     7,414     7,306     5,045  
Total G&A 296,304     292,232     267,875     275,964  
Commissions and advisory 893,831     856,635     838,022     793,310  
Depreciation & amortization 25,663     24,062     22,584     21,897  
Amortization of intangible assets 16,631     16,286     16,249     15,672  
Brokerage, clearing and exchange 15,927     16,380     15,994     16,000  
Total operating expenses $ 1,248,356     $ 1,205,595     $ 1,160,724     $ 1,122,843  
  1. Consists of total advisory assets under custody at LPL Financial. Q3 2019 and Q4 2019 also included advisory assets serviced by investment advisor representatives of Allen & Company of Florida, LLC ("Allen & Company") that were onboarded to LPL Financial's custodial platform in Q4 2019.
  2. Consists of brokerage assets serviced by advisors licensed with LPL Financial. Q3 2019 and Q4 2019 also included brokerage assets serviced by advisor licensed with Allen & Company that were onboarded to LPL Financial's custodial platform in Q4 2019.
  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 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.
  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 4 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:
  Q4 2019   Q3 2019
Credit Agreement EBITDA (trailing twelve months)
     
Net income $ 559,880     $ 553,502  
Non-operating interest expense 130,001     130,373  
Provision for income taxes 181,955     185,777  
Loss on extinguishment of debt 3,156      
Depreciation and amortization 95,779     92,013  
Amortization of intangible assets 65,334     64,375  
EBITDA $ 1,036,105     $ 1,026,040  
Credit Agreement Adjustments:      
Employee share-based compensation expense $ 29,866     $ 27,732  
Advisor share-based compensation expense 2,992     2,889  
Other 11,884     13,217  
Credit Agreement EBITDA (trailing twelve months) $ 1,080,847     $ 1,069,878  
  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 percentage of Corporate Platform Advisory Assets (FN 10) for the trailing twelve month period.
  5. Represents Gross Profit (FN 3) 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 7), 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 4 of this release for additional information. Below is a reconciliation of EPS Prior to Amortization of Intangible Assets to the Company’s GAAP EPS for the periods presented:
EPS Reconciliation (in thousands, except per share data) Q4 2019
EPS
   1.53
Amortization of Intangible Assets 16,631  
Tax Benefit (4,657 )
  Amortization of Intangible Assets Net of Tax Benefit $ 11,974  
Diluted Share Count 82,695  
EPS Impact $ 0.15  
EPS Prior to Amortization of Intangible Assets $ 1.68  


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