Lpl Financial Holdings Inc. · NASDAQ:LPLA
Lpl Financial — Q3 2017 Earnings Presentation
26 slides from Lpl Financial's earnings presentation, Oct 26, 2017
Slide 1: LPL Financial Investor Presentation Q3 2017
LPL Financial Investor Presentation Q3 2017 October 26, 2017 Member FINRA/SIPC
Slide 2: Notice to Investors: Safe Harbor Statement
Notice to Investors: Safe Harbor Statement Statements in this presentation 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 Q3 2017 Metrics LPL is a leader in the retail financial advice $560B+ Retail Assets: Q3 Business Metrics LTM Financial Metrics • Brokerage: $310B Assets: $560B Average Assets: $535B market and the nation’s largest independent • Corporate Advisory: $145B
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 ~$2.5 Tr LPL LPL Rest of ~11% LPL ~12% Rest of (2) market ~8% market ~46% Rest of ~25% Top 4 Highly Competitors fragmented, market ~75% 900+ IBD
Slide 8: We continue to invest to deliver a best-in-class advisor experience
GROW OUR CORE BUSINESS We continue to invest to deliver a best-in-class advisor experience Service: faster responses and Technology: capex driving Risk & Compliance: expenses resolutions growth and efficiency down from 2014-2015 levels Average Speed to Answer Calls Regulatory-related expenses 1:43 (
Slide 9: We are enhancing our strategic capabilities
GROW OUR CORE BUSINESS We are enhancing our strategic capabilities Advisor Product & Retail Investor Experience Platform Engagement Solutions Examples: • Rolled out ClientWorks • Expanding our advisory • Transforming client to all advisors solutions: statements • Leveraging automation ‒ Digital advi
Slide 10: We benefit from market and organic growth
GROW OUR CORE BUSINESS We benefit from market and organic growth Interest Rates Equity Markets Market Contribution Short-term rates + S&P 500 and other Market (e.g. FFER) index levels drivers New-Store Sales Same-Store Sales Attrition Net New Asset Growth Recruiting + Growth of - Retention new advis
Slide 11: Our business is growing organically and shifting toward advisory
GROW OUR CORE BUSINESS Our business is growing organically and shifting toward advisory Total Net New Assets ($ billions) Net New Advisory Assets ($ billions) Net New Brokerage Assets ($ billions) Total NNA Total NNA Annualized Growth Advisory NNA Advisory NNA Annualized Growth Brokerage NNA Brokera
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 98% 97% 96% 96% 95% 14,036 14,054 14,377 14,253 13,673 321 363 323 18
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 end of period balances (billions) Cash sweep product descriptions • FDIC insured sweep deposits 3% Insured • Available to brokerage, hybrid advisory, Money CAGR and corporate advisory ta
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 *A
Slide 15: We are focused on generating operating leverage
EXECUTE WITH EXCELLENCE We are focused on generating operating leverage Total Brokerage and Advisory Assets Gross Profit ROA $560 OPEX ROA $509 $475 $476 $438 28.5bps 27.9bps 28.5bps 27.4bps 26.8bps 20.5bps 20.5bps 21.4bps 19.6bps 18.3bps 2013 2014 2015 2016 2017 LTM EBIT ROA: 8.0 bps 7.4 bps 7.2 bp
Slide 16: We are executing with greater cost discipline and efficiency
EXECUTE WITH EXCELLENCE We are executing with greater cost discipline and efficiency Lower near-term expense trajectory Driving greater cost discipline Annual Core G&A Growth Focusing investments on the priorities 1 that drive the greatest long-term value 2017 Core G&A outlooks includes estimated DO
Slide 17: After two debt refinancings in 2017, our capital structure is better positioned
EXECUTE WITH EXCELLENCE After two debt refinancings in 2017, our capital structure is better positioned to support growth Debt Maturities Debt structure now ~60% Term Loan B at floating/~40% fixed rate vs. LIBOR + 225, 100% floating prior to two covenant-lite* refinancings Revolver Senior Notes upsi
Slide 18: We balance flexible capital structure with dynamic allocation
EXECUTE WITH EXCELLENCE We balance flexible capital structure with dynamic allocation Flexible capital structure Dynamic capital allocation Advisor Loans / Transition - ENVIRONMENT + Assistance at high IRRs Potential M&A Opportunities - AVAILABLE RETURNS + Service, Technology, and Other Projects / C
Slide 19: Combining business growth, operating leverage, and capital management to drive EBITDA and EPS
EXECUTE WITH EXCELLENCE We are combining business growth, operating leverage, and capital management to drive EBITDA and EPS growth over time Total Brokerage & Advisory Assets ($ billions) Gross Profit ($ millions) (1) 7% 5% CAGR CAGR $1,394 $1,498 $560 $1,248 $1,326 $1,358 $475 $476 $509 $438 2013
Slide 20: Summary LPL investment thesis
Summary LPL investment thesis Summary Positively levered to rising markets and Attractive secular industry trends interest rates Established market leader with scale Capital light business model Experienced management team focused on Stable and recurring revenue and cash flow driving growth and effi
Slide 21: Appendix
APPENDIX 21
Slide 22: Our diversified and recurring revenue streams support EBITDA consistency
APPENDIX Our diversified and recurring revenue streams support EBITDA consistency For YTD 2017 Sources of Revenue Primary Drivers 78% Recurring Revenue YTD 2017 Net Revenues % of Total (millions) Net Revenue % Recurring • Sales Transaction and Fee 10% Other 2% 39% Advisor-driven Commission • Transac
Slide 23: LPL's capital-light model has supported shareholder capital returns
APPENDIX LPL’s capital-light model has supported shareholder capital returns Capital Returns ($ millions) 487 371 96 287 96 68 391 152 114 275 68 219 89 84 25 2013 2014 2015 2016 2017 YTD Share Repurchases Dividends Return of capital per share $2.71 $3.64 $5.03 $1.27 $1.65 23
Slide 24: Reconciliation of Net Income to EBITDA
APPENDIX 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. Set forth below is a reconciliation from the Company’s net income to EBITDA for th
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 financial 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 fo
LPL Financial Holdings — Q3 2017 Earnings Presentation on 6ix