Lpl Financial Holdings Inc. · NASDAQ:LPLA
Lpl Financial — Q2 2021 Earnings Presentation
35 slides from Lpl Financial's earnings presentation, Jul 29, 2021
Slide 1: Q2 2021 Investor Presentation
Q2 2021 INVESTOR PRESENTATION LPL Financial Holdings Inc. August 10, 2021 LPL Financial Member FINRA/SIPC 1
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, “LPL” or the “Company”) future financial and operating results, growth, priorities, business strategies and outlook, including forecasts and statements
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 $1.1Tr+ Retail Assets: 19,000+ Advisors: We take care of our advisors so they can take care of their clients. • Advisory: $578B • Independent Advisors: 11,000+ • Brokerage: $535B • Hybrid RIA: 5,200+ (~450 firms) • Institutional Services: 2,800+ (~800 Va
Slide 5: We continue to drive business and financial growth
We continue to drive business and financial growth Total assets have more than Organic asset growth has Operating margin has increased doubled increased more than 4x more than 5 percentage points EBITDA* has nearly doubled Total Advisory and Brokerage Assets Organic Net New Asset Growth Rate Operati
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 Industry leader with scale, structural tailwinds, and expanded addressable markets 2 Expanded capabilities to enhance the advisor value proposition 3 Organic growth opportunities through net new ass
Slide 8: We are a market leader with scale advantages and industry tailwinds
1 Industry leader with scale, structural tailwinds, and expanded addressable markets 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 Projecte
Slide 9: We have tripled our addressable markets with new affiliation models
1 Industry leader with scale, structural tailwinds, and expanded addressable markets We have tripled our addressable markets with new affiliation models Advisory-Oriented Independent Market Independent Employee Market New ~$5 Tr Opportunity New ~$4 Tr Opportunity Strategic Wealth Services RIA-Only A
Slide 10: We have increased our investment capabilities to enhance our advisor value proposition
2 Expanded capabilities to enhance the advisor value proposition We have increased our investment capabilities to enhance our advisor value proposition and drive growth We are focused on delivering capabilities that position advisors to spend As a result, we have increased our technology more time w
Slide 11: Advisory assets are over 50% of total assets
2 Expanded capabilities to enhance the advisor value proposition Advisory assets are over 50% of total assets Our business is shifting from Brokerage to Advisory The shift to Advisory can create value Advisory Assets (year-end) ($ billions) (9) Advisory % of Total Advisory and Brokerage Assets • Ass
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 has grown to ~2,100 subscribers, more than double a year ago Annualized revenue from Business Solutions has increased to ~$20M Launched Resilience Plan
Slide 13: We are digitizing key advisor workflows to help drive practice scalability and efficiency
2 Expanded capabilities to enhance the advisor value proposition We are digitizing key advisor workflows to help drive practice scalability and efficiency ClientWorks Connected 1 2 3 4 5 6 Attracting Turning Prospects New Account Managing Client Servicing Client Prospects into Clients Onboarding Por
Slide 14: Solid organic growth with a Net New Asset growth rate of ~12%
3 Organic growth opportunities through net new assets and ROA We continued to drive solid organic growth with a Net New Asset growth rate of ~12% for the past year Total Net New Assets(11) ($ billions) Net New Advisory Assets(12) ($ billions) Net New Brokerage Assets(13) ($ billions) Organic Total
Slide 15: Leading 3rd party provider to financial institutions, with CUNA, M&T and BMO Harris
3 Organic growth opportunities through net new assets and ROA We are the leading 3rd party provider to financial institutions, with CUNA, M&T and BMO Harris strengthening our strategic position We are the leading 3rd party provider We onboarded BMO Harris and M&T in 1H 2021, to financial institution
Slide 16: 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(16) Additional drivers of growth Strategic Wealth Services Business (formerly Premium) Solutions ~40-45 bps Independent New Mod
Slide 17: We benefit from rising market levels and interest rates, with 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 ~$25M and relate
Slide 18: We are well positioned to benefit from rising interest rates
4 Resilient business model with natural hedges to market volatility We are well positioned to benefit from rising interest rates Client Cash balances ($ billions) Annual potential Gross Profit* benefit from rising interest rates ICA Balances (EOP) DCA Balances (EOP) Money Market Account Balances
Slide 19: In Q2, we added ~$600 million of new fixed rate ICA contracts
4 Resilient business model with natural hedges to market volatility In Q2, we added ~$600 million of new fixed rate ICA contracts ICA balances remain elevated Overflow balances provide capacity when balances spike Overflow ICA Balances ($B) • When elevated market volatility leads ICA balances to t
Slide 20: We continue to drive margin expansion
5 Disciplined expense management driving operating leverage We continue to drive margin expansion Gross Profit* remains solid with double-digit growth Long-term expense and investment strategy 11% CAGR • Deliver operating leverage in core business • Prioritize investments that drive additional growt
Slide 21: 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 2021 Core G&A* context • Our 2021 Core G&A* plans are for a range of $975M to $1B prior to Wad
Slide 22: 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 23: 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 Leverage Ratio (21) Leverage Ratio (21) Prior Management Target Level (4x) Prior Management Target Range Leverage increase in Q2 driven by (3.25x - 3.
Slide 24: 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 ~$0.8 - $1.0B (up to 2.75x levera
Slide 25: We plan to restart share repurchases in Q3
6 Capital light business model with significant capacity to deploy ...And we plan to restart share repurchases in Q3, initially focused on offsetting dilution, estimating ~$40M per quarter Share Repurchases and Dividends ($ millions) Share Repurchases Dividends Shareholder Payout Ratio (As of
Slide 26: 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(6) Growth potential from consolidation Expanded Markets • Our scale, capabilities, and economics give us competitive advantages in M&A Traditi
Slide 27: Recent acquisitions
7 Opportunity to consolidate fragmented core markets through M&A Recent acquisitions Traditional Markets New Markets Capabilities 2021 2017 2020 2019 2020 ~$70B assets as of June 2021 ~$70B assets transferred ~$1.5B assets ~$3B assets transferred ~Industry-leading capabilities ~$12M purchase price
Slide 28: Waddell & Reed update: retention improved to ~98%, run-rate EBITDA increased to $85M+
7 Opportunity to consolidate fragmented core markets through M&A Waddell & Reed update: Our estimated retention improved to ~98% and our expected run-rate EBITDA increased to $85M+ Transaction Details at Signing Retention Update Financial Update Waddell & Reed’s wealth management client assets Estim
Slide 29: As we continue to invest and increase our scale, we enhance our ability to drive further growth
As we continue to invest and increase our scale, we enhance our ability to drive further growth Attract assets Invest in and advisors, differentiated and benefit from capabilities and a greater use of unique advisor our services experience Long-term Shareholder Value Remain disciplined on expenses a
Slide 30: We are focused on executing our strategy and delivering results
We are focused on executing our strategy and delivering results Total Advisory and Brokerage Assets(25) ($B) Organic Net New Asset Growth Key Earnings Growth Drivers Up Enhanced Advisor Value Proposition 19% >4x CAGR (Capabilities, Technology, Service) Increased Organic NNA (Opportunities in Traditi
Slide 31: Appendix
APPENDIX LPL Financial Member FINRA/SIPC 31
Slide 32: Calculation of Gross Profit and Reconciliation of Net Income to EBITDA
Calculation of Gross Profit and Reconciliation of Net Income to EBITDA and Credit Agreement EBITDA Gross Profit, EBITDA and Credit Agreement EBITDA are non-GAAP financial measures. Please see descriptions of Gross Profit, EBITDA and Credit Agreement EBITDA under “Non-GAAP Financial Measures” on page
Slide 33: Reconciliation of EPS Prior to Amortization of Intangible Assets and Acquisition Costs to GAAP EPS
Reconciliation of EPS Prior to Amortization of Intangible Assets and Acquisition Costs to GAAP EPS EPS Prior to Amortization of Intangible Assets and Acquisition Costs is a non-GAAP financial measure. Please see a description of EPS Prior to Amortization of Intangible Assets and Acquisition Costs un
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: 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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