Lpl Financial Holdings Inc. · NASDAQ:LPLA
Lpl Financial — Q4 2021 Earnings Presentation
31 slides from Lpl Financial's earnings presentation, Feb 3, 2022
Slide 1: LPL Financial Holdings Inc. Q4 2021 Earnings Key Metrics
LPL FINANCIAL HOLDINGS INC. Q4 2021 EARNINGS KEY METRICS February 3, 2022 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 this information to analyze the Company’s current performance, prospects and v
Slide 4: We continue to drive long-term business growth...
We continue to drive long-term business growth... Total Advisory and Brokerage Assets ($B) Total Net New Assets(1) ($B) Total Advisory and Brokerage Assets Advisory Assets % of Total Assets YOY SEQ Organic Total NNA Acquired Total NNA Organic Annualized Growth Rate Change Change $106.0 $1,206
Slide 5: ...And solid financial results
...And solid financial results Gross Profit* ($M) EBITDA* ($M) YOY Change YOY 280 631 643 20% 259 249 Change 579 602 575 586 592 243 243 538 576 534 239 207 205 217 225 225 222 4% 488 506 2% Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q2 Q3 Q4 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q2 Q3 Q4 2019 2020 2021 Prior to 2019 2020 202
Slide 6: Organic growth with Net New Asset growth rate of ~9% in Q4
We continued to drive solid organic growth with a Net New Asset growth rate of ~9% in Q4 and ~13% for the past year Total Organic Net New Assets(1) ($B) Organic Net New Advisory Assets(4) ($B) Organic Net New Brokerage Assets(5) ($B) Organic Total NNA Organic Advisory NNA Organic Brokerage N
Slide 7: Waddell & Reed update: Run-rate EBITDA expectations increased to $90M+
Waddell & Reed update: Run-rate EBITDA expectations increased to $90M+ Transaction Details at Signing Retention Update Financial Update Waddell & Reed’s wealth management client assets increased Estimated Run-Rate EBITDA* expectations • On December 2, 2020, we signed ~$3B compared to Q3 increased to
Slide 8: Estimated annual EBITDA benefit of $90M+ by end of Q2 2022
We estimate reaching an annual EBITDA benefit of $90M+ by the end of Q2 2022 Feb. 3rd 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 Sig
Slide 9: We continue to scale and expand our solutions portfolio
We continue to scale and expand our solutions portfolio We have expanded our overall solutions portfolio to now include Planning and Advice Services in addition to Business Solutions Business Solutions Planning and Advice Services Business Solutions has grown to ~3,000 subscriptions, with annualized
Slide 10: Centrally Managed Assets grew at a 20% organic growth rate in Q4
Centrally Managed Assets grew at a 20% organic growth rate in Q4 and are now nearly $100B Centrally Managed Assets(7) ($B) Centrally Managed Net New Assets(8) ($B) Centrally Managed Assets Organic Centrally Managed NNA Centrally Managed Assets % of Total Advisory Assets Annualized Organic Growth
Slide 11: Net Buy (Sell) Activity was $16B in Q4, Payout Rate 87.6%
Net Buy (Sell) Activity was $16B in Q4, while the Payout Rate was 87.6% Net Buy (Sell) Activity(9) Payout Rate (%) Net Buy (Sell) Activity ($B) Client Cash % of Total Advisory and Brokerage Assets 18.1 17.6 86.8 86.6 86.6 87.1 87.6 17.4 86.2 85.6 86.3 16.0 85.1 12.5 12.2 9.8 9.3 7.1% 5.9% 5.7% 5.4
Slide 12: Updated disclosures for greater transparency into revenues
We updated our disclosures to provide greater transparency into our revenues Transaction and Fee Revenue ($M) Service and Fee Revenue ($M) $105 $110 $94 $97 $99 $92 $89 $91 $88 $84 $150 $141 $140 $137 $137 $130 $121 $118 $119 $120 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2019 2020 2021 • Revenues from advisor
Slide 13: We continued to drive solid EBIT TTM ROA in Q4
We continued to drive solid EBIT TTM ROA in Q4 Average Total Advisory & Brokerage Assets ($B) Average Total Advisory & Brokerage Assets(10) Gross Profit* ROA(11) OPEX ROA(12) YOY SEQ Change Change $1,079 38% 8% $998 $915 $835 $756 $784 $708 $720 $732 30.7 bps 30.4 bps 29.3 bps 27.9 bps 26.8 bps 25
Slide 14: Q4 TTM Gross Profit ROA decreased year-over-year
Q4 TTM Gross Profit* ROA decreased year-over-year, primarily driven by lower interest rates Gross Profit* ROA(11) (bps) Net Advisory Fees & Commissions Other Asset-Based(14) Transaction, Net of BC&E Service & Fee Interest Income and Other, net Client Cash 30.7 30.4 29.3 27.9 26.8 9.2 8.8
Slide 15: OPEX TTM ROA remained roughly flat
OPEX TTM ROA remained roughly flat as we grow assets and manage expenses Total OPEX % of Assets(12) (bps) Core G&A* Promotional Employee Share-based Compensation D&A Expense (ex Amortization of Intangible Assets) Amortization of Intangible Assets Regulatory 18.3 18.3 18.2 17.8 17.5 0.9 0
Slide 16: Positioned to benefit from rising interest rates on client cash
We are well positioned to benefit from rising interest rates on client cash balances Client Cash balances ($B) 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 Fe
Slide 17: In Q4, client cash balances continued to grow
In Q4, client cash balances continued to grow ICA balances, including Money Market Overflow ($B) Overflow balances provide capacity when balances spike Overflow Money Market Balances • When ICA balances exceed our fixed and variable contract capacity, we use ICA and Overflow ICA Balances money m
Slide 18: Investing to drive organic growth while delivering 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 2022 Core G&A* context • Our 2021 Core G&A* was $1,058M, which was in the upper half of our outlook range of $1,045M • Deliver operating leverage in core
Slide 19: Our balance sheet remained strong in Q4
Our balance sheet remained strong in Q4… Corporate Cash ($M) Leverage Ratio Management Target Cash: (~$200M) Management Target Range: $340 (2x-2.75X) $282 $280 $278 $266 2.26x 2.26x $236 $252 $237 2.15x 2.16x 2.18x $204 2.11x 2.05x 2.07x 2.03x Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
Slide 20: We have continued to return capital to shareholders
...And we have continued to return capital to shareholders Share Repurchases and Dividends ($M) Share Repurchases Dividends Shareholder Payout Ratio (As of 12/31/21) 100% 115% 111% 109% 58% 65% $170 20% 19% 18% 15% 17% $260M $151 Remaining $146 $140 $150 $125 $130 $120 $70 Capital deployment fo
Slide 21: Appendix
APPENDIX LPL Financial Member FINRA/SIPC 21
Slide 22: Key drivers of promotional expense growth
Key drivers of promotional expense growth Promotional Expense ($M) 288 Context for 2022: 206 208 Organic Growth and M&A spend Organic Growth investments will be primarily increased by ~$55M, primarily driven by driven by our level of recruiting and the resulting transition assistance, and costs asso
Slide 23: Management P&L – in total, prior to Waddell, and Waddell standalone
Management P&L – in total, prior to Waddell, and Waddell standalone LPL Total LPL prior to Waddell Waddell standalone Q2 2021 Q3 2021 Q4 2021 Q2 2021 Q3 2021 Q4 2021 Q2 2021 Q3 2021 Q4 2021 Gross Profit* Advisory $ 846 $ 960 $ 997 $ 779 $ 854 $ 890 $ 68 $ 106 $ 108 Sales-based commissions 250 24
Slide 24: Outlook Summary
Outlook Summary Q1 2022 Payout rate decrease to ~86.5% Q1 2022 ICA yield decrease of a few bps sequentially Gross Profit Q1 2022 Service & Fee Revenue increase of a few million sequentially Q1 2022 Transaction Revenue relatively flat sequentially 2022 Core G&A of $1,135M to $1,160M Q1 20
Slide 25: Q4 Gross Profit increased 2% sequentially
Q4 Gross Profit* increased 2% sequentially Gross Profit* ($M) Net Advisory Fees & Commissions Other Asset-Based(14) Transaction, Net of BC&E Service & Fee Interest Income and Other, net Client Cash $631 $643 $602 $576 $579 $82 $538 $91 $534 $90 $12 $506 $97 $10 $488 $11 $151 $110 $105 $9
Slide 26: Q4 Total OPEX increased 8% sequentially, 28% year-over-year
Q4 Total OPEX increased 8% sequentially, and 28% year-over- year Total OPEX(16) ($M) Core G&A* Promotional Employee Share-based Compensation D&A Expense (ex Amortization of Intangible Assets) Amortization of Intangible Assets Regulatory $465 $430 $20 $22 $41 $391 $10 $38 $8 $363 $362 $20
Slide 27: Corporate and Hybrid Advisory platforms continue to grow
Our Corporate and Hybrid Advisory platforms continue to grow Corporate and Hybrid Advisory Platform Mix ($B) Corporate and Hybrid Advisory NNA Mix ($B) Hybrid Advisory Assets(17) Organic Hybrid Advisory NNA(19) Corporate Advisory Assets(18) Organic Corporate Advisory NNA(20) YOY SEQ Acquir
Slide 28: Monthly metrics dashboard through December 2021
Monthly metrics dashboard through December 2021 Total Advisory and Brokerage Assets ($B) Total Net New Assets ($B) YOY SEQ Core Organic NNA Total Advisory and Brokerage Assets Advisory Assets % Total Change Change Acquired NNA Annualized Organic Growth Rate 1,206 34% 1,112 1,130 1,157 1,133
Slide 29: 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 herein. $ in
Slide 30: Reconciliation
Reconciliation EPS Prior to Amortization of Intangible Assets and Acquisition Costs* and Adjusted Net Income* EPS prior to amortization of intangible assets and acquisition costs* and adjusted net income* are non-GAAP financial measures. Please see a description of EPS prior to amortization of intan
Slide 31: 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
LPL Financial Holdings — Q4 2021 Earnings Presentation on 6ix