LPL Financial Holdings Inc.
LPL Financial Holdings Inc. (Form: 8-K, Received: 07/28/2016 16:12:12)




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


July 28, 2016
Date of report (date of earliest event reported)

LPL Financial 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.)

75 State Street
Boston MA 02109
(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 July 28, 2016 , LPL Financial Holdings Inc. ("LPLFH" and collectively with its subsidiaries, the “Company”) issued a press release announcing its financial results for the three months ended June 30, 2016 . 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 July 28, 2016 ("LPL Financial Announces Second Quarter 2016 Results")





SIGNATURE

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

LPL FINANCIAL HOLDINGS INC.
 
 
 
By:
/s/ Matthew J. Audette
 
Name: Matthew J. Audette
 
Title: Chief Financial Officer


Dated: July 28, 2016

    





 
 
 
 
Exhibit 99.1
Investor Relations - Chris Koegel, (617) 897-4574
 For Immediate Release
Media Relations - Heather Carter, (704) 733-3822
 
 
investor.lpl.com/contactus.cfm
LPL Financial Announces Second Quarter 2016 Results
Financial Results
Net income of $48 million , or $0.53 per share
Pre-tax income of $80 million
Financial Metrics**
EBITDA of $132 million
Gross Profit of $345 million
Core G&A of $168 million
Operating Metrics
End of period total brokerage and advisory assets of $488 billion
Net new advisory assets of $2.8 billion
Net new advisors of 100
End of period cash sweep balances of $29.2 billion
Capital Management
Credit Agreement EBITDA of $143 million for the quarter, $521 million on a trailing twelve month basis
Credit Agreement Net Leverage Ratio of 3.7x and Credit Agreement Net Debt of $1.9 billion . After applying $300 million to Credit Agreement Net Debt, this left an additional $223 million of cash, which if applied to the debt, would further reduce the Credit Agreement Net Leverage Ratio to 3.2x
Cash available for corporate use of $523 million
Dividends of $22 million paid on May 31, 2016
SAN DIEGO - July 28, 2016 LPL Financial Holdings Inc. (NASDAQ: LPLA) (the "Company") today announced results for its second quarter ended June 30, 2016 , reporting net income of $48 million , or $0.53 per share. This compares with $50 million , or $0.56 per share, in the prior quarter and $50 million , or $0.52 per share, in the second quarter of 2015 .
"We delivered another strong quarter driven by improving business fundamentals and disciplined expense management, despite the volatile market," said Mark Casady, chairman and chief executive officer. "We also had good growth in the quarter with assets and advisors both up."
Casady continued, "We continue to invest in service, technology, and other capabilities to help our advisors and their clients. We are committed to being a source of strength for our advisors and supporting them through these changing times."
"Our business model is generating strong earnings and cash flow," said Matt Audette, chief financial officer. "Commissions and advisory fees, as well as sponsor revenues, were up sequentially, and we are staying disciplined on expenses."
Audette continued, "Looking forward to the second half of the year, we are focused on maintaining balance sheet strength, delivering good results, and creating value for shareholders. We are also tightening our 2016 Core G&A outlook range to $705 to $715 million. This is a reflection of our hard work on productivity and efficiency this year."

1



Second Quarter 2016 Financial and Business Highlights
Market Drivers
S&P 500 index ended the quarter at 2,099 , up 2% sequentially. The S&P 500 index averaged 2,075, up 6% sequentially.
Federal Funds Daily Effective Rate ("FFER") averaged 37 bps during the quarter, up 1 bps sequentially.
Assets and Advisors
Brokerage and advisory assets were $488 billion , up 2% sequentially.
Net new advisory assets were $2.8 billion , translating to a 6% annualized growth rate.
Cash sweep balances were $29.2 billion , down 4% sequentially.
Advisor headcount was 14,193 , up by 100 from the prior quarter. Production retention rate was 97% .
Gross Profit
Commissions were $446 million , up 2% from the prior quarter. The increase was mostly driven by higher trailing commissions, though sales commissions also increased.
Advisory fees were $323 million , up 1% from the prior quarter.
Asset-based revenues were $138 million , up 1% sequentially. Sponsor revenues increased 4% due to higher average billable assets. This was partially offset by cash sweep revenue which was down 6% primarily from the wind down of an insured cash account anchor bank contract.
Transaction and fee revenues were $102 million , down 1% sequentially due to lower transaction volumes.
Total payout ratio was 86.0% , up from 84.1% in the prior quarter. This was primarily driven by a seasonal increase in advisor production-based bonus expense.
Expenses
Core G&A expenses were $168 million , down $7 million sequentially. This was driven by ongoing expense management efforts, which kept most costs flat, along with a seasonal decline in compensation-related expenses.
Promotional expenses were $35 million , down $1 million sequentially due to lower conference expense and partially offset by higher transition assistance driven by increased advisor recruiting.
Regulatory expenses were $6 million , up $4 million sequentially. The majority of the difference was due to recoveries from prior matters that provided a $3 million benefit in the first quarter which did not recur. First half 2016 regulatory expenses of $7 million are meaningfully below first half 2015 levels of $18 million.
Depreciation and amortization expenses were $19 million , flat sequentially.
Interest expense was $24 million , flat sequentially.
Capital Management
Credit Agreement EBITDA was $143 million for the quarter, down $1 million sequentially. Credit Agreement EBITDA was $521 million for the trailing 12 months, up $3 million from the prior quarter.
Credit Agreement Net Debt was $1.9 billion , calculated as $2.2 billion of total debt less $300 million of cash available for corporate use.
Credit Agreement Net Leverage Ratio was 3.7x , flat with the prior quarter. Cash available for corporate use was $523 million as of quarter-end. After applying $300 million to Credit Agreement Net Debt, this left an additional $223 million of cash, which if applied to the debt, would further reduce the Credit Agreement Net Leverage Ratio to 3.2x.
The Company did not conduct share repurchases during the quarter.
For the second quarter, dividends were $22 million , paid on May 31, 2016. For the third quarter, the Company's Board of Directors has declared a 25 cent quarterly dividend to be paid on August 25, 2016.
Capital expenditures were $36 million , up $16 million sequentially. This was driven by increased expenditure related to construction of the Company's new campus in Fort Mill, South Carolina, as well as technology projects.

2



Conference Call and Additional Information
The Company will hold a conference call to discuss its results at 5:00 p.m. EDT on Thursday, July 28, 2016 . The conference call can be accessed by dialing either 877-677-9122 (domestic) or 708-290-1401 (international) and entering passcode 39096189.
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 39096189. The telephonic replay will be available until 11:59 p.m. EDT on August 4, 2016 and the webcast replay will be available until August 18, 2016.
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 $488 billion in advisory and brokerage assets as of June 30, 2016 . LPL is one of the fastest growing RIA custodians and is the nation's largest independent broker-dealer (based on total revenues, Financial Planning magazine June 1996-2016). The Company provides proprietary technology, comprehensive clearing and compliance services, practice management programs and training, and independent research to more than 14,000 independent financial advisors and over 700 banks and credit unions, enabling them to help their clients turn life's aspirations into financial realities. Advisors associated with LPL also serviced an estimated 45,000 retirement plans with an estimated $124 billion in retirement plan assets, as of June 30, 2016 . LPL also supports approximately 4,200 financial advisors licensed and affiliated with insurance companies with customized clearing, advisory platforms, and technology solutions. LPL Financial and its affiliates have more than 3,200 employees with primary offices in Boston, Charlotte, and San Diego. For more information, please 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 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 less production expenses. Production expenses consist of the following expense categories from the Company’s condensed consolidated statements of income: (i) commission and advisory and (ii) brokerage, clearing, and exchange. 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 $915.6 million for the three months ended June 30,
2016, excluding the following expenses: commission and advisory, regulatory charges (see FN 8), promotional (see FN 9), employee share-based compensation (see FN 10), depreciation and amortization, amortization of intangible assets, and brokerage, clearing, and exchange. The Company’s management presents Core G&A because it believes it 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 7 on page 17 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

3



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 , and for periods prior to Q1 2016 , reflects those items in employee share-based compensation and other historical adjustments for comparative purposes .
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, plans, business strategies, future market position, future operating environment, and goals, including forecasts and statements relating to the Company’s expense and capital plans, future efficiency gains, future investments and future expense growth, 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 July 28, 2016 . The words “anticipates”, “believes”, “expects”, “may”, “plans”, “predicts”, “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 advisory assets and the related impact on fee 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; 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; 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

4



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 2015 Annual Report on Form 10-K, as may be amended or updated in the Company's Quarterly Reports on Form 10-Q. 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.

5



LPL Financial Holdings Inc.
Condensed Consolidated Statements of Income
(Dollars in thousands, except per share data)
(Unaudited)
 
Three Months Ended June 30,
 
 
 
Six Months Ended June 30,
 
 
 
2016
 
2015
 
% Change
 
2016
 
2015
 
% Change
REVENUES
 
 
 
 
 
 
 
 
 
 
 
Commission
$
445,755

 
$
509,689

 
(13
%)
 
$
882,482

 
$
1,033,088

 
(15
%)
Advisory
322,955

 
344,884

 
(6
%)
 
642,387

 
686,996

 
(6
%)
Asset-based
137,797

 
125,072

 
10
%
 
274,048

 
245,704

 
12
%
Transaction and fee
101,824

 
97,811

 
4
%
 
204,514

 
199,506

 
3
%
Interest income, net of interest expense
5,238

 
5,177

 
1
%
 
10,568

 
9,755

 
8
%
Other
5,612

 
8,028

 
(30
%)
 
10,487

 
24,914

 
(58
%)
Total net revenues
1,019,181

 
1,090,661

 
(7
%)
 
2,024,486

 
2,199,963

 
(8
%)
EXPENSES
 
 
 
 
 
 
 
 
 
 
 
Commission and advisory
660,680

 
736,854

 
(10
%)
 
1,296,691

 
1,478,101

 
(12
%)
Compensation and benefits
105,773

 
112,337

 
(6
%)
 
219,828

 
224,617

 
(2
%)
Promotional
34,717

 
26,684

 
30
%
 
70,401

 
62,376

 
13
%
Depreciation and amortization
18,749

 
17,196

 
9
%
 
37,711

 
33,625

 
12
%
Amortization of intangible assets
9,509

 
9,536

 
%
 
19,034

 
19,173

 
(1
%)
Occupancy and equipment
21,980

 
21,315

 
3
%
 
43,817

 
42,197

 
4
%
Professional services
14,984

 
14,529

 
3
%
 
32,139

 
28,573

 
12
%
Brokerage, clearing and exchange
13,609

 
13,536

 
1
%
 
27,198

 
26,277

 
4
%
Communications and data processing
10,971

 
11,107

 
(1
%)
 
21,468

 
22,721

 
(6
%)
Restructuring charges

 
4,492

 
n/m

 

 
8,416

 
n/m

Other
24,656

 
25,822

 
(5
%)
 
44,156

 
57,944

 
(24
%)
Total operating expenses
915,628

 
993,408

 
(8
%)
 
1,812,443

 
2,004,020

 
(10
%)
Non-operating interest expense
23,804

 
13,163

 
81
%
 
47,694

 
27,178

 
75
%
INCOME BEFORE PROVISION FOR INCOME TAXES
79,749

 
84,090

 
(5
%)
 
164,349

 
168,765

 
(3
%)
PROVISION FOR INCOME TAXES
31,900

 
33,848

 
(6
%)
 
66,108

 
67,845

 
(3
%)
NET INCOME
$
47,849

 
$
50,242

 
(5
%)
 
$
98,241

 
$
100,920

 
(3
%)
Earnings per share, basic
$
0.54

 
$
0.52

 
4
%
 
$
1.10

 
$
1.05

 
5
%
Earnings per share, diluted
$
0.53

 
$
0.52

 
2
%
 
$
1.10

 
$
1.03

 
7
%
Weighted-average shares outstanding, basic
89,019

 
95,724

 
(7
%)
 
88,992

 
96,136

 
(7
%)
Weighted-average shares outstanding, diluted
89,699

 
97,239

 
(8
%)
 
89,669

 
97,715

 
(8
%)








6



LPL Financial Holdings Inc.
Condensed Consolidated Statements of Income Trend
(Dollars in thousands, except per share data)
(Unaudited)
 
Quarterly Results
 
Q2 2016
 
Q1 2016
 
Q4 2015
REVENUES
 
 
 
 
 
Commission
$
445,755

 
$
436,727

 
$
463,486

Advisory
322,955

 
319,432

 
324,241

Asset-based
137,797

 
136,251

 
124,062

Transaction and fee
101,824

 
102,690

 
96,849

Interest income, net of interest expense
5,238

 
5,330

 
4,216

Other
5,612

 
4,875

 
7,492

Total net revenues
1,019,181

 
1,005,305

 
1,020,346

EXPENSES
 
 
 
 
 
Commission and advisory
660,680

 
636,011

 
685,127

Compensation and benefits
105,773

 
114,055

 
104,938

Promotional
34,717

 
35,684

 
34,782

Depreciation and amortization
18,749

 
18,962

 
22,526

Amortization of intangible assets
9,509

 
9,525

 
9,532

Occupancy and equipment
21,980

 
21,837

 
22,155

Professional services
14,984

 
17,155

 
20,608

Brokerage, clearing and exchange
13,609

 
13,589

 
12,836

Communications and data processing
10,971

 
10,497

 
12,897

Restructuring charges

 

 
480

Other
24,656

 
19,500

 
30,897

Total operating expenses
915,628

 
896,815

 
956,778

Non-operating interest expense
23,804

 
23,890

 
18,465

INCOME BEFORE PROVISION FOR INCOME TAXES
79,749

 
84,600

 
45,103

PROVISION FOR INCOME TAXES
31,900

 
34,208

 
18,291

NET INCOME
$
47,849

 
$
50,392

 
$
26,812

Earnings per share, basic
$
0.54

 
$
0.57

 
$
0.29

Earnings per share, diluted
$
0.53

 
$
0.56

 
$
0.28

Weighted-average shares outstanding, basic
89,019

 
88,964

 
93,878

Weighted-average shares outstanding, diluted
89,699

 
89,621

 
95,340


7



LPL Financial Holdings Inc.
Condensed Consolidated Statements of Financial Condition
(Dollars in thousands, except par value)
(Unaudited)
 
 
June 30,
2016
 
December 31, 2015
ASSETS
Cash and cash equivalents
 
$
745,766

 
$
724,529

Cash and securities segregated under federal and other regulations
 
647,379

 
671,339

Restricted cash
 
34,799

 
27,839

Receivables from:
 
 
 
 
Clients, net of allowance of $1,630 at June 30, 2016 and $1,464 at December 31, 2015
 
306,937

 
339,089

Product sponsors, broker-dealers, and clearing organizations
 
199,350

 
161,224

Advisor loans, net of allowance of $697 at June 30, 2016 and $697 at December 31, 2015
 
167,774

 
148,978

Others, net of allowance of $ 12,241 at June 30, 2016 and $9,856 at December 31, 2015
 
183,787

 
180,161

Securities owned:
 
 
 
 
Trading — at fair value
 
10,986

 
11,995

Held-to-maturity
 
10,866

 
9,847

Securities borrowed
 
14,143

 
6,001

Fixed assets, net of accumulated depreciation and amortization of $365,049 at June 30, 2016 and $328,880 at December 31, 2015
 
330,204

 
275,419

Goodwill
 
1,365,838

 
1,365,838

Intangible assets, net of accumulated amortization of $361,773 at June 30, 2016 and $342,740 at December 31, 2015
 
372,997

 
392,031

Other assets
 
217,158

 
206,771

Total assets
 
$
4,607,984

 
$
4,521,061

LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES:
Drafts payable
 
$
157,518

 
$
189,083

Payables to clients
 
768,886

 
747,421

Payables to broker-dealers and clearing organizations
 
59,181

 
48,032

Accrued commission and advisory expenses payable
 
125,943

 
129,512

Accounts payable and accrued liabilities
 
345,422

 
332,492

Income taxes payable
 
8,874

 
8,680

Unearned revenue
 
78,549

 
65,480

Securities sold, but not yet purchased — at fair value
 
131

 
268

Senior secured credit facilities, net of unamortized debt issuance cost of $24,355 at June 30, 2016 and $26,797 at December 31, 2015
 
2,181,843

 
2,188,240

Leasehold financing obligation
 
91,585

 
59,940

Deferred income taxes, net
 
36,062

 
36,303

Total liabilities
 
3,853,994

 
3,805,451

Commitments and contingencies
 
 
 
 
STOCKHOLDERS’ EQUITY:
 
 
 
 
Common stock, $.001 par value; 600,000,000 shares authorized; 119,726,825 shares issued at June 30, 2016 and 119,572,352 shares issued at December 31, 2015
 
120

 
119

Additional paid-in capital
 
1,427,941

 
1,418,298

Treasury stock, at cost — 30,655,778 shares at June 30, 2016 and 30,048,027 shares at December 31, 2015
 
(1,195,949
)
 
(1,172,490
)
Accumulated other comprehensive income
 
379

 
553

Retained earnings
 
521,499

 
469,130

Total stockholders’ equity
 
753,990

 
715,610

Total liabilities and stockholders’ equity
 
$
4,607,984

 
$
4,521,061


8



LPL Financial Holdings Inc.
Management's Statements of Operations (1)
(Dollars in thousands, except per share data)
(Unaudited)
The information presented on pages 9-16 of this release is presented as reviewed by the Company’s management and includes information derived from the Company’s Condensed Consolidated Statements of Income, non-GAAP measures, and operational and performance metrics. For information on non-GAAP measures, please see the section titled "Non-GAAP Financial Measures" that begins on page 3 of this release.
 
Quarterly Results
 
Q2 2016
 
Q1 2016
 
% Change
 
Q2 2015
 
% Change
Revenues
 
 
 
 
 
 
 
 
 
Commission
$
445,755

 
$
436,727

 
2
%
 
$
509,689

 
(13
%)
Advisory
322,955

 
319,432

 
1
%
 
344,884

 
(6
%)
GDC(2)
768,710

 
756,159

 
2
%
 
854,573

 
(10
%)
Cash sweep revenue(3)
40,857

 
43,401

 
(6
%)
 
22,553

 
81
%
Other asset-based(4)
96,940

 
92,850

 
4
%
 
102,519

 
(5
%)
Transaction and fee
101,824

 
102,690

 
(1
%)
 
97,811

 
4
%
Other(5)
10,850

 
10,205

 
6
%
 
13,205

 
(18
%)
Total net revenues
1,019,181

 
1,005,305

 
1
%
 
1,090,661

 
(7
%)
Production expense
674,289

 
649,600

 
4
%
 
750,390

 
(10
%)
Gross profit(6)
344,892

 
355,705

 
(3
%)
 
340,271

 
1
%
Expense
 
 
 
 
 
 
 
 
 
Core G&A(7)
168,076

 
175,433

 
(4
%)
 
171,437

 
(2
%)
Regulatory charges(8)
5,567

 
1,183

 
n/m

 
6,743

 
n/m

Promotional(9)
34,717

 
35,684

 
(3
%)
 
26,684

 
30
%
Employee share-based compensation(10)
4,721

 
6,428

 
(27
%)
 
6,805

 
(31
%)
Other historical adjustments(11)

 

 
n/m

 
4,617

 
n/m

Total G&A
213,081

 
218,728

 
(3
%)
 
216,286

 
(1
%)
EBITDA
131,811

 
136,977

 
(4
%)
 
123,985

 
6
%
Depreciation and amortization
18,749

 
18,962

 
(1
%)
 
17,196

 
9
%
Amortization of intangible assets
9,509

 
9,525

 
%
 
9,536

 
%
Non-operating interest expense
23,804

 
23,890

 
%
 
13,163

 
81
%
INCOME BEFORE PROVISION FOR INCOME TAXES
79,749

 
84,600

 
(6
%)
 
84,090

 
(5
%)
PROVISION FOR INCOME TAXES
31,900

 
34,208

 
(7
%)
 
33,848

 
(6
%)
NET INCOME
$
47,849

 
$
50,392

 
(5
%)
 
$
50,242

 
(5
%)
Earnings per share, diluted
$
0.53

 
$
0.56

 
(5
%)
 
$
0.52

 
2
%
Weighted-average shares outstanding, diluted
89,699

 
89,621

 
%
 
97,239

 
(8
%)

9



LPL Financial Holdings Inc.
Management's Statements of Operations Trend (1)
(Dollars in thousands, except per share data)
(Unaudited)
The information presented on pages 9-16 of this release is presented as reviewed by the Company’s management and includes information derived from the Company’s Condensed Consolidated Statements of Income, non-GAAP measures, and operational and performance metrics. For information on non-GAAP measures, please see the section titled "Non-GAAP Financial Measures" that begins on page 3 of this release.
 
Quarterly Results
 
Q2 2016
 
Q1 2016
 
Q4 2015
Revenues
 
 
 
 
 
Commission
$
445,755

 
$
436,727

 
$
463,486

Advisory
322,955

 
319,432

 
324,241

GDC(2)
768,710

 
756,159

 
787,727

Cash sweep revenue(3)
40,857

 
43,401

 
27,217

Other asset-based(4)
96,940

 
92,850

 
96,845

Transaction and fee
101,824

 
102,690

 
96,849

Other(5)
10,850

 
10,205

 
11,708

Total net revenues
1,019,181

 
1,005,305

 
1,020,346

Production expense
674,289

 
649,600

 
697,963

Gross profit(6)
344,892

 
355,705

 
322,383

Expense
 
 
 
 
 
Core G&A(7)
168,076

 
175,433

 
179,490

Regulatory charges(8)
5,567

 
1,183

 
7,835

Promotional(9)
34,717

 
35,684

 
34,782

Employee share-based compensation(10)
4,721

 
6,428

 
4,083

Other historical adjustments(11)

 

 
567

Total G&A
213,081

 
218,728

 
226,757

EBITDA
131,811

 
136,977

 
95,626

Depreciation and amortization
18,749

 
18,962

 
22,526

Amortization of intangible assets
9,509

 
9,525

 
9,532

Non-operating interest expense
23,804

 
23,890

 
18,465

INCOME BEFORE PROVISION FOR INCOME TAXES
79,749

 
84,600

 
45,103

PROVISION FOR INCOME TAXES
31,900

 
34,208

 
18,291

NET INCOME
$
47,849

 
$
50,392

 
$
26,812

Earnings per share, diluted
$
0.53

 
$
0.56

 
$
0.28

Weighted-average shares outstanding, diluted
89,699

 
89,621

 
95,340



10



LPL Financial Holdings Inc.
Monthly Metrics (1)
(Dollars in thousands, except where noted)
(Unaudited)
(End of Period $ in billions, unless noted)
 
June
2016
 
May
2016
 
May to Jun % Change
 
April
2016
 
March
2016
Assets Served
 
 
 
 
 
 
 
 
 
 
Brokerage Assets(12)
 
$
291.9

 
$
291.5

 
0.1%
 
$
290.3

 
$
289.2

Advisory Assets(13)
 
196.1

 
194.0

 
1.1%
 
191.7

 
189.5

Total Brokerage and Advisory Assets(14)
 
$
488.0

 
$
485.5

 
0.5%
 
$
482.0

 
$
478.7

 
 
 
 
 
 

 
 
 
 
Insured Cash Account Balances(15)
 
$
21.0

 
$
20.9

 
0.5%
 
$
21.1

 
$
21.6

Money Market Account Cash Balances(16)
 
8.2

 
8.3

 
(1.2%)
 
8.4

 
8.8

Total Client Cash Sweep Balances(17)
 
$
29.2

 
$
29.2

 
—%
 
$
29.5

 
$
30.4

 
 
 
 
 
 

 
 
 
 
Market Indices
 
 
 
 
 

 
 
 
 
S&P 500 Index (end of period)
 
2,099

 
2,097

 
0.1%
 
2,065

 
2,060

Fed Funds Effective Rate (average bps)
 
38

 
37

 
n/m
 
37

 
36


11



LPL Financial Holdings Inc.
Operating Measures (1)
(Dollars in thousands, except where noted)
(Unaudited)
 
Q2 2016
 
Q1 2016
 
% Change
 
Q2 2015
 
% Change
Market Drivers
 
 
 
 
 
 
 
 
 
S&P 500 Index (end of period)
2,099

 
2,060

 
2%
 
2,063

 
2%
Russell 2000 Index (end of period)
1,152

 
1,114

 
3%
 
1,254

 
(8%)
Fed Funds Daily Effective Rate (FFER) (average bps)
37

 
36

 
1bps
 
13

 
24bps
 
 
 
 
 
 
 
 
 
 
Assets (dollars in billions)
 
 
 
 
 
 
 
 
 
Brokerage Assets(12)
$
291.9

 
$
289.2

 
1%
 
$
298.9

 
(2%)
Advisory Assets(13)
196.1

 
189.5

 
3%
 
186.8

 
5%
Total Brokerage and Advisory Assets(14)
$
488.0

 
$
478.7

 
2%
 
$
485.7

 
—%
Advisory % of Total Assets
40.2
%
 
39.6
%
 
60bps
 
38.5
%
 
170bps
 
 
 
 
 
 
 
 
 
 
Net New Advisory Assets(18)
$
2.8

 
$
2.0

 
n/m
 
$
4.3

 
n/m
Annualized Growth(19)
6
%
 
4
%
 
n/m
 
9
%
 
n/m
 
 
 
 
 
 
 
 
 
 
Non-Hybrid RIA Brokerage Assets(20)
$
234.1

 
$
233.7

 
—%
 
$
247.8

 
(6%)
Corporate Platform Advisory Assets(20)
121.6

 
119.7

 
2%
 
126.3

 
(4%)
Total Corporate Assets(20)
355.7

 
353.4

 
1%
 
374.1

 
(5%)
Brokerage Assets Associated with Hybrid RIAs(21)
57.8

 
55.5

 
4%
 
51.1

 
13%
Hybrid Platform Advisory Assets(21)
74.5

 
69.8

 
7%
 
60.5

 
23%
Total Hybrid Platform Assets(21)
132.3

 
125.3

 
6%
 
111.6

 
19%
Total Brokerage and Advisory Assets(14)
$
488.0


$
478.7

 
2%
 
$
485.7

 
—%
Hybrid % of Total Assets
27.1
%
 
26.2
%
 
90bps
 
23.0
%
 
410bps
 
 
 
 
 
 
 
 
 
 
Brokerage Retirement Assets(22)
$
144.0

 
$
142.6

 
1%
 
$
148.6

 
(3%)
Advisory Retirement Assets(22)
106.3

 
102.2

 
4%
 
100.0

 
6%
Total Brokerage and Advisory Retirement Assets(22)
$
250.3

 
$
244.8

 
2%
 
$
248.6

 
1%
Retirement % of Total Assets
51.3
%
 
51.1
%
 
20bps
 
51.2
%
 
10bps
 
 
 
 
 
 
 
 
 
 
Insured Cash Account Balances(15)
$
21.0

 
$
21.6

 
(3%)
 
$
17.5

 
20%
Money Market Account Cash Balances(16)
8.2

 
8.8

 
(7%)
 
6.8

 
21%
Total Cash Sweep Balances(17)
$
29.2

 
$
30.4

 
(4%)
 
$
24.3

 
20%
Cash Sweep % of Total Assets
6.0
%
 
6.4
%
 
(40bps)
 
5.0
%
 
100bps
 
 
 
 
 
 
 
 
 
 
Insured Cash Account Fee - bps(23)
63

 
69

 
(6)
 
48

 
15
Money Market Account Fee - bps(23)
37

 
29

 
8
 
9

 
28
Total Cash Sweep Fee - bps(23)
56

 
57

 
(1)
 
37

 
19

12



LPL Financial Holdings Inc.
Financial Measures (1)
(Dollars in thousands, except where noted)
(Unaudited)
 
Q2 2016
 
Q1 2016
 
% Change
 
Q2 2015
 
% Change
Commission Revenue by Product
 
 
 
 
 
 
 
 
 
Variable annuities
$
173,421

 
$
171,686

 
1%
 
$
203,380

 
(15%)
Mutual funds
135,770

 
133,733

 
2%
 
158,063

 
(14%)
Alternative investments
9,098

 
7,803

 
17%
 
31,987

 
(72%)
Fixed annuities
53,623

 
52,066

 
3%
 
36,092

 
49%
Equities
20,706

 
20,619

 
—%
 
23,475

 
(12%)
Fixed income
21,279

 
20,667

 
3%
 
24,071

 
(12%)
Insurance
19,980

 
18,234

 
10%
 
20,024

 
—%
Group annuities
11,686

 
11,757

 
(1%)
 
12,391

 
(6%)
Other
192

 
162

 
19%
 
206

 
(7%)
Total commission revenue
$
445,755

 
$
436,727

 
2%
 
$
509,689

 
(13%)
 
 
 
 
 

 
 
 

Commission Revenue by Sales-based and Trailing Commission
 

 
 
 

Sales-based
$
218,266

 
$
214,814

 
2%
 
$
262,792

 
(17%)
Trailing
227,489

 
221,913

 
3%
 
246,897

 
(8%)
Total commission revenue
$
445,755

 
$
436,727

 
2%
 
$
509,689

 
(13%)
 
 
 
 
 

 
 
 

Payout Rate
 
 
 
 

 
 
 

Base Payout Rate(24)
83.20
%
 
82.51
 %
 
69bps
 
83.43
%
 
(23bps)
Production Based Bonuses
2.44
%
 
1.70
 %
 
74bps
 
2.56
%
 
(12bps)
GDC Sensitive Payout
85.64
%
 
84.21
 %
 
143bps
 
85.99
%
 
(35bps)
Non-GDC Sensitive Payout   (25)
0.31
%
 
(0.10
)%
 
41bps
 
0.23
%
 
8bps
Total Payout Ratio
85.95
%
 
84.11
 %
 
184bps
 
86.22
%
 
(27bps)
Production Based Bonuses Ratio (Trailing Twelve Months)
2.7
%
 
2.7
 %
 
 
2.8
%
 
(10bps)

13



LPL Financial Holdings Inc.
Capital Management Measures (1)
(Dollars in thousands, except where noted)
(Unaudited)
 
Q2 2016
 
Q1 2016
Credit Agreement EBITDA(26)
 
 
 
Net income
$
47,849

 
$
50,392

Non-operating interest expense
23,804

 
23,890

Provision for income taxes
31,900

 
34,208

Depreciation and amortization
18,749

 
18,962

Amortization of intangible assets
9,509

 
9,525

EBITDA
131,811

 
136,977

Credit Agreement Adjustments:
 
 
 
Employee share-based compensation expense(10)
4,721

 
6,428

Advisor share-based compensation expense(27)
376

 
(1,408
)
Other(28)
6,062

 
1,824

Credit Agreement EBITDA
$
142,970

 
$
143,821

 
 
 
 
Total Debt
 
 
 
Revolving Credit Facility Loans
$

 
$

Term Loan Outstanding
2,206,198

 
2,210,618

Total Debt
$
2,206,198

 
$
2,210,618

 
 
 
 
Cash Available for Corporate Use(29)
 
 
 
Cash at Parent(30)
$
447,238

 
$
448,979

Excess Cash at Broker-Dealer subsidiary per Credit Agreement
68,983

 
70,691

Other Available Cash
6,514

 
7,048

Total Cash Available for Corporate Use
$
522,735

 
$
526,718

 
 
 
 
Credit Agreement Net Leverage
 
 
 
Total Debt
$
2,206,198

 
$
2,210,618

Cash Available (up to $300 million)
300,000

 
300,000

Credit Agreement Net Debt
$
1,906,198

 
$
1,910,618

Credit Agreement EBITDA (trailing twelve months)(31)
$
521,292

 
$
517,952

Credit Agreement Net Leverage Ratio(32)
3.7
x
 
3.7
x

14



LPL Financial Holdings Inc.
Debt Schedule (1)
(Dollars in thousands, except where noted)
(Unaudited)
Credit Facilities
Outstanding
 
Applicable Margin
 
Interest Rate
 
Maturity
Revolving Credit Facility Loans(a)
$

 
L+250 bps
 

 
9/30/2019
 
 
 
 
 
 
 
 
Senior Secured Term Loans:
 
 
 
 
 
 
 
2019 Term Loan A
459,375

 
L+250 bps
 
2.96
%
 
9/30/2019
2019 Term Loan B(b)
422,492

 
L+250 bps
 
3.25
%
 
3/29/2019
2021 Term Loan B(b)
627,831

 
L+350 bps
 
4.25
%
 
3/29/2021
2022 Term Loan B(b)
696,500

 
L+400 bps
 
4.75
%
 
11/20/2022
Total / Weighted Average (at current rate)
$
2,206,198

 

 
3.95
%
 

_____________________
(a)
The Company's Revolving Credit Facility has a borrowing capacity of $400 million
(b)
The Company's Term Loan B Credit Facilities have a LIBOR floor of 75 basis points

15



LPL Financial Holdings Inc.
Key Business and Financial Metrics (1)
(Dollars in thousands, except where noted)
(Unaudited)
 
Q2 2016
 
Q1 2016
 
% Change
 
Q2 2015
 
% Change
Advisors
 
 
 
 
 
 
 
 
 
Advisors
14,193

 
14,093

 
1
%
 
14,130

 
%
Net New Advisors
100

 
39

 
n/m

 
32

 
n/m

Custom Clearing Service Subscribers(33)
4,203

 
4,177

 
1
%
 
4,281

 
(2
%)
Annualized commissions revenue per Advisor(34)
$
126

 
$
124

 
2
%
 
$
144

 
(13
%)
Annualized GDC per Advisor(34)
$
217

 
$
215

 
1
%
 
$
242

 
(10
%)
Transition assistance loan amortization($ millions)(35)
$
11.5

 
$
11.0

 
5
%
 
$
9.7

 
19
%
 
 
 
 
 
 
 
 
 
 
Employees - period end
3,283

 
3,403

 
(4
%)
 
3,385

 
(3
%)
 
 
 
 
 
 
 
 
 
 
Productivity Metrics
 
 
 
 
 
 
 
 
 
Advisory Revenue as a percentage of Advisory Assets, excluding Hybrid RIA assets(36)
1.08
%
 
1.05
%
 
3
bps
 
1.10
%
 
(2
bps)
Annualized Gross Profit / Total Brokerage and Advisory Assets
0.28
%
 
0.30
%
 
(2
bps)
 
0.28
%
 

Production Retention Rate (YTD Annualized)(37)
96.8
%
 
97.0
%
 
(20
bps)
 
96.7
%
 
10
bps
Attachment Rate, excluding Cash Sweep Revenue(38)
27.3
%
 
27.2
%
 
10
bps
 
25.0
%
 
230
bps
Recurring Revenue Rate(39)
73.8
%
 
73.7
%
 
10
bps
 
71.7
%
 
210
bps
EBITDA as a percentage of Gross Profit
38.2
%
 
38.5
%
 
(30
bps)
 
36.4
%
 
180
bps
 
 
 
 
 
 
 
 
 
 
Capital Allocation per Share(40)
(in millions, except per share data)
 
 
 
 


 
 
 


Share Repurchases
$

 
$
25

 
(100
%)
 
$
86

 
(100
%)
Dividends
22

 
22

 
%
 
24

 
(8
%)
Total Capital Allocated
$
22

 
$
47

 
(53
%)
 
110

 
(80
%)
Weighted-average Share Count, Diluted
89.7

 
89.6

 
%
 
97.2

 
(8
%)
Total Capital Allocated per Share
$
0.25

 
$
0.52

 
(52
%)
 
$
1.13

 
(78
%)

16



Endnote Disclosures
(1)
The information presented on pages 9-16 includes non-GAAP financial measures and operational and performance metrics. For more information on non-GAAP measures, please see the section titled “Non-GAAP Financial Measures” on page 3.
(2)
GDC, or gross dealer concessions, a financial measure, is equal to the sum of Commission and Advisory revenues.
(3)
Cash sweep revenue consists of fees from the Company’s cash sweep program, specifically a money market sweep vehicle involving money market fund providers and an insured bank deposit sweep vehicle. Cash sweep revenues are a component of asset-based revenues and are derived from the Company’s Condensed Consolidated Statements of Income.
(4)
Other asset-based revenues consists of the Company’s sponsorship programs with financial product manufacturers and omnibus processing and networking services, but not including fees from cash sweep programs. Other asset-based revenues are a component of asset-based revenues and are derived from the Company’s Condensed Consolidated Statements of Income.
(5)
Other consists of interest income as well as Other revenues, as presented on the Company’s Condensed Consolidated Statements of Income.
(6)
Gross Profit is a non-GAAP measure. Please see a description of Gross Profit under “Non-GAAP Financial Measures” on page 3 of this release for additional information.
(7) Core G&A is a non-GAAP 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 expenses for the periods presented:
 
Q2 2016
 
Q1 2016
 
Q2 2015
Operating Expense Reconciliation
 
 
 
 
 
Core G&A
$
168,076

 
$
175,433

 
$
171,437

Regulatory charges
5,567

 
1,183

 
6,743

Promotional
34,717

 
35,684

 
26,684

Employee share-based compensation
4,721

 
6,428

 
6,805

Other historical adjustments

 

 
4,617

Total G&A
213,081

 
218,728

 
216,286

Commissions and advisory
660,680

 
636,011

 
736,854

Depreciation & amortization
18,749

 
18,962

 
17,196

Amortization of intangible assets
9,509

 
9,525

 
9,536

Brokerage, clearing and exchange
13,609

 
13,589

 
13,536

Total operating expense
$
915,628

 
$
896,815

 
$
993,408

(8)
Regulatory charges consist of items that the Company’s management relates to the resolution of regulatory issues (including remediation, restitution, and fines).
(9)
Promotional expenses include costs related to hosting of advisor conferences, business development costs related to recruiting, such as transition assistance, and amortization related to forgivable loans issued to advisors.
(10)
Employee share-based compensation expense represents share-based compensation for equity awards granted to employees, officers, and directors. Such awards are measured based on the grant date fair value and recognized over the requisite service period of the individual awards, which generally equals the vesting period.
(11)
Primarily includes acquisition and integration costs resulting from various acquisitions and organizational restructuring and conversion costs. Beginning in Q1 2016, these items are included in Core G&A expenses (see FN 7).
(12)
Brokerage assets is a component of Total Brokerage and Advisory Assets (see FN 14) and consists of assets serviced by advisors licensed with the Company’s broker-dealer subsidiary LPL Financial LLC (“LPL Financial”) 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.

17



(13)
Advisory assets is a component of Total Brokerage and Advisory Assets (see FN 14) and consists of advisory assets under management on the Company’s corporate advisory platform (see FN 20) and Hybrid RIA assets in advisory accounts custodied at the Company (see FN 21).
(14)
End of period Total Brokerage and Advisory 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. End of period insured cash account and money market account balances are also included in Total Brokerage and Advisory Assets.
(15)
Insured Cash Account Balances represents advisors’ clients’ accounts balances in an insured bank deposit sweep vehicle at the end of the reporting period. These assets are included in Total Brokerage and Advisory Assets (see FN 14).
(16)
Money Market Account Cash Balances represents advisors’ clients’ accounts balances in money market fund providers at the end of the reporting period. These assets are included in Total Brokerage and Advisory Assets (see FN 14).
(17)
Represents the sum of Insured Cash Account Balances and Money Market Account Cash Balances, which together comprise end of period assets in the Company’s cash sweep program. These assets are included in Total Brokerage and Advisory Assets (see FN 14).
(18)
Net New Advisory Assets consist of funds deposited into new advisory accounts and additional funds deposited into existing advisory accounts that are custodied in the Company's fee-based advisory platforms during the period, and exclude market impact.
(19)
Annualized growth is calculated by dividing Net New Advisory Assets (see FN 18) by end of period advisory assets and multiplying by four.
(20)
Total Corporate Assets represents the sum of total brokerage assets serviced by advisors who are licensed with LPL Financial but not associated with Hybrid RIAs (see FN 21); and total advisory assets managed on LPL Financial's corporate advisory platform by advisors who are registered investment advisory representatives of LPL Financial. Total Corporate Assets are custodied, networked, and non-networked with the Company, and reflect market movement in addition to new assets, inclusive of new business development and net of attrition.
(21)
The Company serves independent RIAs that conduct their advisory business through separate entities (“Hybrid RIAs”) operating pursuant to the Investment Advisers Act of 1940 or through their respective states' investment advisory licensing rules, rather than through LPL Financial. Advisors associated with Hybrid RIAs pay fees to access the Company’s Hybrid RIA platform for an integrated offering of technology, clearing, compliance, and custody services to Hybrid RIAs. Most financial advisors associated with Hybrid RIAs carry their brokerage license with LPL Financial, although some financial advisors associated with Hybrid RIAs do not carry a brokerage license through LPL Financial. Total Hybrid Platform Assets consist of assets managed or serviced by advisors associated with a Hybrid RIA firm that are custodied, networked, and non-networked with the Company, and reflect market movement in addition to new assets, inclusive of new business development and net of attrition. This measure does not include assets managed by Hybrid RIAs that are custodied with a third-party custodian.
(22)
Total Brokerage and Advisory Retirement Assets are a component of Total Brokerage and Advisory Assets (see FN 14), and consist of retirement plan assets held in advisory and brokerage accounts that are custodied, networked, and non-networked at the Company, and reflect market movement in addition to new assets, inclusive of new business development and net of attrition. This measure does not include additional retirement plan assets serviced by advisors through either LPL Financial or Hybrid RIAs, which assets the Company currently estimates at approximately $124 billion .
(23)
Reflects insured cash account and money market fees quarterly average.
(24)
The Company's production payout ratio is calculated as production expenses, excluding brokerage, clearing, and exchange fees, divided by GDC (see FN 2).
(25)
Production Non-GDC Sensitive Payout, a statistical or operating measure, includes share-based compensation expense from equity awards granted to advisors and financial institutions (see FN 27) and mark-to-market gains or losses on amounts designated by advisors as deferred.
(26)
Credit Agreement EBITDA is a non-GAAP measure. Please see a description of Credit Agreement EBITDA under “Non-GAAP Financial Measures” on page 4 of this release for additional information.
(27)
Advisor share-based compensation expense represents share-based compensation for the stock options and warrants awarded to advisors and financial institutions based on the fair value of the awards at each reporting period.

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(28)
Other 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.
(29)
Consists of cash unrestricted by the Credit Agreement and other regulations available for operating, investing, and financing uses.
(30)
Parent refers to LPL Holdings, Inc., an intermediate subsidiary of the Company, which is the Borrower under the Credit Agreement.
(31)
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.
(32)
Credit Agreement Net Leverage Ratio is calculated in accordance with the Credit Agreement which includes a maximum of $300 million of cash available for corporate use.
(33)
Custom Clearing Service subscribers are financial advisors who are affiliated and licensed with insurance companies that receive customized clearing services, advisory platforms, and technology solutions from the Company.
(34)
A simple average advisor count is used to calculate "per advisor" metrics by taking the average advisor count from the current period and sequential period. The calculation uses the average advisor count at the beginning and the end of period, and excludes Custom Clearing Service subscribers (see FN 33).
(35)
Transition assistance consists of payments to newly recruited advisors and financial institutions to assist in the transition process. Smaller advisor practices receive payments that are charged to earnings in the current period, whereas larger advisor practices and financial institutions typically receive transition assistance in the form of forgivable loans or recoverable advances that are generally amortized into earnings over a period of three to five years. Transition assistance loan amortization represents the amortizable amount of forgivable loans or recoverable advances that are charged to earnings in the period presented.
(36)
Based on annualized advisory revenues divided by corporate advisory assets at the prior quarter's end (corporate advisory assets is defined as total Advisory (see FN 13) less Hybrid Platform Advisory Assets (see FN 21)).
(37)
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.
(38)
Attachment revenue is comprised of asset-based revenues (including revenue from cash sweep programs), transaction and fee revenue, and other revenue. Attachment rate, excluding cash revenue is calculated as attachment revenue (less revenue from cash sweep programs) over total commission and advisory revenues for the quarter.
(39)
Recurring Revenue Rate refers to the percentage of total net revenue that was recurring revenue for the quarter. The Company tracks recurring revenue, a characterization of net revenue and a statistical measure, which management defines to include revenues from asset-based fees, advisory fees, trailing commissions, cash sweep programs, and certain other fees that are based upon accounts and advisors. Because certain recurring revenues are associated with asset balances, they will fluctuate depending on the market values and current interest rates. Accordingly, recurring revenue can be negatively impacted by adverse external market conditions. However, management believes that recurring revenue is meaningful despite these fluctuations because it is not dependent upon transaction volumes or other activity-based revenues, which are more difficult to predict, particularly in declining or volatile markets. 
(40)
Capital allocation per share equals the amount of capital allocated for share repurchases and cash dividends divided by the diluted weighted average shares outstanding.

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