Lpl Financial Holdings Inc. · NASDAQ:LPLA
Lpl Financial — Q1 2020 Earnings Presentation
30 slides from Lpl Financial's earnings presentation, Apr 30, 2020
Slide 1: Q1 2020 Earnings Key Metrics
Q1 2020 Earnings Key Metrics LPL Financial Holdings Inc. Q1 2020 Earnings April 30, 2020 Member FINRA/SIPC 1 LPL Financial 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, priorities, business strategies and outlook, including forecasts and statements relating
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: We continue to drive long-term business growth…
We continue to drive long-term business growth… Total Brokerage and Advisory Assets ($ billions) Advisory Assets as a percent of Total Assets 2% YOY SEQ YOY SEQ CAGR Change Change Change Change 47.8 48.1 2.5 pts 0.3 pts 719 764 46.4 47.0 659 681 684 706 670 -2% -12% 45.6 648 628 45.0 44.9 43.8 44.2
Slide 5: …And solid financial results
…And solid financial results Gross Profit* ($ millions) EBITDA* ($ millions) YOY SEQ YOY SEQ 11% Change Change 24% Change Change CAGR CAGR 556 576 4% 7% 276 268 280 1% 16% 508 536 543 538 250 242 464 483 493 233 218 232 183 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 2018 2019 2020 2018 20
Slide 6: Q1 Total Brokerage and Advisory Assets were $670B and over 48% Advisory
Q1 Total Brokerage and Advisory Assets were $670B and over 48% Advisory Total Brokerage and Advisory Assets ($ billions) Total Brokerage and Advisory Asset Mix Hybrid Advisory Assets(3) Corporate Advisory Assets(4) Brokerage Assets(5) YOY SEQ Hybrid Advisory Corporate Advisory Brokerage
Slide 7: Higher organic growth; Q1 organic Net New Assets inflow of $12.5B
We continued to drive higher organic growth; Q1 total organic Net New Assets were an inflow of $12.5B Total Net New Assets ($ billions) Net New Advisory Assets(6) ($ billions) Net New Brokerage Assets(7) ($ billions) Organic Total NNA Organic Advisory NNA Organic Brokerage NNA Acquired Total
Slide 8: Aligning Net New Asset definition with market practice from Q2
Starting in Q2, we will align our Net New Asset definition with market practice by including Dividend & Interest inflows and Advisory Fee outflows • We have provided the history below to show the combined contribution of Dividend & Interest inflows and Advisory Fee outflows on our historical results
Slide 9: Higher organic advisory asset growth over time
We continue to drive higher organic advisory asset growth over time Corporate and Hybrid Advisory Platform Mix ($ billions) Corporate and Hybrid Advisory NNA Mix ($ billions) Hybrid Advisory Assets(3) Organic Hybrid Advisory NNA(9) YOY SEQ Corporate Advisory Assets(4) Change Change Organic C
Slide 10: Centrally Managed Asset organic growth continued to be solid
Centrally Managed Asset organic growth continued to be solid, with inflows increasing to $2.2B in Q1 Centrally Managed Assets(11) ($ billions) Centrally Managed NNA(12) ($ billions) Centrally Managed Assets YOY SEQ Organic Centrally Managed NNA Centrally Managed Assets % of Total Advisory Assets
Slide 11: Average assets increased while EBIT ROA remained solid
While average assets have increased, we continue to drive solid EBIT ROA Average Total Brokerage & Advisory Assets ($ billions) Average Total Brokerage & Advisory Assets(13) Gross Profit* ROA(14) OPEX ROA(15) YOY SEQ Change Change $708 $720 9% 2% $663 $672 $682 $641 $656 $610 $581 30.8 bps 31.1 bp
Slide 12: Gross Profit ROA largely flat year-over-year
Gross Profit* ROA was largely flat year-over-year, apart from revenues that do not scale with assets Gross Profit* ROA(14) (bps) Net Commission & Advisory Fees Other Asset-Based(17) Interest Income and Other, net Transaction & Fee, Net of BC&E Client Cash YOY SEQ Change Change 30.8 31.1 31
Slide 13: OPEX % of Assets continued to decrease, driven by Core G&A
OPEX % of Assets continued to decrease, primarily driven by Core G&A* Total OPEX ROA(15) (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 19.3 19.0 18.9 18.8
Slide 14: Client Cash balances increased to ~$48B in Q1
Client Cash balances increased to ~$48B in Q1, up 42% sequentially Client Cash balances ($ billions) Annual potential Gross Profit* benefit from rising interest rates ICA Balances (EOP) DCA Balances (EOP) Money Market Account Balances (EOP) Estimated Interest Rate Sensitivity with ICA Balances o
Slide 15: ICA portfolio has a combination of fixed and floating rate balances
Our ICA portfolio has a combination of fixed and floating rate balances We target having 50-75% of our ICA portfolio in fixed rate balances Overflow balances provide capacity when balances spike Overflow Overflow ICAICA Balances Balances ($B)($B) • When elevated market volatility leads ICA balances
Slide 16: Investing to drive organic growth while staying flexible on spending
We remain focused on investing to drive organic growth while also staying flexible to adjust spending if macro conditions warrant Long-term cost strategy 2020 Core G&A* context Our 2020 Core G&A* plans are for a range of $915M to $940M (~5.5% to ~8% growth) Deliver operating leverage in core bus
Slide 17: Our balance sheet remained strong in Q1…
Our balance sheet remained strong in Q1… Cash Available for Corporate Use ($ millions) Credit Agreement Net Leverage Ratio Management Target Range (3.25x-3.5x) v $474 $446 $392 $376 Management $339 Target Cash: 2.46x Management Target Range v $296 (~$200M) 2.34x (2x-2.75X) $227 $236 2.24x $204 2.15x
Slide 18: …And we continued to return capital to shareholders
…And we have continued to return capital to shareholders, though we are now paused on share repurchases given the uncertainty in the macro environment Shareholder Capital Returns ($ millions) Share Repurchases Dividends Total Payout Ratio as a % of EPS prior to Amortization of Intangible Assets*
Slide 19: Appendix
Appendix 19 LPL Financial Member FINRA/SIPC
Slide 20: Monthly metrics dashboard through March 2020
Monthly metrics dashboard through March 2020 Total Brokerage and Advisory Assets ($ billions) Total Net New Assets ($ billions) Total Brokerage and Advisory Assets Advisory Assets % Total YOY SEQ Total organic NNA Acquired NNA Annualized organic growth rate Change Change $748 $764 $767 $737 -2
Slide 21: Monthly metrics dashboard through March 2020
Monthly metrics dashboard through March 2020 • We have provided the history below to show the combined contribution of Dividend & Interest inflows and Advisory Fee outflows on our historical results • On average, these factors contribute ~1.5% organic growth on an annual basis for our business Total
Slide 22: Q1 Gross Profit increased 4% year-over-year
Q1 Gross Profit* increased 4% year-over-year Gross Profit* ($ millions) Net Commission & Advisory Fees Other Asset-Based(17) Interest Income and Other, net YOY SEQ Transaction & Fee, Net of BC&E Client Cash Change Change $576 4% 7% $556 $543 $538 $536 $493 $508 $483 $464 $151 -13% -3% $173
Slide 23: Q1 Total OPEX was flat sequentially, up 6% year-over-year
Q1 Total OPEX was flat sequentially, and increased 6% year-over-year Total OPEX(24) ($ 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 $333 $339 $339 6%
Slide 24: Net Buy (Sell) Activity was $0.2 billion in Q1
Net Buy (Sell) Activity was $0.2 billion in Q1, driven by significant market volatility in March 2020 Net Buy (Sell) Activity(25) Net Buy (Sell) Activity ($billions) Client Cash % of Total Brokerage and Advisory Assets 12.9 March 2020 was $8.2B in net selling activity 9.7 9.7 9.8 9.2 9.0 8.5 6.9 7
Slide 25: LTM EBITDA and margin have grown steadily over two years
LTM EBITDA* and margin have grown steadily over the past two years LTM EBITDA* ($ millions) LTM EBITDA* LTM EBITDA* Margin as a Percent of LTM Gross Profit*(26) YOY SEQ 27% Change Change CAGR $993 $1,026 $1,036 $1,040 9% 0% $958 $866 $773 $711 $648 47.0% 47.4% 47.9% 47.7% 47.5% ~50bps -~20 bps 40.
Slide 26: 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, 11,
Slide 27: 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 28: 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 29: 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
Slide 30: 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
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