LPL Financial Holdings Inc.
LPL Investment Holdings Inc. (Form: 8-K, Received: 04/30/2012 06:33:03)




UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549


FORM 8-K


CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934


April 30, 2012
Date of report (date of earliest event reported)

LPL Investment Holdings Inc.
(Exact name of registrant as specified in its charter)

Delaware
001-34963
20-3717839
(State or other jurisdictions of incorporation or organization)
(Commission File Number)
(I.R.S. Employer Identification Nos.)

One Beacon Street
Boston MA 02108
(Address of principal executive offices) (Zip Code)

(617) 423-3644
(Registrant's telephone number, including area code)

N/A
(Former Name or Former Address, if Changed since Last Report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrants under any of the following provisions:
 
o
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))









Item 2.02
Results of Operations and Financial Condition
On April 30, 2012, LPL Investment Holdings Inc. issued a press release announcing its financial results for the quarter ended March 31, 2012. A copy of the press release is furnished with this Form 8-K and attached hereto as Exhibit 99.1.
Exhibit 99.1 shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities under that Section and shall not be deemed to be incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended, or the Exchange Act.

Item 9.01

Financial Statements and Exhibits
(d)

 
Exhibits
 
 
 
99.1

 
Press Release dated April 30, 2012 (“LPL Financial Announces First Quarter 2012 Financial Results”)
 










SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

LPL INVESTMENT HOLDINGS INC.
 
 
 
By:
/s/ Robert J. Moore
 
Name: Robert J. Moore
 
Title: Chief Financial Officer


Dated: April 30, 2012

    


 

 





 
Exhibit 99.1
 
 
    
LPL Financial Announces First Quarter 2012 Financial Results

Generated Record Quarterly Revenue of $901.8 million
Experienced Enhanced Advisor Productivity and Client Engagement

Boston, MA - April 30, 2012 — LPL Investment Holdings Inc. (NASDAQ: LPLA) (the “Company”), parent company of LPL Financial LLC (“LPL Financial”), announced today first quarter net income of $41.2 million , or $0.37 per diluted share, down $7.8 million compared to a first quarter 2011 net income of $49.0 million , or $0.43 per diluted share due primarily to a $16.5 million pre-tax charge related to the successful completion of the refinancing of its senior secured credit facilities. Adjusted Earnings, a non-GAAP measure which excludes certain non-cash charges and other adjustments, were $63.2 million , or $0.56 per diluted share, up $3.8 million or 6.4% compared to $59.4 million , or $0.52 per diluted share, in the first quarter of 2011 . Net revenue for the first quarter of 2012 increased 3.2% to $901.8 million , from $873.9 million in the prior year period. A reconciliation of our GAAP measures to non-GAAP measures, along with an explanation of these metrics, is provided below.

“We are pleased to announce a positive start to 2012 led by record revenue and Adjusted Earnings for the first quarter," said Mark Casady, LPL Financial chairman and CEO. "This success was driven by the ongoing relationships our advisors maintain with clients. These relationships positioned our advisors for increased productivity as their clients re-engaged in the market. This financial performance was accompanied by a number of key milestones such as the declaration of a special dividend, plans to initiate future payments of a regular quarterly dividend and the successful completion of our debt refinancing, which increased our financial flexibility while maintaining our ability to invest in the growth of the business. Our performance underscores the resiliency and predictability of our business model and is anchored by our singular focus on supporting the needs of our advisors and institutions, which allows us to grow through various market cycles."

Mr. Casady continued, “We remain committed to investing in our business to support the long-term growth of the Company and our advisors. Propelled by our scale and capital resources, we continually seek ways to lead innovation in the industry. For example, our investments in the retirement plan market are unlocking further synergies from our acquisition of National Retirement Partners in 2011, including facilitating in-plan advice, capturing IRA rollovers, and increasing automation. We are proud to continue to expand one of the strongest and most effective offerings of tools and services for advisors in the retirement plan arena, where we see increasing opportunity.”

For the quarter, total advisory and brokerage assets ended at $354.1 billion , a 7.3% increase from $330.1 billion as of March 31, 2011 . Compared to the previous quarter, total advisory and brokerage assets increased 7.2% from $330.3 billion as of December 31, 2011 . Net new advisory assets of $2.5 billion during the quarter and positive market conditions resulted in total advisory assets under management of $110.8 billion at quarter-end.

Robert Moore, chief financial officer, commented, "Driven by the increased advisor productivity, total revenue for the first quarter increased 3.2% year-over-year. Same store sales of our advisors displayed a recovery from the flat performance experienced in the fourth quarter last year. Contributing to our performance, advisors that joined LPL in 2011 exceeded expectations in establishing their practices and generating revenue. Our production payout ratio increased year-over-year, primarily due to strong performance by our larger practices increasing the production bonus component. We continue to actively manage our ongoing general and administrative expenses and they are consistent with our current trajectory of growth."



1



Mr. Moore continued, "We remain excited about our business development opportunities as we continue to attract a broad array of advisors, including larger branches, to our platform. Our pipeline remains strong across all channels in the industry, elevating our expectations for new advisor additions in the coming quarters. This is attributable to the breadth of our services and technology and our ability to consistently invest in resources to help advisors and institutions establish and grow their practices.”

Mr. Casady concluded, "The first quarter results reflect the benefit from improving market conditions and the dedication of our advisors to serve their clients, leading to growth in their businesses. The first quarter was highlighted not only by our strong financial results and improved capital structure, but also by the announcement of our intent to acquire Fortigent, a leading provider of high-net-worth solutions and consulting services to RIAs, which closed on April 23, 2012. This was followed by the extension of a significant clearing services agreement and the renegotiation of certain third-party cash sweep contracts. I am encouraged by the productive start to 2012 and I believe that we are well-positioned to pursue our long-term goals."

Financial Highlights

As part of our ongoing capital management focus to prioritize sustainable growth and to seek to optimize shareholder value, the Company successfully completed a refinancing of its existing senior secured credit facilities, extending the maturity of the debt and lowering interest expense by approximately $10.0 million annually, based on current interest rates.

The Board of Directors declared a one-time special cash dividend of $2.00 per share, payable on May 25, 2012 to all common stockholders of record as of the close of business on May 15, 2012. In addition, the Company plans to pay regular quarterly dividends, initially up to $0.12 ($0.48 annually), beginning in the second half of 2012. The declaration and amount of any regular cash dividends will remain subject in each instance to approval by the Board of Directors.

Net revenue for the first quarter of 2012 increased 3.2% to $901.8 million from $873.9 million in the first quarter of 2011 . Key drivers of this growth include:
Commission revenue increased 2.6% for the first quarter of 2012 compared to the prior year period. Approximately 35% of the increase is from increased sales activity, with the remainder due to market movement.
Advisory revenue increased 2.8% for the first quarter of 2012 compared to the prior year period, primarily reflecting growth in advisory assets over the last four quarters, as well as market appreciation.
Recurring revenue, a statistical measure reflecting a level of stability in our performance, represented 63.0% of net revenue for the quarter.

Total advisory and brokerage assets ended at $354.1 billion as of March 31, 2012 , up 7.3% compared to $330.1 billion as of March 31, 2011 . Key drivers of this trend include:
Advisory assets in the Company's fee-based platforms were $110.8 billion at March 31, 2012 , up 11.1% from $99.7 billion at March 31, 2011 .
Net new advisory assets, which exclude market movement, were $2.5 billion for the three months ended March 31, 2012 , primarily as a result of strong new business development and mix shift toward more advisory business. On an annualized basis, this represents 9.0% growth.

Revenues generated from the Company's cash sweep programs increased 8.5% to $34.4 million compared to $31.7 million in the prior year period. The assets in the Company's cash sweep programs averaged $21.5 billion for the first quarter of 2012 and $18.9 billion in the year-ago quarter. These revenues were impacted by a decrease in the effective federal funds rate, which averaged 0.10% for the first quarter of 2012 compared to 0.15% for the same period in the prior year. The decrease in the effective federal funds rate was offset by an increase in the insured cash account balances.





2



Operational Highlights

In March, the Company hosted one of its annual conferences for top-producing advisors, attracting 181 attendees, including 17 financial institution program managers, who collectively represent $525.0 million, or 19%, of 2011 production. This conference provides leading advisors with a dynamic educational setting to discuss strategies to drive additional growth and manage the increasing complexity of their practices, through participation in sessions covering LPL Financial's unique offerings and significant technology enhancements.

The Company added 554 net new advisors during the twelve months ending March 31, 2012 , excluding the attrition of 146 advisors from the UVEST conversion. During the first quarter of 2012 , 115 net new advisors joined LPL Financial as the Company continues to build relationships with advisors from all channels across the financial services industry.

Assets under custody in the LPL Financial RIA platform, which provides integrated fee- and commission-based capabilities for independent advisors, grew 74.8% to $27.1 billion as of March 31, 2012 encompassing 152 RIA firms, compared to $15.5 billion and 115 RIA firms as of March 31, 2011 .

18 of the Company's advisors were recognized in a ranking of the "Top 50 Independent Broker/Dealer Women Advisors in 2011" by Registered Rep , a leading publication for the financial advisor industry. According to Registered Rep , the full list ranked female, independent broker/dealer-affiliated advisors by assets under management as of November 1, 2011 (updated in February 2012), and included only those advisors for whom a majority of assets correspond to retail clients.

As LPL Financial continues to grow and diversify, the Company seeks to develop and expand its resources and talent pool. In February, the Company named Joan Khoury managing director and chief marketing officer and appointed Mimi Bock as executive vice president of Independent Advisor Services. Ms. Khoury is responsible for driving the Company's overall marketing strategy, as well as executing programs that will promote advisors' growth and innovation and broaden the strategic reach of LPL Financial. Ms. Bock is responsible for overseeing the growth and satisfaction of over 4,000 LPL Financial independent advisor branch offices, as well as for leading the firm's Business Consulting, Relationship Management, and Education & Consulting teams for Independent Advisor Services. Both roles will be instrumental in promoting LPL Financial's distinctive value proposition to advisors to build and strengthen their client relationships and grow their businesses.

LPL Financial announced the additions of Plan Health Check and Fee Comparison & Analysis Evaluation tools to augment the LPL Financial Retirement Partners tool suite for advisors. The tool suite offers a comprehensive collection of retirement plan tools designed to help advisors grow and maintain their book of business in an automated and scalable fashion. In addition, LPL Financial launched its first stage of the IRA rollover program, which facilitates the automated rollover from a defined contribution plan to a retail IRA account managed by an LPL Financial advisor. This program enhances the continuity and quality of independent advice investors can receive in the market place and provides LPL Financial advisors another tool to grow their businesses.


 


3



Conference Call and Additional Information

The Company will hold a conference call to discuss results at 8 a.m. EST on April 30, 2012.  The conference call can be accessed by dialing (877) 677-9122 (domestic) or (708) 290-1401 (international) and entering passcode 66850112. For additional information, please visit the Company's website to access the Q1 2012 Financial Supplement.
 
The conference call will also be webcast simultaneously on the Investor Relations section of the Company's website (www.lpl.com), where a replay of the call will also be available following the live webcast. A telephonic replay will be available one hour after the call and can be accessed by dialing (855) 859-2056 (domestic) or 404-537-3406 (international) and entering passcode 66850112. The telephonic replay will be available until 11:59 pm on May 7, 2012.

Financial Highlights and Key Metrics
(Dollars in thousands, except per share data and where noted)

 
Three Months Ended March 31,
 
2012
 
2011
 
 % Change
Financial Highlights (unaudited)
 
 
 
 
 
Net Revenue
$
901,773

 
$
873,869

 
3.2
 %
Net Income
$
41,179

 
$
48,999

 
(16.0
)%
Earnings Per Share — diluted
$
0.37

 
$
0.43

 
(14.0
)%
Non-GAAP Measures:
 
 
 
 
 
Adjusted Earnings(1)
$
63,199

 
$
59,373

 
6.4
 %
Adjusted Earnings Per Share(1)
$
0.56

 
$
0.52

 
7.7
 %
Adjusted EBITDA(1)
$
124,955

 
$
124,331

 
0.5
 %

 
As of March 31,
 
2012
 
2011
 
 % Change
Metric Highlights (unaudited)
 
 
 
 
 
Advisors(2)
12,962

 
12,554

 
3.2
 %
Advisory and Brokerage Assets (billions)(3)
$
354.1

 
$
330.1

 
7.3
 %
Advisory Assets Under Management (billions)(4)
$
110.8

 
$
99.7

 
11.1
 %
Net New Advisory Assets (billions)(5)
$
2.5

 
$
3.7

 
(32.4
)%
Insured Cash Account Balances (billions)(4)
$
13.9

 
$
12.3

 
13.0
 %
Money Market Account Balances (billions)(4)
$
7.7

 
$
6.9

 
11.6
 %

(1)
Adjusted EBITDA, Adjusted Earnings, and Adjusted Earnings per share have limitations as analytical tools and should not be considered in isolation or as substitutes for analysis of the Company's results as reported under GAAP. Some of these limitations are:

Adjusted EBITDA, Adjusted Earnings, and Adjusted Earnings per share do not reflect all cash expenditures, future requirements for capital expenditures, or contractual commitments;

Adjusted EBITDA, Adjusted Earnings, and Adjusted Earnings per share do not reflect changes in, or cash requirements for, working capital needs; and

Adjusted EBITDA does not reflect the significant interest expense, or the cash requirements necessary to service interest or principal payments, on debt.

4



The reconciliation from net income to non-GAAP measures Adjusted EBITDA and Adjusted Earnings for the periods presented is as follows (in thousands):
 
Three Months Ended
March 31,
 
2012
 
2011
 
(unaudited)
Net income
$
41,179

 
$
48,999

Interest expense
16,032

 
18,172

Income tax expense
25,684

 
32,559

Amortization of purchased intangible assets and software(a)
9,832

 
9,537

Depreciation and amortization of all other fixed assets
7,343

 
8,628

EBITDA
100,070

 
117,895

EBITDA Adjustments:
 
 
 
Employee share-based compensation expense(b)
4,160

 
3,860

Acquisition and integration related expenses(c)
1,858

 
1,416

Restructuring and conversion costs(d)
2,010

 
835

Debt extinguishment costs(e)
16,543

 

Equity issuance and related offering costs

 
292

Other(f)
314

 
33

Total EBITDA Adjustments
24,885

 
6,436

Adjusted EBITDA
$
124,955

 
$
124,331


 
Three Months Ended
March 31,
 
2012
 
2011
 
(unaudited)
Net income
$
41,179

 
$
48,999

After-Tax:
 
 
 
EBITDA Adjustments(g)
 
 
 
Employee share-based compensation expense(h)
3,167

 
2,901

Acquisition and integration related expenses
1,146

 
874

Restructuring and conversion costs
1,240

 
515

Debt extinguishment costs
10,207

 

Equity issuance and related offering costs

 
180

Other
194

 
20

Total EBITDA Adjustments
15,954

 
4,490

Amortization of purchased intangible assets and software(g)
6,066

 
5,884

Adjusted Earnings
$
63,199

 
$
59,373

Adjusted Earnings per share(i)
$
0.56

 
$
0.52

Weighted average shares outstanding — diluted(j)
112,529

 
113,196

___________________

(a)
Represents amortization of intangible assets and software as a result of the Company's purchase accounting adjustments from its 2005 merger transaction, as well as various acquisitions.

(b)
Represents share-based compensation for stock options awarded to employees and non-executive directors based on the grant date fair value under the Black-Scholes valuation model.

(c)
Represents acquisition and integration costs resulting from certain of the Company's acquisitions.

(d)
Represents organizational restructuring charges and conversion and other related costs incurred resulting

5



from the 2011 consolidation of UVEST Financial Services Group, Inc. (“UVEST”) and the 2009 consolidation of Associated Securities Corp., Inc., Mutual Service Corporation and Waterstone Financial Group, Inc. (together, the “Affiliated Entities”). As of March 31, 2012, approximately 72% and 97%, respectively, of costs related to these two initiatives have been recognized.  The remaining costs largely consist of transition payments made in connection with these two conversions for the retention of advisors and institutions, and conversion and transfer costs that are expected to be recognized into earnings by December 2014. 

(e)
Represents expenses incurred in March 2012 resulting from the early extinguishment and repayment of the Company's senior secured credit facilities under its Third Amended and Restated Credit Agreement, including the write-off of $16.5 million of unamortized debt issuance costs that have no future economic benefit, as well as various other charges incurred in connection with the repayment of the prior senior secured credit facilities and the development of the new senior secured credit facilities.

(f)
Represents excise and other taxes.

(g)
EBITDA Adjustments and amortization of purchased intangible assets and software have been tax effected using a federal rate of 35% and the applicable effective state rate, which was 3.30% for the three months ended March 31, 2012 and 2011 , net of the federal tax benefit.

(h)
Represents the after-tax expense of non-qualified stock options in which the Company receives a tax deduction upon exercise, and the full expense impact of incentive stock options granted to employees that have vested and qualify for preferential tax treatment and conversely, the Company does not receive a tax deduction. Share-based compensation for vesting of incentive stock options was $1.6 million and $1.4 million, respectively, for the three months ending March 31, 2012 and 2011 .

(i)
Represents Adjusted Earnings, a non-GAAP measure, divided by weighted average number of shares outstanding on a fully diluted basis. Set forth is a reconciliation of earnings per share on a fully diluted basis as calculated in accordance with GAAP to Adjusted Earnings per share, a non-GAAP measure:
 
For the Three Months Ended
March 31,
 
2012
 
2011
 
(unaudited)
Earnings per share — diluted
$
0.37

 
$
0.43

After-Tax:
 
 
 
EBITDA Adjustments per share
0.14

 
0.04

Amortization of purchased intangible assets and software per share
0.05

 
0.05

Adjusted Earnings per share
$
0.56

 
$
0.52


(j) Included within the weighted average share count for the three months ended March 31, 2012 , is approximately 850,000 shares resulting from the distribution pursuant to the 2008 Nonqualified Deferred Compensation Plan.

(2)
Advisors are defined as those independent financial advisors and financial advisors at financial institutions who are licensed to do business with the Company's broker-dealer subsidiaries. The number of advisors at March 31, 2012 reflects attrition of 146 advisors related to the integration of the UVEST platform.

(3)
Advisory and brokerage assets are comprised of assets that are custodied, networked, and non-networked and reflect market movement in addition to new assets, inclusive of new business development and net of attrition.  Such totals do not include the market value of client assets held in retirement plans administered by us and trust assets supported by Concord Wealth Management.

(4)
Advisory assets under management, insured cash account balances and money market account balances are components of advisory and brokerage assets.

6



(5)
Represents net new advisory assets that are custodied in our fee-based advisory platforms during the three month periods then ended.

Non-GAAP Financial Measures

Adjusted Earnings represent net income before: (a) employee share-based compensation expense, (b) amortization of intangible assets and software, a component of depreciation and amortization, resulting from previous acquisitions, (c) debt extinguishment costs (d) restructuring and conversion costs and (e) equity issuance and related offering costs. Reconciling items are tax effected using the income tax rates in effect for the applicable period, adjusted for any potentially non-deductible amounts. Adjusted Earnings per share represents Adjusted Earnings divided by weighted average outstanding shares on a fully diluted basis. The Company prepared Adjusted Earnings and Adjusted Earnings per share to eliminate the effects of items that it does not consider indicative of its core operating performance. The Company believes this measure provides investors with greater transparency by helping illustrate the underlying financial and business trends relating to results of operations and financial condition and comparability between current and prior periods. Adjusted Earnings and Adjusted Earnings per share are not measures of the Company's financial performance under GAAP and should not be considered as an alternative to net income or earnings per share 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.

Adjusted EBITDA is defined as EBITDA (net income plus interest expense, income tax expense, depreciation and amortization), further adjusted to exclude certain non-cash charges and other adjustments set forth in the table above. The Company presents Adjusted EBITDA because the Company considers it a useful financial metric in assessing the Company's operating performance from period to period by excluding certain items that the Company believes are not representative of its core business, such as certain material non-cash items and other adjustments that are outside the control of management. Adjusted 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, Adjusted EBITDA can differ significantly from company to company depending on long-term strategic decisions regarding capital structure, the tax jurisdictions in which companies operate and capital investments.


7



Forward-Looking Statements

This press release may contain forward-looking statements (regarding the Company's future financial condition, results of operations, business strategy and financial needs, ability and plans to pay dividends, and other similar matters) that involve risks and uncertainties. Forward-looking statements can be identified by words such as “anticipates,” “expects,” “believes,” “plans,” “predicts,” and similar terms. Forward-looking statements are not guarantees of future performance and actual results may differ significantly from the results discussed in the forward-looking statements. For example, our board of directors may not approve the payment of quarterly cash dividends or may authorize quarterly cash dividends of a different amount than previously considered or specified. Other factors include, but are not limited to, risks and uncertainties associated with changes in general economic and financial market conditions, fluctuations in the value of assets under management, our ability to integrate our acquisition of Fortigent, effects of competition in the financial services industry, changes in the number of the Company's financial advisors and institutions and their ability to effectively market financial products and services, the effect of current, pending and future legislation, regulation and regulatory actions, and other factors set forth in the Company's Annual Report on Form 10-K for the period ended December 31, 2011 , which is available on www.lpl.com and www.sec.gov .

About LPL Financial

LPL Financial, a wholly owned subsidiary of LPL Investment Holdings Inc. (NASDAQ: LPLA), is the nation's largest independent broker-dealer (based on total revenues, Financial Planning magazine, June 1996-2011), a top RIA custodian, and a leading independent consultant to retirement plans. LPL Financial offers proprietary technology, comprehensive clearing and compliance services, practice management programs and training, and independent research to over 12,900 financial advisors and approximately 680 financial institutions. In addition, LPL Financial supports over 4,400 financial advisors licensed with insurance companies by providing customized clearing, advisory platforms and technology solutions. LPL Financial and its affiliates have approximately 2,700 employees with headquarters in Boston, Charlotte, and San Diego.  For more information, please visit www.lpl.com .

Securities offered through LPL Financial. Member FINRA/SIPC

# # #

LPLA-F

Media Relations
Investor Relations
Michael Herley
Trap Kloman
LPL Financial
LPL Financial
Phone: (212) 521-4897
Phone: (617) 897-4574
Email: michael-herley@kekst.com
Email: investor.relations@lpl.com


8



LPL Investment Holdings Inc.
Condensed Consolidated Statements of Operations
(Dollars in thousands, except per share data)
(Unaudited)
 
Three Months Ended March 31,
 
2012
 
2011
 
% Change
Revenues
 
 
 
 
 
Commissions
$
463,653

 
$
451,877

 
2.6
 %
Advisory fees
250,981

 
244,087

 
2.8
 %
Asset-based fees
97,241

 
89,823

 
8.3
 %
Transaction and other fees
74,572

 
73,749

 
1.1
 %
Other
15,326

 
14,333

 
6.9
 %
Net revenues
901,773

 
873,869

 
3.2
 %
Expenses
 
 
 
 
 
Production
626,907

 
604,327

 
3.7
 %
Compensation and benefits
89,012

 
84,142

 
5.8
 %
General and administrative
67,566

 
66,968

 
0.9
 %
Depreciation and amortization
17,175

 
18,165

 
(5.5
)%
Restructuring charges
1,694

 
537

 
*

Total operating expenses
802,354

 
774,139

 
3.6
 %
Non-operating interest expense
16,032

 
18,172

 
(11.8
)%
Loss on extinguishment of debt
16,524

 

 
*

Total expenses
834,910

 
792,311

 
5.4
 %
Income before provision for income taxes
66,863

 
81,558

 
(18.0
)%
Provision for income taxes
25,684

 
32,559

 
(21.1
)%
Net income
$
41,179

 
$
48,999

 
(16.0
)%
Earnings per share
 
 
 
 
 
Basic
$
0.38

 
$
0.44

 
(13.6
)%
Diluted
$
0.37

 
$
0.43

 
(14.0
)%
___________________
* Not Meaningful

9



LPL Investment Holdings Inc.
Financial Highlights
(Dollars in thousands, except per share data and where noted)
(Unaudited)
 
Three Month Quarterly Results
 
Q1 2012
 
Q4 2011
 
Q3 2011
 
Q2 2011
 
Q1 2011
REVENUES
 
 
 
 
 
 
 
 
 
Commissions
$
463,653

 
$
404,382

 
$
438,294

 
$
459,882

 
$
451,877

Advisory fees
250,981

 
251,219

 
267,878

 
264,289

 
244,087

Asset-based fees
97,241

 
89,706

 
89,691

 
90,504

 
89,823

Transaction and other fees
74,572

 
71,227

 
78,476

 
68,755

 
73,749

Other
15,326

 
12,119

 
8,518

 
10,566

 
14,333

Net revenues
901,773

 
828,653

 
882,857

 
893,996

 
873,869

EXPENSES
 
 
 
 
 
 
 
 
 
Production(1)
626,907

 
586,123

 
623,886

 
634,088

 
604,327

Compensation and benefits
89,012

 
79,237

 
77,337

 
81,410

 
84,142

General and administrative
67,566

 
58,553

 
76,063

 
61,644

 
66,968

Depreciation and amortization
17,175

 
16,947

 
19,222

 
18,407

 
18,165

Restructuring charges
1,694

 
8,372

 
7,684

 
4,814

 
537

Total operating expenses
802,354

 
749,232

 
804,192

 
800,363

 
774,139

Non-operating interest expense
16,032

 
15,835

 
16,603

 
18,154

 
18,172

Loss on extinguishment of debt
16,524

 

 

 

 

Total expenses
834,910

 
765,067

 
820,795

 
818,517

 
792,311

INCOME BEFORE PROVISION FOR INCOME TAXES
66,863

 
63,586

 
62,062

 
75,479

 
81,558

PROVISION FOR INCOME TAXES
25,684

 
24,138

 
25,634

 
29,972

 
32,559

NET INCOME
$
41,179

 
$
39,448

 
$
36,428

 
$
45,507

 
$
48,999

EARNINGS PER SHARE
 
 
 
 
 
 
 
 
 
Basic
$
0.38

 
$
0.36

 
$
0.33

 
$
0.41

 
$
0.44

Diluted
$
0.37

 
$
0.35

 
$
0.32

 
$
0.40

 
$
0.43

FINANCIAL CONDITION
 
 
 
 
 
 
 
 
 
Total Cash & Cash Equivalents (billions)
$
0.7

 
$
0.7

 
$
0.7

 
$
0.7

 
$
0.6

Total Assets (billions)
$
3.8

 
$
3.8

 
$
3.7

 
$
3.7

 
$
3.7

Total Debt (billions)(2)
$
1.4

 
$
1.3

 
$
1.3

 
$
1.3

 
$
1.3

Stockholders' Equity (billions)
$
1.2

 
$
1.3

 
$
1.3

 
$
1.3

 
$
1.3

KEY METRICS
 
 
 
 
 
 
 
 
 
Advisors
12,962

 
12,847

 
12,799

 
12,660

 
12,554

Production Payout(1)
86.4
%
 
88.0
%
 
87.0
%
 
86.3
%
 
85.4
%
Advisory and Brokerage Assets (billions)
$
354.1

 
$
330.3

 
$
316.4

 
$
340.8

 
$
330.1

Advisory Assets Under Management (billions)
$
110.8

 
$
101.6

 
$
96.3

 
$
103.2

 
$
99.7

Net New Advisory Assets (billions)(3)
$
2.5

 
$
1.0

 
$
3.0

 
$
3.1

 
$
3.7

Insured Cash Account Balances (billions)(4)
$
13.9

 
$
14.4

 
$
14.2

 
$
13.2

 
$
12.3

Money Market Account Balances (billions)(4)
$
7.7

 
$
8.0

 
$
8.9

 
$
8.2

 
$
6.9

Adjusted EBITDA(5)
$
124,955

 
$
100,796

 
$
111,596

 
$
122,997

 
$
124,331

Adjusted Earnings(5)
$
63,199

 
$
48,838

 
$
51,567

 
$
58,807

 
$
59,373

Adjusted Earnings per share(5)
$
0.56

 
$
0.44

 
$
0.46

 
$
0.52

 
$
0.52

_____________________________
(1)
Production expense is comprised of commission and advisory fees and brokerage, clearing and exchange fees. Production payout, a statistical measure, excludes brokerage, clearing and exchange fees and is

10



calculated as commission and advisory fees divided by commission and advisory revenues.

(2)
Represents borrowings on the Company's senior secured credit facilities, revolving line of credit and bank loans payable.

(3)
Represents net new advisory assets that are custodied in our fee-based advisory platforms during the three month periods then ended.

(4)
Represents insured cash and money market account balances as of each reporting period.

(5)
The reconciliation from net income to non-GAAP measures Adjusted EBITDA and Adjusted Earnings for the periods presented is as follows (in thousands, except per share data):
 
Q1 2012
 
Q4 2011
 
Q3 2011
 
Q2 2011
 
Q1 2011
 
(unaudited)
Net income
$
41,179

 
$
39,448

 
$
36,428

 
$
45,507

 
$
48,999

Interest expense
16,032

 
15,835

 
16,603

 
18,154

 
18,172

Income tax expense
25,684

 
24,138

 
25,634

 
29,972

 
32,559

Amortization of purchased intangible assets and software(a)
9,832

 
9,849

 
9,909

 
9,686

 
9,537

Depreciation and amortization of all other fixed assets
7,343

 
7,098

 
9,313

 
8,721

 
8,628

EBITDA
100,070

 
96,368

 
97,887

 
112,040

 
117,895

EBITDA Adjustments:
 
 
 
 
 
 
 
 
 
Employee share-based compensation expense(b)
4,160

 
3,858

 
3,833

 
3,427

 
3,860

Acquisition and integration related expenses(c)
1,858

 
(8,020
)
 
1,241

 
1,548

 
1,416

Restructuring and conversion costs(d)
2,010

 
8,532

 
8,086

 
4,599

 
835

Debt extinguishment costs(e)
16,543

 

 

 

 

Equity issuance and offering related costs(f)

 

 
421

 
1,349

 
292

Other(g)
314

 
58

 
128

 
34

 
33

Total EBITDA Adjustments
24,885

 
4,428

 
13,709

 
10,957

 
6,436

Adjusted EBITDA
$
124,955

 
$
100,796

 
$
111,596

 
$
122,997

 
$
124,331

 
 
 
 
 
 
 
 
 
 
 
Q1 2012
 
Q4 2011
 
Q3 2011
 
Q2 2011
 
Q1 2011
 
(unaudited)
Net income
$
41,179

 
$
39,448

 
$
36,428

 
$
45,507

 
$
48,999

After-Tax:
 
 
 
 
 
 
 
 
 
EBITDA Adjustments(h)
 
 
 
 
 
 
 
 
 
Employee share-based compensation expense(i)
3,167

 
2,961

 
2,933

 
2,677

 
2,901

Acquisition and integration related expenses
1,146

 
(4,948
)
 
765

 
955

 
874

Restructuring and conversion costs
1,240

 
5,264

 
4,989

 
2,838

 
515

Debt extinguishment costs
10,207

 

 

 

 

Equity issuance and offering related costs

 

 
260

 
832

 
180

Other
194

 
36

 
79

 
21

 
20

Total EBITDA Adjustments
15,954

 
3,313

 
9,026

 
7,323

 
4,490

Amortization of purchased intangible assets and software(h)
6,066

 
6,077

 
6,113

 
5,977

 
5,884

Adjusted Earnings
$
63,199

 
$
48,838

 
$
51,567

 
$
58,807

 
$
59,373

Adjusted Earnings per share(j)
$
0.56

 
$
0.44

 
$
0.46

 
$
0.52

 
$
0.52

Weighted average shares outstanding — diluted(k)
112,529

 
111,095

 
111,173

 
113,150

 
113,196

______________________________
(a)
Represents amortization of intangible assets and software as a result of the Company's purchase accounting

11



adjustments from its 2005 merger transaction, as well as various acquisitions.

(b)
Represents employee share-based compensation for stock options awarded to employees and non-executive directors based on the grant date fair value under the Black-Scholes valuation model.

(c)
Represents acquisition and integration costs resulting from certain of the Company's acquisitions. As previously disclosed, the Company has been involved in a legal dispute with a third-party indemnitor under a purchase and sale agreement with respect to the indemnitor's refusal to make indemnity payments that the Company believed were required under the purchase and sale agreement. The Company settled this legal dispute in the fourth quarter of 2011. Accordingly, the Company received a $10.5 million cash settlement, $9.8 million of which has been excluded from the presentation of Adjusted EBITDA, a non-GAAP measure.

(d)
Represents organizational restructuring charges and conversion and other related costs incurred resulting from the 2011 consolidation of UVEST and the 2009 consolidation of the Affiliated Entities. As of March 31, 2012, approximately 72% and 97%, respectively, of costs related to these two initiatives have been recognized.  The remaining costs largely consist of transition payments made in connection with these two conversions for the retention of advisors and institutions, and conversion and transfer costs that are expected to be recognized into earnings by December 2014. 

(e)
Represents expenses incurred in March 2012 resulting from the early extinguishment and repayment of the Company's senior secured credit facilities under its Third Amended and Restated Credit Agreement, including the write-off of $16.5 million of unamortized debt issuance costs that have no future economic benefit, as well as various other charges incurred in connection with the repayment of the prior senior secured credit facilities and the development of the new senior secured credit facilities.

(f)
Represents equity issuance and offering costs related to the closing of a secondary offering in the second quarter of 2011.

(g)
Represents excise and other taxes.

(h)
EBITDA Adjustments and amortization of purchased intangible assets, a component of depreciation and amortization, have been tax effected using a federal rate of 35% and the applicable effective state rate, which was 3.30% for the periods presented, net of the federal tax benefit.

(i)
Represents the after-tax expense of non-qualified stock options in which the Company receives a tax deduction upon exercise, and the full expense impact of incentive stock options granted to employees that have vested and qualify for preferential tax treatment and conversely, the Company does not receive a tax deduction. Employee share-based compensation for vesting of incentive stock options was $1.6 million , $1.5 million, $1.5 million, $1.5 million and $1.4 million for the three months ended March 31, 2012, December 31, 2011, September 30, 2011, June 30, 2011 and March 31, 2011, respectively.

(j)
Set forth is a reconciliation of earnings per share on a fully diluted basis as calculated in accordance with GAAP to Adjusted Earnings per share, a non-GAAP measure:
 
Q1 2012
 
Q4 2011
 
Q3 2011
 
Q2 2011
 
Q1 2011
 
(unaudited)
Earnings per share — diluted
$
0.37

 
$
0.35

 
$
0.32

 
$
0.40

 
$
0.43

Adjustment for allocation of undistributed earnings to stock units

 
0.01

 

 
0.01

 

After-Tax:
 
 
 
 
 
 
 
 
 
EBITDA Adjustments per share
0.14

 
0.03

 
0.09

 
0.06

 
0.04

Amortization of purchased intangible assets per share
0.05

 
0.05

 
0.05

 
0.05

 
0.05

Adjusted Earnings per share
$
0.56

 
$
0.44

 
$
0.46

 
$
0.52

 
$
0.52


(k) Included within the weighted average share count for the three months ended March 31, 2012 , is approximately 850,000 shares resulting from the distribution pursuant to the 2008 Nonqualified Deferred Compensation Plan.

12