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Lpl Financial Holdings Inc. (LPLA) SEC Filing 8-K Material Event for the period ending Thursday, October 25, 2018

Lpl Financial Holdings Inc.

HISTORY TOOLS
CIK: 1397911 Ticker: LPLA


lpllogo541largenewnolinesa10.jpg
Investor Relations - Chris Koegel, (617) 897-4574
For Immediate Release
Media Relations - Jeff Mochal, (704) 733-3589
 
 
investor.lpl.com/contactus.cfm
LPL Financial Announces Third Quarter 2018 Results
Key Performance Indicators
•
Earnings per share ("EPS") increased 89% year-over-year to $1.19.
◦
Net Income increased 84% year-over-year to $107 million.
•
EPS prior to Amortization of Intangible Assets** increased 90% year-over-year to $1.32.
•
Total Brokerage and Advisory Assets increased 22% year-over-year to $681 billion, up 3% sequentially.
•
Total Net New Assets were an inflow of $4.4 billion, translating to a 2.7% annualized growth rate.
◦
Net new advisory assets were an inflow of $5.1 billion, translating to a 7.0% annualized growth rate.
◦
Net new brokerage assets were an outflow of $0.8 billion, translating to a (0.8)% annualized rate.
◦
Recruited Assets(1) were $9.1 billion in Q3, and $18.8 billion year-to-date.
◦
Advisor count was 16,174 , up 125 sequentially, and production retention rate year-to-date was 96%.
•
Gross Profit** increased 27% year-over-year to $493 million.
•
EBITDA** increased 40% year-over-year to $218 million.
◦
EBITDA as a percentage of Gross Profit was 44%, up from 40% a year ago.
◦
Core G&A** increased 17% year-over-year to $209 million, up 9% sequentially.
•
Shareholder capital returns were $144 million, translating to $1.61 per share.
◦
Share repurchases were $122 million for 1.8 million shares at an average purchase price of $66.24.
◦
Dividends were $22 million.
•
Cash available for corporate use was $392 million.
•
Credit Agreement Net Leverage Ratio(2) was 2.24x, down 0.10x from the prior quarter.
Key Updates
•
Tightened 2018 Core G&A** outlook range from $805 to $825 million to $810 to $820 million.
•
Announced next Investor and Analyst Day will be held on May 22, 2019 in New York City.
SAN DIEGO - October 25, 2018 — LPL Financial Holdings Inc. (NASDAQ: LPLA) (the “Company”) today announced results for its third quarter ended September 30, 2018, reporting net income of $107 million, or $1.19 per share. This compares with $58 million, or $0.63 per share, in the third quarter of 2017 and $119 million, or $1.30 per share, in the prior quarter.



1


“We had another quarter of business and earnings growth,” said Dan Arnold, President and CEO. “Organic growth was solid, and momentum continued to build, driven by increased advisor recruiting, productivity, and retention. Looking forward, we remain focused on helping advisors win in the marketplace by enhancing capabilities, making it easier for advisors to do business with us, and investing in technology.”
“Earnings continued to grow in the third quarter as we grew assets and generated operating leverage,” said Matt Audette, CFO. “We also increased our investments to drive organic growth, and we returned capital to shareholders through dividends and share repurchases. Looking ahead to 2019, we see opportunities to deploy more capital into organic growth, while taking advantage of M&A opportunities when appropriate, and returning capital to shareholders.”
Dividend Declaration
The Company's Board of Directors declared a $0.25 per share dividend to be paid on November 26, 2018 to all stockholders of record as of November 8, 2018.
Conference Call and Additional Information
The Company will hold a conference call to discuss its results at 5:00 p.m. EST on Thursday, October 25. To listen, call 877-677-9122 (domestic) or 708-290-1401 (international); passcode 2257459, 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 November 1 and November 15, respectively. For telephonic replay, call 855-859-2056 (domestic) or 404-537-3406 (international); passcode 2257459.
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 thriving practices. LPL enables them to provide objective guidance to millions of American families seeking wealth management, retirement planning, financial planning and asset management solutions. LPL.com

*based on total revenues, Financial Planning magazine June 1996-2018.
Securities and Advisory Services offered through LPL Financial. A Registered Investment Advisor, Member FINRA/SIPC.
**Non-GAAP Financial Measures
Management believes that presenting certain non-GAAP financial measures by excluding or including certain items can be helpful to investors and analysts who may wish to use this information to analyze the Company’s current performance, prospects, and valuation. Management uses this non-GAAP information internally to evaluate operating performance and in formulating the budget for future periods. Management believes that the non-GAAP financial measures and metrics discussed below are appropriate for evaluating the performance of the Company.
EPS Prior to Amortization of Intangible Assets is defined as GAAP EPS plus the per share impact of Amortization of Intangible Assets. The per share impact is calculated as Amortization of Intangible Assets expense, net of applicable tax benefit, divided by the number of shares outstanding for the applicable period. The Company presents EPS Prior to Amortization of Intangible Assets because management believes that the metric can provide investors with useful insight into the Company’s core operating performance by excluding non-cash items that management does not believe impact the Company’s ongoing operations. EPS Prior to Amortization of Intangible Assets is not a measure of the Company's financial performance under GAAP and should not be considered as an alternative to GAAP EPS or any other performance measure derived in accordance with GAAP. For a reconciliation of EPS Prior to Amortization of Intangible Assets to GAAP EPS, please see footnote 34 on page 20 of this release.
Gross Profit is calculated as net revenues, which were $1,331 million for the three months ended September 30, 2018, less commission and advisory expenses and brokerage, clearing, and exchange fees, which were $822 million and $16 million, respectively, for the three months ended September 30, 2018. All other expense categories,

2


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 $1,152 million for the three months ended September 30, 2018, excluding the following expenses: commission and advisory, regulatory charges, promotional, employee share-based compensation, depreciation and amortization, amortization of intangible assets, and brokerage, clearing, and exchange. Management presents Core G&A because it believes Core G&A reflects the corporate operating expense categories over which management can generally exercise a measure of control, compared with expense items over which management either cannot exercise control, such as commission and advisory expenses, or which management views as promotional expense necessary to support advisor growth and retention including conferences and transition assistance. Core G&A is not a measure of the Company’s total operating expenses as calculated in accordance with GAAP. For a reconciliation of Core G&A against the Company’s total operating expenses, please see footnote 5 on page 18 of this release. The Company does not provide an outlook for its total operating expenses because it contains expense components, such as commission and advisory expenses, that are market-driven and over which the Company cannot exercise control. Accordingly a reconciliation of the Company’s outlook for Core G&A to an outlook for total operating expenses cannot be made available without unreasonable effort.
EBITDA is defined as net income plus interest expense, income tax expense, depreciation, amortization 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, or as an alternative to cash flows from operating activities as a measure of profitability or liquidity. In addition, the Company’s EBITDA can differ significantly from EBITDA calculated by other companies, depending on long-term strategic decisions regarding capital structure, the tax jurisdictions in which companies operate, and capital investments.
Credit Agreement EBITDA is defined in, and calculated by management in accordance with, the Company's credit agreement (“Credit Agreement”) as “Consolidated EBITDA,” which is Consolidated Net Income (as defined in the Credit Agreement) plus interest expense, tax expense, depreciation and amortization and further adjusted to exclude certain non-cash charges and other adjustments, including unusual or non-recurring charges and gains, and to include future expected cost savings, operating expense reductions or other synergies from certain transactions, including the Company's acquisition of the broker/dealer network of National Planning Holdings, Inc. ("NPH"). The Company presents Credit Agreement EBITDA because management believes that it can be a useful financial metric in understanding the Company’s debt capacity and covenant compliance under its Credit Agreement. Credit Agreement EBITDA is not a measure of the Company's financial performance under GAAP and should not be considered as an alternative to net income or any other performance measure derived in accordance with GAAP, or as an alternative to cash flows from operating activities as a measure of profitability or liquidity. In addition, the Company’s Credit Agreement-defined EBITDA can differ significantly from adjusted EBITDA calculated by other companies, depending on long-term strategic decisions regarding capital structure, the tax jurisdictions in which companies operate, capital investments, and types of adjustments made by such companies.
Forward-Looking Statements
Statements in this press release regarding the Company's future financial and operating results, growth, priorities and business strategies, including forecasts and statements relating to future expenses (including 2018 Core G&A** outlook), enhanced capabilities, investments and capital deployment, as well as any other statements that are not related to present facts or current conditions or that are not purely historical, constitute forward-looking statements. These forward-looking statements are based on the Company's historical performance and its plans, estimates, and expectations as of October 25, 2018. 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 cash sweep program, the Company's strategy and success in managing cash sweep

3


program fees; changes in the growth and profitability of the Company's fee-based business; fluctuations in the value and levels of advisory and brokerage 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 open accounts and/or move their respective assets to new accounts at the Company; the effect of current, pending and future legislation, regulation and regulatory actions, including changes in retail retirement savings regulations and disciplinary actions imposed by federal and state securities regulators and self-regulatory organizations; the costs of settling and remediating issues related to pending or future regulatory matters or legal proceedings; changes made to the Company’s offerings, services, and pricing, and the effect that such changes may have on the Company’s gross profit streams and costs; execution of the Company's plans and its success in realizing the synergies, expense savings, service improvements, and/or efficiencies expected to result from its initiatives and programs, and the other factors set forth in Part I, “Item 1A. Risk Factors” in the Company's 2017 Annual Report on Form 10-K, as may be amended or updated in the Company's Quarterly Reports on Form 10-Q or subsequent filings with the SEC. Except as required by law, the Company specifically disclaims any obligation to update any forward-looking statements as a result of developments occurring after the date of this earnings release, even if its estimates change, and you should not rely on statements contained herein as representing the Company's views as of any date subsequent to the date of this press release.




4


LPL Financial Holdings Inc.
Condensed Consolidated Statements of Income
(In thousands, except per share data)
(Unaudited)
 
Three Months Ended September 30,
 
 
 
Nine Months Ended September 30,
 
 
 
2018
 
2017
 
% Change
 
2018
 
2017
 
% Change
REVENUES
 
 
 
 
 
 
 
 
 
 
 
Commission
$
486,875

 
$
403,011

 
21
%
 
$
1,449,771

 
$
1,244,881

 
16
%
Advisory
458,087

 
356,945

 
28
%
 
1,319,391

 
1,033,319

 
28
%
Asset-based
248,895

 
183,953

 
35
%
 
706,834

 
514,626

 
37
%
Transaction and fee
118,941

 
103,999

 
14
%
 
352,045

 
321,522

 
9
%
Interest income, net of interest expense
10,512

 
6,162

 
71
%
 
28,426

 
17,931

 
59
%
Other
7,687

 
10,038

 
(23
%)
 
14,891

 
32,760

 
(55
%)
Total net revenues
1,330,997

 
1,064,108

 
25
%
 
3,871,358

 
3,165,039

 
22
%
EXPENSES
 
 
 
 
 
 
 
 
 
 
 
Commission and advisory
821,950

 
663,765

 
24
%
 
2,384,266

 
1,971,874

 
21
%
Compensation and benefits
128,007

 
113,659

 
13
%
 
373,884

 
337,170

 
11
%
Promotional
52,628

 
42,935

 
23
%
 
163,462

 
111,595

 
46
%
Depreciation and amortization
22,838

 
21,996

 
4
%
 
65,759

 
63,933

 
3
%
Amortization of intangible assets
15,676

 
9,352

 
68
%
 
44,580

 
28,296

 
58
%
Occupancy and equipment
30,308

 
22,803

 
33
%
 
84,848

 
70,989

 
20
%
Professional services
23,129

 
16,438

 
41
%
 
61,223

 
50,732

 
21
%
Brokerage, clearing and exchange
15,844

 
13,491

 
17
%
 
47,154

 
41,567

 
13
%
Communications and data processing
12,334

 
10,866

 
14
%
 
34,546

 
32,525

 
6
%
Other
29,219

 
24,376

 
20
%
 
88,175

 
71,140

 
24
%
Total operating expenses
1,151,933

 
939,681

 
23
%
 
3,347,897

 
2,779,821

 
20
%
Non-operating interest expense
31,705

 
26,519

 
20
%
 
93,267

 
78,131

 
19
%
Loss on extinguishment of debt
—

 
1,268

 
n/m

 
—

 
22,407

 
n/m

INCOME BEFORE PROVISION FOR INCOME TAXES
147,359

 
96,640

 
52
%
 
430,194

 
284,680

 
51
%
PROVISION FOR INCOME TAXES
40,494

 
38,498

 
5
%
 
111,033

 
109,915

 
1
%
NET INCOME
$
106,865

 
$
58,142

 
84
%
 
$
319,161

 
$
174,765

 
83
%
EARNINGS PER SHARE
 
 
 
 
 
 
 
 
 
 
 
Earnings per share, basic
$
1.22

 
$
0.65

 
88
%
 
$
3.59

 
$
1.94

 
85
%
Earnings per share, diluted
$
1.19

 
$
0.63

 
89
%
 
$
3.49

 
$
1.90

 
84
%
Weighted-average shares outstanding, basic
87,426

 
89,967

 
(3
%)
 
88,841

 
90,029

 
(1
%)
Weighted-average shares outstanding, diluted
89,878

 
92,042

 
(2
%)
 
91,447

 
92,027

 
(1
%)







5


LPL Financial Holdings Inc.
Condensed Consolidated Statements of Income Trend
(In thousands, except per share data)
(Unaudited)
 
Quarterly Results
 
Q3 2018
 
Q2 2018
 
Q1 2018
REVENUES
 
 
 
 
 
Commission
$
486,875

 
$
488,085

 
$
474,811

Advisory
458,087

 
438,917

 
422,387

Asset-based
248,895

 
238,603

 
219,336

Transaction and fee
118,941

 
116,455

 
116,649

Interest income, net of interest expense
10,512

 
10,133

 
7,781

Other
7,687

 
6,611

 
593

Total net revenues
1,330,997

 
1,298,804

 
1,241,557

EXPENSES
 
 
 
 
 
Commission and advisory
821,950

 
800,619

 
761,697

Compensation and benefits
128,007

 
122,360

 
123,517

Promotional
52,628

 
43,407

 
67,427

Depreciation and amortization
22,838

 
22,220

 
20,701

Amortization of intangible assets
15,676

 
15,682

 
13,222

Occupancy and equipment
30,308

 
26,904

 
27,636

Professional services
23,129

 
15,922

 
22,172

Brokerage, clearing and exchange expense
15,844

 
15,433

 
15,877

Communications and data processing
12,334

 
11,038

 
11,174

Other
29,219

 
30,370

 
28,586

Total operating expenses
1,151,933

 
1,103,955

 
1,092,009

Non-operating interest expense
31,705

 
31,940

 
29,622

INCOME BEFORE PROVISION FOR INCOME TAXES
147,359

 
162,909

 
119,926

PROVISION FOR INCOME TAXES
40,494

 
44,143

 
26,396

NET INCOME
$
106,865

 
$
118,766

 
$
93,530

EARNINGS PER SHARE
 
 
 
 
 
Earnings per share, basic
$
1.22

 
$
1.33

 
$
1.04

Earnings per share, diluted
$
1.19

 
$
1.30

 
$
1.01

Weighted-average shares outstanding, basic
87,426

 
89,128

 
89,997

Weighted-average shares outstanding, diluted
89,878

 
91,684

 
92,784


6


LPL Financial Holdings Inc.
Condensed Consolidated Statements of Financial Condition
(Dollars in thousands, except par value)
(Unaudited)
 
 
September 30,
2018
 
December 31, 2017
ASSETS
Cash and cash equivalents
 
$
768,546

 
$
811,136

Cash segregated under federal and other regulations
 
566,128

 
763,831

Restricted cash
 
58,754

 
50,688

Receivables from:
 
 
 
 
Clients, net of allowance of $621 at September 30, 2018 and $466 at December 31, 2017
 
435,133

 
344,230

Product sponsors, broker-dealers, and clearing organizations
 
213,887

 
196,207

Advisor loans, net of allowance of $3,539 at September 30, 2018 and $3,264 at December 31, 2017
 
261,214

 
219,157

Others, net of allowance of $8,997 at September 30, 2018 and $6,115 at December 31, 2017
 
236,480

 
228,986

Securities owned:
 
 
 
 
Trading — at fair value
 
32,455

 
17,879

Held-to-maturity — at amortized cost
 
13,005

 
11,833

Securities borrowed
 
6,274

 
12,489

Fixed assets, net of accumulated depreciation and amortization of $489,209 at September 30, 2018 and $427,344 at December 31, 2017
 
441,072

 
412,684

Goodwill
 
1,476,775

 
1,427,769

Intangible assets, net of accumulated amortization of $463,646 at September 30, 2018 and $419,066 at December 31, 2017
 
482,234

 
414,093

National Planning Holdings acquisition
 
—

 
162,500

Other assets
 
297,856

 
285,269

Total assets
 
$
5,289,813

 
$
5,358,751

LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES:
 
 
 
 
Drafts payable
 
$
195,343

 
$
185,929

Payables to clients
 
804,797

 
962,891

Payables to broker-dealers and clearing organizations
 
54,360

 
54,262

Accrued commission and advisory expenses payable
 
168,176

 
147,095

Accounts payable and accrued liabilities
 
486,573

 
461,149

Income taxes payable
 
22,531

 
469

Unearned revenue
 
82,546

 
72,222

Securities sold, but not yet purchased — at fair value
 
333

 
1,182

Long-term borrowing, net of unamortized debt issuance cost of $20,345 at September 30, 2018 and $22,812 at December 31, 2017
 
2,375,113

 
2,385,022

Leasehold financing and capital lease obligations
 
105,057

 
107,518

Deferred income taxes, net
 
15,517

 
16,004

Total liabilities
 
4,310,346

 
4,393,743

STOCKHOLDERS’ EQUITY:
 
 
 
 
Common stock, $.001 par value; 600,000,000 shares authorized; 124,611,205 shares issued at September 30, 2018 and 123,030,383 shares issued at December 31, 2017
 
124

 
123

Additional paid-in capital
 
1,621,020

 
1,556,117

Treasury stock, at cost — 37,901,990 shares at September 30, 2018 and 33,262,115 shares at December 31, 2017
 
(1,612,847
)
 
(1,309,568
)
Retained earnings
 
971,170

 
718,336

Total stockholders’ equity
 
979,467

 
965,008

Total liabilities and stockholders’ equity
 
$
5,289,813

 
$
5,358,751


7


LPL Financial Holdings Inc.
Management's Statements of Operations(3) 
(In thousands, except per share data)
(Unaudited)
The information presented on pages 8-17 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 2 of this release.
 
Quarterly Results
 
Q3 2018

Q2 2018
 
% Change
 
Q3 2017
 
% Change
Gross Profit(3)
 
 
 
 
 
 
 
 
 
Sales-based commissions
$
193,545

 
$
196,530

 
(2
%)
 
$
160,098

 
21
%
Trailing commissions
293,330

 
291,555

 
1
%
 
242,913

 
21
%
Advisory
458,087

 
438,917

 
4
%
 
356,945

 
28
%
Commission and advisory fees
944,962

 
927,002

 
2
%
 
759,956

 
24
%
Commission and advisory expense
(821,950
)
 
(800,619
)
 
3
%
 
(663,765
)
 
24
%
Commission and advisory fees, net of payout
123,012

 
126,383

 
(3
%)
 
96,191

 
28
%
Cash sweep
127,174

 
121,386

 
5
%
 
81,617

 
56
%
Other asset-based(4)
121,721

 
117,217

 
4
%
 
102,336

 
19
%
Transaction and fee
118,941

 
116,455

 
2
%
 
103,999

 
14
%
Interest income and other
18,199

 
16,744

 
9
%
 
16,200

 
12
%
Total net commission and advisory fees and attachment revenue
509,047


498,185

 
2
%
 
400,343

 
27
%
Brokerage, clearing, and exchange expense
(15,844
)
 
(15,433
)
 
3
%
 
(13,491
)
 
17
%
Gross Profit(3)
493,203

 
482,752

 
2
%
 
386,852

 
27
%
 
 
 
 
 
 
 
 
 
 
G&A Expense
 
 
 
 
 
 
 
 
 
Core G&A(5)
209,244

 
192,148

 
9
%
 
178,769

 
17
%
Regulatory charges
7,421

 
8,321

 
n/m

 
4,433

 
n/m

Promotional
52,628

 
43,407

 
21
%
 
42,935

 
23
%
Employee share-based compensation
6,332

 
6,125

 
3
%
 
4,940

 
28
%
Total G&A
275,625

 
250,001

 
10
%
 
231,077

 
19
%
EBITDA(3)
217,578

 
232,751

 
(7
%)
 
155,775

 
40
%
Depreciation and amortization
22,838

 
22,220

 
3
%
 
21,996

 
4
%
Amortization of intangible assets
15,676

 
15,682

 
—
%
 
9,352

 
68
%
Non-operating interest expense
31,705

 
31,940

 
(1
%)
 
26,519

 
20
%
Loss on extinguishment of debt
—

 
—

 
n/m

 
1,268

 
n/m

INCOME BEFORE PROVISION FOR INCOME TAXES
147,359

 
162,909

 
(10
%)
 
96,640

 
52
%
PROVISION FOR INCOME TAXES
40,494

 
44,143

 
(8
%)
 
38,498

 
5
%
NET INCOME
$
106,865

 
$
118,766

 
(10
%)
 
$
58,142

 
84
%
Earnings per share, diluted
$
1.19

 
$
1.30

 
(8
%)
 
$
0.63

 
89
%
Weighted-average shares outstanding, diluted
89,878

 
91,684

 
(2
%)
 
92,042

 
(2
%)

8


LPL Financial Holdings Inc.
Management's Statements of Operations Trend (3) 
(In thousands, except per share data)
(Unaudited)
 
Quarterly Results
 
Q3 2018

Q2 2018
 
Q1 2018
Gross Profit(3)
 
 
 
 
 
Sales-based commissions
$
193,545

 
$
196,530

 
$
187,233

Trailing commissions
293,330

 
291,555

 
287,578

Advisory
458,087

 
438,917

 
422,387

Commission and advisory fees
944,962

 
927,002

 
897,198

Commission and advisory expense
(821,950
)
 
(800,619
)
 
(761,697
)
Commission and advisory fees, net of payout
123,012

 
126,383

 
135,501

Cash sweep
127,174

 
121,386

 
104,084

Other asset-based(4)
121,721

 
117,217

 
115,252

Transaction and fee
118,941

 
116,455

 
116,649

Interest income and other
18,199

 
16,744

 
8,374

Total net commission and advisory fees and attachment revenue
509,047

 
498,185


479,860

Brokerage, clearing, and exchange expense
(15,844
)
 
(15,433
)
 
(15,877
)
Gross Profit(3)
493,203

 
482,752

 
463,983

 
 
 
 
 
 
G&A Expense
 
 
 
 
 
Core G&A(5)
209,244

 
192,148

 
201,039

Regulatory charges
7,421

 
8,321

 
6,440

Promotional
52,628

 
43,407

 
67,427

Employee share-based compensation
6,332

 
6,125

 
5,606

Total G&A
275,625

 
250,001

 
280,512

EBITDA(3)
217,578

 
232,751

 
183,471

Depreciation and amortization
22,838

 
22,220

 
20,701

Amortization of intangible assets
15,676

 
15,682

 
13,222

Non-operating interest expense
31,705

 
31,940

 
29,622

INCOME BEFORE PROVISION FOR INCOME TAXES
147,359

 
162,909

 
119,926

PROVISION FOR INCOME TAXES
40,494

 
44,143

 
26,396

NET INCOME
$
106,865

 
$
118,766

 
$
93,530

Earnings per share, diluted
$
1.19

 
$
1.30

 
$
1.01

Weighted-average shares outstanding, diluted
89,878

 
91,684

 
92,784


9


LPL Financial Holdings Inc.
Operating Measures(3) 
(Dollars in billions, except where noted) (Unaudited)
 
Q3 2018

Q2 2018

Change

Q3 2017
 
Change
Market Drivers
 
 
 
 
 
 
 
 
 
S&P 500 Index (end of period)
2,914

 
2,718

 
7%
 
2,519

 
16%
Fed Funds Daily Effective Rate (FFER) (average bps)
192

 
174

 
18bps
 
116

 
76bps
 
 
 
 
 
 
 
 
 
 
Assets
 
 
 
 
 
 
 
 
 
Advisory Assets(6)
$
306.1

 
$
291.5

 
5%
 
$
250.2

 
22%
Brokerage Assets(7)
374.9

 
367.5

 
2%
 
309.8

 
21%
Total Brokerage and Advisory Assets
$
681.0


$
659.1

 
3%
 
$
560.0

 
22%
Advisory % of Total Brokerage and Advisory Assets
44.9
%
 
44.2
%
 
70bps
 
44.7
%
 
20bps
 
 
 
 
 
 
 
 
 
 
Assets by Platform
 
 
 
 
 
 
 
 
 
Corporate Platform Advisory Assets(8)
$
184.8

 
$
173.9

 
6%
 
$
145.0

 
27%
Hybrid Platform Advisory Assets(9)
121.3

 
117.7

 
3%
 
105.2

 
15%
Brokerage Assets
374.9

 
367.5

 
2%
 
309.8

 
21%
Total Brokerage and Advisory Assets
$
681.0


$
659.1

 
3%
 
$
560.0

 
22%
 
 
 
 
 
 
 
 
 
 
Centrally Managed Assets
 
 
 
 
 
 
 
 
 
Centrally Managed Assets(10)
$
40.8

 
$
37.9

 
8%
 
$
29.3

 
39%
Centrally Managed % of Total Advisory Assets
13.3
%
 
13.0
%
 
30bps
 
11.7
%
 
160bps

10


LPL Financial Holdings Inc.
Operating Measures(3) 
(Dollars in billions, except where noted) (Unaudited)
 
Q3 2018
 
Q2 2018
 
Change
 
Q3 2017
 
Change
Net New Assets (NNA)
 
 
 
 
 
 
 
 
 
Net New Advisory Assets(11)
$
5.1

 
$
4.3

 
n/m
 
$
6.9

 
n/m
Net New Brokerage Assets(12)
(0.8
)
 
(1.9
)
 
n/m
 
(4.0
)
 
n/m
Total Net New Assets
$
4.4


$
2.5


n/m

$
2.9


n/m
 
 
 
 
 
 
 
 
 
 
Net Brokerage to Advisory Conversions(13)
$
1.7

 
$
1.8

 
n/m
 
$
1.9

 
n/m
Advisory NNA Annualized Growth(14)
7
%
 
6
%
 
n/m
 
12
%
 
n/m
Total NNA Annualized Growth(14)
3
%
 
2
%
 
n/m
 
2
%
 
n/m
 
 
 
 
 
 
 
 
 
 
Net New Advisory Assets
 
 
 
 
 
 
 
 
 
Corporate Platform Net New Advisory Assets(15)
$
5.9

 
$
3.8

 
n/m
 
$
4.0

 
n/m
Hybrid Platform Net New Advisory Assets(16)
(0.8
)
 
0.6

 
n/m
 
2.9

 
n/m
Total Net New Advisory Assets
$
5.1

 
$
4.3

 
n/m
 
$
6.9

 
n/m
Centrally Managed Net New Advisory Assets(17)
$
1.8

 
$
1.7

 
n/m
 
$
1.5

 
n/m
 
 
 
 
 
 
 
 
 
 
Cash Sweep Balances
 
 
 
 
 
 
 
 
 
Insured Cash Account Balances
$
21.0

 
$
21.7

 
(3%)
 
$
21.9

 
(4%)
Deposit Cash Account Balances
3.9

 
4.0

 
(3%)
 
4.1

 
(5%)
Money Market Account Cash Balances
3.3

 
2.9

 
14%
 
2.3

 
43%
Total Cash Sweep Balances
$
28.2

 
$
28.6

 
(1%)
 
$
28.3

 
—%
Cash Sweep % of Total Assets
4.1
%
 
4.3
%
 
(20bps)
 
5.1
%
 
(100bps)
 
 
 
 
 
 
 
 
 
 
Cash Sweep Average Fees
 
 
 
 
 
 
 
 
 
Insured Cash Account Average Fee - bps(18)
189

 
179

 
10
 
124

 
65
Deposit Cash Account Fee Average Fee - bps(18)
198

 
175

 
23
 
100

 
98
Money Market Account Average Fee - bps(18)
75

 
72

 
3
 
67

 
8
Total Cash Sweep Average Fee - bps(18)
178

 
168

 
10
 
116

 
62
 
 
 
 
 
 
 
 
 
 
Net Buy (Sell) Activity(19)
$
9.2

 
$
8.5

 
8%
 
$
6.9

 
33%

11


LPL Financial Holdings Inc.
Monthly Metrics(3) 
(Dollars in billions, except where noted)
(Unaudited)
 
 
September 2018
 
August 2018
 
Aug to Sep Change
 
July 2018
 
June 2018
Assets Served
 
 
 
 
 
 
 
 
 
 
Advisory Assets(6)
 
$
306.1

 
$
304.4

 
0.6%
 
$
298.5

 
$
291.5

Brokerage Assets(7)
 
374.9

 
374.4

 
0.1%
 
370.4

 
367.5

Total Brokerage and Advisory Assets
 
$
681.0

 
$
678.7

 
0.3%
 
$
668.9

 
$
659.1

 
 
 
 
 
 

 
 
 
 
Net New Assets
 
 
 
 
 
 
 
 
 
 
Net New Advisory Assets(11)
 
$
2.2

 
$
1.5

 
n/m
 
$
1.5

 
$
1.3

Net New Brokerage Assets(12)
 
0.5

 
(0.2
)
 
n/m
 
(1.1
)
 
(1.2
)
Total Net New Assets
 
$
2.7

 
$
1.3

 
n/m
 
$
0.4

 
$
0.1

Net Brokerage to Advisory Conversions(13)
 
$
0.5

 
$
0.6

 
n/m
 
$
0.5

 
$
0.5

 
 
 
 
 
 
 
 
 
 
 
Cash Sweep Balances
 
 
 
 
 
 
 
 
 
 
Insured Cash Account Balances
 
$
21.0

 
$
21.1

 
(0.5%)
 
$
21.4

 
$
21.7

Deposit Cash Account Balances
 
3.9

 
3.9

 
—%
 
3.8

 
4.0

Money Market Account Cash Balances
 
3.3

 
3.1

 
6.5%
 
2.9

 
2.9

Total Client Cash Sweep Balances
 
$
28.2

 
$
28.1

 
0.4%
 
$
28.2

 
$
28.6

 
 
 
 
 
 

 
 
 
 
Market Indices
 
 
 
 
 

 
 
 
 
S&P 500 Index (end of period)
 
2,914

 
2,902

 
0.4%
 
2,816

 
2,718

Fed Funds Effective Rate (average bps)
 
195

 
191

 
4bps
 
191

 
182


12


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

 
Q3 2018
 
Q2 2018
 
% Change
 
Q3 2017
 
% Change
Commission Revenue by Product
 
 
 
 
 
 
 
 
 
Variable annuities
$
201,075

 
$
196,496

 
2%
 
$
163,778

 
23%
Mutual funds
155,579

 
161,340

 
(4%)
 
131,339

 
18%
Alternative investments
6,331

 
6,704

 
(6%)
 
6,676

 
(5%)
Fixed annuities
47,117

 
46,116

 
2%
 
32,764

 
44%
Equities
19,082

 
19,388

 
(2%)
 
17,748

 
8%
Fixed income
32,144

 
30,898

 
4%
 
23,912

 
34%
Insurance
16,155

 
17,344

 
(7%)
 
17,338

 
(7%)
Group annuities
9,064

 
9,619

 
(6%)
 
9,319

 
(3%)
Other
328

 
180

 
82%
 
137

 
139%
Total commission revenue
$
486,875

 
$
488,085

 
—%
 
$
403,011

 
21%
 
 
 
 
 

 
 
 

Commission Revenue by Sales-based and Trailing Commission
 

 
 
 

Sales-based commissions
 
 
 
 
 
 
 
 
 
Variable annuities
$
57,491

 
$
57,095

 
1%
 
$
46,148

 
25%
Mutual funds
33,319

 
37,533

 
(11%)
 
30,638

 
9%
Alternative investments
1,822

 
1,805

 
1%
 
2,550

 
(29%)
Fixed annuities
40,040

 
39,333

 
2%
 
27,906

 
43%
Equities
19,082

 
19,388

 
(2%)
 
17,748

 
8%
Fixed income
25,757

 
24,474

 
5%
 
17,967

 
43%
Insurance
14,433

 
15,578

 
(7%)
 
15,906

 
(9%)
Group annuities
1,273

 
1,144

 
11%
 
1,098

 
16%
Other
328

 
180

 
82%
 
137

 
139%
Total sales-based commissions
$
193,545

 
$
196,530

 
(2%)
 
$
160,098

 
21%
Trailing commissions
 
 
 
 

 
 
 

Variable annuities
$
143,584

 
$
139,401

 
3%
 
$
117,630

 
22%
Mutual funds
122,260

 
123,807

 
(1%)
 
100,701

 
21%
Alternative investments
4,509

 
4,899

 
(8%)
 
4,126

 
9%
Fixed annuities
7,077

 
6,783

 
4%
 
4,858

 
46%
Fixed income
6,387

 
6,424

 
(1%)
 
5,945

 
7%
Insurance
1,722

 
1,766

 
(2%)
 
1,432

 
20%
Group annuities
7,791

 
8,475

 
(8%)
 
8,221

 
(5%)
Total trailing commissions
$
293,330

 
$
291,555

 
1%
 
$
242,913

 
21%
Total commission revenue
$
486,875

 
$
488,085

 
—%
 
$
403,011

 
21%



13


LPL Financial Holdings Inc.
Financial Measures(3) 
(Dollars in thousands, except where noted)
(Unaudited)
 
Q3 2018
 
Q2 2018
 
Change
 
Q3 2017
 
Change
Payout Rate
 
 
 
 
 
 
 
 
 
Base Payout Rate
83.02
%
 
82.98
%
 
4bps
 
83.01
%
 
1bps
Production Based Bonuses
3.36
%
 
2.81
%
 
55bps
 
3.04
%
 
32bps
GDC Sensitive Payout
86.38
%
 
85.79
%
 
59bps
 
86.05
%
 
33bps
Non-GDC Sensitive Payout
0.60
%
 
0.58
%
 
2bps
 
1.29
%
 
(69bps)
Total Payout Ratio
86.98
%
 
86.37
%
 
61bps
 
87.34
%
 
(36bps)
Production Based Bonuses Ratio (Trailing Twelve Months)
2.88
%
 
2.80
%
 
8bps
 
2.68
%
 
20bps

14


LPL Financial Holdings Inc.
Capital Management Measures(3) 
(Dollars in thousands, except where noted)
(Unaudited)
 
Q3 2018
 
Q2 2018
Credit Agreement EBITDA Trailing Twelve Months(3)(20)
 
 
 
Net income
$
383,259

 
$
334,536

Non-operating interest expense
122,161

 
116,975

Provision for income taxes
126,825

 
124,829

Loss on extinguishment of debt
—

 
1,268

Depreciation and amortization
85,897

 
85,055

Amortization of intangible assets
54,577

 
48,253

EBITDA(3)
$
772,719

 
$
710,916

Credit Agreement Adjustments:
 
 
 
Employee share-based compensation expense
$
22,274

 
$
20,882

Advisor share-based compensation expense
7,886

 
10,046

NPH run-rate EBITDA accretion(21)
92,000

 
92,000

Realized NPH EBITDA Offset(22)
(50,500
)
 
(27,500
)
NPH onboarding costs
70,132

 
71,639

Other(23)
17,294

 
15,644

Credit Agreement EBITDA Trailing Twelve Months(3)(20)
$
931,805

 
$
893,627

 
 
 
 
Cash Available for Corporate Use(24)
 
 
 
Cash at Parent
$
276,657

 
$
360,475

Excess Cash at Broker-Dealer subsidiary per Credit Agreement
105,578

 
76,941

Other Available Cash
9,373

 
8,958

Total Cash Available for Corporate Use
$
391,608

 
$
446,374

 
 
 
 
Credit Agreement Net Leverage
 
 
 
Total Debt (does not include unamortized premium)
$
2,385,000

 
$
2,388,750

Cash Available (up to $300 million)
300,000

 
300,000

Credit Agreement Net Debt
$
2,085,000

 
$
2,088,750

Credit Agreement EBITDA Trailing Twelve Months(20)
$
931,805

 
$
893,627

Credit Agreement Net Leverage Ratio
2.24
x
 
2.34
x

15


LPL Financial Holdings Inc.
Debt Schedule
(Dollars in thousands, except where noted)
(Unaudited)

Total Debt
 
Outstanding (end of period)
 
Current Applicable
Margin
 
Yield At Issuance
 
Interest Rate (end of period)
 
Maturity
Revolving Credit Facility(a)
 
$
—

 
LIBOR+125bps(b)
 
 
 
—
%
 
9/21/2022
Senior Secured Term Loan B
 
1,485,000

 
LIBOR+225 bps(b)
 
 
 
4.42
%
 
9/21/2024
Senior Unsecured Notes(c)
 
500,000

 
5.75% Fixed
 
5.750
%
 
5.75
%
 
9/15/2025
Senior Unsecured Notes(c)
 
400,000

(d)
5.75% Fixed
 
5.115
%
 
5.75
%
 
9/15/2025
Total / Weighted Average
 
$
2,385,000

 
 
 
 
 
4.92
%
 
 

(a)
The Revolving Credit Facility has a borrowing capacity of $500 million.
(b)
The LIBOR rate option is one-, two-, three- or six-month LIBOR rate and subject to an interest rate floor of 0 basis points.
(c)
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.
(d)
Does not include unamortized premium of approximately $10.5 million as of September 30, 2018.


16


LPL Financial Holdings Inc.
Key Business and Financial Metrics(3) 
(Dollars in thousands, except where noted)
(Unaudited)
 
Q3 2018

Q2 2018
 
Change
 
Q3 2017
 
Change
Advisors
 
 
 
 
 
 
 
 
 
Advisors
16,174

 
16,049

 
1
%
 
14,253

 
13
%
Net New Advisors
125

 
(18
)
 
n/m

 
(3
)
 
n/m

Annualized commission and advisory fees per Advisor(25)
$
235

 
$
231

 
2
%
 
$
213

 
10
%
Average Total Assets per Advisor ($ in millions)(26)
$
42.1

 
$
41.1

 
2
%
 
$
39.3

 
7
%
Transition assistance loan amortization($ in millions)(27)
$
19.2

 
$
18.1

 
6
%
 
$
13.9

 
38
%
Total client accounts (in millions)
5.4

 
5.4

 
—
%
 
4.7

 
15
%
 
 
 
 
 
 
 
 
 
 
Employees - period end
4,101

 
4,005

 
2
%
 
3,564

 
15
%
 
 
 
 
 
 
 
 
 
 
Productivity Metrics
 
 
 
 
 
 
 
 
 
Annualized Advisory Revenue as a percentage of Corporate Advisory Assets
1.05
%
 
1.05
%
 
—

 
1.04
%
 
1
bps
Gross Profit ROA(28)
29.2
bps
 
29.4
bps
 
(0.2
bps)
 
27.9
bps
 
1.3
bps
OPEX ROA(29)
18.6
bps
 
17.5
bps
 
1.1
bps
 
19.0
bps
 
(0.4
bps)
EBIT ROA(30)
10.6
bps
 
11.9
bps
 
(1.3
bps)
 
8.9
bps
 
1.7
bps
Production Retention Rate (YTD annualized)(31)
96.1
%
 
96.0
%
 
10
bps
 
94.6
%
 
150
bps
Recurring Gross Profit Rate (trailing twelve months) (32)
85.0
%
 
84.7
%
 
30
bps
 
82.2
%
 
280
bps
EBITDA as a percentage of Gross Profit
44.1
%
 
48.2
%
 
(410
bps)
 
40.3
%
 
380
bps
 
 
 
 
 
 
 
 
 
 
Capital Expenditure ($ in millions)
$
36.4

 
$
25.8

 
41
%
 
$
26.7

 
36
%
 
 
 
 
 
 
 
 
 
 
Share Repurchases
$
122.5

 
$
116.8

 
5
%
 
$
25.0

 
390