Lpl Financial Holdings Inc. · NASDAQ:LPLA
Lpl Financial — Q3 2021 Earnings Presentation
34 slides from Lpl Financial's earnings presentation, Oct 28, 2021
Slide 1: Q3 2021 Investor Presentation
Q3 2021 INVESTOR PRESENTATION LPL Financial Holdings Inc. December 8, 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 $1.1Tr+ Retail Assets: 19,000+ Advisors: We take care of our advisors so they can take care of their clients. • Advisory: $594B • Independent Advisors: 11,000+ • Brokerage: $539B • Hybrid RIA: 5,300+ (~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 5x ~4 percentage points EBITDA* has nearly doubled Total Advisory and Brokerage Assets Organic Net New Asset Growth Rate(5) Operating Mar
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 ~$4 Tr Opportunity Strategic Wealth Services RIA-Only A
Slide 10: We have increased our investment capabilities to enhance our advisor value proposition and drive growth
2 Expanded capabilities to enhance the advisor value proposition We have increased our investment capabilities to enhance our advisor value proposition and drive growth We are focused on delivering capabilities that position advisors to spend As a result, we have increased our technology more time w
Slide 11: Advisory assets are over 50% of total assets
2 Expanded capabilities to enhance the advisor value proposition Advisory assets are over 50% of total assets Our business is shifting from Brokerage to Advisory The shift to Advisory can create value Advisory Assets (year-end) ($ billions) (9) Advisory % of Total Advisory and Brokerage Assets $594
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 2,598 subscriptions, more than double a year ago Annualized revenue from Business Solutions has increased to ~$25M Professional Services B
Slide 13: We are digitizing key advisor workflows to help drive practice scalability and efficiency
2 Expanded capabilities to enhance the advisor value proposition We are digitizing key advisor workflows to help drive practice scalability and efficiency ClientWorks Connected 1 2 3 4 5 6 Attracting Turning Prospects New Account Managing Client Servicing Client Prospects into Clients Onboarding Por
Slide 14: We continued to drive solid organic growth with a Net New Asset growth rate of ~14%
3 Organic growth opportunities through net new assets and ROA We continued to drive solid organic growth with a Net New Asset growth rate of ~14% for the past year Total Net New Assets(11) ($ billions) Net New Advisory Assets(12) ($ billions) Net New Brokerage Assets(13) ($ billions) Organic Total
Slide 15: We are the 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 institutions
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 Business Services Solutions ~40-45 bps Independent New Models Gross Profit* R
Slide 17: 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 ~$25M and relate
Slide 18: We are well positioned to benefit from rising interest rates
4 Resilient business model with natural hedges to market volatility We are well positioned to benefit from rising interest rates Client Cash balances ($ billions) Annual potential Gross Profit* benefit from rising interest rates ICA Balances (EOP) DCA Balances (EOP) Money Market Account Balances
Slide 19: In Q3, we added a new ~$1 billion fixed rate ICA contract
4 Resilient business model with natural hedges to market volatility In Q3, we added a new ~$1 billion fixed rate ICA contract ICA balances remain elevated Overflow balances provide capacity when balances spike Overflow Money Market Balances • When ICA balances exceed our fixed and variable contrac
Slide 20: We remain focused on 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 initial 2021 Core G&A* plans were for a range of $975 million to
Slide 21: 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 22: 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 (3.25x - 3.5x) 3.43x Management Target Range
Slide 23: 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 ~$1.0 - $1.2B (up to 2.75x levera
Slide 24: We restarted share repurchases in Q3, with ~$40M purchased in the quarter
6 Capital light business model with significant capacity to deploy ...And we restarted share repurchases in Q3, focused on offsetting dilution, with ~$40M purchased in the quarter Share Repurchases and Dividends ($ millions) Share Repurchases Dividends Shareholder Payout Ratio $900 200% (As of
Slide 25: 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 26: Recent acquisitions
7 Opportunity to consolidate fragmented core markets through M&A Recent acquisitions Traditional Markets New Markets Capabilities 2021 2017 2020 2019 2020 ~$71B assets as of Sep. 2021 ~$70B assets transferred ~$1.5B assets ~$3B assets transferred ~Industry-leading capabilities ~$12M purchase price
Slide 27: Waddell & Reed update: Completed onboarding with ~99% retention
7 Opportunity to consolidate fragmented core markets through M&A Waddell & Reed update: Completed onboarding with ~99% retention Transaction Details at Signing Retention Update Financial Update Waddell & Reed’s wealth management client assets were Estimated Run-Rate EBITDA* expectation • On December
Slide 28: As we continue to invest and increase our scale, we enhance our ability to drive further growth
As we continue to invest and increase our scale, we enhance our ability to drive further growth Attract assets Invest in and advisors, differentiated and benefit from capabilities and a greater use of unique advisor our services experience Long-term Shareholder Value Remain disciplined on expenses a
Slide 29: We are focused on executing our strategy and delivering results
We are focused on executing our strategy and delivering results Total Advisory and Brokerage Assets(25) ($B) Organic Net New Asset Growth Key Earnings Growth Drivers Up Enhanced Advisor Value Proposition 18% >5x CAGR (Capabilities, Technology, Service) $1,200 $1,100 $1,000 $1,133 13.6% Increased Org
Slide 30: Appendix
APPENDIX LPL Financial Member FINRA/SIPC 30
Slide 31: Calculation of Gross Profit and Reconciliation of Net Income to EBITDA and Credit Agreement 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 32: 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 and adjusted net income are non-GAAP financial measures. Please see a description of EPS prior to amortization of intangible assets,
Slide 33: 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 34: Endnotes
Endnotes (1) Based on total revenues, Financial Planning magazine, June 1996-2021. (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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