Slide 1: LPL Financial Investor Presentation Q2 2017
LPL Financial Investor Presentation Q2 2017 July 27th, 2017 Member FINRA/SIPC
Slide 2: Notice to Investors: Safe Harbor Statement
Notice to Investors: Safe Harbor Statement Statements in this press release regarding the Company's future financial and operating results, outlook, growth, prospects, business strategies, future market position, future operating environment, and goals, including forecasts and statements relating to
Slide 3: Notice to Investors: Non-GAAP Financial Measures
Notice to Investors: Non-GAAP Financial Measures Management believes that presenting certain non-GAAP 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, prospects,
Slide 4: LPL Overview
LPL Overview About Us Key Markets and Services Q2 2017 Metrics LPL is a leader in the retail financial advice $500B+ Retail Assets: Q2 Business Metrics LTM Financial Metrics market, as one of the fastest growing • Brokerage: $305B Assets: $542B Average Assets: $521B registered investment advisor (“R
Slide 5: We are focused on growth and execution to create long-term shareholder value
We are focused on growth and execution to create long-term shareholder value Grow our Core Business Execute with Excellence + Leverage the strength of our markets and model + Drive greater efficiency and productivity • Capitalize on secular trends • Continuously improve over time • Expand leadership
Slide 6: Our business is positioned for sustained growth
GROW OUR CORE BUSINESS Our business is positioned for sustained growth Assets served by financial Independents continue to Independents continue to advisors have grown ~8% per year capture share from wirehouses demonstrate growth in advisory $25 Tr 100% 100% Brokerage Assets % of ~32% Independent As
Slide 7: We have room to grow our leadership positions
GROW OUR CORE BUSINESS We have room to grow our leadership positions IBD Channel Hybrid RIA Bank / Insurance Channels Pure RIA (1) ~$2.3 Tr ~$1.8 Tr ~$1 Tr ~$2.5 Tr LPL LPL Rest of ~11% LPL ~12% Rest of market ~8% market ~46% Rest of ~25% Top 4 Highly Competitors fragmented, market ~75% 900+ IBDs To
Slide 8: We continue to invest to deliver a best-in-class advisor experience
GROW OUR CORE BUSINESS We continue to invest to deliver a best-in-class advisor experience Service: faster responses and Technology: capex driving Risk & Compliance: regulatory resolutions growth and efficiency expenses down 50% in 2016(1) Average Speed to Answer Calls Regulatory-related expenses 1:
Slide 9: We are enhancing our strategic capabilities
GROW OUR CORE BUSINESS We are enhancing our strategic capabilities Advisor Product & Retail Investor Experience Platform Engagement Solutions Examples: • Rolled out ClientWorks • Expanding our advisory • Transforming client to all advisors solutions: statements • Leveraging automation ‒ Digital advi
Slide 10: We benefit from market and organic growth
GROW OUR CORE BUSINESS We benefit from market and organic growth Interest Rates Equity Markets Market Contribution Short-term rates + S&P 500 and other Market (e.g. FFER) index levels drivers New-Store Sales Same-Store Sales Attrition Net New Asset Growth Recruiting + Growth of - Retention new advis
Slide 11: Our business is growing organically and shifting toward advisory
GROW OUR CORE BUSINESS Our business is growing organically and shifting toward advisory Total Net New Assets ($ billions) Net New Advisory Assets ($ billions) Net New Brokerage Assets ($ billions) Total NNA Total NNA Annualized Growth Brokerage NNA Brokerage NNA Anualized Growth Advisory NNA Advisor
Slide 12: We have continued to attract advisors and maintain high retention
GROW OUR CORE BUSINESS We have continued to attract advisors and maintain high retention over the long-term Advisors Count Production Retention Rate(1) (Net new advisors) % of prior year production Advisor Count Change in Advisors 14,036 14,054 14,377 14,256 96% 95% 98% 97% 96% 96% 13,352 13,673 93%
Slide 13: Client cash sweep balances position us for earnings growth as rates rise
GROW OUR CORE BUSINESS Client cash sweep balances position us for earnings growth as rates rise Client cash sweep balances (billions) Cash sweep product descriptions • FDIC insured sweep deposits 4% $31 CAGR Insured • Available to brokerage, hybrid advisory, $29 $28 and corporate advisory taxable ac
Slide 14: We have significant cash sweep upside as interest rates rise
GROW OUR CORE BUSINESS We have significant cash sweep upside as interest rates rise Annual gross profit upside potential (assumes 50% client sharing)* We believe we have opportunity above the upside shown ~$140M+ ~$105M+ ~$70M+ ~$35M+ Avg. Fed Funds Effective Rate +25 bps +50 bps +75 bps +100 bps No
Slide 15: We are focused on generating operating leverage
EXECUTE WITH EXCELLENCE $509 7% 9% $475 $476 We are focused on generating operating $438 leverage $373 Total Brokerage and Advisory Assets $330 Gross Profit ROA 31.2bps 29.8bps 28.5bps 27.9bps 28.5bps 27.4bps OPEX ROA -1.2bps -3.8bps $542 20.6bps 21.6bps 20.6bps 20.6bps 21.4bps $509 $475 $476 19.6bp
Slide 16: We are executing with greater cost discipline and efficiency
EXECUTE WITH EXCELLENCE We are executing with greater cost discipline and efficiency Lower near-term expense trajectory Driving greater cost discipline Annual Core G&A Growth Focusing investments on the priorities 1 that drive the greatest long-term value 2017 Core G&A outlooks includes estimated DO
Slide 17: Our updated capital structure positions us well to fund growth
EXECUTE WITH EXCELLENCE Our updated capital structure positions us well to fund growth Debt Maturities – Prior to vs. As of March 10, 2017 ($B) Term Loan B at $1,700 Senior Prior Undrawn Proposed Current Debt Debt Revolver Maturity Maturity $1,700 LIBOR + 250, Notes at Prior Debt Current Debt Propos
Slide 18: We balance flexible capital structure with dynamic allocation
EXECUTE WITH EXCELLENCE We balance flexible capital structure with dynamic allocation Flexible capital structure Dynamic capital allocation Advisor Loans / Transition - ENVIRONMENT + Assistance at high IRRs Potential M&A Opportunities - AVAILABLE RETURNS + Service, Technology, and Other Projects / C
Slide 19: Combining business growth, operating leverage, and capital management to drive EBITDA and EPS
EXECUTE WITH EXCELLENCE We are combining business growth, operating leverage, and capital management to drive EBITDA and EPS over time Total Brokerage & Advisory Assets ($ billions) (1) Gross Profit ($ millions) (2) 7% 9% CAGR CAGR $1,326 $1,358 $1,394 $1,458 $509 $542 $1,112 $1,248 $438 $475 $476 $
Slide 20: Summary LPL investment thesis
Summary LPL investment thesis Summary Positively levered to rising markets and Attractive secular industry trends interest rates Established market leader with scale Capital light business model Experienced management team focused on Stable and recurring revenue and cash flow driving growth and effi
Slide 21: Appendix
APPENDIX 21
Slide 22: Our diversified and recurring revenue streams support EBITDA consistency
APPENDIX Our diversified and recurring revenue streams support EBITDA consistency For YTD 2017 77% Recurring Revenue YTD 2017 Sources of Revenue Primary Drivers Net Revenues % of Total % (millions) Net Revenue Recurring Transaction and Fee • Sales 10% Other 2% 38% Advisor-driven Commission • Transac
Slide 23: LPL's capital-light model has supported shareholder capital returns
APPENDIX LPL’s capital-light model has supported shareholder capital returns Return of Capital (in millions) 487 448 371 96 249 287 96 68 391 114 104 89 275 199 219 89 45 89 59 25 2011 2012 2013 2014 2015 2016 2017 YTD Share Repurchases Dividends Return of capital per share $0.79 $4.04 $2.71 $3.64 $
Slide 24: Reconciliation of Net Income to EBITDA
APPENDIX Reconciliation of Net Income to EBITDA EBITDA is a non-GAAP measure. Please see a description of EBITDA under “Non-GAAP Financial Measures” on page 3 of this presentation for additional information. Set forth below is a reconciliation from the Company’s net income to EBITDA for the periods
Slide 25: Reconciliation of Net Income to Credit Agreement EBITDA
APPENDIX Reconciliation of Net Income to Credit Agreement EBITDA Credit Agreement EBITDA is a non-GAAP financial measure. Please see a description of Credit Agreement EBITDA under “Non-GAAP Financial Measures” on page 3 of this presentation for additional information. Set forth below is a reconcilia
Slide 26: Reconciliation of Core G&A to OPEX
APPENDIX Reconciliation of Core G&A to OPEX Core G&A is a non-GAAP measure. Please see a description of Core G&A under “Non-GAAP Financial Measures” on page 3 of this release for additional information. Below is a reconciliation of Core G&A against the Company’s total operating expenses for the peri