Lpl Financial Holdings Inc. · NASDAQ:LPLA
Lpl Financial — Q4 2017 Earnings Presentation
28 slides from Lpl Financial's earnings presentation, Feb 1, 2018
Slide 1: Q4 2017 Earnings Key Metrics
Q4 2017 Earnings Key Metrics LPL Financial Holdings Inc. Q4 2017 Earnings February 1, 2018 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, outlook, growth, prospects, business strategies, future market position, future operating environm
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: Q4 Total Brokerage and Advisory Assets increased 21% year-over-year to $615 billion
Q4 Total Brokerage and Advisory Assets increased 21% year-over-year to $615 billion, and increased 10% sequentially, including $34 billion from NPH Total Brokerage and Advisory Assets ($ billions) Total Brokerage and Advisory Asset Mix Brokerage Assets(1) Corporate Advisory Assets(2) Hybrid Advisory
Slide 5: NPH reportable assets are ~$105 billion, on track to transfer 65-70%
NPH reportable assets are ~$105 billion, and we are on track to transfer 65-70%, or $70-$75 billion NPH Assets ($ billions) Brokerage and Advisory Assets Off-Platform Assets • NPH reported its advisors served ~$120B in ~$120 assets as of June 2017, which included ~$15B ~$120 ~$10 of advisory assets
Slide 6: Financial performance has steadily improved on four key metrics
Financial performance has steadily improved on four key metrics Gross Profit* ($ millions) EBITDA* ($ millions) Including NPH Including NPH YOY SEQ Change Change $170 $170 YOY SEQ $156 Change Change $403 $399 16% 4% $152 $376 $389 $387 $137 $139 17% -11% $356 $345 $347 $347 $132 $322 $120 $119 Prior
Slide 7: Q4 2017 EPS Prior to Amortization of Intangible Assets was up 71%
Q4 2017 EPS Prior to Amortization of Intangible Assets* was up 71% year-over-year prior to certain items Q4 2017 – Year-over-Year Q4 2017 – Sequential EPS Prior to Amortization of Intangible Assets* ($) EPS Prior to Amortization of Intangible Assets* ($) 24% +$0.10 +$0.02 +$0.01 +$0.10 71% -$0.23 -$
Slide 8: Q4 Total Net New Assets were an inflow of $3.3 billion prior to NPH
Q4 Total Net New Assets were an inflow of $3.3 billion prior to NPH Total Net New Assets ($ billions) Net New Advisory Assets(7) ($ billions) Net New Brokerage Assets(8) ($ billions) Total NNA Prior to NPH Advisory NNA Prior to NPH Brokerage NNA Prior to NPH Total NNA from NPH Advisory NNA from NPH
Slide 9: Q4 Corporate Advisory Assets increased 26% year-over-year to $160 billion
Q4 Corporate Advisory Assets increased 26% year-over-year to $160 billion, including $7 billion from NPH Corporate and Hybrid Advisory Platform Mix ($ billions) Corporate and Hybrid Advisory NNA Mix ($ billions) Corporate Advisory Assets(12) Hybrid Advisory Assets(13) Corporate Advisory NNA(14) Hybr
Slide 10: Q4 Centrally Managed Assets increased 42% year over year to $33 billion
Q4 Centrally Managed Assets increased 42% year over year to $33 billion, including $1 billion from NPH Centrally Managed Assets(16) ($ billions) Centrally Managed NNA(17) ($ billions) Centrally Managed Assets Centrally Managed NNA Prior to NPH Centrally Managed Assets % of Total Advisory Assets NPH
Slide 11: Q4 EBIT ROA prior to NPH increased 2.7 basis points year-over-year
Q4 EBIT ROA prior to NPH increased 2.7 basis points year-over-year Average Total Brokerage & Advisory Assets ($ billions) Average Total Brokerage & Advisory Assets(18) Gross Profit ROA(19) OPEX ROA(20) Including NPH Prior to NPH Calculations are based on Average Total Brokerage and Advisory Assets f
Slide 12: Q4 Gross Profit ROA prior to NPH increased 0.2 basis points
Q4 Gross Profit* ROA prior to NPH increased 0.2 basis points year- over-year, and decreased 0.1 basis points sequentially Gross Profit* ROA(22) (bps) Net Commission & Advisory Fees Cash Sweep Other Asset-Based(23) Transaction & Fee, Net of BC&E Interest & Income and Other Calculations are based on A
Slide 13: Q4 Gross Profit prior to NPH increased 15% year-over-year
Q4 Gross Profit* prior to NPH increased 15% year-over-year, and increased 3% on a sequential basis Gross Profit* ($ millions) Net Commission & Advisory Fees Cash Sweep Other Asset-Based(23) Transaction & Fee, Net of BC&E Interest & Income and Other Including NPH Prior to NPH YOY Change SEQ Change YO
Slide 14: Q4 Total OPEX ROA prior to NPH was down 2.5 basis points
Q4 Total OPEX ROA prior to NPH was down 2.5 basis points year- over-year and down 1.0 basis point sequentially Total OPEX ROA(24) (bps) Core G&A* Other Historical Adjustments(25) Promotional Regulatory Employee Share-based Compensation D&A Expense (ex Amortization of Intangibles) Amortization of Int
Slide 15: Q4 Total OPEX prior to NPH was flat year-over-year
Q4 Total OPEX prior to NPH was flat year-over-year and decreased 2% sequentially Total OPEX ($ millions) Core G&A* Other Historical Adjustments(25) Promotional Regulatory Employee Share-based Compensation D&A Expense (ex Amortization of Intangibles) Amortization of Intangible Assets Including NPH Pr
Slide 16: Prior to NPH, Q4 Cash Sweep yields increased ~60bps year-over-year
Prior to NPH, Q4 Cash Sweep yields increased ~60bps year-over year, and balances decreased 8% year-over-year Client Cash Sweep balances ($ billions) ICA Balances (EOP) DCA Balances (EOP) Money Market Balances (EOP) Cash Sweep % of Total Assets Including NPH Prior to NPH YOY Change SEQ Change YOY Cha
Slide 17: Our outlook for 2018 Core G&A is $800 to $830 million
Our outlook for 2018 Core G&A* is $800 to $830 million, with most year- over-year growth driven by costs to support NPH Lower Recent Expense Trajectory Long-term cost strategy Annual Core G&A* Growth Focus on delivering operating leverage Prioritize investments that drive organic growth 7% Dri
Slide 18: NPH Wave 2 onboarding will drive higher Q1 promotional expense
NPH Wave 2 onboarding will drive higher Q1 promotional expense Promotional ($ millions) $60M • +$10-$20 million increase NPH depending on Wave 2 mix • $10M of Onboarding of Cash and Loan NPH ~$33-43M • $12M of Cash Assistance Assistance $23M • $1M of Loan Amortization • +$1M of Conference Expense fo
Slide 19: NPH onboarding costs and financial assistance consistent with initial outlook
NPH onboarding costs and financial assistance through Q4 2017 was consistent with initial outlook Onboarding Costs ($ millions) Financial Assistance ($ millions) Roughly $100M Up to $100M Cash and 2018 Estimate: Loans Up to $56M $60M $40-60M Core G&A* 2018 Estimate: and Cash $20-40M $40M Promotional
Slide 20: Q4 EBITDA prior to NPH was up 43% year-over-year
Q4 EBITDA prior to NPH was up 43% year-over-year, leading to EBITDA margin prior to NPH up ~820 bps EBITDA* ($ millions) EBITDA* EBITDA Margin as a Percent of Gross Profit* (29) Including NPH Prior to NPH $170 $170 YOY Change SEQ Change YOY Change SEQ Change $152 $156 $137 $139 17% -11% 43% 7% $132
Slide 21: Tax Reform lowered our estimated 2018 effective tax rate to ~27-29%
Tax Reform lowered our estimated 2018 effective tax rate to ~27-29% Q4 2017 Effective Tax Rate 2018 Estimated Effective Tax Rate ~39-40% ~39-40% +2-3% ~27-29% -~11% ~20% -14% $0.10 -~7% of EPS $0.07 of EPS Normalized Tax Reform State Tax Q4 2017 Prior to Federal Deductions After Tax Tax Rate Impact
Slide 22: Appendix
Appendix 22 LPL Financial Member FINRA/SIPC
Slide 23: Q4 and Full Year 2017 Key Metrics prior to and including NPH
Q4 and Full Year 2017 Key Metrics prior to and including NPH Q4 2017 Full Year 2017 Results Results Results Results NPH NPH Prior to + = Including Prior to + = Including Impact Impact NPH NPH NPH NPH Assets: Total Brokerage & Advisory Assets $580.7 B $34.4 B $615.1 B $580.7 B $34.4 B $615.1 B Adviso
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
Slide 25: Reconciliation of Core G&A to OPEX
Reconciliation of Core G&A to OPEX 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 against the Company’s total operating expense for the
Slide 26: 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 27: 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 release for additional information. Set forth below is a calculation of Gross Profit for the periods presented on pages 6 and 11-13
Slide 28: Footnotes
Footnotes (1) Consists of brokerage assets serviced by advisors licensed with the Company’s broker-dealer subsidiary LPL Financial LLC (“LPL Financial”). (2) Consists of total assets on LPL Financial's corporate advisory platform serviced by advisors who are investment advisor representatives of LPL
LPL Financial Holdings — Q4 2017 Earnings Presentation on 6ix