Lpl Financial Holdings Inc. · NASDAQ:LPLA
Lpl Financial — Q2 2020 Earnings Presentation
27 slides from Lpl Financial's earnings presentation, Jul 30, 2020
Slide 1: Q2 2020 Earnings Key Metrics
Q2 2020 Earnings Key Metrics LPL Financial Holdings Inc. Q2 2020 Earnings July 30, 2020 Member FINRA/SIPC 1 LPL Financial Member 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 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 Brokerage and Advisory Assets ($ billions) Advisory Assets as a percent of Total Assets YOY SEQ YOY SEQ Change Change Change Change 49.3 2.9 pts 1.2 pts 764 762 8% 14% 47.8 48.1 681 684 706 719 670 46.4 47.0 659 628 45.6 45.0 44.9 44.2 Q2 Q3 Q4 Q
Slide 5: …And solid financial results
…And solid financial results Gross Profit* ($ millions) EBITDA* ($ millions) 556 576 276 268 280 508 536 543 538 250 242 483 493 488 -9% -15%233 218 232 207 -23% -26% Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 2018 2019 2020 2018 2019 2020 EBITDA* as a % of Gross Profit* EPS Prior to Amor
Slide 6: Q2 Total Brokerage and Advisory Assets were $762B and over 49% Advisory
Q2 Total Brokerage and Advisory Assets were $762B and over 49% Advisory Total Brokerage and Advisory Assets ($ billions) Total Brokerage and Advisory Asset Mix Hybrid Advisory Assets(3) Corporate Advisory Assets(4) Brokerage Assets(5) YOY SEQ Hybrid Advisory Corporate Advisory Brokerage
Slide 7: Higher organic growth with Net New Asset growth rate of 7.8%
We continued to drive higher organic growth with an overall Net New Asset growth rate of 7.8% Total Net New Assets(6) ($ billions) Net New Advisory Assets(7) ($ billions) Net New Brokerage Assets(8) ($ billions) Organic Total NNA Organic Advisory NNA Organic Brokerage NNA Acquired Total NNA
Slide 8: We continue to drive higher organic advisory asset growth over time
We continue to drive higher organic advisory asset growth over time Corporate and Hybrid Advisory Platform Mix ($ billions) Corporate and Hybrid Advisory NNA Mix ($ billions) Hybrid Advisory Assets(3) Organic Hybrid Advisory NNA(10) YOY SEQ Corporate Advisory Assets(4) Change Change Organic
Slide 9: We grew Centrally Managed Assets at an 11% organic growth rate
We grew Centrally Managed Assets at an 11% organic growth rate Centrally Managed Assets(12) ($ billions) Centrally Managed NNA(13) ($ billions) Centrally Managed Assets YOY SEQ Organic Centrally Managed NNA Centrally Managed Assets % of Total Advisory Assets Change Change Organic Annualized Grow
Slide 10: We continued to drive solid EBIT ROA in Q2
We continued to drive solid EBIT ROA in Q2 Average Total Brokerage & Advisory Assets ($ billions) Average Total Brokerage & Advisory Assets(14) Gross Profit* ROA(15) OPEX ROA(16) YOY SEQ Change Change $708 $720 $732 9% 2% $656 $663 $672 $682 $641 $610 30.8 bps 31.1 bps 31.4 bps 30.7 bps 30.4 bps 2
Slide 11: Gross Profit ROA roughly flat year-over-year as asset growth offset lower rates
Gross Profit* ROA was roughly flat year-over-year, as asset growth was offset by the decline in interest rates Gross Profit* ROA(15) (bps) Net Commission & Advisory Fees Other Asset-Based(18) Interest Income and Other, net Transaction & Fee, Net of BC&E Client Cash YOY SEQ Change Change 30
Slide 12: OPEX % of Assets continued to decrease, primarily driven by Core G&A
OPEX % of Assets continued to decrease, primarily driven by Core G&A* Total OPEX ROA(16) (bps) Core G&A* Promotional Employee Share-based Compensation D&A Expense (ex Amortization of Intangible Assets) Amortization of Intangible Assets Regulatory 19.0 18.9 18.8 18.6 18.6 18.7 18.3 18.3 1
Slide 13: Client Cash balances remained elevated in Q2
Client Cash balances remained elevated in Q2 Client Cash balances ($ 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 ~$33B (with ~$13B of
Slide 14: Added ~$5B of new variable ICA capacity and ~$1B of fixed rate ICA contracts
In Q2, we added ~$5B of new variable ICA capacity and another ~$1B of fixed rate ICA contracts We target having 50-75% of our ICA portfolio in fixed rate balances Overflow balances provide capacity when balances spike Overflow ICA Balances ($B) • When elevated market volatility leads ICA balances to
Slide 15: 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 2020 Core G&A* plans are for a range of $915M to $940M (~5.5% to ~8% growth) Deliver operating leverage in core bus
Slide 16: Our balance sheet remained strong in Q2…
Our balance sheet remained strong in Q2… Cash Available for Corporate Use ($ millions) Credit Agreement Net Leverage Ratio Management Target Range (3.25x-3.5x) v $446 $392 $376 Management $339 Target Cash: Management Target Range $296 v $282 (~$200M) 2.34x (2x-2.75X) $227 $236 2.24x $204 2.15x 2.05x
Slide 17: Paused on share repurchases amid macro uncertainty
…And given our focus on preserving capital for organic growth and M&A, as well as the continued uncertainty of the macro environment, we remain paused on share repurchases Shareholder Capital Returns ($ millions) Share Repurchases Dividends Share repurchases were paused Total Payout Ratio as a %
Slide 18: Appendix
Appendix 18 LPL Financial Member FINRA/SIPC
Slide 19: Monthly metrics dashboard through June 2020
Monthly metrics dashboard through June 2020 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 $706 $713 $712 $719 $73
Slide 20: Q2 Gross Profit decreased 9% year-over-year, primarily due to lower interest rates
Q2 Gross Profit* decreased 9% year-over-year, primarily due to lower interest rates Gross Profit* ($ millions) Net Commission & Advisory Fees Other Asset-Based(18) Interest Income and Other, net Transaction & Fee, Net of BC&E Client Cash $576 $556 $543 $538 $536 $493 $508 $483 $488 -9% $15
Slide 21: Q2 Total OPEX decreased 4% sequentially, and increased 6% year-over-year
Q2 Total OPEX decreased 4% sequentially, and increased 6% year-over-year Total OPEX(23) ($ millions) Core G&A* Promotional Employee Share-based Compensation D&A Expense (ex Amortization of Intangible Assets) Amortization of Intangible Assets Regulatory $333 $339 $339 $319 $325 6% -4% $31
Slide 22: Net Buy (Sell) Activity was $12.5 billion in Q2
Net Buy (Sell) Activity was $12.5 billion in Q2, rebounding from volatile Q1 Net Buy (Sell) Activity(24) Net Buy (Sell) Activity ($billions) Client Cash % of Total Brokerage and Advisory Assets 12.9 12.5 9.7 9.7 9.8 9.2 9.0 8.5 7.3 7.1% 5.6% 5.9% 4.8% 4.6% 4.3% 4.5% 4.3% 4.3% 4.4% 4.1% 2.3 0.2 Q4
Slide 23: 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 4, 12,
Slide 24: 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
Slide 25: 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
Slide 26: 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
Slide 27: 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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