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LPL Financial Announces Second Quarter 2021 Results

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·41 min read
In this article:
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Key Financial Results

  • Diluted earnings per share ("EPS") increased 15% year-over-year to $1.46.

    • Net Income increased 17% year-over-year to $119 million.

  • EPS Prior to Amortization of Intangible Assets and Acquisition Costs* increased 30% year-over-year to $1.85.

    • Gross Profit* increased 23% year-over-year to $602 million.

    • Core G&A* increased 13% year-over-year to $252 million.

    • EBITDA* increased 18% year-over-year to $243 million and EBITDA* as a percentage of Gross Profit* was 40%.

Key Business Results

  • Total Advisory and Brokerage Assets increased 46% year-over-year to $1.1 trillion.

    • Advisory assets increased 54% year-over-year to $578 billion.

    • Advisory assets as a percentage of total assets increased to 51.9%, up from 49.3% a year ago.

  • Total Organic Net New Assets were $37 billion, translating to 16% annualized growth, and $95 billion over the past twelve months, translating to 12% annualized growth.

    • Organic net new advisory assets were $21 billion, translating to 17% annualized growth.

    • Organic net new brokerage assets were $16 billion, translating to 14% annualized growth.

  • Acquired Net New Assets were $69 billion, of which $35 billion were brokerage and $33 billion were advisory, from the acquisition of the wealth management business of Waddell & Reed.

  • Recruited Assets(1) were $35 billion, more than triple a year ago.

    • Recruited Assets over the trailing twelve-months were $80 billion, more than double a year ago.

  • Business Solutions subscriptions increased to approximately 2,100, up 400 sequentially and more than double a year ago.

    • Annualized revenue from Business Solutions increased to approximately $20 million, up by 54% year-over-year.

  • Advisor count(2) was 19,114, up 1,442 sequentially and 2,141 year-over-year.

    • This included the addition of over 900 advisors from Waddell & Reed and over 200 advisors from M&T.

  • Total client cash balances were $48.4 billion, an increase of $0.1 billion sequentially.

    • Client cash balances as a percentage of total assets were 4.4%.

Key Updates

  • Acquisition of Waddell & Reed’s Wealth Management business

    • Closed the acquisition on April 30, 2021.

    • Onboarded advisors serving approximately 98% of client assets, equivalent to approximately $69 billion.

    • Estimated run-rate EBITDA increased to $85 million+.

  • Large financial institutions

    • BMO Harris Financial Advisors ("BMO"): Onboarded $3.1 billion of brokerage assets in Q2, which substantially completes the onboarding of BMO’s approximate $15 billion total assets.

    • M&T Bank: Onboarded the retail brokerage and advisory business of M&T Bank, with $21.9 billion total assets, of which $15.6 billion assets transitioned onto our platform in Q2. The remaining $6.3 billion of assets are held directly with sponsors and expected to onboard over the next several months.

    • CUNA Brokerage Services, Inc. ("CBSI"): Signed an agreement with CBSI to join LPL’s platform. CBSI supports over 500 advisors serving approximately $36 billion in brokerage and advisory assets** and expects to onboard in early 2022.

  • Share repurchases

    • The Company plans to restart share repurchases in Q3 2021, initially focused on offsetting dilution, with an estimated $40 million per quarter.

Key Capital and Liquidity Results

  • Corporate Cash(3) was $278 million.

  • Leverage Ratio(4) was 2.26x.

  • Dividends paid of $20 million.

  • On May 18, 2021, issued $400 million of senior unsecured notes related to the acquisition of Waddell & Reed’s wealth management business.

SAN DIEGO, July 29, 2021 (GLOBE NEWSWIRE) -- LPL Financial Holdings Inc. (Nasdaq: LPLA) (the “Company”) today announced results for its second quarter ended June 30, 2021, reporting net income of $119 million, or $1.46 per share. This compares with $102 million, or $1.27 per share, in the second quarter of 2020 and $130 million, or $1.59 per share, in the prior quarter.

"Over the past quarter, we remained focused on our mission of taking care of our advisors, so they can take of their clients,” said Dan Arnold, President and CEO. “This focus positioned us to continue enhancing the appeal of our model, which contributed to another quarter of solid recruiting, retention, and business growth. As we look ahead, we aim to continue investing in our model and increasing our market share within the advisor-centered marketplace.”

“We delivered another quarter of strong results,” said Matt Audette, CFO. “We drove new highs for assets and organic growth while also completing the onboarding of BMO, M&T and Waddell & Reed. Looking ahead, our business momentum and financial strength position us well to continue serving our clients, growing our business, and creating long-term shareholder value.”

Dividend Declaration

The Company's Board of Directors declared a $0.25 per share dividend to be paid on August 27, 2021 to all stockholders of record as of August 13, 2021.

Conference Call and Additional Information

The Company will hold a conference call to discuss its results at 5:00 p.m. ET on Thursday, July 29. To listen, call 877-677-9122 (domestic) or 708-290-1401 (international); passcode 5050359, or visit investor.lpl.com (webcast). Replays will be available by phone and on investor.lpl.com beginning two hours after the call and until August 5, and August 19, respectively. For telephonic replay, call 855-859-2056 (domestic) or 404-537-3406 (international); passcode 5050359.

About LPL Financial

LPL Financial Holdings Inc. (Nasdaq: LPLA) was founded on the principle that the firm should work for the advisor, and not the other way around. Today, LPL is a leader* in the markets we serve, supporting more than 19,000 financial advisors, and approximately 800 institution-based investment programs and 450 independent RIA firms nationwide. We are steadfast in our commitment to the advisor-centered model and the belief that Americans deserve access to objective guidance from a financial advisor. At LPL, independence means that advisors have the freedom they deserve to choose the business model, services, and technology resources that allow them to run their perfect practice. And they have the freedom to manage their client relationships, because they know their clients best. Simply put, we take care of our advisors, so they can take care of their clients.

* Top RIA custodian (Cerulli Associates, 2019 U.S. RIA Marketplace Report)
No. 1 Independent Broker-Dealer in the U.S (Based on total revenues, Financial Planning magazine June 1996-2020)
No. 1 provider of third-party brokerage services to banks and credit unions (2019-2020 Kehrer Bielan Research & Consulting Annual TPM Report)
Fortune 500 as of June 2021

Securities and Advisory services offered through LPL Financial LLC ("LPL Financial"), a registered investment advisor. Member FINRA/SIPC. We routinely disclose information that may be important to shareholders in the "Investor Relations" or "Press Releases" section of our website.

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 2021 Core G&A* outlook) and the Company's intent to restart share repurchases;

  • future capabilities, future advisor service experience, future investments and capital deployment, long-term shareholder value and the planned integration of Waddell & Reed's wealth management business (the “Waddell & Reed Acquisition”); and

  • any other statements that are not related to present facts or current conditions or that are not purely historical, constitute forward-looking statements.

These forward-looking statements are based on the Company's historical performance and its plans, estimates and expectations as of July 29, 2021. 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 from 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, including 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 revenues;

  • 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;

  • the execution of the Company's plans and its success in realizing the synergies, expense savings, service improvements and efficiencies expected to result from its initiatives, acquisitions and programs;

  • the effects of the COVID-19 pandemic, including efforts to contain it;

  • the successful onboarding of advisors and client assets in connection with the Waddell & Reed Acquisition; and

  • the other factors set forth in Part I, “Item 1A. Risk Factors” in the Company's 2020 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 Securities and Exchange Commission.

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 – Lauren Hoyt-Williams, (813) 351-9203
investor.lpl.com/contactus.cfm


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

Three Months Ended

Three Months Ended

June 30,

March 31,

June 30,

2021

2021

% Change

2020

% Change

REVENUES

Advisory

$

846,313

$

722,046

17

%

$

523,370

62

%

Commission

598,233

557,229

7

%

427,453

40

%

Asset-based

279,620

264,706

6

%

247,067

13

%

Transaction and fee

137,100

140,944

(3

%)

119,478

15

%

Interest income

6,914

6,518

6

%

6,540

6

%

Other

30,078

16,174

86

%

42,751

(30

%)

Total revenues

1,898,258

1,707,617

11

%

1,366,659

39

%

EXPENSES

Advisory and commission

1,273,202

1,108,899

15

%

859,847

48

%

Compensation and benefits

183,853

161,540

14

%

143,320

28

%

Promotional

64,349

54,181

19

%

44,540

44

%

Depreciation and amortization

36,704

35,499

3

%

26,890

36

%

Amortization of intangible assets

19,925

17,431

14

%

16,689

19

%

Occupancy and equipment

41,452

43,584

(5

%)

43,066

(4

%)

Professional services

22,500

15,625

44

%

13,620

65

%

Brokerage, clearing and exchange

23,459

19,364

21

%

18,565

26

%

Communications and data processing

14,930

11,993

24

%

14,361

4

%

Other

31,064

24,900

25

%

22,194

40

%

Total operating expenses

1,711,438

1,493,016

15

%

1,203,092

42

%

Non-operating interest expense and other

25,171

25,059

%

26,289

(4

%)

Loss on extinguishment of debt

24,400

n/m

%

INCOME BEFORE PROVISION FOR INCOME TAXES

161,649

165,142

(2

%)

137,278

18

%

PROVISION FOR INCOME TAXES

42,548

35,522

20

%

35,616

19

%

NET INCOME

$

119,101

$

129,620

(8

%)

$

101,662

17

%

EARNINGS PER SHARE

Earnings per share, basic

$

1.49

$

1.63

(9

%)

$

1.29

16

%

Earnings per share, diluted

$

1.46

$

1.59

(8

%)

$

1.27

15

%

Weighted-average shares outstanding, basic

80,063

79,697

%

78,940

1

%

Weighted-average shares outstanding, diluted

81,728

81,622

%

80,127

2

%


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

Six Months Ended

June 30,

2021

2020

% Change

REVENUES

Advisory

$

1,568,359

$

1,102,397

42

%

Commission

1,155,462

930,897

24

%

Asset-based

544,326

532,573

2

%

Transaction and fee

278,044

256,574

8

%

Interest income

13,432

16,082

(16

%)

Other

46,252

(8,467

)

n/m

Total revenues

3,605,875

2,830,056

27

%

EXPENSES

Advisory and commission

2,382,101

1,730,642

38

%

Compensation and benefits

345,393

290,122

19

%

Promotional

118,530

101,938

16

%

Depreciation and amortization

72,203

53,534

35

%

Amortization of intangible assets

37,356

33,259

12

%

Occupancy and equipment

85,036

82,612

3

%

Professional services

38,125

28,225

35

%

Brokerage, clearing and exchange

42,823

35,589

20

%

Communications and data processing

26,923

25,196

7

%

Other

55,964

48,422

16

%

Total operating expenses

3,204,454

2,429,539

32

%

Non-operating interest expense and other

50,230

55,607

(10

%)

Loss on extinguishment of debt

24,400

100

%

INCOME BEFORE PROVISION FOR INCOME TAXES

326,791

344,910

(5

%)

PROVISION FOR INCOME TAXES

78,070

87,607

(11

%)

NET INCOME

$

248,721

$

257,303

(3

%)

EARNINGS PER SHARE

Earnings per share, basic

$

3.11

$

3.25

(4

%)

Earnings per share, diluted

$

3.05

$

3.19

(4

%)

Weighted-average shares outstanding, basic

79,880

79,223

1

%

Weighted-average shares outstanding, diluted

81,608

80,659

1

%


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

June 30, 2021

March 31, 2021

December 31, 2020

ASSETS

Cash and cash equivalents

$

906,720

$

839,144

$

808,612

Cash segregated under federal and other regulations

741,432

839,428

923,158

Restricted cash

78,648

73,507

67,264

Receivables from:

Clients, net of allowance

531,784

453,132

405,106

Product sponsors, broker-dealers and clearing organizations

275,189

240,465

233,192

Advisor loans, net of allowance

776,513

558,144

547,372

Others, net of allowance

371,240

351,443

306,640

Securities owned:

Trading — at fair value

30,169

47,964

29,252

Held-to-maturity — at amortized cost

10,708

11,972

13,235

Securities borrowed

13,395

13,565

30,130

Fixed assets, net of accumulated depreciation and amortization

600,763

588,736

582,868

Operating lease assets

96,844

99,306

101,921

Goodwill

1,646,631

1,513,866

1,513,866

Intangible assets, net of accumulated amortization

486,355

383,794

397,486

Deferred income taxes, net

24,364

24,246

24,112

Other assets

629,261

576,699

539,357

Total assets

$

7,220,016

$

6,615,411

$

6,523,571

LIABILITIES AND STOCKHOLDERS’ EQUITY

LIABILITIES:

Drafts payable

$

154,230

$

151,397

$

178,403

Payables to clients

1,329,397

1,294,664

1,356,083

Payables to broker-dealers and clearing organizations

109,089

125,563

89,743

Accrued advisory and commission expenses payable

215,107

195,044

187,040

Accounts payable and accrued liabilities

747,669

655,787

681,554

Income taxes payable

5,718

58,546

28,145

Unearned revenue

135,600

123,152

95,328

Securities sold, but not yet purchased — at fair value

1,398

1,316

206

Long-term and other borrowings, net

2,727,336

2,332,809

2,345,414

Operating lease liabilities

133,321

136,419

139,377

Finance lease liabilities

106,239

106,393

107,424

Total liabilities

5,665,104

5,181,090

5,208,717

STOCKHOLDERS’ EQUITY:

Common stock, $0.001 par value; 600,000,000 shares authorized; 128,431,247 shares issued at June 30, 2021 and 127,585,764 shares issued at December 31, 2020

128

128

127

Additional paid-in capital

1,808,135

1,787,095

1,762,770

Treasury stock, at cost — 48,203,446 shares at June 30, 2021 and 48,115,037 shares at December 31, 2020

(2,407,035

)

(2,406,221

)

(2,391,062

)

Retained earnings

2,153,684

2,053,319

1,943,019

Total stockholders’ equity

1,554,912

1,434,321

1,314,854

Total liabilities and stockholders’ equity

$

7,220,016

$

6,615,411

$

6,523,571


LPL Financial Holdings Inc.
Management's Statements of Operations(5)
(In thousands, except per share data)
(Unaudited)

Certain information presented on pages 8-14 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 14 of this release.

Quarterly Results

Q2 2021

Q1 2021

% Change

Q2 2020

% Change

Gross Profit(6)

Advisory

$

846,313

$

722,046

17

%

$

523,370

62

%

Sales-based commissions

249,596

236,273

6

%

159,512

56

%

Trailing commissions

348,637

320,956

9

%

267,941

30

%

Advisory fees and commissions

1,444,546

1,279,275

13

%

950,823

52

%

Production-based payout(7)

(1,247,321

)

(1,095,377

)

14

%

(819,953

)

52

%

Advisory fees and commissions, net of payout

197,225

183,898

7

%

130,870

51

%

Client cash

90,377

97,104

(7

%)

116,266

(22

%)

Other asset-based(8)

189,243

167,602

13

%

130,801

45

%

Transaction and fee

137,100

140,944

(3

%)

119,478

15

%

Interest income and other, net(9)

11,111

9,170

21

%

9,397

18

%

Total net advisory fees and commissions and attachment revenue

625,056

598,718

4

%

506,812

23

%

Brokerage, clearing and exchange expense

(23,459

)

(19,364

)

21

%

(18,565

)

26

%

Gross Profit(6)

601,597

579,354

4

%

488,247

23

%

G&A Expense

Core G&A(10)

251,679

236,263

7

%

222,406

13

%

Regulatory charges

7,416

7,595

(2

%)

6,115

21

%

Promotional (ongoing)(12)(42)

64,135

54,181

18

%

44,540

44

%

Acquisition costs(12)

23,782

2,429

n/m

100

%

Employee share-based compensation

11,136

11,356

(2

%)

8,040

39

%

Total G&A

358,148

311,823

15

%

281,101

27

%

EBITDA(11)

243,449

267,531

(9

%)

207,146

18

%

Depreciation and amortization

36,704

35,499

3

%

26,890

36

%

Amortization of intangible assets

19,925

17,431

14

%

16,689

19

%

Non-operating interest expense and other

25,171

25,059

%

26,289

(4

%)

Loss on extinguishment of debt

24,400

n/m

%

INCOME BEFORE PROVISION FOR INCOME TAXES

161,649

165,142

(2

%)

137,278

18

%

PROVISION FOR INCOME TAXES

42,548

35,522

20

%

35,616

19

%

NET INCOME

$

119,101

$

129,620

(8

%)

$

101,662

17

%

Earnings per share, diluted

$

1.46

$

1.59

(8

%)

$

1.27

15

%

Weighted-average shares outstanding, diluted

81,728

81,622

%

80,127

2

%

EPS Prior to Amortization of Intangible Assets and Acquisition Costs(41)

$

1.85

$

1.77

5

%

$

1.42

30

%


LPL Financial Holdings Inc.
Operating Metrics(5)
(Dollars in billions, except where noted)
(Unaudited)

Q2 2021

Q1 2021

Change

Q2 2020

Change

Market Drivers

S&P 500 Index (end of period)

4,298

3,973

8

%

3,100

39

%

Fed Funds Daily Effective Rate (FFER) (average bps)

7

8

(1bps)

6

1bps

Advisory and Brokerage Assets

Advisory Assets(13)

$

577.6

$

496.7

16

%

$

375.3

54

%

Brokerage Assets(14)

534.7

461.6

16

%

386.4

38

%

Total Advisory and Brokerage Assets

$

1,112.3

$

958.3

16

%

$

761.7

46

%

Advisory as a % of Total Advisory and Brokerage Assets

51.9

%

51.8

%

10bps

49.3

%

260bps

Assets by Platform

Corporate Platform Advisory Assets(15)

$

383.6

$

317.5

21

%

$

233.5

64

%

Hybrid Platform Advisory Assets(16)

194.0

179.2

8

%

141.9

37

%

Brokerage Assets

534.7

461.6

16

%

386.4

38

%

Total Advisory and Brokerage Assets

$

1,112.3

$

958.3

16

%

$

761.7

46

%

Centrally Managed Assets

Centrally Managed Assets(17)

$

84.7

$

77.0

10

%

$

54.4

56

%

Centrally Managed as a % of Total Advisory Assets

14.7

%

15.5

%

(80)bps

14.5

%

20bps


LPL Financial Holdings Inc.
Operating Metrics(5)
(Dollars in billions, except where noted)
(Unaudited)

Q2 2021

Q1 2021

Change

Q2 2020

Change

Net New Assets (NNA)

Net New Advisory Assets(18)

$

54.9

$

22.7

n/m

$

10.2

n/m

Net New Brokerage Assets(19)

51.1

6.2

n/m

2.8

n/m

Total Net New Assets

$

106.0

$

28.9

n/m

$

13.0

n/m

Organic Net New Assets (NNA)(20)

Organic Net New Advisory Assets

$

21.4

$

22.7

n/m

$

10.2

n/m

Organic Net New Brokerage Assets

15.6

6.2

n/m

2.8

n/m

Total Organic Net New Assets

$

37.1

$

28.9

n/m

$

13.0

n/m

Net Brokerage to Advisory Conversions(21)

$

3.2

$

3.3

n/m

$

1.6

n/m

Organic Advisory NNA Annualized Growth(22)

17.3

%

19.7

%

n/m

12.7

%

n/m

Total Organic NNA Annualized Growth(22)

15.5

%

12.8

%

n/m

7.8

%

n/m

Net New Advisory Assets

Corporate Platform Net New Advisory Assets(23)

$

49.0

$

17.1

n/m

$

6.2

n/m

Hybrid Platform Net New Advisory Assets(24)

6.0

5.6

n/m

4.0

n/m

Total Net New Advisory Assets

$

54.9

$

22.7

n/m

$

10.2

n/m

Centrally Managed Net New Advisory Assets(25)

$

4.0

$

7.8

n/m

$

1.3

n/m

Client Cash Balances

Insured Cash Account Balances

$

34.1

$

37.4

(9

%)

$

33.1

3

%

Deposit Cash Account Balances

7.6

7.9

(4

%)

7.7

(1

%)

Total Bank Sweep Balances

41.7

45.3

(8

%)

40.8

2

%

Money Market Account Cash Balances

5.0

1.3

285

%

1.6

213

%

Purchased Money Market Funds

1.7

1.6

6

%

2.8

(39

%)

Total Money Market Balances

6.7

3.0

123

%

4.5

49

%

Total Client Cash Balances

$

48.4

$

48.3

%

$

45.3

7

%

Client Cash Balances as a % of Total Assets

4.4

%

5.0

%

(60bps)

5.9

%

(150bps)

Client Cash Balance Average Fees(26)

Insured Cash Account Average Fee - bps

98

99

(1

)

127

(29

)

Deposit Cash Account Average Fee - bps

24

29

(5

)

31

(7

)

Money Market Account Average Fee - bps

1

3

(2

)

16

(15

)

Purchased Money Market Fund Average Fee - bps

9

9

27

(18

)

Total Client Cash Balance Average Fee - bps

77

81

(4

)

100

(23

)

Net Buy (Sell) Activity(27)

$

18.1

$

17.4

n/m

$

12.5

n/m


LPL Financial Holdings Inc.
Monthly Metrics(5)
(Dollars in billions, except where noted)
(Unaudited)

June 2021

May 2021

May to June Change

April 2021

March 2021

Advisory and Brokerage Assets

Advisory Assets(13)

$

577.6

$

559.0

3

%

$

550.5

$

496.7

Brokerage Assets(14)

534.7

515.1

4

%

512.7

461.6

Total Advisory and Brokerage Assets

$

1,112.3

$

1,074.1

4

%

$

1,063.2

$

958.3

Net New Assets (NNA)

Net New Advisory Assets(18)

$

11.2

$

5.7

n/m

$

38.0

$

12.5

Net New Brokerage Assets(19)

14.8

0.4

n/m

35.9

6.9

Total Net New Assets

$

26.0

$

6.1

n/m

$

73.8

$

19.4

Net Brokerage to Advisory Conversions(21)

$

0.9

$

1.0

n/m

$

1.3

$

1.2

Client Cash Balances

Insured Cash Account Balances

$

34.1

$

34.5

(1

%)

$

35.0

$

37.4

Deposit Cash Account Balances

7.6

7.6

%

7.5

7.9

Total Bank Sweep Balances

41.7

42.0

(1

%)

42.5

45.3

Money Market Account Cash Balances

5.0

4.3

16

%

3.7

1.3

Purchased Money Market Funds

1.7

1.5

13

%

1.5

1.6

Total Money Market Balances

6.7

5.8

16

%

5.2

3.0

Total Client Cash Balances

$

48.4

$

47.8

1

%

$

47.7

$

48.3

Net Buy (Sell) Activity(27)

$

6.0

$

5.2

n/m

$

6.9

$

6.9

Market Indices

S&P 500 Index (end of period)

4,298

4,204

2

%

4,181

3,973

Fed Funds Effective Rate (average bps)

8

6

2bps

7

7


LPL Financial Holdings Inc.
Financial Measures(5)
(Dollars in thousands, except where noted)
(Unaudited)

Q2 2021

Q1 2021

Change

Q2 2020

Change

Commission Revenues by Product

Annuities

$

305,100

$

280,776

9

%

$

217,637

40

%

Mutual funds

195,688

173,150

13

%

133,800

46

%

Fixed income

34,862

32,162

8

%

18,463

89

%

Equities

30,517

38,911

(22

%)

27,985

9

%

Other

32,066

32,230

(1

%)

29,568

8

%

Total commission revenues

$

598,233

$

557,229

7

%

$

427,453

40

%

Commission Revenues by Sales-based and Trailing Commission

Sales-based commissions

Annuities

$

112,619

$

95,539

18

%

$

64,287

75

%

Mutual funds

50,250

47,279

6

%

29,716

69

%

Fixed income

34,862

32,162

8

%

18,463

89

%

Equities

30,517

38,911

(22

%)

27,985

9

%

Other

21,348

22,382

(5

%)

19,061

12

%

Total sales-based commissions

$

249,596

$

236,273

6

%

$

159,512

56

%

Trailing commissions

Annuities

$

192,481

$

185,237

4

%

$

153,350

26

%

Mutual funds

145,438

125,871

16

%

104,084

40

%

Other

10,718

9,848

9

%

10,507

2

%

Total trailing commissions

$

348,637

$

320,956

9

%

$

267,941

30

%

Total commission revenues

$

598,233

$

557,229

7

%

$

427,453

40

%

Payout Rate

86.35

%

85.62

%

73bps

86.24

%

11bps


LPL Financial Holdings Inc.
Capital Management Measures(5)
(Dollars in thousands, except where noted)
(Unaudited)

Q2 2021

Q1 2021

Q4 2020

Corporate Cash(3)

Cash at Parent

$

170,258

$

286,156

$

201,385

Excess Cash at LPL Financial per Credit Agreement

74,152

41,941

67,574

Other Available Cash

33,983

12,177

10,960

Total Corporate Cash

$

278,393

$

340,274

$

279,919

Leverage Ratio

Total Debt

$

2,753,950

$

2,356,625

$

2,359,300

Total Corporate Cash

278,393

340,274

279,919

Credit Agreement Net Debt

$

2,475,557

$

2,016,351

$

2,079,381

Credit Agreement EBITDA (trailing twelve months)(28)

$

1,094,465

$

954,752

$

961,225

Leverage Ratio

2.26

x

2.11

x

2.16

x


June 30, 2021

Total Debt

Balance

Current Applicable
Margin

Yield At Issuance

Interest Rate

Maturity

Revolving Credit Facility(a)

$

ABR+25bps

%

3/15/2026

Broker-Dealer Revolving Credit Facility(b)

FFR+125bps

%

7/31/2024

Senior Secured Term Loan B

1,053,950

LIBOR+175 bps(c)

1.854

%

11/12/2026

Senior Unsecured Notes(d)

400,000

4.625% Fixed

4.625

%

4.625

%

11/15/2027

Senior Unsecured Notes(e)

900,000

4.000% Fixed

4.000

%

4.000

%

3/15/2029

Senior Unsecured Notes(f)

400,000

4.375% Fixed

4.375

%

4.375

%

5/15/2031

Total / Weighted Average

$

2,753,950

3.324

%

(a) Secured borrowing capacity of $1 billion at LPL Holdings, Inc. (the "Parent").
(b) Unsecured borrowing capacity of $300 million at LPL Financial LLC.
(c) The LIBOR rate option is one-month LIBOR rate and subject to an interest rate floor of 0 basis points.
(d) The Senior Unsecured Notes were issued in November 2019 at par.
(e) The Senior Unsecured Notes were issued in March 2021 at par.
(f) The Senior Unsecured Notes were issued in May 2021 at par.


LPL Financial Holdings Inc.
Key Business and Financial Metrics(5)
(Dollars in thousands, except where noted)
(Unaudited)

Q2 2021

Q1 2021

Change

Q2 2020

Change

Advisors

Advisors

19,114

17,672

8

%

16,973

13

%

Net New Advisors

1,442

385

n/m

210

n/m

Annualized advisory fees and commissions per Advisor(29)

$

314

$

293

7

%

$

226

39

%

Average Total Assets per Advisor ($ in millions)(30)

$

58.2

$

54.2

7

%

$

44.9

30

%

Transition assistance loan amortization ($ in millions)(31)

$

34.7

$

30.2

15

%

$

28.6

21

%

Total client accounts (in millions)

6.7

6.1

10

%

5.8

16

%

Employees - period end

5,344

4,815

11

%

4,585

17

%

Productivity Metrics

Business Solutions Subscriptions(32)

2,100

1,700

24

%

950

121

%

Advisory Revenues as a % of Corporate Advisory Assets(33)

1.00

%

1.01

%

(1

bps)

1.02

%

(2

bps)

Gross Profit ROA(34)

24.3

bps

25.2

bps

(0.9

bps)

29.3

bps

(5.0

bps)

OPEX as a % of Advisory and Brokerage Assets(35)

16.0

bps

16.7

bps

(0.7

bps)

18.2

bps

(2.2

bps)

EBIT ROA(36)

8.3

bps

8.5

bps

(0.2

bps)

11.1

bps

(2.8

bps)

AUM Retention Rate (quarterly annualized)(37)

98.4

%

98.1

%

30

bps

98.7

%

(30

bps)

Recurring Gross Profit Rate(38)

83.2

%

82.4

%

80

bps

86.8

%

(360

bps)

EBITDA as a % of Gross Profit

40.5

%

46.2

%

(570

bps)

42.4

%

(190

bps)

Capital Expenditure ($ in millions)(39)

$

43.9

$

41.1

7

%

$

37.9

16

%

Share Repurchases ($ in millions)

$

$

%

$

%

Dividends ($ in millions)

20.0

20.0

%

19.7

2

%

Total Capital Allocated ($ in millions)

$

20.0

$

20.0

%

$

19.7

2

%

Weighted-average Share Count, Diluted

81.7

81.6

%

80.1

2

%

Total Capital Allocated per Share(40)

$

0.25

$

0.25

%

$

0.25

%

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 and Acquisition Costs

EPS Prior to Amortization of Intangible Assets and Acquisition Costs is defined as GAAP EPS plus the per share impact of amortization of intangible assets and acquisition costs. The per share impact is calculated as amortization of intangible assets expense and acquisition costs, 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 and Acquisition Costs because management believes that the metric can provide investors with useful insight into the Company’s core operating performance by excluding non-cash items and acquisition costs that management does not believe impact the Company’s ongoing operations. EPS Prior to Amortization of Intangible Assets and Acquisition Costs 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 and Acquisition Costs to GAAP EPS, please see footnote 41 on page 19 of this release.

Gross Profit

Gross Profit is calculated as total revenues, which were $1,898 million for the three months ended June 30, 2021, less advisory and commission expenses and brokerage, clearing and exchange fees, which were $1,273 million and $23 million, respectively for the three months ended June 30, 2021. 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 Gross Profit to be a non-GAAP financial measure that may not be comparable to similar measures used by 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. For a calculation of Gross Profit, please see footnote 6 on page 16 of this release.

Core G&A

Core G&A consists of total operating expenses, which were $1,711 million for the three months ended June 30, 2021, excluding the following expenses: advisory and commission, regulatory charges, promotional, employee share-based compensation, depreciation and amortization, amortization of intangible assets, brokerage, clearing and exchange and acquisition costs. 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 advisory and commission 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 to the Company’s total operating expenses, please see footnote 10 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 advisory and commission 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

EBITDA is defined as net income plus interest and other expense, income tax expense, depreciation and amortization, amortization of intangible assets, and loss on extinguishment of debt. The Company presents EBITDA because management believes that it can be a useful financial metric in understanding the Company’s earnings from operations. EBITDA is not a measure of the Company's financial performance under GAAP and should not be considered as an alternative to net income or any other performance measure derived in accordance with GAAP. 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. For a reconciliation of EBITDA to net income, please see footnote 11 on page 17 of this release.

Credit Agreement EBITDA

Credit Agreement EBITDA is defined in, and calculated by management in accordance with, the Company's credit agreement (“Credit Agreement”) as “Consolidated EBITDA,” which is Consolidated Net Income (as defined in the Credit Agreement) plus interest expense, tax expense, depreciation and amortization, and amortization of intangible assets, and is 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. In addition, the Company’s calculation of Credit Agreement 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 28 on page 18 of this release.

Endnote Disclosures

(1) Represents the estimated total advisory and brokerage assets expected to transition to the Company's broker-dealer subsidiary, 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) The terms “Financial Advisors” and “Advisors” refer to registered representatives and/or investment advisor representatives affiliated with LPL Financial, an SEC registered broker-dealer and investment adviser.

(3) We define corporate cash as the sum of cash and cash equivalents from the following: (1) Cash held at the Parent, (2) Excess cash at LPL Financial per the Credit Agreement, which is the net capital held at LPL Financial in excess of 10% of its aggregate debits, or five times the net capital required in accordance with Exchange Act Rule 15c3-1, and (3) Other available cash, which includes cash and cash equivalents held at the Private Trust Company in excess of Credit Agreement capital requirements, excess cash at Waddell & Reed, LLC per the Credit Agreement, or the net capital held in excess of 10% of its aggregate indebtedness, and cash and cash equivalents held at non-regulated subsidiaries.

(4) Compliance with the Leverage Ratio is only required under our revolving credit facility.

(5) Certain information presented on pages 8-14 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” that begins on page 14 of this release.

(6) Gross Profit is a non-GAAP financial measure. Please see a description of Gross Profit under "Non-GAAP Financial Measures" on page 14 of this release for additional information. Below is a calculation of Gross Profit for the periods presented (in thousands):

Q2 2021

Q1 2021

Q2 2020

Total revenues

$

1,898,258

$

1,707,617

$

1,366,659

Advisory and commission expenses

1,273,202

1,108,899

859,847

Brokerage, clearing and exchange fees

23,459

19,364

18,565

Gross profit(+)

$

601,597

$

579,354

$

488,247

____________________

(+) Balances may not foot due to rounding.

(7) Production-based payout is an operating measure calculated as advisory and commission expenses less advisor deferred compensation expenses. Below is a reconciliation of production-based payout against the Company’s advisory and commission expenses for the periods presented (in thousands):

Q2 2021

Q1 2021

Q2 2020

Production-based payout

$

1,247,321

$

1,095,377

$

819,953

Advisor deferred compensation expenses

25,881

13,522

39,894

Advisory and commission expenses

$

1,273,202

$

1,108,899

$

859,847

(8) 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.

(9) Interest income and other, net is an operating measure calculated as interest income plus other revenues, less advisor deferred compensation expenses. Below is a reconciliation of interest income and other, net against the Company’s interest income and other revenues for the periods presented (in thousands):

Q2 2021

Q1 2021

Q2 2020

Interest income

$

6,914

$

6,518

$

6,540

Plus: Other revenue

30,078

16,174

42,751

Less: Advisor deferred compensation expenses

(25,881

)

(13,522

)

(39,894

)

Interest income and other, net

$

11,111

$

9,170

$

9,397

(10) Core G&A is a non-GAAP financial measure. Please see a description of Core G&A under “Non-GAAP Financial Measures” on page 14 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 (in thousands):

Q2 2021

Q1 2021

Q2 2020

Core G&A Reconciliation

Total operating expenses

$

1,711,438

$

1,493,016

$

1,203,092

Advisory and commission

1,273,202

1,108,899

859,847

Depreciation and amortization

36,704

35,499

26,890

Amortization of intangible assets

19,925

17,431

16,689

Brokerage, clearing and exchange expense

23,459

19,364

18,565

Total G&A

358,148

311,823

281,101

Promotional (ongoing)(12)(42)

64,135

54,181

44,540

Acquisition costs(12)

23,782

2,429

Employee share-based compensation

11,136

11,356

8,040

Regulatory charges

7,416

7,595

6,115

Core G&A

$

251,679

$

236,263

$

222,406

(11) EBITDA is a non-GAAP financial measure. Please see a description of EBITDA under "Non-GAAP Financial Measures" on page 14 of this release for additional information. Below is a reconciliation of EBITDA against the Company's net income for the periods presented (in thousands):

Q2 2021

Q1 2021

Q2 2020

EBITDA Reconciliation

Net income

$

119,101

$

129,620

$

101,662

Non-operating interest expense and other

25,171

25,059

26,289

Provision for income taxes

42,548

35,522

35,616

Loss on extinguishment of debt

24,400

Depreciation and amortization

36,704

35,499

26,890

Amortization of intangible assets

19,925

17,431

16,689

EBITDA

$

243,449

$

267,531

$

207,146

(12) Acquisition costs include the cost to setup, onboard and integrate acquired entities and primarily include $13.9 million of compensation and benefits expenses, $6.3 million of professional services expenses, $1.6 million of occupancy and equipment expenses, $1.2 million of communications expenses, and other expenses that are included in the respective line items in the Condensed Consolidated Statements of Income.

(13) Consists of total advisory assets under custody at LPL Financial and Waddell & Reed, LLC.

(14) Consists of brokerage assets serviced by advisors licensed with LPL Financial and Waddell & Reed, LLC.

(15) Consists of total assets on LPL Financial's corporate advisory platform serviced by investment advisor representatives of LPL Financial or Allen & Company.

(16) Consists of total assets on LPL Financial's independent advisory platform serviced by investment advisor representatives of separate registered investment advisor firms ("Hybrid RIAs"), rather than of LPL Financial.

(17) Represents those advisory assets in LPL Financial’s Model Wealth Portfolios, Optimum Market Portfolios, Personal Wealth Portfolios and Guided Wealth Portfolios platforms.

(18) Consists of total client deposits into advisory accounts, including advisory assets serviced by BMO Harris Financial Advisors, Lucia and E.K. Riley advisors, less total client withdrawals from advisory accounts, plus dividends, plus interest, minus advisory fees. The Company considers conversions from and to brokerage accounts as deposits and withdrawals, respectively.

(19) Consists of total client deposits into brokerage accounts, less total client withdrawals from brokerage accounts, plus dividends, plus interest. The Company considers conversions from and to advisory accounts as deposits and withdrawals, respectively.

(20) Consists of net new assets excluding the acquisition of Waddell & Reed.

(21) Consists of existing custodied assets that converted from brokerage to advisory, less existing custodied assets that converted from advisory to brokerage.

(22) Calculated as annualized current period organic net new assets divided by preceding period assets in their respective categories of advisory assets or total advisory and brokerage assets. See FN 20.

(23) Consists of total client deposits into advisory accounts on LPL Financial's corporate advisory platform less total client withdrawals from advisory accounts on its corporate advisory platform, plus dividends, plus interest, minus advisory fees. See FN 15.

(24) Consists of total client deposits into advisory accounts on LPL Financial's independent advisory platform less total client withdrawals from advisory accounts on its independent advisory platform, plus dividends, plus interest, minus advisory fees. See FN 16.

(25) Consists of total client deposits into centrally managed assets accounts less total client withdrawals from centrally managed assets accounts, plus dividends, plus interest, minus advisory fees. See FN 17.

(26) Calculated by dividing revenue for the period by the average balance during the period.

(27) 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.

(28) EBITDA and Credit Agreement EBITDA are non-GAAP financial measures. Please see a description of EBITDA and Credit Agreement EBITDA under “Non-GAAP Financial Measures” on page 14 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 are reconciliations of EBITDA and Credit Agreement EBITDA to net income for the periods presented (in thousands):

Q2 2021

Q1 2021

Q2 2020

EBITDA and Credit Agreement EBITDA Reconciliations

Net income

$

464,058

$

446,619

$

515,693

Non-operating interest expense and other

100,388

101,506

118,935

Provision for income taxes

143,896

136,964

172,202

Loss on extinguishment of debt

24,400

24,400

3,156

Depreciation and amortization

128,401

118,587

103,259

Amortization of intangible assets

71,455

68,219

66,176

EBITDA

$

932,598

$

896,295

$

979,421

Credit Agreement Adjustments:

Employee share-based compensation expense

$

37,454

$

34,358

$

31,281

Advisor share-based compensation expense

2,252

2,256

2,495

M&A accretion

77,017

Other

45,144

21,843

13,700

Credit Agreement EBITDA (trailing twelve months)

$

1,094,465

$

954,752

$

1,026,897

(29) Calculated based on the average advisor count from the current period and prior period.

(30) Calculated based on the end-of-period total advisory and brokerage assets divided by end-of-period advisor count.

(31) Represents amortization expense on forgivable loans for transition assistance to advisors and financial institutions.

(32) Refers to active and contracted subscriptions related to Professional Services (Admin, Marketing and CFO Solutions) and Business Optimizers (Assurance Plan, Remote Office and M&A Solutions).

(33) Represents advisory revenues as a percentage of Corporate Platform Advisory Assets for the trailing twelve month period. See FN 15.

(34) Represents Gross Profit, a non-GAAP financial measure, for the trailing twelve month period, divided by average month-end total advisory and brokerage assets for the trailing twelve month period. See FN 6.

(35) Represents operating expenses for the trailing twelve month period, excluding production-related expense, divided by average month-end total advisory and brokerage 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, a non-GAAP financial measure, as well as regulatory charges, promotional, employee share-based compensation, depreciation and amortization, and amortization of intangible assets. See FN 10.

(36) EBIT ROA is calculated as Gross Profit ROA less OPEX as a percentage of Advisory and Brokerage Assets. See FN 34 and FN 35.

(37) Reflects retention of total advisory and brokerage assets, calculated by deducting quarterly annualized attrition from total advisory and brokerage assets, over the prior-quarter total advisory and brokerage assets.

(38) 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.

(39) Capital expenditures represent cash payments for fixed assets during the period.

(40) Total Capital Allocated per Share equals the amount of capital allocated for share repurchases and cash dividends divided by the diluted weighted-average shares outstanding.

(41) EPS Prior to Amortization of Intangible Assets and Acquisition Costs is a non-GAAP financial measure. Please see a description of EPS Prior to Amortization of Intangible Assets and Acquisition Costs under “Non-GAAP Financial Measures” on page 14 of this release for additional information. Below is a reconciliation of EPS Prior to Amortization of Intangible Assets and Acquisition Costs to the Company’s GAAP EPS for the period presented (in thousands, except per share data):

EPS Reconciliation

Q2 2021

Q1 2021

Q2 2020

EPS

$

1.46

$

1.59

$

1.27

Amortization of Intangible Assets

19,925

17,431

16,689

Acquisition Costs

23,782

2,429

Tax Benefit

(11,700

)

(5,332

)

(4,673

)

Amortization of Intangible Assets and Acquisition Costs, Net of Tax Benefit

$

32,006

14,527

$

12,016

Diluted Share Count

81,728

81,622

80,127

EPS Impact

$

0.39

$

0.18

$

0.15

EPS Prior to Amortization of Intangible Assets and Acquisition Costs

$

1.85

$

1.77

$

1.42

(42) The Company incurred $0.2 million of promotional expenses as part of acquisitions during the second quarter of 2021 that are presented in the Acquisition Costs line item. See FN 12.