false0001397911 0001397911 2019-10-24 2019-10-24

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 OR 15(d) of The Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): October 24, 2019

LPL Financial Holdings Inc.

(Exact name of registrant as specified in its charter)

Delaware	001-34963		20-3717839
(State or other jurisdictions of incorporation)	(Commission File Number)		(I.R.S. Employer Identification No.)
75 State Street	Boston	Massachusetts	02109
(Address of principal executive offices)			(Zip Code)

Registrant's telephone number, including area code:

(617)	423-3644

N/A

(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrants under any of the following provisions:

☐ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

☐ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

☐ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

☐ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock - par value $0.001 per share	LPLA	The Nasdaq Global Select Market

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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Item 2.02	Results of Operations and Financial Condition.

On October 24, 2019, LPL Financial Holdings Inc. (collectively with its subsidiaries, the “Company”) issued a press release announcing its financial results for the three months ended September 30, 2019. A copy of the press release is furnished with this Form 8-K and attached hereto as Exhibit 99.1.

Exhibit 99.1 shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities under that Section and shall not be deemed to be incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended, or the Exchange Act.

Item 9.01		Financial Statements and Exhibits.
(d)			Exhibits
99.1			Press Release dated October 24, 2019 ("LPL Financial Announces Third Quarter 2019 Results")
104			Cover Page Interactive Data File (embedded within the Inline XBRL document).

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SIGNATURE

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

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

Dated: October 24, 2019

    

•	Earnings per share ("EPS") increased 32% year-over-year to $1.57.

◦	Net Income increased 23% year-over-year to $132 million.

•	EPS Prior to Amortization of Intangible Assets** increased 30% year-over-year to $1.71.

•	Total Brokerage and Advisory Assets increased 6% year-over-year to $719 billion.

•	Total organic net new assets(1) were an inflow of $7.0 billion, translating to a 4.0% annualized growth rate.

◦	Prior to the impact of a hybrid firm that formed its own broker-dealer and departed, total organic net new assets were an inflow of $8.0 billion, translating to an annualized growth rate of 4.5%.

◦	Organic net new advisory assets were an inflow of $8.2 billion, translating to a 10.0% annualized growth rate.

◦	Organic net new brokerage assets were an outflow of $1.2 billion, translating to a (1.2)% annualized growth rate.

◦	Recruited Assets(2) were $8.7 billion, contributing to a trailing twelve-month total of $32.9 billion.

◦	Advisor count was 16,349, up 188 sequentially, and year-to-date production retention rate was 96.3%.

•	The Company closed its acquisition of Allen & Company*, which added $2.9 billion of total brokerage and advisory assets.

◦	The Company expects to onboard the assets from Allen & Company onto its platform by the end of 2019.

◦	The Company also retained 100% of the 36 Allen & Company advisors.

•	Total client cash balances were $31.2 billion, up $1.1 billion or 4% sequentially.

•	Gross Profit** increased 10% year-over-year to $543 million.

•	EBITDA** increased 15% year-over-year to $250 million.

◦	EBITDA** as a percentage of Gross Profit** was 46%, up from 44% a year ago.

◦	Core G&A** increased 3% year-over-year to $215 million, up 2% sequentially. This included $1 million of onboarding and operating expense related to Allen & Company.

•	Shareholder capital returns were $151 million, translating to $1.80 per share.

◦	Share repurchases were $130 million for 1.7 million shares at an average purchase price of $78.09.

◦	Weighted average fully diluted share count was 83.8 million, down 7% year-over-year.

◦	Dividends were $20 million.

•	Cash available for corporate use was $227 million.

•	Credit Agreement Net Leverage Ratio(3) was 2.00x, in line with the prior quarter.

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•	Closed the acquisition of Allen & Company on August 1, 2019, which added $2.9 billion in total brokerage and advisory assets and 36 advisors.

•	Lowered top end of 2019 Core G&A** outlook range by $5 million, resulting in an updated range of $860 to $870 million.

•	Completed $130 million of share repurchases in the third quarter.

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(a)	The Revolving Credit Facility has a borrowing capacity of $500 million.

(b)	The LIBOR rate option is one-month LIBOR rate and subject to an interest rate floor of 0 basis points.

(c)	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.

(d)	Does not include unamortized premium of approximately $9.0 million as of September 30, 2019.

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(1)	Consists of total client deposits into advisory and brokerage accounts less total client withdrawals from advisory and brokerage accounts. This does not include $2.9 billion of total brokerage and advisory assets attributable to Allen & Company.

(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)	Compliance with the Credit Agreement Net Leverage Ratio is only required under the revolving credit facility.

(4)	Certain information presented on pages 8-16 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” on page 3.

(5)	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):

(6)	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.

(7)	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):

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(8)	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:

(9)	Consists of total advisory assets under custody at LPL Financial, plus advisory assets serviced by Allen & Company advisors.

(10)	Consists of brokerage assets serviced by advisors licensed with LPL Financial or Allen & Company.

(11)	Consists of total assets on LPL Financial's corporate advisory platform serviced by investment advisor representatives of LPL Financial or Allen & Company.

(12)	Consists of total assets on LPL Financial's independent advisory platform serviced by investment advisor representatives of separate investment advisor firms ("Hybrid RIAs"), rather than of LPL Financial.

(13)	Represents those advisory assets in LPL Financial’s Model Wealth Portfolios, Optimum Market Portfolios, Personal Wealth Portfolios, and Guided Wealth Portfolios platforms.

(14)	Consists of total client deposits into advisory accounts including advisory assets serviced by Allen & Company advisors less total client withdrawals from advisory accounts. The Company considers conversions from and to brokerage accounts as deposits and withdrawals respectively.

(15)	Consists of total client deposits into brokerage accounts including brokerage assets serviced by Allen & Company advisors less total client withdrawals from brokerage accounts. The Company considers conversions from and to advisory accounts as deposits and withdrawals, respectively.

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

(17)	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.

(18)	Consists of total client deposits into advisory accounts on LPL Financial's corporate advisory platform (FN 11) less total client withdrawals from advisory accounts on its corporate advisory platform.

(19)	Consists of total client deposits into advisory accounts on LPL Financial's independent advisory platform (FN 12) less total client withdrawals from advisory accounts on its independent advisory platform.

(20)	Consists of total client deposits into centrally managed assets accounts (FN 13) less total client withdrawals from centrally managed assets accounts. The Company does not consider conversions from or to advisory accounts on LPL Financial’s advisory platforms as deposits or withdrawals, respectively.

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

(22)	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.

(23)	Consists of cash unrestricted by the Credit Agreement and other regulations available for operating, investing, and financing uses.

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(24)

Credit Agreement EBITDA is a non-GAAP financial measure. Please see a description of 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 is a reconciliation of Credit Agreement EBITDA to net income for the periods presented:

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

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

(27)	Represents the amortization expense amount of forgivable loans for transition assistance to advisors and financial institutions.

(28)	Represents advisory revenue as a % of Corporate Advisory Assets for the trailing twelve month period.

(29)	Represents Gross Profit (FN 4) for the trailing twelve month period, divided by average month-end total brokerage and advisory assets for the trailing twelve month period.

(30)

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 8), regulatory, promotional, employee share based compensation, depreciation & amortization, and amortization of intangible assets.

(31)	EBIT ROA is calculated as Gross Profit ROA less OPEX as a % of Total Brokerage and Advisory Assets.

(32)	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.

(33)

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.

(34)	Capital Allocated per Share equals the amount of capital allocated for share repurchases and cash dividends divided by the diluted weighted-average shares outstanding.

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(35)	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: