Lpl Financial Holdings Inc. · NASDAQ:LPLA
Lpl Financial — Investor Presentation (September 2019)
38 slides from Lpl Financial's investor presentation, Sep 11, 2019
Slide 1: LPL Financial Investor Presentation Q2 2019
LPL Financial Investor Presentation Q2 2019 September 11, 2019 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, opportunities, enhancements priorities, business strategies and outlook, including foreca
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: LPL Overview
LPL Overview Mission Key Markets and Services Q2 2019 Metrics We take care of our advisors so they can take care $700B+ Client Assets: Q2 Business Metrics LTM Financial Metrics of their clients • Brokerage: $379B Assets: $706B Average Assets: $672B • Corporate Advisory: $202B Recruited Assets(2): $8
Slide 5: Our Framework for Driving Outperformance
Our Framework for Driving Outperformance Outperformance Strategy + Execution + Culture = and Winning in the Marketplace 5 LPL Financial Member FINRA/SIPC
Slide 6: We are creating the next generation of the Independent Model
STRATEGY We are creating the next generation of the Independent Model PLAY PLAY PLAY 1 2 3 Position Our Model Across Create an Industry- Extend Our Vertical Integration the Entire Wealth Leading Service and Develop a New Layer of Management Market Experience, at Scale Capabilities Extend our leaders
Slide 7: LPL Investment Highlights
LPL Investment Highlights: Significant opportunities to grow and create long-term shareholder value 1 Established market leader with scale advantages and structural tailwinds 2 Investments in capabilities to enhance the advisor value proposition 3 Organic growth opportunities through net new assets
Slide 8: We are a market leader with scale advantages and industry tailwinds
1 Established market leader with scale advantages and structural tailwinds We are a market leader with scale advantages and industry tailwinds Growing demand for advice Independent Channel gaining share Leading position in traditional markets Projected Growth in US Retail Investment Market Total Adv
Slide 9: Investments in capabilities to enhance the advisor value proposition
2 Investments in capabilities to enhance the advisor value proposition We have increased our investments in capabilities to enhance our advisor value proposition and drive growth Technology Portfolio Spend (in millions) Key Points Updated allocation of existing spending • Enhancing our capabilities
Slide 10: Total Net New Assets continued to grow organically in Q2 2019
3 Organic growth opportunities through net new assets and ROA Total Net New Assets continued to grow organically in Q2 2019 Total Net New Assets ($ billions) Net New Advisory Assets(4) ($ billions) Net New Brokerage Assets(5) ($ billions) Organic Total NNA Organic Advisory NNA Organic Brokerage NNA
Slide 11: As advisors use more of our services, our returns increase
3 Organic growth opportunities through net new assets and ROA As advisors use more of our services, our returns increase We have seen a favorable mix shift in our platforms Additional drivers of growth Fee-Only Model Business Solutions ~45-50 bps Gross Profit* ROA Centrally New Models Premium RIA Mo
Slide 12: Our business has continued to shift from brokerage to advisory
3 Organic growth opportunities through net new assets and ROA Our business has continued to shift from brokerage to advisory Key points Our business has shifted towards Advisory Total Assets ($ billions)(10) Our business has been shifting from Brokerage to Advisory, Advisory Assets % of Total As
Slide 13: Centrally managed services have grown organically
3 Organic growth opportunities through net new assets and ROA Centrally managed services have grown organically following pricing and capability enhancements Key points Centrally managed assets have grown ~$20B growth in Centrally Managed Assets(9) centrally managed Centrally Managed Assets % of T
Slide 14: Leveraging technology and scale to bring innovation to the front office
3 Organic growth opportunities through net new assets and ROA We are leveraging technology and our scale to bring innovation and enhanced performance to the front office Development of New LPL Front Office Services We are developing Business Solutions that enable efficiency and support growth Admin
Slide 15: Our assets have continued to move towards advisory
3 Organic growth opportunities through net new assets and ROA Our assets have continued to move towards advisory, primarily driven by new client investment Gross Profit* ROA (14) Key drivers of gross profit* ROA growth going forward Client Cash Offerings 31.1 (e.g. deposit betas in the 25-50% range,
Slide 16: Stability of our business model positions us to continue investing
4 Resilient business model with natural hedges to market volatility The stability of our business model positions us to continue investing and deploying capital Changes in market levels and client cash balances tend to offset each other Two recent case studies Key Points In Q4 2018 In the long-ter
Slide 17: Client cash balances total ~$30B, deposit betas ~30%
4 Resilient business model with natural hedges to market volatility Client cash balances total ~$30B, and recent deposit betas have been ~30% Client Cash balances ($ billions) ICA deposit beta history and outlook ICA Balances (EOP) DCA Balances (EOP) Money Market Account Balances (EOP) Deposit b
Slide 18: Moving ICA balances to fixed rates over time
4 Resilient business model with natural hedges to market volatility We are moving ICA balances to fixed rates over time, reducing our sensitivity to movements in short-term rates Fixed rate portion of ICA portfolio Annual financial impact of a Fed rate hike or cut Based on the maturity profile of ~5
Slide 19: We are focused on generating operating leverage
5 Disciplined expense management driving operating leverage We are focused on generating operating leverage Gross Profit* ROA increased, and OPEX ROA continued to decline Long-term expense and investment strategy remains unchanged Average Total Brokerage and Advisory Assets (19) Gross Profit* ROA(
Slide 20: We plan to continue investing for growth in 2019
5 Disciplined expense management driving operating leverage We plan to continue investing for growth in 2019 Long-term cost strategy Core G&A* context (as of July 25, 2019) We are executing well on our investment and efficiency plans Focus on delivering operating leverage Given results year-to
Slide 21: Our capital management strategy
6 Capital light business model with significant capacity to deploy Our capital management strategy is focused on driving growth and maximizing shareholder value Our capital management principles Dynamic capital allocation across options • Disciplined capital management to drive long-term shareholder
Slide 22: Our balance sheet strength is a key driver of organic growth
6 Capital light business model with significant capacity to deploy Our balance sheet strength is a key driver of our organic growth Management Target Credit Agreement Net Leverage Ratio Credit Agreement Net Leverage Ratio Prior Management Target Level (4x) Prior Management Target Range (3.25x - 3.5
Slide 23: Significant amount of capital deployment capacity
6 Capital light business model with significant capacity to deploy We have a significant amount of capital deployment capacity 4 Potential M&A Capacity above our target range ~$1.2-1.5B Willing to temporarily go above our target leverage range for (up to 2.75x leverage) attractive M&A opportunities
Slide 24: We have continued to return capital to shareholders
6 Capital light business model with significant capacity to deploy …And we have continued to return capital to shareholders Shareholder Capital Returns ($ millions) Share Repurchases Dividends Total Payout Ratio as a % of EPS prior to Amortization of Intangible Assets* 122% 107% 107% 93% (As of
Slide 25: Core markets are fragmented, with potential for consolidation
7 Opportunity to consolidate fragmented core markets through M&A Our core markets are fragmented, with potential for consolidation Addressable markets Growth potential from consolidation Our scale, capabilities, and economics give us ~$11 Tr competitive advantages in M&A Independent Employee Model
Slide 26: Recent acquisitions
7 Opportunity to consolidate fragmented core markets through M&A Recent acquisitions Traditional markets Capabilities New markets 2017 2018 2019 ~$70B Assets transferred Industry-leading capabilities ~$3B Assets ~4X EBITDA purchase multiple $28M purchase price ~7X EBITDA* purchase multiple • Large i
Slide 27: Investing and scale enhance our ability to drive further growth
As we continue to invest and increase our scale, we enhance our ability to drive further growth Attract assets Invest in and advisors, differentiated and benefit from capabilities and a greater use of unique advisor our services experience Long-term Shareholder Value Remain disciplined on expenses a
Slide 28: Focused on executing our strategy and delivering results
We are focused on executing our strategy and delivering results Total Brokerage and Advisory Assets(10) ($B) Gross Profit* ($M) Incremental earnings growth opportunities Enhanced Advisor Value Proposition 12% 13% CAGR (Capabilities, Technology, Service) CAGR $2,093 $1,948 Greater Use of our Services
Slide 29: LPL Investment Highlights
LPL Investment Highlights: Significant opportunities to grow and create long-term shareholder value 1 Established market leader with scale advantages and structural tailwinds 2 Investments in capabilities to enhance the advisor value proposition 3 Organic growth opportunities through net new assets
Slide 30: Appendix
Appendix 30 LPL Financial Member FINRA/SIPC
Slide 31: Improving trend in ROA over the past year
Over the past year, we have seen an improving trend in ROA 30.8 31.1 29.7 28.1 28.2 28.3 28.2 28.3 28.5 28.8 Gross Profit* 3.8 4.3 7.6 8.6 9.1 4.9 5.5 6.0 6.5 6.9 ROA prior to 24.3 23.9 client cash: 0.8 0.8 23.3 22.8 0.8 22.3 22.0 21.9 22.1 22.2 22.1 0.8 0.7 0.7 0.8 0.7 0.7 0.9 7.3 7.2 7.0 6.7 6.4 6
Slide 32: Total assets have continued to increase driven by advisory growth
Total assets have continued to increase driven by advisory growth Both brokerage and advisory assets have grown over time The mix of assets has continued to shift towards advisory Brokerage Assets(7) Hybrid Advisory Assets(23) Corporate Advisory Assets(24) Brokerage Assets Hybrid Advisory
Slide 33: Client cash as a percent of total assets
Client cash as a percent of total assets has been lower than our long- term average, as clients have been highly engaged in the market Client cash balances ($ billions) Client Cash percent of Total Assets 34.9 30.4 31.3 30.7 30.1 29.0 29.2 29.2 30.0 29.8 29.6 27.7 27.8 28.3 28.6 28.2 25.6 25.5 24.9
Slide 34: 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 page 4 and 2
Slide 35: Reconciliation of Core G&A to Total Operating Expense
Reconciliation of Core G&A to Total Operating 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 are reconciliations of Core G&A to the Company’s total operating e
Slide 36: 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 37: 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 38: Endnotes
Endnotes (1) Based on total revenues, Financial Planning magazine June 1996-2019. (2) 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 lic
LPL Financial Holdings — Investor Presentation (September 2019) on 6ix