LPL Financial Holdings Inc.
LPL Financial Holdings Inc. (Form: 8-K, Received: 02/09/2017 16:07:21)




UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549


FORM 8-K


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


February 9, 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))








Item 2.02
Results of Operations and Financial Condition.
On February 9, 2017 , LPL Financial Holdings Inc. ("LPLFH" and collectively with its subsidiaries, the “Company”) issued a press release announcing its financial results for the three and twelve months ended December 31, 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 February 9, 2017 ("LPL Financial Announces Fourth Quarter and Full Year 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: February 9, 2017

    





LPLLOGO541LARGENEWNOLINESA01.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 Fourth Quarter and Full Year 2016 Results

Fourth Quarter 2016 Key Performance Indicators
Earnings per share ("EPS") increased 64% year-over-year to $0.46 , down 21% sequentially.
Net Income increased 56% year-over-year to $42 million , down 20% sequentially.
Total Brokerage and Advisory Assets increased 7% year-over-year to $509 billion , up 1% sequentially.
Total Net New Assets were an inflow of $2.5 billion , translating to a 2% annualized growth rate.*
Net new brokerage assets and total net new assets are new metrics introduced in this quarter’s release.
Net new advisory assets were an inflow of $4.8 billion , translating to a 9% annualized growth rate.
Net new brokerage assets were an outflow of $2.3 billion , translating to a (3%) annualized rate.*
Excluding outflows related to an institutional client that departed in Sept. 2016, net new brokerage assets and total net new assets would have been inflows of $0.1 billion and $4.9 billion respectively.*
Advisor count increased to 14,377 , up 192 sequentially and 323 year-over-year.
Gross Profit** increased 8% year-over-year to $347 million , flat sequentially.
EBITDA** increased 25% year-over-year to $119 million , down 1% sequentially.
EBITDA as a percentage of Gross Profit was 34.4% , up from 29.7% a year ago, and down from 34.6% sequentially.
Core G&A** increased 1% year-over-year to $181 million , up 3% sequentially.
Credit Agreement Net Leverage Ratio was 3.43x , down 0.32x year-over-year and down 0.14x sequentially.
Credit Agreement EBITDA** (trailing twelve months) was $552 million , up 9% year-over-year, and up 4% sequentially.
Full Year 2016 Key Performance Indicators
   
EPS increased 22% versus prior year to $2.13 .
Net Income increased 14% year-over-year to $192 million .
Gross Profit** increased 3% year-over-year to $1.4 billion .
EBITDA** increased 12% year-over-year to $508 million.
EBITDA as a percentage of Gross Profit was 36.4%, up from 33.4% in 2015.
Core G&A** increased less than 1% year-over-year to $700 million, compared to initial outlook range of $715 to $730 million.

Key Updates
Completed multi-year effort to report net new brokerage assets.
Maintained 2017 Core G&A** outlook range of $710 to $725 million .
Maintained target Credit Agreement Net Leverage Ratio of 3.25 to 3.5 times.

SAN DIEGO - February 9, 2017 — LPL Financial Holdings Inc. (NASDAQ: LPLA) (the "Company") today announced results for its fourth quarter ended December 31, 2016 , reporting net income of $42 million , or $0.46 per share. This compares with $27 million , or $0.28 per share, in the fourth quarter of 2015 and $52 million , or $ 0.58 per share, in the prior quarter.
"We delivered another solid quarter capping a strong year of business and financial results,” said Mark Casady, chairman of the board. “I am proud of our company’s transformation over the past few years and have the utmost confidence in Dan Arnold and our leadership team to drive the business going forward.”

1



"I am honored to lead LPL into our next phase of growth," said Dan Arnold, president and CEO. “We had a strong 2016 with our best recruiting year ever, and we made significant progress on service, technology, and preparing for the DOL fiduciary rule." Arnold continued, "As we look forward to 2017, our priorities are growing our core business and executing with excellence. We believe this will improve our advisors’ experience, and create long-term shareholder value.”
"We were pleased with our progress on productivity and efficiency in 2016, and we plan to stay disciplined on expenses in 2017,” said Matt Audette, CFO. “We continue to focus on investments that drive growth while maintaining balance sheet strength so we can be flexible in deploying capital."

Additional Fourth Quarter 2016 Financial and Business Highlights
Market Drivers
S&P 500 index ended the quarter at 2,239 , up 3% sequentially. The S&P 500 index averaged 2,185 during the quarter, up 1% sequentially.
Federal Funds Daily Effective Rate ("FFER") averaged 45 bps during the quarter, up 6 bps sequentially.
Advisors
Production retention rate was 95.6%. Excluding the impact of an institutional client that was acquired and departed in September 2016, production retention would have been 96.8%.
Gross Profit
Gross profit was flat sequentially. Cash sweep revenues increased due to higher interest rates, and advisory fees increased on higher asset balances. These were offset by lower commissions and sponsor revenues, as well as lower transaction and fee revenue due to non-recurring Q3 fees.
Expenses
Core G&A expenses increased 3% sequentially. This was primarily driven by technology investments, DOL fiduciary rule implementation costs, seasonal items, and relocation expenses related to opening our Carolinas campus.
Promotional expenses decreased 16% sequentially as there were no major conferences in Q4.
Taxes
The Company's tax rate was 36% in Q4, up from 24% in Q3 which was lower due to a non-recurring benefit from tax planning initiatives.
Capital Management
The Company did not conduct share repurchases during the quarter.
Dividends were $22 million , paid on November 30, 2016.
Capital expenditures were $30 million , down $11 million sequentially.
Cash available for corporate use was $499 million as of quarter-end.
Credit Agreement Net Leverage Ratio was 3.43x , down 0.14x from the prior quarter. After applying $300 million of cash available for corporate use to Credit Agreement Net Debt, this left an additional $199 million of cash, which if applied to the debt, would further reduce the Credit Agreement Net Leverage Ratio to 3.07x.
*As announced in our Q3 2016 earnings release, an institutional client was acquired by a bank with its own broker-dealer and departed in September 2016. Approximately $2.4 billion of affiliated brokerage assets left in Q4 2016. Excluding those assets, total net new assets would have grown at a 4% annualized rate, and net new brokerage assets would have grown at a less than 1% annualized rate.

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, February 9, 2017 . The conference call can be accessed by dialing either 877-677-9122 (domestic) or 708-290-1401 (international) and entering passcode 92153975.
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 92153975. The telephonic replay will be available until 11:59 p.m. EST on February 16, 2017 and the webcast replay will be available until March 2, 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 $509 billion in advisory and brokerage assets as of December 31, 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 financial institutions, enabling them to help their clients turn life's aspirations into financial realities. Advisors associated with LPL also serviced an estimated 46,000 retirement plans with an estimated $127 billion in retirement plan assets, as of December 31, 2016 . LPL also supports approximately 4,000 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 commission and advisory expenses and brokerage, clearing, and exchange fees. 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 $917.6 million for the three months ended December 31, 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 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

3



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, target leverage ratio, opportunities for the deployment of cash, 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 February 9, 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; 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

4



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 2015 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 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 December 31,
 
 
 
Years Ended December 31,
 
 
 
2016
 
2015
 
% Change
 
2016
 
2015
 
% Change
REVENUES
 
 
 
 
 
 
 
 
 
 
 
Commission
$
423,267

 
$
463,486

 
(9
%)
 
$
1,737,435

 
$
1,976,845

 
(12
%)
Advisory
325,383

 
324,241

 
%
 
1,289,681

 
1,352,454

 
(5
%)
Asset-based
144,136

 
124,062

 
16
%
 
556,475

 
493,687

 
13
%
Transaction and fee
102,788

 
96,849

 
6
%
 
415,715

 
401,948

 
3
%
Interest income, net of interest expense
5,342

 
4,216

 
27
%
 
21,282

 
19,192

 
11
%
Other
6,541

 
7,492

 
(13
%)
 
28,795

 
30,928

 
(7
%)
Total net revenues
1,007,457

 
1,020,346

 
(1
%)
 
4,049,383

 
4,275,054

 
(5
%)
EXPENSES
 
 
 
 
 
 
 
 
 
 
 
Commission and advisory
646,501

 
685,127

 
(6
%)
 
2,600,624

 
2,864,813

 
(9
%)
Compensation and benefits
108,741

 
104,938

 
4
%
 
436,557

 
440,049

 
(1
%)
Promotional
35,602

 
34,782

 
2
%
 
148,612

 
139,198

 
7
%
Depreciation and amortization
19,783

 
22,526

 
(12
%)
 
75,928

 
73,383

 
3
%
Amortization of intangible assets
9,499

 
9,532

 
%
 
38,035

 
38,239

 
(1
%)
Occupancy and equipment
25,609

 
22,155

 
16
%
 
92,956

 
84,112

 
11
%
Professional services
17,944

 
20,608

 
(13
%)
 
67,128

 
64,522

 
4
%
Brokerage, clearing and exchange
14,213

 
12,836

 
11
%
 
54,509

 
52,516

 
4
%
Communications and data processing
12,652

 
12,897

 
(2
%)
 
44,453

 
46,871

 
(5
%)
Restructuring charges

 
480

 
n/m

 

 
11,967

 
n/m

Other
27,075

 
30,897

 
(12
%)
 
96,587

 
117,693

 
(18
%)
Total operating expenses
917,619

 
956,778

 
(4
%)
 
3,655,389

 
3,933,363

 
(7
%)
Non-operating interest expense
24,895

 
18,465

 
35
%
 
96,478

 
59,136

 
63
%
INCOME BEFORE PROVISION FOR INCOME TAXES
64,943

 
45,103

 
44
%
 
297,516

 
282,555

 
5
%
PROVISION FOR INCOME TAXES
23,207

 
18,291

 
27
%
 
105,585

 
113,771

 
(7
%)
NET INCOME
$
41,736

 
$
26,812

 
56
%
 
$
191,931

 
$
168,784

 
14
%
Earnings per share, basic
$
0.47

 
$
0.29

 
62
%
 
$
2.15

 
$
1.77

 
21
%
Earnings per share, diluted
$
0.46

 
$
0.28

 
64
%
 
$
2.13

 
$
1.74

 
22
%
Weighted-average shares outstanding, basic
89,212

 
93,878

 
(5
%)
 
89,072

 
95,273

 
(7
%)
Weighted-average shares outstanding, diluted
91,014

 
95,340

 
(5
%)
 
90,013

 
96,786

 
(7
%)








6



LPL Financial Holdings Inc.
Condensed Consolidated Statements of Income Trend
(Dollars in thousands, except per share data)
(Unaudited)
 
Quarterly Results
 
Q4 2016
 
Q3 2016
 
Q2 2016
REVENUES
 
 
 
 
 
Commission
$
423,267

 
$
431,686

 
$
445,755

Advisory
325,383

 
321,911

 
322,955

Asset-based
144,136

 
138,291

 
137,797

Transaction and fee
102,788

 
108,413

 
101,824

Interest income, net of interest expense
5,342

 
5,372

 
5,238

Other
6,541

 
11,767

 
5,612

Total net revenues
1,007,457

 
1,017,440

 
1,019,181

EXPENSES
 
 
 
 
 
Commission and advisory
646,501

 
657,432

 
660,680

Compensation and benefits
108,741

 
107,988

 
105,773

Promotional
35,602

 
42,609

 
34,717

Depreciation and amortization
19,783

 
18,434

 
18,749

Amortization of intangible assets
9,499

 
9,502

 
9,509

Occupancy and equipment
25,609

 
23,530

 
21,980

Professional services
17,944

 
17,045

 
14,984

Brokerage, clearing and exchange
14,213

 
13,098

 
13,609

Communications and data processing
12,652

 
10,333

 
10,971

Other
27,075

 
25,356

 
24,656

Total operating expenses
917,619

 
925,327

 
915,628

Non-operating interest expense
24,895

 
23,889

 
23,804

INCOME BEFORE PROVISION FOR INCOME TAXES
64,943

 
68,224

 
79,749

PROVISION FOR INCOME TAXES
23,207

 
16,270

 
31,900

NET INCOME
$
41,736

 
$
51,954

 
$
47,849

Earnings per share, basic
$
0.47

 
$
0.58

 
$
0.54

Earnings per share, diluted
$
0.46

 
$
0.58

 
$
0.53

Weighted-average shares outstanding, basic
89,212

 
89,092

 
89,019

Weighted-average shares outstanding, diluted
91,014

 
89,951

 
89,699


7



LPL Financial Holdings Inc.
Condensed Consolidated Statements of Financial Condition
(Dollars in thousands, except par value)
(Unaudited)
 
 
December 31,
2016
 
December 31, 2015
ASSETS
Cash and cash equivalents
 
$
747,709

 
$
724,529

Cash and securities segregated under federal and other regulations
 
768,219

 
671,339

Restricted cash
 
42,680

 
27,839

Receivables from:
 
 
 
 
Clients, net of allowance of $1,580 at December 31, 2016 and $1,464 at December 31, 2015
 
341,199

 
339,089

Product sponsors, broker-dealers, and clearing organizations
 
175,122

 
161,224

Advisor loans, net of allowance of $1,852 at December 31, 2016 and $697 at December 31, 2015
 
194,526

 
148,978

Others, net of allowance of $12,851 at December 31, 2016 and $9,856 at December 31, 2015
 
189,632

 
180,161

Securities owned:
 
 
 
 
Trading — at fair value
 
11,404

 
11,995

Held-to-maturity
 
8,862

 
9,847

Securities borrowed
 
5,559

 
6,001

Income taxes receivable
 

 

Fixed assets, net of accumulated depreciation and amortization of $355,919 at December 31, 2016 and $328,880 at December 31, 2015
 
387,368

 
275,419

Goodwill
 
1,365,838

 
1,365,838

Intangible assets, net of accumulated amortization of $380,775 at December 31, 2016 and $342,740 at December 31, 2015
 
353,996

 
392,031

Other assets
 
242,812

 
206,771

Total assets
 
$
4,834,926

 
$
4,521,061

LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES:
Drafts payable
 
$
198,839

 
$
189,083

Payables to clients
 
863,765

 
747,421

Payables to broker-dealers and clearing organizations
 
63,032

 
48,032

Accrued commission and advisory expenses payable
 
128,476

 
129,512

Accounts payable and accrued liabilities
 
385,545

 
332,492

Income taxes payable
 
4,607

 
8,680

Unearned revenue
 
62,785

 
65,480

Securities sold, but not yet purchased — at fair value
 
183

 
268

Senior secured credit facilities, net of unamortized debt issuance cost of $21,924 at December 31, 2016 and $26,797 at December 31, 2015
 
2,175,436

 
2,188,240

Leasehold financing obligation
 
105,649

 
59,940

Deferred income taxes, net
 
25,614

 
36,303

Total liabilities
 
4,013,931

 
3,805,451

Commitments and contingencies
 
 
 
 
STOCKHOLDERS’ EQUITY:
 
 
 
 
Common stock, $.001 par value; 600,000,000 shares authorized; 119,917,854 shares issued at December 31, 2016 and 119,572,352 shares issued at December 31, 2015
 
120

 
119

Additional paid-in capital
 
1,445,256

 
1,418,298

Treasury stock, at cost — 30,621,270 shares at December 31, 2016 and 30,048,027 shares at December 31, 2015
 
(1,194,645
)
 
(1,172,490
)
Accumulated other comprehensive income
 
315

 
553

Retained earnings
 
569,949

 
469,130

Total stockholders’ equity
 
820,995

 
715,610

Total liabilities and stockholders’ equity
 
$
4,834,926

 
$
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 9-17 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
 
Q4 2016
 
Q3 2016
 
% Change
 
Q4 2015
 
% Change
Revenues
 
 
 
 
 
 
 
 
 
Sales-based commissions
$
188,943

 
$
196,364

 
(4
%)
 
$
229,303

 
(18
%)
Trailing commissions
234,324

 
235,322

 
%
 
234,183

 
%
Advisory
325,383

 
321,911

 
1
%
 
324,241

 
%
GDC(2)
748,650

 
753,597

 
(1
%)
 
787,727

 
(5
%)
Cash sweep revenue(3)
48,756

 
40,701

 
20
%
 
27,217

 
79
%
Other asset-based(4)
95,380

 
97,590

 
(2
%)
 
96,845

 
(2
%)
Transaction and fee
102,788

 
108,413

 
(5
%)
 
96,849

 
6
%
Other(5)
11,883

 
17,139

 
(31
%)
 
11,708

 
1
%
Total net revenues
1,007,457

 
1,017,440

 
(1
%)
 
1,020,346

 
(1
%)
Commission and advisory expense
646,501

 
657,432

 
(2
%)
 
685,127

 
(6
%)
Brokerage, clearing, and exchange
14,213

 
13,098

 
9
%
 
12,836

 
11
%
Gross profit(6)
346,743

 
346,910

 
%
 
322,383

 
8
%
Expense
 
 
 
 
 
 
 
 
 
Core G&A(7)
180,974

 
175,385

 
3
%
 
179,490

 
1
%
Regulatory charges(8)
6,275

 
4,436

 
41
%
 
7,835

 
(20
%)
Promotional(9)
35,602

 
42,609

 
(16
%)
 
34,782

 
2
%
Employee share-based compensation(10)
4,772

 
4,431

 
8
%
 
4,083

 
17
%
Other historical adjustments(11)

 

 
n/m

 
567

 
n/m

Total G&A
227,623

 
226,861

 
%
 
226,757

 
%
EBITDA
119,120

 
120,049

 
(1
%)
 
95,626

 
25
%
Depreciation and amortization
19,783

 
18,434

 
7
%
 
22,526

 
(12
%)
Amortization of intangible assets
9,499

 
9,502

 
%
 
9,532

 
%
Non-operating interest expense
24,895

 
23,889

 
4
%
 
18,465

 
35
%
INCOME BEFORE PROVISION FOR INCOME TAXES
64,943

 
68,224

 
(5
%)
 
45,103

 
44
%
PROVISION FOR INCOME TAXES
23,207

 
16,270

 
43
%
 
18,291

 
27
%
NET INCOME
$
41,736

 
$
51,954

 
(20
%)
 
$
26,812

 
56
%
Earnings per share, diluted
$
0.46

 
$
0.58

 
(21
%)
 
$
0.28

 
64
%
Weighted-average shares outstanding, diluted
91,014

 
89,951

 
1
%
 
95,340

 
(5
%)

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 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
 
Q4 2016
 
Q3 2016
 
Q2 2016
Revenues
 
 
 
 
 
Sales-based commissions
$
188,943

 
$
196,364

 
$
218,266

Trailing commissions
234,324

 
235,322

 
227,489

Advisory
325,383

 
321,911

 
322,955

GDC(2)
748,650

 
753,597

 
768,710

Cash sweep revenue(3)
48,756

 
40,701

 
40,857

Other asset-based(4)
95,380

 
97,590

 
96,940

Transaction and fee
102,788

 
108,413

 
101,824

Other(5)
11,883

 
17,139

 
10,850

Total net revenues
1,007,457

 
1,017,440

 
1,019,181

Commission and advisory expense
646,501

 
657,432

 
660,680

Brokerage, clearing, and exchange
14,213

 
13,098

 
13,609

Gross profit(6)
346,743

 
346,910

 
344,892

Expense
 
 
 
 
 
Core G&A(7)
180,974

 
175,385

 
168,076

Regulatory charges(8)
6,275

 
4,436

 
5,567

Promotional(9)
35,602

 
42,609

 
34,717

Employee share-based compensation(10)
4,772

 
4,431

 
4,721

Total G&A
227,623

 
226,861

 
213,081

EBITDA
119,120

 
120,049

 
131,811

Depreciation and amortization
19,783

 
18,434

 
18,749

Amortization of intangible assets
9,499

 
9,502

 
9,509

Non-operating interest expense
24,895

 
23,889

 
23,804

INCOME BEFORE PROVISION FOR INCOME TAXES
64,943

 
68,224

 
79,749

PROVISION FOR INCOME TAXES
23,207

 
16,270

 
31,900

NET INCOME
$
41,736

 
$
51,954

 
$
47,849

Earnings per share, diluted
$
0.46

 
$
0.58

 
$
0.53

Weighted-average shares outstanding, diluted
91,014

 
89,951

 
89,699



10



LPL Financial Holdings Inc.
Monthly Metrics (1)
(Dollars in thousands, except where noted)
(Unaudited)
(End of Period $ in billions, unless noted)
 
December 2016
 
November 2016
 
Nov to Dec % Change
 
October 2016
 
September 2016
Assets Served
 
 
 
 
 
 
 
 
 
 
Brokerage Assets(12)
 
$
297.8

 
$
294.0

 
1.3%
 
$
291.5

 
$
296.9

Advisory Assets(13)
 
211.6

 
207.3

 
2.1%
 
203.3

 
205.5

Total Brokerage and Advisory Assets(14)
 
$
509.4

 
$
501.3

 
1.6%
 
$
494.8

 
$
502.4

 
 
 
 
 
 

 
 
 
 
Insured Cash Account Balances(15)
 
$
22.8

 
$
21.9

 
4.1%
 
$
21.3

 
$
21.1

Deposit Cash Account Balances(16)
 
4.4

 
4.3

 
2.3%
 
4.2

 
4.2

Money Market Account Cash Balances(17)
 
4.1

 
4.0

 
2.5%
 
4.0

 
3.9

Total Client Cash Sweep Balances(18)
 
$
31.3

 
$
30.2

 
3.6%
 
$
29.5

 
$
29.2

 
 
 
 
 
 

 
 
 
 
Market Indices
 
 
 
 
 

 
 
 
 
S&P 500 Index (end of period)
 
2,239

 
2,199

 
1.8%
 
2,126

 
2,168

Fed Funds Effective Rate (average bps)
 
54

 
41

 
13
 
40

 
40


11



LPL Financial Holdings Inc.
Operating Measures (1)
(Dollars in thousands, except where noted)
(Unaudited)
 
Q4 2016
 
Q3 2016
 
% Change
 
Q4 2015
 
% Change
Market Drivers
 
 
 
 
 
 
 
 
 
S&P 500 Index (end of period)
2,239

 
2,168

 
3%
 
2,044

 
10%
Fed Funds Daily Effective Rate (FFER) (average bps)
45

 
39

 
6bps
 
16

 
29bps
 
 
 
 
 
 
 
 
 
 
Assets (dollars in billions)
 
 
 
 
 
 
 
 
 
Brokerage Assets(12)
$
297.8

 
$
296.9

 
—%
 
$
288.4

 
3%
Advisory Assets(13)
211.6

 
205.5

 
3%
 
187.2

 
13%
Total Brokerage and Advisory Assets(14)
$
509.4

 
$
502.4

 
1%
 
$
475.6

 
7%
Advisory % of Total Assets
41.5
%
 
40.9
%
 
60bps
 
39.4
%
 
210bps
 
 
 
 
 
 
 
 
 
 
Net New Advisory Assets(19)
$
4.8

 
$
4.1

 
n/m
 
$
3.1

 
n/m
Net New Brokerage Assets(20)
(2.3
)
 
(3.1
)
 
n/m
 
(2.7
)
 
n/m
Total Net New Assets(21)
$
2.5


$
1.0


n/m

$
0.4


n/m
Advisory NNA Annualized Growth(22)
9
%
 
8
%
 
n/m
 
7
%
 
n/m
Total NNA Annualized Growth(23)
2
%
 
1
%
 
n/m
 
%
 
n/m
 
 
 
 
 
 
 
 
 
 
Non-Hybrid RIA Brokerage Assets(24)
$
233.1

 
$
235.0

 
(1%)
 
$
235.5

 
(1%)
Corporate Platform Advisory Assets(24)
127.0

 
124.9

 
2%
 
121.4

 
5%
Total Corporate Assets(24)
360.1

 
359.9

 
—%
 
356.9

 
1%
Brokerage Assets Associated with Hybrid RIAs(25)
64.7

 
61.9

 
5%
 
52.9

 
22%
Hybrid Platform Advisory Assets(25)
84.6

 
80.6

 
5%
 
65.8

 
29%
Total Hybrid Platform Assets(25)
149.3

 
142.5

 
5%
 
118.7

 
26%
Total Brokerage and Advisory Assets(14)
$
509.4


$
502.4

 
1%
 
$
475.6

 
7%
Hybrid % of Total Assets
29.3
%
 
28.4
%
 
90bps
 
25.0
%
 
430bps
 
 
 
 
 
 
 
 
 
 
Brokerage Retirement Assets(26)
$
148.9

 
$
149.2

 
—%
 
$
142.6

 
4%
Advisory Retirement Assets(26)
116.2

 
112.1

 
4%
 
100.7

 
15%
Total Brokerage and Advisory Retirement Assets(26)
$
265.1

 
$
261.3

 
1%
 
$
243.3

 
9%
Retirement % of Total Assets
52.0
%
 
52.0
%
 
—%
 
51.2
%
 
80bps
 
 
 
 
 
 
 
 
 
 
Insured Cash Account Balances(15)
$
22.8

 
$
21.1

 
8%
 
$
20.9

 
9%
Deposit Cash Account Balances(16)
4.4

 
4.2

 
5%
 

 
n/m
Money Market Account Cash Balances(17)
4.1

 
3.9

 
5%
 
8.1

 
(49%)
Total Cash Sweep Balances(18)
$
31.3

 
$
29.2

 
7%
 
$
29.0

 
8%
Cash Sweep % of Total Assets
6.1
%
 
5.8
%
 
30bps
 
6.1
%
 
—%
 
 
 
 
 
 
 
 
 
 
Insured Cash Account Fee - bps(27)
73

 
62

 
11
 
50

 
23
Deposit Cash Account Fee - bps(27)
39

 
36

 
3
 

 
n/m
Money Market Account Fee - bps(27)
43

 
42

 
1
 
13

 
30
Total Cash Sweep Fee - bps(27)
64

 
56

 
8
 
39

 
25

12



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

 
Q4 2016
 
Q3 2016
 
% Change
 
Q4 2015
 
% Change
Commission Revenue by Product
 
 
 
 
 
 
 
 
 
Variable annuities
$
172,147

 
$
169,413

 
2%
 
$
189,255

 
(9%)
Mutual funds
131,749

 
137,238

 
(4%)
 
137,392

 
(4%)
Alternative investments
9,511

 
8,514

 
12%
 
16,299

 
(42%)
Fixed annuities
34,439

 
44,933

 
(23%)
 
44,359

 
(22%)
Equities
22,108

 
20,263

 
9%
 
21,822

 
1%
Fixed income
22,661

 
21,756

 
4%
 
21,104

 
7%
Insurance
18,613

 
18,083

 
3%
 
20,290

 
(8%)
Group annuities
11,817

 
11,266

 
5%
 
12,730

 
(7%)
Other
222

 
220

 
1%
 
235

 
(6%)
Total commission revenue
$
423,267

 
$
431,686

 
(2%)
 
$
463,486

 
(9%)
 
 
 
 
 

 
 
 

Commission Revenue by Sales-based and Trailing Commission
 

 
 
 

Sales-based commissions
 
 
 
 
 
 
 
 
 
Variable annuities
$
58,430

 
$
57,337

 
2%
 
$
76,996

 
(24%)
Mutual funds
32,651

 
34,985

 
(7%)
 
35,235

 
(7%)
Alternative investments
7,411

 
7,198

 
3%
 
14,471

 
(49%)
Fixed annuities
31,310

 
41,995

 
(25%)
 
43,244

 
(28%)
Equities
22,108

 
20,263

 
9%
 
21,822

 
1%
Fixed income
17,999

 
16,588

 
9%
 
16,051

 
12%
Insurance
17,115

 
16,520

 
4%
 
18,876

 
(9%)
Group annuities
1,697

 
1,258

 
35%
 
2,373

 
(28%)
Other
222

 
220

 
1%
 
235

 
(6%)
Total sales-based commissions
$
188,943

 
$
196,364

 
(4%)
 
$
229,303

 
(18%)
Trailing commissions
 
 
 
 

 
 
 

Variable annuities
$
113,717

 
$
112,076

 
1%
 
$
112,259

 
1%
Mutual funds
99,098

 
102,253

 
(3%)
 
102,157

 
(3%)
Alternative investments
2,100

 
1,316

 
60%
 
1,828

 
15%
Fixed annuities
3,129

 
2,938

 
7%
 
1,115

 
181%
Fixed income
4,662

 
5,168

 
(10%)
 
5,053

 
(8%)
Insurance
1,498

 
1,563

 
(4%)
 
1,414

 
6%
Group annuities
10,120

 
10,008

 
1%
 
10,357

 
(2%)
Total trailing commissions
$
234,324

 
$
235,322

 
—%
 
$
234,183

 
—%
Total commission revenue
$
423,267

 
$
431,686

 
(2%)
 
$
463,486

 
(9%)



13



LPL Financial Holdings Inc.
Financial Measures (1)
(Dollars in thousands, except where noted)
(Unaudited)
 
Q4 2016
 
Q3 2016
 
% Change
 
Q4 2015
 
% Change
Payout Rate
 
 
 
 
 
 
 
 
 
Base Payout Rate(28)
82.28
%
 
83.10
%
 
(82bps)
 
82.80
%
 
(52bps)
Production Based Bonuses
3.40
%
 
3.04
%
 
36bps
 
3.46
%
 
(6bps)
GDC Sensitive Payout
85.68
%
 
86.14
%
 
(46bps)
 
86.26
%
 
(58bps)
Non-GDC Sensitive Payout   (29)
0.68
%
 
1.10
%
 
(42bps)
 
0.72
%
 
(4bps)
Total Payout Ratio
86.36
%
 
87.24
%
 
(88bps)
 
86.98
%
 
(62bps)
Production Based Bonuses Ratio (Trailing Twelve Months)
2.6
%
 
2.7
%
 
(10bps)
 
2.7
%
 
(10bps)



14



LPL Financial Holdings Inc.
Capital Management Measures (1)
(Dollars in thousands, except where noted)
(Unaudited)
 
Q4 2016
 
Q3 2016
Credit Agreement EBITDA(30)
 
 
 
Net income
$
41,736

 
$
51,954

Non-operating interest expense
24,895

 
23,889

Provision for income taxes
23,207

 
16,270

Depreciation and amortization
19,783

 
18,434

Amortization of intangible assets
9,499

 
9,502

EBITDA
119,120

 
120,049

Credit Agreement Adjustments:
 
 
 
Employee share-based compensation expense(10)
4,771

 
4,431

Advisor share-based compensation expense(31)
3,250

 
2,327

Other(32)
5,880

 
5,727

Credit Agreement EBITDA
$
133,021

 
$
132,534

 
 
 
 
Total Debt
 
 
 
Revolving Credit Facility Loans
$

 
$

Term Loan Outstanding
2,197,360

 
2,201,780

Total Debt
$
2,197,360

 
$
2,201,780

 
 
 
 
Cash Available for Corporate Use(33)
 
 
 
Cash at Parent(34)
$
417,317

 
$
471,997

Excess Cash at Broker-Dealer subsidiary per Credit Agreement
75,551

 
50,159

Other Available Cash
6,257

 
7,416

Total Cash Available for Corporate Use
$
499,125

 
$
529,572

 
 
 
 
Credit Agreement Net Leverage
 
 
 
Total Debt
$
2,197,360

 
$
2,201,780

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

 
300,000

Credit Agreement Net Debt
$
1,897,360

 
$
1,901,780

Credit Agreement EBITDA (trailing twelve months)(35)
$
552,472

 
$
532,555

Credit Agreement Net Leverage Ratio(36)
3.43
x
 
3.57
x

15



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)
$

 
LIBOR+250bps
 

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

 
LIBOR+250bps
 
3.27
%
 
9/30/2019
2019 Term Loan B(b)
420,309

 
LIBOR+250bps
 
3.25
%
 
3/29/2019
2021 Term Loan B(b)
624,676

 
LIBOR+350bps
 
4.25
%
 
3/29/2021
2022 Term Loan B(b)
693,000

 
LIBOR+400bps
 
4.80
%
 
11/20/2022
Total / Weighted-Average (at current rate)
$
2,197,360

 

 
4.01
%
 

_____________________
(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

16



LPL Financial Holdings Inc.
Key Business and Financial Metrics (1)
(Dollars in thousands, except where noted)
(Unaudited)
 
Q4 2016
 
Q3 2016
 
% Change
 
Q4 2015
 
% Change
Advisors
 
 
 
 
 
 
 
 
 
Advisors
14,377

 
14,185

 
1
%
 
14,054

 
2
%
Net New Advisors
192

 
(8
)
 
n/m

 
(19
)
 
n/m

Custom Clearing Service Subscribers(37)
3,988

 
4,207

 
(5
%)
 
4,200

 
(5
%)
Annualized commissions revenue per Advisor(38)
$
119

 
$
122

 
(2
%)
 
$
132

 
(10
%)
Annualized GDC per Advisor(38)
$
210

 
$
212

 
(1
%)
 
$
224

 
(6
%)
Average Total Assets per Advisor ($millions)(39)
$
35.4

 
$
35.4

 
%
 
$
33.8

 
5
%
Transition assistance loan amortization($ millions)(40)
$
12.8

 
$
12.0

 
7
%
 
$
10.7

 
20
%
Total client accounts (in millions)
4.7

 
4.7

 
%
 
4.6

 
2
%
 
 
 
 
 
 
 
 
 
 
Employees - period end
3,288

 
3,254

 
1
%
 
3,410

 
(4
%)
 
 
 
 
 
 
 
 
 
 
Productivity Metrics
 
 
 
 
 
 
 
 
 
Advisory Revenue as a percentage of Advisory Assets, excluding Hybrid RIA assets(41)
1.04
%
 
1.06
%
 
(2
bps)
 
1.10
%
 
(6
bps)
Annualized Gross Profit / Total Brokerage and Advisory Assets
0.27
%
 
0.28
%
 
(1bps
)
 
0.27
%
 

Annualized Operating expense excluding production expense / Total Brokerage and Advisory Assets(42)
0.20
%
 
0.20
%
 

 
0.22
%
 
(2bps
)
Production Retention Rate (YTD Annualized)(43)
95.6
%
 
95.2
%
 
40
bps
 
96.3
%
 
(70
bps)
Attachment Rate, excluding Cash Sweep Revenue(44)
28.1
%
 
29.6
%
 
(150
bps)
 
26.1
%
 
200
bps
Recurring Revenue Rate(45)
75.8
%
 
74.3
%
 
150
bps
 
73.0
%
 
280
bps
EBITDA as a percentage of Gross Profit
34.4
%
 
34.6
%
 
(20
bps)
 
29.7
%
 
470
bps
 
 
 
 
 
 
 
 
 
 
Capital Allocation per Share(46)
(in millions, except per share data)
 
 
 
 


 
 
 


Share Repurchases
$

 
$

 
n/m

 
$
250.0

 
(100
%)
Dividends
22.3

 
22.3

 
%
 
24.0

 
(7
%)
Total Capital Allocated
$
22.3

 
$
22.3

 
%
 
$
274.0

 
(92
%)
Weighted-average Share Count, Diluted
91.0

 
90.0

 
1
%
 
95.3

 
(5
%)
Total Capital Allocated per Share
$
0.25

 
$
0.25

 
%
 
$
2.88

 
(91
%)

17



Endnote Disclosures
(1)
The information presented on pages 9-17 includes non-GAAP financial measures and operational and performance metrics. For more information on non-GAAP 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 two insured bank deposit sweep vehicles (see FNs 15, 16, and 17). 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:
 
Q4 2016
 
Q3 2016
 
Q4 2015
Operating Expense Reconciliation