Lpl Financial Holdings Inc. · NASDAQ:LPLA
Lpl Financial — Q2 2021 Earnings Presentation
29 slides from Lpl Financial's earnings presentation, Jul 29, 2021
Slide 1: LPL Financial Holdings, Inc. Q2 2021 Earnings Key Metrics
LPL FINANCIAL HOLDINGS, INC. Q2 2021 EARNINGS KEY METRICS July 29, 2021 LPL Financial Member FINRA/SIPC 1
Slide 2: Notice to Investors: Safe Harbor Statement
Notice to Investors: Safe Harbor Statement Statements in this presentation regarding LPL Financial Holdings Inc.’s (together with its subsidiaries, the “Company”) future financial and operating results, growth, priorities, business strategies and outlook, including forecasts and statements relating
Slide 3: Notice to Investors: Non-GAAP Financial Measures
Notice to Investors: 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 some or all of this information to analyze the Company’s current performance,
Slide 4: We continue to drive long-term business growth...
We continue to drive long-term business growth... Total Advisory and Brokerage Assets ($ billions) Total Net New Assets(1) ($ billions) Total Advisory and Brokerage Assets Advisory Assets % of Total Assets Organic Total NNA Acquired Total NNA Organic Annualized Growth Rate YOY SEQ $106.0 $1,112
Slide 5: ...And solid financial results
...And solid financial results Gross Profit* ($ millions) EBITDA* ($ millions) YOY YOY Change Change 576 579 602 575 23% 268 280 268 18% 536 543 538 506 534 250 242 243 488 235 207 205 217 Prior to Prior to Waddell Waddell YOY YOY Change Change 18% 13% Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q2 Q2 Q3 Q4 Q1 Q2 Q3
Slide 6: Organic growth with Net New Asset growth rate of ~16% in Q2
We continued to drive solid organic growth with a Net New Asset growth rate of ~16% in Q2 and ~12% for the past year Total Net New Assets(1) ($ billions) Net New Advisory Assets(4) ($ billions) Net New Brokerage Assets(5) ($ billions) Organic Total NNA Organic Advisory NNA Organic Brokerage NN
Slide 7: Waddell & Reed update: retention improved to ~98%, run-rate EBITDA $85M+
Waddell & Reed update: Our estimated retention improved to ~98% and our expected run-rate EBITDA increased to $85M+ Transaction Details at Signing Retention Update Financial Update Waddell & Reed’s wealth management client assets Estimated Run-Rate EBITDA* expectations • On December 2nd, we signed a
Slide 8: We estimate reaching an annual EBITDA benefit of $85M+ by end of Q2 2022
We estimate reaching an annual EBITDA benefit of $85M+ by the end of Q2 2022 July 29th Q4 Q4 2020 2020 Q1 2021 Q1 2021 Q2 2021 Q2 2021 Q3 2021 Q3 2021 Q4 2021 Q4 2021 Q1 2022 Q1 2022 Q2 2022 Q2 2022 Transaction Signed Transaction Closed Advisors Onboarded (12/2/20) (4/30/21) (7/22/21) Transaction Si
Slide 9: We continue to scale and expand our Business Solutions portfolio
We continue to scale and expand our Business Solutions portfolio Business Solutions has grown to ~2,100 subscribers, more than double a year ago Annualized revenue from Business Solutions has increased to ~$20M Launched Resilience Plan on July 15, 2021 Professional Services Business Optimizers • Dig
Slide 10: Centrally Managed Assets grew at a 21% organic growth rate in Q2
Centrally Managed Assets grew at a 21% organic growth rate in Q2 Centrally Managed Assets(7) ($ billions) Centrally Managed NNA(8) ($ billions) Centrally Managed Assets Organic Centrally Managed NNA Centrally Managed Assets % of Total Advisory Assets YOY SEQ Annualized Organic Growth Rate Change
Slide 11: Net Buy (Sell) Activity was $18.1 billion in Q2, while the Payout Rate was 86.3%
Net Buy (Sell) Activity was $18.1 billion in Q2, while the Payout Rate was 86.3% Net Buy (Sell) Activity(9) Payout Rate (%) Net Buy (Sell) Activity ($billions) Client Cash % of Total Advisory and Brokerage Assets Q2 2021 Payout Rate prior 18.1 to Waddell was ~86.7% 17.4 86.5 86.7 86.8 86.2 86.6 86
Slide 12: We continued to drive solid EBIT ROA in Q2
We continued to drive solid EBIT ROA in Q2 Average Total Advisory & Brokerage Assets ($ billions) Average Total Advisory & Brokerage Assets(10) Gross Profit* ROA(11) OPEX ROA(12) Including Waddell Prior to Waddell YOY SEQ YOY SEQ $915 $904 Change Change Change Change $835 25% 10% 23% 8% $784 $732
Slide 13: Q2 TTM Gross Profit ROA decreased year-over-year, driven by lower interest rates
Q2 TTM Gross Profit* ROA decreased year-over-year, primarily driven by lower interest rates Gross Profit* ROA(11) (bps) Net Advisory Fees & Commissions Other Asset-Based(14) Interest Income and Other, net Transaction & Fee, Net of BC&E Client Cash 31.1 31.4 30.7 30.4 29.3 27.9 26.8 9.1 9.5
Slide 14: OPEX ROA continues to decrease as we grow assets and manage expenses
OPEX ROA continues to decrease as we grow assets and manage expenses Total OPEX % of Assets(12) (bps) Core G&A* Promotional Employee Share-based Compensation D&A Expense (ex Amortization of Intangible Assets) Amortization of Intangible Assets Regulatory 18.6 18.7 18.3 18.3 18.2 17.8 0.9
Slide 15: We are well positioned to benefit from rising interest rates
We are well positioned to benefit from rising interest rates Client Cash balances ($ billions) Annual potential Gross Profit* benefit from rising interest rates ICA Balances (EOP) DCA Balances (EOP) Money Market Account Balances (EOP) Purchased Money Market Funds (EOP) Average Fee Yield(15) • Ov
Slide 16: In Q2, we added ~$600 million of new fixed rate ICA contracts
In Q2, we added ~$600 million of new fixed rate ICA contracts ICA balances remain elevated Overflow balances provide capacity when balances spike Overflow ICA Balances ($B) • When elevated market volatility leads ICA balances to temporarily exceed our variable Variable ICA Balances ($B) contract
Slide 17: Investing to drive organic growth while delivering long-term operating leverage
We remain focused on investing to drive organic growth while delivering long-term operating leverage in our core business Long-term cost strategy 2021 Core G&A* context • Deliver operating leverage in core business • Our 2021 Core G&A* plans are for a range of $975M to $1,000M prior to Waddell & Ree
Slide 18: Our balance sheet remained strong in Q2
Our balance sheet remained strong in Q2… Corporate Cash ($ millions) Leverage Ratio Management Target Cash: Leverage increase in Q2 driven by (~$200M) Management Target Range: Waddell & Reed acquisition $340 $296 (2x-2.75X) $282 $280 $278 $252 2.26x $227 $236 $204 2.15x 2.16x 2.11x 2.05x 2.07x 2.0
Slide 19: We plan to restart share repurchases in Q3, estimating ~$40M per quarter
...And we plan to restart share repurchases in Q3, initially focused on offsetting dilution, estimating ~$40M per quarter Share Repurchases and Dividends ($ millions) Share Repurchases Dividends Total Payout Ratio (As of 6/30/21) 93% 105% 101% 101% 18% 17% 16% 14% 15% $350M $170 Remaining $146
Slide 20: Appendix
APPENDIX LPL Financial Member FINRA/SIPC 20
Slide 21: Q2 2021 Management P&L – in total, prior to Waddell, and Waddell standalone
Q2 2021 Management P&L – in total, prior to Waddell, and Waddell standalone Q2 2021 Management P&L LPL prior to Waddell $ in thousands LPL Total Waddell 2 standalone Gross Profit* Advisory $ 846 $ 779 $ 68 Sales-based commissions 250 241 9 Trailing commissions 349 336 13 Advisory fees and commission
Slide 22: Q2 Gross Profit increased 4% sequentially
Q2 Gross Profit* increased 4% sequentially Gross Profit* ($ millions) Net Advisory Fees & Commissions Other Asset-Based(14) Interest Income and Other, net Transaction & Fee, Net of BC&E Client Cash $602 $576 $579 $575 $536 $543 $538 $534 $90 $506 $97 $90 $488 $11 $151 $105 $9 $11 $162 $163
Slide 23: Q2 Total OPEX prior to Waddell & Reed increased 1% sequentially
Q2 Total OPEX prior to Waddell & Reed increased 1% sequentially, and 14% year-over-year Total OPEX(16) ($ millions) Core G&A* Promotional Employee Share-based Compensation D&A Expense (ex Amortization of Intangible Assets) Amortization of Intangible Assets Regulatory $391 $363 $362 $20 $
Slide 24: Our Corporate and Hybrid Advisory platforms continue to grow
Our Corporate and Hybrid Advisory platforms continue to grow Corporate and Hybrid Advisory Platform Mix ($ billions) Corporate and Hybrid Advisory NNA Mix ($ billions) Hybrid Advisory Assets(17) Organic Hybrid Advisory NNA(19) Corporate Advisory Assets(18) YOY SEQ Organic Corporate Advisory
Slide 25: Monthly metrics dashboard through June 2021
Monthly metrics dashboard through June 2021 Total Advisory and Brokerage Assets ($ billions) Total Net New Assets ($ billions) YOY SEQ Core Organic NNA Total Advisory and Brokerage Assets Advisory Assets % Total $73.8 Acquired Assets $1,063 $1,074 $1,112 Change Change Acquired NNA Annualized
Slide 26: Reconciliation
Reconciliation Gross Profit* Gross Profit* is a non-GAAP financial measure. Please see a description of gross profit under “Non-GAAP Financial Measures” on page 3 of this presentation for additional information. Set forth below is a calculation of Gross Profit* for the periods presented on pages 5,
Slide 27: Reconciliation
Reconciliation GAAP EPS to EPS Prior to Amortization of Intangible Assets and Acquisition Costs EPS Prior to Amortization of Intangible Assets and Acquisition Costs is a non-GAAP financial measure. Please see a description of EPS Prior to Amortization of Intangible Assets and Acquisition Costs under
Slide 28: Reconciliation
Reconciliation Core G&A to Total Operating Expense 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 presentation for additional information. Below are reconciliations of Core G&A to the Company’s total operating expe
Slide 29: Endnotes
Endnotes (1) In April 2020, the Company updated its definition of net new assets to include dividends plus interest, minus advisory fees (see FNs 4 and 5). Net new assets figures for periods prior to Q2 2020 appearing in this presentation have been recast using the updated definition. (2) Represents
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