Lpl Financial Holdings Inc. · NASDAQ:LPLA

Lpl Financial — Q4 2019 Earnings Presentation

28 slides from Lpl Financial's earnings presentation, Jan 30, 2020

1. Slide 1: Q4 2019 Earnings Key Metrics

   Q4 2019 Earnings Key Metrics LPL Financial Holdings Inc. Q4 2019 Earnings January 30, 2020 Member FINRA/SIPC 1 LPL Financial Member FINRA/SIPC

2. 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

3. 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,

4. Slide 4: Our business continued to grow and shift towards advisory in Q4

   Our business continued to grow and shift towards advisory in Q4 Total Brokerage and Advisory Assets ($ billions) Advisory Assets as a percent of Total Assets 11% YOY SEQ YOY SEQ CAGR Change Change Change Change 47.8 2.9 pts 0.8 pts 764 22% 6% 47.0 681 628 684 706 719 46.4 615 648 659 45.0 44.9 45.6

5. Slide 5: Financial performance has steadily improved

   Financial performance has steadily improved Gross Profit* ($ millions) EBITDA* ($ millions) YOY SEQ YOY SEQ 16% Change Change 32% Change Change CAGR CAGR 556 536 543 538 6% -1% 276 268 508 250 242 4% -3% 464 483 493 233 218 232 403 183 139 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2017 2

6. Slide 6: Q4 Total Brokerage and Advisory Assets increased 22% year-over-year to $764 billion

   Q4 Total Brokerage and Advisory Assets increased 22% year-over-year to $764 billion, and Advisory Assets were 48% of total assets Total Brokerage and Advisory Assets ($ billions) Total Brokerage and Advisory Asset Mix  Hybrid Advisory Assets(3)  Corporate Advisory Assets(4)  Brokerage Assets(5) Y

7. Slide 7: Q4 Total Organic Net New Assets were an inflow of $8.8 billion

   Q4 Total Organic Net New Assets were an inflow of $8.8 billion Total Net New Assets ($ billions) Net New Advisory Assets(6) ($ billions) Net New Brokerage Assets(7) ($ billions)  Organic Total NNA  Organic Advisory NNA  Organic Brokerage NNA  Acquired Total NNA  Acquired Advisory NNA  Acquired

8. Slide 8: Q4 Corporate Advisory Assets increased 32% year-over-year to $228 billion

   Q4 Corporate Advisory Assets increased 32% year-over-year to $228 billion Corporate and Hybrid Advisory Platform Mix ($ billions) Corporate and Hybrid Advisory NNA Mix ($ billions)  Hybrid Advisory Assets(3)  Organic Hybrid Advisory NNA(9) YOY SEQ  Corporate Advisory Assets(4) Change Change  Org

9. Slide 9: Q4 Centrally Managed Assets increased 36% year-over-year to $52 billion

   Q4 Centrally Managed Assets increased 36% year-over-year to $52 billion Centrally Managed Assets(11) ($ billions) Centrally Managed NNA(12) ($ billions)  Centrally Managed Assets YOY SEQ  Organic Centrally Managed NNA Centrally Managed Assets % of Total Advisory Assets Change Change Organic Annual

10. Slide 10: Q4 LTM EBIT ROA was 12.4 basis points, up 1.5 basis points year-over-year

    Q4 LTM EBIT ROA was 12.4 basis points, up 1.5 basis points year-over-year Average Total Brokerage & Advisory Assets ($ billions)  Average Total Brokerage & Advisory Assets(13) Gross Profit* ROA(14) OPEX ROA(15) YOY SEQ Change Change $708 8% 4% $663 $672 $682 $641 $656 $610 $581 $551 30.8 bps 31.1 b

11. Slide 11: Q4 LTM Gross Profit ROA increased 1.0 basis point year-over-year

    Q4 LTM Gross Profit* ROA increased 1.0 basis point year-over-year Gross Profit* ROA(14) (bps)  Net Commission & Advisory Fees  Other Asset-Based(17)  Interest Income and Other, net  Transaction & Fee, Net of BC&E  Client Cash YOY SEQ Change Change 33.0 31.1 31.4 30.8 31.5 30.9 30.7 1.0 -0.7 28.

12. Slide 12: Q4 LTM Total OPEX ROA decreased 0.5 basis points year-over-year

    Q4 LTM Total OPEX ROA decreased 0.5 basis points year-over-year Total OPEX ROA(15) (bps)  Core G&A*  Promotional  Employee Share-based Compensation  D&A Expense (ex Amortization of Intangible Assets)  Amortization of Intangible Assets  Regulatory YOY SEQ Change Change 19.3 19.3 19.0 18.9 18.8

13. Slide 13: Q4 Client Cash yield was roughly flat year-over-year, fixed rate balances increased

    Q4 Client Cash yield was roughly flat year-over-year, and we increased fixed rate balances to over 50% of the ICA portfolio Client Cash balances ($ billions) Fixed rate portion of ICA portfolio ICA Balances (EOP)  DCA Balances (EOP)  Money Market Account Balances (EOP) Purchased Money Market Funds

14. Slide 14: Greater mix of fixed rate ICA balances reduced sensitivity to short-term rates

    Our move to a greater mix of fixed rate ICA balances reduced our sensitivity to movements in short-term rates ICA deposit beta history and outlook Annual financial impact of a Fed rate hike or cut  Deposit beta after Fed Funds target rate change Fed Funds rate target range (bps) 225-250 +/- ~$30M t

15. Slide 15: We are investing to drive growth

    We are investing to drive growth Long-term cost strategy Core G&A* context  Our 2019 Core G&A* was $868M, translating to a ~6% year-over-year  Focus on delivering operating leverage growth rate, which was within our updated outlook range of $860M to $870M  Prioritize investments that drive organi

16. Slide 16: Our balance sheet remained strong in Q4

    Our balance sheet remained strong in Q4… Cash Available for Corporate Use ($ millions) Credit Agreement Net Leverage Ratio Management Target Range (3.25x-3.5x) v 2.81x $474 $439 $446 $392 $376 $339 2.46x Management Target Range $296 2.34x v Management (2x-2.75X) Target Cash: 2.24x $227 2.15x $204 (~

17. Slide 17: And we have continued to return capital to shareholders

    …And we have continued to return capital to shareholders Shareholder Capital Returns ($ millions)  Share Repurchases  Dividends Total Payout Ratio as a % of EPS prior to Amortization of Intangible Assets* 107% 122% 107% 105% 75% 81% 87% 93% 101% (As of 12/31/19) $151 $500M $144 $146 $146 $140 Rema

18. Slide 18: Appendix

    Appendix 18 LPL Financial Member FINRA/SIPC

19. Slide 19: Monthly metrics dashboard through December 2019

    Monthly metrics dashboard through December 2019 Total Brokerage and Advisory Assets ($ billions) Total Net New Assets ($ billions)  Total Brokerage and Advisory Assets Advisory Assets % Total YOY SEQ  Total organic NNA Acquired NNA Annualized organic growth rate  Change Change $748 $764 22% 2% $6

20. Slide 20: Q4 Gross Profit increased 6% year-over-year

    Q4 Gross Profit* increased 6% year-over-year Gross Profit* ($ millions)  Net Commission & Advisory Fees  Other Asset-Based(17)  Interest Income and Other, net YOY SEQ  Transaction & Fee, Net of BC&E  Client Cash Change Change $556 $543 $538 6% -1% $536 $493 $508 $483 $464 $173 $162 $163 $155 5%

21. Slide 21: Q4 Total OPEX increased 8% year-over-year

    Q4 Total OPEX increased 8% year-over-year Total OPEX(26) ($ millions)  Core G&A*  Promotional  Employee Share-based Compensation  D&A Expense (ex Amortization of Intangible Assets) YOY SEQ Change Change  Amortization of Intangible Assets  Regulatory $333 $339 8% 2% $314 $314 $314 $319 $17 6% 2

22. Slide 22: Net Buy (Sell) Activity was $9.8 billion in Q4

    Net Buy (Sell) Activity was $9.8 billion in Q4 Net Buy (Sell) Activity(27)  Net Buy (Sell) Activity ($billions) Client Cash % of Total Brokerage and Advisory Assets 12.9 9.7 9.7 9.8 8.9 9.2 9.0 8.5 7.3 6.9 5.1% 5.1% 5.6% 4.8% 4.6% 4.3% 4.5% 4.3% 4.4% 4.1% 4.3% 2.3 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2

23. Slide 23: LTM EBITDA and margin have grown steadily over the past two years

    LTM EBITDA* and margin have grown steadily over the past two years LTM EBITDA* ($ millions)  LTM EBITDA* LTM EBITDA* Margin as a Percent of LTM Gross Profit*(28) YOY SEQ 30% Change Change CAGR $993 $1,026 $1,036 20% 1% $958 $866 $773 $711 $616 $648 47.0% 47.4% 47.9% 47.7% ~330 bps -~20 bps 40.9% 41

24. Slide 24: Calculation of Gross Profit

    Calculation of 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, 10,

25. Slide 25: Reconciliation of Net Income to EBITDA

    Reconciliation of Net Income to EBITDA EBITDA is a non-GAAP financial measure. Please see a description of EBITDA under “Non-GAAP Financial Measures” on page 3 of this presentation for additional information. Below are reconciliations of the Company’s net income to EBITDA for the periods presented o

26. Slide 26: Reconciliation of EPS Prior to Amortization of Intangible Assets to GAAP EPS

    Reconciliation of EPS Prior to Amortization of Intangible Assets to GAAP EPS 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 presentation f

27. Slide 27: Reconciliation of Core G&A to total operating expenses

    Reconciliation of Core G&A to total operating expenses 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

28. Slide 28: Footnotes

    Footnotes (1) 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

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