Lpl Financial Holdings Inc. · NASDAQ:LPLA

Lpl Financial — Q2 2019 Earnings Presentation

28 slides from Lpl Financial's earnings presentation, Jul 25, 2019

1. Slide 1: Q2 2019 Earnings Key Metrics

   Q2 2019 Earnings Key Metrics LPL Financial Holdings Inc. Q2 2019 Earnings July 25, 2019 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

   Our business continued to grow and shift towards advisory Total Brokerage and Advisory Assets ($ billions) Advisory Assets as a percent of Total Assets 14% YOY SEQ YOY SEQ CAGR Change Change Change Change 681 684 706 7% 3% 615 648 659 628 45.6 46.4 2.1 pts 0.8 pts 542 560 44.7 44.4 45.0 44.9 43.7 43

5. Slide 5: Financial performance has steadily improved

   Financial performance has steadily improved Gross Profit* ($ millions) EBITDA* ($ millions) YOY SEQ YOY SEQ 17% Change Change 26% Change Change CAGR CAGR 556 536 11% -4% 276 268 15% -3% 508 464 483 493 233 218 232 389 387 403 170 156 183 139 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 2017

6. Slide 6: Q2 Total Brokerage and Advisory Assets increased 7% year-over-year to $706 billion

   Q2 Total Brokerage and Advisory Assets increased 7% year-over-year to $706 billion, and Advisory Assets were 46% of total assets Total Brokerage and Advisory Assets ($ billions) Total Brokerage and Advisory Asset Mix  Hybrid Advisory Assets(3)  Corporate Advisory Assets(4)  Brokerage Assets(5) YO

7. Slide 7: Q2 Total Net New Assets were an inflow of $4.0 billion

   Q2 Total Net New Assets were an inflow of $4.0 billion Total Net New Assets ($ billions) Net New Advisory Assets(6) ($ billions) Net New Brokerage Assets(7) ($ billions)  Organic Total NNA  Organic Advisory NNA  Organic Brokerage NNA Organic Annualized Growth Rate Organic Annualized Growth Rate O

8. Slide 8: Q2 Corporate Advisory Assets increased 16% year-over-year to $202 billion

   Q2 Corporate Advisory Assets increased 16% year-over-year to $202 billion Corporate and Hybrid Advisory Platform Mix ($ 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: Q2 Centrally Managed Assets increased 21% year over year to $46 billion

   Q2 Centrally Managed Assets increased 21% year over year to $46 billion Centrally Managed Assets(11) ($ 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: Q2 EBIT ROA was 13.2 basis points, up 1.3 basis points year-over-year

    Q2 EBIT ROA was 13.2 basis points, up 1.3 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 $676 $673 $694 6% 3% $645 $657 $646 $586 $539 $554 33.0 bps 31.5 bps 3

11. Slide 11: Q2 Gross Profit ROA increased 1.5 basis points year-over-year

    Q2 Gross Profit* ROA increased 1.5 basis points year-over-year Gross Profit* ROA(14) (bps)  Net Commission & Advisory Fees and Interest Income and Other, net  Other Asset-Based(17)  Transaction & Fee, Net of BC&E  Client Cash YOY SEQ Change Change 33.0 31.5 30.9 1.5 -2.1 28.8 28.8 29.4 29.2 27.9

12. Slide 12: Q2 Total OPEX ROA increased 0.2 basis points year-over-year

    Q2 Total OPEX ROA increased 0.2 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 20.1 19.5 19.4 18.5 19.0 0.7

13. Slide 13: Q2 Client Cash yield increased 49 basis points year-over-year

    Q2 Client Cash yield increased 49 basis points year-over year, and fixed balances made up ~40% 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) Based on the maturity profile of Pur

14. Slide 14: Our move to a greater mix of ICA fixed rate balances reduced our sensitivity

    Our move to a greater mix of ICA fixed rate 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 rate hike 225-250 Fed Funds rate target range (bps) 200-225 175-200 +/- ~$30M

15. Slide 15: We plan to continue investing for growth in 2019

    We plan to continue investing for growth in 2019 Long-term cost strategy Core G&A* context  We are executing well on our investment and efficiency plans  Focus on delivering operating leverage  Given results year-to-date, we tightened the Core G&A* range by $10M  Prioritize investments that driv

16. 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) $527 $514 v 3.21x $474 3.08x $439 $446 $392 $376 2.81x $339 Management Target Range $296 Management (2x-2.75X) v Target Cash: (~$200M) 2.46x

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* 122% 107% 107% 93% (As of 6/30/19) 87% 79% 81% 75% 75% $144 $146 $146 $750M $139 $139 Remaini

18. Slide 18: Appendix

    Appendix 18 LPL Financial Member FINRA/SIPC

19. Slide 19: Q2 Gross Profit increased 11% year-over-year

    Q2 Gross Profit* increased 11% year-over-year Gross Profit* ($ millions)  Net Commission & Advisory Fees and Interest Income and Other, net  Other Asset-Based(17) YOY SEQ  Transaction & Fee, Net of BC&E  Client Cash Change Change $556 $536 11% -4% $493 $508 $483 $464 $173 $162 34% -6% $389 $387

20. Slide 20: Updated and historical view of payout rate table

    Updated and historical view of payout rate table Updated payout rate table to move the mark-to-market impact from advisor deferred compensation into Interest Income and Other, net as the net impact on gross profit* is neutral. Updates: • Moved advisor deferred compensation from Non-GDC Sensitive Pay

21. Slide 21: Q2 Total OPEX increased 7% year-over-year

    Q2 Total OPEX increased 7% year-over-year Total OPEX(15) ($ 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 $314 $314 $314 $319 $307 7% -4% $294 $13 $16

22. Slide 22: Net Buy (Sell) Activity was $9.7 billion in Q2

    Net Buy (Sell) Activity was $9.7 billion in Q2 Net Buy (Sell) Activity(26)  Net Buy (Sell) Activity ($billions) Client Cash % of Total Brokerage and Advisory Assets 12.9 9.7 9.7 8.9 9.2 8.5 8.0 7.3 6.9 6.1% 5.7% 5.1% 5.1% 5.6% 4.8% 4.6% 4.3% 4.5% 4.1% 4.3% 3.4 2.3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 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*(27) YOY SEQ 33% Change Change CAGR $958 $993 40% 4% $866 $773 $711 $616 $648 $561 $597 47.0% 47.4% ~647 bps ~41 bps 40.9% 41.9% 44.4% 38.5% 3

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 and

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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