Lpl Financial Holdings Inc. · NASDAQ:LPLA
Lpl Financial — Q2 2023 Earnings Presentation
39 slides from Lpl Financial's earnings presentation, Jul 27, 2023
Slide 1: LPL Financial Holdings Inc. Q2 2023 Investor Presentation
LPL FINANCIAL HOLDINGS INC. Q2 2023 INVESTOR PRESENTATION July 27, 2023 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 investment highlights
LPL investment highlights 1 Industry leader in the advisor-mediated marketplace with scale and structural tailwinds 2 Horizontal expansion strategy with a goal of meeting all ~300,000 advisors where they are Significant capacity to invest in vertical integration capabilities that enhance the advisor
Slide 5: LPL overview
1 Industry leader in the advisor-mediated marketplace LPL overview Who we are Who we serve • We serve the advisor-mediated marketplace as the largest independent broker-dealer in the U.S. and a top custodian ~22,000 Advisors $1.2T+ Assets • We provide advisors with the front-, middle- and back-offic
Slide 6: LPL by the numbers
1 Industry leader in the advisor-mediated marketplace LPL by the numbers Industry-leading scale Financial highlights Total Advisory and Brokerage Assets ($B) Organic Asset Growth Rate Gross Profit Contribution 2% 2% 13% $1,240 $1,206 Client cash 13.2% 41% Other asset-based $1,111 $3.8B† Adviso
Slide 7: We are a market leader with scale advantages and structural tailwinds
1 Industry leader in the advisor-mediated marketplace We are a market leader with scale advantages and structural tailwinds Growing demand Independent channel Market leader, with expanded for advice gaining share addressable markets‡ ~2x Projected Growth in US Retail Total U.S. Retail Advisor-Mediat
Slide 8: We are providing value-added capabilities that drive our market expansion
1 Industry leader in the advisor-mediated marketplace We are providing value-added capabilities that drive our market expansion Horizontal expansion strategy Vertical integration strategy Meet advisors and enterprises where they are in Deliver advisors and enterprises end-to-end the evolution of the
Slide 9: Five strategic plays to execute on strategic priorities
1 Industry leader in the advisor-mediated marketplace To execute on our strategic priorities, we organize our efforts into five strategic plays Horizontal expansion strategy Vertical integration strategy PLAY Core Foundation Advisor Channel 3 Provide an industry-leading integrated service and techno
Slide 10: Horizontal expansion strategy enables us to meet all ~300,000 advisors where they are
2 Horizontal expansion 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 Hybrid RIAs ~30K advisors | $3T Strategic Wealth Enhanced RIA
Slide 11: Market leader in independent advisor channels, growing opportunity in employee channel
2 Horizontal expansion We are a market leader in independent advisor channels, with a growing opportunity in the employee channel Organic NNA has driven the majority Growing advisor opportunity Value proposition of advisor asset growth Traditional Independent Model Advisor Assets ($B) Initially,
Slide 12: Compelling value proposition for enterprises to outsource their wealth business
2 Horizontal expansion We provide a compelling value proposition for enterprises to outsource their wealth business Organic NNA has driven the majority Growing enterprise opportunity Value proposition of enterprise asset growth Initially, we focused on financial Enhanced client experience Enterp
Slide 13: Extending vertical integration across the advisor life cycle
3 Vertical integration Extending our vertical integration by solving for the needs of advisors at every stage of their practice Life cycle of an advisor Value-added partner across entire life cycle Entry Growth and expansion Practice optimization Sunsetting and transition Move to independence LPL Se
Slide 14: Operating platform delivers flexibility and integrated workflows
3 Vertical integration 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 proprietary capabilities as needed Curated choice Guide advisors
Slide 15: Our Services Group is an innovation engine and driver of organic growth
3 Vertical integration Our Services Group is an innovation engine and driver of organic growth… Deepening our vertical integration Helping advisors and enterprises deliver on their value proposition Asset Management Be A Great Advisor Clearing / Custody Comprehensive advice, prospect engagement Trad
Slide 16: Services Group has grown to ~5,200 subscriptions
3 Vertical integration …and has grown to ~5,200 subscriptions, with broad adoption across our diverse services • Digital and employee-powered solutions that help advisors and enterprises expand the breadth Services Group Subscriptions and depth of their advice Advice Services Planning & Advice Servi
Slide 17: Range of services strengthens businesses while enhancing our returns
3 Vertical integration We provide a range of services to advisors and enterprises, 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, Services where asset mix is primarily brokera
Slide 18: Advancing capabilities to enhance value proposition and drive growth
3 Vertical integration We are advancing our capabilities to enhance our value proposition and drive growth Investment areas of focus Increasing overall investment levels to drive organic growth… Annual Core G&A* ($M) Annual Core G&A* Growth Accelerate Invest in key growth initiatives to drive 13% Gr
Slide 19: Solid organic growth with net new asset growth rate of ~8%
3 Vertical integration We continued to drive solid organic growth with a net new asset growth rate of ~8% for the past year Total Organic Net New Assets(9) ($B) Organic Net New Advisory Assets(10) ($B) Organic Net New Brokerage Assets(10) ($B) Organic Total NNA Organic Advisory NNA Organic B
Slide 20: Natural hedges to market volatility and rising rates
4 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 ~$10M Macro
Slide 21: Client cash balances largely operational and stable across rate cycles
4 Resilient business model with natural hedges to market volatility Our client cash balances are largely operational and as a percent of client assets, have been stable across rate cycles Client Cash Balances(13) ($B) Client cash as a % of assets has averaged ~5%† Client Cash percent of Total Assets
Slide 22: Compelling economics on client cash balances
4 Resilient business model with natural hedges to market volatility We generate compelling economics on client cash balances Client Cash Balances(13) ($B) Annual potential Gross Profit* benefit from rising interest rates ICA Sweep (EOP) DCA Sweep (EOP) Money Market Sweep (EOP) • Over the last
Slide 23: Fixed rate balances increased to ~60% of ICA portfolio
4 Resilient business model with natural hedges to market volatility Fixed rate balances increased to ~60% of the ICA portfolio, reducing our sensitivity to movement in short-term interest rates ICA Balances, including Overflow ($B) Variable balances are primarily indexed to Fed Funds Money Market
Slide 24: 2023 environment creating opportunity to accelerate investments
5 Disciplined expense management driving operating leverage In 2023, the environment is creating an opportunity to accelerate investments to advance our strategic priorities Long-term cost strategy 2023 Core G&A* context • Deliver operating leverage in core business • Our most recent 2023 Core G&A*
Slide 25: Capital management strategy focused on growth and shareholder value
6 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 26: Lowered target leverage range due to improved earnings profile
6 Capital light business model with flexible allocation framework Due to our improved earnings profile, we lowered our target leverage range Balance Sheet Principles Leverage Ratio(1) Maintain a strong balance sheet that can absorb market Prior Management Target Range volatility while having the c
Slide 27: Significant capital deployment capacity
6 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: Continued to return capital to shareholders
6 Capital light business model with flexible allocation framework …And we have continued to return capital to shareholders Share Repurchases and Dividends ($M) Share Repurchases $2B share repurchase Dividends authorization we plan to execute on over ~2 years† Repurchased >10% of $937 shares over
Slide 29: Potential for consolidation given fragmented markets
6 Capital light business model with flexible allocation framework We see potential for consolidation given fragmented markets Addressable markets for Highly fragmented markets create opportunity advisor channel† for additional consolidation† Growth potential from consolidation Traditional Independen
Slide 30: Recent acquisitions added scale, new markets and capabilities
6 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 2023 2019 2020 ~$74B of assets ~$1.5B of a
Slide 31: New liquidity and succession capabilities for transitioning advisors
6 Capital light business model with flexible allocation framework We’re delivering new liquidity and succession capabilities for advisors seeking to transition Background: Solving a need in the marketplace Direct acquisition lifecycle example ~1/3 of advisors are expected to retire or leave the in
Slide 32: Continued investment and scale enhance ability to drive growth
As we continue to invest and increase our scale, we enhance our ability to drive further growth Invest in Attract differentiated advisors and capabilities and a enterprises, and unique advisor and benefit from enterprise greater use of experience our services Long-term Shareholder Value Remain disci
Slide 33: Focused on executing our strategy and delivering results
We are focused on executing our strategy and delivering results Total Advisory and Brokerage Assets(20) ($B) Organic Net New Asset Growth Key Earnings Growth Drivers 15% Up CAGR ~2x Enhanced Value Proposition (Capabilities, Technology, Service) $1,206 $1,240 13.2% $1,111 $903 Increased Organic NNA $
Slide 34: Appendix
APPENDIX LPL Financial Member Member LPL Financial FINRA/SIPC 34 FINRA/SIPC
Slide 35: Key drivers of promotional expense growth
Key drivers of promotional expense growth Promotional Expense ($M) $354 Context for 2023: Organic Growth investments are expected to $288 be primarily driven by our strong level of recruiting and the resulting transition assistance Organic Growth investments increased by Conferences expected to incr
Slide 36: Reconciliation: Gross Profit and EBITDA
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 37: Reconciliation: Adjusted EPS and Adjusted Net Income
Reconciliation Adjusted EPS* and Adjusted Net Income* Adjusted EPS* and adjusted net income* are non-GAAP financial measures. Please see a description of adjusted EPS* and adjusted net income* under “Non-GAAP Financial Measures” on page 3 of this presentation for additional information. Below are th
Slide 38: Reconciliation: Core G&A to Total expense
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 39: Endnotes
Endnotes (1) The Company calculates its leverage ratio as total debt less total corporate cash, divided by Credit Agreement EBITDA for the trailing twelve months. (2) Other employee channels include National & Regional B/D, Insurance B/D, and Retail bank B/D channels. Independent channels include in
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