Jul 27, 2023

LPL Financial Announces Second Quarter 2023 Results  

Key Financial Results

  • Net Income was $286 million, translating to diluted earnings per share ("EPS") of $3.65, up 85% from a year ago
  • Adjusted EPS* increased 76% year-over-year to $3.94
    • Gross profit* increased 39% year-over-year to $990 million
    • Core G&A* increased 18% year-over-year to $337 million
    • EBITDA* increased 67% year-over-year to $519 million

Key Business Results

  • Total advisory and brokerage assets increased 16% year-over-year to $1.24 trillion
    • Advisory assets increased 18% year-over-year to $662 billion
    • Advisory assets as a percentage of total assets increased to 53.3%, up from 52.5% a year ago
  • Total organic net new assets were $22 billion, representing 7.4% annualized growth
    • Prior to large enterprises, organic net new assets for the year ago period were $12 billion, representing 4.1% annualized growth
    • Organic net new advisory assets were $18 billion, representing 12% annualized growth
    • Organic net new brokerage assets were $4 billion, representing 3% annualized growth
  • Recruited assets(1) were $19 billion
    • Recruited assets over the trailing twelve months were $60 billion. Prior to large enterprises, recruited assets over the trailing twelve months were $55 billion, up approximately 4% from a year ago.
  • LPL Services Group had annualized revenue of $39 million, up 22% from a year ago
    • Services Group subscriptions were 5,238, up 1,342 year-over-year
  • Advisor count(2) was 21,942, up 421 sequentially and 1,071 year-over-year
  • Total client cash balances were $50 billion, a decrease of $5 billion sequentially and $20 billion year-over-year
    • Client cash balances as a percentage of total assets were 4.0%, down from 4.6% in the prior quarter and down from 6.5% a year ago

Key Capital and Liquidity Results

  • Corporate cash(3) was $325 million
  • Leverage ratio(4) was 1.25x
  • Share repurchases were $350 million and dividends paid were $23 million

*See the Non-GAAP Financial Measures section and the endnotes to this release for further details about these non-GAAP financial measures

Key Updates

  • Crown Capital Securities, L.P. ("Crown Capital"): Entered into an agreement to acquire the assets of the wealth management business of Crown Capital, a firm with ~260 advisors who collectively serve ~$6.5B of brokerage and advisory assets
  • Core G&A*: Raised the low end of our 2023 outlook range by $10 million, translating to an updated 2023 Core G&A* range of $1,345 million to $1,370 million

SAN DIEGO, July 27, 2023 (GLOBE NEWSWIRE) -- LPL Financial Holdings Inc. (Nasdaq: LPLA) (the “Company”) today announced results for its second quarter ended June 30, 2023, reporting net income of $286 million, or $3.65 per share. This compares with $161 million, or $1.97 per share, in the second quarter of 2022 and $339 million, or $4.24 per share, in the prior quarter.

"Over the past quarter, we remained focused on our mission of taking care of our advisors, so they can take care of their clients,” said Dan Arnold, President and CEO. “This focus lead to another quarter of solid recruiting, retention, and business growth. As we look ahead, we will continue to invest in order to enhance the appeal of our model, as we strive to increase our market share within the advisor-centered marketplace.”

“We delivered another quarter of solid results," said Matt Audette, CFO. "We recorded strong organic growth, while continuing to invest in our industry leading value proposition. Additionally, in July we signed an agreement to acquire the wealth management business of Crown Capital and onboarded Bank of the West, and we are preparing to onboard Commerce Bank later this quarter. As we look ahead, our business momentum and financial strength position us well to continue creating long-term shareholder value.”

Dividend Declaration

The Company's Board of Directors declared a $0.30 per share dividend to be paid on August 25, 2023 to all stockholders of record as of August 11, 2023.

Conference Call and Additional Information

The Company will hold a conference call to discuss its results at 5:00 p.m. ET on Thursday, July 27. The conference call will be accessible at investor.lpl.com/events, with a replay available until August 17.

Contacts

Investor Relations
investor.relations@lplfinancial.com

Media Relations
media.relations@lplfinancial.com

About LPL Financial

LPL Financial Holdings Inc. (Nasdaq: LPLA) was founded on the principle that the firm should work for the advisor, and not the other way around. Today, LPL is a leader in the markets we serve(5), serving nearly 22,000 financial advisors, including advisors at approximately 1,100 enterprises and at approximately 550 registered investment advisor ("RIA") firms nationwide. We are steadfast in our commitment to the advisor-mediated model and the belief that Americans deserve access to personalized guidance from a financial advisor. At LPL, independence means that advisors have the freedom they deserve to choose the business model, services, and technology resources that allow them to run their perfect practice. And they have the freedom to manage their client relationships, because they know their clients best. Simply put, we take care of our advisors, so they can take care of their clients.

Securities and Advisory services offered through LPL Financial LLC ("LPL Financial"), a registered investment advisor. Member FINRA/SIPC. LPL Financial and its affiliated companies provide financial services only from the United States.

Throughout this communication, the terms “financial advisors” and “advisors” are used to refer to registered representatives and/or investment advisor representatives affiliated with LPL Financial.

We routinely disclose information that may be important to shareholders in the "Investor Relations" or "Press Releases" section of our website.

Forward-Looking Statements

This press release contains statements regarding:

  • the amount and timing of the onboarding of acquired or recruited brokerage and advisory assets;
  • the pending acquisition of the assets of the wealth management business of Crown Capital;
  • the Company's future financial and operating results, growth, plans, priorities and business strategies; and
  • future capabilities, future advisor service experience, future investments and capital deployment, including share repurchase activity and dividends, if any, and long-term shareholder value.

These and any other statements that are not related to present facts or current conditions, or that are not purely historical, constitute forward-looking statements. They reflect the Company's expectations and objectives as of July 27, 2023 and are not guarantees that expectations or objectives expressed or implied will be achieved. The achievement of such expectations and objectives involves risks and uncertainties that may cause actual results, levels of activity or the timing of events to differ materially from those expressed or implied by forward-looking statements. Important factors that could cause or contribute to such differences include:

  • difficulties and delays in onboarding the assets of acquired or recruited advisors;
  • disruptions in the businesses of the Company that could make it more difficult to maintain relationships with advisors and their clients;
  • the choice by clients of acquired or recruited advisors not to open brokerage and/or advisory accounts at the Company;
  • 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, including the Company's success in negotiating agreements with current or additional counterparties;
  • the Company's strategy and success in managing client cash program fees;
  • changes in the growth and profitability of the Company's fee-based offerings;
  • 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 enterprises, and their ability to market financial products and services effectively;
  • 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;
  • the cost 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;
  • the failure to satisfy the closing conditions applicable to the acquisition of the assets of the wealth management business of Crown Capital, including receipt of transaction approval from the Financial Industry Regulatory Authority;
  • the execution of the Company's plans and its success in realizing the synergies, expense savings, service improvements and efficiencies expected to result from its initiatives, acquisitions and programs; and
  • the other factors set forth in the Company's most recent 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, and you should not rely on statements contained herein as representing the Company's view 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   Three Months Ended  
  June 30, March 31,   June 30,  
    2023   2023 Change   2022   Change
REVENUE          
Advisory $ 1,014,565 $ 954,057 6 % $ 1,001,851   1 %
Commission:          
Trailing   323,925   317,653 2 %   320,883   1 %
Sales-based   298,961   286,072 5 %   252,493   18 %
Total commission   622,886   603,725 3 %   573,376   9 %
Asset-based:          
Client cash   378,415   418,275 (10 %)   154,700   145 %
Other asset-based   211,300   203,473 4 %   208,897   1 %
Total asset-based   589,715   621,748 (5 %)   363,597   62 %
Service and fee   123,122   118,987 3 %   112,802   9 %
Transaction   46,936   48,935 (4 %)   44,416   6 %
Interest income, net   37,972   37,358 2 %   10,121   n/m
Other   33,608   33,022 2 %   (67,276 ) (150 %)
Total revenue   2,468,804   2,417,832 2 %   2,038,887   21 %
EXPENSE          
Advisory and commission   1,448,763   1,370,634 6 %   1,304,422   11 %
Compensation and benefits   231,680   233,533 (1 %)   196,699   18 %
Promotional   102,565   98,223 4 %   78,027   31 %
Occupancy and equipment   65,005   60,173 8 %   55,906   16 %
Depreciation and amortization   58,377   56,054 4 %   48,453   20 %
Interest expense on borrowings   44,842   39,184 14 %   28,755   56 %
Brokerage, clearing and exchange   29,148   26,126 12 %   23,362   25 %
Amortization of other intangibles   26,741   24,092 11 %   21,168   26 %
Communications and data processing   20,594   17,675 17 %   16,223   27 %
Professional services   18,092   14,220 27 %   17,290   5 %
Other   34,178   33,421 2 %   36,261   (6 %)
Total expense   2,079,985   1,973,335 5 %   1,826,566   14 %
INCOME BEFORE PROVISION FOR INCOME TAXES   388,819   444,497 (13 %)   212,321   83 %
PROVISION FOR INCOME TAXES   103,299   105,613 (2 %)   51,776   100 %
NET INCOME $ 285,520 $ 338,884 (16 %) $ 160,545   78 %
EARNINGS PER SHARE          
Earnings per share, basic $ 3.70 $ 4.30 (14 %) $ 2.01   84 %
Earnings per share, diluted $ 3.65 $ 4.24 (14 %) $ 1.97   85 %
Weighted-average shares outstanding, basic   77,234   78,750 (2 %)   79,947   (3 %)
Weighted-average shares outstanding, diluted   78,194   79,974 (2 %)   81,410   (4 %)

 

LPL Financial Holdings Inc.
Condensed Consolidated Statements of Income
(In thousands, except per share data)
(Unaudited)

  Six Months Ended  
  June 30,  
    2023   2022   Change
REVENUE      
Advisory $ 1,968,622 $ 2,048,948   (4 %)
Commission:      
Trailing   641,578   666,077   (4 %)
Sales-based   585,033   492,824   19 %
Total commission   1,226,611   1,158,901   6 %
Asset-based:      
Client cash   796,690   239,416   n/m
Other asset-based   414,773   420,582   (1 %)
Total asset-based   1,211,463   659,998   84 %
Service and fee   242,109   225,614   7 %
Transaction   95,871   91,142   5 %
Interest income, net   75,330   17,866   n/m
Other   66,630   (97,889 ) n/m
Total revenue   4,886,636   4,104,580   19 %
EXPENSE      
Advisory and commission   2,819,397   2,678,556   5 %
Compensation and benefits   465,213   388,733   20 %
Promotional   200,788   165,029   22 %
Occupancy and equipment   125,178   107,018   17 %
Depreciation and amortization   114,431   93,907   22 %
Interest expense on borrowings   84,026   55,966   50 %
Brokerage, clearing and exchange   55,274   45,962   20 %
Amortization of other intangibles   50,833   42,364   20 %
Communications and data processing   38,269   31,350   22 %
Professional services   32,312   36,312   (11 %)
Other   67,599   73,683   (8 %)
Total expense   4,053,320   3,718,880   9 %
INCOME BEFORE PROVISION FOR INCOME TAXES   833,316   385,700   116 %
PROVISION FOR INCOME TAXES   208,912   91,411   129 %
NET INCOME $ 624,404 $ 294,289   112 %
EARNINGS PER SHARE      
Earnings per share, basic $ 8.01 $ 3.68   118 %
Earnings per share, diluted $ 7.90 $ 3.61   119 %
Weighted-average shares outstanding, basic   77,988   79,961   (2 %)
Weighted-average shares outstanding, diluted   79,083   81,493   (3 %)

 

LPL Financial Holdings Inc.
Condensed Consolidated Statements of Financial Condition
(In thousands, except share data)
(Unaudited)

  June 30,
2023		 March 31,
2023		 December 31,
2022
ASSETS
Cash and equivalents $ 761,187   $ 469,785   $ 847,519  
Cash and equivalents segregated under federal or other regulations   1,548,065     1,807,283     2,199,362  
Restricted cash   103,741     105,587     90,389  
Receivables from clients, net   579,143     582,055     561,569  
Receivables from brokers, dealers and clearing organizations   66,924     51,596     56,276  
Advisor loans, net   1,230,477     1,154,298     1,123,004  
Other receivables, net   670,998     695,088     677,766  
Investment securities ($34,732, $36,683 and $36,758 at fair value at June 30, 2023, March 31, 2023 and December 31, 2022, respectively)   50,080     50,807     52,610  
Property and equipment, net   850,139     816,496     780,357  
Goodwill   1,772,162     1,765,890     1,642,468  
Other intangibles, net   606,180     580,063     427,676  
Other assets   1,153,100     1,088,857     1,023,230  
Total assets $ 9,392,196   $ 9,167,805   $ 9,482,226  
LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES:      
Client payables $ 2,088,669   $ 2,132,621   $ 2,694,929  
Payables to brokers, dealers and clearing organizations   155,985     112,706     147,752  
Accrued advisory and commission expenses payable   208,314     195,607     203,292  
Corporate debt and other borrowings, net   3,001,136     2,850,791     2,717,444  
Accounts payable and accrued liabilities   421,043     397,735     448,630  
Other liabilities   1,394,983     1,285,412     1,102,627  
Total liabilities   7,270,130     6,974,872     7,314,674  
STOCKHOLDERS’ EQUITY:      
Common stock, $0.001 par value; 600,000,000 shares authorized; 130,141,562 shares, 130,085,949 shares, and 129,655,843 shares issued at June 30, 2023, March 31, 2023 and December 31, 2022, respectively   130     130     130  
Additional paid-in capital   1,952,828     1,933,988     1,912,886  
Treasury stock, at cost — 53,515,229 shares, 51,748,968 shares and 50,407,844 shares at June 30, 2023, March 31, 2023 and December 31, 2022, respectively   (3,514,364 )   (3,159,714 )   (2,846,536 )
Retained earnings   3,683,472     3,418,529     3,101,072  
Total stockholders’ equity   2,122,066     2,192,933     2,167,552  
Total liabilities and stockholders’ equity $ 9,392,196   $ 9,167,805   $ 9,482,226  

 

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

Certain information in 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" in this release.

  Quarterly Results
  Q2 2023 Q1 2023 Change Q2 2022 Change
Gross Profit(6)          
Advisory $ 1,014,565   $ 954,057   6 % $ 1,001,851   1 %
Trailing commissions   323,925     317,653   2 %   320,883   1 %
Sales-based commissions   298,961     286,072   5 %   252,493   18 %
Advisory fees and commissions   1,637,451     1,557,782   5 %   1,575,227   4 %
Production-based payout(7)   (1,419,659 )   (1,342,668 ) 6 %   (1,370,046 ) 4 %
Advisory fees and commissions, net of payout   217,792     215,114   1 %   205,181   6 %
Client cash(8)   396,238     438,612   (10 %)   156,219   154 %
Other asset-based(9)   211,300     203,473   4 %   208,489   1 %
Service and fee   123,122     118,987   3 %   112,802   9 %
Transaction   46,936     48,935   (4 %)   44,416   6 %
Interest income and other, net(10)   23,567     20,960   12 %   7,358   n/m
Total net advisory fees and commissions and attachment revenue   1,018,955     1,046,081   (3 %)   734,465   39 %
Brokerage, clearing and exchange expense   (29,148 )   (26,126 ) 12 %   (23,362 ) 25 %
Gross Profit(6)   989,807     1,019,955   (3 %)   711,103   39 %
           
G&A Expense          
Core G&A(11)   337,025     326,177   3 %   285,973   18 %
Regulatory charges   6,600     7,732   (15 %)   8,069   (18 %)
Promotional (ongoing)(12)(13)   106,535     101,163   5 %   83,791   27 %
Acquisition costs(13)   4,091     3,092   32 %   8,909   (54 %)
Employee share-based compensation   16,777     17,964   (7 %)   13,664   23 %
Total G&A   471,028     456,128   3 %   400,406   18 %
EBITDA(14)   518,779     563,827   (8 %)   310,697   67 %
Depreciation and amortization   58,377     56,054   4 %   48,453   20 %
Amortization of other intangibles   26,741     24,092   11 %   21,168   26 %
Interest expense on borrowings   44,842     39,184   14 %   28,755   56 %
INCOME BEFORE PROVISION FOR INCOME TAXES   388,819     444,497   (13 %)   212,321   83 %
PROVISION FOR INCOME TAXES   103,299     105,613   (2 %)   51,776   100 %
NET INCOME $ 285,520   $ 338,884   (16 %) $ 160,545   78 %
Earnings per share, diluted $ 3.65   $ 4.24   (14 %) $ 1.97   85 %
Weighted-average shares outstanding, diluted   78,194     79,974   (2 %)   81,410   (4 %)
Adjusted EPS(15) $ 3.94   $ 4.49   (12 %) $ 2.24   76 %

 

LPL Financial Holdings Inc.
Operating Metrics
(Dollars in billions, except where noted)
(Unaudited)

  Q2 2023 Q1 2023 Change Q2 2022 Change
Market Drivers          
S&P 500 Index (end of period)   4,450     4,109   8 %   3,785   18 %
Russell 2000 Index (end of period)   1,889     1,802   5 %   1,708   11 %
Fed Funds daily effective rate (average bps)   499     452   47bps   73   426bps
           
Advisory and Brokerage Assets(16)          
Advisory assets $ 661.6   $ 620.9   7 % $ 558.6   18 %
Brokerage assets   578.6     554.3   4 %   506.0   14 %
Total Advisory and Brokerage Assets $ 1,240.2   $ 1,175.2   6 % $ 1,064.6   16 %
Advisory as a % of Total Advisory and Brokerage Assets   53.3 %   52.8 % 50bps   52.5 % 80bps
           
Assets by Platform          
Corporate advisory assets(17) $ 442.1   $ 415.3   6 % $ 372.1   19 %
Independent RIA advisory assets(17)   219.5     205.6   7 %   186.5   18 %
Brokerage assets   578.6     554.3   4 %   506.0   14 %
Total Advisory and Brokerage Assets $ 1,240.2   $ 1,175.2   6 % $ 1,064.6   16 %
           
Centrally Managed Assets          
Centrally managed assets(18) $ 99.8   $ 94.6   5 % $ 85.6   17 %
Centrally Managed as a % of Total Advisory Assets   15.1 %   15.2 % (10bps)   15.3 % (20bps)

 

LPL Financial Holdings Inc.
Operating Metrics
(Dollars in billions, except where noted)
(Unaudited)

  Q2 2023 Q1 2023 Change Q2 2022 Change
Net New Assets (NNA)(19)          
Net new advisory assets $ 18.1   $ 14.6   n/m $ 11.4   n/m
Net new brokerage assets   3.6     9.9   n/m   25.8   n/m
Total Net New Assets $ 21.7   $ 24.5   n/m $ 37.2   n/m
           
Organic Net New Assets          
Organic net new advisory assets $ 18.1   $ 13.7   n/m $ 11.4   n/m
Organic net new brokerage assets   3.6     7.1   n/m   25.8   n/m
Total Organic Net New Assets $ 21.7   $ 20.8   n/m $ 37.2   n/m
           
Net brokerage to advisory conversions(20) $ 2.2   $ 2.1   n/m $ 1.8   n/m
Organic advisory NNA annualized growth(21)   11.7 %   9.4 % n/m   7.3 % n/m
Total organic NNA annualized growth(21)   7.4 %   7.5 % n/m   12.8 % n/m
           
Net New Advisory Assets(19)          
Corporate RIA net new advisory assets $ 11.8   $ 10.4   n/m $ 8.3   n/m
Independent RIA net new advisory assets   6.4     4.2   n/m   3.1   n/m
Total Net New Advisory Assets $ 18.1   $ 14.6   n/m $ 11.4   n/m
Centrally managed net new advisory assets(19) $ 2.0   $ 1.7   n/m $ 3.2   n/m
           
Client Cash Balances(22)          
Insured cash account sweep $ 36.0   $ 39.7   (9 %) $ 40.8   (12 %)
Deposit cash account sweep   9.5     10.2   (7 %)   12.3   (23 %)
Total Bank Sweep   45.5     49.9   (9 %)   53.1   (14 %)
Money market sweep   2.3     2.6   (12 %)   15.0   (85 %)
Total Client Cash Sweep Held by Third Parties   47.9     52.5   (9 %)   68.1   (30 %)
Client cash account   2.1     2.1   — %   1.5   40 %
Total Client Cash Balances $ 50.0   $ 54.6   (8 %) $ 69.6   (28 %)
Client Cash Balances as a % of Total Assets   4.0 %   4.6 % (60bps)   6.5 % (250bps)
           
Client Cash Balances Average Yields - bps(23)          
Insured cash account sweep   322     320   2     134   188  
Deposit cash account sweep   334     318   16     63   271  
Money market sweep   30     30   —     44   (14 )
Client cash account(24)   440     400   40     52   388  
Total Client Cash Balances Average Yield - bps   314     308   6     98   216  
           
Net buy (sell) activity(25) $ 32.3   $ 36.9   n/m $ 5.3   n/m

Note: Totals may not foot due to rounding.

LPL Financial Holdings Inc.
Monthly Metrics
(Dollars in billions, except where noted)
(Unaudited)

  June 2023 May 2023 Change April 2023 March 2023
Advisory and Brokerage Assets(16)          
Advisory assets $ 661.6 $ 629.8 5 % $ 628.2 $ 620.9
Brokerage assets   578.6   560.2 3 %   559.5   554.3
Total Advisory and Brokerage Assets $ 1,240.2 $ 1,190.0 4 % $ 1,187.7 $ 1,175.2
           
Net New Assets (NNA)(19)          
Net new advisory assets $ 7.7 $ 7.0 n/m $ 3.4 $ 6.3
Net new brokerage assets   1.5   1.2 n/m   1.0   4.3
Total Net New Assets $ 9.2 $ 8.1 n/m $ 4.4 $ 10.6
Net brokerage to advisory conversions(20) $ 0.8 $ 0.7 n/m $ 0.6 $ 0.7
           
Organic Net New Assets (NNA)          
Net new advisory assets $ 7.7 $ 7.0 n/m $ 3.4 $ 6.3
Net new brokerage assets   1.5   1.2 n/m   1.0   3.9
Total Organic Net New Assets $ 9.2 $ 8.1 n/m $ 4.4 $ 10.1
           
Client Cash Balances(22)          
Insured cash account sweep $ 36.0 $ 36.5 (1 %) $ 37.0 $ 39.7
Deposit cash account sweep   9.5   9.7 (2 %)   9.5   10.2
Total Bank Sweep   45.5   46.2 (2 %)   46.5   49.9
Money market sweep   2.3   2.5 (8 %)   2.5   2.6
Total Client Cash Sweep Held by Third Parties   47.9   48.7 (2 %)   49.0   52.5
Client cash account   2.1   2.0 5 %   1.9   2.1
Total Client Cash Balances $ 50.0 $ 50.6 (1 %) $ 50.9 $ 54.6
           
Net buy (sell) activity(25) $ 11.7 $ 9.5 n/m $ 11.1 $ 13.4
           
Market Drivers          
S&P 500 index (end of period)   4,450   4,180 6 %   4,169   4,109
Russell 2000 Index (end of period)   1,889   1,750 8 %   1,769   1,802
Fed funds effective rate (average bps)   508   505 3bps   483   465

Note: Totals may not foot due to rounding.

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

  Q2 2023 Q1 2023 Change Q2 2022 Change
Commission Revenue by Product          
Annuities $ 358,845   $ 344,061   4 % $ 311,263   15 %
Mutual funds   165,194     165,038   — %   168,234   (2 %)
Fixed income   36,183     35,267   3 %   29,013   25 %
Equities   27,474     25,890   6 %   29,909   (8 %)
Other   35,190     33,469   5 %   34,957   1 %
Total commission revenue $ 622,886   $ 603,725   3 % $ 573,376   9 %
           
Commission Revenue by Sales-based and Trailing      
Sales-based commissions          
Annuities $ 172,540   $ 162,176   6 % $ 129,371   33 %
Mutual funds   36,431     37,477   (3 %)   39,522   (8 %)
Fixed income   36,183     35,267   3 %   29,013   25 %
Equities   27,474     25,890   6 %   29,909   (8 %)
Other   26,333     25,262   4 %   24,678   7 %
Total sales-based commissions $ 298,961   $ 286,072   5 % $ 252,493   18 %
Trailing commissions          
Annuities $ 186,305   $ 181,885   2 % $ 181,892   2 %
Mutual funds   128,763     127,561   1 %   128,712   — %
Other   8,857     8,207   8 %   10,279   (14 %)
Total trailing commissions $ 323,925   $ 317,653   2 % $ 320,883   1 %
Total commission revenue $ 622,886   $ 603,725   3 % $ 573,376   9 %
           
Payout Rate(7)   86.70 %   86.19 % 51bps   86.97 % (27bps)

 

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

  Q2 2023 Q1 2023 Q4 2022
Cash and equivalents $ 761,187   $ 469,785   $ 847,519  
Cash at regulated subsidiaries   (648,981 )   (408,288 )   (392,571 )
Excess cash at regulated subsidiaries per the Credit Agreement   213,254     172,705     4,439  
Corporate Cash(3) $ 325,460   $ 234,202   $ 459,387  
       
Corporate Cash(3)      
Cash at the Parent $ 104,967   $ 54,603   $ 448,180  
Excess cash at regulated subsidiaries per the Credit Agreement   213,254     172,705     4,439  
Cash at non-regulated subsidiaries   7,239     6,894     6,768  
Corporate Cash $ 325,460   $ 234,202   $ 459,387  
       
Leverage Ratio      
Total debt $ 3,019,550   $ 2,870,225   $ 2,737,900  
Total corporate cash   325,460     234,202     459,387  
Credit Agreement Net Debt $ 2,694,090   $ 2,636,023   $ 2,278,513  
Credit Agreement EBITDA (trailing twelve months)(26) $ 2,163,202   $ 1,963,737   $ 1,639,114  
Leverage Ratio 1.25x 1.34x 1.39x

 

  June 30, 2023  
Total Debt Balance Current Applicable
Margin		 Interest Rate Maturity
Revolving Credit Facility(a) $ 287,000 ABR+25 bps / SOFR+135 bps 7.363 % 3/15/2026
Broker-Dealer Revolving Credit Facility(b)   — SOFR+135 bps 6.440 % 8/3/2023
Senior Secured Term Loan B   1,032,550 SOFR+185 bps(c) 7.010 % 11/12/2026
Senior Unsecured Notes   400,000 4.625% Fixed 4.625 % 11/15/2027
Senior Unsecured Notes   900,000 4.000% Fixed 4.000 % 3/15/2029
Senior Unsecured Notes   400,000 4.375% Fixed 4.375 % 5/15/2031
Total / Weighted Average $ 3,019,550   5.482 %  

 

(a) Secured borrowing capacity of $1 billion at LPL Holdings, Inc. (the "Parent"). The Parent’s outstanding balance at June 30, 2023 was comprised of an ABR-based balance of $128.0 million with the applicable margin of ABR + 25 bps (8.500%) and SOFR-based balance of $159.0 million with the applicable margin of SOFR + 135 bps (6.448%). On July 18, 2023, LPL Holdings, Inc. amended its revolving credit facility to increase the maximum borrowing from $1.0 billion to $2.0 billion.
(b) On July 18, 2023, LPL Financial LLC renewed its revolving credit facility and extended the maturity date to July 16, 2024.
(c) The SOFR rate option is a one-month SOFR rate and subject to an interest rate floor of 0 bps.
   

LPL Financial Holdings Inc.
Key Business and Financial Metrics
(Dollars in thousands, except where noted)
(Unaudited)

  Q2 2023 Q1 2023 Change Q2 2022 Change
Advisors          
Advisors   21,942     21,521   2 %   20,871   5 %
Net new advisors   421     246   71 %   780   (46 %)
Annualized advisory fees and commissions per advisor(27) $ 301   $ 291   3 % $ 308   (2 %)
Average total assets per advisor ($ in millions)(28) $ 56.5   $ 54.6   3 % $ 51.0   11 %
Transition assistance loan amortization ($ in millions)(29) $ 50.5   $ 46.7   8 % $ 42.7   18 %
Total client accounts (in millions)   8.1     8.0   1 %   7.6   7 %
           
Employees   6,827     6,648   3 %   6,099   12 %
           
Services Group          
Services Group subscriptions(30)          
Professional Services   1,791     1,753   2 %   1,377   30 %
Business Optimizers   3,118     2,955   6 %   2,425   29 %
Planning and Advice   329     236   39 %   94   n/m
Total Services Group subscriptions   5,238     4,944   6 %   3,896   34 %
Services Group advisor count   3,506     3,324   5 %   2,656   32 %
           
AUM retention rate (quarterly annualized)(31)   98.8 %   98.7 % 10bps   98.0 % 80bps
           
Capital Management          
Capital expenditures ($ in millions)(32) $ 101.1   $ 101.3   — % $ 76.3   33 %
           
Share repurchases ($ in millions) $ 350.0   $ 275.0   27 % $ 50.0   n/m
Dividends ($ in millions)   23.1     23.6   (2 %)   20.0   16 %
Total Capital Returned ($ in millions) $ 373.1   $ 298.6   25 % $ 70.0   n/m
                         

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.

Adjusted EPS and Adjusted net income

Adjusted EPS is defined as adjusted net income, a non-GAAP measure defined as net income plus the after-tax impact of amortization of other intangibles and acquisition costs, divided by the weighted average number of diluted shares outstanding for the applicable period. The Company presents adjusted net income and adjusted EPS because management believes that these metrics can provide investors with useful insight into the Company’s core operating performance by excluding non-cash items and acquisition costs that management does not believe impact the Company’s ongoing operations. Adjusted net income and adjusted EPS are not measures of the Company's financial performance under GAAP and should not be considered as alternatives to net income, earnings per diluted share or any other performance measure derived in accordance with GAAP. For a reconciliation of net income and earnings per diluted share to adjusted net income and adjusted EPS, please see the endnote disclosures in this release.

Gross profit

Gross profit is calculated as total revenue less advisory and commission expense; brokerage, clearing and exchange expense; and market fluctuations on employee deferred compensation. All other expense categories, including depreciation and amortization of property and equipment and amortization of other intangibles, 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 gross profit to be a non-GAAP financial measure that may not be comparable to similar measures used by 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. For a calculation of gross profit, please see the endnote disclosures in this release.

Core G&A

Core G&A consists of total expense less the following expenses: advisory and commission; depreciation and amortization; interest expense on borrowings; brokerage, clearing and exchange; amortization of other intangibles; market fluctuations on employee deferred compensation; promotional (ongoing); employee share-based compensation; regulatory charges; and acquisition costs. Management presents core G&A because it believes core G&A reflects the corporate 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 advisory and commission, 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 expense as calculated in accordance with GAAP. For a reconciliation of the Company's total expense to core G&A, please see the endnote disclosures in this release. The Company does not provide an outlook for its total expense because it contains expense components, such as advisory and commission, that are market-driven and over which the Company cannot exercise control. Accordingly, a reconciliation of the Company’s outlook for total expense to an outlook for core G&A cannot be made available without unreasonable effort.

EBITDA

EBITDA is defined as net income plus interest expense on borrowings, provision for income taxes, depreciation and amortization, and amortization of other intangibles. 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. For a reconciliation of net income to EBITDA, please see the endnote disclosures in this release.

Credit Agreement EBITDA

Credit Agreement EBITDA is defined in, and calculated by management in accordance with, the Company's amended and restated credit agreement (“Credit Agreement”) as “Consolidated EBITDA,” which is Consolidated Net Income (as defined in the Credit Agreement) plus interest expense on borrowings, provision for income taxes, depreciation and amortization, and amortization of other intangibles, and is 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. For a reconciliation of net income to Credit Agreement EBITDA, please see the endnote disclosures in this release.

Endnote Disclosures

(1) Represents the estimated total advisory and brokerage assets expected to transition to the Company's primary broker-dealer subsidiary, LPL Financial, in connection 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 and the actual amount transitioned may vary from the estimate.

(2) The terms “Financial Advisors” and “Advisors” refer to registered representatives and/or investment advisor representatives affiliated with LPL Financial, an SEC-registered broker-dealer and investment advisor.

(3) Corporate cash, a component of cash and equivalents, is the sum of cash and equivalents from the following: (1) cash and equivalents held at LPL Holdings, Inc., (2) cash and equivalents held at regulated subsidiaries as defined by the Company's Credit Agreement, which include LPL Financial, Financial Resources Group Investment Services, LLC and The Private Trust Company, N.A., in excess of the capital requirements of the Company's Credit Agreement (which, in the case of LPL Financial and Financial Resources Group Investment Services, LLC, is net capital in excess of 10% of their aggregate debits, or five times the net capital required in accordance with Exchange Act Rule 15c3-1) and (3) cash and equivalents held at non-regulated subsidiaries.

(4) Compliance with the Leverage Ratio is only required under the Company's revolving credit facility.

(5) The Company was named Top RIA custodian (Cerulli Associates, 2022 U.S. RIA Marketplace Report); No. 1 Independent Broker-Dealer in the U.S. (based on total revenues, Financial Planning magazine 1996-2022); and, among third-party providers of brokerage services to banks and credit unions, No. 1 in AUM Growth from Financial Institutions; No. 1 in Market Share of AUM from Financial Institutions; No. 1 in Market Share of Revenue from Financial Institutions; No. 1 on Financial Institution Market Share; No. 1 on Share of Advisors (2021-2022 Kehrer Bielan Research and Consulting Annual TPM Report). Fortune 500 as of June 2021.

(6) Gross profit is a non-GAAP financial measure. Please see a description of gross profit under the "Non-GAAP Financial Measures" section of this release for additional information. Below is a calculation of gross profit for the periods presented (in thousands):

  Q2 2023 Q1 2023 Q2 2022
Total revenue $ 2,468,804 $ 2,417,832 $ 2,038,887
Advisory and commission expense   1,448,763   1,370,634   1,304,422
Brokerage, clearing and exchange expense   29,148   26,126   23,362
Employee deferred compensation(33)   1,086   1,117   —
Gross profit $ 989,807 $ 1,019,955 $ 711,103
             

(7) Production-based payout is a financial measure calculated as advisory and commission expense plus (less) advisor deferred compensation. The payout rate is calculated by dividing the production-based payout by total advisory and commission revenue. Below is a reconciliation of the Company’s advisory and commission expense to the production-based payout and a calculation of the payout rate for the periods presented (in thousands, except payout rate):

  Q2 2023 Q1 2023 Q2 2022
Advisory and commission expense $ 1,448,763   $ 1,370,634   $ 1,304,422  
(Less) Plus: Advisor deferred compensation   (29,104 )   (27,966 )   65,624  
Production-based payout $ 1,419,659   $ 1,342,668   $ 1,370,046  
       
Advisory and commission revenue $ 1,637,451   $ 1,557,782   $ 1,575,227  
       
Payout rate   86.70 %   86.19 %   86.97 %
                   

(8) Client cash revenue as presented in Management's Statements of Operations is calculated as client cash revenue, which is a component of asset-based revenue on the Company's condensed consolidated statements of income, plus interest income on client cash account ("CCA") balances segregated under federal or other regulations, less revenue from purchased money market funds. Below is a reconciliation of client cash revenue per the condensed consolidated statements of income to client cash revenue per Management's Statements of Operations for the periods presented (in thousands):

  Q2 2023 Q1 2023 Q2 2022
Client cash $ 378,415 $ 418,275 $ 154,700
Plus: Interest income on CCA balances segregated under federal or other regulations(10)   17,823   20,337   1,111
(Less): Revenue from purchased money market funds(9)   —   —   408
Total client cash revenue $ 396,238 $ 438,612 $ 156,219
             

(9) Consists of revenue from the Company's sponsorship programs with financial product manufacturers, omnibus processing and networking services, and revenue from purchased money market funds but does not include fees from client cash programs.

(10) Interest income and other, net is a financial measure calculated as interest income, net plus (less) other revenue, plus (less) deferred compensation, less interest income on CCA balances segregated under federal or other regulations. Below is a reconciliation of interest income, net and other revenue to interest income and other, net for the periods presented (in thousands):     

  Q2 2023 Q1 2023 Q2 2022
Interest income, net $ 37,972   $ 37,358   $ 10,121  
Plus (Less): Other revenue   33,608     33,022     (67,276 )
(Less) Plus: Deferred compensation(33)   (30,190 )   (29,083 )   65,624  
(Less): Interest income on CCA balances segregated under federal or other regulations   (17,823 )   (20,337 )   (1,111 )
Interest income and other, net $ 23,567   $ 20,960   $ 7,358  
                   

(11) Core G&A is a non-GAAP financial measure. Please see a description of core G&A under the “Non-GAAP Financial Measures” section of this release for additional information. Below is a reconciliation of the Company's total expense to core G&A for the periods presented (in thousands):

  Q2 2023 Q1 2023 Q2 2022
Core G&A Reconciliation      
Total expense $ 2,079,985   $ 1,973,335   $ 1,826,566  
Advisory and commission   (1,448,763 )   (1,370,634 )   (1,304,422 )
Depreciation and amortization   (58,377 )   (56,054 )   (48,453 )
Interest expense on borrowings   (44,842 )   (39,184 )   (28,755 )
Brokerage, clearing and exchange   (29,148 )   (26,126 )   (23,362 )
Amortization of other intangibles   (26,741 )   (24,092 )   (21,168 )
Employee deferred compensation(33)   (1,086 )   (1,117 )   —  
Total G&A   471,028     456,128     400,406  
Promotional (ongoing)(12)(13)   (106,535 )   (101,163 )   (83,791 )
Employee share-based compensation   (16,777 )   (17,964 )   (13,664 )
Regulatory charges   (6,600 )   (7,732 )   (8,069 )
Acquisition costs(13)   (4,091 )   (3,092 )   (8,909 )
Core G&A $ 337,025   $ 326,177   $ 285,973  
                   

(12) Promotional (ongoing) includes $4.2 million, $3.2 million and $5.8 million of support costs related to full-time employees that are classified within Compensation and benefits expense in the condensed consolidated statements of income for the three months ended June 30, 2023, March 31, 2023 and June 30, 2022, respectively, and excludes costs that have been incurred as part of acquisitions that have been classified within acquisition costs for the same periods.

(13) Acquisition costs include the costs to setup, onboard and integrate acquired entities. The below table summarizes the primary components of acquisition costs for the periods presented (in thousands):

  Q2 2023 Q1 2023 Q2 2022
Acquisition costs      
Professional services $ 2,575 $ 1,606 $ 1,898
Compensation and benefits   1,020   875   6,661
Promotional(12)   260   210   31
Other   236   401   319
Acquisition costs $ 4,091 $ 3,092 $ 8,909
             

(14) EBITDA is a non-GAAP financial measure. Please see a description of EBITDA under the "Non-GAAP Financial Measures" section of this release for additional information. Below is a reconciliation of net income to EBITDA for the periods presented (in thousands):

  Q2 2023 Q1 2023 Q2 2022
EBITDA Reconciliation      
Net income $ 285,520 $ 338,884 $ 160,545
Interest expense on borrowings   44,842   39,184   28,755
Provision for income taxes   103,299   105,613   51,776
Depreciation and amortization   58,377   56,054   48,453
Amortization of other intangibles   26,741   24,092   21,168
EBITDA $ 518,779 $ 563,827 $ 310,697
             

(15) Adjusted net income and adjusted EPS are non-GAAP financial measures. Please see a description of adjusted net income and adjusted EPS under the “Non-GAAP Financial Measures” section of this release for additional information. Below is a reconciliation of net income and earnings per diluted share to adjusted net income and adjusted EPS for the periods presented (in thousands, except per share data):

  Q2 2023 Q1 2023 Q2 2022
  Amount Per Share Amount Per Share Amount Per Share
Net income / earnings per diluted share $ 285,520   $ 3.65   $ 338,884   $ 4.24   $ 160,545   $ 1.97  
Amortization of other intangibles   26,741     0.34     24,092     0.30     21,168     0.26  
Acquisition costs   4,091     0.05     3,092     0.04     8,909     0.11  
Tax benefit   (8,081 )   (0.10 )   (7,152 )   (0.09 )   (7,880 )   (0.10 )
Adjusted net income / adjusted EPS $ 308,271   $ 3.94   $ 358,916   $ 4.49   $ 182,742   $ 2.24  
Diluted share count   78,194       79,974       81,410    
                         

(16) Consists of total advisory and brokerage assets under custody at the Company's primary broker-dealer subsidiary, LPL Financial.

(17) Assets on the Company's corporate advisory platform are serviced by investment advisor representatives of LPL Financial or Allen & Company of Florida, LLC. Assets on the Company's independent RIA advisory platform are serviced by investment advisor representatives of separate registered investment advisor firms rather than representatives of LPL Financial.

(18) Consists of advisory assets in LPL Financial’s Model Wealth Portfolios, Optimum Market Portfolios, Personal Wealth Portfolios and Guided Wealth Portfolios platforms.

(19) Consists of total client deposits into advisory or brokerage accounts less total client withdrawals from advisory or brokerage accounts, plus dividends, plus interest, minus advisory fees. The Company considers conversions from and to brokerage or advisory accounts as deposits and withdrawals, respectively.

(20) Consists of existing custodied assets that converted from brokerage to advisory, less existing custodied assets that converted from advisory to brokerage.

(21) Calculated as annualized current period organic net new assets divided by preceding period assets in their respective categories of advisory assets or total advisory and brokerage assets.

(22) During the second quarter of 2022, the Company updated its definition of client cash balances to include CCA and exclude purchased money market funds. CCA balances include cash that clients have deposited with LPL Financial that is included in Client payables in the condensed consolidated balance sheets. The following table presents purchased money market funds for the periods presented (in billions):

  Q2 2023 Q1 2023 Q2 2022
Purchased money market funds $ 20.0 $ 15.0 $ 1.9
             

(23) Calculated by dividing revenue for the period by the average balance during the period.

(24) Calculated by dividing interest income earned on cash held in the CCA for the period by the average CCA balance, excluding cash held in CCA that has been used to fund margin lending, during the period. The remaining cash is primarily held in cash segregated under federal or other regulations in the condensed consolidated balance sheets. Cash held in the CCA that has been used to fund margin lending is as follows for the periods presented (in billions):

  Q2 2023 Q1 2023 Q2 2022
CCA balances that have been used to fund margin $ 0.5 $ 0.5 $ 0.5
             

(25) Represents the amount of securities purchased less the amount of securities sold in client accounts custodied with LPL Financial.

(26) EBITDA and Credit Agreement EBITDA are non-GAAP financial measures. Please see a description of EBITDA and Credit Agreement EBITDA under the “Non-GAAP Financial Measures” section 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 trailing twelve month net income to trailing twelve month EBITDA and Credit Agreement EBITDA for the periods presented (in thousands):         

  Q2 2023 Q1 2023 Q4 2022
EBITDA and Credit Agreement EBITDA Reconciliations      
Net income $ 1,175,817 $ 1,050,842 $ 845,702
Interest expense on borrowings   154,295   138,207   126,234
Provision for income taxes   383,452   331,929   265,951
Depreciation and amortization   220,342   210,417   199,817
Amortization of other intangibles   96,029   90,456   87,560
EBITDA $ 2,029,935 $ 1,821,851 $ 1,525,264
Credit Agreement Adjustments:      
Acquisition costs and other $ 35,938 $ 41,979 $ 50,685
Employee share-based compensation   58,372   55,259   50,050
M&A accretion(34)   36,366   42,031   10,570
Advisor share-based compensation   2,591   2,617   2,545
Credit Agreement EBITDA $ 2,163,202 $ 1,963,737 $ 1,639,114
             

(27) Calculated based on the average advisor count from the current period and prior periods.

(28) Calculated based on the end of period total advisory and brokerage assets divided by end of period advisor count.

(29) Represents amortization expense on forgivable loans for transition assistance to advisors and enterprises.

(30) Refers to active subscriptions related to professional services offerings (CFO Solutions, Marketing Solutions, Admin Solutions, Advisor Institute, Bookkeeping and Partial Book Sales) and business optimizer offerings (M&A Solutions, Digital Office, Resilience Plans and Assurance Plans), as well as planning and advice services (Paraplanning and Tax Planning) for which subscriptions are the number of advisors using the service.

(31) Reflects retention of total advisory and brokerage assets, calculated by deducting quarterly annualized attrition from total advisory and brokerage assets, divided by the prior quarter total advisory and brokerage assets.

(32) Capital expenditures represent cash payments for property and equipment during the period.

(33) During the first quarter of 2023, the Company updated its presentation of employee deferred compensation to be consistent with its presentation of advisor deferred compensation. As a result, gains or losses related to market fluctuations on advisor and employee deferred compensation plans are presented in the same line item as the related increase or decrease in compensation expense for purposes of Management's Statements of Operations. This change has not been applied retroactively as the impact on prior periods was not material.

(34) M&A accretion is an adjustment to reflect the annualized expected run rate EBITDA of an acquisition as permitted by the Credit Agreement for up to eight fiscal quarters following the close of the transaction.