LPL Financial Holdings Inc.
LPL Financial Holdings Inc. (Form: 8-K, Received: 07/27/2017 16:45:31)




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 27, 2017
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))
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter)
Emerging growth company o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o






Item 2.02
Results of Operations and Financial Condition.
On July 27, 2017 , 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, 2017 . 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 27, 2017 ("LPL Financial Announces Second Quarter 2017 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 27, 2017

    





LPLLOGO541LARGENEWNOLINESA04.JPG
Investor Relations - Chris Koegel, (617) 897-4574
For Immediate Release
Media Relations - Jeff Mochal, (704) 733-3589
 
 
investor.lpl.com/contactus.cfm
LPL Financial Announces Second Quarter 2017 Results

Key Performance Indicators
Earnings per share ("EPS") increased 40% year-over-year to $0.74 , up 42% sequentially.
Net Income increased 43% year-over-year to $68 million , up 42% sequentially.
Total Brokerage and Advisory Assets increased 11% year-over-year to $542 billion , up 2% sequentially.
Total Net New Assets were an inflow of $0.4 billion , translating to a 0.3% annualized growth rate.
Net new advisory assets were an inflow of $5.9 billion , translating to a 10% annualized growth rate.
Net new brokerage assets were an outflow of $5.5 billion , translating to a (7%) annualized rate.
Advisor count decreased to 14,256 , down 98 sequentially, and up 63 year-over-year.
Excluding anticipated departures discussed during the Company's Q1 2017 earnings call, total net new assets were an inflow of $2.1 billion, net new advisory assets were an inflow of $6.1 billion, net new brokerage assets were an outflow of $4.0 billion, and advisor count increased by 2.
Gross Profit** increased 13% year-over-year to $389 million , up 3% sequentially.
EBITDA** increased 29% year-over-year to $170 million , up 12% sequentially.
EBITDA as a percentage of Gross Profit was 44% , up from 38% a year ago, and up from 40% sequentially.
Core G&A** increased 5% year-over-year to $176 million , but decreased slightly sequentially.

Key Updates
Narrowed 2017 Core G&A** outlook range to $ 710 to $720 million .
Continued share repurchases, buying 910 thousand shares for $36 million at an average price of $39.78 .

BOSTON - July 27, 2017 LPL Financial Holdings Inc. (NASDAQ: LPLA) (the “Company”) today announced results for its second quarter ended June 30, 2017 , reporting net income of $68 million , or $0.74 per share. This compares with $48 million , or $0.53 per share, in the second quarter of 2016 and $48 million , or $ 0.52 per share, in the prior quarter.
“We remain focused on our strategic priorities of growing our core business and executing with excellence,” said Dan Arnold, president and CEO. “We continue to enhance the retail investor experience and help advisors grow their business by enriching our advisory solutions and transforming our client statements. Our growth in advisory assets reflects our advisors using these enhancements to win in the marketplace.”
“Our business continued to deliver strong financial results in Q2,” said Matt Audette, CFO. “We remained focused on driving productivity and efficiency, and we generated operating leverage. We also put more capital to work as we increased the pace of our share repurchases."







1



Additional Second Quarter 2017 Financial and Business Highlights
Market Drivers
S&P 500 index ended the quarter at 2,423 , up 3% sequentially. The S&P 500 index averaged 2,398 during the quarter, up 3% sequentially.
Federal Funds Daily Effective Rate averaged 95 bps during the quarter, up 25 bps sequentially.
Advisors
Production retention rate was 93.4% . Excluding anticipated client departures discussed during the Company's Q1 2017 earnings call, the production retention rate was 96.5%.
Gross Profit
Gross profit increased 3% sequentially, primarily driven by higher advisory fees, cash sweep, and sponsor revenues.
Expenses
Core G&A expenses decreased slightly sequentially, primarily driven by lower payroll taxes .
Promotional expenses decreased 13% sequentially, primarily driven by lower conference expenses .
Capital Management
Returned capital to shareholders totaling $59 million or $0.64 per share.
Repurchased 910 thousand shares for $36 million , at an average price of $39.78 per share.
Paid dividends of $23 million on May 25, 2017. For the third quarter, the Company’s Board of Directors has declared a $0.25 cent quarterly dividend to be paid on August 24, 2017 to shareholders of record as of August 10, 2017 .
Capital expenditures were $28 million, primarily driven by technology spend.
Cash available for corporate use was $527 million as of quarter-end.
Credit Agreement Net Leverage Ratio, which now only applies to the revolving credit facility, was 3.08x , down 0.24x from the prior quarter. After applying $300 million of cash available for corporate use to Credit Agreement Net Debt, this left an additional $227 million of cash, which if applied to the debt, would further reduce the Credit Agreement Net Leverage Ratio to 2.72x.

2



Conference Call and Additional Information
The Company will hold a conference call to discuss its results at 5:00 p.m. EST on Thursday, July 27, 2017 . The conference call can be accessed by dialing either 877-677-9122 (domestic) or 708-290-1401 (international) and entering passcode 46787812.
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 46787812. The telephonic replay will be available until 11:59 p.m. EST on August 3, 2017 and the webcast replay will be available until August 17, 2017.
About LPL Financial
LPL Financial LLC, a wholly owned subsidiary of LPL Financial Holdings Inc. (NASDAQ:LPLA), is a leader in the retail financial advice market and served approximately $542 billion in brokerage and advisory assets as of June 30, 2017 . LPL is one of the fastest growing RIA custodians and the nation’s largest independent broker-dealer (based on total revenues, Financial Planning magazine June 1996-2017), and the firm and its financial advisors were ranked No. 1 in net customer loyalty in a 2016 Cogent Reports TM study. The Company provides proprietary technology, comprehensive clearing and compliance services, practice management programs and training, and independent research to more than 14,000 financial advisors and over 700 financial institutions, enabling them to provide a range of financial services including wealth management, retirement planning, financial planning and other investment services to help their clients turn life’s aspirations into financial realities. As of June 30, 2017 , financial advisors associated with LPL served more than 4 million client accounts across the U.S. as well as an estimated 46,000 retirement plans with an estimated $138 billion in retirement plan assets. Additionally, LPL supports approximately 3,700 financial advisors licensed and affiliated with insurance companies with customized clearing, advisory platforms, and technology solutions. LPL Financial and its affiliates have more than 3,400 employees with primary offices in Boston, Charlotte, and San Diego. For more information, visit www.lpl.com .
Securities and Advisory Services offered through LPL Financial. A Registered Investment Advisor, Member FINRA/SIPC.
**Non-GAAP Financial Measures
Management believes that presenting certain non-GAAP measures by excluding or including certain items can be helpful to investors and analysts who may wish to use some or all of this information to analyze the Company’s current performance, prospects, and valuation. Management uses this non-GAAP information internally to evaluate operating performance and in formulating the budget for future periods. Management believes that the non-GAAP measures and metrics discussed below are appropriate for evaluating the performance of the Company.
Gross Profit is calculated as net revenues, which were $1,066 million for the three months ended June 30, 2017 , less commission and advisory expenses and brokerage, clearing, and exchange fees, which were $663 million and $14 million , respectively, for the three months ended June 30, 2017 . All other expense categories, including depreciation and amortization, are considered general and administrative in nature. Because the Company’s gross profit amounts do not include any depreciation and amortization expense, the Company considers its gross profit amounts to be non-GAAP measures that may not be comparable to those of others in its industry. Management believes that Gross Profit can be useful to investors because it shows the Company’s core operating performance before indirect costs that are general and administrative in nature.
Core G&A consists of total operating expenses, which were $926 million for the three months ended June 30, 2017 , 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. Management presents Core G&A because it believes Core G&A reflects the corporate operating expense categories over which management can generally exercise a measure of control, compared with expense items over which management either cannot exercise control, such as commission and advisory expenses, or which management views as promotional expense necessary to support advisor growth and retention including conferences and transition assistance. Core G&A is not a measure of the Company’s total operating expenses as calculated in accordance with GAAP. For a reconciliation of Core G&A against the Company’s total operating expenses, please see footnote 7 on page 18 of this release. The Company does not provide an outlook for its total operating expenses because it contains expense components, such as commission and advisory expenses, that are market-driven and over which the Company cannot exercise control. Accordingly a reconciliation of the Company’s outlook for Core G&A to an outlook for total operating expenses cannot be made available without unreasonable effort. Prior to 2016, the Company calculated Core G&A as consisting of total operating expenses, excluding the items described above, as well as excluding other items that primarily consisted of acquisition and integration costs resulting from various acquisitions and organizational restructuring and conversion costs. Beginning with results reported for Q1 2016, Core G&A was presented as including these items that were historically adjusted out .
EBITDA is defined as net income plus interest expense, income tax expense, depreciation, and amortization. The Company presents EBITDA because management believes that it can be a useful financial metric in understanding the Company’s earnings from operations. EBITDA is not a measure of the Company's financial performance under GAAP and should not be considered as an alternative to net income or any other performance measure derived in accordance with GAAP, or as an alternative to cash flows from operating activities as a measure of profitability or

3



liquidity. In addition, the Company’s EBITDA can differ significantly from EBITDA calculated by other companies, depending on long-term strategic decisions regarding capital structure, the tax jurisdictions in which companies operate, and capital investments.
Credit Agreement EBITDA is defined in, and calculated by management in accordance with, the Company's credit agreement (“Credit Agreement”) as “Consolidated EBITDA,” which is Consolidated Net Income (as defined in the Credit Agreement) plus interest expense, tax expense, depreciation and amortization and further adjusted to exclude certain non-cash charges and other adjustments, including unusual or non-recurring charges and gains. The Company presents Credit Agreement EBITDA because management believes that it can be a useful financial metric in understanding the Company’s debt capacity and covenant compliance under its Credit Agreement. Credit Agreement EBITDA is not a measure of the Company's financial performance under GAAP and should not be considered as an alternative to net income or any other performance measure derived in accordance with GAAP, or as an alternative to cash flows from operating activities as a measure of profitability or liquidity. In addition, the Company’s Credit Agreement-defined EBITDA can differ significantly from adjusted EBITDA calculated by other companies, depending on long-term strategic decisions regarding capital structure, the tax jurisdictions in which companies operate, and capital investments.
Forward-Looking Statements
Statements in this press release regarding the Company's future financial and operating results, outlook, growth, prospects, business strategies, future market position, future operating environment, and goals, including forecasts and statements relating to the Company’s future expense growth, capital plans, and future enhancements to the retail investor experience, 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 27, 2017 . 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 assets and the related impact on revenue; fluctuations in the number of retail investors served by the Company; effects of competition in the financial services industry and the success of the Company in attracting and retaining financial advisors and institutions; changes in the number of the Company's financial advisors and institutions, and their ability to market effectively financial products and services; whether the retail investors served by newly-recruited advisors choose to open brokerage and/or advisory accounts and/or move their respective assets to new accounts at the Company; changes in interest rates and fees payable by banks participating in the Company's cash sweep program, including the Company's success in negotiating agreements with current or additional counterparties; the Company's strategy in managing cash sweep program fees; changes in the growth and profitability of the Company's fee-based business; the effect of current, pending and future legislation, regulation and regulatory actions, including the U.S. Department of Labor's final rule ("DOL Rule") and disciplinary actions imposed by federal and state securities regulators and self-regulatory organizations; the costs of settling and remediating issues related to pending or future regulatory matters or legal proceedings; execution of the Company's capital management plans, including its compliance with the terms of its existing credit agreement and the indenture governing its senior notes; the price, the availability of shares, and trading volumes of the Company's common stock, which will affect the timing and size of future share repurchases by the Company; changes made to the Company’s offerings and services in response to the current, pending and future legislation, regulation and regulatory actions, including the DOL Rule, and the effect that such changes may have on the Company’s gross profit streams and costs; execution of the Company's plans and its success in realizing the expense savings and service improvements and efficiencies expected to result from its initiatives and programs, particularly its expense plans and technological initiatives; the Company's success in negotiating and developing commercial arrangements with third-party services providers; the performance of third-party service providers to which business processes are transitioned from the Company; the Company's ability to control operating risks, information technology systems risks, cybersecurity risks, and sourcing risks; and the other factors set forth in Part I, “Item 1A. Risk Factors” in the Company's 2016 Annual Report on Form 10-K, as may be amended or updated in the Company's Quarterly Reports on Form 10-Q or subsequent filings with the SEC. 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

4



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,
 
 
 
2017
 
2016
 
% Change
 
2017
 
2016
 
% Change
REVENUES
 
 
 
 
 
 
 
 
 
 
 
Commission
$
420,706

 
$
445,755

 
(6
%)
 
$
841,870

 
$
882,482

 
(5
%)
Advisory
346,515

 
322,955

 
7
%
 
676,374

 
642,387

 
5
%
Asset-based
173,450

 
137,797

 
26
%
 
330,673

 
274,048

 
21
%
Transaction and fee
109,361

 
101,824

 
7
%
 
217,523

 
204,514

 
6
%
Interest income, net of interest expense
5,976

 
5,238

 
14
%
 
11,769

 
10,568

 
11
%
Other
9,496

 
5,612

 
69
%
 
22,722

 
10,487

 
117
%
Total net revenues
1,065,504

 
1,019,181

 
5
%
 
2,100,931

 
2,024,486

 
4
%
EXPENSES
 
 
 
 
 
 
 
 
 
 
 
Commission and advisory
663,046

 
660,680

 
%
 
1,308,109

 
1,296,691

 
1
%
Compensation and benefits
110,299

 
105,773

 
4
%
 
223,511

 
219,828

 
2
%
Promotional
32,006

 
34,717

 
(8
%)
 
68,660

 
70,401

 
(2
%)
Depreciation and amortization
21,190

 
18,749

 
13
%
 
41,937

 
37,711

 
11
%
Amortization of intangible assets
9,453

 
9,509

 
(1
%)
 
18,944

 
19,034

 
%
Occupancy and equipment
22,987

 
21,980

 
5
%
 
48,186

 
43,817

 
10
%
Professional services
18,757

 
14,984

 
25
%
 
34,294

 
32,139

 
7
%
Brokerage, clearing and exchange expense
13,890

 
13,609

 
2
%
 
28,076

 
27,198

 
3
%
Communications and data processing
10,645

 
10,971

 
(3
%)
 
21,659

 
21,468

 
1
%
Other
24,201

 
24,656

 
(2
%)
 
46,764

 
44,156

 
6
%
Total operating expenses
926,474

 
915,628

 
1
%
 
1,840,140

 
1,812,443

 
2
%
Non-operating interest expense
26,261

 
23,804

 
10
%
 
51,612

 
47,694

 
8
%
Loss on extinguishment of debt

 

 
n/m

 
21,139

 

 
n/m

Income before provision for income taxes
112,769

 
79,749

 
41
%
 
188,040

 
164,349

 
14
%
PROVISION FOR INCOME TAXES
44,335

 
31,900

 
39
%
 
71,417

 
66,108

 
8
%
NET INCOME
$
68,434

 
$
47,849

 
43
%
 
$
116,623

 
$
98,241

 
19
%
Earnings per share, basic
$
0.76

 
$
0.54

 
41
%
 
$
1.29

 
$
1.10

 
17
%
Earnings per share, diluted
$
0.74

 
$
0.53

 
40
%
 
$
1.27

 
$
1.10

 
15
%
Weighted-average shares outstanding, basic
90,251

 
89,019

 
1
%
 
90,060

 
88,992

 
1
%
Weighted-average shares outstanding, diluted
92,013

 
89,699

 
3
%
 
91,996

 
89,669

 
3
%








6



LPL Financial Holdings Inc.
Condensed Consolidated Statements of Income Trend
(Dollars in thousands, except per share data)
(Unaudited)
 
Quarterly Results
 
Q2 2017
 
Q1 2017
 
Q4 2016
REVENUES
 
 
 
 
 
Commission
$
420,706

 
$
421,164

 
$
423,267

Advisory
346,515

 
329,859

 
325,383

Asset-based
173,450

 
157,223

 
144,136

Transaction and fee
109,361

 
108,162

 
102,788

Interest income, net of interest expense
5,976

 
5,793

 
5,342

Other
9,496

 
13,226

 
6,541

Total net revenues
1,065,504

 
1,035,427

 
1,007,457

EXPENSES
 
 
 
 
 
Commission and advisory
663,046

 
645,063

 
646,501

Compensation and benefits
110,299

 
113,212

 
108,741

Promotional
32,006

 
36,654

 
35,602

Depreciation and amortization
21,190

 
20,747

 
19,783

Amortization of intangible assets
9,453

 
9,491

 
9,499

Occupancy and equipment
22,987

 
25,199

 
25,609

Professional services
18,757

 
15,537

 
17,944

Brokerage, clearing and exchange expense
13,890

 
14,186

 
14,213

Communications and data processing
10,645

 
11,014

 
12,652

Other
24,201

 
22,563

 
27,075

Total operating expenses
926,474

 
913,666

 
917,619

Non-operating interest expense
26,261

 
25,351

 
24,895

Loss on extinguishment of debt

 
21,139

 

INCOME BEFORE PROVISION FOR INCOME TAXES
112,769

 
75,271

 
64,943

PROVISION FOR INCOME TAXES
44,335

 
27,082

 
23,207

NET INCOME
$
68,434

 
$
48,189

 
$
41,736

Earnings per share, basic
$
0.76

 
$
0.54

 
$
0.47

Earnings per share, diluted
$
0.74

 
$
0.52

 
$
0.46

Weighted-average shares outstanding, basic
90,251

 
89,868

 
89,212

Weighted-average shares outstanding, diluted
92,013

 
92,004

 
91,014


7



LPL Financial Holdings Inc.
Condensed Consolidated Statements of Financial Condition
(Dollars in thousands, except par value)
(Unaudited)
 
 
June 30,
2017
 
December 31, 2016
ASSETS
Cash and cash equivalents
 
$
945,133

 
$
747,709

Cash and securities segregated under federal and other regulations
 
534,002

 
768,219

Restricted cash
 
42,733

 
42,680

Receivables from:
 
 
 
 
Clients, net of allowance of $427 at June 30, 2017 and $1,580 at December 31, 2016
 
295,388

 
341,199

Product sponsors, broker-dealers, and clearing organizations
 
166,687

 
175,122

Advisor loans, net of allowance of $5,780 at June 30, 2017 and $1,852 at December 31, 2016
 
192,485

 
194,526

Others, net of allowance of $10,050 at June 30, 2017 and $12,851 at December 31, 2016
 
212,635

 
189,632

Securities owned:
 
 
 
 
Trading — at fair value
 
14,360

 
11,404

Held-to-maturity
 
11,833

 
8,862

Securities borrowed
 
17,619

 
5,559

Fixed assets, net of accumulated depreciation and amortization of $394,737 at June 30, 2017 and $355,919 at December 31, 2016
 
392,300

 
387,368

Goodwill
 
1,365,838

 
1,365,838

Intangible assets, net of accumulated amortization of $399,718 at June 30, 2017 and $380,775 at December 31, 2016
 
335,052

 
353,996

Other assets
 
264,060

 
242,812

Total assets
 
$
4,790,125

 
$
4,834,926

LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES:
 
 
 
 
Drafts payable
 
$
150,101

 
$
198,839

Payables to clients
 
777,220

 
863,765

Payables to broker-dealers and clearing organizations
 
52,668

 
63,032

Accrued commission and advisory expenses payable
 
128,804

 
128,476

Accounts payable and accrued liabilities
 
380,585

 
385,545

Income taxes payable
 
17,936

 
4,607

Unearned revenue
 
80,633

 
62,785

Securities sold, but not yet purchased — at fair value
 
99

 
183

Senior secured credit facilities, net of unamortized debt issuance cost of $16,884 at June 30, 2017 and $21,924 at December 31, 2016
 
2,178,866

 
2,175,436

Leasehold financing obligation
 
104,764

 
105,649

Deferred income taxes, net
 
25,352

 
25,614

Total liabilities
 
3,897,028

 
4,013,931

Commitments and contingencies
 
 
 
 
STOCKHOLDERS’ EQUITY:
 
 
 
 
Common stock, $.001 par value; 600,000,000 shares authorized; 122,052,498 shares issued at June 30, 2017 and 119,917,854 shares issued at December 31, 2016
 
122

 
120

Additional paid-in capital
 
1,506,632

 
1,445,256

Treasury stock, at cost — 32,130,595 shares at June 30, 2017 and 30,621,270 shares at December 31, 2016
 
(1,254,759
)
 
(1,194,645
)
Accumulated other comprehensive income
 

 
315

Retained earnings
 
641,102

 
569,949

Total stockholders’ equity
 
893,097

 
820,995

Total liabilities and stockholders’ equity
 
$
4,790,125

 
$
4,834,926


8



LPL Financial Holdings Inc.
Management's Statements of Operations (1)
(Dollars in thousands, except per share data)
(Unaudited)
The information presented on pages 9-17 of this release is presented as reviewed by the Company’s management and includes information derived from the Company’s Unaudited Condensed Consolidated Statements of Income, non-GAAP 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 2017
 
Q1 2017
 
% Change
 
Q2 2016
 
% Change
Gross Profit
 
 
 
 
 
 
 
 
 
Sales-based commissions
$
181,843

 
$
186,577

 
(3
%)
 
$
218,266

 
(17
%)
Trailing commissions
238,863

 
234,587

 
2
%
 
227,489

 
5
%
Advisory
346,515

 
329,859

 
5
%
 
322,955

 
7
%
Commission and advisory fees(2)
767,221

 
751,023

 
2
%
 
768,710

 
%
Commission and advisory expense
(663,046
)
 
(645,063
)
 
3
%
 
(660,680
)
 
%
Commission and advisory fees, net of payout
104,175

 
105,960

 
(2
%)
 
108,030

 
(4
%)
Cash sweep(3)
71,848

 
59,651

 
20
%
 
40,857

 
76
%
Other asset-based(4)
101,602

 
97,572

 
4
%
 
96,940

 
5
%
Transaction and fee
109,361

 
108,162

 
1
%
 
101,824

 
7
%
Interest income and other(5)
15,472

 
19,019

 
(19
%)
 
10,850

 
43
%
Total net commission and advisory fees and attachment revenue
402,458


390,364

 
3
%
 
358,501

 
12
%
Brokerage, clearing, and exchange expense
(13,890
)
 
(14,186
)
 
(2
%)
 
(13,609
)
 
2
%
Gross profit(6)
388,568

 
376,178

 
3
%
 
344,892

 
13
%
 
 
 
 
 
 
 
 
 
 
G&A Expense
 
 
 
 
 
 
 
 
 
Core G&A(7)
176,428

 
177,026

 
%
 
168,076

 
5
%
Regulatory charges(8)
5,428

 
5,270

 
n/m

 
5,567

 
n/m

Promotional(9)
32,006

 
36,654

 
(13
%)
 
34,717

 
(8
%)
Employee share-based compensation(10)
5,033

 
5,229

 
(4
%)
 
4,721

 
7
%
Total G&A
218,895

 
224,179

 
(2
%)
 
213,081

 
3
%
EBITDA
169,673

 
151,999

 
12
%
 
131,811

 
29
%
Depreciation and amortization
21,190

 
20,747

 
2
%
 
18,749

 
13
%
Amortization of intangible assets
9,453

 
9,491

 
%
 
9,509

 
(1
%)
Non-operating interest expense
26,261

 
25,351

 
4
%
 
23,804

 
10
%
Loss on extinguishment of debt

 
21,139

 
n/m

 

 
n/m

INCOME BEFORE PROVISION FOR INCOME TAXES
112,769

 
75,271

 
50
%
 
79,749

 
41
%
PROVISION FOR INCOME TAXES
44,335

 
27,082

 
64
%
 
31,900

 
39
%
NET INCOME
$
68,434

 
$
48,189

 
42
%
 
$
47,849

 
43
%
Earnings per share, diluted
$
0.74

 
$
0.52

 
42
%
 
$
0.53

 
40
%
Weighted-average shares outstanding, diluted
92,013

 
92,004

 
%
 
89,699

 
3
%

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 9-17 of this release is presented as reviewed by the Company’s management and includes information derived from the Company’s Unaudited Condensed Consolidated Statements of Income, non-GAAP 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 2017
 
Q1 2017
 
Q4 2016
Gross Profit
 
 
 
 
 
Sales-based commissions
$
181,843

 
$
186,577

 
$
188,943

Trailing commissions
238,863

 
234,587

 
234,324

Advisory
346,515

 
329,859

 
325,383

Commission and advisory fees (2)
767,221

 
751,023

 
748,650

Commission and advisory expense
(663,046
)
 
(645,063
)
 
(646,501
)
Commission and advisory fees, net of payout
104,175

 
105,960

 
102,149

Cash sweep(3)
71,848

 
59,651

 
48,756

Other asset-based(4)
101,602

 
97,572

 
95,380

Transaction and fee
109,361

 
108,162

 
102,788

Interest income and other(5)
15,472

 
19,019

 
11,883

Total net commission and advisory fees and attachment revenue
402,458

 
390,364


360,956

Brokerage, clearing, and exchange expense
(13,890
)
 
(14,186
)
 
(14,213
)
Gross profit(6)
388,568

 
376,178

 
346,743

 
 
 
 
 
 
G&A Expense
 
 
 
 
 
Core G&A(7)
176,428

 
177,026

 
180,974

Regulatory charges(8)
5,428

 
5,270

 
6,275

Promotional(9)
32,006

 
36,654

 
35,602

Employee share-based compensation(10)
5,033

 
5,229

 
4,772

Total G&A
218,895

 
224,179

 
227,623

EBITDA
169,673

 
151,999

 
119,120

Depreciation and amortization
21,190

 
20,747

 
19,783

Amortization of intangible assets
9,453

 
9,491

 
9,499

Non-operating interest expense
26,261

 
25,351

 
24,895

Loss on extinguishment of debt

 
21,139

 

INCOME BEFORE PROVISION FOR INCOME TAXES
112,769

 
75,271

 
64,943

PROVISION FOR INCOME TAXES
44,335

 
27,082

 
23,207

NET INCOME
$
68,434

 
$
48,189

 
$
41,736

Earnings per share, diluted
$
0.74

 
$
0.52

 
$
0.46

Weighted-average shares outstanding, diluted
92,013

 
92,004

 
91,014



10



LPL Financial Holdings Inc.
Operating Measures (1)
(Dollars in thousands, except where noted)
(Unaudited)
 
Q2 2017
 
Q1 2017
 
% Change
 
Q2 2016
 
% Change
Market Drivers
 
 
 
 
 
 
 
 
 
S&P 500 Index (end of period)
2,423

 
2,363

 
3%
 
2,099

 
15%
Fed Funds Daily Effective Rate (FFER) (average bps)
95

 
70

 
25bps
 
37

 
58bps
 
 
 
 
 
 
 
 
 
 
Assets (dollars in billions)
 
 
 
 
 
 
 
 
 
Brokerage Assets(11)
$
305.2

 
$
304.6

 
—%
 
$
291.9

 
5%
Advisory Assets(12)
236.8

 
225.7

 
5%
 
196.1

 
21%
Total Brokerage and Advisory Assets(13)
$
542.0

 
$
530.3

 
2%
 
$
488.0

 
11%
Advisory % of Total Assets
43.7
%
 
42.6
%
 
110bps
 
40.2
%
 
350bps
 
 
 
 
 
 
 
 
 
 
Net New Advisory Assets(14)
$
5.9

 
$
6.0

 
n/m
 
$
2.8

 
n/m
Net New Brokerage Assets(15)
(5.5
)
 
(3.4
)
 
n/m
 
(1.5
)
 
n/m
Total Net New Assets(16)
$
0.4


$
2.6


n/m

$
1.3


n/m
 
 
 
 
 
 
 
 
 
 
Net Brokerage to Advisory Conversions (17)
$
2.0

 
$
2.3

 
n/m
 
$
1.4

 
n/m
Advisory NNA Annualized Growth(18)
10
%
 
11
%
 
n/m
 
6
%
 
n/m
Total NNA Annualized Growth(19)
0.3
%
 
2
%
 
n/m
 
1
%
 
n/m
 
 
 
 
 
 
 
 
 
 
Non-Hybrid RIA Brokerage Assets(20)
$
237.9

 
$
239.1

 
(1%)
 
$
234.1

 
2%
Corporate Platform Advisory Assets(20)
137.7

 
133.6

 
3%
 
121.6

 
13%
Total Corporate Assets(20)
375.6

 
372.7

 
1%
 
355.7

 
6%
Brokerage Assets Associated with Hybrid RIAs(21)
67.3

 
65.5

 
3%
 
57.8

 
16%
Hybrid Platform Advisory Assets(21)
99.1

 
92.1

 
8%
 
74.5

 
33%
Total Hybrid Platform Assets(21)
166.4

 
157.6

 
6%
 
132.3

 
26%
Total Brokerage and Advisory Assets(13)
$
542.0


$
530.3

 
2%
 
$
488.0

 
11%
Hybrid % of Total Assets
30.7
%
 
29.7
%
 
100bps
 
27.1
%
 
360bps
 
 
 
 
 
 
 
 
 
 
Brokerage Retirement Assets(22)
$
149.9

 
$
148.4

 
1%
 
$
144.0

 
4%
Advisory Retirement Assets(22)
131.5

 
124.5

 
6%
 
106.3

 
24%
Total Brokerage and Advisory Retirement Assets(22)
$
281.4

 
$
272.9

 
3%
 
$
250.3

 
12%
Retirement % of Total Assets
51.9
%
 
51.5
%
 
40bps
 
51.3
%
 
60bps
 
 
 
 
 
 
 
 
 
 
Insured Cash Account Balances(23)
$
20.8

 
$
22.0

 
(5%)
 
$
21.0

 
(1%)
Deposit Cash Account Balances(24)
3.7

 
4.2

 
(12%)
 

 
n/m
Money Market Account Cash Balances(25)
3.3

 
3.8

 
(13%)
 
8.2

 
(60%)
Total Cash Sweep Balances(26)
$
27.8

 
$
30.0

 
(7%)
 
$
29.2

 
(5%)
Cash Sweep % of Total Assets
5.1
%
 
5.7
%
 
(60bps)
 
6.0
%
 
(90bps)
 
 
 
 
 
 
 
 
 
 
Insured Cash Account Fee - bps(27)
108

 
88

 
20
 
63

 
45
Deposit Cash Account Fee - bps(27)
85

 
62

 
23
 

 
n/m
Money Market Account Fee - bps(27)
69

 
53

 
16
 
37

 
32
Total Cash Sweep Fee - bps(27)
100

 
80

 
20
 
56

 
44

11



LPL Financial Holdings Inc.
Monthly Metrics (1)
(Dollars in thousands, except where noted)
(Unaudited)
(End of Period $ in billions, unless noted)
 
June 2017
 
May 2017
 
May to Jun % Change
 
April 2017
 
March 2017
Assets Served
 
 
 
 
 
 
 
 
 
 
Brokerage Assets(11)
 
$
305.2

 
$
306.0

 
(0.3%)
 
$
305.9

 
$
304.6

Advisory Assets(12)
 
236.8

 
233.5

 
1.4%
 
228.9

 
225.7

Total Brokerage and Advisory Assets(13)
 
$
542.0

 
$
539.5

 
0.5%
 
$
534.8

 
$
530.3

 
 
 
 
 
 

 
 
 
 
Net New Advisory Assets(14)
 
$
2.0

 
$
2.5

 
n/m
 
$
1.4

 
$
2.3

Net New Brokerage Assets(15)
 
$
(2.1
)
 
$
(2.1
)
 
n/m
 
$
(1.3
)
 
$
(1.1
)
Total Net New Assets(16)
 
$
(0.1
)
 
$
0.4

 
n/m
 
$
0.1

 
$
1.2

 
 
 
 
 
 
 
 
 
 
 
Net Brokerage to Advisory Conversions(17)
 
$
0.6

 
$
0.8

 
n/m
 
$
0.6

 
$
0.7

 
 
 
 
 
 
 
 
 
 
 
Insured Cash Account Balances(23)
 
$
20.8

 
$
20.9

 
(0.5%)
 
$
21.4

 
$
22.0

Deposit Cash Account Balances(24)
 
3.7

 
3.8

 
(2.6%)
 
3.9

 
4.2

Money Market Account Cash Balances(25)
 
3.3

 
3.6

 
(8.3%)
 
3.7

 
3.8

Total Client Cash Sweep Balances(26)
 
$
27.8

 
$
28.3

 
(1.8%)
 
$
29.0

 
$
30.0

 
 
 
 
 
 

 
 
 
 
Market Indices
 
 
 
 
 

 
 
 
 
S&P 500 Index (end of period)
 
2,423

 
2,412

 
0.5%
 
2,384

 
2,363

Fed Funds Effective Rate (average bps)
 
104

 
91

 
13bps
 
91

 
79


12



LPL Financial Holdings Inc.
Financial Measures (1)
(Dollars in thousands, except where noted)
(Unaudited)

 
Q2 2017
 
Q1 2017
 
% Change
 
Q2 2016
 
% Change
Commission Revenue by Product
 
 
 
 
 
 
 
 
 
Variable annuities
$
167,454

 
$
166,796

 
—%
 
$
173,421

 
(3%)
Mutual funds
134,510

 
131,474

 
2%
 
135,770

 
(1%)
Alternative investments
6,719

 
7,171

 
(6%)
 
9,098

 
(26%)
Fixed annuities
39,560

 
36,912

 
7%
 
53,623

 
(26%)
Equities
18,799

 
21,974

 
(14%)
 
20,706

 
(9%)
Fixed income
26,256

 
27,495

 
(5%)
 
21,279

 
23%
Insurance
16,294

 
17,722

 
(8%)
 
19,980

 
(18%)
Group annuities
11,000

 
11,479

 
(4%)
 
11,686

 
(6%)
Other
114

 
141

 
(19%)
 
192

 
(41%)
Total commission revenue
$
420,706

 
$
421,164

 
—%
 
$
445,755

 
(6%)
 
 
 
 
 

 
 
 

Commission Revenue by Sales-based and Trailing Commission
 

 
 
 

Sales-based commissions
 
 
 
 
 
 
 
 
 
Variable annuities
$
53,032

 
$
50,925

 
4%
 
$
64,987

 
(18%)
Mutual funds
34,909

 
36,461

 
(4%)
 
38,223

 
(9%)
Alternative investments
3,645

 
5,154

 
(29%)
 
7,002

 
(48%)
Fixed annuities
34,931

 
32,094

 
9%
 
50,970

 
(31%)
Equities
18,799

 
21,974

 
(14%)
 
20,706

 
(9%)
Fixed income
20,501

 
21,902

 
(6%)
 
16,288

 
26%
Insurance
14,861

 
16,146

 
(8%)
 
18,595

 
(20%)
Group annuities
1,051

 
1,780

 
(41%)
 
1,303

 
(19%)
Other
114

 
141

 
(19%)
 
192

 
(41%)
Total sales-based commissions
$
181,843

 
$
186,577

 
(3%)
 
$
218,266

 
(17%)
Trailing commissions
 
 
 
 

 
 
 

Variable annuities
$
114,422

 
$
115,871

 
(1%)
 
$
108,434

 
6%
Mutual funds
99,601

 
95,013

 
5%
 
97,547

 
2%
Alternative investments
3,074

 
2,017

 
52%
 
2,096

 
47%
Fixed annuities
4,629

 
4,818

 
(4%)
 
2,653

 
74%
Fixed income
5,755

 
5,593

 
3%
 
4,991

 
15%
Insurance
1,433

 
1,576

 
(9%)
 
1,385

 
3%
Group annuities
9,949

 
9,699

 
3%
 
10,383

 
(4%)
Total trailing commissions
$
238,863

 
$
234,587

 
2%
 
$
227,489

 
5%
Total commission revenue
$
420,706

 
$
421,164

 
—%
 
$
445,755

 
(6%)



13



LPL Financial Holdings Inc.
Financial Measures (1)
(Dollars in thousands, except where noted)
(Unaudited)
 
Q2 2017
 
Q1 2017
 
% Change
 
Q2 2016
 
% Change
Payout Rate
 
 
 
 
 
 
 
 
 
Base Payout Rate(28)
82.94
%
 
82.99
%
 
(5bps)
 
83.20
%
 
(26bps)
Production Based Bonuses
2.56
%
 
1.72
%
 
84bps
 
2.44
%
 
12bps
GDC Sensitive Payout
85.50
%
 
84.71
%
 
79bps
 
85.64
%
 
(14bps)
Non-GDC Sensitive Payout (29)
0.92
%
 
1.18
%
 
(26bps)
 
0.31
%
 
61bps
Total Payout Ratio
86.42
%
 
85.89
%
 
53bps
 
85.95
%
 
47bps
Production Based Bonuses Ratio (Trailing Twelve Months)
2.7
%
 
2.7
%
 
 
2.7
%
 

14



LPL Financial Holdings Inc.
Capital Management Measures (1)
(Dollars in thousands, except where noted)
(Unaudited)
 
Q2 2017
 
Q1 2017
Credit Agreement EBITDA(30)
 
 
 
Net income
$
68,434

 
$
48,189

Non-operating interest expense
26,261

 
25,351

Provision for income taxes
44,335

 
27,082

Loss on extinguishment of debt

 
21,139

Depreciation and amortization
21,190

 
20,747

Amortization of intangible assets
9,453

 
9,491

EBITDA
169,673

 
151,999

Credit Agreement Adjustments:
 
 
 
Employee share-based compensation expense(10)
5,033

 
5,229

Advisor share-based compensation expense(31)
1,821

 
1,742

Other(32)
7,631

 
5,596

Credit Agreement EBITDA
$
184,158

 
$
164,566

 
 
 
 
Cash Available for Corporate Use(33)
 
 
 
Cash at Parent(34)
$
408,381

 
$
413,431

Excess Cash at Broker-Dealer subsidiary per Credit Agreement
109,714

 
130,885

Other Available Cash
8,555

 
6,966

Total Cash Available for Corporate Use
$
526,650

 
$
551,282

 
 
 
 
Credit Agreement Net Leverage
 
 
 
Total Debt
$
2,195,750

 
$
2,200,000

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

 
300,000

Credit Agreement Net Debt
$
1,895,750

 
$
1,900,000

Credit Agreement EBITDA (trailing twelve months)(35)
$
614,627

 
$
573,091

Credit Agreement Net Leverage Ratio(36)
3.08
x
 
3.32
x

15



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

 
LIBOR+200bps(b)
 
%
 
3/10/2022
Senior Secured Term Loan B
 
1,695,750

 
LIBOR+250 bps(b)
 
3.82
%
 
3/10/2024
Senior Unsecured Notes
 
500,000

 
Fixed Rate
 
5.75
%
 
9/15/2025
Total / Weighted-Average
 
$
2,195,750

 
 
 
4.26
%
 
 

(a)
The Revolving Credit Facility has a borrowing capacity of $500 million.
(b)
The LIBOR rate option is one-, two-, three- or six-month LIBOR rate and subject to an interest rate floor of 0 basis points.


16



LPL Financial Holdings Inc.
Key Business and Financial Metrics (1)
(Dollars in thousands, except where noted)
(Unaudited)
 
Q2 2017
 
Q1 2017
 
% Change
 
Q2 2016
 
% Change
Advisors
 
 
 
 
 
 
 
 
 
Advisors
14,256

 
14,354

 
(1
%)
 
14,193

 
%
Net New Advisors
(98
)
 
(23
)
 
n/m

 
100

 
n/m

Custom Clearing Service Subscribers(37)
3,703

 
3,935

 
(6
%)
 
4,203

 
(12
%)
Annualized commission and advisory fees per Advisor(38)
$
215

 
$
209

 
3
%
 
$
217

 
(1
%)
Average Total Assets per Advisor ($ in millions)(39)
$
38.0

 
$
36.9

 
3
%
 
$
34.4

 
10
%
Transition assistance loan amortization($ in millions)(40)
$
14.0

 
$
13.6

 
3
%
 
$
11.5

 
22
%
Total client accounts (in millions)
4.6

 
4.6

 
%
 
4.6

 
%
 
 
 
 
 
 
 
 
 
 
Employees - period end
3,419

 
3,306

 
3
%
 
3,283

 
4
%
 
 
 
 
 
 
 
 
 
 
Productivity Metrics
 
 
 
 
 
 
 
 
 
Advisory Revenue as a percentage of Advisory Assets, excluding Hybrid RIA assets(41)
1.04
%
 
1.04
%
 

 
1.08
%
 
(4
bps)
Gross Profit ROA(42)
28.7
bps
 
28.4
bps
 
0.3bps

 
28.3
bps
 
0.4bps

OPEX ROA(43)
18.4
bps
 
19.2
bps
 
(0.8
bps)
 
19.8
bps
 
(1.4bps
)
EBIT ROA (44)
10.3
bps
 
9.2
bps
 
1.1
bps
 
8.5
bps
 
1.8bps

Production Retention Rate (YTD Annualized)(45)
93.4
%
 
95.4
%
 
(200
bps)
 
96.8
%
 
(340
bps)
Recurring Revenue Rate(46)
77.3
%
 
76.0
%
 
130
bps
 
73.8
%
 
350
bps
EBITDA as a percentage of Gross Profit
43.7
%
 
40.4
%
 
330
bps
 
38.2
%
 
550
bps
 
 
 
 
 
 
 
 
 
 
Capital Allocation per Share(47)
(in millions, except per share data)
 
 
 
 


 
 
 


Share Repurchases
$
36.2

 
$
22.5

 
61
%
 
$

 
n/m

Dividends
22.6

 
22.6

 
%
 
22.3

 
1
%
Total Capital Allocated
$
58.8