Lpl Financial Holdings Inc. · NASDAQ:LPLA

Lpl Financial — Q3 2018 Earnings Presentation

27 slides from Lpl Financial's earnings presentation, Oct 25, 2018

1. Slide 1: Q3 2018 Earnings Key Metrics

   Q3 2018 Earnings Key Metrics LPL Financial Holdings Inc. Q3 2018 Earnings October 25, 2018 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 YOY SEQ YOY SEQ Change Change Change Change 648 659 681 22% 3% 615 530 542 560 45 45 0.2 pts0.7 pts 502 509 44 44 44 44 43 42 41 Q3 Q4 Q1 Q2 Q3 Q4 Q

5. Slide 5: Financial performance has steadily improved

   Financial performance has steadily improved Gross Profit* ($ millions) EBITDA* ($ millions) YOY SEQ YOY SEQ Change Change Change Change 233 218 40% -7% 464 483 493 27% 2% 183 389 387 403 170 156 347 347 376 152 139 120 119 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 2016 2017 2018 2016 201

6. Slide 6: Q3 Total Brokerage and Advisory Assets increased 22% year-over-year to $681 billion

   Q3 Total Brokerage and Advisory Assets increased 22% year-over-year to $681 billion, and increased 3% sequentially Total Brokerage and Advisory Assets ($ billions) Total Brokerage and Advisory Asset Mix  Hybrid Advisory Assets(5)  Corporate Advisory Assets(6)  Brokerage Assets(7) YOY SEQ  Hybrid

7. Slide 7: Q3 Total Net New Assets were an inflow of $4.4 billion

   Q3 Total Net New Assets were an inflow of $4.4 billion Total Net New Assets ($ 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: Q3 Corporate Advisory Assets increased 27% year-over-year to $185 billion

   Q3 Corporate Advisory Assets increased 27% year-over-year to $185 billion Corporate and Hybrid Advisory Platform Mix ($ 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

9. Slide 9: Q3 Centrally Managed Assets increased 40% year over year to $41 billion

   Q3 Centrally Managed Assets increased 40% year over year to $41 billion Centrally Managed Assets(13) ($ 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: Q3 EBIT ROA was 10.6 basis points, up 1.7 basis points year-over-year

    Q3 EBIT ROA was 10.6 basis points, up 1.7 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 22% 3% $645 $586 $539 $554 $502 $502 $525 28.7 bps 28.8 bps

11. Slide 11: Q3 Gross Profit ROA increased 1.3 basis points year-over-year

    Q3 Gross Profit* ROA increased 1.3 basis points year-over-year Gross Profit* ROA(16) (bps)  Net Commission & Advisory Fees  Cash Sweep  Other Asset-Based(19)  Transaction & Fee, Net of BC&E  Interest Income and Other YOY SEQ Change Change 28.7 28.8 28.8 29.4 29.2 1.3 -0.2 27.7 27.6 27.9 27.5 1.

12. Slide 12: Q3 Gross Profit increased 27% year-over-year

    Q3 Gross Profit* increased 27% year-over-year Gross Profit* ($ millions)  Net Commission & Advisory Fees  Cash Sweep  Other Asset-Based(19) YOY SEQ  Transaction & Fee, Net of BC&E  Interest Income and Other Change Change $483 $493 27% 2% $464 $18 12% 9% $17 $8 $389 $403 $103 14% 2% $376 $387 $1

13. Slide 13: Q3 Total OPEX ROA decreased 0.4 basis points year-over-year

    Q3 Total OPEX ROA decreased 0.4 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 20.3 20.5 20.1 0.8 19.4 19.0

14. Slide 14: Q3 Total OPEX increased 20% year-over-year

    Q3 Total OPEX increased 20% 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 20% 9% $294 $13 $288 $16 68% 0% $

15. Slide 15: Q3 Cash Sweep yields increased 62 basis points year-over year, and balances were flat

    Q3 Cash Sweep yields increased 62 basis points year-over year, and balances were flat year-over-year Client Cash Sweep balances ($ billions)  ICA Balances (EOP)  DCA Balances (EOP)  Money Market Balances (EOP) Average Fee Yield(26) YOY SEQ Change Change $31.3 $30.0 $29.2 $29.8 $29.6 $28.6 $27.8 $

16. Slide 16: Q3 Net Buy (Sell) Activity increased 33% year-over year to $9.2 billion

    Q3 Net Buy (Sell) Activity increased 33% year-over year to $9.2 billion Net Buy (Sell) Activity(27)  Net Buy (Sell) Activity ($billions) Cash Sweep % of Total Brokerage and Advisory Assets 9.7 8.9 9.2 8.5 8.0 7.3 6.9 6.4% 6.1% 6.0% 5.8% 5.7% 5.1% 5.1% 4.8% 4.6% 4.8 4.6 4.3% 4.1% 3.4 1.8 Q1 Q2 Q3 Q4

17. Slide 17: 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 September 2018 rate hike ICA deposit beta history and outlook Annual potential ICA Gross Profit* benefit  Deposit beta after Fed rate hike Fed Funds rate target range (bps) ~$35M - $45M for each 200-225 additio

18. Slide 18: Our updated outlook for 2018 Core G&A is $810 to $820 million

    Our updated outlook for 2018 Core G&A* is $810 to $820 million Long-term cost strategy 2018 Core G&A* context  Focus on delivering operating leverage  First half 2018 Core G&A* averaged $197 million per quarter  Prioritize investments that drive organic growth  Third quarter Core G&A* was $209 m

19. Slide 19: LTM EBITDA has grown steadily over the past two years

    LTM EBITDA* has grown steadily over the past two years LTM EBITDA* ($ millions)  LTM EBITDA* LTM EBITDA* Margin as a Percent of LTM Gross Profit*(28) YOY SEQ 26% Change Change CAGR $773 30% 9% $711 $616 $648 $597 $561 $508 $523 $484 40.9% 41.9% ~210 bps ~100 bps 38.5% 39.8% 39.6% 39.4% 35.4% 36.4%

20. Slide 20: Our balance sheet remained strong in Q3

    Our balance sheet remained strong in Q3… Cash Available for Corporate Use ($ millions) Credit Agreement Net Leverage Ratio Management Target Level $551 (4x) v $530 $527 $514 $499 $474 $439 $446 3.57x Management Target Range $392 3.43x (3.25x-3.5x) 3.32x 3.21x v 3.08x Management Target Cash: 2.81x (~

21. Slide 21: 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 122% 107% $500M 84% 81% $139 $144 79% 75% 75% $200M $117 $122 Remaining 47% 39% $83 $300M $59 $61 Completed

22. Slide 22: Appendix

    Appendix 22 LPL Financial Member FINRA/SIPC

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

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