Lpl Financial Holdings Inc. · NASDAQ:LPLA
Lpl Financial — Q3 2024 Earnings Presentation
42 slides from Lpl Financial's earnings presentation, Oct 30, 2024
Slide 1: LPL Financial Holdings Inc. Q3 2024 Investor Presentation
LPL Financial Holdings Inc. Q3 2024 Investor Presentation October 30, 2024 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, plans, priorities, business strategies, capabilities, and outlook, including forecasts an
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 Vertical integration strategy, with significant capacity to invest in capabilities that enh
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 ~23,700 Advisors ~$1.6T Assets • We provide advisors with the front-, middle- and back-off
Slide 6: LPL by the numbers
1 Industry leader in the advisor-mediated marketplace LPL by the numbers Industry-leading scale Financial Highlights Total Advisory and Brokerage Assets ($B) Total Organic Net New Assets “NNA” Gross Profit* Contribution (end of period) Annualized Growth(1) 3% 2% <1% $1,592 13% Client cash 35% Ot
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 Market leader, with expanded Growing demand for advice Independent channel gaining share addressable marketsठProjected Growth in U.S. Retail Total U.S. Retail Advisor-Mediate
Slide 8: 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 institutions where they are in Deliver advisors and institutions end-to-end the evolution of t
Slide 9: Horizontal expansion 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 2024+ marketplace†: Independent ~50K advisors | $3T Traditional independent markets Hybrid RIAs ~35K advisors | $3T Enhanced RIA Strategic
Slide 10: Market leader in independent advisor channels, growing employee channel opportunity
2 Horizontal Expansion We are a market leader in the independent advisor channels, with a growing opportunity in the employee channel Organic Net New Assets “NNA” has driven Growing advisor opportunity Value proposition the majority of advisor asset growth • Initially, we served advisors in the • Tr
Slide 11: Compelling value proposition for institutions to outsource their wealth business
2 Horizontal Expansion We provide a compelling value proposition for institutions to outsource their wealth business Organic NNA has driven the majority Growing institution opportunity Value proposition of institution asset growth • Initially, we focused on depository financial • Enhanced client exp
Slide 12: Extending vertical integration across the advisor life cycle
3 Vertical Integration We are extending our vertical integration by solving for the needs of advisors at every state 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
Slide 13: 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 ClientWorks for advisors • Promote optionality by integrating a broad array of third-party tools Establishing an integrated ecosystem of core capabilities, jo
Slide 14: 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 institutions deliver on their value proposition Asset Management Be A Great Advisor Clearing / Custody Comprehensive advice, prospect engagement Tra
Slide 15: Services Group grown to ~6,400 subscriptions
3 Vertical Integration …and has grown to ~6,400 subscriptions, with broad adoption across our diverse services • Digital and employee-powered solutions that help advisors and institutions Services Group Subscriptions (end of period) Advice Services expand the breadth and depth of their advice Planni
Slide 16: Range of services strengthening advisors while enhancing our returns
3 Vertical Integration We provide a range of services to advisors and institutions, 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 institutions, Services where asset mix is primarily broke
Slide 17: Advancing capabilities to enhance value proposition and drive growth
4 Resilient business model with natural hedges to market volatility We are advancing our capabilities to enhance our value proposition and drive growth Investment areas of focus We are making investments to drive organic growth… Annual Core G&A* ($M) Annual Core G&A* Growth Accelerate Invest in key
Slide 18: Solid organic growth with net new asset growth rate of ~8%
4 Resilient business model with natural hedges to market volatility We continued to drive solid organic growth with a net new asset growth rate of ~8% over the past year Total Organic Net New Assets(11)(12) ($B) Organic Net New Advisory Assets(13) ($B) Organic Net New Brokerage Assets(13) ($B) Tot
Slide 19: Natural hedges to market volatility
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) (14) Rising market levels drive growth in assets and related
Slide 20: 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 We generate economics on client cash Client Cash Balances(17) (end of period, $B) through a third-party bank net
Slide 21: 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(17) (end of period, $B) Interest Rate Impact ◼ ICA Sweep • Since Q1 2022, as the Fed increased interest rates, our deposit beta ◼ DCA Sweep averaged ~15%
Slide 22: Fixed rate balances ~65% of the ICA portfolio
4 Resilient business model with natural hedges to market volatility Fixed rate balances make up ~65% of the ICA portfolio, reducing our sensitivity to movement in short-term interest rates ICA Balances, including Overflow (end of period, $B) ◼ ◼ Money Market Overflow Balances Overflow ICA Balances V
Slide 23: Investing for organic growth while delivering operating leverage
5 Disciplined expense management driving operational leverage We remain focused on investing to drive organic growth while delivering long-term operating leverage in our core business Long-term cost strategy 2024 Core G&A* Context • Our initial 2024 Core G&A* plans were for ~6.25% to ~8.75% year-ove
Slide 24: Capital management strategy focused on growth and shareholder value
6 Capital light business model with flexible allocation framework Our capital management strategy is focused on driving growth and maximizing shareholder value Our capital management principles Dynamic capital allocation framework • Disciplined capital management to drive long-term shareholder value
Slide 25: Maintaining a strong balance sheet
6 Capital light business model with flexible allocation framework Maintaining a strong balance sheet is critical to our strategy and a key consideration for advisors and institutions Balance Sheet Principles Leverage Ratio(3) • Maintain a strong balance sheet that can absorb market volatility Prior
Slide 26: Significant capital deployment capacity
6 Capital light business model with flexible allocation framework We have significant capital deployment capacity… Capital Deployment Capacity Above target Potential M&A capacity above our target range leverage range 4 Willing to temporarily go above our target leverage range for attractive M&A oppo
Slide 27: Continued return of capital to shareholders
6 Capital light business model with flexible allocation framework …And we have continued to return capital to shareholders Share Repurchases and Dividends ($M) ◼ Share Repurchases ◼ Dividends $2B share repurchase authorization† Paused share repurchases following the announcement of the $1,192 acquis
Slide 28: 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 advisor Highly fragmented markets create opportunity channel† for additional consolidation† Growth potential from consolidation Traditional Independen
Slide 29: Recent acquisitions added scale, 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 ‡ 2024 2024 § 2023 †† 2023 2023 2020 ~$9B of assets
Slide 30: Liquidity and succession capabilities for advisors
6 Capital light business model with flexible allocation framework We’re delivering liquidity and succession capabilities for advisors seeking to transition Background: Solving a need in the marketplace Direct acquisition lifecycle example • ~1/3 of advisors are expected to retire or leave the indust
Slide 31: Investing and increasing scale to drive further growth
As we continue to invest and increase our scale, we enhance our ability to drive further growth Increa Attract Invest in se s n ca differentiated sitio le in advisors and opo as institutions, and capabilities and a r se p unique advisor and benefit from lue ts, greater use of ad va institution vis s
Slide 32: Focused on executing our strategy and delivering results
We are focused on executing our strategy and delivering results Total Advisory and Brokerage Assets(23) ($B) Total Organic Net New Asset Growth Key Earnings Growth Drivers 18% Up Enhanced Value Proposition CAGR ~1.5x (Capabilities, Technology, Service) $1,592 13.2% $1,354 Increased Organic NNA $1,20
Slide 33: Appendix
ESS Appendix Vi ae ed
Slide 34: Update on Strategic Relationship with Prudential Financial
Update on our Strategic Relationship with Prudential Financial Announcement Details and Timing • On August 24, 2023, we signed a strategic relationship agreement to provide retail brokerage and investment advisory services to Prudential for its Prudential Advisors business. • Prudential advisors are
Slide 35: Update on Acquisition of Atria Wealth Solutions
Update on our Acquisition of Atria Wealth Solutions Transaction Details and Timing • On February 12, 2024, we signed an agreement to acquire 100% of the equity of Atria Wealth Solutions as an equity purchase with an upfront price of ~$805M. Potential earn-outs of ~$0M to ~$230M are based on retentio
Slide 36: Atria: annual EBITDA benefit of $150M+ when fully ramped
Atria Wealth Solutions: We estimate reaching an annual EBITDA* benefit of $150M+ when fully ramped Q1 2023 Q3 2024 Q2 2023 Q4 2024 Q3 Q1 2024 Q4 Q2 2024 Q1 Q3 2025 2024 Q2 Q4 2025 2024 Q3 Q1 2025 2025 Q4 Q2 2025 2025 Transaction Signed Closed 10/1/2024 Advisors Onboarded Transaction Signing and Clos
Slide 37: Key drivers of promotional expense growth
Key drivers of promotional expense growth Promotional Expense ($M) $486 $354 Organic Growth investments increased by $288 ~$70M, primarily driven by our strong level of recruiting and the resulting transition assistance Organic Growth investments increased by Conferences increased by ~$20M due to ~$
Slide 38: 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 39: Reconciliation
Reconciliation Net Income to EBITDA*, Adjusted EBITDA* and Credit Agreement EBITDA* EBITDA*, Adjusted EBITDA* and Credit Agreement EBITDA* are non-GAAP financial measures. Please see a description of EBITDA*, Adjusted EBITDA* and Credit Agreement EBITDA* under “Non-GAAP Financial Measures” on page 3
Slide 40: 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 41: Endnotes
Endnotes (1) Calculated as annualized current period organic net new assets divided by preceding period assets in their respective categories of advisory assets or total advisory and brokerage assets. (2) Calculated by dividing adjusted EBITDA* for the period by Gross Profit* for the period. (3) The
Slide 42: Endnotes
Endnotes (16) Annual benefit measured in total revenue. Based on variable client cash balances indexed to Fed Funds. (17) During the second quarter of 2022, the Company updated its definition of client cash balances to include client cash accounts and exclude purchased money market funds. Client cas
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