Lpl Financial Holdings Inc. · NASDAQ:LPLA
Lpl Financial — Q4 2018 Earnings Presentation
38 slides from Lpl Financial's earnings presentation, Feb 12, 2019
Slide 1: LPL Financial Investor Presentation Q4 2018
LPL Financial Investor Presentation Q4 2018 February 12, 2019 Member 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, strategies, plans, priorities, and outlook, including forecasts and statements relating t
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: LPL Overview
LPL Overview Mission Key Markets and Services Q4 2018 Metrics We take care of our advisors so they can ~$630B Retail Assets: Q4 Business Metrics LTM Financial Metrics take care of their clients • Brokerage: $346B Assets: $628B Average Assets: $656B • Corporate Advisory: $172B Recruited Assets(2): $8
Slide 5: We remain focused on growth and execution to create long-term shareholder value
We remain focused on growth and execution to create long- term shareholder value Grow our Core Business Execute with Excellence + Leverage the strength of our markets and model + Drive greater efficiency and productivity • Capitalize on secular trends • Continuously improve over time • Expand leader
Slide 6: LPL Investment Highlights: Significant opportunities to grow and create long-term shareholder value
LPL Investment Highlights: Significant opportunities to grow and create long-term shareholder value 1 Attractive market with secular industry tailwinds 2 Established market leader with scale advantages 3 Organic growth opportunities through net new assets and ROA 4 Positively levered to rising inter
Slide 7: Demand for financial advice is growing, and the independent channel is gaining share
1 Attractive market with secular industry tailwinds Demand for financial advice is growing, and the independent channel is gaining share Trend towards independence expected Growing demand for advice to continue Projected Growth in US Retail Investment Market ($T) The Independent channel continues to
Slide 8: We are a leader in our core markets and have room to grow
2 Established market leader with scale advantages We are a leader in our core markets and have room to grow (4) Our Core Markets IBD Channel Hybrid RIA Bank / Insurance Channels Pure RIA (5) ~$2.3 Tr ~$1.8 Tr ~$1 Tr ~$2.5 Tr LPL LPL Rest of ~13% LPL ~14% Rest of market ~8% market ~44% Rest of ~25% T
Slide 9: Total Net New Assets continued to grow organically in Q4
3 Organic growth opportunities through net new assets and ROA Total Net New Assets continued to grow organically in Q4 2018 Total Net New Assets ($ billions) Net New Advisory Assets(6) ($ billions) Net New Brokerage Assets(7) ($ billions) Organic Total NNA Organic Advisory NNA Organic Brokerage NNA
Slide 10: Increased recruiting and continued solid retention helped to drive greater organic growth
3 Organic growth opportunities through net new assets and ROA Increased recruiting and continued solid retention helped to drive greater organic growth Recruited Assets(2) ($ billions) Production Retention Rate(9) (YTD Annualized) $9.1 96% 96% 95% 96% $8.6 $8.1 $7.8 $6.0 $5.0 $4.1 $3.6 Q1 Q2 Q3 Q4 Q
Slide 11: We expect evolution in the future profile of winning advisor practices
3 Organic growth opportunities through net new assets and ROA We expect evolution in the future profile of winning advisor practices Today: Advisor as wealth manager Tomorrow: Advisor as personal CFO • Personalized approach • Advisors have a more Client centered on complex standardized approach to m
Slide 12: We are leveraging technology and our scale to bring innovation and enhanced performance to the front office
3 Organic growth opportunities through net new assets and ROA We are leveraging technology and our scale to bring innovation and enhanced performance to the front office Development of New LPL Front Office Services We are developing Virtual Services that enable efficiency and support growth Virtual
Slide 13: Our business continues to shift from brokerage to advisory
3 Organic growth opportunities through net new assets and ROA Our business continues to shift from brokerage to advisory Key points Total assets have grown and shifted to advisory Total Assets ($ billions)(10) Advisory Assets % of Total Assets Our business has been shifting from Brokerage to 10%
Slide 14: Centrally managed services have grown organically following pricing and capability enhancements
3 Organic growth opportunities through net new assets and ROA Centrally managed services have grown organically following pricing and capability enhancements Key points Centrally managed assets have grown Centrally Managed Assets(13) Centrally managed platforms enable our advisors to Centrally M
Slide 15: We are focused on driving growth in organic gross profit ROA
3 Organic growth opportunities through net new assets and ROA We are focused on driving growth in organic gross profit ROA While cash sweep has been the primary driver of our Gross Profit* ROA (15) … …We have opportunities to continue driving organic growth going forward 31.5 Cash Sweep Offerings 28
Slide 16: Cash sweep balances grew 24% in Q4, and we increased fixed rate balances to ~35% of the ICA portfolio
4 Positively levered to rising interest rates and equity markets Cash sweep balances grew 24% in Q4, 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
Slide 17: We benefit from rising interest rates
4 Positively levered to rising interest rates and equity markets We benefit from rising interest rates Our outlook translates to potential annual Gross Profit* benefit Our ICA deposit betas have been low through this rate cycle on floating rate ICA balances from future rate hikes Deposit beta afte
Slide 18: We also benefit from rising market levels
4 Positively levered to rising interest rates and equity markets We also benefit from rising market levels Key points S&P growth benefits our Gross Profit* Annual potential Gross Profit* benefit In 2018, we averaged ~$650B of total brokerage and advisory assets, up ~$100B from the prior year Incre
Slide 19: We are focused on generating operating leverage
5 Disciplined expense management driving operating leverage We are focused on generating operating leverage In 2018, Gross Profit ROA increased, and OPEX ROA This operating leverage has driven improved returns continued to decline and margins Average Total Brokerage and Advisory Assets (19) EBIT R
Slide 20: We plan to continue investing for growth in 2019
5 Disciplined expense management driving operating leverage We plan to continue investing for growth in 2019 Long-term cost strategy Core G&A* context Focus on delivering operating leverage 2018 Core G&A was $819M, including $2M related to AdvisoryWorld Prioritize investments that drive organi
Slide 21: We have increased investments in technology to drive growth
5 Disciplined expense management driving operating leverage We have increased investments in technology to drive growth Technology investment has been growing ~20% per year Strategic Context Technology Portfolio Spend in millions Our technology investments help deliver new capabilities to help ~20
Slide 22: We acquired AdvisoryWorld to accelerate the delivery of digital capabilities to help advisors grow
5 Disciplined expense management driving operating leverage We acquired AdvisoryWorld to accelerate the delivery of digital capabilities to help advisors grow and increase efficiency AdvisoryWorld is a leading provider of digital tools for advisors Acquisition strategic benefits Provides scalable
Slide 23: Our capital management strategy is focused on driving growth and maximizing shareholder value
6 Capital light business model with significant capacity to deploy Our capital management strategy is focused on driving growth and maximizing shareholder value Our capital management principles Dynamic capital allocation across options • Disciplined capital management to drive long-term shareholder
Slide 24: Our balance sheet strength is a key driver of our organic growth
6 Capital light business model with significant capacity to deploy Our balance sheet strength is a key driver of our organic growth Management Target Credit Agreement Net Leverage Ratio Credit Agreement Net Leverage Ratio Prior Management Target Level (4x) Prior Management Target Range (3.25x - 3.5
Slide 25: We have increased capital returns over time and recently increased our share repurchase authorization to $1 billion
6 Capital light business model with significant capacity to deploy We have increased capital returns over time and recently increased our share repurchase authorization to $1 billion Shareholder Capital Returns ($ millions) Share Repurchases Dividends $1B 122% Total Shareholder returns as a % of
Slide 26: We have a significant amount of capital deployment capacity
6 Capital light business model with significant capacity to deploy We have a significant amount of capital deployment capacity Potential M&A Capacity above our target range 4 Willing to temporarily go above our target leverage range for attractive M&A opportunities ~$1.0-1.2B (up to 2.75x leverage)
Slide 27: Our core markets are fragmented, with potential for consolidation
7 Opportunity to consolidate fragmented core markets through M&A Our core markets are fragmented, with potential for consolidation Fragmented core markets Growth potential from consolidation Share of Core Markets Our scale, capabilities, and economics give us Independent Smaller LPL (13%) arm of s
Slide 28: We are focused on executing our strategy and delivering results
We are focused on executing our strategy and delivering results Gross Profit ($ millions) EBITDA* as a percent of Gross Profit* 13% CAGR $1,948 44% $1,555 $1,358 $1,394 40% 36% 33% 2015 2016 2017 2018 2015 2016 2017 2018 EPS Prior to Amortization of Intangible Assets* ($) LPLA Stock Price ~110% ~$75
Slide 29: LPL Investment Highlights: Significant opportunities to grow and create long-term shareholder value
LPL Investment Highlights: Significant opportunities to grow and create long-term shareholder value 1 Attractive market with secular industry tailwinds 2 Established market leader with scale advantages 3 Organic growth opportunities through net new assets and ROA 4 Positively levered to rising inter
Slide 30: APPENDIX
APPENDIX 30
Slide 31: Total assets continue to increase driven by advisory growth
Total assets continue to increase driven by advisory growth Both brokerage and advisory assets have grown over time The mix of assets continues to shift towards advisory Brokerage Assets(23) Hybrid Advisory Assets(24) Corporate Advisory Assets(25) Brokerage Assets Hybrid Advisory Corpora
Slide 32: In Q4, client cash balance levels moved back in line with our long-term average
In Q4, client cash balance levels moved back in line with our long- term average Cash Sweep balances ($ billions) Cash Sweep percent of Total Assets 34.9 30.4 31.3 29.2 29.2 30.0 29.8 29.6 29.0 28.6 28.2 27.7 27.8 28.3 25.6 25.5 24.9 26.0 24.7 24.6 24.3 23.2 22.4 23.1 23.1 23.7 22.8 24.0 21.4 21.7 2
Slide 33: 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 page 4 and 2
Slide 34: Reconciliation of Core G&A to Total Operating Expense
Reconciliation of Core G&A to Total Operating 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 are reconciliations of Core G&A to the Company’s total operating e
Slide 35: 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
Slide 36: Reconciliation of Net Income to Credit Agreement EBITDA
Reconciliation of Net Income to Credit Agreement EBITDA Credit Agreement EBITDA is a non-GAAP financial measure. Please see a description of Credit Agreement EBITDA under “Non-GAAP Financial Measures” on page 3 of this presentation for additional information. Set forth below is a reconciliation from
Slide 37: 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
Slide 38: Endnotes
Endnotes (1) Based on total revenues, Financial Planning magazine June 1996-2018. (2) 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 lic
LPL Financial Holdings — Q4 2018 Earnings Presentation on 6ix