Lpl Financial Holdings Inc. · NASDAQ:LPLA
Lpl Financial — Q3 2020 Earnings Presentation
37 slides from Lpl Financial's earnings presentation, Nov 9, 2020
Slide 1: LPL Financial Investor Presentation Q3 2020
LPL Financial Investor Presentation Q3 2020 November 9, 2020 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 forec
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 We take care of our advisors so they can take care of $810B+ Retail Assets: 17,000+ Advisors: their clients • Advisory: $406B • Independent Advisors: 9,500+ • Brokerage: $404B • Hybrid RIA: 5,000+ (450+ firms) • Institutional Services: 2,500+ Value Propo
Slide 5: We continue to drive business and financial growth
We continue to drive business and financial growth Total assets have increased Organic asset growth has more Operating margin has EBITDA* has more than by ~70% than doubled increased ~30% doubled Total Advisory and Brokerage Assets Organic Net New Asset Growth Rate Operating Margin EBITDA* ($ billio
Slide 6: We are creating the next generation of the Independent Model
We are creating the next generation of the Independent Model PLAY PLAY PLAY PLAY 1 2 3 4 Meeting advisors where Helping advisors Delight advisors and their Helping advisors run the they are in the evolution differentiate and win end- clients with industry-leading most successful of their practices c
Slide 7: LPL Investment Highlights: Significant opportunities to grow and create long-term shareholder value
LPL Investment Highlights: Significant opportunities to grow and create long-term shareholder value 1 Established market leader with scale advantages and structural tailwinds 2 Expanded capabilities to enhance the advisor value proposition 3 Organic growth opportunities through net new assets and RO
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 Independent Channel Leading position in Tripling our total advice gaining share traditional markets addressable markets Projected Growth i
Slide 9: We are expanding our addressable markets by ~3x with new affiliation models
1 Established market leader with scale advantages and structural tailwinds We are expanding our addressable markets by ~3x with new affiliation models Advisory-Oriented Independent Market Independent Employee Market New ~$5 Tr Opportunity New ~$4 Tr Opportunity Strategic Wealth Services Fee-Only Adv
Slide 10: We have increased our investments in capabilities to enhance our advisor value proposition
2 Expanded capabilities to enhance the advisor value proposition We have increased our investments in capabilities to enhance our advisor value proposition and drive growth We are focused on delivering capabilities that position advisors to As a result, we have increased our technology spend more ti
Slide 11: Advisory assets are now over 50% of total assets
2 Expanded capabilities to enhance the advisor value proposition Advisory assets are now over 50% of total assets Our business is shifting from Brokerage to Advisory The shift to Advisory can create value Advisory Assets (year-end) ($ billions) (4) Advisory % of Total Advisory and Brokerage Assets $
Slide 12: We continue to scale and expand our Business Solutions portfolio
2 Expanded capabilities to enhance the advisor value proposition We continue to scale and expand our Business Solutions portfolio Business Solutions have grown to ~1,200 subscribers, up ~550 year-to-date We continue to expand the portfolio, including the launch of Assurance Plan in Q2 2020 Professio
Slide 13: We are digitizing key advisor workflows to help drive practice scalability and efficiency
2 Expanded capabilities to enhance the advisor value proposition We are digitizing key advisor workflows to help drive practice scalability and efficiency ClientWorks Connected 1 2 3 4 5 6 Attracting Turning Prospects New Account Managing Client Servicing Prospects into Clients Onboarding Portfolios
Slide 14: We are supporting advisors with access to capital throughout their practice lifecycle
2 Expanded capabilities to enhance the advisor value proposition We are supporting advisors with access to capital throughout their practice lifecycle Transition Assistance Capital to help advisors transition their practices to LPL Growth Capital Capital and expertise to support practice growth init
Slide 15: We continued to drive solid organic growth with an overall Net New Asset growth rate
3 Organic growth opportunities through net new assets and ROA We continued to drive solid organic growth with an overall Net New Asset growth rate of nearly 6% in Q3 and over 7% for the past year Total Net New Assets(6) ($ billions) Net New Advisory Assets(7) ($ billions) Net New Brokerage Assets(8)
Slide 16: We are the leading 3rd party provider to the bank channel
3 Organic growth opportunities through net new assets and ROA We are the leading 3rd party provider to the bank channel, and the additions of M&T and BMO Harris will further strengthen our strategic position We recently signed M&T and BMO Harris to join our Institution Services platform, and expect
Slide 17: 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 Strategic Wealth Services Business (formerly Premium) Solutions ~40-45 bps Independent Gross Profi
Slide 18: 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) Rising market levels drive growth in assets and related reve
Slide 19: Q3 Client Cash balances increased 3% sequentially
4 Resilient business model with natural hedges to market volatility Q3 Client Cash balances increased 3% sequentially Client Cash balances ($ billions) Annual potential Gross Profit* benefit from rising interest rates ICA Balances (EOP) DCA Balances (EOP) Money Market Account Balances (EOP) Esti
Slide 20: In Q3, ICA balances remained well above 2019 levels
4 Resilient business model with natural hedges to market volatility In Q3, ICA balances remained well above 2019 levels ICA balances remain elevated Overflow balances provide capacity when balances spike Overflow ICA Balances ($B) • When elevated market volatility leads ICA balances to temporarily
Slide 21: We have driven margin expansion
5 Disciplined expense management driving operating leverage We have driven margin expansion Gross Profit* ROA remains solid, and OPEX ROA continued to decline Long-term expense and investment strategy Average Total Advisory and Brokerage Assets (in billions) (12) Gross Profit* ROA(13) $756 OPEX RO
Slide 22: We remain focused on investing to drive organic growth while staying flexible
5 Disciplined expense management driving operating leverage We remain focused on investing to drive organic growth while also staying flexible to adjust spending if macro conditions warrant Long-term cost strategy 2020 Core G&A* context Our original plans were for a range of $915M to $940M (~5.5%
Slide 23: Our capital management strategy is focused on driving growth and maximizing shareholder value
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 24: Our balance sheet strength is a key driver of our 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
Slide 25: We have a 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… Potential M&A Capacity above our target range Willing to temporarily go above our target leverage range for attractive 4 M&A opportunities ~$0.9 - $1.1B (up to 2.75x levera
Slide 26: Currently prioritizing capital deployment to organic growth and M&A
6 Capital light business model with significant capacity to deploy …And we are currently prioritizing capital deployment to organic growth and M&A Shareholder Capital Returns ($ millions) Share Repurchases Dividends Total Payout Ratio as a % of EPS prior to Amortization of Intangible Assets* (As
Slide 27: Our addressable markets are fragmented, with potential for consolidation
7 Opportunity to consolidate fragmented core markets through M&A Our addressable markets are fragmented, with potential for consolidation Addressable markets Growth potential from consolidation Expanded Addressable Markets Our scale, capabilities, and economics give us Traditional Markets ~$5 Tr c
Slide 28: Recent acquisitions
7 Opportunity to consolidate fragmented core markets through M&A Recent acquisitions Traditional markets Capabilities New markets 2017 2020 2020 2020 2018 2019 ~$70B Assets transferred ~$1.5B Assets ~$2B Assets ~Industry-leading ~Industry-leading ~$3B Assets transferred ~4X EBITDA* purchase ~6X EBIT
Slide 29: As we continue to invest and increase our scale, we enhance our ability to drive further growth
As we continue to invest and increase our scale, we enhance our ability to drive further growth Attract assets Invest in and advisors, differentiated and benefit from capabilities and a greater use of unique advisor our services experience Long-term Shareholder Value Remain disciplined on expenses a
Slide 30: We are focused on executing our strategy and delivering results
We are focused on executing our strategy and delivering results Total Advisory and Brokerage Assets(17) ($B) Organic Net New Asset Growth Incremental earnings growth opportunities Up Enhanced Advisor Value Proposition 13% > 2x CAGR (Capabilities, Technology, Service) $810 7.1% $764 5.3% Greater Use
Slide 31: Appendix
Appendix 31 LPL Financial Member FINRA/SIPC
Slide 32: Our strategy and investments have helped drive positive mix shifts that stabilize return on assets
Our strategy and investments have helped drive positive mix shifts that stabilize return on assets prior to client cash Gross Profit* ROA (12) Key drivers of Gross Profit* ROA growth going forward Client Cash Offerings (e.g. deposit betas in the 25-50% range, extending ICA duration) 29.7 30.7 28.5 2
Slide 33: 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 4 and
Slide 34: 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 35: 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 36: 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 37: Endnotes
Endnotes (1) Based on total revenues, Financial Planning magazine, June 1996-2020. (2) Represents the estimated total advisory and brokerage assets expected to transition to the Company’s broker-dealer subsidiary, LPL Financial LLC (“LPL Financial”), associated with advisors who transferred their li
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