LPLA
$75.30
Lpl Financial Hld
$.95
1.28%
Earnings Details
2nd Quarter June 2020
Thursday, July 30, 2020 4:05:00 PM
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Summary

Lpl Financial Hld (LPLA) Recent Earnings

Lpl Financial Hld (LPLA) reported 2nd Quarter June 2020 earnings of $1.42 per share on revenue of $1.4 billion. The consensus earnings estimate was $1.31 per share on revenue of $1.4 billion. Revenue fell 1.7% compared to the same quarter a year ago.

LPL Financial Holdings Inc along with its subsidiaries provides brokerage and investment advisory services to independent and institutional financial advisors.

Results
Reported Earnings
$1.42
Earnings Whisper
-
Consensus Estimate
$1.31
Reported Revenue
$1.37 Bil
Revenue Estimate
$1.36 Bil
Growth
Earnings Growth
Revenue Growth
Power Rating
Grade
Earnings Release

LPL Financial Announces Second Quarter 2020 Results

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%)
Advisory523,370  481,309  9%  1,102,397  935,247  18% 
Asset-based247,067  288,551  (14%) 532,573  584,914  (9%)
Transaction and fee119,478  118,335  1%  256,574  240,815  7% 
Interest income, net of interest expense6,540  11,690  (44%) 16,082  24,011  (33%)
Other42,751  10,737  n/m  (8,467) 35,955  n/m 
Total net revenues1,366,659  1,389,757  (2%) 2,830,056  2,761,436  2% 
EXPENSES             
Commission and advisory859,847  838,022  3%  1,730,642  1,637,720  6% 
Compensation and benefits143,320  131,788  9%  290,122  268,700  8% 
Promotional44,540  41,423  8%  101,938  92,772  10% 
Depreciation and amortization26,890  22,584  19%  53,534  46,054  16% 
Amortization of intangible assets16,689  16,249  3%  33,259  32,417  3% 
Occupancy and equipment43,066  33,320  29%  82,612  66,426  24% 
Professional services13,620  18,837  (28%) 28,225  38,449  (27%)
Brokerage, clearing and exchange18,565  15,994  16%  35,589  32,138  11% 
Communications and data processing14,361  12,532  15%  25,196  24,859  1% 
Other22,194  29,975  (26%) 48,422  56,378  (14%)
Total operating expenses1,203,092  1,160,724  4%  2,429,539  2,295,913  6% 
Non-operating interest expense and other26,289  33,957  (23%) 55,607  66,673  (17%)
INCOME BEFORE PROVISION FOR INCOME TAXES137,278  195,076  (30%) 344,910  398,850  (14%)
PROVISION FOR INCOME TAXES35,616  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, basic78,940 83,247 (5%) 79,223 83,869 (6%)
Weighted-average shares outstanding, diluted80,127 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 
Advisory523,370  579,027  533,259 
Asset-based247,067  285,506  288,925 
Transaction and fee119,478  137,096  118,291 
Interest income, net of interest expense6,540  9,542  10,966 
Other42,751  (51,218) 19,534 
Total net revenues1,366,659  1,463,397  1,447,895 
EXPENSES     
Commission and advisory859,847  870,795  893,831 
Compensation and benefits143,320  146,802  149,128 
Promotional44,540  57,398  51,050 
Depreciation and amortization26,890  26,644  25,663 
Amortization of intangible assets16,689  16,570  16,631 
Occupancy and equipment43,066  39,546  35,320 
Professional services13,620  14,605  17,772 
Brokerage, clearing and exchange expense18,565  17,024  15,927 
Communications and data processing14,361  10,835  12,465 
Other22,194  26,228  30,569 
Total operating expenses1,203,092  1,226,447  1,248,356 
Non-operating interest expense and other26,289  29,318  31,384 
Loss on extinguishment of debt    3,156 
INCOME BEFORE PROVISION FOR INCOME TAXES137,278  207,632  164,999 
PROVISION FOR INCOME TAXES35,616  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, basic78,940 79,507 80,701
Weighted-average shares outstanding, diluted80,127 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 commissions267,941  275,053  (3%) 275,604  (3%)
Advisory523,370  579,027  (10%) 481,309  9% 
Commission and advisory fees950,823  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 payout130,870  161,636  (19%) 129,266  1% 
Client cash116,266  151,398  (23%) 161,815  (28%)
Other asset-based(7)130,801  134,108  (2%) 126,736  3% 
Transaction and fee119,478  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 revenue506,812  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 charges6,115  6,157  n/m  8,632  n/m 
Promotional44,540  57,398  (22%) 41,423  8% 
Employee share-based compensation8,040  8,648  (7%) 7,306  10% 
Total G&A281,101  295,414  (5%) 267,875  5% 
EBITDA(5)207,146  280,164  (26%) 267,866  (23%)
Depreciation and amortization26,890  26,644  1%  22,584  19% 
Amortization of intangible assets16,689  16,570  1%  16,249  3% 
Non-operating interest expense and other26,289  29,318  (10%) 33,957  (23%)
INCOME BEFORE PROVISION FOR INCOME TAXES137,278  207,632  (34%) 195,076  (30%)
PROVISION FOR INCOME TAXES35,616  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, diluted80,127 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 commissions267,941  275,053  282,940 
Advisory523,370  579,027  533,259 
Commission and advisory fees950,823  1,082,471  1,010,179 
Production based payout(6)(819,953) (920,835) (876,654)
Commission and advisory fees, net of payout130,870  161,636  133,525 
Client cash116,266  151,398  155,322 
Other asset-based(7)130,801  134,108  133,603 
Transaction and fee119,478  137,096  118,291 
Interest income and other, net (8)9,397  8,364  13,323 
Total net commission and advisory fees and attachment revenue506,812  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 charges6,115  6,157  7,893 
Promotional44,540  57,398  51,050 
Employee share-based compensation8,040  8,648  7,179 
Total G&A281,101  295,414  296,304 
EBITDA(5)207,146  280,164  241,833 
Depreciation and amortization26,890  26,644  25,663 
Amortization of intangible assets16,689  16,570  16,631 
Non-operating interest expense and other26,289  29,318  31,384 
Loss on extinguishment of debt    3,156 
INCOME BEFORE PROVISION FOR INCOME TAXES137,278  207,632  164,999 
PROVISION FOR INCOME TAXES35,616  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, diluted80,127 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 Assets49.3% 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 Assets386.4  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 Assets14.5% 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 Balances7.7  8.7  (11%) 4.3  79%
Total Insured Sweep Balances40.8  43.2  (6%) 25.5  60%
Money Market Account Cash Balances1.6  1.8  (11%) 3.5  (54%)
Purchased Money Market Funds2.8  2.8  —% 1.0  180%
Total Money Market Balances4.5  4.6  (2%) 4.5  —%
Total Client Cash Balances$45.3  $47.8  (5%) $30.1  50%
Client Cash Balances % of Total Assets5.9% 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 funds133,800  156,156  (14%) 149,380  (10%)
Fixed income18,463  29,125  (37%) 24,604  (25%)
Equities27,985  37,421  (25%) 19,700  42%
Other29,568  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 funds29,716  45,534  (35%) 38,095  (22%)
Fixed income18,463  29,125  (37%) 24,604  (25%)
Equities27,985  37,421  (25%) 19,700  42%
Other19,061  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 funds104,084  110,622  (6%) 111,285  (6%)
Other10,507  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 Rate82.64% 82.70% (6bps) 83.39% (75bps)
Production Based Bonuses3.59% 2.37% 122bps 3.15% 44bps
Total Payout Ratio86.24% 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 Agreement77,292  86,897 
Other Available Cash19,991  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 Available282,325  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 Ratio2.03x 2.07x


  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         
Advisors16,973 16,763 1% 16,161 5%
Net New Advisors210  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 end4,585 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)29.3bps 30.4bps (1.1bps) 31.1bps (1.8bps)
OPEX as a % of Brokerage and Advisory Assets (31)18.2bps 18.3bps (0.1bps) 18.6bps (0.4bps)
EBIT ROA (32)11.1bps 12.2bps (1.1bps) 12.5bps (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 Profit42.4% 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, Diluted80.1  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 expense39,894  (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 revenue42,751  (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 charges6,115  6,157  7,893  8,632 
Promotional44,540  57,398  51,050  41,423 
Employee share-based compensation8,040  8,648  7,179  7,306 
Total G&A281,101  295,414  296,304  267,875 
Commissions and advisory859,847  870,795  893,831  838,022 
Depreciation & amortization26,890  26,644  25,663  22,584 
Amortization of intangible assets16,689  16,570  16,631  16,249 
Brokerage, clearing and exchange18,565  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 expense118,935  126,603 
Provision for income taxes172,202  185,570 
Loss on extinguishment of debt3,156  3,156 
Depreciation and amortization103,259  98,953 
Amortization of intangible assets66,176  65,736 
 EBITDA$979,421  $1,040,141 
Credit Agreement Adjustments:   
Employee share-based compensation expense$31,281  $30,547 
Advisor share-based compensation expense2,495  2,679 
Other13,700  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 Assets16,689 
Tax Benefit (4,673)
Amortization of Intangible Assets Net of Tax Benefit$12,016 
Diluted Share Count80,127 
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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Source: LPL Financial Holdings, Inc.