Lpl Financial Holdings Inc. · NASDAQ:LPLA
Lpl Financial — Q4 2023 Earnings Presentation
40 slides from Lpl Financial's earnings presentation, Feb 1, 2024
Slide 1: LPL Financial Holdings Inc. Q4 2023 Investor Presentation
LPL FINANCIAL HOLDINGS INC. Q4 2023 INVESTOR PRESENTATION February 1, 2024 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 adviso
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 ~22,700 Advisors ~$1.4T Assets • We provide advisors with the front-, middle- and back-offic
Slide 6: LPL by the numbers
1 Industry leader in the advisor-mediated marketplace LPL by the numbers Industry-leading scale Financial highlights Total Advisory and Brokerage Assets ($B) Total Organic Net New Assets (“NNA”) Gross Profit* Contribution (end of period) Annualized Growth(1) 2% 2% $1,354 13% Client cash 13.2% 39%
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 marketsठ~2x Projected Growth in US Retail Total U.S. Retail Advisor-Media
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: To execute on our strategic priorities, we organize our efforts into five strategic plays
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 Core Foundation Play 3 Provide an industry-leading integrated service and Advisor Channel techno
Slide 10: Our 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 ~50K advisors | $3T Traditional independent markets Hybrid RIAs ~35K advisors | $3T Strategic Wealth Enhanced RIA
Slide 11: We are a market leader in independent advisor channels, with a growing opportunity in the employee channel
2 Horizontal expansion We are a market leader in independent advisor channels, with a growing opportunity in the employee channel Organic NNA has driven the majority of Growing advisor opportunity Value proposition advisor asset growth Traditional Independent Model Advisor Assets ($B) Initially,
Slide 12: We provide a 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 our vertical integration by solving for the needs of advisors at every stage of their practice
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: Our operating platform delivers industry-leading 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: …and has grown to ~5,800 subscriptions, with broad adoption across our diverse services
3 Vertical integration …and has grown to ~5,800 subscriptions, with broad adoption across our diverse services Services Group Subscriptions (end of period) • Digital and employee-powered solutions that help advisors and enterprises Advice Services expand the breadth and depth of their advice Plannin
Slide 17: We provide a range of services to advisors and enterprises, strengthening their business 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: We are advancing our capabilities to enhance our 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 We are making investments to drive organic growth… Annual Core G&A* ($M) Annual Core G&A* Growth Accelerate Invest in key growth initiatives to drive 13% 15% 6% 6.5% 8
Slide 19: We continued to drive solid organic growth with a net new asset growth rate of ~9% for the past year
3 Vertical integration We continued to drive solid organic growth with a net new asset growth rate of ~9% for the past year Total Organic Net New Assets(11)(12) ($B) Organic Net New Advisory Assets(13) ($B) Organic Net New Brokerage Assets(13) ($B) Organic Total NNA Organic Advisory NNA Orga
Slide 20: We benefit from rising market levels and interest rates, and our business model has natural hedges
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 ~$10M M
Slide 21: Our client cash balances are 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 as a % of assets Client Cash Balances(17) (end of period, $B) has averaged ~5%† Client Cash percent
Slide 22: We generate 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(17) (end of period, $B) Annual potential Gross Profit* benefit from rising interest rates ICA Sweep (EOP) DCA Sweep (EOP) Money Market Sweep (EOP) •
Slide 23: Fixed rate balances make up ~60% of the ICA portfolio
4 Resilient business model with natural hedges to market volatility Fixed rate balances make up ~60% 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 24: We remain focused on investing to drive organic growth while delivering long-term operating leverage
5 Disciplined expense management driving operating 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 2023 Core G&A* was $1,369M, translating to 15% year-over-year gro
Slide 25: Our capital management strategy is focused on driving growth and maximizing shareholder value
6 Capital light business model with flexible allocation framework Our capital management strategy is focused on driving growth and maximizing shareholder value Our capital management principles Dynamic capital allocation framework Disciplined capital management to drive long-term shareholder value
Slide 26: Due to our improved earnings profile, we lowered our target leverage range
6 Capital light business model with flexible allocation framework Due to our improved earnings profile, we lowered our target leverage range Balance Sheet Principles Leverage Ratio(3) Prior Management Target Range Updated Maintain a strong balance sheet that can absorb market Management volatility
Slide 27: We have significant capital deployment capacity…
6 Capital light business model with flexible allocation framework We have significant capital deployment capacity… Capital Deployment Capacity Above target Potential M&A capacity above our target range leverage range 3 Willing to temporarily go above our target leverage range for attractive M&A oppo
Slide 28: …And we have continued to return capital to shareholders
6 Capital light business model with flexible allocation framework …And we have continued to return capital to shareholders Share Repurchases and Dividends ($M) Share Repurchases $2B share repurchase Dividends authorization we plan to execute on over ~2 years† Repurchased >10% of shares over 2018
Slide 29: We see 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 have added scale, new markets, and new 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 2023† 2024 ‡ 2023 2023 2020 ~$74B of assets ~$
Slide 31: We're delivering new liquidity and succession capabilities for advisors seeking to transition
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: As we continue to invest and increase our scale, we enhance our ability to drive further 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: We are focused on executing our strategy and delivering results
We are focused on executing our strategy and delivering results Total Advisory and Brokerage Assets(24) ($B) Organic Net New Asset Growth Key Earnings Growth Drivers 17% Up CAGR ~2x Enhanced Value Proposition (Capabilities, Technology, Service) 13.2% $1,354 $1,206 $1,111 9.0% 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) $486 $354 Organic Growth investments increased by ~$70M, primarily driven by our strong level of $288 recruiting and the resulting transition assistance Organic Growth investments increased by Conferences increased by ~$20M due to ~$
Slide 36: 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 37: Reconciliation
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
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) 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 EBITDA* for the period by Gross Profit* for the period. (3) The Company
Slide 40: Endnotes
Endnotes (14) Calculated as a one percent change in total assets multiplied by a market correlation factor multiplied by total Gross Profit* return on assets. (15) Assumes change based on Q4 2023 end of period ICA balances, presented on page 22. (16) Annual benefit measured in total revenue. Based o
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