LPL Financial Holdings Inc.
Oct 26, 2017

LPL Financial Announces Third Quarter 2017 Results

Key Performance Indicators

Key Updates

SAN DIEGO, Oct. 26, 2017 (GLOBE NEWSWIRE) -- LPL Financial Holdings Inc. (NASDAQ:LPLA) (the "Company") today announced results for its third quarter ended September 30, 2017, reporting net income of $58 million, or $0.63 per share. This compares with $52 million, or $0.58 per share, in the third quarter of 2016 and $68 million, or $0.74 per share, in the prior quarter.

"We remained focused on our strategic priorities of growing our core business and executing with excellence in the third quarter," said Dan Arnold, president and CEO.  "Consistent with that focus, we announced and closed our acquisition of NPH, and we are working hard to share our value proposition with NPH advisors and enable a smooth onboarding process."

"We actively used our balance sheet strength in the quarter to deploy capital on several fronts," said Matt Audette, CFO. "We acquired NPH, invested in growth through technology and recruiting, refinanced our debt, and returned capital to shareholders through share repurchases and dividends."

Additional Third Quarter 2017 Financial and Business Highlights

Market Drivers

NPH Acquisition

Capital Management

(1) Advisors affiliated with NPH's broker-dealer subsidiaries serviced approximately $120 billion of client brokerage and advisory assets, as of June 30, 2017. Asset numbers were reported by NPH based on prior business and have not been independently and fully verified by LPL Financial.

Conference Call and Additional Information

The Company will hold a conference call to discuss its results at 5:00 p.m. EDT on Thursday, October 26, 2017. The conference call can be accessed by dialing either 877-677-9122 (domestic) or 708-290-1401 (international) and entering passcode 90277577.

The conference call will also be webcast simultaneously on the Investor Relations section of the Company's website (investor.lpl.com), where a replay of the call will also be available following the live webcast. A telephonic replay will be available approximately two hours after the call and can be accessed by dialing 855-859-2056 (domestic) or 404-537-3406 (international) and entering passcode 90277577. The telephonic replay will be available until 11:59 p.m. EDT on November 2, 2017 and the webcast replay will be available until November 16, 2017.

About LPL Financial

LPL Financial LLC, a wholly owned subsidiary of LPL Financial Holdings Inc. (NASDAQ:LPLA), is a leader in the retail financial advice market and served approximately $560 billion in brokerage and advisory assets as of September 30, 2017. LPL is one of the fastest growing RIA custodians and the nation's largest independent broker-dealer (based on total revenues, Financial Planning magazine June 1996-2017), and the firm and its financial advisors were ranked No. 1 in net customer loyalty in a 2016 Cogent ReportsTM study. The Company provides proprietary technology, comprehensive clearing and compliance services, practice management programs and training, and independent research to more than 14,000 financial advisors and over 700 financial institutions, enabling them to provide a range of financial services including wealth management, retirement planning, financial planning and other investment services to help their clients turn life's aspirations into financial realities. As of September 30, 2017, financial advisors associated with LPL served more than 4 million client accounts across the U.S. as well as an estimated 41,000 retirement plans with an estimated $137 billion in retirement plan assets. Additionally, LPL supports approximately 3,700 financial advisors licensed and affiliated with insurance companies with customized clearing, advisory platforms, and technology solutions. LPL Financial and its affiliates have more than 3,500 employees with primary offices in Boston, Charlotte, and San Diego. For more information, visit www.lpl.com. 

Securities and Advisory Services offered through LPL Financial. A Registered Investment Advisor, Member FINRA/SIPC.

**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, prospects, and valuation. Management uses this non-GAAP information internally to evaluate operating performance and in formulating the budget for future periods. Management believes that the non-GAAP measures and metrics discussed below are appropriate for evaluating the performance of the Company.

Gross Profit is calculated as net revenues, which were $1,064 million for the three months ended September 30, 2017, less commission and advisory expenses and brokerage, clearing, and exchange fees, which were $664 million and $13 million, respectively, for the three months ended September 30, 2017. All other expense categories, including depreciation and amortization, are considered general and administrative in nature. Because the Company's gross profit amounts do not include any depreciation and amortization expense, the Company considers its gross profit amounts to be non-GAAP measures that may not be comparable to those of others in its industry. Management believes that Gross Profit can be useful to investors because it shows the Company's core operating performance before indirect costs that are general and administrative in nature.

Core G&A consists of total operating expenses, which were $940 million for the three months ended September 30, 2017, excluding the following expenses: commission and advisory, regulatory charges, promotional, employee share-based compensation, depreciation and amortization, amortization of intangible assets, and brokerage, clearing, and exchange. Management presents Core G&A because it believes Core G&A reflects the corporate operating expense categories over which management can generally exercise a measure of control, compared with expense items over which management either cannot exercise control, such as commission and advisory expenses, or which management views as promotional expense necessary to support advisor growth and retention including conferences and transition assistance. Core G&A is not a measure of the Company's total operating expenses as calculated in accordance with GAAP. For a reconciliation of Core G&A against the Company's total operating expenses, please see footnote 3 on page 18 of this release. The Company does not provide an outlook for its total operating expenses because it contains expense components, such as commission and advisory expenses, that are market-driven and over which the Company cannot exercise control. Accordingly a reconciliation of the Company's outlook for Core G&A to an outlook for total operating expenses cannot be made available without unreasonable effort. Prior to 2016, the Company calculated Core G&A as consisting of total operating expenses, excluding the items described above, as well as excluding other items that primarily consisted of acquisition and integration costs resulting from various acquisitions and organizational restructuring and conversion costs. Beginning with results reported for Q1 2016, Core G&A was presented as including these items that were historically adjusted out.

EBITDA is defined as net income plus interest expense, income tax expense, depreciation, and amortization. The Company presents EBITDA because management believes that it can be a useful financial metric in understanding the Company's earnings from operations. EBITDA is not a measure of the Company's financial performance under GAAP and should not be considered as an alternative to net income or any other performance measure derived in accordance with GAAP, or as an alternative to cash flows from operating activities as a measure of profitability or liquidity. In addition, the Company's EBITDA can differ significantly from EBITDA calculated by other companies, depending on long-term strategic decisions regarding capital structure, the tax jurisdictions in which companies operate, and capital investments.

Credit Agreement EBITDA is defined in, and calculated by management in accordance with, the Company's credit agreement ("Credit Agreement") as "Consolidated EBITDA," which is Consolidated Net Income (as defined in the Credit Agreement) plus interest expense, tax expense, depreciation and amortization and further adjusted to exclude certain non-cash charges and other adjustments, including unusual or non-recurring charges and gains. The Company presents Credit Agreement EBITDA because management believes that it can be a useful financial metric in understanding the Company's debt capacity and covenant compliance under its Credit Agreement. Credit Agreement EBITDA is not a measure of the Company's financial performance under GAAP and should not be considered as an alternative to net income or any other performance measure derived in accordance with GAAP, or as an alternative to cash flows from operating activities as a measure of profitability or liquidity. In addition, the Company's Credit Agreement-defined EBITDA can differ significantly from adjusted EBITDA calculated by other companies, depending on long-term strategic decisions regarding capital structure, the tax jurisdictions in which companies operate, and capital investments.

Forward-Looking Statements

Statements in this press release regarding the Company's future financial and operating results, outlook, growth, prospects, business strategies, future market position, future operating environment, and goals, including forecasts and statements relating to the Company's future expenses, capital plans, and success in recruiting and onboarding advisors from NPH's broker/dealer network, as well as any other statements that are not related to present facts or current conditions or that are not purely historical, constitute forward-looking statements. These forward-looking statements are based on the Company's historical performance and its plans, estimates, and expectations as of October 26, 2017. The words "anticipates," "believes," "expects," "may," "plans," "will," and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. Forward-looking statements are not guarantees that the future results, plans, intentions, or expectations expressed or implied by the Company will be achieved. Matters subject to forward-looking statements involve known and unknown risks and uncertainties, including economic, legislative, regulatory, competitive, and other factors, which may cause actual financial or operating results, levels of activity, or the timing of events, to be materially different than those expressed or implied by forward-looking statements. Important factors that could cause or contribute to such differences include: changes in general economic and financial market conditions, including retail investor sentiment; fluctuations in the value of advisory and brokerage assets; fluctuations in levels of net new assets and the related impact on revenue; fluctuations in the number of retail investors served by the Company; effects of competition in the financial services industry and the success of the Company in attracting and retaining financial advisors and institutions; changes in the number of the Company's financial advisors and institutions, and their ability to market effectively financial products and services; whether the retail investors served by newly-recruited advisors choose to open brokerage and/or advisory accounts and/or move their respective assets to new accounts at the Company; changes in interest rates and fees payable by banks participating in the Company's cash sweep program, including the Company's success in negotiating agreements with current or additional counterparties; the Company's strategy in managing cash sweep program fees; changes in the growth and profitability of the Company's fee-based business; the effect of current, pending and future legislation, regulation and regulatory actions, including the U.S. Department of Labor's final rule ("DOL Rule") and disciplinary actions imposed by federal and state securities regulators and self-regulatory organizations; the costs of settling and remediating issues related to pending or future regulatory matters or legal proceedings; execution of the Company's capital management plans, including its compliance with the terms of its existing credit agreement and the indenture governing its senior notes; the price, the availability of shares, and trading volumes of the Company's common stock, which will affect the timing and size of future share repurchases by the Company; changes made to the Company's offerings and services in response to the current, pending and future legislation, regulation and regulatory actions, including the DOL Rule, and the effect that such changes may have on the Company's gross profit streams and costs; execution of the Company's plans and its success in realizing the expense savings and service improvements and efficiencies expected to result from its initiatives and programs, particularly its expense plans and technological initiatives; the Company's success in negotiating and developing commercial arrangements with third-party services providers; the performance of third-party service providers to which business processes are transitioned from the Company; the Company's ability to control operating risks, information technology systems risks, cybersecurity risks, and sourcing risks; and the other factors set forth in Part I, "Item 1A. Risk Factors" in the Company's 2016 Annual Report on Form 10-K, as may be amended or updated in the Company's Quarterly Reports on Form 10-Q or subsequent filings with the SEC. In particular, the Company can provide no assurance that the assets reported as serviced by NPH financial advisors will translate into assets serviced at LPL Financial or that such financial advisors will join LPL Financial or remain at LPL Financial. Important factors that could cause or contribute to such differences include: difficulties and delays in recruiting or transferring the licenses of NPH's advisors and/or onboarding the clients or businesses of NPH's advisors; disruptions of the Company's business due to transaction-related uncertainty or other factors making it more difficult to maintain relationships with its financial advisors and their clients, employees, other business partners or governmental entities; the choice by clients of NPH's advisors not to open brokerage and/or advisory accounts at LPL Financial and/or move their respective assets from NPH to a new account at LPL Financial; and effects of competition in the financial services industry, including competitors' success in recruiting NPH's advisors. Except as required by law, the Company specifically disclaims any obligation to update any forward-looking statements as a result of developments occurring after the date of this earnings release, even if its estimates change, and you should not rely on statements contained herein as representing the Company's views as of any date subsequent to the date of this press release.

             
LPL Financial Holdings Inc.
Condensed Consolidated Statements of Income
(Dollars in thousands, except per share data)
(Unaudited)
             
   Three Months Ended
September 30,
     Nine Months Ended
September 30,
   
   2017  2016  %
Change
  2017  2016  %
Change
REVENUES                  
Commission  $403,011   $431,686   (7%)  $1,244,881   $1,314,168   (5%)
Advisory  356,945   321,911   11%  1,033,319   964,298   7%
Asset-based  183,953   138,291   33%  514,626   412,339   25%
Transaction and fee  103,999   108,413   (4%)  321,522   312,927   3%
Interest income, net of interest expense  6,162   5,372   15%  17,931   15,940   12%
Other  10,038   11,767   (15%)  32,760   22,254   47%
Total net revenues  1,064,108   1,017,440   5%  3,165,039   3,041,926   4%
EXPENSES                  
Commission and advisory  663,765   657,432   1%  1,971,874   1,954,123   1%
Compensation and benefits  113,659   107,988   5%  337,170   327,816   3%
Promotional  42,935   42,609   1%  111,595   113,010   (1%)
Depreciation and amortization  21,996   18,434   19%  63,933   56,145   14%
Amortization of intangible assets  9,352   9,502   (2%)  28,296   28,536   (1%)
Occupancy and equipment  22,803   23,530   (3%)  70,989   67,347   5%
Professional services  16,438   17,045   (4%)  50,732   49,184   3%
Brokerage, clearing and exchange expense  13,491   13,098   3%  41,567   40,296   3%
Communications and data processing  10,866   10,333   5%  32,525   31,801   2%
Other  24,376   25,356   (4%)  71,140   69,512   2%
Total operating expenses  939,681   925,327   2%  2,779,821   2,737,770   2%
Non-operating interest expense  26,519   23,889   11%  78,131   71,583   9%
Loss on extinguishment of debt  1,268      n/m  22,407      n/m
Income before provision for income taxes  96,640   68,224   42%  284,680   232,573   22%
PROVISION FOR INCOME TAXES  38,498   16,270   137%  109,915   82,378   33%
NET INCOME  $58,142   $51,954   12%  $174,765   $150,195   16%
Earnings per share, basic  $0.65   $0.58   12%  $1.94   $1.69   15%
Earnings per share, diluted  $0.63   $0.58   9%  $1.90   $1.67   14%
Weighted-average shares outstanding, basic   89,967    89,092   1%   90,029    89,025   1%
Weighted-average shares outstanding, diluted   92,042    89,951   2%   92,027    89,732   3%


    
LPL Financial Holdings Inc.
Condensed Consolidated Statements of Income Trend
(Dollars in thousands, except per share data)
(Unaudited)
    
   Quarterly Results
   Q3 2017  Q2 2017  Q1 2017
REVENUES         
Commission  $403,011   $420,706   $421,164 
Advisory  356,945   346,515   329,859 
Asset-based  183,953   173,450   157,223 
Transaction and fee  103,999   109,361   108,162 
Interest income, net of interest expense  6,162   5,976   5,793 
Other  10,038   9,496   13,226 
Total net revenues  1,064,108   1,065,504   1,035,427 
EXPENSES         
Commission and advisory  663,765   663,046   645,063 
Compensation and benefits  113,659   110,299   113,212 
Promotional  42,935   32,006   36,654 
Depreciation and amortization  21,996   21,190   20,747 
Amortization of intangible assets  9,352   9,453   9,491 
Occupancy and equipment  22,803   22,987   25,199 
Professional services  16,438   18,757   15,537 
Brokerage, clearing and exchange expense  13,491   13,890   14,186 
Communications and data processing  10,866   10,645   11,014 
Other  24,376   24,201   22,563 
Total operating expenses  939,681   926,474   913,666 
Non-operating interest expense  26,519   26,261   25,351 
Loss on extinguishment of debt  1,268      21,139 
INCOME BEFORE PROVISION FOR INCOME TAXES  96,640   112,769   75,271 
PROVISION FOR INCOME TAXES  38,498   44,335   27,082 
NET INCOME  $58,142   $68,434   $48,189 
Earnings per share, basic  $0.65   $0.76   $0.54 
Earnings per share, diluted  $0.63   $0.74   $0.52 
Weighted-average shares outstanding, basic   89,967   90,251   89,868 
Weighted-average shares outstanding, diluted   92,042   92,013   92,004 


       
LPL Financial Holdings Inc.
Condensed Consolidated Statements of Financial Condition
(Dollars in thousands, except par value)
(Unaudited)
       
   September 30,
 2017
  December 31,
2016
ASSETS
Cash and cash equivalents  $577,961   $747,709 
Cash and securities segregated under federal and other regulations  754,683   768,219 
Restricted cash  45,224   42,680 
Receivables from:      
Clients, net of allowance of $490 at September 30, 2017 and $1,580 at December 31, 2016  391,650   341,199 
Product sponsors, broker-dealers, and clearing organizations  179,576   175,122 
Advisor loans, net of allowance of $3,660 at September 30, 2017 and $1,852 at December 31, 2016  184,328   194,526 
Others, net of allowance of $6,351 at September 30, 2017 and $12,851 at December 31, 2016  214,235   189,632 
Securities owned:      
Trading — at fair value  13,419   11,404 
Held-to-maturity  11,832   8,862 
Securities borrowed  16,655   5,559 
Fixed assets, net of accumulated depreciation and amortization of $410,902 at September 30, 2017 and $355,919 at December 31, 2016  402,246   387,368 
Goodwill  1,365,838   1,365,838 
Intangible assets, net of accumulated amortization of $409,070 at September 30, 2017 and $380,775 at December 31, 2016  325,700   353,996 
National Planning Holdings acquisition payment  325,000    
Other assets  249,926   242,812 
Total assets  $5,058,273   $4,834,926 
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:      
Drafts payable  $153,366   $198,839 
Payables to clients  767,250   863,765 
Payables to broker-dealers and clearing organizations  53,239   63,032 
Accrued commission and advisory expenses payable  133,133   128,476 
Accounts payable and accrued liabilities  403,723   385,545 
Income taxes payable  11,440   4,607 
Unearned revenue  73,551   62,785 
Securities sold, but not yet purchased — at fair value  135   183 
Long-term debt, net of unamortized debt issuance cost of $23,637 at September 30, 2017 and $21,924 at December 31, 2016  2,388,321   2,175,436 
Leasehold financing obligation  108,223   105,649 
Deferred income taxes, net  25,327   25,614 
Total liabilities  4,117,708   4,013,931 
Commitments and contingencies      
STOCKHOLDERS' EQUITY:      
Common stock, $.001 par value; 600,000,000 shares authorized; 122,825,821 shares issued at September 30, 2017 and 119,917,854 shares issued at December 31, 2016  123   120 
Additional paid-in capital  1,543,428   1,445,256 
Treasury stock, at cost — 32,665,566 shares at September 30, 2017 and 30,621,270 shares at December 31, 2016  (1,279,700)  (1,194,645)
Accumulated other comprehensive income     315 
Retained earnings  676,714   569,949 
Total stockholders' equity  940,565   820,995 
Total liabilities and stockholders' equity  $5,058,273   $4,834,926 


    
LPL Financial Holdings Inc.
Management's Statements of Operations (1)
(Dollars in thousands, except per share data)
(Unaudited)
    
The information presented on pages 9-17 of this release is presented as reviewed by the Company's management and includes information derived from the Company's Unaudited Condensed Consolidated Statements of Income, non-GAAP financial measures, and operational and performance metrics. For information on non-GAAP financial measures, please see the section titled "Non-GAAP Financial Measures" that begins on page 3 of this release.
    
   Quarterly Results
   Q3 2017  Q2 2017  %
Change
  Q3 2016  %
Change
Gross Profit(1)               
Sales-based commissions  $160,098   $181,843   (12%)  $196,364   (18%)
Trailing commissions  242,913   238,863   2%  235,322   3%
Advisory  356,945   346,515   3%  321,911   11%
Commission and advisory fees  759,956   767,221   (1%)  753,597   1%
Commission and advisory expense  (663,765)  (663,046)  %  (657,432)  1%
Commission and advisory fees, net of payout  96,191   104,175   (8%)  96,165   %
Cash sweep  81,617   71,848   14%  40,701   101%
Other asset-based(2)  102,336   101,602   1%  97,590   5%
Transaction and fee  103,999   109,361   (5%)  108,413   (4%)
Interest income and other  16,200   15,472   5%  17,139   (5%)
Total net commission and advisory fees and attachment revenue  400,343   402,458   (1%)  360,008   11%
Brokerage, clearing, and exchange expense  (13,491)  (13,890)  (3%)  (13,098)  3%
Gross profit(1)  386,852   388,568   %  346,910   12%
                
G&A Expense               
Core G&A(3)  178,769   176,428   1%  175,385   2%
Regulatory charges  4,433   5,428   n/m  4,436   n/m
Promotional  42,935   32,006   34%  42,609   1%
Employee share-based compensation  4,940   5,033   (2%)  4,431   11%
Total G&A  231,077   218,895   6%  226,861   2%
EBITDA(1)  155,775   169,673   (8%)  120,049   30%
Depreciation and amortization  21,996   21,190   4%  18,434   19%
Amortization of intangible assets  9,352   9,453   (1%)  9,502   (2%)
Non-operating interest expense  26,519   26,261   1%  23,889   11%
Loss on extinguishment of debt  1,268      n/m     n/m
INCOME BEFORE PROVISION FOR INCOME TAXES  96,640   112,769   (14%)  68,224   42%
PROVISION FOR INCOME TAXES  38,498   44,335   (13%)  16,270   137%
NET INCOME  $58,142   $68,434   (15%)  $51,954   12%
Earnings per share, diluted  $0.63   $0.74   (15%)  $0.58   9%
Weighted-average shares outstanding, diluted   92,042   92,013   %   89,951   2%


    
LPL Financial Holdings Inc.
Management's Statements of Operations Trend (1)
(Dollars in thousands, except per share data)
(Unaudited)
    
The information presented on pages 9-17 of this release is presented as reviewed by the Company's management and includes information derived from the Company's Unaudited Condensed Consolidated Statements of Income, non-GAAP financial measures, and operational and performance metrics. For information on non-GAAP financial measures, please see the section titled "Non-GAAP Financial Measures" that begins on page 3 of this release.
    
   Quarterly Results
   Q3 2017  Q2 2017  Q1 2017
Gross Profit(1)         
Sales-based commissions  $160,098   $181,843   $186,577 
Trailing commissions  242,913   238,863   234,587 
Advisory  356,945   346,515   329,859 
Commission and advisory fees  759,956   767,221   751,023 
Commission and advisory expense  (663,765)  (663,046)  (645,063)
Commission and advisory fees, net of payout  96,191   104,175   105,960 
Cash sweep  81,617   71,848   59,651 
Other asset-based(2)  102,336   101,602   97,572 
Transaction and fee  103,999   109,361   108,162 
Interest income and other  16,200   15,472   19,019 
Total net commission and advisory fees and attachment revenue  400,343   402,458   390,364 
Brokerage, clearing, and exchange expense  (13,491)  (13,890)  (14,186)
Gross profit(1)  386,852   388,568   376,178 
          
G&A Expense         
Core G&A(3)  178,769   176,428   177,026 
Regulatory charges  4,433   5,428   5,270 
Promotional  42,935   32,006   36,654 
Employee share-based compensation  4,940   5,033   5,229 
Total G&A  231,077   218,895   224,179 
EBITDA(1)  155,775   169,673   151,999 
Depreciation and amortization  21,996   21,190   20,747 
Amortization of intangible assets  9,352   9,453   9,491 
Non-operating interest expense  26,519   26,261   25,351 
Loss on extinguishment of debt  1,268      21,139 
INCOME BEFORE PROVISION FOR INCOME TAXES  96,640   112,769   75,271 
PROVISION FOR INCOME TAXES  38,498   44,335   27,082 
NET INCOME  $58,142   $68,434   $48,189 
Earnings per share, diluted  $0.63   $0.74   $0.52 
Weighted-average shares outstanding, diluted   92,042   92,013    92,004 


                
LPL Financial Holdings Inc.
Operating Measures (1)
(Dollars in thousands, except where noted)
(Unaudited)
                
   Q3 2017  Q2 2017  Change  Q3 2016  Change
Market Drivers               
S&P 500 Index (end of period)  2,519   2,423   4%  2,168   16%
Fed Funds Daily Effective Rate (FFER) (average bps)  116   95   21bps  39   77bps
                
Assets (dollars in billions)               
Brokerage Assets(4)  $309.8   $305.2   2%  $296.9   4%
Advisory Assets(5)  250.2   236.8   6%  205.5   22%
Total Brokerage and Advisory Assets  $560.0   $542.0   3%  $502.4   11%
Advisory % of Total Assets  44.7%  43.7%  100bps  40.9%  380bps
                
Net New Advisory Assets(6)  $6.9   $5.9   n/m  $4.1   n/m
Net New Brokerage Assets(7)  (4.0)  (5.5)  n/m  (3.1)  n/m
Total Net New Assets (NNA)  $2.9   $0.4   n/m  $1.0   n/m
                
Net Brokerage to Advisory Conversions(8)  $1.9   $2.0   n/m  $1.3   n/m
Advisory NNA Annualized Growth(9)  12%  10%  n/m  8%  n/m
Total NNA Annualized Growth(9)  2%  0.3%  n/m  0.8%  n/m
                
Corporate Platform Advisory Assets(10)  $145.0   $137.7   5%  $124.9   16%
Hybrid Platform Advisory Assets(11)  105.2   99.1   6%  80.6   31%
Total Brokerage Assets  309.8   305.2   2%  296.9   4%
Total Brokerage and Advisory Assets  $560.0   $542.0   3%  $502.4   11%
                
Brokerage Retirement Assets(12)  $155.5   $149.9   4%  $149.2   4%
Advisory Retirement Assets(12)  139.3   131.5   6%  112.1   24%
Total Brokerage and Advisory Retirement Assets(12)  $294.8   $281.4   5%  $261.3   13%
Retirement % of Total Assets  52.6%  51.9%  70bps  52.0%  60bps
                
Insured Cash Account Balances  $21.9   $20.8   5%  $21.1   4%
Deposit Cash Account Balances  4.1   3.7   11%  4.2   (2%)
Money Market Account Cash Balances  2.3   3.3   (30%)  3.9   (41%)
Total Cash Sweep Balances  $28.3   $27.8   2%  $29.2   (3%)
Cash Sweep % of Total Assets  5.1%  5.1%  —bps  5.8%  (70bps)
                
Insured Cash Account Average Fee - bps(13)  124   108   16   62   62 
Deposit Cash Account Fee - Average Fee bps(13)  100   85   15   36   64 
Money Market Account Average Fee - bps(13)  67   69   (2)  42   25 
Total Cash Sweep Average Fee - bps(13)  116   100   16   56   60 


                
LPL Financial Holdings Inc.
Monthly Metrics (1)
(Dollars in thousands, except where noted)
(Unaudited)
                
(Dollars in billions, unless noted)  September
2017
  August
2017
  Aug to Sep
Change
  July 2017  June 2017
Assets Served               
Brokerage Assets(4)  $309.8   $306.1   1.2%  $307.5   $305.2 
Advisory Assets(5)  250.2   245.3   2.0%  242.2   236.8 
Total Brokerage and Advisory Assets  $560.0   $551.4   1.6%  $549.7   $542.0 
                
Net New Advisory Assets(6)  $1.7   $2.7   n/m  $2.5   $2.0 
Net New Brokerage Assets(7)  (0.8)  (1.6)  n/m  (1.6)  (2.1)
Total Net New Assets  $0.9   $1.1   n/m  $0.9   $(0.1)
                
Net Brokerage to Advisory Conversions(8)  $0.5   $0.7   n/m  $0.7   $0.6 
                
Insured Cash Account Balances  $21.9   $22.0   (0.5%)  $21.5   $20.8 
Deposit Cash Account Balances  4.1   4.0   2.5%  3.6   3.7 
Money Market Account Cash Balances  2.3   2.3   %  2.2   3.3 
Total Client Cash Sweep Balances  $28.3   $28.3   %  $27.3   $27.8 
                
Market Indices               
S&P 500 Index (end of period)  2,519   2,472   1.9%  2,470   2,423 
Fed Funds Effective Rate (average bps)  116   116   —bps  116   104 



                
LPL Financial Holdings Inc.
Financial Measures (1)
(Dollars in thousands, except where noted)
(Unaudited)
                
   Q3 2017  Q2 2017  %
Change
  Q3 2016  %
Change
Commission Revenue by Product               
Variable annuities  $163,778   $167,454   (2%)  $169,413   (3%)
Mutual funds  131,339   134,510   (2%)  137,238   (4%)
Alternative investments  6,676   6,719   (1%)  8,514   (22%)
Fixed annuities  32,764   39,560   (17%)  44,933   (27%)
Equities  17,748   18,799   (6%)  20,263   (12%)
Fixed income  23,912   26,256   (9%)  21,756   10%
Insurance  17,338   16,294   6%  18,083   (4%)
Group annuities  9,319   11,000   (15%)  11,266   (17%)
Other  137   114   20%  220   (38%)
Total commission revenue  $403,011   $420,706   (4%)  $431,686   (7%)
                
Commission Revenue by Sales-based and Trailing Commission         
Sales-based commissions               
Variable annuities  $46,148   $53,032   (13%)  $57,337   (20%)
Mutual funds  30,638   34,909   (12%)  34,985   (12%)
Alternative investments  2,550   3,645   (30%)  7,198   (65%)
Fixed annuities  27,906   34,931   (20%)  41,995   (34%)
Equities  17,748   18,799   (6%)  20,263   (12%)
Fixed income  17,967   20,501   (12%)  16,588   8%
Insurance  15,906   14,861   7%  16,520   (4%)
Group annuities  1,098   1,051   4%  1,258   (13%)
Other  137   114   20%  220   (38%)
Total sales-based commissions  $160,098   $181,843   (12%)  $196,364   (18%)
Trailing commissions               
Variable annuities  $117,630   $114,422   3%  $112,076   5%
Mutual funds  100,701   99,601   1%  102,253   (2%)
Alternative investments  4,126   3,074   34%  1,316   214%
Fixed annuities  4,858   4,629   5%  2,938   65%
Fixed income  5,945   5,755   3%  5,168   15%
Insurance  1,432   1,433   %  1,563   (8%)
Group annuities  8,221   9,949   (17%)  10,008   (18%)
Total trailing commissions  $242,913   $238,863   2%  $235,322   3%
Total commission revenue  $403,011   $420,706   (4%)  $431,686   (7%)


                
LPL Financial Holdings Inc.
Financial Measures (1)
(Dollars in thousands, except where noted)
(Unaudited)
                
   Q3 2017  Q2 2017  Change  Q3 2016  Change
Payout Rate               
Base Payout Rate  83.01%  82.94%  7bps  83.10%  (9bps)
Production Based Bonuses  3.04%  2.56%  48bps  3.04%  —bps
GDC Sensitive Payout  86.05%  85.50%  55bps  86.14%  (9bps)
Non-GDC Sensitive Payout  1.29%  0.92%  37bps  1.10%  19bps
Total Payout Ratio  87.34%  86.42%  92bps  87.24%  10bps
Production Based Bonuses Ratio (Trailing Twelve Months)  2.7%  2.7%  —bps  2.7%  —bps


       
LPL Financial Holdings Inc.
Capital Management Measures (1)
(Dollars in thousands, except where noted)
(Unaudited)
       
   Q3 2017  Q2 2017
Credit Agreement EBITDA(1)      
Net income  $58,142   $68,434 
Non-operating interest expense  26,519   26,261 
Provision for income taxes  38,498   44,335 
Loss on extinguishment of debt  1,268    
Depreciation and amortization  21,996   21,190 
Amortization of intangible assets  9,352   9,453 
EBITDA(1)  $155,775   $169,673 
Credit Agreement Adjustments:      
Employee share-based compensation expense  4,940   5,033 
Advisor share-based compensation expense  3,120   1,821 
Other(14)  9,244   7,631 
Credit Agreement EBITDA  $173,079   $184,158 
       
Cash Available for Corporate Use(15)      
Cash at Parent  $384,404   $408,381 
Excess Cash at Broker-Dealer subsidiary per Credit Agreement  120,454   109,714 
Other Available Cash  9,261   8,555 
Total Cash Available for Corporate Use  $514,119   $526,650 
       
Credit Agreement Net Leverage      
Total Debt (does not include unamortized premium)  $2,400,000   $2,195,750 
Cash Available (up to $300 million)  300,000   300,000 
Credit Agreement Net Debt  $2,100,000   $1,895,750 
Credit Agreement EBITDA (trailing twelve months)(16)  $655,172   $614,627 
Credit Agreement Net Leverage Ratio  3.21x  3.08x



                 
LPL Financial Holdings Inc.
Debt Schedule (1)
(Dollars in thousands, except where noted)
(Unaudited)
                 
Total Debt  Outstanding
(end of period)
   Current Applicable
Margin
  Yield At
Issuance
  Interest Rate
(end of period)
  Maturity
Revolving Credit Facility Loans(a)  $    LIBOR+150bps(b)     %  9/21/2022
Senior Secured Term Loan B  1,500,000    LIBOR+225 bps(b)     3.65%  9/21/2024
Senior Unsecured Notes(c)  500,000    5.75% Fixed  5.750%  5.75%  9/15/2025
Senior Unsecured Notes(c)  400,000 (d)  5.75% Fixed  5.115%  5.75%  9/15/2025
Total / Weighted Average  $2,400,000          4.44%   
                    
  1. The Revolving Credit Facility has a borrowing capacity of $500 million.
  2. The LIBOR rate option is one-, two-, three- or six-month LIBOR rate and subject to an interest rate floor of 0 basis points.
  3. The Senior Unsecured Notes were issued in two separate transactions; $500 million in notes were issued in March 2017 at par; the remaining $400 million were issued in September 2017 and priced at 103% of the aggregate principal amount.
  4. Does not include unamortized premium of approximately $12 million as of September 30, 2017.
                
                
LPL Financial Holdings Inc.
Key Business and Financial Metrics (1)
(Dollars in thousands, except where noted)
(Unaudited)
                
   Q3 2017  Q2 2017  Change  Q3 2016  Change
Advisors               
Advisors  14,253   14,256   %  14,185   %
Net New Advisors  (3)  (98)  n/m  (8)  n/m
Custom Clearing Service Subscribers(17)  3,660   3,703   (1%)  4,207   (13%)
Annualized commission and advisory fees per Advisor(18)  $213   $215   (1%)  $212   %
Average Total Assets per Advisor ($ in millions)(19)  $39.3   $38.0   3%  $35.4   11%
Transition assistance loan amortization($ in millions)(20)  $13.9   $14.0   (1%)  $12.0   16%
Total client accounts (in millions)  4.7   4.6   2%  4.7   %
                
Employees - period end  3,564   3,419   4%  3,254   10%
                
Productivity Metrics               
Annualized Advisory Revenue as a percentage of Corporate Advisory Assets  1.04%  1.04%  —bps  1.06%  (2bps)
Gross Profit ROA(21)  27.6bps  28.7bps  (1.1bps)  27.6bps  —bps
OPEX ROA(22)  18.7bps  18.4bps  0.3bps  20.3bps  (1.6bps)
EBIT ROA(23)  8.9bps  10.3bps  (1.4bps)  7.3bps  1.6bps
Production Retention Rate (YTD Annualized)(24)  94.6%  93.4%  120bps  95.2%  (60bps)
Recurring Revenue Rate  79.6%  77.3%  230bps  74.3%  530bps
EBITDA as a percentage of Gross Profit  40.3%  43.7%  (340bps)  34.6%  570bps
                
Capital Allocation per Share(25)
  (in millions, except per share data)
               
Share Repurchases  $25.0   $36.2   (31%)  $   n/m
Dividends  22.5   22.6   %  22.3   1%
Total Capital Allocated  $47.5   $58.8   (19%)  $22.3   113%
Weighted-average Share Count, Diluted  92.0   92.0   %  90.0   2%
Total Capital Allocated per Share(25)  $0.52   $0.64   (19%)  $0.25   108%
                        

Endnote Disclosures

  1. The information presented on pages 9-17 includes non-GAAP financial measures and operational and performance metrics. For more information on non-GAAP financial measures, please see the section titled "Non-GAAP Financial Measures" on page 3.
  2. Other asset-based revenues consist of revenues from the Company's sponsorship programs with financial product manufacturers and omnibus processing and networking services, but does not include fees from cash sweep programs. Other asset-based revenues are a component of asset-based revenues and are derived from the Company's Unaudited Condensed Consolidated Statements of Income.
  3. 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 release for additional information. Below is a reconciliation of Core G&A against the Company's total operating expense for the periods presented:
               
   
Q3 2017
  
Q2 2017
 
Q3 2016
Operating Expense Reconciliation              
Core G&A  $178,769   $176,428  $175,385 
Regulatory charges  4,433   5,428  4,436 
Promotional  42,935   32,006  42,609 
Employee share-based compensation  4,940   5,033  4,431 
Total G&A  231,077   218,895  226,861 
Commissions and advisory  663,765   663,046  657,432 
Depreciation & amortization  21,996   21,190  18,434 
Amortization of intangible assets  9,352   9,453  9,502 
Brokerage, clearing and exchange  13,491   13,890  13,098 
Total operating expense  $939,681   $926,474  $925,327 
               
  1. Consists of brokerage assets serviced by advisors licensed with the Company's broker-dealer subsidiary LPL Financial LLC ("LPL Financial").
  2. Consists of total advisory assets under custody at LPL Financial.
  3. Consists of total client deposits into advisory accounts less total client withdrawals from advisory accounts. The Company considers conversions from and to brokerage accounts as deposits and withdrawals respectively.
  4. Consists of total client deposits into brokerage accounts less total client withdrawals from brokerage accounts. The Company considers conversions from and to advisory accounts as deposits and withdrawals respectively.
  5. Consists of existing custodied assets that converted from brokerage to advisory, less existing custodied assets that converted from advisory to brokerage.
  6. Calculated as annualized current period net new assets divided by preceding period assets in their respective categories of advisory assets or total brokerage and advisory assets.
  7. Consists of total assets on LPL Financial's corporate advisory platform serviced by advisors who are  investment advisor representatives of LPL Financial.
  8. Consists of total assets on LPL Financial's independent advisory platform serviced by advisors who are  investment advisor representatives of separate investment advisor firms ("Hybrid RIAs"), rather than of LPL Financial.
  9. Total Brokerage and Advisory Retirement Assets are a component of Total Brokerage and Advisory Assets. This measure does not include additional retirement plan assets custodied with third parties, estimated to be approximately $137 billion.
  10. Calculated by dividing revenue for the period by the average balance during the quarter.
  11. Represents items that are adjustable in accordance with the Credit Agreement to calculate Credit Agreement EBITDA, including employee severance costs, employee signing costs, employee retention or completion bonuses, and other non-recurring costs.
  12. Consists of cash unrestricted by the Credit Agreement and other regulations available for operating, investing, and financing uses.
  13. Under the Credit Agreement, management calculates Credit Agreement EBITDA for a four-quarter period at the end of each fiscal quarter, and in so doing may make further adjustments to prior quarters.
  14. Financial advisors who are affiliated and licensed with insurance companies that receive customized clearing services, advisory platforms, and technology solutions from the Company.
  15. Calculated based on the average advisor count from the current period and prior period.
  16. Calculated based on the end of period Total Brokerage and Advisory Assets divided by end of period Advisor count.
  17. Represents the amortization expense amount of forgivable loans from transition assistance paid to advisors and financial institutions.
  18. Represents annualized Gross Profit (see FN 1) for the period, divided by Total Brokerage and Advisory Assets at the end of the period.
  19. Represents annualized operating expenses for the period, excluding production-related expense, divided by Total Brokerage and Advisory Assets at the end of the period. Production-related expense includes commissions and advisory expense and brokerage, clearing and exchange expense. For purposes of this metric, operating expenses includes Core G&A (see FN 3), Regulatory, Promotional, Employee Share Based Compensation, Depreciation & Amortization, and Amortization of Intangible Assets.
  20. EBIT ROA is calculated as Gross Profit ROA less OPEX ROA.
  21. Reflects retention of commission and advisory revenues, calculated by deducting the prior year production of the annualized year-to-date attrition rate, over the prior year total production.
  22. Capital Allocation per Share equals the amount of capital allocated for share repurchases and cash dividends divided by the diluted weighted-average shares outstanding.


Investor Relations - Chris Koegel, (617) 897-4574
Media Relations - Jeff Mochal, (704) 733-3589
investor.lpl.com/contactus.cfm