Lpl Financial Holdings Inc. · NASDAQ:LPLA

Lpl Financial — Q1 2019 Earnings Presentation

27 slides from Lpl Financial's earnings presentation, May 2, 2019

  1. Slide 1: Q1 2019 Earnings Key Metrics

    Q1 2019 Earnings Key Metrics LPL Financial Holdings Inc. Q1 2019 Earnings May 2, 2019 Member FINRA/SIPC 1 LPL Financial Member FINRA/SIPC

  2. 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

  3. 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,

  4. Slide 4: Our business continued to grow and shift towards advisory

    Our business continued to grow and shift towards advisory Total Brokerage and Advisory Assets ($ billions) Advisory Assets as a percent of Total Assets 14% YOY SEQ YOY SEQ CAGR Change Change Change Change 681 684 6% 9% 615 648 659 628 46 1.8 pts 0.7 pts 530 542 560 45 44 44 45 45 44 44 43 Q1 Q2 Q3 Q

  5. Slide 5: Financial performance has steadily improved

    Financial performance has steadily improved Gross Profit* ($ millions) EBITDA* ($ millions) YOY SEQ YOY SEQ 22% Change Change 35% Change Change CAGR CAGR 556 20% 9% 276 51% 19% 508 233 218 232 464 483 493 376 389 387 403 183 152 170 156 139 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 2017

  6. Slide 6: Q1 Total Brokerage and Advisory Assets increased 6% year-over-year to $684 billion

    Q1 Total Brokerage and Advisory Assets increased 6% year-over-year to $684 billion and Advisory Assets were 46% of total assets Total Brokerage and Advisory Assets ($ billions) Total Brokerage and Advisory Asset Mix  Hybrid Advisory Assets(3)  Corporate Advisory Assets(4)  Brokerage Assets(5) YOY

  7. Slide 7: Q1 Total Net New Assets were an inflow of $4.0 billion

    Q1 Total Net New Assets were an inflow of $4.0 billion Total Net New Assets ($ billions) Net New Advisory Assets(6) ($ billions) Net New Brokerage Assets(7) ($ billions)  Organic Total NNA  Organic Advisory NNA  Organic Brokerage NNA Organic Annualized Growth Rate Organic Annualized Growth Rate O

  8. Slide 8: Q1 Corporate Advisory Assets increased 14% year-over-year to $192 billion

    Q1 Corporate Advisory Assets increased 14% year-over-year to $192 billion Corporate and Hybrid Advisory Platform Mix ($ billions) Corporate and Hybrid Advisory NNA Mix ($ billions)  Hybrid Advisory Assets(3)  Organic Hybrid Advisory NNA(9) YOY SEQ  Corporate Advisory Assets(4) Change Change  Org

  9. Slide 9: Q1 Centrally Managed Assets increased 20% year over year to $43 billion

    Q1 Centrally Managed Assets increased 20% year over year to $43 billion Centrally Managed Assets(11) ($ billions) Centrally Managed NNA(12) ($ billions)  Centrally Managed Assets YOY SEQ  Organic Centrally Managed NNA Centrally Managed Assets % of Total Advisory Assets Change Change Organic Annual

  10. Slide 10: Q1 EBIT ROA was 14.0 basis points, up 4.7 basis points year-over-year

    Q1 EBIT ROA was 14.0 basis points, up 4.7 basis points year-over-year Average Total Brokerage & Advisory Assets ($ billions)  Average Total Brokerage & Advisory Assets(13) Gross Profit* ROA(14) OPEX ROA(15) YOY SEQ Change Change $657 $676 $673 4% 4% $645 $646 $586 $539 $554 $525 33.0 bps 4.2 pts 1.

  11. Slide 11: Q1 Gross Profit ROA increased 4.2 basis points year-over-year

    Q1 Gross Profit* ROA increased 4.2 basis points year-over-year Gross Profit* ROA(14) (bps)  Net Commission & Advisory Fees and Interest Income and Other  Cash Sweep  Other Asset-Based(17)  Transaction & Fee, Net of BC&E YOY SEQ Change Change 33.0 4.2 1.5 31.5 28.7 28.8 28.8 29.4 29.2 27.9 27.5 6

  12. Slide 12: Q1 Total OPEX ROA decreased 0.5 basis points year-over-year

    Q1 Total OPEX ROA decreased 0.5 basis points year-over-year Total OPEX ROA(15) (bps)  Core G&A*  Promotional  Employee Share-based Compensation  D&A Expense (ex Amortization of Intangible Assets)  Amortization of Intangible Assets  Regulatory YOY SEQ Change Change 20.1 19.4 19.5 19.4 18.5 19.0

  13. Slide 13: Q1 Cash Sweep yields increased 76 basis points year-over-year

    Q1 Cash Sweep yields increased 76 basis points year-over year, and fixed balances made up ~40% of the ICA portfolio Client Cash Sweep balances ($ billions) Fixed rate portion of ICA portfolio ICA Balances (EOP)  DCA Balances (EOP)  Money Market Balances (EOP) Increase driven by a decline in Averag

  14. Slide 14: Our deposit beta has remained low through this interest rate cycle

    Our deposit beta has remained low through this interest rate cycle, and was ~30% for the December 2018 rate hike Annual potential Gross Profit* benefit on floating rate ICA deposit beta history and outlook cash sweep balances  Deposit beta after Fed rate hike 225-250 Fed Funds rate target range (bp

  15. Slide 15: We plan to continue investing for growth in 2019

    We plan to continue investing for growth in 2019 Long-term cost strategy Core G&A* context  Focus on delivering operating leverage  Maintained 2019 Core G&A* outlook range of $850 to  Prioritize investments that drive organic growth $875M, or ~4 to 7% year-over-year growth  Drive productivity an

  16. Slide 16: Our balance sheet remained strong in Q1

    Our balance sheet remained strong in Q1… Cash Available for Corporate Use ($ millions) Credit Agreement Net Leverage Ratio $551 $527 $514 Management Target Range $474 3.32x (3.25x-3.5x) 3.21x v $439 $446 $392 3.08x $376 $339 2.81x Management Management Target Range v Target Cash: (2x-2.75X) (~$200M)

  17. Slide 17: And we have continued to return capital to shareholders

    …And we have continued to return capital to shareholders Shareholder Capital Returns ($ millions)  Share Repurchases  Dividends Total Shareholder returns as a % of EPS prior to Amortization of Intangible Assets 122% 107% 107% (As of 3/31/19) 84% 87% 79% 75% 81% 75% $144 $146 $139 $139 $122 $118 $1

  18. Slide 18: Appendix

    Appendix 18 LPL Financial Member FINRA/SIPC

  19. Slide 19: Q1 Gross Profit increased 20% year-over-year

    Q1 Gross Profit* increased 20% year-over-year Gross Profit* ($ millions)  Net Commission & Advisory Fees and Interest Income and Other  Cash Sweep  Other Asset-Based(17) YOY SEQ  Transaction & Fee, Net of BC&E Change Change $556 20% 9% $493 $508 $483 $106 5% 3% $464 $103 $103 $389 $387 $403 $101

  20. Slide 20: Q1 Total OPEX increased 2% year-over-year

    Q1 Total OPEX increased 2% year-over-year Total OPEX(15) ($ millions)  Core G&A*  Promotional  Employee Share-based Compensation  D&A Expense (ex Amortization of Intangible Assets) YOY SEQ Change Change  Amortization of Intangible Assets  Regulatory $314 $314 $314 $319 2% 2% $294 $13 $16 $16 $

  21. Slide 21: Q1 client cash sweep levels decreased as net buy (sell) activity increased

    Q1 client cash sweep levels decreased as net buy (sell) activity increased Net Buy (Sell) Activity(27)  Net Buy (Sell) Activity ($billions) Cash Sweep % of Total Brokerage and Advisory Assets 12.9 9.7 8.9 9.2 8.5 8.0 7.3 6.9 5.8% 6.1% 5.7% 5.1% 5.1% 5.6% 4.8% 4.6% 4.3% 4.5% 4.1% 4.6 3.4 2.3 Q3 Q4 Q

  22. Slide 22: LTM EBITDA and margin have grown steadily over the past two years

    LTM EBITDA* and margin have grown steadily over the past two years LTM EBITDA* ($ millions)  LTM EBITDA* LTM EBITDA* Margin as a Percent of LTM Gross Profit*(28) YOY SEQ 35% Change Change CAGR $958 48% 11% $866 $773 $711 $616 $648 $561 $597 $523 44.4% 47.0% ~754 bps ~254 bps 38.5% 39.8% 39.6% 39.4%

  23. Slide 23: 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 pages 5 and

  24. Slide 24: 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

  25. Slide 25: 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

  26. Slide 26: Reconciliation of Core G&A to total operating expenses

    Reconciliation of Core G&A to total operating expenses 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

  27. Slide 27: Footnotes

    Footnotes (1) 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 licenses to LPL Financial during the period. The estimate is based on prior

LPL Financial Holdings — Q1 2019 Earnings Presentation on 6ix