Lpl Financial Holdings Inc. · NASDAQ:LPLA

Lpl Financial — Q3 2022 Earnings Presentation

26 slides from Lpl Financial's earnings presentation, Oct 27, 2022

  1. Slide 1: Q3 2022 Earnings Key Metrics

    LPL FINANCIAL HOLDINGS INC. Q3 2022 EARNINGS KEY METRICS October 27, 2022 LPL Financial Member FINRA/SIPC 1

  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 this information to analyze the Company’s current performance, prospects and v

  4. Slide 4: Operating Metrics

    Operating Metrics Total Advisory and Brokerage Assets ($B) Total Net New Assets ($B)  Total Advisory and Brokerage Assets Advisory Assets % of Total Assets  Organic Total NNA Acquired Total NNA Organic Annualized Growth Rate YOY Change $106.0 $1,206 $1,163 15.5% $1,112 $1,133 $1,065 $1,038 (8%)

  5. Slide 5: Financial Results

    Financial Results Gross Profit* ($M) EBITDA* ($M) YOY YOY Change Change 33% 414 84% 838 711 311 631 643 669 267 579 602 243 243 225 225 506 534 205 217 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 2020 2021 2022 2020 2021 2022 Acquisition Costs: $2M $24M $36M $14M $13M $9M $7M EPS Prior to

  6. Slide 6: Net New Asset growth rate was ~7% in Q3 and ~9% for the past year

    Net New Asset growth rate was ~7% in Q3 and ~9% for the past year Total Organic Net New Assets ($B) Organic Net New Advisory Assets(3) ($B) Organic Net New Brokerage Assets(3) ($B)  Organic Total NNA  Organic Advisory NNA  Organic Brokerage NNA Organic Annualized Growth Rate Net Brokerage to

  7. Slide 7: Our Services Group has grown to ~4,200 subscriptions with annualized revenue of ~$34M in Q3

    Our Services Group has grown to ~4,200 subscriptions with annualized revenue of ~$34M in Q3 Planning and Advice Advice Services • Digital and employee-powered solutions that help advisors expand the Services Group Subscriptions Planning & breadth and depth of their advice Planning & Advice Services‡

  8. Slide 8: Centrally Managed Assets grew at a 10% organic growth rate in Q3

    Centrally Managed Assets grew at a 10% organic growth rate in Q3 Centrally Managed Assets(5) ($B) Centrally Managed Net New Assets(6) ($B)  Centrally Managed Assets  Organic Centrally Managed NNA Centrally Managed Assets % of Total Advisory Assets Annualized Organic Growth Rate YOY Change $7.8 $96

  9. Slide 9: Net Buy (Sell) Activity was $20B in Q3; the Payout Rate was 87.9%

    Net Buy (Sell) Activity was $20B in Q3; the Payout Rate was 87.9% Net Buy (Sell) Activity(7) ($B) Payout Rate (%)  Net Buy (Sell) Activity Client Cash % of Total Advisory and Brokerage Assets 87.1 87.6 87.0 87.9 86.6 86.6 85.6 86.3 86.1 20.3 17.4 18.1 17.6 16.0 12.2 11.0 9.3 5.3 ~87.1% average payo

  10. Slide 10: Service and Fee Revenue grew 16% year-over-year

    Service and Fee Revenue grew 16% year-over-year, as our advisor and account base continued to grow Service and Fee Revenue ($M) Transaction Revenue ($M) YOY Change 16% $122 $110 $113 $113 $105 $97 $99 $94 $88 $44 $47 $44 $43 $36 $38 $39 $32 $35 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 2

  11. Slide 11: EBIT ROA improved, primarily driven by cash sweep revenue

    EBIT ROA improved, primarily driven by cash sweep revenue Average Total Advisory & Brokerage Assets ($B)  Average Total Advisory & Brokerage Assets(8) Gross Profit* ROA(9) OPEX ROA(10) YOY SEQ Change Change $1,135 $1,144 $1,131 13% (1)% $1,079 $998 $915 $835 $756 $784 27.9 bps 26.8 bps 25.2 bps 25.

  12. Slide 12: Q3 Gross Profit ROA increased sequentially, driven by client cash revenue

    Q3 Gross Profit* ROA increased sequentially, primarily driven by an increase in client cash revenue Gross Profit* ROA(9) (bps)  Net Advisory Fees and Commissions  Other Asset-Based(12)  Transaction, Net of BC&E  Service and Fee  Interest Income and Other, net  Client Cash 27.9 26.8 25.2 25.3 2

  13. Slide 13: OPEX ROA increased in Q3 as we grow assets and manage expenses

    OPEX ROA increased in Q3 as we grow assets and manage expenses Total OPEX % of Assets(10) (bps)  Core G&A*  Promotional  Employee Share-based Compensation  D&A Expense (ex Amortization of Other Intangible Assets)  Amortization of Other Intangible Assets  Regulatory 17.8 17.5 0.9 0.9 16.7 16.5

  14. Slide 14: Cash sweep revenue and sensitivity to interest rates

    Cash sweep revenue and sensitivity to interest rates Client Cash Balances(13) ($B) Annual potential Gross Profit* benefit from rising interest rates ICA Sweep (EOP)  DCA Sweep (EOP)  Money Market Sweep (EOP) • Over the last interest rate cycle, our deposit beta averaged ~15% CCA (EOP) Average Yiel

  15. Slide 15: ICA balances continued to grow, as demand increased for fixed and variable contracts

    ICA balances continued to grow, as demand increased for both fixed and variable contracts ICA Balances, including Money Market Overflow ($B) Overflow balances provide capacity when balances spike Money Market Overflow Balances • Historically, when ICA balances exceeded our fixed and variable contra

  16. Slide 16: Our client cash balances are largely operational and decreased to 6.4% of total assets

    Our client cash balances are largely operational and decreased to 6.4% of total assets in Q3 Client Cash Balances(13) ($B) Client cash as a % of assets has averaged ~5% Client Cash percent of Total Assets 69.6 66.8 61.7 • Our client cash balances are largely operational 57.1 − Typically small balanc

  17. 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 2022 Core G&A* context • Deliver operating leverage in core business • Our most recent 2022 Core G&A* plans were for a range of $1,170M to $1,195M • Given

  18. Slide 18: Due to our improved earnings profile, we are lowering our target leverage range

    Due to our improved earnings profile, we are lowering our target leverage range Repositioning for Macroeconomic Conditions Leverage Ratio (17) • Continued growth, combined with an improved interest rate environment, meaningfully improved our earnings power – Prior Management Target Range Updated Man

  19. Slide 19: Our balance sheet remains strong...

    Our balance sheet remains strong... Corporate Cash(16) ($M) Leverage Ratio(17) Updated $424 Management Target Management Target Cash†: ~$200M Prior Management $340 Range: Target Range: 2x-2.75x $280 $278 $266 $270 $252 $237 $241 1.5x – 2.5x 2.15x 2.16x 2.11x 2.26x 2.18x 2.26x 2.16x 2.09x through the

  20. Slide 20: ...And we have continued to return capital to shareholders

    ...And we have continued to return capital to shareholders Share Repurchases and Dividends ($M)  Share Repurchases  Dividends $170 New share repurchase $146 $151 authorization of $2B represents $140 ~11% of our market capitalization† $95 $150 $125 $130 $120 Capital deployment focused $70 $70 $70 o

  21. Slide 21: Appendix

    APPENDIX LPL Financial Member FINRA/SIPC 21

  22. Slide 22: Corporate and Independent RIA Advisory assets

    Corporate and Independent RIA Advisory assets Corporate and Independent RIA Advisory Asset Mix ($B) Corporate and Independent RIA Advisory NNA Mix ($B)  Independent RIA Advisory Assets(19)  Organic Independent RIA  Advisory NNA(20)  Corporate Advisory Assets(19)  Organic Corporate Advisory

  23. Slide 23: Monthly metrics dashboard through September 2022

    Monthly metrics dashboard through September 2022 Total Advisory and Brokerage Assets ($B) Total Net New Assets ($B) YOY SEQ  Core Organic NNA  Acquired NNA Annualized Organic Growth Rate†  Total Advisory and Brokerage Assets Advisory Assets % Total Change Change 1,206 1,158 1,145 1,163 24.8 1,133

  24. Slide 24: 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. Below is a calculation of gross profit* for the periods presented herein: $ in millions

  25. Slide 25: 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

  26. Slide 26: Endnotes

    Endnotes (1) Represents the estimated total advisory and brokerage 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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