Lpl Financial Holdings Inc. · NASDAQ:LPLA

Lpl Financial — Q4 2018 Earnings Presentation

27 slides from Lpl Financial's earnings presentation, Jan 31, 2019

  1. Slide 1: Q4 2018 Earnings Key Metrics

    Q4 2018 Earnings Key Metrics LPL Financial Holdings Inc. Q4 2018 Earnings January 31, 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 11% YOY SEQ YOY SEQ CAGR Change Change Change Change 681 615 648 659 628 2% -8% 560 509 530 542 45 44 44 44 45 45 0.5 pts0.0 pts 44 43 42 Q4 Q1 Q2 Q

  5. Slide 5: Financial performance has steadily improved

    Financial performance has steadily improved Gross Profit* ($ millions) EBITDA* ($ millions) YOY SEQ YOY SEQ 21% Change Change 39% Change Change CAGR CAGR 233 218 232 67% 7% 508 26% 3% 464 483 493 183 389 387 403 170 156 347 376 152 139 119 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2016 2

  6. Slide 6: Q4 Total Brokerage and Advisory Assets increased 2% year-over-year to $628 billion

    Q4 Total Brokerage and Advisory Assets increased 2% year-over-year to $628 billion Total Brokerage and Advisory Assets ($ billions) Total Brokerage and Advisory Asset Mix  Hybrid Advisory Assets(5)  Corporate Advisory Assets(6)  Brokerage Assets(7) YOY SEQ  Hybrid Advisory  Corporate Advisory 

  7. Slide 7: Q4 Total Net New Assets were an inflow of $5.9 billion

    Q4 Total Net New Assets were an inflow of $5.9 billion Total Net New Assets ($ billions) Net New Advisory Assets(8) ($ billions) Net New Brokerage Assets(9) ($ billions)  Total NNA (Prior to NPH for Q4 ‘17, Q1 ‘18 and Q2 ‘18)  Advisory NNA (Prior to NPH for Q4 ‘17, Q1 ‘18 and Q2 ‘18)  Brokerage N

  8. Slide 8: Q4 Corporate Advisory Assets increased 8% year-over-year to $172 billion

    Q4 Corporate Advisory Assets increased 8% year-over-year to $172 billion Corporate and Hybrid Advisory Platform Mix ($ billions) Corporate and Hybrid Advisory NNA Mix ($ billions)  Hybrid Advisory Assets(5)  Hybrid Advisory NNA(11) YOY SEQ  Corporate Advisory Assets(6) Change Change  Corporate A

  9. Slide 9: Q4 Centrally Managed Assets increased 17% year over year to $38 billion

    Q4 Centrally Managed Assets increased 17% year over year to $38 billion Centrally Managed Assets(13) ($ billions) Centrally Managed NNA(14) ($ billions)  Centrally Managed Assets YOY SEQ  Centrally Managed NNA (Prior to NPH for Q4 ‘17, Q1 ‘18 and Q2 ‘18) Centrally Managed Assets % of Total Advisor

  10. Slide 10: Q4 EBIT ROA was 12.1 basis points, up 4.7 basis points year-over-year

    Q4 EBIT ROA was 12.1 basis points, up 4.7 basis points year-over-year Average Total Brokerage & Advisory Assets ($ billions)  Average Total Brokerage & Advisory Assets(15) Gross Profit* ROA(16) OPEX ROA(17) YOY SEQ Change Change $657 $676 $645 $646 10% -5% $586 $539 $554 $502 $525 31.5 bps 4.0 pts

  11. Slide 11: Q4 Gross Profit* ROA increased 4.0 basis points year-over-year

    Q4 Gross Profit* ROA increased 4.0 basis points year-over-year Gross Profit* ROA(16) (bps)  Net Commission & Advisory Fees and Interest Income and Other  Cash Sweep  Other Asset-Based(19)  Transaction & Fee, Net of BC&E YOY SEQ Change Change 31.5 4.0 2.3 28.7 28.8 28.8 29.4 29.2 27.6 27.9 27.5 6

  12. Slide 12: Q4 Total OPEX ROA decreased 0.7 basis points year-over-year

    Q4 Total OPEX ROA decreased 0.7 basis points year-over-year Total OPEX ROA(17) (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 20.5 20.1 0.8 19.4 19.5 19.4

  13. Slide 13: Q4 Cash Sweep yields increased 72 basis points year-over-year

    Q4 Cash Sweep yields increased 72 basis points year-over year, and we increased fixed rate balances to ~35% of the ICA portfolio Client Cash Sweep balances ($ billions) Fixed rate portion of ICA portfolio ICA Balances (EOP)  DCA Balances (EOP)  Money Market Balances (EOP) Average Fee Yield(27) $34

  14. Slide 14: Our deposit beta has remained low through this interest rate cycle

    Our deposit beta has remained low through this interest rate cycle, and was ~30% for the December 2018 rate hike Annual potential Gross Profit* benefit on floating rate ICA deposit beta history and outlook cash sweep balances  Deposit beta after Fed rate hike 225-250 Fed Funds rate target range (bp

  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  2018 Core G&A was $819M, including $2M related to  Focus on delivering operating leverage AdvisoryWorld  Prioritize investments that drive organic growth  Our original 2019 Core G&A outlook range was $845

  16. Slide 16: Our balance sheet remained strong in Q4…

    Our balance sheet remained strong in Q4… Cash Available for Corporate Use ($ millions) Credit Agreement Net Leverage Ratio $551 Management Target Level $527 $514 v (4x) $499 $474 $439 $446 Management Target Range $392 3.43x (3.25x-3.5x) 3.32x $339 3.21x v 3.08x Management Management Target Range Tar

  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 Shareholder returns as a % of EPS prior to Amortization of Intangible Assets 122% 107% 107% $1B Remaining 84% 79% 81% (as of 12/31/18) 75% 75% $144 $139 $139 47% $1

  18. Slide 18: Appendix

    Appendix 18 LPL Financial Member FINRA/SIPC

  19. Slide 19: Q4 Gross Profit* increased 26% year-over-year

    Q4 Gross Profit* increased 26% year-over-year Gross Profit* ($ millions)  Net Commission & Advisory Fees and Interest Income and Other  Cash Sweep  Other Asset-Based(19)  Transaction & Fee, Net of BC&E YOY SEQ Change Change $493 $508 26% 3% $483 $464 $103 $103 18% 0% $389 $387 $403 $101 $376 $10

  20. Slide 20: Q4 Total OPEX increased 6% year-over-year

    Q4 Total OPEX increased 6% year-over-year Total OPEX(17) ($ 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 6% 0% $294 $13 $288 $16 $16 5

  21. Slide 21: Q4 client cash sweep levels increased as net buy (sell) activity declined

    Q4 client cash sweep levels increased as net buy (sell) activity declined Net Buy (Sell) Activity(29)  Net Buy (Sell) Activity ($billions) Cash Sweep % of Total Brokerage and Advisory Assets 9.7 8.9 9.2 8.5 8.0 7.3 6.9 6.0% 5.8% 6.1% 5.7% 5.6% 5.1% 5.1% 4.8% 4.6% 4.8 4.6 4.3% 4.1% Q4 2018 Oct: 2.1

  22. Slide 22: 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*(30) YOY SEQ 31% Change Change CAGR $866 40% 12% $773 $711 $616 $648 $561 $597 $508 $523 44.4% ~480 bps ~250 bps 39.8% 39.6% 39.4% 40.9% 41.9%

  23. 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 5 and

  24. 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

  25. Slide 25: 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

  26. 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

  27. 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

LPL Financial Holdings — Q4 2018 Earnings Presentation on 6ix