Lpl Financial Holdings Inc. · NASDAQ:LPLA
Lpl Financial — Investor Presentation (May 2020)
37 slides from Lpl Financial's investor presentation, May 27, 2020
Slide 1: LPL Financial Investor Presentation Q1 2020
LPL Financial Investor Presentation Q1 2020 May 27, 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 $670B+ Retail Assets: 16,700+ advisors: their clients • Brokerage: $348B • Independent Advisors: 9,200+ • Advisory: $322B • Hybrid RIA: 4,900+ (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 Operating margin has EBITDA* has more than more than 40% doubled increased ~50% doubled to over $1 billion Total Brokerage and Advisory Assets Organic Net New Asset Growth Rate Operating Margin EB
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 1 2 3 Position Our Model Across Create an Industry- the Entire Wealth Leading Service Help Advisors Run Management Market Experience, at Scale Successful Businesses Extend our leadership in our Develop excellence in Continuo
Slide 7: LPL Investment Highlights
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 Independent Channel Leading position in Tripling our total Growing demand for 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 ~$4 Tr Opportunity Strategic Wealth Services Fee-Only Adv
Slide 10: Increased investments in capabilities to enhance advisor value proposition
2 Expanded capabilities to enhance the advisor value proposition We have increased our investments in capabilities to enhance our advisor value proposition and drive growth We are focused on delivering capabilities that position advisors to spend As a result, we have increased our technology more ti
Slide 11: Advisory and centrally managed services have grown organically
2 Expanded capabilities to enhance the advisor value proposition Advisory and centrally managed services have grown organically following pricing and capability enhancements Our business is shifting from Brokerage to Advisory The shift to Advisory can create value Advisory Assets (year-end) ($ billi
Slide 12: Business Solutions can help advisors free up more time
2 Expanded capabilities to enhance the advisor value proposition Business Solutions can help advisors free up more time to serve their clients and increase the value of their businesses We have developed capabilities to help position Our capabilities are focused on key areas Business Solutions have
Slide 13: Digitizing key advisor workflows: ClientWorks
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: Supporting advisors with access to capital throughout 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: Higher organic growth; Q1 organic Net New Assets inflow of $12.5B
3 Organic growth opportunities through net new assets and ROA We continue to drive higher organic growth; Q1 total organic Net New Assets were an inflow of $12.5B Total Net New Assets ($ billions) Net New Advisory Assets(6) ($ billions) Net New Brokerage Assets(7) ($ billions) Organic Total NNA
Slide 16: Aligning Net New Asset definition with market practice
3 Organic growth opportunities through net new assets and ROA Starting in Q2, we will align our Net New Asset definition with market practice by including Dividend & Interest inflows and Advisory Fee outflows • We have provided the history below to show the combined contribution of Dividend & Intere
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: Business model has natural hedges to market volatility
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: Client Cash balances increased to ~$48B in Q1
4 Resilient business model with natural hedges to market volatility Client Cash balances increased to ~$48B in Q1, up 42% sequentially Annual potential Gross Profit* benefit from rising short-term Client Cash balances ($ billions) interest rates ICA Balances (EOP) DCA Balances (EOP) Money Market
Slide 20: ICA portfolio has a combination of fixed and floating rate balances
4 Resilient business model with natural hedges to market volatility Our ICA portfolio has a combination of fixed and floating rate balances We target having 50-75% of our ICA portfolio in fixed rate balances Overflow balances provide capacity when balances spike Overflow Overflow ICAICA Balances Bal
Slide 21: We have driven margin expansion
5 Disciplined expense management driving operating leverage We have driven margin expansion Gross Profit* ROA increased, and OPEX ROA continued to decline Long-term expense and investment strategy Average Total Brokerage and Advisory Assets (in billions) (11) Gross Profit* ROA(12) $720 OPEX ROA(13
Slide 22: Investing to drive organic growth while staying flexible on spending
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 2020 Core G&A* plans are for a range of $915M to $940M (~
Slide 23: Capital management strategy focused on growth and 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: Balance sheet strength is a key driver of 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 -
Slide 25: Significant capital deployment capacity
6 Capital light business model with significant capacity to deploy We have a significant amount of capital deployment capacity 4 Potential M&A Capacity above our target range Willing to temporarily go above our target leverage range for ~$1.1-$1.4B attractive M&A opportunities (up to 2.75x leverage)
Slide 26: Continued return of capital to shareholders
6 Capital light business model with significant capacity to deploy …And we have continued to return capital to shareholders, though we are now paused on share repurchases given the uncertainty in the macro environment Shareholder Capital Returns ($ millions) Share Repurchases Dividends Total Pay
Slide 27: 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 competitive advantages in M&
Slide 28: Recent acquisitions
7 Opportunity to consolidate fragmented core markets through M&A Recent acquisitions Traditional markets Capabilities New markets 2017 2020 2020 2018 2019 ~$70B Assets transferred ~$1.5B Assets ~$2B Assets Industry-leading capabilities ~$3B Assets transferred ~4X EBITDA* purchase multiple ~6X EBITDA
Slide 29: Investing and scaling to drive further growth
As we continue to invest and increase our scale, we enhance our ability to drive further growth Attract assets Invest in and advisors, differentiated and benefit from capabilities and a greater use of unique advisor our services experience Long-term Shareholder Value Remain disciplined on expenses a
Slide 30: Focused on executing our strategy and delivering results
We are focused on executing our strategy and delivering results Total Brokerage and Advisory Assets(16) ($B) Organic Net New Asset Growth Incremental earnings growth opportunities 9% Up Enhanced Advisor Value Proposition > 3x CAGR (Capabilities, Technology, Service) $764 4.4% $670 3.8% Greater Use o
Slide 31: Appendix
Appendix 31 LPL Financial Member FINRA/SIPC
Slide 32: Strategy and investments have helped drive positive mix shifts
Our strategy and investments have helped drive positive mix shifts that benefit return on assets 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 30.4 28.5 28.2 Modernize Prac
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 page 4 and 3
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 1996-2019. (2) Represents the estimated total brokerage and advisory 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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