Lpl Financial Holdings Inc. · NASDAQ:LPLA
Lpl Financial — Q3 2021 Earnings Presentation
29 slides from Lpl Financial's earnings presentation, Oct 28, 2021
Slide 1: LPL Financial Holdings, Inc. Q3 2021 Earnings Key Metrics
LPL FINANCIAL HOLDINGS, INC. Q3 2021 EARNINGS KEY METRICS October 28, 2021 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 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 Advisory and Brokerage Assets ($ billions) Total Net New Assets(1) ($ billions) Total Advisory and Brokerage Assets Advisory Assets % of Total Assets Organic Total NNA Acquired Total NNA Organic Annualized Growth Rate $106.0 $1,112 $1,133
Slide 5: ...And solid financial results
...And solid financial results Gross Profit* ($ millions) EBITDA* ($ millions) YOY Change 280 YOY 602 631 25% 250 243 243 259 249 Change 576 579 575 586 239 225 10% 543 538 506 534 207 205 217 488 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q2 Q3 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q2 Q3 22% 2019 2020 2021 Prior to 2019 2020
Slide 6: Solid organic growth with Net New Asset growth rate of ~10% in Q3
We continued to drive solid organic growth with a Net New Asset growth rate of ~10% in Q3 and ~14% 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 Organic Brokerage
Slide 7: Waddell & Reed update: Completed onboarding with ~99% retention
Waddell & Reed update: Completed onboarding with ~99% retention Transaction Details at Signing Retention Update Financial Update Waddell & Reed’s wealth management client assets were Estimated Run-Rate EBITDA* expectation • On December 2nd, we signed an roughly flat in Q3, with greater retention r
Slide 8: We estimate reaching an annual EBITDA benefit of $85M+ by end of Q2 2022
We estimate reaching an annual EBITDA benefit of $85M+ by the end of Q2 2022 Oct. 28th 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 Si
Slide 9: We continue to scale and expand our Business Solutions portfolio
We continue to scale and expand our Business Solutions portfolio Business Solutions has grown to 2,598 subscriptions, more than double a year ago Annualized revenue from Business Solutions has increased to ~$25M Professional Services Business Optimizers • Digital and employee-powered solutions that
Slide 10: Centrally Managed Assets grew at a 18% organic growth rate in Q3
Centrally Managed Assets grew at a 18% organic growth rate in Q3 Centrally Managed Assets(7) ($ billions) Centrally Managed Net New Assets(8) ($ billions) Centrally Managed Assets Organic Centrally Managed NNA Centrally Managed Assets % of Total Advisory Assets Annualized Organic Growth Rate Cen
Slide 11: Net Buy (Sell) Activity was $17.6 billion in Q3, Payout Rate 87.1%
Net Buy (Sell) Activity was $17.6 billion in Q3, while the Payout Rate was 87.1% Net Buy (Sell) Activity(9) Payout Rate (%) Net Buy (Sell) Activity ($billions) Client Cash % of Total Advisory and Brokerage Assets 86.7 86.8 86.2 86.6 86.6 86.3 87.1 17.4 18.1 17.6 85.1 85.6 12.5 12.2 9.8 9.3 9.0 7.1
Slide 12: We continued to drive solid EBIT TTM ROA in Q3
We continued to drive solid EBIT TTM ROA in Q3 Average Total Advisory & Brokerage Assets ($ billions) Average Total Advisory & Brokerage Assets(10) Gross Profit* ROA(11) OPEX ROA(12) $998 $968 YOY SEQ Change Change $915 $904 32% 9% $835 Prior to Waddell $756 $784 $708 $720 $732 $682 31.4 bps 30.7
Slide 13: Q3 TTM Gross Profit ROA decreased year-over-year
Q3 TTM Gross Profit* ROA decreased year-over-year, primarily driven by lower interest rates Gross Profit* ROA(11) (bps) Net Advisory Fees & Commissions Other Asset-Based(14) Interest Income and Other, net Transaction & Fee, Net of BC&E Client Cash 31.4 30.7 30.4 29.3 27.9 26.8 9.5 9.2 8.8
Slide 14: OPEX TTM ROA remained roughly flat
OPEX TTM ROA remained roughly flat as we grow assets and manage expenses Total OPEX % of Assets(12) (bps) Core G&A* Promotional Employee Share-based Compensation D&A Expense (ex Amortization of Intangible Assets) Amortization of Intangible Assets Regulatory 18.7 18.3 18.3 18.2 0.9 17.8 1
Slide 15: Well positioned to benefit from rising interest rates on client cash balances
We are well positioned to benefit from rising interest rates on client cash balances Client Cash balances ($ billions) 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) Av
Slide 16: In Q3, we added a new ~$1 billion fixed rate ICA contract
In Q3, we added a new ~$1 billion fixed rate ICA contract ICA balances, including Money Market Overflow ($ billions) 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
Slide 17: Investing to drive organic growth while delivering long-term 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 2021 Core G&A* context • Our initial 2021 Core G&A* plans were for a range of $975 million to $1,000 million • Deliver operating leverage in core business
Slide 18: Our balance sheet remained strong in Q3
Our balance sheet remained strong in Q3… Corporate Cash ($ millions) Leverage Ratio Management Target Cash: (~$200M) Management Target Range: $340 (2x-2.75X) $282 $280 $278 $252 $266 $227 $236 2.26x $204 2.15x 2.16x 2.18x 2.07x 2.11x 2.05x 2.03x 2.00x Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q3 Q4 Q1 Q2 Q3 Q4 Q
Slide 19: We restarted share repurchases in Q3 with ~$40M purchased
...And we restarted share repurchases in Q3, focused on offsetting dilution, with ~$40M purchased in the quarter Share Repurchases and Dividends ($ millions) Share Repurchases Dividends Total Payout Ratio (As of 9/30/21) 93% 105% 101% 101% $310M $170 18% 17% 51% Remaining 16% 14% 15% $146 $151
Slide 20: Appendix
APPENDIX LPL Financial Member FINRA/SIPC 20
Slide 21: 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 Q2 2021 Q3 2021 Q2 2021 Q3 2021 Gross Profit* Advisory $ 846 $ 960 $ 779 $ 854 $ 68 $ 106 Sales-based commissions 250 240 241 231 9 8 Trailing commissions 349 371
Slide 22: Outlook Summary
Outlook Summary Q4 2021 Payout ratio increase of roughly 30 bps sequentially to ~87.4% Gross Profit Q4 2021 ICA yield decrease of ~5 bps sequentially Q4 2021 Transaction & Fee Revenue relatively in line with Q3 2021 Core G&A 2021 prior to Waddell & Reed of $990M to $1,000M 2021 for Wadde
Slide 23: Q3 Gross Profit increased 5% sequentially
Q3 Gross Profit* increased 5% sequentially Gross Profit* ($ millions) Net Advisory Fees & Commissions Other Asset-Based(14) Interest Income and Other, net Transaction & Fee, Net of BC&E Client Cash $631 $602 $586 $576 $579 $575 $543 $538 $91 $534 $90 $488 $506 $97 $10 $90 $91 $151 $11 $10
Slide 24: Q3 Total OPEX increased 10% sequentially, and 25% year-over-year
Q3 Total OPEX increased 10% sequentially, and 25% year-over- year Total OPEX(16) ($ millions) Core G&A* Promotional Employee Share-based Compensation D&A Expense (ex Amortization of Intangible Assets) Amortization of Intangible Assets Regulatory $431 $22 $391 $393 $38 $370 $18 $363 $362
Slide 25: Our Corporate and Hybrid Advisory platforms continue to grow
Our Corporate and Hybrid Advisory platforms continue to grow Corporate and Hybrid Advisory Platform Mix ($ billions) Corporate and Hybrid Advisory NNA Mix ($ billions) Hybrid Advisory Assets(17) Organic Hybrid Advisory NNA(19) Corporate Advisory Assets(18) Organic Corporate Advisory NNA(20)
Slide 26: Monthly metrics dashboard through September 2021
Monthly metrics dashboard through September 2021 Total Advisory and Brokerage Assets ($ billions) Total Net New Assets ($ billions) Total Advisory and Brokerage Assets Advisory Assets % Total YOY SEQ Core Organic NNA $73.8 $1,157 $1,133 Change Change Acquired NNA Annualized Organic Growth Rate
Slide 27: 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 on pages 5,
Slide 28: 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 29: 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
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