Lpl Financial Holdings Inc. · NASDAQ:LPLA

Lpl Financial — Q3 2020 Earnings Presentation

26 slides from Lpl Financial's earnings presentation, Oct 29, 2020

  1. Slide 1: Q3 2020 Earnings Key Metrics

    Q3 2020 Earnings Key Metrics LPL Financial Holdings Inc. Q3 2020 Earnings October 29, 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: 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 YOY SEQ  Organic Total NNA Acquired Total NNA Organic Annualized Growth Rate Change Change $1

  5. Slide 5: …And solid financial results

    …And solid financial results Gross Profit* ($ millions) EBITDA* ($ millions) 576 276 268 280 556 536 543 538 250 242 493 508 488 506 -7% 4% 218 232 207 205 -18% -1% Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 2018 2019 2020 2018 2019 2020 EBITDA* as a % of Gross Profit* EPS Prior to Amorti

  6. Slide 6: Solid organic growth with Net New Asset growth rate of nearly ~6% in Q3

    We continued to drive solid organic growth with an overall Net New Asset growth rate of nearly ~6% in Q3 and over ~7% 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  O

  7. Slide 7: 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(7)  Organic Hybrid Advisory NNA(9) YOY SEQ  Corporate Advisory Assets(8) Change Change  Organic Corporat

  8. Slide 8: We grew Centrally Managed Assets at a 14% organic growth rate

    We grew Centrally Managed Assets at a 14% organic growth rate 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 Annualized Growt

  9. Slide 9: We continued to drive solid EBIT ROA in Q3

    We continued to drive solid EBIT ROA in Q3 Average Total Advisory & Brokerage Assets ($ billions)  Average Total Advisory & Brokerage Assets(13) Gross Profit* ROA(14) OPEX ROA(15) YOY SEQ Change Change $732 $756 11% 3% $708 $720 $656 $663 $672 $682 $641 30.8 bps 31.1 bps 31.4 bps 30.7 bps 30.4 bps

  10. Slide 10: Gross Profit ROA decreased year-over-year, primarily driven by lower interest rates

    Gross Profit* ROA decreased year-over-year, primarily driven by lower interest rates 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 30.8 31.1 31.4 30.7 30.4 28.

  11. Slide 11: OPEX % of Assets continued to decrease, primarily driven by Core G&A

    OPEX % of Assets continued to decrease, primarily driven by Core G&A* Total OPEX % of Assets(15) (bps)  Core G&A*  Promotional YOY SEQ  Employee Share-based Compensation  D&A Expense (ex Amortization of Intangible Assets) Change Change  Amortization of Intangible Assets  Regulatory 18.9 18.8 1

  12. Slide 12: Q3 Client Cash balances increased 3% sequentially

    Q3 Client Cash balances increased 3% sequentially Client Cash balances ($ billions) Annual potential Gross Profit* benefit from rising interest rates ICA Balances (EOP)  DCA Balances (EOP)  Money Market Account Balances (EOP) Estimated Interest Rate Sensitivity with ICA Balances of ~$35B (with ~$1

  13. Slide 13: In Q3, ICA balances remained well above 2019 levels

    In Q3, ICA balances remained well above 2019 levels ICA balances remain elevated Overflow balances provide capacity when balances spike  Overflow ICA Balances ($B) • When elevated market volatility leads ICA balances to temporarily  Variable ICA Balances ($B) exceed our variable contract capacity,

  14. Slide 14: Investing to drive organic growth while staying flexible on spending

    We remain focused on investing to drive organic growth while also staying flexible to adjust spending if macro conditions warrant Long-term cost strategy 2020 Core G&A* context  Our original plans were for a range of $915M to $940M (~5.5% to ~8%  Deliver operating leverage in core business growth)

  15. Slide 15: Our balance sheet remained strong in Q3…

    Our balance sheet remained strong in Q3… Cash Available for Corporate Use ($ millions) Credit Agreement Net Leverage Ratio Management Target Range (3.25x-3.5x) v Management $392 $376 Target Cash: $339 (~$200M) Management Target Range $296 v $282 (2x-2.75X) $236 $252 2.24x $227 $204 2.15x 2.15x 2.05x

  16. Slide 16: …And we are currently prioritizing capital deployment to organic growth and M&A

    …And we are currently prioritizing capital deployment to organic growth and M&A Shareholder Capital Returns ($ millions)  Share Repurchases  Dividends Total Payout Ratio as a % of EPS prior to Amortization of Intangible Assets* (As of 9/30/20) 122% 107% 105% 87% 93% 101% 101% $350M $170 18% 17% Re

  17. Slide 17: Appendix

    Appendix 17 LPL Financial Member FINRA/SIPC

  18. Slide 18: Monthly metrics dashboard through September 2020

    Monthly metrics dashboard through September 2020 Total Advisory and Brokerage Assets ($ billions) Total Net New Assets ($ billions)  Total Advisory and Brokerage Assets Advisory Assets % Total YOY SEQ  Total Organic NNA Annualized Organic Growth Rate  Change Change $792 $823 $810 13% -1% $719 $73

  19. Slide 19: Q3 Gross Profit increased 4% sequentially

    Q3 Gross Profit* increased 4% sequentially, primarily due to net commission & advisory fees and other asset-based revenue Gross Profit* ($ millions)  Net Commission & Advisory Fees  Other Asset-Based(17)  Interest Income and Other, net  Transaction & Fee, Net of BC&E  Client Cash $576 $556 $543

  20. Slide 20: Q3 Total OPEX increased 6% sequentially, and 4% year-over-year

    Q3 Total OPEX increased 6% sequentially, and increased 4% year-over-year Total OPEX(20) ($ millions)  Core G&A*  Promotional  Employee Share-based Compensation  D&A Expense (ex Amortization of Intangible Assets)  Amortization of Intangible Assets  Regulatory $339 $339 $345 4% 6% $333 $325 $314

  21. Slide 21: Net Buy (Sell) Activity was $9.3 billion in Q3

    Net Buy (Sell) Activity was $9.3 billion in Q3 Net Buy (Sell) Activity(21)  Net Buy (Sell) Activity ($billions) Client Cash % of Total Advisory and Brokerage Assets 12.9 12.5 9.7 9.7 9.8 9.2 9.0 9.3 8.5 7.1% 5.6% 5.9% 5.7% 4.6% 4.3% 4.1% 4.5% 4.3% 4.3% 4.4% 2.3 0.2 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3

  22. Slide 22: 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, 9,

  23. Slide 23: 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

  24. Slide 24: Reconciliation of GAAP EPS to EPS Prior to Amortization of Intangible Assets

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

  25. Slide 25: 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

  26. Slide 26: Footnotes

    Footnotes (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) Represent

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