Lpl Financial Holdings Inc. · NASDAQ:LPLA
Lpl Financial — Q2 2024 Earnings Presentation
43 slides from Lpl Financial's earnings presentation, Jul 25, 2024
Slide 1: LPL Financial Holdings Inc. Q2 2024 Investor Presentation
LPL FINANCIAL HOLDINGS INC. Q2 2024 INVESTOR PRESENTATION July 25, 2024 LPL Financial Member Member LPL Financial FINRA/SIPC 1 FINRA/SIPC
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, capabilities, and outlook, including forecasts and state
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: LPL investment highlights
LPL investment highlights 1 Industry leader in the advisor-mediated marketplace with scale and structural tailwinds 2 Horizontal expansion strategy with a goal of meeting all ~300,000† advisors where they are Vertical integration strategy, with significant capacity to invest in capabilities that enh
Slide 5: LPL overview
1 Industry leader in the advisor-mediated marketplace LPL overview Who we are Who we serve • We serve the advisor-mediated marketplace as the largest independent broker-dealer in the U.S.† and a top custodian ~23,500 Advisors ~$1.5T Assets • We provide advisors with the front-, middle- and back-offi
Slide 6: LPL by the numbers
1 Industry leader in the advisor-mediated marketplace LPL by the numbers Industry-leading scale Financial highlights Total Advisory and Brokerage Assets ($B) Total Organic Net New Assets (“NNA”) Gross Profit* Contribution (end of period) Annualized Growth(1) 3% 2% <1% 13% $1,498 Client cash 13.2%
Slide 7: We are a market leader with scale advantages and structural tailwinds
1 Industry leader in the advisor-mediated marketplace We are a market leader with scale advantages and structural tailwinds Growing demand Independent channel Market leader, with expanded for advice gaining share addressable marketsठ~2x Projected Growth in U.S. Retail Total U.S. Retail Advisor-Med
Slide 8: We are providing value-added capabilities that drive our market expansion
1 Industry leader in the advisor-mediated marketplace We are providing value-added capabilities that drive our market expansion Horizontal expansion strategy Vertical integration strategy Meet advisors and institutions where they are in Deliver advisors and institutions end-to-end the evolution of t
Slide 9: Our horizontal expansion strategy enables us to meet all ~300,000 advisors where they are
2 Horizontal expansion Our horizontal expansion strategy enables us to meet all ~300,000† advisors where they are ~300K advisors in the 2019 2020 2021 2022 2023 2024+ marketplace†: Independent ~50K advisors | $3T Traditional independent markets Hybrid RIAs ~35K advisors | $3T Enhanced RIA Strategic
Slide 10: We are a market leader in independent advisor channels, with a growing opportunity in the employee channel
2 Horizontal expansion We are a market leader in independent advisor channels, with a growing opportunity in the employee channel Organic NNA has driven the majority of Growing advisor opportunity Value proposition advisor asset growth ▪ Traditional Independent Model Advisor Assets ($B) ▪ Initially,
Slide 11: We provide a compelling value proposition for institutions to outsource their wealth business
2 Horizontal expansion We provide a compelling value proposition for institutions to outsource their wealth business Organic NNA has driven the majority Growing institution opportunity Value proposition of institution asset growth ▪ Enhanced client experience Institution Assets ($B) ▪ Initially, we
Slide 12: We are extending our vertical integration by solving for the needs of advisors at every stage
3 Vertical integration We are extending our vertical integration by solving for the needs of advisors at every stage of their practice Lifecycle of an advisor Value-added partner across entire lifecycle Entry Growth and expansion Practice optimization Sunsetting and transition Move to independence L
Slide 13: Our operating platform delivers industry-leading flexibility and integrated workflows
3 Vertical integration Our operating platform delivers industry-leading flexibility and integrated workflows Lead with choice and flexibility ClientWorks for advisors ▪ Promote optionality by integrating a broad array of third-party tools Establishing an integrated ecosystem of core capabilities, jo
Slide 14: Our Services Group is an innovation engine and driver of organic growth
3 Vertical integration Our Services Group is an innovation engine and driver of organic growth… Deepening our vertical integration Helping advisors and institutions deliver on their value proposition Asset Management Be A Great Advisor Clearing / Custody Comprehensive advice, prospect engagement Tra
Slide 15: Professional Services: ~6,200 subscriptions with broad adoption
3 Vertical integration …and has grown to ~6,200 subscriptions, with broad adoption across our diverse services • Digital and employee-powered solutions that help advisors and institutions Services Group Subscriptions (end of period) Advice Services expand the breadth and depth of their advice Planni
Slide 16: We provide a range of services to advisors and institutions, strengthening their business
3 Vertical integration We provide a range of services to advisors and institutions, strengthening their business while enhancing our returns We have seen a favorable mix shift in our platforms Key points ▪ Brokerage: Asset growth is driven by institutions, Services where asset mix is primarily broke
Slide 17: We are advancing our capabilities to enhance our value proposition and drive growth
3 Vertical integration We are advancing our capabilities to enhance our value proposition and drive growth Investment areas of focus We are making investments to drive organic growth… Annual Core G&A* ($M) Annual Core G&A* Growth Accelerate Invest in key growth initiatives to drive 13% 15% 6% 6.5% 8
Slide 18: We continued to drive solid organic growth with a net new asset growth rate of ~8%
3 Vertical integration We continued to drive solid organic growth with a net new asset growth rate of ~8% over the past year Total Organic Net New Assets(11)(12) ($B) Organic Net New Advisory Assets(13) ($B) Organic Net New Brokerage Assets(13) ($B) Total Organic NNA Organic Net New Advisory As
Slide 19: We benefit from rising market levels and interest rates, with natural hedges
4 Resilient business model with natural hedges to market volatility We benefit from rising market levels and interest rates, and our business model has natural hedges to market volatility Annual Gross Profit* Impact Market Levels (S&P 500) (14) Rising market levels drive growth in assets and ~$10M M
Slide 20: Our client cash balances are largely operational and stable across rate cycles
4 Resilient business model with natural hedges to market volatility Our client cash balances are largely operational and as a percent of client assets, have been stable across rate cycles We generate economics on client cash Client Cash Balances(17) (end of period, $B) through a third-party bank net
Slide 21: We generate compelling economics on client cash balances
4 Resilient business model with natural hedges to market volatility We generate compelling economics on client cash balances Client Cash Balances(17) (end of period, $B) Interest Rate Impact ◼ ICA Sweep ◼ DCA Sweep • Since Q1 2022, as the Fed started to increase interest rates, our deposit beta ◼ Mo
Slide 22: Fixed rate balances make up ~70% of the ICA portfolio
4 Resilient business model with natural hedges to market volatility Fixed rate balances make up ~70% of the ICA portfolio, reducing our sensitivity to movement in short-term interest rates ICA Balances, including Overflow (end of period, $B) Money Market Overflow Balances Overflow ICA Balances V
Slide 23: We remain focused on investing to drive organic growth while delivering operating leverage
5 Disciplined expense management driving operating leverage We remain focused on investing to drive organic growth while delivering long-term operating leverage in our core business Long-term cost strategy 2024 Core G&A* context • Deliver operating leverage in core business • Our 2024 Core G&A* outl
Slide 24: Our capital management strategy is focused on driving growth and maximizing shareholder value
6 Capital light business model with flexible allocation framework Our capital management strategy is focused on driving growth and maximizing shareholder value Our capital management principles Dynamic capital allocation framework ▪ Disciplined capital management to drive long-term shareholder value
Slide 25: Maintaining a strong balance sheet is critical to our strategy
6 Capital light business model with flexible allocation framework Maintaining a strong balance sheet is critical to our strategy and a key consideration for advisors and institutions Balance Sheet Principles Leverage Ratio(3) ▪ Maintain a strong balance sheet that can absorb market volatility while
Slide 26: We have significant capital deployment capacity
6 Capital light business model with flexible allocation framework We have significant capital deployment capacity… Capital Deployment Capacity Potential M&A capacity above our target range Above target 4 Willing to temporarily go above our target leverage range for attractive leverage range M&A oppo
Slide 27: And we have continued to return capital to shareholders
6 Capital light business model with flexible allocation framework …And we have continued to return capital to shareholders Share Repurchases and Dividends ($M) ◼ Share Repurchases ◼ Dividends $2B share repurchase authorization† Paused share $1,192 repurchases following the announcement of Repurchase
Slide 28: We see potential for consolidation given fragmented markets
6 Capital light business model with flexible allocation framework We see potential for consolidation given fragmented markets Addressable markets for Highly fragmented markets create opportunity advisor channel† for additional consolidation† Growth potential from consolidation Traditional Independen
Slide 29: Recent acquisitions have added scale, new markets, and new capabilities
6 Capital light business model with flexible allocation framework Recent acquisitions† have added scale in our traditional markets, accelerated our expansion into new markets, and added new capabilities Traditional Markets New Markets Capabilities 2021 2023‡ 2024 § 2023 2023 2020 ~$74B of assets ~$5
Slide 30: We're delivering liquidity and succession capabilities for advisors seeking to transition
6 Capital light business model with flexible allocation framework We’re delivering liquidity and succession capabilities for advisors seeking to transition Background: Solving a need in the marketplace Direct acquisition lifecycle example Advisor looking to sunset over 2-5 years ▪ ~1/3 of advisors a
Slide 31: As we continue to invest and increase our scale, we enhance our ability to drive further growth
As we continue to invest and increase our scale, we enhance our ability to drive further growth Incre Attract Invest in ase n sc sitio ale advisors and differentiated po in a capabilities and a ro institutions, and ss p et benefit from lue s, unique advisor and ad va institution greater use of vis s
Slide 32: We are focused on executing our strategy and delivering results
We are focused on executing our strategy and delivering results Total Advisory and Brokerage Assets(23) ($B) Total Organic Net New Asset Growth Key Earnings Growth Drivers 16% Up CAGR ~1.5x Enhanced Value Proposition (Capabilities, Technology, Service) $1,498 13.2% $1,354 $1,206 Increased Organic NN
Slide 33: Appendix
APPENDIX LPL Financial Member Member LPL Financial FINRA/SIPC 33 FINRA/SIPC
Slide 34: Summary of Strategic Relationship with Prudential Financial and Acquisition of Atria Wealth Solutions
Summary of Strategic Relationship with Prudential Financial and Acquisition of Atria Wealth Solutions Prudential Financial Atria Wealth Solutions ➢ On February 12, 2024, we signed an agreement to acquire 100% of the equity of Atria Wealth Solutions ➢ On August 24, 2023, we signed a strategic relatio
Slide 35: Prudential Financial: Annual EBITDA benefit of $60M+ when fully ramped
Prudential Financial: We estimate reaching an annual EBITDA* benefit of $60M+ when fully ramped Q3 2023 Q4 2023 Q1 2024 Q2 2024 Q3 2024 Q4 2024 Q1 2025 Q2 2025 Agreement Signed Advisors Onboarded Strategic Agreement Signing Advisor Transition Planning and Training Onboarding Costs Platform Buildout
Slide 36: Atria Wealth Solutions: Annual EBITDA benefit of ~$140M when fully ramped
Atria Wealth Solutions: We estimate reaching an annual EBITDA* benefit of ~$140M when fully ramped Q1 2024 Q2 2024 Q3 2024 Q4 2024 Q1 2025 Q2 2025 Q3 2025 Q4 2025 Transaction Signed Expected Closing Advisors Onboarded Transaction Signing and Closing Advisor Transition Planning and Training LPL Conso
Slide 37: Key drivers of promotional expense growth
Key drivers of promotional expense growth Promotional Expense ($M) $486 $354 Organic Growth investments increased by $288 ~$70M, primarily driven by our strong level of recruiting and the resulting transition assistance Organic Growth investments increased by Conferences increased by ~$20M due to ~$
Slide 38: Reconciliation: Gross Profit
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. Below is a calculation of gross profit* for the periods presented herein: $ in millions
Slide 39: Reconciliation: Net Income to EBITDA, Adjusted EBITDA and Credit Agreement EBITDA
Reconciliation Net Income to EBITDA*, Adjusted EBITDA* and Credit Agreement EBITDA* EBITDA*, Adjusted EBITDA* and Credit Agreement EBITDA* are non-GAAP financial measures. Please see a description of EBITDA*, Adjusted EBITDA* and Credit Agreement EBITDA* under “Non-GAAP Financial Measures” on page 3
Slide 40: Reconciliation: Adjusted EPS and Adjusted Net Income
Reconciliation Adjusted EPS* and Adjusted Net Income* Adjusted EPS* and adjusted net income* are non-GAAP financial measures. Please see a description of adjusted EPS* and adjusted net income* under “Non-GAAP Financial Measures” on page 3 of this presentation for additional information. Below are re
Slide 41: Reconciliation: Core G&A to Total Expense
Reconciliation Core G&A* to Total 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 is a reconciliation of total expense to Core G&A* and of Core G&A, prior to
Slide 42: Endnotes
Endnotes (1) Calculated as annualized current period organic net new assets divided by preceding period assets in their respective categories of advisory assets or total advisory and brokerage assets. (2) Calculated by dividing adjusted EBITDA* for the period by Gross Profit* for the period. (3) The
Slide 43: Endnotes
Endnotes (16) Annual benefit measured in total revenue. Based on variable client cash balances indexed to Fed Funds. (17) During the second quarter of 2022, the Company updated its definition of client cash balances to include client cash accounts and exclude purchased money market funds. Client cas
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