Lpl Financial Holdings Inc. · NASDAQ:LPLA
Lpl Financial — Goldman Sachs Financials Conference 2022
38 slides from Lpl Financial's conference presentation, Dec 7, 2022
Slide 1: Goldman Sachs Financials Conference
GOLDMAN SACHS FINANCIALS CONFERENCE December 7, 2022 LPL Financial Member Member LPL Financial FINRA/SIPC 1 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, capabilities, and outlook, including forecasts and state
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
Slide 4: LPL Overview
LPL Overview Mission Key Markets and Services We take care of our advisors so they can take care of their clients $1.0T+ Client Assets: 21,000+ Advisors: • Advisory: $543B • Independent Advisors: 11,800+ • Brokerage: $496B • Independent RIA: 5,700+ (~500 firms) Vision • Institutional Services: 3,500
Slide 5: We continue to drive business and financial growth
We continue to drive business and financial growth EPS prior to amortization of Organic asset growth Operating margin has intangible assets and acquisition Total assets have nearly doubled has increased ~3x increased ~3 points costs* has increased ~3x Total Advisory and Brokerage Assets ($B) Organic
Slide 6: Our vision is to become the leader across the entire advisor-centered marketplace
Our vision is to become the leader across the entire advisor-centered marketplace PLAY PLAY PLAY PLAY 1 2 3 4 Meeting advisors where Helping advisors Delight advisors and their Helping advisors run the they are in the evolution differentiate and win end- clients with industry-leading most successful
Slide 7: LPL investment highlights: significant opportunities to grow and create long-term shareholder value
LPL investment highlights: significant opportunities to grow and create long-term shareholder value 1 Industry leader with scale, structural tailwinds, and expanded addressable markets 2 Investing to enhance the advisor value proposition and drive organic growth 3 Resilient business model with natur
Slide 8: We are a market leader with scale advantages and industry tailwinds
1 Industry leader with scale, structural tailwinds, and expanded addressable markets We are a market leader with scale advantages and industry tailwinds Growing Demand Independent Channel Leading Share in Expanding our for Advice Gaining Share Traditional Markets Addressable Markets‡ ($T) Projected
Slide 9: We are providing value-added capabilities that drive our market expansion
1 Industry leader with scale, structural tailwinds, and expanded addressable markets We are providing value-added capabilities that drive our market expansion Horizontal expansion strategy Vertical integration strategy Meet advisors where they are in their practice by Deliver advisors end-to-end sol
Slide 10: Our horizontal expansion strategy enables us to meet all 300,000 advisors where they are
1 Industry leader with scale, structural tailwinds, and expanded addressable markets Our horizontal expansion strategy enables us to meet all 300,000 advisors where they are ~300K advisors in the 2019 2020 2021 2022 2023+ marketplace: Independent ~55K advisors | $3T Traditional independent markets H
Slide 11: New affiliation models have expanded our addressable markets
1 Industry leader with scale, structural tailwinds, and expanded addressable markets New affiliation models have expanded our addressable markets Strategic Wealth Enhanced RIA Independent Employee • Provides comprehensive support for • Enables RIAs to leverage fully-integrated • Pairs the benefits o
Slide 12: We provide a compelling value proposition for enterprises to outsource their wealth business
1 Industry leader with scale, structural tailwinds, and expanded addressable markets We provide a compelling value proposition for enterprises to outsource their wealth business Organic NNA has driven the majority Our growing enterprise opportunity Our value drivers of Enterprise asset growth Enterp
Slide 13: We are advancing our capabilities to enhance our advisor value proposition and drive growth
2 Investing to enhance the advisor value proposition and drive organic growth We are advancing our capabilities to enhance our advisor value proposition and drive growth Investment areas of focus Increasing overall investment levels to drive organic growth… Annual Core G&A* ($M) Annual Core G&A* Gro
Slide 14: Advisory makes up the majority of our total assets
2 Investing to enhance the advisor value proposition and drive organic growth Advisory makes up the majority of our total assets Our business is shifting from brokerage to advisory The shift to advisory can create value Advisory Assets ($B) (7) Advisory % of Total Advisory and Brokerage Assets $643
Slide 15: Our Services Group has grown to ~4,200 subscriptions
2 Investing to enhance the advisor value proposition and drive organic growth Our Services Group has grown to ~4,200 subscriptions with annualized revenue of ~$34M in Q3 Planning and Advice Advice Services • Digital and employee-powered solutions that help advisors expand the Services Group Subscrip
Slide 16: Our operating platform delivers industry-leading flexibility and integrated workflows
2 Investing to enhance the advisor value proposition and drive organic growth Our operating platform delivers industry-leading flexibility and integrated workflows Lead with choice and flexibility Promote optionality by integrating a broad array of third-party tools Design and deliver proprietar
Slide 17: We continued to drive solid organic growth with a net new asset growth rate of ~9%
2 Investing to enhance the advisor value proposition and drive organic growth We continued to drive solid organic growth with a net new asset growth rate of ~9% for the past year Total Organic Net New Assets(9) ($B) Organic Net New Advisory Assets(10) ($B) Organic Net New Brokerage Assets(10) ($B)
Slide 18: We provide a range of services to advisors, strengthening their business while enhancing our returns
2 Investing to enhance the advisor value proposition and drive organic growth We provide a range of services to advisors, strengthening their business while enhancing our returns We have seen a favorable mix shift in our platforms Key points Brokerage: Asset growth is driven by Enterprises, Servic
Slide 19: We benefit from rising market levels and interest rates, with natural hedges to volatility
3 Resilient business model with natural hedges to market volatility We benefit from rising market levels and interest rates, and our business model has natural hedges to market volatility Annual Gross Profit* Impact Market Levels (S&P 500) Rising market levels drive growth in assets and ~$10M Macro
Slide 20: Our client cash balances are largely operational and stable across rate cycles
3 Resilient business model with natural hedges to market volatility Our client cash balances are largely operational and as a percent of client assets, have been stable across rate cycles Client Cash Balances(15) ($B) Client cash as a % of assets has averaged ~5%† Client Cash percent of Total Assets
Slide 21: We are well positioned to benefit from rising interest rates
3 Resilient business model with natural hedges to market volatility We are well positioned to benefit from rising interest rates Client Cash Balances(15) ($B) Annual potential Gross Profit* benefit from rising interest rates ICA Sweep (EOP) DCA Sweep (EOP) Money Market Sweep (EOP) Over the l
Slide 22: ICA balances continued to grow, as demand increased for both fixed and variable contracts
3 Resilient business model with natural hedges to market volatility ICA balances continued to grow, as demand increased for both fixed and variable contracts ICA Balances, including Money Market Overflow ($B) Overflow balances provide capacity when balances spike Money Market Overflow Balances O
Slide 23: As we look ahead to 2023, the environment is creating an opportunity to accelerate investments
4 Disciplined expense management driving operating leverage As we look ahead to 2023, the environment is creating an opportunity to accelerate investments to advance our strategic priorities Our long-term cost strategy is unchanged Initial 2023 Core G&A* considerations Our 2022 Core G&A* plans are
Slide 24: Our capital management strategy is focused on driving growth and maximizing shareholder value
5 Capital light business model with flexible allocation framework Our capital management strategy is focused on driving growth and maximizing shareholder value Our capital management principles Dynamic capital allocation framework Disciplined capital management to drive long-term shareholder value
Slide 25: We're delivering new liquidity and succession capabilities for advisors seeking to transition
5 Capital light business model with flexible allocation framework We’re delivering new liquidity and succession capabilities for advisors seeking to transition Background: Solving a need in the marketplace Direct acquisition lifecycle example ~1/3 of advisors are expected to retire or leave the in
Slide 26: Due to our improved earnings profile, we lowered our target leverage range
5 Capital light business model with flexible allocation framework Due to our improved earnings profile, we lowered our target leverage range Repositioning due to improved earnings profile Leverage Ratio(2) Continued growth, combined with an improved interest rate Updated Management Prior Managemen
Slide 27: We have significant capital deployment capacity
5 Capital light business model with flexible allocation framework We have significant capital deployment capacity… Capital Deployment Capacity Above target Potential M&A capacity above our target range leverage range 4 Willing to temporarily go above our target leverage range for attractive M&A oppo
Slide 28: And we have continued to return capital to shareholders
5 Capital light business model with flexible allocation framework …And we have continued to return capital to shareholders Share Repurchases and Dividends ($M) Share Repurchases Dividends Repurchased >10% of Q4 Planned Share Repurchases shares over 2018-2019 Q4 Planned Dividends $2B share repurc
Slide 29: We recently announced a new $2 billion share repurchase authorization
5 Capital light business model with flexible allocation framework We recently announced a new $2 billion share repurchase authorization to be completed over ~2 years Share Repurchases Key commentary Authorization Repurchase Authorization represents ~10% of our market We recently announced a new sh
Slide 30: We see potential for consolidation given fragmented markets
5 Capital light business model with flexible allocation framework We see potential for consolidation given fragmented markets Addressable markets Growth potential from consolidation Traditional Markets† Our scale, capabilities, and economics give us competitive advantages in M&A in independent mar
Slide 31: Recent acquisitions have added scale in our traditional markets and new capabilities
5 Capital light business model with flexible allocation framework Recent acquisitions† have added scale in our traditional markets, accelerated our expansion into new markets, and added new capabilities Traditional Markets New Markets Capabilities 2021 2020 2020 2019 2022 2020 ~$5B of assets Industr
Slide 32: As we continue to invest and increase our scale, we enhance our ability to drive further growth
As we continue to invest and increase our scale, we enhance our ability to drive further growth Invest in Attract assets differentiated and advisors, capabilities and a and benefit from unique advisor greater use of experience our services Long-term Shareholder Value Remain disciplined on expenses a
Slide 33: We are focused on executing our strategy and delivering results
We are focused on executing our strategy and delivering results Total Advisory and Brokerage Assets(22) ($B) Organic Net New Asset Growth Key Earnings Growth Drivers Up Enhanced Advisor Value Proposition 11% ~3x (Capabilities, Technology, Service) CAGR $1,206 13.2% $1,038 $903 Increased Organic NNA
Slide 34: Appendix
APPENDIX LPL Financial Member Member LPL Financial FINRA/SIPC 34 FINRA/SIPC
Slide 35: 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
Slide 36: 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 37: Reconciliation
Reconciliation Core G&A* to Total expense 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 is a reconciliation of total expense to Core G&A* and of Core G&A, prior to
Slide 38: 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
LPL Financial Holdings — Goldman Sachs Financials Conference 2022 on 6ix