Lpl Financial Holdings Inc. · NASDAQ:LPLA
Lpl Financial — Q2 2022 Earnings Presentation
35 slides from Lpl Financial's earnings presentation, Aug 2, 2022
Slide 1: LPL Financial Holdings Inc. Q2 2022 Investor Presentation
LPL FINANCIAL HOLDINGS INC. Q2 2022 INVESTOR PRESENTATION August 2, 2022 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 this information to analyze the Company’s current performance, prospects and v
Slide 4: LPL Overview
LPL Overview Mission Key Markets and Services We take care of our advisors so they can take care of their clients $1.1T+ Client Assets: Nearly 21,000 Advisors: • Advisory: $559B • Independent Advisors: 11,700+ • Brokerage: $506B • Independent RIA: 5,600+ (~500 firms) Vision • Institutional Services:
Slide 5: We continue to drive business and financial growth
We continue to drive business and financial growth EPS prior to amortization of Total assets have nearly Organic asset growth has Operating margin has been intangible assets and acquisition doubled increased ~3x stable as interest rates declined costs* has increased ~3x Total Advisory and Brokerage
Slide 6: Our vision is to become the leader across the entire advisor-centered marketplace
Our vision is to become the leader across the entire advisor- centered marketplace 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 successfu
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 ~$5T Opportunity New ~$4T Opportunity Strategic Wealth RIA-Only Advisory Indep
Slide 10: We have increased our investment in capabilities to enhance our advisor value proposition
2 Expanded capabilities to enhance the advisor value proposition We have increased our investment in capabilities to enhance our advisor value proposition and drive growth We are focused on delivering capabilities that position advisors to spend As a result, we have increased our technology more tim
Slide 11: Advisory makes up the majority of our total assets
2 Expanded capabilities to enhance the advisor value proposition Advisory makes up the majority of our total assets Our business is shifting from brokerage to advisory The shift to advisory can create value Advisory Assets ($B) (7) Advisory % of Total Advisory and Brokerage Assets $643 • Assets are
Slide 12: Our Services Group has grown to ~3,900 subscriptions
2 Expanded capabilities to enhance the advisor value proposition Our Services Group has grown to ~3,900 subscriptions with annualized revenue of ~$32M in Q2 Professional Services • Digital and employee-powered solutions that provide practice management Services Group Subscriptions expertise to incre
Slide 13: We are digitizing key advisor workflows to help drive practice scalability
2 Expanded capabilities to enhance the advisor value proposition We are digitizing key advisor workflows to help drive practice scalability and efficiency ClientWorks Connected 1 2 3 4 5 6 Attracting Turning Prospects New Account Managing Client Servicing Client Prospects into Clients Onboarding Por
Slide 14: Solid organic growth with a net new asset growth rate of ~10%
3 Organic growth opportunities through net new assets and ROA We continued to drive solid organic growth with a net new asset growth rate of ~10% for the past year Total Organic Net New Assets(9) ($B) Organic Net New Advisory Assets(10) ($B) Organic Net New Brokerage Assets(11) ($B) Organic Total
Slide 15: Leading third-party provider to financial institutions
3 Organic growth opportunities through net new assets and ROA We are the leading third-party provider to financial institutions with CUNA, M&T, BMO, and People’s strengthening our strategic position We are the leading third-party provider We onboarded BMO and M&T in 2021, CUNA in Q2 2022, and we exp
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(14) Additional drivers of growth Strategic Wealth Services Group ~35-40 bps Independent Centrally New Models Employee Model Gro
Slide 17: 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 ~$10M relate
Slide 18: Cash Sweep Update – Client cash account as primary overflow vehicle
4 Resilient business model with natural hedges to market volatility Cash Sweep Update – Implementing the client cash account as our primary overflow vehicle, insulating us from the impact of fluctuating bank deposit demand Background Currently, when we have more cash than third-party banks are wil
Slide 19: We are well positioned to benefit from rising interest rates
4 Resilient business model with natural hedges to market volatility We are well positioned to benefit from rising interest rates Client Cash Balances(18) ($B) Annual potential Gross Profit* benefit from rising interest rates ICA Sweep (EOP) DCA Sweep (EOP) Money Market Sweep (EOP) • Over the las
Slide 20: ICA balances continued to grow
4 Resilient business model with natural hedges to market volatility ICA balances continued to grow, as demand increased for both fixed and variable contracts ICA Balances, including Money Market Overflow ($B) Overflow balances provide capacity when balances spike Money Market Overflow Balances • W
Slide 21: Investing to drive organic growth while delivering operating leverage
5 Disciplined expense management driving operating leverage We remain focused on investing to drive organic growth while delivering long-term operating leverage in our core business Long-term cost strategy 2022 Core G&A* context • Deliver operating leverage in core business • Our most recent 2022 Co
Slide 22: Our capital management strategy
6 Capital light business model with significant capacity to deploy Our capital management strategy is focused on driving growth and maximizing shareholder value Our capital management principles Dynamic capital allocation framework • Disciplined capital management to drive long-term shareholder valu
Slide 23: Our balance sheet strength is a differentiator helping support growth
6 Capital light business model with significant capacity to deploy Our balance sheet strength is a differentiator helping support growth Corporate Cash(21) ($M) Leverage Ratio(2) Prior Management Target Range: 3.25x – 3.5x Management Target Cash: ~$200M Management Target $439 Range (Q4 2018+): 2.81x
Slide 24: We have significant capital deployment capacity
6 Capital light business model with significant capacity to deploy We have significant capital deployment capacity… Capital Deployment Capacity Above target Potential M&A capacity above our target range leverage range 4 Willing to temporarily go above our target leverage range for attractive M&A opp
Slide 25: We have continued to return capital to shareholders
6 Capital light business model with significant capacity to deploy ...And we have continued to return capital to shareholders Share Repurchases and Dividends ($M) Share Repurchases Dividends (As of 6/30/22) Repurchased >10% of shares over 2018-2019 $160M Remaining $583 $506 Capital deployment fo
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(4) Growth potential from consolidation Traditional Markets (4) Expanded Markets (4) • Our scale, capabilities, and economics give us competiti
Slide 27: Recent or pending acquisitions
7 Opportunity to consolidate fragmented core markets through M&A Recent or pending acquisitions Traditional Markets New Markets Capabilities 2021 2017 2020 2022 2020 Industry-leading capabilities ~$74B of assets transferred ~$70B assets transferred ~$1.5B assets ~$5B of assets as of June 2022 ~$12
Slide 28: Waddell & Reed update: Integration is substantially complete
7 Opportunity to consolidate fragmented core markets through M&A Waddell & Reed update: Integration is substantially complete Transaction Details at Signing Retention Update Financial Update Waddell & Reed’s wealth management client assets Estimated run-rate EBITDA* expectations • On December 2, 202
Slide 29: As we continue to invest and increase our scale, we enhance our ability to drive further growth
As we continue to invest and increase our scale, we enhance our ability to drive further growth Attract assets Invest in and advisors, differentiated and benefit from capabilities and a greater use of unique advisor our services experience Long-term Shareholder Value Remain disciplined on expenses a
Slide 30: We are focused on executing our strategy and delivering results
We are focused on executing our strategy and delivering results Total Advisory and Brokerage Assets(24) ($B) Organic Net New Asset Growth Key Earnings Growth Drivers Up Enhanced Advisor Value Proposition 12% ~3x (Capabilities, Technology, Service) CAGR $1,206 13.2% $1,065 $903 9.7% Increased Organic
Slide 31: Appendix
APPENDIX LPL Financial Member FINRA/SIPC 31
Slide 32: Reconciliation
Reconciliation 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. Below is a calculation of gross profit* for the periods presented herein: $ in millions
Slide 33: Reconciliation
Reconciliation EPS Prior to Amortization of Intangible Assets and Acquisition Costs* and Adjusted Net Income* 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 intan
Slide 34: Reconciliation
Reconciliation Core G&A* to Total 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 is a reconciliation of total expense to Core G&A* and of Core G&A, prior to
Slide 35: Endnotes
Endnotes (1) 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 licenses to LPL Financial during the period. The estimate is based on prior
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