Lpl Financial Holdings Inc. · NASDAQ:LPLA
Lpl Financial — Q1 2021 Earnings Presentation
39 slides from Lpl Financial's earnings presentation, Apr 29, 2021
Slide 1: Q1 2021 Investor Presentation
Q1 2021 INVESTOR PRESENTATION LPL Financial Holdings Inc. June 2, 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, the “Company”) future financial and operating results, growth, priorities, business strategies and outlook, including forecasts and statements relating
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 $950B+ Retail Assets: 17,000+ Advisors: their clients. • Advisory: $497B • Independent Advisors: 9,800+ • Brokerage: $462B • Hybrid RIA: 5,100+ (460+ firms) • Institutional Services: 2,600+ Value Prop
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 increased by ~100% than tripled ~10 percentage points EBITDA* has nearly doubled Total Advisory and Brokerage 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 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
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
We are expanding our addressable markets by ~3x with new affiliation models Advisory-Oriented Independent Market Independent Employee Market New ~$5 Tr Opportunity New ~$4 Tr Opportunity Strategic Wealth Services RIA-Only Advisory Independent Employee • Previously referred to as our • Enables RIAs t
Slide 10: We have increased our investment capabilities to enhance our advisor value proposition
2 Expanded capabilities to enhance the advisor value proposition We have increased our investment capabilities to enhance our advisor value proposition and drive growth We are focused on delivering capabilities that position advisors to As a result, we have increased our technology spend more time w
Slide 11: Advisory assets are over 50% of total assets
2 Expanded capabilities to enhance the advisor value proposition Advisory assets are over 50% of total assets Our business is shifting from Brokerage to Advisory The shift to Advisory can create value Advisory Assets (year-end) ($ billions) (9) Advisory % of Total Advisory and Brokerage Assets Organ
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 ~1,700 subscribers, more than double a year ago Annualized revenue has increased to ~$19 million, up by ~$9 million from a year ago Launch
Slide 13: We have added M&A Solutions as our sixth Business Solution
2 Expanded capabilities to enhance the advisor value proposition We have added M&A Solutions as our sixth Business Solution Buying or selling a practice can be a demanding process for advisors. LPL’s M&A Solutions provides comprehensive buyer and seller development programs and an end-to-end transac
Slide 14: Supporting advisors with access to capital throughout their practice lifecycle
2 Expanded capabilities to enhance the advisor value proposition We are supporting advisors with access to capital throughout their practice lifecycle Transition Assistance Capital to help advisors transition their practices to LPL Growth Capital Capital and expertise to support practice growth init
Slide 15: We are digitizing key advisor workflows to help drive practice scalability
2 Expanded capabilities to enhance the advisor value proposition We are digitizing key advisor workflows to help drive practice scalability and efficiency ClientWorks Connected 1 2 3 4 5 6 Attracting Turning Prospects New Account Managing Client Servicing Client Prospects into Clients Onboarding Por
Slide 16: Solid organic growth with a Net New Asset growth rate of ~13% in Q1
3 Organic growth opportunities through net new assets and ROA We continued to drive solid organic growth with a Net New Asset growth rate of ~13% in Q1 and ~11% for the past twelve months Total Net New Assets(11) ($ billions) Net New Advisory Assets(12) ($ billions) Net New Brokerage Assets(13) ($ b
Slide 17: 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 strengthen our strategic position We are the largest provider of outsourced We onboarded BMO Harris in Q1 2021 and expect M&T to bank wealt
Slide 18: 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(17) Additional drivers of growth Strategic Wealth Services Business (formerly Premium) Solutions ~40-45 bps Independent Gross P
Slide 19: We benefit from rising market levels and interest rates
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 20: Q1 Client Cash balances remained elevated
4 Resilient business model with natural hedges to market volatility Q1 Client Cash balances remained elevated Client Cash balances ($ billions) Annual potential Gross Profit* benefit from rising interest rates ICA Balances (EOP) DCA Balances (EOP) Money Market Account Balances (EOP) Estimated In
Slide 21: In Q1, ICA balances remained well above 2019 levels
4 Resilient business model with natural hedges to market volatility In Q1, 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 22: A third-party bank will substantially reduce its participation in client cash sweep programs
4 Resilient business model with natural hedges to market volatility A third-party bank will be substantially reducing its participation in client cash sweep programs, including ours • Our ICA contracts generally do not allow for third-party banks to exit contracts prior to their scheduled maturity d
Slide 23: 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) (22) Gross Profit* ROA(23) $835 OPEX RO
Slide 24: Investing to drive organic growth while delivering 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 (As of March 31st, 2021) Deliver operating leverage in core business
Slide 25: 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 26: 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 (26) Credit Agreement Net Leverage Ratio(26) Prior Management Target Level (4x) Prior Management Target Range (3.2
Slide 27: 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 - $1.1B (up to 2.75x levera
Slide 28: Prioritizing capital deployment to organic growth and M&A
6 Capital light business model with significant capacity to deploy ...And we are currently prioritizing capital deployment to organic growth and M&A Shareholder Capital Returns ($ millions) Share Repurchases Dividends (29) Total Payout Ratio (As of 3/31/21) 93% 105% 101% 101% 87% 18% 17% 16% 14%
Slide 29: 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(9) Growth potential from consolidation Expanded Addressable Markets Our scale, capabilities, and economics give us competitive advantages in
Slide 30: Recent Acquisitions
7 Opportunity to consolidate fragmented core markets through M&A Recent Acquisitions Traditional Markets New Markets Capabilities 2020 2021 2017 2020 2019 ~Industry-leading capabilities ~$67B Assets as of April 2021* ~$70B Assets transferred ~$1.5B Assets ~$3B Assets transferred ~$12M purchase price
Slide 31: Q1 2021 Waddell & Reed update
7 Opportunity to consolidate fragmented core markets through M&A Q1 2021 Waddell & Reed update: Our estimated retention improved to 95% and our expected run-rate EBITDA increased to $80M+ Transaction Details at Signing Retention Update Financial Update Waddell & Reed’s wealth management client ass
Slide 32: As we invest and increase our scale, we enhance our ability to drive further growth
As we continue to invest and increase our scale, we enhance our ability to drive further growth Attract assets Invest in and advisors, differentiated and benefit from capabilities and a greater use of unique advisor our services experience Long-term Shareholder Value Remain disciplined on expenses a
Slide 33: We are focused on executing our strategy and delivering results
We are focused on executing our strategy and delivering results Total Advisory and Brokerage Assets(32) ($B) Organic Net New Asset Growth Key earnings growth drivers Organic Growth (ex Large Banks) Up Enhanced Advisor Value Proposition 15% CAGR > 3x (Capabilities, Technology, Service) $958 8.8% Incr
Slide 34: Appendix
APPENDIX LPL Financial Member FINRA/SIPC 34
Slide 35: LPLA April 2021 Monthly Metrics Dashboard
LPLA April 2021 Monthly Metrics Dashboard Total Advisory and Brokerage Assets ($ billions) Total Net New Assets ($ billions) Total Advisory and Brokerage Assets Assets from WDR Advisory Assets % Total YOY SEQ Organic NNA Acquired NNA Annualized Organic Growth Rate 9.8% Change Change Organi
Slide 36: 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 37: Reconciliation of EPS Prior to Amortization of Intangible Assets 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 38: 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 39: 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
LPL Financial Holdings — Q1 2021 Earnings Presentation on 6ix