LPL Financial Announces Second Quarter 2020 Results

LPL Financial Holdings, Inc.
40 min read
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In this article:

Key Financial Results

  • Earnings per share ("EPS") was $1.27, and Net Income was $102 million.

    • Gross Profit** was $488 million.

    • Core G&A** was $222 million.

    • EBITDA** was $207 million and EBITDA** as a percentage of Gross Profit** was 42%.

  • EPS Prior to Amortization of Intangible Assets** was $1.42.

Key Business Results

  • Total Brokerage and Advisory Assets increased 8% year-over-year to $762 billion.

    • Advisory assets increased by 15% year-over-year to $375 billion.

  • Total net new assets(1) were an inflow of $13.0 billion, translating to a 7.8% annualized growth rate, bringing the trailing twelve-month average organic growth rate to 6.9%.

    • Total net new asset annualized growth rate was 6.1% in April, 7.0% in May, and 8.7% in June.

    • Net new advisory assets were an inflow of $10.2 billion, translating to a 12.7% annualized growth rate.

    • Net new brokerage assets were an inflow of $2.8 billion, translating to a 3.2% annualized growth rate.

    • Year-to-date production retention rate was 98.6%, up from 96.2% a year ago.

  • Recruited Assets(2) were $11.1 billion, contributing to a trailing twelve-month total of $38.8 billion.

    • Advisor count(3) was 16,973, up 210 from Q1 2020 and 812 year-over-year.

  • Total client cash balances were $45.3 billion, down $2.5 billion or 5% sequentially.

    • Client cash balances as a percentage of total assets were 5.9%.

Key Capital Results

  • Dividends were $20 million.

  • Cash available for corporate use was $282 million, up from $236 million in Q1.

  • Credit Agreement Net Leverage Ratio(4) was 2.03x.

Key Updates

  • We signed an agreement with M&T Bank to join LPL's platform. M&T has ~170 advisors servicing ~$20 billion in brokerage and advisory assets and expects to onboard in the middle of 2021.

  • Q2 Core G&A** was $222M, which brings the first half total to $446M, or an annualized run-rate of ~$890M. Full-year plans continue to be in the lower half of the 2020 outlook range of $915 to $940M.

SAN DIEGO, July 30, 2020 (GLOBE NEWSWIRE) -- LPL Financial Holdings Inc. (Nasdaq: LPLA) (the “Company”) today announced results for its second quarter ended June 30, 2020, reporting net income of $102 million, or $1.27 per share. This compares with $146 million, or $1.71 per share, in the second quarter of 2019 and $156 million, or $1.92 per share, in the prior quarter.

"In the second quarter we remained focused on executing our business priorities and advancing our strategic plans, as we navigated the new operating environment,” said Dan Arnold, President and CEO. "This focus led to another quarter of solid business outcomes, including new highs for advisor recruiting and retention. We also made progress on our strategic priorities by announcing two acquisitions, enriching digital capabilities for advisors and their clients, continuing to transform our service model, and introducing new Business Solutions. As we look ahead, we see an opportunity to not just return to business as usual or a new normal, but rather create a future that is better than ever for our advisors and their clients.”

"We delivered another quarter of strong results as we continued to drive growth and remained disciplined on expenses,” said Matt Audette, CFO. "Our investments in technology, capabilities, and service over the last several years helped generate our highest quarterly organic growth rate and recruiting results. Looking forward, our financial strength positions us well to continue investing to drive organic growth while also staying flexible in our capital allocation plans as economic conditions evolve."

Conference Call and Additional Information

The Company will hold a conference call to discuss its results at 5:00 p.m. EDT on Thursday, July 30. To listen, call 877-677-9122 (domestic) or 708-290-1401 (international); passcode 3183625, 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 6 and August 20, respectively. For telephonic replay, call 855-859-2056 (domestic) or 404-537-3406 (international); passcode 3183625.

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 1996-2020.

Securities and Advisory Services offered through LPL Financial LLC, a registered investment advisor. Member FINRA/SIPC.

**Non-GAAP Financial Measures

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

EPS Prior to Amortization of Intangible Assets is defined as GAAP EPS plus the per share impact of amortization of intangible assets. The per share impact is calculated as amortization of intangible assets expense, net of applicable tax benefit, divided by the number of shares outstanding for the applicable period. The Company presents EPS Prior to Amortization of Intangible Assets because management believes that the metric can provide investors with useful insight into the Company’s core operating performance by excluding non-cash items that management does not believe impact the Company’s ongoing operations. EPS Prior to Amortization of Intangible Assets is not a measure of the Company's financial performance under GAAP and should not be considered as an alternative to GAAP EPS or any other performance measure derived in accordance with GAAP. For a reconciliation of EPS Prior to Amortization of Intangible Assets to GAAP EPS, please see footnote 36 on page 19 of this release.

Gross Profit is calculated as net revenues, which were $1,367 million for the three months ended June 30, 2020, less commission and advisory expenses and brokerage, clearing and exchange fees, which were $860 million and $19 million, respectively, for the three months ended June 30, 2020. 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 $1,203 million for the three months ended June 30, 2020, 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 to the Company’s total operating expenses, please see footnote 9 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. For a reconciliation of EBITDA to net income, please see footnote 25 on page 18 of this release.

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 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 25 on page 18 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, future advisor service experience, future investments and capital deployment, long-term shareholder value and M&T Bank's agreement to join LPL's platform, as well as any other statements that are not related to present facts or current conditions or that are not purely historical, constitute forward-looking statements. These forward-looking statements are based on the Company's historical performance and its plans, estimates, and expectations as of July 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; the effects of the COVID-19 pandemic; the successful onboarding of advisors and client assets, in connection with M&T Bank's agreement to join LPL's platform; and the other factors set forth in Part I, “Item 1A. Risk Factors” in the Company's 2019 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.

LPL Financial Holdings Inc.

Condensed Consolidated Statements of Income

(In thousands, except per share data)

(Unaudited)

Three Months Ended June 30,

Six Months Ended June 30,

2020

2019

% Change

2020

2019

% Change

REVENUES

Commission

$

427,453

$

479,135

(11%

)

$

930,897

$

940,494

(1%

)

Advisory

523,370

481,309

9%

1,102,397

935,247

18%

Asset-based

247,067

288,551

(14%

)

532,573

584,914

(9%

)

Transaction and fee

119,478

118,335

1%

256,574

240,815

7%

Interest income, net of interest expense

6,540

11,690

(44%

)

16,082

24,011

(33%

)

Other

42,751

10,737

n/m

(8,467

)

35,955

n/m

Total net revenues

1,366,659

1,389,757

(2%

)

2,830,056

2,761,436

2%

EXPENSES

Commission and advisory

859,847

838,022

3%

1,730,642

1,637,720

6%

Compensation and benefits

143,320

131,788

9%

290,122

268,700

8%

Promotional

44,540

41,423

8%

101,938

92,772

10%

Depreciation and amortization

26,890

22,584

19%

53,534

46,054

16%

Amortization of intangible assets

16,689

16,249

3%

33,259

32,417

3%

Occupancy and equipment

43,066

33,320

29%

82,612

66,426

24%

Professional services

13,620

18,837

(28%

)

28,225

38,449

(27%

)

Brokerage, clearing and exchange

18,565

15,994

16%

35,589

32,138

11%

Communications and data processing

14,361

12,532

15%

25,196

24,859

1%

Other

22,194

29,975

(26%

)

48,422

56,378

(14%

)

Total operating expenses

1,203,092

1,160,724

4%

2,429,539

2,295,913

6%

Non-operating interest expense and other

26,289

33,957

(23%

)

55,607

66,673

(17%

)

INCOME BEFORE PROVISION FOR INCOME TAXES

137,278

195,076

(30%

)

344,910

398,850

(14%

)

PROVISION FOR INCOME TAXES

35,616

48,984

(27%

)

87,607

97,360

(10%

)

NET INCOME

$

101,662

$

146,092

(30%

)

$

257,303

$

301,490

(15%

)

EARNINGS PER SHARE

Earnings per share, basic

$

1.29

$

1.75

(26%

)

$

3.25

$

3.59

(9%

)

Earnings per share, diluted

$

1.27

$

1.71

(26%

)

$

3.19

$

3.50

(9%

)

Weighted-average shares outstanding, basic

78,940

83,247

(5%

)

79,223

83,869

(6%

)

Weighted-average shares outstanding, diluted

80,127

85,350

(6%

)

80,659

86,052

(6%

)


LPL Financial Holdings Inc.

Condensed Consolidated Statements of Income Trend

(In thousands, except per share data)

(Unaudited)

Quarterly Results

Q2 2020

Q1 2020

Q4 2019

REVENUES

Commission

$

427,453

$

503,444

$

476,920

Advisory

523,370

579,027

533,259

Asset-based

247,067

285,506

288,925

Transaction and fee

119,478

137,096

118,291

Interest income, net of interest expense

6,540

9,542

10,966

Other

42,751

(51,218

)

19,534

Total net revenues

1,366,659

1,463,397

1,447,895

EXPENSES

Commission and advisory

859,847

870,795

893,831

Compensation and benefits

143,320

146,802

149,128

Promotional

44,540

57,398

51,050

Depreciation and amortization

26,890

26,644

25,663

Amortization of intangible assets

16,689

16,570

16,631

Occupancy and equipment

43,066

39,546

35,320

Professional services

13,620

14,605

17,772

Brokerage, clearing and exchange expense

18,565

17,024

15,927

Communications and data processing

14,361

10,835

12,465

Other

22,194

26,228

30,569

Total operating expenses

1,203,092

1,226,447

1,248,356

Non-operating interest expense and other

26,289

29,318

31,384

Loss on extinguishment of debt

—

—

3,156

INCOME BEFORE PROVISION FOR INCOME TAXES

137,278

207,632

164,999

PROVISION FOR INCOME TAXES

35,616

51,991

38,323

NET INCOME

$

101,662

$

155,641

$

126,676

EARNINGS PER SHARE

Earnings per share, basic

$

1.29

$

1.96

$

1.57

Earnings per share, diluted

$

1.27

$

1.92

$

1.53

Weighted-average shares outstanding, basic

78,940

79,507

80,701

Weighted-average shares outstanding, diluted

80,127

81,166

82,695


LPL Financial Holdings Inc.

Condensed Consolidated Statements of Financial Condition

(Dollars in thousands, except par value)

(Unaudited)

June 30, 2020

March 31, 2020

December 31, 2019

ASSETS

Cash and cash equivalents

$

845,228

$

418,202

$

590,209

Cash segregated under federal and other regulations

574,429

1,217,692

822,697

Restricted cash

70,051

67,701

58,872

Receivables from:

Clients, net of allowance

385,894

360,533

433,986

Product sponsors, broker-dealers and clearing organizations

177,752

218,690

177,654

Advisor loans, net of allowance

474,718

457,470

441,743

Others, net of allowance

314,856

351,169

298,790

Securities owned:

Trading — at fair value

35,327

29,199

46,447

Held-to-maturity — at amortized cost

14,406

14,361

11,806

Securities borrowed

10,944

15,927

17,684

Fixed assets, net of accumulated depreciation and amortization

556,490

542,821

533,044

Operating lease assets

101,741

103,870

102,477

Goodwill

1,503,648

1,503,648

1,503,648

Intangible assets, net of accumulated amortization

406,740

423,341

439,838

Deferred income taxes, net

751

517

—

Other assets

432,758

385,625

401,343

Total assets

$

5,905,733

$

6,110,766

$

5,880,238

LIABILITIES AND STOCKHOLDERS’ EQUITY

LIABILITIES:

Drafts payable

$

206,084

$

149,832

$

218,636

Payables to clients

1,034,445

1,328,882

1,058,873

Payables to broker-dealers and clearing organizations

87,706

117,860

92,002

Accrued commission and advisory expenses payable

162,620

155,360

174,330

Accounts payable and accrued liabilities

521,088

454,241

557,969

Income taxes payable

88,376

65,282

20,129

Unearned revenue

100,377

109,420

82,842

Securities sold, but not yet purchased — at fair value

71

295

176

Long-term and other borrowings, net

2,349,619

2,467,719

2,398,818

Operating lease liabilities

140,293

142,922

141,900

Finance lease liabilities

107,548

107,596

108,592

Deferred income taxes, net

—

—

2,098

Total liabilities

4,798,227

5,099,409

4,856,365

STOCKHOLDERS’ EQUITY:

Common stock, $.001 par value; 600,000,000 shares authorized; 127,238,822 shares issued at June 30, 2020 and 126,494,028 shares issued at December 31, 2019

127

127

126

Additional paid-in capital

1,733,334

1,720,276

1,703,973

Treasury stock, at cost — 48,154,472 shares at June 30, 2020 and 46,259,989 shares at December 31, 2019

(2,391,961

)

(2,392,712

)

(2,234,793

)

Retained earnings

1,766,006

1,683,666

1,554,567

Total stockholders’ equity

1,107,506

1,011,357

1,023,873

Total liabilities and stockholders’ equity

$

5,905,733

$

6,110,766

$

5,880,238

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

Certain information presented on pages 8-15 of this release is presented as reviewed by the Company’s management and includes information derived from the Company’s Unaudited Condensed Consolidated Statements of Income, non-GAAP financial measures, and operational and performance metrics. For information on non-GAAP financial measures, please see the section titled "Non-GAAP Financial Measures" that begins on page 3 of this release.

Quarterly Results

Q2 2020

Q1 2020

% Change

Q2 2019

% Change

Gross Profit(5)

Sales-based commissions

$

159,512

$

228,391

(30%

)

$

203,531

(22%

)

Trailing commissions

267,941

275,053

(3%

)

275,604

(3%

)

Advisory

523,370

579,027

(10%

)

481,309

9%

Commission and advisory fees

950,823

1,082,471

(12%

)

960,444

(1%

)

Production based payout(6)

(819,953

)

(920,835

)

(11%

)

(831,178

)

(1%

)

Commission and advisory fees, net of payout

130,870

161,636

(19%

)

129,266

1%

Client cash

116,266

151,398

(23%

)

161,815

(28%

)

Other asset-based(7)

130,801

134,108

(2%

)

126,736

3%

Transaction and fee

119,478

137,096

(13%

)

118,335

1%

Interest income and other, net(8)

9,397

8,364

12%

15,583

(40%

)

Total net commission and advisory fees and attachment revenue

506,812

592,602

(14%

)

551,735

(8%

)

Brokerage, clearing and exchange expense

(18,565

)

(17,024

)

9%

(15,994

)

16%

Gross Profit(5)

488,247

575,578

(15%

)

535,741

(9%

)

G&A Expense

Core G&A(9)

222,406

223,211

—%

210,514

6%

Regulatory charges

6,115

6,157

n/m

8,632

n/m

Promotional

44,540

57,398

(22%

)

41,423

8%

Employee share-based compensation

8,040

8,648

(7%

)

7,306

10%

Total G&A

281,101

295,414

(5%

)

267,875

5%

EBITDA(5)

207,146

280,164

(26%

)

267,866

(23%

)

Depreciation and amortization

26,890

26,644

1%

22,584

19%

Amortization of intangible assets

16,689

16,570

1%

16,249

3%

Non-operating interest expense and other

26,289

29,318

(10%

)

33,957

(23%

)

INCOME BEFORE PROVISION FOR INCOME TAXES

137,278

207,632

(34%

)

195,076

(30%

)

PROVISION FOR INCOME TAXES

35,616

51,991

(31%

)

48,984

(27%

)

NET INCOME

$

101,662

$

155,641

(35%

)

$

146,092

(30%

)

Earnings per share, diluted

$

1.27

$

1.92

(34%

)

$

1.71

(26%

)

Weighted-average shares outstanding, diluted

80,127

81,166

(1%

)

85,350

(6%

)

EPS Prior to Amortization of Intangible Assets(5)(36)

$

1.42

$

2.06

(31%

)

$

1.85

(23%

)


LPL Financial Holdings Inc

Management's Statements of Operations Trend(5)

(In thousands, except per share data)

(Unaudited)

Quarterly Results

Q2 2020

Q1 2020

Q4 2019

Gross Profit(5)

Sales-based commissions

$

159,512

$

228,391

$

193,980

Trailing commissions

267,941

275,053

282,940

Advisory

523,370

579,027

533,259

Commission and advisory fees

950,823

1,082,471

1,010,179

Production based payout(6)

(819,953

)

(920,835

)

(876,654

)

Commission and advisory fees, net of payout

130,870

161,636

133,525

Client cash

116,266

151,398

155,322

Other asset-based(7)

130,801

134,108

133,603

Transaction and fee

119,478

137,096

118,291

Interest income and other, net (8)

9,397

8,364

13,323

Total net commission and advisory fees and attachment revenue

506,812

592,602

554,064

Brokerage, clearing and exchange expense

(18,565

)

(17,024

)

(15,927

)

Gross Profit(5)

488,247

575,578

538,137

G&A Expense

Core G&A(9)

222,406

223,211

230,182

Regulatory charges

6,115

6,157

7,893

Promotional

44,540

57,398

51,050

Employee share-based compensation

8,040

8,648

7,179

Total G&A

281,101

295,414

296,304

EBITDA(5)

207,146

280,164

241,833

Depreciation and amortization

26,890

26,644

25,663

Amortization of intangible assets

16,689

16,570

16,631

Non-operating interest expense and other

26,289

29,318

31,384

Loss on extinguishment of debt

—

—

3,156

INCOME BEFORE PROVISION FOR INCOME TAXES

137,278

207,632

164,999

PROVISION FOR INCOME TAXES

35,616

51,991

38,323

NET INCOME

$

101,662

$

155,641

$

126,676

Earnings per share, diluted

$

1.27

$

1.92

$

1.53

Weighted-average shares outstanding, diluted

80,127

81,166

82,695

EPS Prior to Amortization of Intangible Assets(5)(36)

$

1.42

$

2.06

$

1.68


LPL Financial Holdings Inc.

Operating Measures(5)

(Dollars in billions, except where noted) (Unaudited)

Q2 2020

Q1 2020

Change

Q2 2019

Change

Market Drivers

S&P 500 Index (end of period)

3,100

2,585

20%

2,942

5%

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

6

123

(117bps)

240

(234bps)

Assets

Advisory Assets(10)

$

375.3

$

322.3

16%

$

327.3

15%

Brokerage Assets(11)

386.4

347.6

11%

378.7

2%

Total Brokerage and Advisory Assets

$

761.7

$

669.9

14%

$

706.0

8%

Advisory % of Total Brokerage and Advisory Assets

49.3

%

48.1

%

120bps

46.4

%

290bps

Assets by Platform

Corporate Platform Advisory Assets(12)

$

233.5

$

200.7

16%

$

201.9

16%

Hybrid Platform Advisory Assets(13)

141.9

121.6

17%

125.4

13%

Brokerage Assets

386.4

347.6

11%

378.7

2%

Total Brokerage and Advisory Assets

$

761.7

$

669.9

14%

$

706.0

8%

Centrally Managed Assets

Centrally Managed Assets(14)

$

54.4

$

46.9

16%

$

45.7

19%

Centrally Managed % of Total Advisory Assets

14.5

%

14.5

%

—bps

14.0

%

50bps


LPL Financial Holdings Inc.

Operating Measures(5)

(Dollars in billions, except where noted) (Unaudited)

Q2 2020

Q1 2020

Change

Q2 2019

Change

Net New Assets (NNA)

Net New Advisory Assets(15)

$

10.2

$

13.2

n/m

$

7.5

n/m

Net New Brokerage Assets(16)

2.8

1.2

n/m

(1.3

)

n/m

Total Net New Assets

$

13.0

$

14.3

n/m

$

6.2

n/m

Net Brokerage to Advisory Conversions(17)

$

1.6

$

2.4

n/m

$

1.8

n/m

Advisory NNA Annualized Growth(18)

12.7

%

14.4

%

n/m

9.6

%

n/m

Total NNA Annualized Growth(18)

7.8

%

7.5

%

n/m

3.6

%

n/m

Net New Advisory Assets

Corporate Platform Net New Advisory Assets(19)

$

6.2

$

7.8

n/m

$

5.7

n/m

Hybrid Platform Net New Advisory Assets(20)

4.0

5.4

n/m

1.8

n/m

Total Net New Advisory Assets

$

10.2

$

13.2

n/m

$

7.5

n/m

Centrally Managed Net New Advisory Assets(21)

$

1.3

$

2.2

n/m

$

1.3

n/m

Client Cash Balances

Insured Cash Account Balances

$

33.1

$

34.5

(4%)

$

21.3

55%

Deposit Cash Account Balances

7.7

8.7

(11%)

4.3

79%

Total Insured Sweep Balances

40.8

43.2

(6%)

25.5

60%

Money Market Account Cash Balances

1.6

1.8

(11%)

3.5

(54%)

Purchased Money Market Funds

2.8

2.8

—%

1.0

180%

Total Money Market Balances

4.5

4.6

(2%)

4.5

—%

Total Client Cash Balances

$

45.3

$

47.8

(5%)

$

30.1

50%

Client Cash Balances % of Total Assets

5.9

%

7.1

%

(120bps)

4.3

%

160bps

Client Cash Balance Average Fees

Insured Cash Account Average Fee - bps(22)

127

195

(68)

249

(122)

Deposit Cash Account Average Fee - bps(22)

31

142

(111)

226

(195)

Money Market Account Average Fee - bps(22)

16

58

(42)

74

(58)

Purchased Money Market Fund Average Fee - bps(22)

27

29

n/m

29

n/m

Total Client Cash Balance Average Fee - bps(22)

100

168

(68)

217

(117)

Net Buy (Sell) Activity(23)

$

12.5

$

0.2

n/m

$

9.7

n/m


LPL Financial Holdings Inc.

Monthly Metrics(5)

(Dollars in billions, except where noted)

(Unaudited)

June 2020

May 2020

May to June Change

April 2020

March 2020

Assets Served

Advisory Assets(10)

$

375.3

$

364.9

2.9%

$

348.9

$

322.3

Brokerage Assets(11)

386.4

381.0

1.4%

369.1

347.6

Total Brokerage and Advisory Assets

$

761.7

$

745.9

2.1%

$

718.0

$

669.9

Net New Assets (NNA)

Net New Advisory Assets(15)

$

4.3

$

3.1

n/m

$

2.8

$

4.8

Net New Brokerage Assets(16)

1.0

1.1

n/m

0.7

0.8

Total Net New Assets

$

5.4

$

4.2

n/m

$

3.4

$

5.6

Net Brokerage to Advisory Conversions(17)

$

0.7

$

0.4

n/m

$

0.5

$

0.6

Client Cash Balances

Insured Cash Account Balances

$

33.1

$

33.5

(1.2%)

$

33.9

$

34.5

Deposit Cash Account Balances

7.7

8.0

(3.8%)

8.5

8.7

Total Insured Sweep Balances

40.8

41.5

(1.7%)

42.4

43.2

Money Market Account Cash Balances

1.6

1.7

(5.9%)

1.7

1.8

Purchased Money Market Funds

2.8

2.9

(3.4%)

2.9

2.8

Total Money Market Balances

4.5

4.6

(2.2%)

4.6

4.6

Total Client Cash Balances

$

45.3

$

46.2

(1.9%)

$

47.0

$

47.8

Net Buy (Sell) Activity(23)

$

4.5

$

3.9

n/m

$

4.1

$

(8.2

)

Market Indices

S&P 500 Index (end of period)

3,100

3,044

1.8%

2,912

2,585

Fed Funds Effective Rate (average bps)

8

5

3bps

5

63


LPL Financial Holdings Inc.

Financial Measures(5)

(Dollars in thousands, except where noted)

(Unaudited)

Q2 2020

Q1 2020

Change

Q2 2019

Change

Commission Revenue by Product

Annuities

$

217,637

$

245,662

(11%)

$

256,671

(15%)

Mutual funds

133,800

156,156

(14%)

149,380

(10%)

Fixed income

18,463

29,125

(37%)

24,604

(25%)

Equities

27,985

37,421

(25%)

19,700

42%

Other

29,568

35,080

(16%)

28,780

3%

Total commission revenue

$

427,453

$

503,444

(15%)

$

479,135

(11%)

Commission Revenue by Sales-based and Trailing Commission

Sales-based commissions

Annuities

$

64,287

$

92,525

(31%)

$

103,325

(38%)

Mutual funds

29,716

45,534

(35%)

38,095

(22%)

Fixed income

18,463

29,125

(37%)

24,604

(25%)

Equities

27,985

37,421

(25%)

19,700

42%

Other

19,061

23,786

(20%)

17,807

7%

Total sales-based commissions

$

159,512

$

228,391

(30%)

$

203,531

(22%)

Trailing commissions

Annuities

$

153,350

$

153,137

—%

$

153,346

—%

Mutual funds

104,084

110,622

(6%)

111,285

(6%)

Other

10,507

11,294

(7%)

10,973

(4%)

Total trailing commissions

$

267,941

$

275,053

(3%)

$

275,604

(3%)

Total commission revenue

$

427,453

$

503,444

(15%)

$

479,135

(11%)

Payout Rate

Base Payout Rate

82.64

%

82.70

%

(6bps)

83.39

%

(75bps)

Production Based Bonuses

3.59

%

2.37

%

122bps

3.15

%

44bps

Total Payout Ratio

86.24

%

85.07

%

117bps

86.54

%

(30bps)


LPL Financial Holdings Inc.

Capital Management Measures(5)

(Dollars in thousands, except where noted)

(Unaudited)

Q2 2020

Q1 2020

Cash Available for Corporate Use(24)

Cash at Parent

$

185,042

$

130,964

Excess Cash at Broker-Dealer subsidiary per Credit Agreement

77,292

86,897

Other Available Cash

19,991

18,287

Total Cash Available for Corporate Use

$

282,325

$

236,148

Credit Agreement Net Leverage

Total Debt (does not include unamortized premium)

$

2,364,650

$

2,483,325

Cash Available

282,325

236,148

Credit Agreement Net Debt

$

2,082,325

$

2,247,177

Credit Agreement EBITDA (trailing twelve months) (25)

$

1,026,897

$

1,085,269

Credit Agreement Net Leverage Ratio

2.03

x

2.07

x


June 30, 2020

Total Debt

Balance

Current Applicable
Margin

Yield At Issuance

Interest Rate

Maturity

Revolving Credit Facility(a)

$

—

ABR+25bps

—

%

11/12/2024

Broker-Dealer Revolving Credit Facility(b)

—

FFR+125bps

—

%

7/31/2024

Senior Secured Term Loan B

1,064,650

LIBOR+175 bps(c)

1.930

%

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

$

2,364,650

3.840

%

(a) The Revolving Credit Facility is secured and has a borrowing capacity of $750 million.
(b)The Broker-Dealer Revolving Credit Facility is unsecured and at LPL Financial LLC, the Company’s broker-dealer subsidiary, and has a borrowing capacity of $300 million.
(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 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.
(e) Does not include unamortized premium of approximately $7.8 million as of June 30, 2020.
(f) The Senior Unsecured Notes were issued in November 2019 at par.

LPL Financial Holdings Inc.

Key Business and Financial Metrics(5)

(Dollars in thousands, except where noted)

(Unaudited)

Q2 2020

Q1 2020

Change

Q2 2019

Change

Advisors

Advisors

16,973

16,763

1%

16,161

5%

Net New Advisors

210

299

n/m

(28

)

n/m

Annualized commission and advisory fees per Advisor(26)

$

226

$

261

(13%)

$

238

(5%)

Average Total Assets per Advisor ($ in millions)(27)

$

44.9

$

40.0

12%

$

43.7

3%

Transition assistance loan amortization ($ in millions)(28)

$

28.6

$

27.4

4%

$

22.6

27%

Total client accounts (in millions)

5.8

5.8

—%

5.5

5%

Employees - period end

4,585

4,358

5%

4,364

5%

Productivity Metrics

Advisory Revenue as a % of Corporate Advisory Assets (29)

1.02

%

1.01

%

1bps

1.03

%

(1bps)

Gross Profit ROA (30)

29.3

bps

30.4

bps

(1.1bps)

31.1

bps

(1.8bps)

OPEX as a % of Brokerage and Advisory Assets (31)

18.2

bps

18.3

bps

(0.1bps)

18.6

bps

(0.4bps)

EBIT ROA (32)

11.1

bps

12.2

bps

(1.1bps)

12.5

bps

(1.4bps)

Production Retention Rate (YTD annualized) (33)

98.6

%

99.0

%

(40bps)

96.2

%

240bps

Recurring Gross Profit Rate (34)

86.8

%

88.1

%

(130bps)

86.5

%

30bps

EBITDA as a % of Gross Profit

42.4

%

48.7

%

(630bps)

50.0

%

(760bps)

Capital Expenditure ($ in millions)

$

37.9

$

34.0

11%

$

33.2

14%

Share Repurchases ($ in millions)

$

—

$

150.0

(100%)

$

125.0

(100%)

Dividends ($ in millions)

19.7

19.7

—%

20.8

(5%)

Total Capital Allocated ($ in millions)

$

19.7

$

169.7

(88%)

$

145.9

(86%)

Weighted-average Share Count, Diluted

80.1

81.2

(1%)

85.4

(6%)

Total Capital Allocated per Share(35)

$

0.25

$

2.09

(88%)

$

1.71

(85%)

Endnote Disclosures

(1) In April 2020, the Company updated its definition of net new assets to include Dividends plus Interest, minus Advisory Fees. See FNs 15, 16, 19, 20 and 21.
(2) Represents the estimated total brokerage and advisory assets expected to transition to the Company's broker-dealer subsidiary, LPL Financial LLC ("LPL Financial"), associated with advisors who transferred their licenses to LPL Financial during the period. The estimate is based on prior business reported by the advisors, which has not been independently and fully verified by LPL Financial. The actual transition of assets to LPL Financial generally occurs over several quarters including the initial quarter of the transition, and the actual amount transitioned may vary from the estimate.
(3) “Financial advisors” or “Advisors” include registered representatives and/or investment adviser representatives affiliated with LPL Financial, an SEC registered broker-dealer and investment adviser.
(4) Compliance with the Credit Agreement Net Leverage Ratio is only required under our revolving credit facility.
(5) Certain information presented on pages 8-15 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 3.
(6) Production based payout is an operating measure calculated as a commission and advisory expense less advisor deferred compensation expense. Below is a reconciliation of production based payout against the Company’s commission and advisory expense for the periods presented (in thousands):

Q2 2020

Q1 2020

Q4 2019

Q2 2019

Production based payout

$

819,953

$

920,835

$

876,654

$

831,178

Advisor deferred compensation expense

39,894

(50,040

)

17,177

6,844

Commission and advisory expense

$

859,847

$

870,795

$

893,831

$

838,022

(7) 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.
(8) Interest income and other, net is an operating measure calculated as interest income, net of interest expense plus other revenue, less advisor deferred compensation expense. Below is a reconciliation of interest income and other, net against the Company’s interest income, net of interest expense and other revenue for the periods presented (in thousands):

Q2 2020

Q1 2020

Q4 2019

Q2 2019

Interest income, net of interest expense

$

6,540

$

9,542

$

10,966

$

11,690

Plus: Other revenue

42,751

(51,218

)

19,534

10,737

Less: Advisor deferred compensation expense

(39,894

)

50,040

(17,177

)

(6,844

)

Interest income and other, net

$

9,397

$

8,364

$

13,323

$

15,583

(9) Core G&A is a non-GAAP financial measure. Please see a description of Core G&A under “Non-GAAP Financial Measures” on page 3 of this release for additional information. Below is a reconciliation of Core G&A against the Company’s total operating expenses for the periods presented:

Q2 2020

Q1 2020

Q4 2019

Q2 2019

Operating Expense Reconciliation (in thousands)

Core G&A

$

222,406

$

223,211

$

230,182

$

210,514

Regulatory charges

6,115

6,157

7,893

8,632

Promotional

44,540

57,398

51,050

41,423

Employee share-based compensation

8,040

8,648

7,179

7,306

Total G&A

281,101

295,414

296,304

267,875

Commissions and advisory

859,847

870,795

893,831

838,022

Depreciation & amortization

26,890

26,644

25,663

22,584

Amortization of intangible assets

16,689

16,570

16,631

16,249

Brokerage, clearing and exchange

18,565

17,024

15,927

15,994

Total operating expenses

$

1,203,092

$

1,226,447

$

1,248,356

$

1,160,724

(10) Consists of total advisory assets under custody at LPL Financial. 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.
(11) Consists of brokerage assets serviced by advisors licensed with LPL Financial. Q4 2019 also included brokerage assets serviced by advisors licensed with Allen & Company that were onboarded to LPL Financial's custodial platform in Q4 2019.
(12) Consists of total assets on LPL Financial's corporate advisory platform serviced by investment advisor representatives of LPL Financial or Allen & Company.
(13) 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.
(14) Represents those advisory assets in LPL Financial’s Model Wealth Portfolios, Optimum Market Portfolios, Personal Wealth Portfolios, and Guided Wealth Portfolios platforms.
(15) Consists of total client deposits into advisory accounts, including advisory assets serviced by Allen & Company 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. The previously reported figures for net new advisory assets did not include dividends and interest or subtract advisory fees. The figures previously reported for Q1 2020 and Q2 2019 were inflows of $12.5 billion and $6.6 billion, respectively.
(16) Consists of total client deposits into brokerage accounts, including brokerage assets serviced by Allen & Company advisors, less total client withdrawals from brokerage accounts, plus dividends, plus interest, minus advisory fees. The Company considers conversions from and to advisory accounts as deposits and withdrawals, respectively. The previously reported figures for net new brokerage assets did not include dividends and interest or subtract advisory fees. The figures previously reported for Q1 2020 and Q2 2019 were $0.0 billion and an outflow of $2.6 billion, respectively.
(17) Consists of existing custodied assets that converted from brokerage to advisory, less existing custodied assets that converted from advisory to brokerage.
(18) 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.
(19) Consists of total client deposits into advisory accounts on LPL Financial's corporate advisory platform (FN 12) less total client withdrawals from advisory accounts on its corporate advisory platform, plus dividends, plus interest, minus advisory fees. The previously reported figures did not include dividends and interest or subtract advisory fees. The figures previously reported for Q1 2020 and Q2 2019 were inflows of $7.4 billion and $5.1 billion, respectively.
(20) Consists of total client deposits into advisory accounts on LPL Financial's independent advisory platform (FN 13) less total client withdrawals from advisory accounts on its independent advisory platform, plus dividends, plus interest, minus advisory fees. The previously reported figures did not include dividends and interest or subtract advisory fees. The figures previously reported for Q1 2020 and Q2 2019 were inflows of $5.1 billion and $1.4 billion, respectively.
(21) Consists of total client deposits into centrally managed assets accounts (FN 14) less total client withdrawals from centrally managed assets accounts, plus dividends, plus interest, minus advisory fees. The previously reported figures did not include dividends and interest or subtract advisory fees. The figures previously reported for Q1 2020 and Q2 2019 were an inflow of $2.2 billion and $1.2 billion, respectively.
(22) Calculated by dividing revenue for the period by the average balance during the period.
(23) 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.
(24) Consists of cash unrestricted by the Credit Agreement and other regulations available for operating, investing, and financing uses.
(25) 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 3 of this release for additional information. Under the Credit Agreement, management calculates Credit Agreement EBITDA for a trailing twelve month period at the end of each fiscal quarter, and in doing so may make further adjustments to prior quarters. Below are reconciliations of EBITDA and Credit Agreement EBITDA to net income for the periods presented (dollars in thousands):

Q2 2020

Q1 2020

EBITDA and Credit Agreement EBITDA Reconciliations

Net income

$

515,693

$

560,123

Non-operating interest expense

118,935

126,603

Provision for income taxes

172,202

185,570

Loss on extinguishment of debt

3,156

3,156

Depreciation and amortization

103,259

98,953

Amortization of intangible assets

66,176

65,736

EBITDA

$

979,421

$

1,040,141

Credit Agreement Adjustments:

Employee share-based compensation expense

$

31,281

$

30,547

Advisor share-based compensation expense

2,495

2,679

Other

13,700

11,902

Credit Agreement EBITDA (trailing twelve months)

$

1,026,897

$

1,085,269

(26) Calculated based on the average advisor count from the current period and prior period.
(27) Calculated based on the end of period total brokerage and advisory assets divided by end of period advisor count.
(28) Represents the amortization expense amount of forgivable loans for transition assistance to advisors and financial institutions.
(29) Represents advisory revenue as a percentage of Corporate Platform Advisory Assets (FN 12) for the trailing twelve month period.
(30) Represents Gross Profit (FN 5), a non-GAAP financial measure, for the trailing twelve month period, divided by average month-end total brokerage and advisory assets for the trailing twelve month period.
(31) 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 9), a non-GAAP financial measure, as well as regulatory charges, promotional, employee share-based compensation, depreciation & amortization, and amortization of intangible assets.
(32) EBIT ROA is calculated as Gross Profit ROA less OPEX as a % of Total Brokerage and Advisory Assets.
(33) 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.
(34) 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.
(35) Capital Allocated per Share equals the amount of capital allocated for share repurchases and cash dividends divided by the diluted weighted-average shares outstanding.
(36) EPS Prior to Amortization of Intangible Assets is a non-GAAP financial measure. Please see a description of EPS Prior to Amortization of Intangible Assets under “Non-GAAP Financial Measures” on page 3 of this release for additional information. Below is a reconciliation of EPS Prior to Amortization of Intangible Assets to the Company’s GAAP EPS for the periods presented:

EPS Reconciliation (in thousands, except per share data)

Q2 2020

EPS

$

1.27

Amortization of Intangible Assets

16,689

Tax Benefit

(4,673

)

Amortization of Intangible Assets Net of Tax Benefit

$

12,016

Diluted Share Count

80,127

EPS Impact

$

0.15

EPS Prior to Amortization of Intangible Assets

$

1.42

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


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