LPL Financial Holdings Inc.
LPL Investment Holdings Inc. (Form: 8-K, Received: 02/07/2012 16:03:16)




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


February 07, 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 February 07, 2012, LPL Investment Holdings Inc. issued a press release announcing its financial results for the quarter and year ended December 31, 2011. 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 February 07, 2012 (“LPL Financial Announces Fourth Quarter and 2011 Year-End 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: February 07, 2012

    


 

 





Exhibit 99.1
    
LPL Financial Announces Fourth Quarter and 2011 Year-End Financial Results

Generated Record Revenue of $3.5 Billion and Earnings of $170.4 Million in 2011
2011 Highlighted by Strong Investment in Business and Net New Advisor Additions


Boston, MA - February 07, 2012 — LPL Investment Holdings Inc. (NASDAQ: LPLA) (the “Company”), parent company of LPL Financial LLC (“LPL Financial”), announced today fourth quarter net income of $39.4 million , or $0.35 per diluted share, up $156.0 million compared to a fourth quarter 2010 net loss of $116.6 million , or $1.20 per diluted share. Adjusted Earnings, a non-GAAP measure, which exclude certain non-cash charges and other adjustments, were $48.8 million , or $0.44 per diluted share, up $4.2 million or 9.3% compared to $44.7 million , or $0.42 per diluted share, in the fourth quarter of 2010. Net revenue for the fourth quarter of 2011 increased 1.1% to $828.7 million , from $820.0 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.

For the year ended 2011, net income of $170.4 million was up $227.2 million compared to a net loss of $56.9 million for 2010. The prior year net loss was driven by the previously disclosed charges recorded in the fourth quarter of 2010 associated with the Company's initial public offering. Adjusted Earnings, a non-GAAP measure, in 2011 were $218.6 million , up 26.6% from $172.7 million for 2010. Net revenue in 2011 was $3.5 billion , up 11.8% from $3.1 billion for 2010.

"Against the backdrop of a volatile year for financial markets and the global economy, we are very pleased with our record levels of revenue and Adjusted Earnings in 2011," said Mark Casady, LPL Financial chairman and CEO. "We delivered 12% top-line revenue growth and leveraged our infrastructure, expense controls and interest expense savings to generate 27% Adjusted Earnings growth for the year. The strength of our business model is found in our singular focus on supporting financial advisors who are dedicated to building and strengthening relationships with investors, providing guidance and maintaining direction through all market conditions."

Mr. Casady continued, "Our integrated technology and services supported strong advisor productivity in 2011, reflected by high single-digit same-store-sales growth for our seasoned advisors. This result includes same-store-sales growth declining to less than 1% for the fourth quarter, reflecting a shift caused by sustained market volatility and pronounced economic uncertainty. We are monitoring these external trends closely as we enter 2012 and remain dedicated to positioning our advisors for success. Concurrently, we continue to invest in the growth of the business while closely managing expenses. Most recently, we announced the pending acquisition of Fortigent, which we believe will accelerate our growth in the high-net-worth RIA market. In addition, we anticipate benefiting from our continued investment in technology and gaining efficiencies and savings in our operations through our service value commitment program."

For the year, total advisory and brokerage assets ended at $330.3 billion , a 4.7% increase from $315.6 billion as of December 31, 2010. For the quarter, total advisory and brokerage assets increased 4.4% from $316.4 billion as of September 30, 2011. Total advisory assets under management were $101.6 billion at December 31, 2011, benefiting from net new advisory assets of $10.8 billion in 2011, including $1.0 billion of net new advisory assets during the fourth quarter.

Robert Moore, chief financial officer, commented, "Within the fourth quarter, revenue of $828.7 million was essentially flat while Adjusted Earnings per share of $0.44 grew 4.8% over the fourth quarter of 2010. Advisors and financial institutions remained highly engaged with their clients, but together they have taken a more cautious view

1



of the markets reflected by the increase in cash holdings and lower transaction levels. The payout ratio predictably grew at a slower rate in the fourth quarter, but the total production expense rate exceeded expectations as rising market valuations notably increased advisor deferred compensation plan and share-based compensation expenses. We also invested in our future growth by continuing to provide transition assistance to attract new and larger practices to the LPL Financial platform. Our new business pipeline has remained strong, and we continue to experience success in attracting advisors and financial institutions from all channels in the industry who value the breadth of our services and our focused business model. For the year, we grew by 549 net new advisors excluding the attrition of 146 advisors that resulted, as expected, from the UVEST conversion that was completed in 2011. We added 172 net new advisors in the fourth quarter, excluding the attrition of 124 advisors related to the UVEST conversion this quarter."

Mr. Moore continued, "While the interest rate environment remains at historic lows, our third-party cash sweep program allows us to receive attractive yields on these deposits at the high end of the industry range, without the burden of managing the spread, setting aside capital, or underlying fixed costs. In this environment we continue to generate strong cash flows and have positioned our capital structure to maintain flexibility as we begin 2012."

Mr. Casady concluded, "While we view 2011 as a very successful year both in terms of supporting our advisors and our financial performance, we measure ourselves over the long-term and remain committed to evolving the business to deliver leading technology and services to our advisors. We firmly believe with this focus we can continue to produce long-term growth for our shareholders."

Financial Highlights

Net revenue for the year increased 11.8% to $3.5 billion from $3.1 billion in 2010. Net revenue for the fourth quarter of 2011 increased 1.1% to $828.7 million from $820.0 million in prior year. Key drivers of this growth include:
For the year, commission revenue increased 8.2% compared to the prior year. Approximately 80% of the growth is from increased sales activity, with the remainder due to market movement. Commission revenue declined 5.2% for the fourth quarter of 2011 compared to the prior year period.
For the year, advisory revenue increased 19.4% compared to the prior year, driven by strong net new advisory asset flows and overall improving market levels. Advisory revenue increased 11.0% for the fourth quarter of 2011 compared to the prior year period.
Recurring revenue, a statistical measure, represented 62.7% of net revenue for the year and 65.0% for the quarter.

Total advisory and brokerage assets ended at $330.3 billion as of December 31, 2011 , up 4.7% compared to $315.6 billion as of December 31, 2010 . Key drivers of this trend include:
Advisory assets in the Company's fee-based platforms were $101.6 billion at December 31, 2011 , up 9.2% from $93.0 billion at December 31, 2010 .
Net new advisory assets, which exclude market movement, were $1.0 billion for the three months ended December 31, 2011 . On an annualized basis, this represents 3.9% growth reflecting the deceleration in investor activity in the fourth quarter. For the year, net new advisory assets were $10.8 billion , driven by strong new business development and a mix shift toward more advisory business.

For the year, revenues generated from the Company's cash sweep programs increased 5.8% to $126.7 million compared to $119.7 million in the prior year. The assets in the Company's cash sweep programs averaged $20.9 billion for 2011 and $18.5 billion in the prior year. These revenues were impacted by a decrease in the effective federal funds rate, which averaged 0.10% for 2011 compared to 0.18% for the prior year. Revenues generated from the Company's cash sweep programs increased 4.3% to $33.6 million in the fourth quarter of 2011 compared to $32.2 million in the prior year period.

During 2011, the Company repurchased 2.6 million shares of its common stock under two open market share repurchase programs approved by the Board of Directors for a total of $89.0 million, or an average price of $34.01 per share.  As of December 31, 2011, the Company has used approximately 13% of the $70.0 million authorized under the second share repurchase program.  No repurchases of common stock were made during the fourth quarter of 2011.


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Operational Highlights

In 2011, LPL Financial completed the conversion of institution relationships and related client accounts from the UVEST platform to LPL Financial's self-clearing platform, as previously announced.  This transition improves operational and service efficiencies by creating a single integrated operating platform for all Institution Services customers through LPL Financial's BranchNet technology platform.  For the year, the Company converted 142 institutions representing 337 advisors and $96.2 million in commission and advisory revenues. In the fourth quarter, the Company successfully converted 90 institutions representing 196 advisors and $59.6 million in commission and advisory revenues.  The Company expects to incur restructuring charges of $31.6 million; $21.4 million has been incurred as of December 31, 2011; $10.2 million is expected to be incurred in 2012 and beyond, of which $6.3 million is expected to occur in the first quarter. In addition, the Company expects to spend $12.0 million on application development supporting the conversion that for accounting purposes is capitalized as internally-developed software. The Company expects to improve pre-tax profitability by approximately $10 million to $12 million per year upon the completion of integration activities by creating operational efficiencies and revenue opportunities.

The Company added 549 net new advisors during the twelve months ending December 31, 2011 , which excludes the attrition of 146 advisors from the UVEST conversion, continuing 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 68.1% to $22.7 billion as of December 31, 2011 encompassing 146 RIA firms, compared to $13.5 billion and 114 RIA firms as of December 31, 2010 . The strong growth in the firm's RIA business over the last several years makes LPL Financial one of the largest RIA custodians in the industry.

As previously disclosed, in 2007 LPL Financial began providing brokerage, clearing and custody services for a global insurance company. In the first quarter of 2012, LPL Financial and the global insurance company entered into a new agreement.

Throughout 2011, LPL Financial continued to provide advisors with the technology and services they needed to build their businesses, increasing the penetration of established platforms and introducing new tools as well, including:
At year-end, LPL Financial supported over 28,500 licenses for advisors and their staff utilizing BranchNet, the Company's web-based integrated advisor workstation that helps to manage the complexity of advisors' businesses.
As of the fourth quarter, over 13,000 advisors and their staff have accessed ClientsFirst, LPL Financial's client acquisition program to help advisors find new prospects, convert prospects to clients and keep existing clients for the long term.
Over 2,790 advisors have registered for the social networking initiative LPL Financial launched in 2011 enabling advisors to effectively utilize social media tools, including Facebook, LinkedIn and Twitter, to communicate with their existing and prospective clients.

The Company settled its previously disclosed legal dispute with a third-party indemnitor under a purchase and sale agreement. The legal settlement increased earnings by $6.2 million in the quarter, net of tax, and has substantially been excluded from non-GAAP measures Adjusted EBITDA and Adjusted Earnings.

As previously announced on January 3, 2012, LPL Financial intends to acquire Fortigent, LLC ("Fortigent"), a leading provider of high-net-worth solutions and consulting services to RIAs, banks, and trust companies. Upon completion of this transaction, Fortigent will remain solely focused on supporting sophisticated practices and those serving high-net-worth clients.



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Conference Call and Additional Information

The Company will hold a conference call to discuss results at 5 p.m. EST on February 7, 2012.  The conference call can be accessed by dialing (877) 677-9122 (domestic) or (708) 290-1401 (international) and entering passcode 41798355. For additional information, please visit the Company's website to access the Q4 2011 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 two hours after the call and can be accessed by dialing (855) 859-2056 (domestic) or (404) 537-3406 (international) and entering passcode 41798355. The telephonic replay will be available until 11:59 pm on February 14, 2012.

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

 
Three Months Ended December 31,
 
Year Ended December 31,
 
2011
 
2010
 
 % Change
 
2011
 
2010
 
 % Change
Financial Highlights (unaudited)
 
 
 
 
 
 
 
 
 
 
 
GAAP Measures:
 
 
 
 
 
 
 
 
 
 
 
Net Revenue
$
828,653

 
$
819,955

 
1.1
%
 
$
3,479,375

 
$
3,113,486

 
11.8
%
Net Income (Loss)
$
39,448

 
$
(116,560
)
 
*

 
$
170,382

 
$
(56,862
)
 
*

Earnings (Loss) Per Share — diluted
$
0.35

 
$
(1.20
)
 
*

 
$
1.50

 
$
(0.64
)
 
*

Non-GAAP Measures:
 
 
 
 
 
 
 
 
 
 
 
Adjusted Earnings(1)
$
48,838

 
$
44,677

 
9.3
%
 
$
218,585

 
$
172,720

 
26.6
%
Adjusted Earnings Per Share(1)
$
0.44

 
$
0.42

 
4.8
%
 
$
1.95

 
$
1.71

 
14.0
%
Adjusted EBITDA(1)
$
100,796

 
$
99,159

 
1.7
%
 
$
459,720

 
$
413,113

 
11.3
%

 
As of December 31,
 
2011
 
2010
 
 % Change
Metric Highlights (unaudited)
 
 
 
 
 
Advisors(2)
12,847

 
12,444

 
3.2
%
Advisory and Brokerage Assets (billions)(3)
$
330.3

 
$
315.6

 
4.7
%
Advisory Assets Under Management (billions)(4)
$
101.6

 
$
93.0

 
9.2
%
Net New Advisory Assets (billions)(5)
$
10.8

 
$
8.5

 
27.1
%
Insured Cash Account Balances (billions)(4)
$
14.4

 
$
12.2

 
18.0
%
Money Market Account Balances (billions)(4)
$
8.0

 
$
6.9

 
15.9
%
___________________
*    Not Meaningful

(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 (loss) to non-GAAP measures Adjusted EBITDA and Adjusted Earnings for the periods presented is as follows (in thousands):
 
Three Months Ended
December 31,
 
Year Ended
December 31,
 
2011
 
2010
 
2011
 
2010
 
(unaudited)
 
(unaudited)
Net income (loss)
$
39,448

 
$
(116,560
)
 
$
170,382

 
$
(56,862
)
Interest expense
15,835

 
18,877

 
68,764

 
90,407

Income tax expense (benefit)
24,138

 
(71,645
)
 
112,303

 
(31,987
)
Amortization of purchased intangible assets and software(a)
9,849

 
9,257

 
38,981

 
43,658

Depreciation and amortization of all other fixed assets
7,098

 
9,308

 
33,760

 
42,379

EBITDA
96,368

 
(150,763
)
 
424,190

 
87,595

EBITDA Adjustments:
 
 
 
 
 
 
 
Share-based compensation expense(b)
3,858

 
2,801

 
14,978

 
10,429

Acquisition and integration related expenses(c)
(8,020
)
 
2,784

 
(3,815
)
 
12,569

Restructuring and conversion costs(d)
8,532

 
6,122

 
22,052

 
22,835

Debt amendment and extinguishment costs(e)

 

 

 
38,633

Equity issuance and related offering costs(f)

 
238,177

 
2,062

 
240,902

Other(g)
58

 
38

 
253

 
150

Total EBITDA Adjustments
4,428

 
249,922

 
35,530

 
325,518

Adjusted EBITDA
$
100,796

 
$
99,159

 
$
459,720

 
$
413,113


 
Three Months Ended
December 31,
 
Year Ended
December 31,
 
2011
 
2010
 
2011
 
2010
 
(unaudited)
 
(unaudited)
Net income (loss)
$
39,448

 
$
(116,560
)
 
$
170,382

 
$
(56,862
)
After-Tax:
 
 
 
 
 
 
 
EBITDA Adjustments(h)
 
 
 
 
 
 
 
Share-based compensation expense(i)
2,961

 
2,263

 
11,472

 
8,400

Acquisition and integration related expenses
(4,948
)
 
1,692

 
(2,354
)
 
7,638

Restructuring and conversion costs
5,264

 
3,721

 
13,606

 
13,877

Debt amendment and extinguishment costs

 

 

 
23,477

Equity issuance and related offering costs

 
147,912

 
1,272

 
149,568

Other
36

 
23

 
156

 
91

Total EBITDA Adjustments
3,313

 
155,611

 
24,152

 
203,051

Amortization of purchased intangible assets and software(h)
6,077

 
5,626

 
24,051

 
26,531

Adjusted Earnings
$
48,838

 
$
44,677

 
$
218,585

 
$
172,720

Adjusted Earnings per share(j)
$
0.44

 
$
0.42

 
$
1.95

 
$
1.71

Weighted average shares outstanding — diluted(k)
111,095

 
105,873

 
112,119

 
100,933

___________________

(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. As previously disclosed, the Company has been involved in a legal dispute with a third-party indemnitor under a

5



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.  Included in the year ended December 31, 2010, is $11.4 million of expenditures related to the legal dispute with the third-party indemnitor that has been classified within general and administrative expenses and included in the presentation of Adjusted EBITDA, a non-GAAP measure. The Company settled its previously disclosed legal dispute with a third-party indemnitor under a purchase and sale agreement in the fourth quarter of 2011. Accordingly in 2011, the Company recorded a $10.3 million settlement as a reduction of general and administrative expenses, $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 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”).

(e)
Represents debt amendment costs incurred in 2010 for amending and restating the credit agreement to establish a new term loan tranche and to extend the maturity of an existing tranche on the senior credit facilities.

(f)
Represents equity issuance and offering costs related to the closing of the Company's initial public offering ("IPO") in the fourth quarter of 2010, and 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 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 and the year ended December 31, 2011 , and 4.30% for the corresponding periods in 2010, 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. Share-based compensation for vesting of incentive stock options was $1.5 million and $1.4 million, respectively, for the three months ending December 31, 2011 and 2010. For the year ending December 31, 2011 and 2010, share-based compensation for vesting of incentive stock options was $5.8 million and $5.3 million, respectively.

(j)
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
December 31,
 
For the Year
Ended
December 31,
 
2011
 
2010
 
2011
 
2010
 
(unaudited)
 
(unaudited)
Earnings (Loss) per share — diluted
$
0.35

 
$
(1.20
)
 
$
1.50

 
$
(0.64
)
Adjustment to include dilutive shares, not included in GAAP loss per share

 
0.10

 

 
0.08

Adjustment for allocation of undistributed earnings to stock units
0.01

 

 
0.02

 

After-Tax:
 
 
 
 
 
 
 
EBITDA Adjustments per share
0.03

 
1.47

 
0.22

 
2.01

Amortization of purchased intangible assets and software per share
0.05

 
0.05

 
0.21

 
0.26

Adjusted Earnings per share
$
0.44

 
$
0.42

 
$
1.95

 
$
1.71


(k)
Weighted average shares outstanding on a fully diluted basis increased from 100.9 million shares for the year ended December 31, 2010 , to 112.1 million shares for the year ended December 31, 2011 , due primarily to the

6



successful completion of the Company's IPO in the fourth quarter of 2010. The increase is attributed to the release of the restriction on approximately 7.4 million shares of common stock upon closing of the IPO, the issuance of approximately 1.5 million shares of common stock by the Company pursuant to the over-allotment option granted to the underwriters in connection with the IPO, and shares that were issued upon exercise of options by selling stockholders in connection with the IPO, net of any shares retired to satisfy the exercise price in a cashless exercise.

The following table reflects pro-forma Adjusted Earnings per share, a non-GAAP measure, and growth in pro-forma Adjusted Earnings per share assuming the number of weighted average shares outstanding on a fully diluted basis as of December 31, 2011 was also outstanding as of December 31, 2010 for the three months and year then ended (in thousands, except per share data):
 
For the Three Months Ended December 31,
 
For the Year Ended
December 31,
 
2011
 
2010
 
% Change
 
2011
 
2010
 
% Change
 
(unaudited)
 
 
 
(unaudited)
 
 
Adjusted Earnings
$
48,838

 
$
44,677

 
 
 
$
218,585

 
$
172,720

 
 
Weighted average shares outstanding— diluted as of December 31, 2011
111,095

 
111,095

 
 
 
112,119

 
112,119

 
 
Pro-forma Adjusted Earnings per share
$
0.44

 
$
0.40

 
10.0
%
 
$
1.95

 
$
1.54

 
26.6
%

(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 December 31, 2011 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.

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

(5)
Represents net new advisory assets that are custodied in our fee-based advisory platforms during the year ended December 31, 2011 . Net new advisory assets for the three months ended December 31, 2011 and 2010 were $1.0 billion and $2.7 billion, respectively.

Non-GAAP Financial Measures

Adjusted Earnings represent net income before: (a) share-based compensation expense, (b) amortization of intangible assets and software, a component of depreciation and amortization, resulting from previous acquisitions, (c) debt amendment and 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

7



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.

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, 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. Important factors that may cause such differences include, but are not limited to, changes in general economic and financial market conditions, fluctuations in the value of assets under management, our ability to close and 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, 2010, 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 approximately 12,800 financial advisors and approximately 670 financial institutions. In addition, LPL Financial supports over 4,000 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 December 31,
 
Year Ended December 31,
 
2011
 
2010
 
% Change
 
2011
 
2010
 
% Change
Revenues
 
 
 
 
 
 
 
 
 
 
 
Commissions
$
404,382

 
$
426,397

 
(5.2
)%
 
$
1,754,435

 
$
1,620,811

 
8.2
 %
Advisory fees
251,219

 
226,407

 
11.0
 %
 
1,027,473

 
860,227

 
19.4
 %
Asset-based fees
89,706

 
87,020

 
3.1
 %
 
359,724

 
317,505

 
13.3
 %
Transaction and other fees
71,227

 
68,410

 
4.1
 %
 
292,207

 
274,148

 
6.6
 %
Other
12,119

 
11,721

 
3.4
 %
 
45,536

 
40,795

 
11.6
 %
Net revenues
828,653

 
819,955

 
1.1
 %
 
3,479,375

 
3,113,486

 
11.8
 %
Expenses
 
 
 
 
 
 
 
 
 
 
 
Production
586,123

 
802,167

 
(26.9
)%
 
2,448,424

 
2,397,535

 
2.1
 %
Compensation and benefits
79,237

 
85,632

 
(7.5
)%
 
322,126

 
308,656

 
4.4
 %
General and administrative
58,553

 
79,431

 
(26.3
)%
 
263,228

 
267,799

 
(1.7
)%
Depreciation and amortization
16,947

 
18,565

 
(8.7
)%
 
72,741

 
86,037

 
(15.5
)%
Restructuring charges
8,372

 
3,488

 
*

 
21,407

 
13,922

 
53.8
 %
Total operating expenses
749,232

 
989,283

 
(24.3
)%
 
3,127,926

 
3,073,949

 
1.8
 %
Non-operating interest expense
15,835

 
18,877

 
(16.1
)%
 
68,764

 
90,407

 
(23.9
)%
Loss on extinguishment of debt

 

 
*

 

 
37,979

 
*

Total expenses
765,067

 
1,008,160

 
(24.1
)%
 
3,196,690

 
3,202,335

 
(0.2
)%
Income before provision for income taxes
63,586

 
(188,205
)
 
*

 
282,685

 
(88,849
)
 
*

Provision for income taxes
24,138

 
(71,645
)
 
*

 
112,303

 
(31,987
)
 
*

Net income (loss)
$
39,448

 
$
(116,560
)
 
*

 
$
170,382

 
$
(56,862
)
 
*

Earnings (loss) per share
 
 
 
 
 
 
 
 
 
 
 
Basic
$
0.36

 
$
(1.20
)
 
*

 
$
1.55

 
$
(0.64
)
 
*

Diluted
$
0.35

 
$
(1.20
)
 
*

 
$
1.50

 
$
(0.64
)
 
*

___________________
* Not Meaningful

9



LPL Investment Holdings Inc.
Financial Highlights
(Dollars in thousands, except per share data and where noted)
(Unaudited)

 
Three Month Quarterly Results
 
Q4 2011
 
Q3 2011
 
Q2 2011
 
Q1 2011
 
Q4 2010
REVENUES
 
 
 
 
 
 
 
 
 
Commissions
$
404,382

 
$
438,294

 
$
459,882

 
$
451,877

 
$
426,397

Advisory fees
251,219

 
267,878

 
264,289

 
244,087

 
226,407

Asset-based fees
89,706

 
89,691

 
90,504

 
89,823

 
87,020

Transaction and other fees
71,227

 
78,476

 
68,755

 
73,749

 
68,410

Other
12,119

 
8,518

 
10,566

 
14,333

 
11,721

Net revenues
828,653

 
882,857

 
893,996

 
873,869

 
819,955

EXPENSES
 
 
 
 
 
 
 
 
 
Production(1)(4)
586,123

 
623,886

 
634,088

 
604,327

 
802,167

Compensation and benefits
79,237

 
77,337

 
81,410

 
84,142

 
85,632

General and administrative(2)
58,553

 
76,063

 
61,644

 
66,968

 
79,431

Depreciation and amortization
16,947

 
19,222

 
18,407

 
18,165

 
18,565

Restructuring charges
8,372

 
7,684

 
4,814

 
537

 
3,488

Total operating expenses(2)
749,232

 
804,192

 
800,363

 
774,139

 
989,283

Non-operating interest expense
15,835

 
16,603

 
18,154

 
18,172

 
18,877

Total expenses
765,067

 
820,795

 
818,517

 
792,311

 
1,008,160

INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES
63,586

 
62,062

 
75,479

 
81,558

 
(188,205
)
PROVISION (BENEFIT) FOR INCOME TAXES(3)
24,138

 
25,634

 
29,972

 
32,559

 
(71,645
)
NET INCOME (LOSS)
$
39,448

 
$
36,428

 
$
45,507

 
$
48,999

 
$
(116,560
)
EARNINGS (LOSS) PER SHARE
 
 
 
 
 
 
 
 
 
Basic
$
0.36

 
$
0.33

 
$
0.41

 
$
0.44

 
$
(1.20
)
Diluted
$
0.35

 
$
0.32

 
$
0.40

 
$
0.43

 
$
(1.20
)
FINANCIAL CONDITION
 
 
 
 
 
 
 
 
 
Total Cash & Cash Equivalents
$
720,772

 
$
663,189

 
$
681,471

 
$
596,584

 
$
419,208

Total Assets (billions)
$
3.8

 
$
3.7

 
$
3.7

 
$
3.7

 
$
3.6

Total Debt (billions)(3)
$
1.3

 
$
1.3

 
$
1.3

 
$
1.3

 
$
1.4

Stockholders' Equity (billions)
$
1.3

 
$
1.3

 
$
1.3

 
$
1.3

 
$
1.2

KEY METRICS
 
 
 
 
 
 
 
 
 
Advisors
12,847

 
12,799

 
12,660

 
12,554

 
12,444

Production Payout(4)
88.0
%
 
87.0
%
 
86.3
%
 
85.4
%
 
87.5
%
Advisory and Brokerage Assets (billions)
$
330.3

 
$
316.4

 
$
340.8

 
$
330.1

 
$
315.6

Advisory Assets Under Management (billions)
$
101.6

 
$
96.3

 
$
103.2

 
$
99.7

 
$
93.0

Insured Cash Account Balances (billions)(5)
$
14.4

 
$
14.2

 
$
13.2

 
$
12.3

 
$
12.2

Money Market Account Balances (billions)(5)
$
8.0

 
$
8.9

 
$
8.2

 
$
6.9

 
$
6.9

Adjusted EBITDA(6)
$
100,796

 
$
111,596

 
$
122,997

 
$
124,331

 
$
99,159

Adjusted Earnings(6)
$
48,838

 
$
51,567

 
$
58,807

 
$
59,373

 
$
44,677

Adjusted Earnings per share(6)
$
0.44

 
$
0.46

 
$
0.52

 
$
0.52

 
$
0.42

___________________



10



(1)
Upon closing of the Company's IPO in the fourth quarter of 2010, the restriction on approximately 7.4 million shares of common stock issued to advisors under the Fifth Amended and Restated 2000 Stock Bonus Plan (the “2000 Stock Bonus Plan”) was released. Accordingly, the Company recorded a share-based compensation charge of $222.0 million in the fourth quarter of 2010, representing the offering price of $30.00 per share multiplied by 7.4 million shares. This charge has been classified as production expense in the Company's consolidated statements of operations.

(2)
Certain reclassifications have been made to previously reported amounts to make them consistent with the current period presentation.

(3)
Represents borrowings on the Company's senior secured credit facility, senior unsecured subordinated notes, revolving line of credit and bank loans payable.

(4)
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 calculated as commission and advisory fees divided by commission and advisory revenues. The production payout for the three months ended December 31, 2010 has been adjusted to exclude $222.0 million of production expense resulting from a share-based compensation charge taken at the time of the Company's IPO.

(5)
Represents insured cash and money market account balances as of each reporting period.


11



(6)
The reconciliation from net income (loss) to non-GAAP measures Adjusted EBITDA and Adjusted Earnings for the periods presented is as follows (in thousands, except per share data):
 
Q4 2011
 
Q3 2011
 
Q2 2011
 
Q1 2011
 
Q4 2010
 
(unaudited)
Net income (loss)
$
39,448

 
$
36,428

 
$
45,507

 
$
48,999

 
$
(116,560
)
Interest expense
15,835

 
16,603

 
18,154

 
18,172

 
18,877

Income tax expense (benefit)
24,138

 
25,634

 
29,972

 
32,559

 
(71,645
)
Amortization of purchased intangible assets and software(a)
9,849

 
9,909

 
9,686

 
9,537

 
9,257

Depreciation and amortization of all other fixed assets
7,098

 
9,313

 
8,721

 
8,628

 
9,308

EBITDA
96,368

 
97,887

 
112,040

 
117,895

 
(150,763
)
EBITDA Adjustments:
 
 
 
 
 
 
 
 
 
Share-based compensation expense(b)
3,858

 
3,833

 
3,427

 
3,860

 
2,801

Acquisition and integration related expenses(c)
(8,020
)
 
1,241

 
1,548

 
1,416

 
2,784

Restructuring and conversion costs(d)
8,532

 
8,086

 
4,599

 
835

 
6,122

Equity issuance and offering related costs(e)

 
421

 
1,349

 
292

 
238,177

Other(f)
58

 
128

 
34

 
33

 
38

Total EBITDA Adjustments
4,428

 
13,709

 
10,957

 
6,436

 
249,922

Adjusted EBITDA
$
100,796

 
$
111,596

 
$
122,997

 
$
124,331

 
$
99,159

 
 
 
 
 
 
 
 
 
 
 
Q4 2011
 
Q3 2011
 
Q2 2011
 
Q1 2011
 
Q4 2010
 
(unaudited)
Net income (loss)
$
39,448

 
$
36,428

 
$
45,507

 
$
48,999

 
$
(116,560
)
After-Tax:
 
 
 
 
 
 
 
 
 
EBITDA Adjustments(g)
 
 
 
 
 
 
 
 
 
Share-based compensation expense(h)
2,961

 
2,933

 
2,677

 
2,901

 
2,263

Acquisition and integration related expenses
(4,948
)
 
765

 
955

 
874

 
1,692

Restructuring and conversion costs
5,264

 
4,989

 
2,838

 
515

 
3,721

Equity issuance and offering related costs(i)

 
260

 
832

 
180

 
147,912

Other
36

 
79

 
21

 
20

 
23

Total EBITDA Adjustments
3,313

 
9,026

 
7,323

 
4,490

 
155,611

Amortization of purchased intangible assets and software(g)(h)
6,077

 
6,113

 
5,977

 
5,884

 
5,626

Adjusted Earnings
$
48,838

 
$
51,567

 
$
58,807

 
$
59,373

 
$
44,677

Adjusted Earnings per share(j)
$
0.44

 
$
0.46

 
$
0.52

 
$
0.52

 
$
0.42

Weighted average shares outstanding — diluted
111,095

 
111,173

 
113,150

 
113,196

 
105,873

__________________

(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. 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 its previously disclosed legal dispute with a third-party indemnitor under a purchase and sale agreement in the fourth quarter

12



of 2011. Accordingly, the Company recorded a $10.3 million settlement as a reduction of general and administrative expenses, $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.

(e)
Represents equity issuance and offering costs related to the closing of the Company's IPO in the fourth quarter of 2010, and the closing of a secondary offering in the second quarter of 2011. Upon closing of the IPO, the restriction on approximately 7.4 million shares of common stock issued to advisors under the 2000 Stock Bonus Plan was released. Accordingly, the Company recorded a share-based compensation charge of $222.0 million, representing the initial public offering price of $30.00 per share multiplied by 7.4 million shares.

(f)
Represents excise and other taxes.

(g)
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 ranged from 3.30% to 4.30%, 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 $1.5 million , $1.5 million, $1.5 million, $1.4 million and $1.4 million for the three months ended December 31, 2011, September 30, 2011, June 30, 2011, March 31, 2011 and December 31, 2010, respectively.

(i)
Represents the after-tax expense of equity issuance and related offering costs in which the Company receives a tax deduction, as well as the full expense impact of $8.1 million of offering costs incurred in the fourth quarter of 2010 in which the Company does not receive a tax deduction.

(j)
Set forth is a reconciliation of earnings (loss) per share on a fully diluted basis as calculated in accordance with GAAP to Adjusted Earnings per share, a non-GAAP measure:
 
Q4 2011
 
Q3 2011
 
Q2 2011
 
Q1 2011
 
Q4 2010
 
(unaudited)
Earnings (loss) per share — diluted
$
0.35

 
$
0.32

 
$
0.40

 
$
0.43

 
$
(1.20
)
Adjustment to include dilutive shares, not included in GAAP loss per share

 

 

 

 
0.10

Adjustment for allocation of undistributed earnings to stock units
0.01

 

 
0.01

 

 

After-Tax:
 
 
 
 
 
 
 
 
 
EBITDA Adjustments per share
0.03

 
0.09

 
0.06

 
0.04

 
1.47

Amortization of purchased intangible assets per share
0.05

 
0.05

 
0.05

 
0.05

 
0.05

Adjusted Earnings per share
$
0.44

 
$
0.46

 
$
0.52

 
$
0.52

 
$
0.42



13