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Jul 30, 2020

LPL Financial Announces Second Quarter 2020 Results

LPL Financial Announces Second Quarter 2020 Results 892.2 KB

Key Financial Results

  • Earnings per share ("EPS") was $1.27, and Net Income was $102 million.
    • Gross Profit** was $488 million.
    • Core G&A** was $222 million.
    • EBITDA** was $207 million and EBITDA** as a percentage of Gross Profit** was 42%.
  • EPS Prior to Amortization of Intangible Assets** was $1.42.

Key Business Results

  • Total Brokerage and Advisory Assets increased 8% year-over-year to $762 billion.
    • Advisory assets increased by 15% year-over-year to $375 billion.
  • Total net new assets(1) were an inflow of $13.0 billion, translating to a 7.8% annualized growth rate, bringing the trailing twelve-month average organic growth rate to 6.9%.
    • Total net new asset annualized growth rate was 6.1% in April, 7.0% in May, and 8.7% in June.
    • Net new advisory assets were an inflow of $10.2 billion, translating to a 12.7% annualized growth rate.
    • Net new brokerage assets were an inflow of $2.8 billion, translating to a 3.2% annualized growth rate.
    • Year-to-date production retention rate was 98.6%, up from 96.2% a year ago.
  • Recruited Assets(2) were $11.1 billion, contributing to a trailing twelve-month total of $38.8 billion.
    • Advisor count(3) was 16,973, up 210 from Q1 2020 and 812 year-over-year.
  • Total client cash balances were $45.3 billion, down $2.5 billion or 5% sequentially.
    • Client cash balances as a percentage of total assets were 5.9%.

Key Capital Results

  • Dividends were $20 million.
  • Cash available for corporate use was $282 million, up from $236 million in Q1.
  • Credit Agreement Net Leverage Ratio(4) was 2.03x.

Key Updates

  • We signed an agreement with M&T Bank to join LPL's platform. M&T has ~170 advisors servicing ~$20 billion in brokerage and advisory assets and expects to onboard in the middle of 2021.
  • Q2 Core G&A** was $222M, which brings the first half total to $446M, or an annualized run-rate of ~$890M.  Full-year plans continue to be in the lower half of the 2020 outlook range of $915 to $940M.

SAN DIEGO, July 30, 2020 (GLOBE NEWSWIRE) -- LPL Financial Holdings Inc. (Nasdaq: LPLA) (the “Company”) today announced results for its second quarter ended June 30, 2020, reporting net income of $102 million, or $1.27 per share. This compares with $146 million, or $1.71 per share, in the second quarter of 2019 and $156 million, or $1.92 per share, in the prior quarter.

"In the second quarter we remained focused on executing our business priorities and advancing our strategic plans, as we navigated the new operating environment,” said Dan Arnold, President and CEO. "This focus led to another quarter of solid business outcomes, including new highs for advisor recruiting and retention.  We also made progress on our strategic priorities by announcing two acquisitions, enriching digital capabilities for advisors and their clients, continuing to transform our service model, and introducing new Business Solutions.  As we look ahead, we see an opportunity to not just return to business as usual or a new normal, but rather create a future that is better than ever for our advisors and their clients.”      

"We delivered another quarter of strong results as we continued to drive growth and remained disciplined on expenses,” said Matt Audette, CFO. "Our investments in technology, capabilities, and service over the last several years helped generate our highest quarterly organic growth rate and recruiting results. Looking forward, our financial strength positions us well to continue investing to drive organic growth while also staying flexible in our capital allocation plans as economic conditions evolve."

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 30.  To listen, call 877-677-9122 (domestic) or 708-290-1401 (international); passcode 3183625, or visit investor.lpl.com (webcast).  Replays will be available by phone and on investor.lpl.com beginning two hours after the call and until August 6 and August 20, respectively.  For telephonic replay, call 855-859-2056 (domestic) or 404-537-3406 (international); passcode 3183625.

About LPL Financial

LPL Financial is a leader in the retail financial advice market and the nation’s largest independent broker-dealer+. We serve independent financial advisors and financial institutions, providing them with the technology, research, clearing and compliance services, and practice management programs they need to create and grow their practices.  LPL enables them to provide objective guidance to millions of American families seeking wealth management, retirement planning, financial planning and asset management solutions.  LPL.com

+Based on total revenues, Financial Planning magazine June 1996-2020.

Securities and Advisory Services offered through LPL Financial LLC, a registered investment advisor. Member FINRA/SIPC.

**Non-GAAP Financial Measures

Management believes that presenting certain non-GAAP financial measures by excluding or including certain items can be helpful to investors and analysts who may wish to use 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 financial measures and metrics discussed below are appropriate for evaluating the performance of the Company.

EPS Prior to Amortization of Intangible Assets is defined as GAAP EPS plus the per share impact of amortization of intangible assets. The per share impact is calculated as amortization of intangible assets expense, net of applicable tax benefit, divided by the number of shares outstanding for the applicable period. The Company presents EPS Prior to Amortization of Intangible Assets because management believes that the metric can provide investors with useful insight into the Company’s core operating performance by excluding non-cash items that management does not believe impact the Company’s ongoing operations. EPS Prior to Amortization of Intangible Assets is not a measure of the Company's financial performance under GAAP and should not be considered as an alternative to GAAP EPS or any other performance measure derived in accordance with GAAP. For a reconciliation of EPS Prior to Amortization of Intangible Assets to GAAP EPS, please see footnote 36 on page 19 of this release.

Gross Profit is calculated as net revenues, which were $1,367 million for the three months ended June 30, 2020, less commission and advisory expenses and brokerage, clearing and exchange fees, which were $860 million and $19 million, respectively, for the three months ended June 30, 2020. All other expense categories, including depreciation and amortization of fixed assets and amortization of intangible assets, 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 financial measures that may not be comparable to those of others in its industry. Management believes that Gross Profit can provide investors with useful insight into 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 $1,203 million for the three months ended June 30, 2020, excluding the following expenses: commission and advisory, regulatory charges, promotional, employee share-based compensation, 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 to the Company’s total operating expenses, please see footnote 9 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.

EBITDA is defined as net income plus interest and other expense, income tax expense, depreciation and  amortization, and amortization of intangible assets. 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. For a reconciliation of EBITDA to net income, please see footnote 25 on page 18 of this release.

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, amortization of intangible assets, and further adjusted to exclude certain non-cash charges and other adjustments, including unusual or non-recurring charges and gains, and to include future expected cost savings, operating expense reductions or other synergies from certain transactions. 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 calculation of Credit Agreement 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, capital investments, and types of adjustments made by such companies. For a reconciliation of Credit Agreement EBITDA to net income, please see footnote 25 on page 18 of this release.

Forward-Looking Statements

Statements in this press release regarding the Company's future financial and operating results, growth, priorities and business strategies, including forecasts and statements relating to future expenses (including 2020 Core G&A** outlook), future capabilities, future advisor service experience, future investments and capital deployment, long-term shareholder value and M&T Bank's agreement to join LPL's platform, 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 30, 2020. Forward-looking statements are not guarantees that the future results, plans, intentions, or expectations expressed or implied 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; changes in interest rates and fees payable by banks participating in the Company's client cash programs; the Company's strategy and success in managing client cash program fees; changes in the growth and profitability of the Company's fee-based business; fluctuations in the levels of advisory and brokerage assets, including net new assets, and the related impact on revenue; effects of competition in the financial services industry and the success of the Company in attracting and retaining financial advisors and institutions; whether the retail investors served by newly-recruited advisors choose to move their respective assets to new accounts at the Company; the effect of current, pending and future legislation, regulation and regulatory actions, including disciplinary actions imposed by federal and state regulators and self-regulatory organizations and the implementation of Regulation BI (Best Interest); the costs of settling and remediating issues related to regulatory matters or legal proceedings, including actual costs of reimbursing customers for losses in excess of our reserves; changes made to the Company’s services and pricing, 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 synergies, expense savings, service improvements, and/or efficiencies expected to result from its initiatives, acquisitions and programs; the effects of the COVID-19 pandemic; the successful onboarding of advisors and client assets, in connection with M&T Bank's agreement to join LPL's platform; and the other factors set forth in Part I, “Item 1A. Risk Factors” in the Company's 2019 Annual Report on Form 10-K, as may be amended or updated in the Company's Quarterly Reports on Form 10-Q or other filings with the Securities and Exchange Commission. 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.

LPL Financial Holdings Inc.
Condensed Consolidated Statements of Income
(In thousands, except per share data)
(Unaudited)
 
  Three Months Ended  June 30,         Six Months Ended  June 30,      
  2020   2019   %  Change     2020   2019   %  Change  
REVENUES                          
Commission $ 427,453     $ 479,135     (11% )   $ 930,897     $ 940,494     (1% )
Advisory 523,370     481,309     9%     1,102,397     935,247     18%  
Asset-based 247,067     288,551     (14% )   532,573     584,914     (9% )
Transaction and fee 119,478     118,335     1%     256,574     240,815     7%  
Interest income, net of interest expense 6,540     11,690     (44% )   16,082     24,011     (33% )
Other 42,751     10,737     n/m     (8,467 )   35,955     n/m  
Total net revenues 1,366,659     1,389,757     (2% )   2,830,056     2,761,436     2%  
EXPENSES                          
Commission and advisory 859,847     838,022     3%     1,730,642     1,637,720     6%  
Compensation and benefits 143,320     131,788     9%     290,122     268,700     8%  
Promotional 44,540     41,423     8%     101,938     92,772     10%  
Depreciation and amortization 26,890     22,584     19%     53,534     46,054     16%  
Amortization of intangible assets 16,689     16,249     3%     33,259     32,417     3%  
Occupancy and equipment 43,066     33,320     29%     82,612     66,426     24%  
Professional services 13,620     18,837     (28% )   28,225     38,449     (27% )
Brokerage, clearing and exchange 18,565     15,994     16%     35,589     32,138     11%  
Communications and data processing 14,361     12,532     15%     25,196     24,859     1%  
Other 22,194     29,975     (26% )   48,422     56,378     (14% )
Total operating expenses 1,203,092     1,160,724     4%     2,429,539     2,295,913     6%  
Non-operating interest expense and other 26,289     33,957     (23% )   55,607     66,673     (17% )
INCOME BEFORE PROVISION FOR INCOME TAXES 137,278     195,076     (30% )   344,910     398,850     (14% )
PROVISION FOR INCOME TAXES 35,616     48,984     (27% )   87,607     97,360     (10% )
NET INCOME $ 101,662     $ 146,092     (30% )   $ 257,303     $ 301,490     (15% )
EARNINGS PER SHARE                          
Earnings per share, basic $ 1.29     $ 1.75     (26% )   $ 3.25     $ 3.59     (9% )
Earnings per share, diluted $ 1.27     $ 1.71     (26% )   $ 3.19     $ 3.50     (9% )
Weighted-average shares outstanding, basic 78,940   83,247   (5% )   79,223   83,869   (6% )
Weighted-average shares outstanding, diluted 80,127   85,350   (6% )   80,659   86,052   (6% )

 

LPL Financial Holdings Inc.
Condensed Consolidated Statements of Income Trend
(In thousands, except per share data)
(Unaudited)
 
  Quarterly Results
  Q2 2020   Q1 2020   Q4 2019
REVENUES          
Commission $ 427,453     $ 503,444     $ 476,920  
Advisory 523,370     579,027     533,259  
Asset-based 247,067     285,506     288,925  
Transaction and fee 119,478     137,096     118,291  
Interest income, net of interest expense 6,540     9,542     10,966  
Other 42,751     (51,218 )   19,534  
Total net revenues 1,366,659     1,463,397     1,447,895  
EXPENSES          
Commission and advisory 859,847     870,795     893,831  
Compensation and benefits 143,320     146,802     149,128  
Promotional 44,540     57,398     51,050  
Depreciation and amortization 26,890     26,644     25,663  
Amortization of intangible assets 16,689     16,570     16,631  
Occupancy and equipment 43,066     39,546     35,320  
Professional services 13,620     14,605     17,772  
Brokerage, clearing and exchange expense 18,565     17,024     15,927  
Communications and data processing 14,361     10,835     12,465  
Other 22,194     26,228     30,569  
Total operating expenses 1,203,092     1,226,447     1,248,356  
Non-operating interest expense and other 26,289     29,318     31,384  
Loss on extinguishment of debt —     —     3,156  
INCOME BEFORE PROVISION FOR INCOME TAXES 137,278     207,632     164,999  
PROVISION FOR INCOME TAXES 35,616     51,991     38,323  
NET INCOME $ 101,662     $ 155,641     $ 126,676  
EARNINGS PER SHARE          
Earnings per share, basic $ 1.29     $ 1.96     $ 1.57  
Earnings per share, diluted $ 1.27     $ 1.92     $ 1.53  
Weighted-average shares outstanding, basic 78,940   79,507   80,701
Weighted-average shares outstanding, diluted 80,127   81,166   82,695

 

LPL Financial Holdings Inc.
Condensed Consolidated Statements of Financial Condition
(Dollars in thousands, except par value)
(Unaudited)
 
    June 30, 2020   March 31, 2020   December 31, 2019
ASSETS
Cash and cash equivalents   $ 845,228     $ 418,202     $ 590,209  
Cash segregated under federal and other regulations   574,429     1,217,692     822,697  
Restricted cash   70,051     67,701     58,872  
Receivables from:            
Clients, net of allowance   385,894     360,533     433,986  
Product sponsors, broker-dealers and clearing organizations   177,752     218,690     177,654  
Advisor loans, net of allowance   474,718     457,470     441,743  
Others, net of allowance   314,856     351,169     298,790  
Securities owned:            
Trading — at fair value   35,327     29,199     46,447  
Held-to-maturity — at amortized cost   14,406     14,361     11,806  
Securities borrowed   10,944     15,927     17,684  
Fixed assets, net of accumulated depreciation and amortization   556,490     542,821     533,044  
Operating lease assets   101,741     103,870     102,477  
Goodwill   1,503,648     1,503,648     1,503,648  
Intangible assets, net of accumulated amortization   406,740     423,341     439,838  
Deferred income taxes, net   751     517     —  
Other assets   432,758     385,625     401,343  
Total assets   $ 5,905,733     $ 6,110,766     $ 5,880,238  
LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES:            
Drafts payable   $ 206,084     $ 149,832     $ 218,636  
Payables to clients   1,034,445     1,328,882     1,058,873  
Payables to broker-dealers and clearing organizations   87,706     117,860     92,002  
Accrued commission and advisory expenses payable   162,620     155,360     174,330  
Accounts payable and accrued liabilities   521,088     454,241     557,969  
Income taxes payable   88,376     65,282     20,129  
Unearned revenue   100,377     109,420     82,842  
Securities sold, but not yet purchased — at fair value   71     295     176  
Long-term and other borrowings, net   2,349,619     2,467,719     2,398,818  
Operating lease liabilities   140,293     142,922     141,900  
Finance lease liabilities   107,548     107,596     108,592  
Deferred income taxes, net   —     —     2,098  
Total liabilities   4,798,227     5,099,409     4,856,365  
STOCKHOLDERS’ EQUITY:            
Common stock, $.001 par value; 600,000,000 shares authorized; 127,238,822 shares issued at June 30, 2020 and 126,494,028 shares issued at December 31, 2019   127     127     126  
Additional paid-in capital   1,733,334     1,720,276     1,703,973  
Treasury stock, at cost — 48,154,472 shares at June 30, 2020 and 46,259,989 shares at December 31, 2019   (2,391,961 )   (2,392,712 )   (2,234,793 )
Retained earnings   1,766,006     1,683,666     1,554,567  
Total stockholders’ equity   1,107,506     1,011,357     1,023,873  
Total liabilities and stockholders’ equity   $ 5,905,733     $ 6,110,766     $ 5,880,238  

LPL Financial Holdings Inc.
Management's Statements of Operations(5)
(In thousands, except per share data)
(Unaudited)

Certain information presented on pages 8-15 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 financial measures, and operational and performance metrics. For information on non-GAAP financial measures, please see the section titled "Non-GAAP Financial Measures" that begins on page 3 of this release. 

  Quarterly Results
  Q2 2020   Q1 2020   %  Change     Q2 2019   %  Change  
Gross Profit(5)                      
Sales-based commissions $ 159,512     $ 228,391     (30% )   $ 203,531     (22% )
Trailing commissions 267,941     275,053     (3% )   275,604     (3% )
Advisory 523,370     579,027     (10% )   481,309     9%  
Commission and advisory fees 950,823     1,082,471     (12% )   960,444     (1% )
Production based payout(6) (819,953 )   (920,835 )   (11% )   (831,178 )   (1% )
Commission and advisory fees, net of payout 130,870     161,636     (19% )   129,266     1%  
Client cash 116,266     151,398     (23% )   161,815     (28% )
Other asset-based(7) 130,801     134,108     (2% )   126,736     3%  
Transaction and fee 119,478     137,096     (13% )   118,335     1%  
Interest income and other, net(8) 9,397     8,364     12%     15,583     (40% )
Total net commission and advisory fees and attachment revenue 506,812     592,602     (14% )   551,735     (8% )
Brokerage, clearing and exchange expense (18,565 )   (17,024 )   9%     (15,994 )   16%  
Gross Profit(5) 488,247     575,578     (15% )   535,741     (9% )
                       
G&A Expense                      
Core G&A(9) 222,406     223,211     —%     210,514     6%  
Regulatory charges 6,115     6,157     n/m     8,632     n/m  
Promotional 44,540     57,398     (22% )   41,423     8%  
Employee share-based compensation 8,040     8,648     (7% )   7,306     10%  
Total G&A 281,101     295,414     (5% )   267,875     5%  
EBITDA(5) 207,146     280,164     (26% )   267,866     (23% )
Depreciation and amortization 26,890     26,644     1%     22,584     19%  
Amortization of intangible assets 16,689     16,570     1%     16,249     3%  
Non-operating interest expense and other 26,289     29,318     (10% )   33,957     (23% )
INCOME BEFORE PROVISION FOR INCOME TAXES 137,278     207,632     (34% )   195,076     (30% )
PROVISION FOR INCOME TAXES 35,616     51,991     (31% )   48,984     (27% )
NET INCOME $ 101,662     $ 155,641     (35% )   $ 146,092     (30% )
Earnings per share, diluted $ 1.27     $ 1.92     (34% )   $ 1.71     (26% )
Weighted-average shares outstanding, diluted 80,127   81,166     (1% )   85,350   (6% )
EPS Prior to Amortization of Intangible Assets(5)(36) $ 1.42     $ 2.06     (31% )   $ 1.85     (23% )

 

LPL Financial Holdings Inc
Management's Statements of Operations Trend(5)
(In thousands, except per share data)
(Unaudited)
 
  Quarterly Results
  Q2 2020   Q1 2020   Q4 2019
Gross Profit(5)          
Sales-based commissions $ 159,512     $ 228,391     $ 193,980  
Trailing commissions 267,941     275,053     282,940  
Advisory 523,370     579,027     533,259  
Commission and advisory fees 950,823     1,082,471     1,010,179  
Production based payout(6) (819,953 )   (920,835 )   (876,654 )
Commission and advisory fees, net of payout 130,870     161,636     133,525  
Client cash 116,266     151,398     155,322  
Other asset-based(7) 130,801     134,108     133,603  
Transaction and fee 119,478     137,096     118,291  
Interest income and other, net (8) 9,397     8,364     13,323  
Total net commission and advisory fees and attachment revenue 506,812     592,602     554,064  
Brokerage, clearing and exchange expense (18,565 )   (17,024 )   (15,927 )
Gross Profit(5) 488,247     575,578     538,137  
           
G&A Expense          
Core G&A(9) 222,406     223,211     230,182  
Regulatory charges 6,115     6,157     7,893  
Promotional 44,540     57,398     51,050  
Employee share-based compensation 8,040     8,648     7,179  
Total G&A 281,101     295,414     296,304  
EBITDA(5) 207,146     280,164     241,833  
Depreciation and amortization 26,890     26,644     25,663  
Amortization of intangible assets 16,689     16,570     16,631  
Non-operating interest expense and other 26,289     29,318     31,384  
Loss on extinguishment of debt —     —     3,156  
INCOME BEFORE PROVISION FOR INCOME TAXES 137,278     207,632     164,999  
PROVISION FOR INCOME TAXES 35,616     51,991     38,323  
NET INCOME $ 101,662     $ 155,641     $ 126,676  
Earnings per share, diluted $ 1.27     $ 1.92     $ 1.53  
Weighted-average shares outstanding, diluted 80,127   81,166     82,695
EPS Prior to Amortization of Intangible Assets(5)(36) $ 1.42     $ 2.06     $ 1.68  

 

LPL Financial Holdings Inc.
Operating Measures(5)
(Dollars in billions, except where noted) (Unaudited)
 
  Q2 2020   Q1 2020   Change   Q2 2019   Change
Market Drivers                  
S&P 500 Index (end of period) 3,100     2,585     20%   2,942     5%
Fed Funds Daily Effective Rate (FFER) (average bps) 6     123     (117bps)   240     (234bps)
                   
Assets                  
Advisory Assets(10) $ 375.3     $ 322.3     16%   $ 327.3     15%
Brokerage Assets(11) 386.4     347.6     11%   378.7     2%
Total Brokerage and Advisory Assets $ 761.7     $ 669.9     14%   $ 706.0     8%
Advisory % of Total Brokerage and Advisory Assets 49.3 %   48.1 %   120bps   46.4 %   290bps
                   
Assets by Platform                  
Corporate Platform Advisory Assets(12) $ 233.5     $ 200.7     16%   $ 201.9     16%
Hybrid Platform Advisory Assets(13) 141.9     121.6     17%   125.4     13%
Brokerage Assets 386.4     347.6     11%   378.7     2%
Total Brokerage and Advisory Assets $ 761.7     $ 669.9     14%   $ 706.0     8%
                   
Centrally Managed Assets                  
Centrally Managed Assets(14) $ 54.4     $ 46.9     16%   $ 45.7     19%
Centrally Managed  % of Total Advisory Assets 14.5 %   14.5 %   —bps   14.0 %   50bps

 

LPL Financial Holdings Inc.
Operating Measures(5)
(Dollars in billions, except where noted) (Unaudited)
 
  Q2 2020   Q1 2020   Change   Q2 2019   Change
Net New Assets (NNA)                  
Net New Advisory Assets(15) $ 10.2     $ 13.2     n/m   $ 7.5     n/m
Net New Brokerage Assets(16) 2.8     1.2     n/m   (1.3 )   n/m
Total Net New Assets $ 13.0     $ 14.3     n/m   $ 6.2     n/m
                   
Net Brokerage to Advisory Conversions(17) $ 1.6     $ 2.4     n/m   $ 1.8     n/m
Advisory NNA Annualized Growth(18) 12.7 %   14.4 %   n/m   9.6 %   n/m
Total NNA Annualized Growth(18) 7.8 %   7.5 %   n/m   3.6 %   n/m
                   
Net New Advisory Assets                  
Corporate Platform Net New Advisory Assets(19) $ 6.2     $ 7.8     n/m   $ 5.7     n/m
Hybrid Platform Net New Advisory Assets(20) 4.0     5.4     n/m   1.8     n/m
Total Net New Advisory Assets $ 10.2     $ 13.2     n/m   $ 7.5     n/m
Centrally Managed Net New Advisory Assets(21) $ 1.3     $ 2.2     n/m   $ 1.3     n/m
                   
Client Cash Balances                  
Insured Cash Account Balances $ 33.1     $ 34.5     (4%)   $ 21.3     55%
Deposit Cash Account Balances 7.7     8.7     (11%)   4.3     79%
Total Insured Sweep Balances 40.8     43.2     (6%)   25.5     60%
Money Market Account Cash Balances 1.6     1.8     (11%)   3.5     (54%)
Purchased Money Market Funds 2.8     2.8     —%   1.0     180%
Total Money Market Balances 4.5     4.6     (2%)   4.5     —%
Total Client Cash Balances $ 45.3     $ 47.8     (5%)   $ 30.1     50%
Client Cash Balances % of Total Assets 5.9 %   7.1 %   (120bps)   4.3 %   160bps
                   
Client Cash Balance Average Fees                  
Insured Cash Account Average Fee - bps(22) 127     195     (68)   249     (122)
Deposit Cash Account Average Fee - bps(22) 31     142     (111)   226     (195)
Money Market Account Average Fee - bps(22) 16     58     (42)   74     (58)
Purchased Money Market Fund Average Fee - bps(22) 27     29     n/m   29     n/m
Total Client Cash Balance Average Fee - bps(22) 100     168     (68)   217     (117)
                   
Net Buy (Sell) Activity(23) $ 12.5     $ 0.2     n/m   $ 9.7     n/m

 

LPL Financial Holdings Inc.
Monthly Metrics(5)
(Dollars in billions, except where noted)
(Unaudited)
 
    June 2020   May 2020   May to June Change   April 2020   March 2020
Assets Served                    
Advisory Assets(10)   $ 375.3     $ 364.9     2.9%   $ 348.9     $ 322.3  
Brokerage Assets(11)   386.4     381.0     1.4%   369.1     347.6  
Total Brokerage and Advisory Assets   $ 761.7     $ 745.9     2.1%   $ 718.0     $ 669.9  
                     
Net New Assets (NNA)                    
Net New Advisory Assets(15)   $ 4.3     $ 3.1     n/m   $ 2.8     $ 4.8  
Net New Brokerage Assets(16)   1.0     1.1     n/m   0.7     0.8  
Total Net New Assets   $ 5.4     $ 4.2     n/m   $ 3.4     $ 5.6  
Net Brokerage to Advisory Conversions(17)   $ 0.7     $ 0.4     n/m   $ 0.5     $ 0.6  
                     
Client Cash Balances                    
Insured Cash Account Balances   $ 33.1     $ 33.5     (1.2%)   $ 33.9     $ 34.5  
Deposit Cash Account Balances   7.7     8.0     (3.8%)   8.5     8.7  
Total Insured Sweep Balances   40.8     41.5     (1.7%)   42.4     43.2  
Money Market Account Cash Balances   1.6     1.7     (5.9%)   1.7     1.8  
Purchased Money Market Funds   2.8     2.9     (3.4%)   2.9     2.8  
Total Money Market Balances   4.5     4.6     (2.2%)   4.6     4.6  
Total Client Cash Balances   $ 45.3     $ 46.2     (1.9%)   $ 47.0     $ 47.8  
                     
Net Buy (Sell) Activity(23)   $ 4.5     $ 3.9     n/m   $ 4.1     $ (8.2 )
                     
Market Indices                    
S&P 500 Index (end of period)   3,100     3,044     1.8%   2,912     2,585  
Fed Funds Effective Rate (average bps)   8     5     3bps   5     63  

 

LPL Financial Holdings Inc.
Financial Measures(5)
(Dollars in thousands, except where noted)
(Unaudited)
 
  Q2 2020   Q1 2020   Change   Q2 2019   Change
Commission Revenue by Product                  
Annuities $ 217,637     $ 245,662     (11%)   $ 256,671     (15%)
Mutual funds 133,800     156,156     (14%)   149,380     (10%)
Fixed income 18,463     29,125     (37%)   24,604     (25%)
Equities 27,985     37,421     (25%)   19,700     42%
Other 29,568     35,080     (16%)   28,780     3%
Total commission revenue $ 427,453     $ 503,444     (15%)   $ 479,135     (11%)
                   
Commission Revenue by Sales-based and Trailing Commission            
Sales-based commissions                  
Annuities $ 64,287     $ 92,525     (31%)   $ 103,325     (38%)
Mutual funds 29,716     45,534     (35%)   38,095     (22%)
Fixed income 18,463     29,125     (37%)   24,604     (25%)
Equities 27,985     37,421     (25%)   19,700     42%
Other 19,061     23,786     (20%)   17,807     7%
Total sales-based commissions $ 159,512     $ 228,391     (30%)   $ 203,531     (22%)
Trailing commissions                  
Annuities $ 153,350     $ 153,137     —%   $ 153,346     —%
Mutual funds 104,084     110,622     (6%)   111,285     (6%)
Other 10,507     11,294     (7%)   10,973     (4%)
Total trailing commissions $ 267,941     $ 275,053     (3%)   $ 275,604     (3%)
Total commission revenue $ 427,453     $ 503,444     (15%)   $ 479,135     (11%)
                   
Payout Rate                  
Base Payout Rate 82.64 %   82.70 %   (6bps)   83.39 %   (75bps)
Production Based Bonuses 3.59 %   2.37 %   122bps   3.15 %   44bps
Total Payout Ratio 86.24 %   85.07 %   117bps   86.54 %   (30bps)

 

LPL Financial Holdings Inc.
Capital Management Measures(5)
(Dollars in thousands, except where noted)
(Unaudited)
 
  Q2 2020   Q1 2020
Cash Available for Corporate Use(24)      
Cash at Parent $ 185,042     $ 130,964  
Excess Cash at Broker-Dealer subsidiary per Credit Agreement 77,292     86,897  
Other Available Cash 19,991     18,287  
Total Cash Available for Corporate Use $ 282,325     $ 236,148  
       
Credit Agreement Net Leverage      
Total Debt (does not include unamortized premium) $ 2,364,650     $ 2,483,325  
Cash Available 282,325     236,148  
Credit Agreement Net Debt $ 2,082,325     $ 2,247,177  
Credit Agreement EBITDA (trailing twelve months) (25) $ 1,026,897     $ 1,085,269  
Credit Agreement Net Leverage Ratio 2.03 x   2.07 x

 

    June 30, 2020    
Total Debt   Balance   Current Applicable
Margin
  Yield At Issuance   Interest Rate   Maturity
Revolving Credit Facility(a)   $ —     ABR+25bps       — %   11/12/2024
Broker-Dealer Revolving Credit Facility(b)   —     FFR+125bps       — %   7/31/2024
Senior Secured Term Loan B   1,064,650     LIBOR+175 bps(c)       1.930 %   11/12/2026
Senior Unsecured Notes(d)   500,000     5.75% Fixed   5.750 %   5.750 %   9/15/2025
Senior Unsecured Notes(d)   400,000   (e) 5.75% Fixed   5.115 %   5.750 %   9/15/2025
Senior Unsecured Notes(f)   400,000     4.625% Fixed   4.625 %   4.625 %   11/15/2027
Total / Weighted Average   $ 2,364,650             3.840 %    

(a) The Revolving Credit Facility is secured and has a borrowing capacity of $750 million.
(b)The Broker-Dealer Revolving Credit Facility is unsecured and at LPL Financial LLC, the Company’s broker-dealer subsidiary, and has a borrowing capacity of $300 million.
(c) The LIBOR rate option is one-month LIBOR rate and subject to an interest rate floor of 0 basis points.
(d) The Senior Unsecured Notes were issued in two separate transactions; $500 million in notes were issued in March 2017 at par; the remaining $400 million were issued in September 2017 and priced at 103% of the aggregate principal amount.
(e) Does not include unamortized premium of approximately $7.8 million as of June 30, 2020.
(f) The Senior Unsecured Notes were issued in November 2019 at par.

LPL Financial Holdings Inc.
Key Business and Financial Metrics(5)
(Dollars in thousands, except where noted)
(Unaudited)
 
  Q2 2020   Q1 2020   Change   Q2 2019   Change
Advisors                  
Advisors 16,973   16,763   1%   16,161   5%
Net New Advisors 210     299     n/m   (28 )   n/m
Annualized commission and advisory fees per Advisor(26) $ 226     $ 261     (13%)   $ 238     (5%)
Average Total Assets per Advisor ($ in millions)(27) $ 44.9     $ 40.0     12%   $ 43.7     3%
Transition assistance loan amortization ($ in millions)(28) $ 28.6     $ 27.4     4%   $ 22.6     27%
Total client accounts (in millions) 5.8     5.8     —%   5.5     5%
                   
Employees - period end 4,585   4,358   5%   4,364   5%
                   
Productivity Metrics                  
Advisory Revenue as a % of Corporate Advisory Assets (29) 1.02 %   1.01 %   1bps   1.03 %   (1bps)
Gross Profit ROA (30) 29.3 bps   30.4 bps   (1.1bps)   31.1 bps   (1.8bps)
OPEX as a % of Brokerage and Advisory Assets (31) 18.2 bps   18.3 bps   (0.1bps)   18.6 bps   (0.4bps)
EBIT ROA (32) 11.1 bps   12.2 bps   (1.1bps)   12.5 bps   (1.4bps)
Production Retention Rate (YTD annualized) (33) 98.6 %   99.0 %   (40bps)   96.2 %   240bps
Recurring Gross Profit Rate (34) 86.8 %   88.1 %   (130bps)   86.5 %   30bps
EBITDA as a % of Gross Profit 42.4 %   48.7 %   (630bps)   50.0 %   (760bps)
                   
Capital Expenditure ($ in millions) $ 37.9     $ 34.0     11%   $ 33.2     14%
                   
Share Repurchases ($ in millions) $ —     $ 150.0     (100%)   $ 125.0     (100%)
Dividends ($ in millions) 19.7     19.7     —%   20.8     (5%)
Total Capital Allocated ($ in millions) $ 19.7     $ 169.7     (88%)   $ 145.9     (86%)
Weighted-average Share Count, Diluted 80.1     81.2     (1%)   85.4     (6%)
Total Capital Allocated per Share(35) $ 0.25     $ 2.09     (88%)   $ 1.71     (85%)

Endnote Disclosures

(1) In April 2020, the Company updated its definition of net new assets to include Dividends plus Interest, minus Advisory Fees. See FNs 15, 16, 19, 20 and 21.
(2) Represents the estimated total brokerage and advisory assets expected to transition to the Company's broker-dealer subsidiary, LPL Financial LLC ("LPL Financial"), associated with advisors who transferred their licenses to LPL Financial during the period. The estimate is based on prior business reported by the advisors, which has not been independently and fully verified by LPL Financial. The actual transition of assets to LPL Financial generally occurs over several quarters including the initial quarter of the transition, and the actual amount transitioned may vary from the estimate.
(3) “Financial advisors” or “Advisors” include registered representatives and/or investment adviser representatives affiliated with LPL Financial, an SEC registered broker-dealer and investment adviser.
(4) Compliance with the Credit Agreement Net Leverage Ratio is only required under our revolving credit facility.
(5) Certain information presented on pages 8-15 includes non-GAAP financial measures and operational and performance metrics. For more information on non-GAAP financial measures, please see the section titled “Non-GAAP Financial Measures” that begins on page 3.
(6) Production based payout is an operating measure calculated as a commission and advisory expense less advisor deferred compensation expense. Below is a reconciliation of production based payout against the Company’s commission and advisory expense for the periods presented (in thousands):

  Q2 2020   Q1 2020   Q4 2019   Q2 2019
Production based payout $ 819,953     $ 920,835     $ 876,654     $ 831,178  
Advisor deferred compensation expense 39,894     (50,040 )   17,177     6,844  
Commission and advisory expense $ 859,847     $ 870,795     $ 893,831     $ 838,022  

(7) Consists of revenues from the Company's sponsorship programs with financial product manufacturers and omnibus processing and networking services, but does not include fees from client cash programs. Other asset-based revenues are a component of asset-based revenues and are derived from the Company's Unaudited Condensed Consolidated Statements of Income.
(8) Interest income and other, net is an operating measure calculated as interest income, net of interest expense plus other revenue, less advisor deferred compensation expense. Below is a reconciliation of interest income and other, net against the Company’s interest income, net of interest expense and other revenue for the periods presented (in thousands):

  Q2 2020   Q1 2020   Q4 2019   Q2 2019
Interest income, net of interest expense $ 6,540     $ 9,542     $ 10,966     $ 11,690  
Plus: Other revenue 42,751     (51,218 )   19,534     10,737  
Less: Advisor deferred compensation expense (39,894 )   50,040     (17,177 )   (6,844 )
Interest income and other, net $ 9,397     $ 8,364     $ 13,323     $ 15,583  

(9) Core G&A is a non-GAAP financial 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 2020   Q1 2020   Q4 2019   Q2 2019
Operating Expense Reconciliation (in thousands)              
Core G&A $ 222,406     $ 223,211     $ 230,182     $ 210,514  
Regulatory charges 6,115     6,157     7,893     8,632  
Promotional 44,540     57,398     51,050     41,423  
Employee share-based compensation 8,040     8,648     7,179     7,306  
Total G&A 281,101     295,414     296,304     267,875  
Commissions and advisory 859,847     870,795     893,831     838,022  
Depreciation & amortization 26,890     26,644     25,663     22,584  
Amortization of intangible assets 16,689     16,570     16,631     16,249  
Brokerage, clearing and exchange 18,565     17,024     15,927     15,994  
Total operating expenses $ 1,203,092     $ 1,226,447     $ 1,248,356     $ 1,160,724  

(10) Consists of total advisory assets under custody at LPL Financial. Q4 2019 also included advisory assets serviced by investment advisor representatives of Allen & Company of Florida, LLC ("Allen & Company") that were onboarded to LPL Financial's custodial platform in Q4 2019.
(11) Consists of brokerage assets serviced by advisors licensed with LPL Financial. Q4 2019 also included brokerage assets serviced by advisors licensed with Allen & Company that were onboarded to LPL Financial's custodial platform in Q4 2019.
(12) Consists of total assets on LPL Financial's corporate advisory platform serviced by investment advisor representatives of LPL Financial or Allen & Company.
(13) Consists of total assets on LPL Financial's independent advisory platform serviced by investment advisor representatives of separate registered investment advisor firms ("Hybrid RIAs"), rather than of LPL Financial.
(14) Represents those advisory assets in LPL Financial’s Model Wealth Portfolios, Optimum Market Portfolios, Personal Wealth Portfolios, and Guided Wealth Portfolios platforms.
(15) Consists of total client deposits into advisory accounts, including advisory assets serviced by Allen & Company advisors, less total client withdrawals from advisory accounts, plus dividends, plus interest, minus advisory fees. The Company considers conversions from and to brokerage accounts as deposits and withdrawals, respectively. The previously reported figures for net new advisory assets did not include dividends and interest or subtract advisory fees. The figures previously reported for Q1 2020 and Q2 2019 were inflows of $12.5 billion and $6.6 billion, respectively.
(16) Consists of total client deposits into brokerage accounts, including brokerage assets serviced by Allen & Company advisors, less total client withdrawals from brokerage accounts, plus dividends, plus interest, minus advisory fees. The Company considers conversions from and to advisory accounts as deposits and withdrawals, respectively. The previously reported figures for net new brokerage assets did not include dividends and interest or subtract advisory fees. The figures previously reported for Q1 2020 and Q2 2019 were $0.0 billion and an outflow of $2.6 billion, respectively.
(17) Consists of existing custodied assets that converted from brokerage to advisory, less existing custodied assets that converted from advisory to brokerage.
(18) Calculated as annualized current period net new assets divided by preceding period assets in their respective categories of advisory assets or total brokerage and advisory assets.
(19) Consists of total client deposits into advisory accounts on LPL Financial's corporate advisory platform (FN 12) less total client withdrawals from advisory accounts on its corporate advisory platform, plus dividends, plus interest, minus advisory fees. The previously reported figures did not include dividends and interest or subtract advisory fees. The figures previously reported for Q1 2020 and Q2 2019 were inflows of $7.4 billion and $5.1 billion, respectively.
(20) Consists of total client deposits into advisory accounts on LPL Financial's independent advisory platform (FN 13) less total client withdrawals from advisory accounts on its independent advisory platform, plus dividends, plus interest, minus advisory fees. The previously reported figures did not include dividends and interest or subtract advisory fees. The figures previously reported for Q1 2020 and Q2 2019 were inflows of $5.1 billion and $1.4 billion, respectively.
(21) Consists of total client deposits into centrally managed assets accounts (FN 14) less total client withdrawals from centrally managed assets accounts, plus dividends, plus interest, minus advisory fees. The previously reported figures did not include dividends and interest or subtract advisory fees. The figures previously reported for Q1 2020 and Q2 2019 were an inflow of $2.2 billion and $1.2 billion, respectively.
(22) Calculated by dividing revenue for the period by the average balance during the period.
(23) Represents the amount of securities purchased less the amount of securities sold in client accounts custodied with LPL Financial. Reported activity does not include any other cash activity, such as deposits, withdrawals, dividends received, or fees paid.
(24) Consists of cash unrestricted by the Credit Agreement and other regulations available for operating, investing, and financing uses.
(25) EBITDA and Credit Agreement EBITDA are non-GAAP financial measures. Please see a description of EBITDA and Credit Agreement EBITDA under “Non-GAAP Financial Measures” on page 3 of this release for additional information. Under the Credit Agreement, management calculates Credit Agreement EBITDA for a trailing twelve month period at the end of each fiscal quarter, and in doing so may make further adjustments to prior quarters. Below are reconciliations of EBITDA and Credit Agreement EBITDA to net income for the periods presented (dollars in thousands):

  Q2 2020   Q1 2020
EBITDA and Credit Agreement EBITDA Reconciliations      
Net income $ 515,693     $ 560,123  
Non-operating interest expense 118,935     126,603  
Provision for income taxes 172,202     185,570  
Loss on extinguishment of debt 3,156     3,156  
Depreciation and amortization 103,259     98,953  
Amortization of intangible assets 66,176     65,736  
 EBITDA $ 979,421     $ 1,040,141  
Credit Agreement Adjustments:      
Employee share-based compensation expense $ 31,281     $ 30,547  
Advisor share-based compensation expense 2,495     2,679  
Other 13,700     11,902  
Credit Agreement EBITDA (trailing twelve months) $ 1,026,897     $ 1,085,269  

(26) Calculated based on the average advisor count from the current period and prior period.
(27) Calculated based on the end of period total brokerage and advisory assets divided by end of period advisor count.
(28) Represents the amortization expense amount of forgivable loans for transition assistance to advisors and financial institutions.
(29) Represents advisory revenue as a percentage of Corporate Platform Advisory Assets (FN 12) for the trailing twelve month period.
(30) Represents Gross Profit (FN 5), a non-GAAP financial measure, for the trailing twelve month period, divided by average month-end total brokerage and advisory assets for the trailing twelve month period.
(31) Represents operating expenses for the trailing twelve month period, excluding production-related expense, divided by average month-end total brokerage and advisory assets for the period. Production-related expense includes commissions and advisory expense and brokerage, clearing and exchange expense. For purposes of this metric, operating expenses includes Core G&A (FN 9), a non-GAAP financial measure, as well as regulatory charges, promotional, employee share-based compensation, depreciation & amortization, and amortization of intangible assets.
(32) EBIT ROA is calculated as Gross Profit ROA less OPEX as a % of Total Brokerage and Advisory Assets.
(33) 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.
(34) Recurring Gross Profit Rate refers to the percentage of the Company’s Gross Profit, a non-GAAP financial measure, that was recurring for the trailing twelve month period. Management tracks recurring Gross Profit, a characterization of Gross Profit and a statistical measure, which is defined to include the Company’s revenues from asset-based fees, advisory fees, trailing commissions, client cash programs, and certain other fees that are based upon client accounts and advisors, less the expenses associated with such revenues and certain other recurring expenses not specifically associated with a revenue line. Management allocates such other recurring expenses on a pro-rata basis against specific revenue lines at its discretion.
(35) Capital Allocated per Share equals the amount of capital allocated for share repurchases and cash dividends divided by the diluted weighted-average shares outstanding.
(36) EPS Prior to Amortization of Intangible Assets is a non-GAAP financial measure. Please see a description of EPS Prior to Amortization of Intangible Assets under “Non-GAAP Financial Measures” on page 3 of this release for additional information. Below is a reconciliation of EPS Prior to Amortization of Intangible Assets to the Company’s GAAP EPS for the periods presented:

EPS Reconciliation (in thousands, except per share data) Q2 2020   
EPS $ 1.27  
Amortization of Intangible Assets 16,689  
Tax Benefit   (4,673 )
Amortization of Intangible Assets Net of Tax Benefit $ 12,016  
Diluted Share Count 80,127  
EPS Impact $ 0.15  
EPS Prior to Amortization of Intangible Assets $ 1.42  

Investor Relations - Chris Koegel, (617) 897-4574
Media Relations - Jeff Mochal, (704) 733-3589
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