•Net Income was $103 million, translating to diluted earnings per share ("EPS") of $1.26.
•EPS prior to amortization of intangible assets and acquisition costs* increased 23% year-over-year to $1.77.
◦Gross profit* increased 25% year-over-year to $631 million.
◦Core G&A* increased 19% year-over-year to $271 million.
◦EBITDA* increased 10% year-over-year to $225 million and EBITDA* as a percentage of Gross profit* was 36%.
Key Business Results
•Total advisory and brokerage assets increased 40% year-over-year to $1.13 trillion.
◦Advisory assets increased 46% year-over-year to $594 billion.
◦Advisory assets as a percentage of total assets increased to 52.4%, up from 50.1% a year ago.
•Total organic net new assetswere $27 billion, translating to 10% annualized growth, and $110 billion over the past twelve months, translating to 14% annualized growth.
◦Organic net new advisory assets were $21 billion, translating to 16% annualized growth.
◦Organic net new brokerage assets were $6 billion, translating to 4% annualized growth.
◦Acquired net new assets were $2.3 billion, of which $0.6 billion were advisory and $1.7 billion were brokerage, bringing us to a total of $71 billion of acquired net new assets from our acquisition of Waddell & Reed.
•Recruited assets(1) were $13 billion, up by 24% from a year ago.
◦Recruited assets over the trailing twelve-months were $83 billion, more than double a year ago.
•Business Solutions subscriptions increased to 2,598, up 513 sequentially and more than double a year ago.
◦Annualized revenue from Business Solutions increased to approximately $25 million, up by over 60% year-over-year.
•Advisor count(2) was 19,627, up 513 sequentially and 2,459 year-over-year**.
•Total client cash balances were $51 billion, an increase of $2 billion sequentially.
◦Client cash balances as a percentage of total assets were 4.5%.
*See the Non-GAAP Financial Measures section and the end notes to this release for further details about these non-GAAP financial measures.
**This included the addition of approximately 280 associate advisors with Waddell & Reed that became financial professionals with LPL Financial upon onboarding to LPL's platform.
1
Key Updates
•Waddell & Reed: Completed onboarding of $71 billion of Waddell & Reed client assets in Q3, translating to retention of approximately 99%.
•M&T Bank: Onboarded $4.5 billion of brokerage assets from M&T Bank in Q3, which substantially completes the onboarding of M&T's approximately $22 billion total assets.
Key Capital and Liquidity Results
•Corporate cash(3) was $266 million.
•Leverage ratio(4) was 2.18x.
•Share repurchases were $40 million for 277 thousand shares at an average price of $145 per share.
•Dividends paid of $20 million.
SAN DIEGO - October 28, 2021 - LPL Financial Holdings Inc. (Nasdaq: LPLA) (the "Company") today announced results for its third quarter ended September 30, 2021, reporting net income of $103 million, or $1.26 per share. This compares with $104 million, or $1.29 per share, in the third quarter of 2020 and $119 million, or $1.46 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 of their clients," said Dan Arnold, President and CEO. "At the same time, we continued to enhance the appeal of our model and increase our market share within the advisor-centered marketplace. This combination contributed to another quarter of solid recruiting, retention, and business growth."
"We delivered another quarter of strong results in Q3", said Matt Audette, CFO. "We drove assets to new highs and recorded another quarter of double-digit organic growth. With the onboarding of Waddell & Reed, BMO, and M&T complete, we are continuing to help advisors acclimate and leverage our platform and capabilities, while also preparing to onboard CUNA next year. As we look ahead, we are excited by a strong and growing pipeline, which positions us to drive additional growth and long-term shareholder value."
2
Dividend Declaration
The Company's Board of Directors declared a $0.25 per share dividend to be paid on November 29, 2021 to all stockholders of record as of November 11, 2021.
Conference Call and Additional Information
The Company will hold a conference call to discuss its results at 5:00 p.m. ET on Thursday, October 28. To listen, call 877-677-9122 (domestic) or 708-290-1401 (international); passcode 2968493, 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 November 4, and November 18, respectively. For telephonic replay, call 855-859-2056 (domestic) or 404-537-3406 (international); passcode 2968493.
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, supporting more than 19,000 financial advisors, and approximately 800 institution-based investment programs and 450 independent RIA firms nationwide. We are steadfast in our commitment to the advisor-centered model and the belief that Americans deserve access to objective 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.
* Top RIA custodian (Cerulli Associates, 2019 U.S. RIA Marketplace Report)
No. 1 Independent Broker-Dealer in the U.S (Based on total revenues, Financial Planning magazine 1996-2021)
No. 1 provider of third-party brokerage services to banks and credit unions (2020-2021 Kehrer Bielan Research & Consulting Annual TPM Report)
Fortune 500 as of June 2021
Securities and Advisory services offered through LPL Financial LLC ("LPL Financial"), a registered investment advisor. Member FINRA/SIPC. We routinely disclose information that may be important to shareholders in the "Investor Relations" or "Press Releases" section of our website.
3
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 2021 Core G&A* outlook);
•future capabilities, future advisor service experience, future investments and capital deployment, long-term shareholder value and the continued integration of Waddell & Reed's wealth management business (the "Waddell & Reed Acquisition"); and
•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 October 28, 2021. 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 from 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, including 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 revenues;
•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;
•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;
•the effects of the COVID-19 pandemic, including efforts to contain it;
•the successful onboarding of advisors and client assets in connection with the Waddell & Reed Acquisition; and
•the other factors set forth in Part I, "Item 1A. Risk Factors" in the Company's 2020 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.
4
LPL Financial Holdings Inc.
Condensed Consolidated Statements of Income
(In thousands, except per share data)
(Unaudited)
Three Months Ended
Three Months Ended
September 30,
June 30,
September 30,
2021
2021
% Change
2020
% Change
REVENUE
Advisory
$
959,733
$
846,313
13
%
$
586,941
64
%
Commission
610,384
598,233
2
%
472,643
29
%
Asset-based
301,701
279,620
8
%
253,551
19
%
Transaction and fee
140,362
137,100
2
%
119,747
17
%
Interest income
7,365
6,914
7
%
6,623
11
%
Other
1,218
30,078
(96
%)
20,796
(94
%)
Total revenue
2,020,763
1,898,258
6
%
1,460,301
38
%
EXPENSE
Advisory and commission
1,366,832
1,273,202
7
%
936,766
46
%
Compensation and benefits
185,980
183,853
1
%
151,271
23
%
Promotional
96,012
64,349
49
%
57,970
66
%
Depreciation and amortization
38,409
36,704
5
%
27,548
39
%
Amortization of intangible assets
21,531
19,925
8
%
16,829
28
%
Occupancy and equipment
52,695
41,452
27
%
41,874
26
%
Professional services
16,722
22,500
(26
%)
12,301
36
%
Brokerage, clearing and exchange
22,828
23,459
(3
%)
17,834
28
%
Communications and data processing
17,824
14,930
19
%
12,547
42
%
Other
36,888
31,064
19
%
24,852
48
%
Total operating expense
1,855,721
1,711,438
8
%
1,299,792
43
%
Non-operating interest expense and other
27,063
25,171
8
%
25,179
7
%
INCOME BEFORE PROVISION FOR INCOME TAXES
137,979
161,649
(15
%)
135,330
2
%
PROVISION FOR INCOME TAXES
34,915
42,548
(18
%)
31,541
11
%
NET INCOME
$
103,064
$
119,101
(13
%)
$
103,789
(1
%)
EARNINGS PER SHARE
Earnings per share, basic
$
1.29
$
1.49
(13
%)
$
1.31
(2
%)
Earnings per share, diluted
$
1.26
$
1.46
(14
%)
$
1.29
(2
%)
Weighted-average shares outstanding, basic
80,182
80,063
-
%
79,176
1
%
Weighted-average shares outstanding, diluted
81,849
81,728
-
%
80,550
2
%
5
LPL Financial Holdings Inc.
Condensed Consolidated Statements of Income
(In thousands, except per share data)
(Unaudited)
Nine Months Ended
September 30,
2021
2020
% Change
REVENUE
Advisory
$
2,528,092
$
1,689,338
50
%
Commission
1,765,846
1,403,540
26
%
Asset-based
846,027
786,124
8
%
Transaction and fee
418,406
376,321
11
%
Interest income
20,797
22,705
(8
%)
Other
47,470
12,329
285
%
Total revenue
5,626,638
4,290,357
31
%
EXPENSE
Advisory and commission
3,748,933
2,667,408
41
%
Compensation and benefits
531,373
441,393
20
%
Promotional
214,542
159,908
34
%
Depreciation and amortization
110,612
81,082
36
%
Amortization of intangible assets
58,887
50,088
18
%
Occupancy and equipment
137,731
124,486
11
%
Professional services
54,847
40,526
35
%
Brokerage, clearing and exchange
65,651
53,423
23
%
Communications and data processing
44,747
37,743
19
%
Other
92,852
73,274
27
%
Total operating expense
5,060,175
3,729,331
36
%
Non-operating interest expense and other
77,293
80,786
(4
%)
Loss on extinguishment of debt
24,400
-
100
%
INCOME BEFORE PROVISION FOR INCOME TAXES
464,770
480,240
(3
%)
PROVISION FOR INCOME TAXES
112,985
119,148
(5
%)
NET INCOME
$
351,785
$
361,092
(3
%)
EARNINGS PER SHARE
Earnings per share, basic
$
4.40
$
4.56
(4
%)
Earnings per share, diluted
$
4.30
$
4.48
(4
%)
Weighted-average shares outstanding, basic
79,981
79,207
1
%
Weighted-average shares outstanding, diluted
81,772
80,612
1
%
6
LPL Financial Holdings Inc.
Condensed Consolidated Statements of Financial Condition
(In thousands, except share data)
(Unaudited)
September 30, 2021
June 30, 2021
December 31, 2020
ASSETS
Cash and cash equivalents
$
977,789
$
906,720
$
808,612
Cash segregated under federal and other regulations
811,716
741,432
923,158
Restricted cash
85,381
78,648
67,264
Receivables from:
Clients, net of allowance
592,170
531,784
405,106
Product sponsors, broker-dealers and clearing organizations
257,742
275,189
233,192
Advisor loans, net of allowance
814,514
776,513
547,372
Others, net of allowance
453,245
371,240
306,640
Securities owned:
Trading - at fair value
32,085
30,169
29,252
Held-to-maturity - at amortized cost
11,183
10,708
13,235
Securities borrowed
10,217
13,395
30,130
Fixed assets, net of accumulated depreciation and amortization
624,529
600,763
582,868
Operating lease assets
96,716
96,844
101,921
Goodwill
1,641,238
1,646,631
1,513,866
Intangible assets, net of accumulated amortization
470,989
486,355
397,486
Deferred income taxes, net
24,489
24,364
24,112
Other assets
651,803
629,261
539,357
Total assets
$
7,555,806
$
7,220,016
$
6,523,571
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Drafts payable
$
190,451
$
154,230
$
178,403
Payables to clients
1,419,889
1,329,397
1,356,083
Payables to broker-dealers and clearing organizations
148,193
109,089
89,743
Accrued advisory and commission expenses payable
224,438
215,107
187,040
Accounts payable and accrued liabilities
815,632
747,669
681,554
Income taxes payable
8,082
5,718
28,145
Unearned revenue
168,331
135,600
95,328
Securities sold, but not yet purchased - at fair value
170
1,398
206
Long-term and other borrowings, net
2,725,691
2,727,336
2,345,414
Operating lease liabilities
132,394
133,321
139,377
Finance lease liabilities
106,146
106,239
107,424
Total liabilities
5,939,417
5,665,104
5,208,717
STOCKHOLDERS' EQUITY:
Common stock, $0.001 par value; 600,000,000 shares authorized; 128,602,814 shares issued at September 30, 2021 and 127,585,764 shares issued at December 31, 2020
128
128
127
Additional paid-in capital
1,826,247
1,808,135
1,762,770
Treasury stock, at cost - 48,475,390 shares at September 30, 2021 and 48,115,037 shares at December 31, 2020
(2,447,933)
(2,407,035)
(2,391,062)
Retained earnings
2,237,947
2,153,684
1,943,019
Total stockholders' equity
1,616,389
1,554,912
1,314,854
Total liabilities and stockholders' equity
$
7,555,806
$
7,220,016
$
6,523,571
7
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
Q3 2021
Q2 2021
% Change
Q3 2020
% Change
Gross Profit(5)
Advisory
$
959,733
$
846,313
13
%
$
586,941
64
%
Sales-based commissions
239,804
249,596
(4
%)
180,357
33
%
Trailing commissions
370,580
348,637
6
%
292,286
27
%
Advisory fees and commissions
1,570,117
1,444,546
9
%
1,059,584
48
%
Production-based payout(6)
(1,368,348)
(1,247,321)
10
%
(917,831)
49
%
Advisory fees and commissions, net of payout
201,769
197,225
2
%
141,753
42
%
Client cash
91,257
90,377
1
%
108,705
(16
%)
Other asset-based(7)
210,444
189,243
11
%
144,846
45
%
Transaction and fee
140,362
137,100
2
%
119,747
17
%
Interest income and other, net(8)
10,099
11,111
(9
%)
8,484
19
%
Total net advisory fees and commissions and attachment revenue
653,931
625,056
5
%
523,535
25
%
Brokerage, clearing and exchange expense
(22,828)
(23,459)
(3
%)
(17,834)
28
%
Gross Profit(5)
631,103
601,597
5
%
505,701
25
%
G&A Expense
Core G&A(9)
270,865
251,679
8
%
227,099
19
%
Regulatory charges
5,976
7,416
(19
%)
8,326
(28
%)
Promotional (ongoing)(10)
83,630
64,135
30
%
57,970
44
%
Acquisition costs(10)
35,887
23,782
51
%
-
100
%
Employee share-based compensation
9,763
11,136
(12
%)
7,420
32
%
Total G&A
406,121
358,148
13
%
300,815
35
%
EBITDA(11)
224,982
243,449
(8
%)
204,886
10
%
Depreciation and amortization
38,409
36,704
5
%
27,548
39
%
Amortization of intangible assets
21,531
19,925
8
%
16,829
28
%
Non-operating interest expense and other
27,063
25,171
8
%
25,179
7
%
INCOME BEFORE PROVISION FOR INCOME TAXES
137,979
161,649
(15
%)
135,330
2
%
PROVISION FOR INCOME TAXES
34,915
42,548
(18
%)
31,541
11
%
NET INCOME
$
103,064
$
119,101
(13
%)
$
103,789
(1
%)
Earnings per share, diluted
$
1.26
$
1.46
(14
%)
$
1.29
(2
%)
Weighted-average shares outstanding, diluted
81,849
81,728
-
%
80,550
2
%
EPS prior to amortization of intangible assets and acquisition costs(12)
$
1.77
$
1.85
(4
%)
$
1.44
23
%
8
LPL Financial Holdings Inc.
Operating Metrics
(Dollars in billions, except where noted)
(Unaudited)
Q3 2021
Q2 2021
Change
Q3 2020
Change
Market Drivers
S&P 500 Index (end of period)
4,308
4,298
-%
3,363
28%
Fed Funds daily effective rate (average bps)
9
7
2bps
9
-bps
Advisory and Brokerage Assets
Advisory assets(13)
$
594.0
$
577.6
3%
$
405.9
46%
Brokerage assets(14)
538.6
534.7
1%
404.4
33%
Total Advisory and Brokerage Assets
$
1,132.6
$
1,112.3
2%
$
810.4
40%
Advisory as a % of Total Advisory and Brokerage Assets
52.4
%
51.9
%
50bps
50.1
%
230bps
Assets by Platform
Corporate platform advisory assets(15)
$
395.6
$
383.6
3%
$
253.9
56%
Hybrid platform advisory assets(16)
198.4
194.0
2%
152.0
31%
Brokerage assets
538.6
534.7
1%
404.4
33%
Total Advisory and Brokerage Assets
$
1,132.6
$
1,112.3
2%
$
810.4
40%
Centrally Managed Assets
Centrally managed assets(17)
$
88.6
$
84.7
5%
$
59.0
50%
Centrally Managed as a % of Total Advisory Assets
14.9
%
14.7
%
20bps
14.5
%
40bps
9
LPL Financial Holdings Inc.
Operating Metrics
(Dollars in billions, except where noted)
(Unaudited)
Q3 2021
Q2 2021
Change
Q3 2020
Change
Net New Assets (NNA)
Net new advisory assets(18)
$
21.7
$
54.9
n/m
$
10.4
n/m
Net new brokerage assets(19)
7.3
51.1
n/m
0.7
n/m
Total Net New Assets
$
29.0
$
106.0
n/m
$
11.1
n/m
Organic Net New Assets (NNA)(20)
Organic net new advisory assets
$
21.1
$
21.4
n/m
$
10.4
n/m
Organic net new brokerage assets
5.6
15.6
n/m
0.7
n/m
Total Organic Net New Assets
$
26.7
$
37.1
n/m
$
11.1
n/m
Net brokerage to advisory conversions(21)
$
3.1
$
3.2
n/m
$
2.0
n/m
Organic advisory NNA annualized growth(22)
15.6
%
17.3
%
n/m
11.0
%
n/m
Total organic NNA annualized growth(22)
10.2
%
15.5
%
n/m
5.8
%
n/m
Net New Advisory Assets
Corporate platform net new advisory assets(23)
$
15.2
$
49.0
n/m
$
7.8
n/m
Hybrid platform net new advisory assets(24)
6.5
6.0
n/m
2.6
n/m
Total Net New Advisory Assets
$
21.7
$
54.9
n/m
$
10.4
n/m
Centrally managed net new advisory assets(25)
$
3.9
$
4.0
n/m
$
1.9
n/m
Client Cash Balances
Insured cash account balances
$
30.5
$
34.1
(11%)
$
34.7
(12%)
Deposit cash account balances
8.6
7.6
13%
8.0
8%
Total Bank Sweep Balances
39.0
41.7
(6%)
42.7
(9%)
Money market account cash balances
9.9
5.0
98%
1.5
n/m
Purchased money market funds
1.8
1.7
6%
2.3
(22%)
Total Money Market Balances
11.7
6.7
75%
3.9
200%
Total Client Cash Balances
$
50.7
$
48.4
5%
$
46.6
9%
Client Cash Balances as a % of Total Assets
4.5
%
4.4
%
10bps
5.7
%
(120bps)
Client Cash Balance Average Fees(26)
Insured cash account average fee - bps
101
98
3
118
(17)
Deposit cash account average fee - bps
24
24
-bps
38
(14)
Money market account average fee - bps
3
1
2
9
(6)
Purchased money market fund average fee - bps
7
9
(2)
20
(13)
Total Client Cash Balance Average Fee - bps
74
77
(3)
95
(21)
Net buy (sell) activity(27)
$
17.6
$
18.1
n/m
$
9.3
n/m
10
LPL Financial Holdings Inc.
Monthly Metrics
(Dollars in billions, except where noted)
(Unaudited)
September 2021
August 2021
Aug to September Change
July 2021
June 2021
Advisory and Brokerage Assets
Advisory assets(13)
$
594.0
$
604.6
(2%)
$
588.4
$
577.6
Brokerage assets(14)
538.6
552.3
(2%)
541.4
534.7
Total Advisory and Brokerage Assets
$
1,132.6
$
1,156.9
(2%)
$
1,129.9
$
1,112.3
Net New Assets (NNA)
Net new advisory assets(18)
$
9.6
$
6.4
n/m
$
5.7
$
11.2
Net new brokerage assets(19)
1.8
1.2
n/m
4.3
14.8
Total Net New Assets
$
11.4
$
7.6
n/m
$
10.0
$
26.0
Net brokerage to advisory conversions(21)
$
1.1
$
1.2
n/m
$
0.8
$
0.9
Organic Net New Assets (NNA)(20)
Net new advisory assets(18)
$
9.0
$
6.4
n/m
$
5.7
$
11.2
Net new brokerage assets(19)
0.1
1.2
n/m
4.3
14.8
Total Organic Net New Assets
$
9.1
$
7.6
n/m
$
10.0
$
26.0
Client Cash Balances
Insured cash account balances
$
30.5
$
33.2
(8%)
$
34.4
$
34.1
Deposit cash account balances
8.6
8.2
5%
7.9
7.6
Total Bank Sweep Balances
39.0
41.4
(6%)
42.2
41.7
Money market account cash balances
9.9
6.3
57%
4.3
5.0
Purchased money market funds
1.8
1.9
(5%)
1.9
1.7
Total Money Market Balances
11.7
8.3
41%
6.3
6.7
Total Client Cash Balances
$
50.7
$
49.7
2%
$
48.5
$
48.4
Net buy (sell) activity(27)
$
5.5
$
5.6
n/m
$
6.5
$
6.0
Market Indices
S&P 500 index (end of period)
4,308
4,523
(5%)
4,395
4,298
Fed funds effective rate (average bps)
8
9
(1bps)
10
8
11
LPL Financial Holdings Inc.
Financial Measures
(Dollars in thousands, except where noted)
(Unaudited)
Q3 2021
Q2 2021
Change
Q3 2020
Change
Commission Revenues by Product
Annuities
$
314,134
$
305,100
3%
$
250,823
25%
Mutual funds
201,120
195,688
3%
146,788
37%
Fixed income
30,092
34,862
(14%)
16,731
80%
Equities
28,943
30,517
(5%)
30,283
(4%)
Other
36,095
32,066
13%
28,018
29%
Total commission revenues
$
610,384
$
598,233
2%
$
472,643
29%
Commission Revenues by Sales-based and Trailing
Sales-based commissions
Annuities
$
108,983
$
112,619
(3%)
$
81,475
34%
Mutual funds
46,934
50,250
(7%)
33,871
39%
Fixed income
30,092
34,862
(14%)
16,731
80%
Equities
28,943
30,517
(5%)
30,283
(4%)
Other
24,852
21,348
16%
17,997
38%
Total sales-based commissions
$
239,804
$
249,596
(4%)
$
180,357
33%
Trailing commissions
Annuities
$
205,151
$
192,481
7%
$
169,348
21%
Mutual funds
154,186
145,438
6%
112,917
37%
Other
11,243
10,718
5%
10,021
12%
Total trailing commissions
$
370,580
$
348,637
6%
$
292,286
27%
Total commission revenues
$
610,384
$
598,233
2%
$
472,643
29%
Payout Rate(6)
87.15
%
86.35
%
80bps
86.62
%
53bps
12
LPL Financial Holdings Inc.
Capital Management Measures
(Dollars in thousands, except where noted)
(Unaudited)
Q3 2021
Q2 2021
Q4 2020
Corporate Cash(3)
Cash at Parent
$
181,061
$
170,258
$
201,385
Excess cash at LPL Financial LLC per Credit Agreement
(a)Secured borrowing capacity of $1 billion at LPL Holdings, Inc. (the "Parent").
(b)Unsecured borrowing capacity of $300 million at LPL Financial LLC.
(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 November 2019 at par.
(e)The Senior Unsecured Notes were issued in March 2021 at par.
(f)The Senior Unsecured Notes were issued in May 2021 at par.
13
LPL Financial Holdings Inc.
Key Business and Financial Metrics
(Dollars in thousands, except where noted)
(Unaudited)
Q3 2021
Q2 2021
Change
Q3 2020
Change
Advisors
Advisors
19,627
19,114
3%
17,168
14%
Net new advisors
513
1,442
n/m
195
n/m
Annualized advisory fees and commissions per advisor(29)
$
324
$
314
3%
$
248
31%
Average total assets per advisor ($ in millions)(30)
$
57.7
$
58.2
(1%)
$
47.2
22%
Transition assistance loan amortization ($ in millions)(31)
$
38.4
$
34.7
11%
$
30.4
26%
Total client accounts (in millions)
7.1
6.7
6%
5.9
20%
Employees - period end
5,457
5,344
2%
4,658
17%
Productivity Metrics
Business Solutions subscriptions(32)
2,598
2,085
25%
1,219
113%
Advisory revenues as a % of corporate advisory assets(33)
1.00
%
1.00
%
-bps
1.02
%
(2bps)
Gross profit ROA(34)
23.5
bps
24.3
bps
(0.8bps)
27.9
bps
(4.4bps)
OPEX as a % of advisory and brokerage assets(35)
15.5
bps
16.0
bps
(0.5bps)
17.8
bps
(2.3bps)
EBIT ROA(36)
8.0
bps
8.3
bps
(0.3bps)
10.1
bps
(2.1bps)
AUM retention rate (quarterly annualized)(37)
97.8
%
98.4
%
(60bps)
97.3
%
50bps
Recurring gross profit rate(38)
84.4
%
83.2
%
120bps
86.1
%
(170bps)
EBITDA as a % of gross profit
35.6
%
40.5
%
(490bps)
40.5
%
(490bps)
Capital expenditure ($ in millions)(39)
$
54.9
$
43.9
25%
$
40.1
37%
Share repurchases ($ in millions)
$
40.0
$
-
100%
$
-
100%
Dividends ($ in millions)
20.1
20.0
1%
19.8
2%
Total Capital Allocated ($ in millions)
$
60.1
$
20.0
201%
$
19.8
204%
Weighted-average share count, diluted
81.8
81.7
-%
80.6
2%
Total Capital Allocated per Share(40)
$
0.73
$
0.25
192%
$
0.25
192%
14
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 and acquisition costs and Adjusted net income
EPS prior to amortization of intangible assets and acquisition costs is defined as adjusted net income, a non-GAAP measure defined as net income plus the after-tax impact of amortization of intangible assets and acquisition costs, divided by the weighted average number of diluted shares outstanding for the applicable period. The Company presents adjusted net income and EPS prior to amortization of intangible assets and acquisition costs 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 EPS prior to amortization of intangible assets and acquisition costs are not measures of the Company's financial performance under GAAP and should not be considered as an alternative 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 EPS prior to amortization of intangible assets and acquisition costs, please see the endnote disclosures in this release.
Gross profit
Gross profit is calculated as total revenues, less advisory and commission expenses and brokerage, clearing and exchange fees. 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 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&Aconsists of total operating expenses less the following expenses: advisory and commission, regulatory charges, promotional, employee share-based compensation, depreciation and amortization, amortization of intangible assets, brokerage, clearing and exchange and acquisition costs. 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 advisory and commission 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 the endnote disclosures of this release. The Company does not provide an outlook for its total operating expenses because it contains expense components, such as advisory and commission 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
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. For a reconciliation of EBITDA to net income, please see the endnote disclosures of this release.
Credit Agreement EBITDA
Credit Agreement EBITDA is defined in, and calculated by management in accordance with, the Company's credit agreement ("Credit Agreement") as "Consolidated EBITDA," which is consolidated net income (as defined in the Credit Agreement) plus interest expense, tax expense, depreciation and amortization, and amortization of intangible
15
assets, 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 Credit Agreement EBITDA to net income, please see the endnote disclosures of this release.
16
Endnote Disclosures
(1) Represents the estimated total advisory and brokerage assets expected to transition to the Company's broker-dealer subsidiary, 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.
(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 adviser.
(3) We define corporate cash as the sum of cash and cash equivalents from the following: (1) cash held at the Parent, (2) excess cash at LPL Financial per the Credit Agreement, which is the net capital held at LPL Financial in excess of 10% of its aggregate debits, or five times the net capital required in accordance with Exchange Act Rule 15c3-1, and (3) other available cash, which includes cash and cash equivalents held at The Private Trust Company, N.A. in excess of Credit Agreement capital requirements, excess cash at Waddell & Reed, LLC per the Credit Agreement, or the net capital held in excess of 10% of its aggregate indebtedness, and cash and cash equivalents held at non-regulated subsidiaries.
(4) Compliance with the Leverage Ratio is only required under our revolving credit facility.
(5) 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):
Q3 2021
Q2 2021
Q3 2020
Total revenue
$
2,020,763
$
1,898,258
$
1,460,301
Advisory and commission expense
1,366,832
1,273,202
936,766
Brokerage, clearing and exchange fees
22,828
23,459
17,834
Gross profit(+)
$
631,103
$
601,597
$
505,701
____________________
(+) Balances may not foot due to rounding.
(6) Production-based payout is an operating measure calculated as advisory and commission expenses less advisor deferred compensation expenses. The payout rate is calculated by dividing the production-based payout by total advisory fees and commissions revenue. Below is a reconciliation of production-based payout to the Company's advisory and commission expenses and a calculation of the payout rate for the periods presented (in thousands except payout rate):
Q3 2021
Q2 2021
Q3 2020
Production-based payout
$
1,368,348
$
1,247,321
$
917,831
Advisor deferred compensation expenses
(1,516)
25,881
18,935
Advisory and commission expense
$
1,366,832
$
1,273,202
$
936,766
Advisory fees and commissions revenue
$
1,570,117
$
1,444,546
$
1,059,584
Payout rate
87.15
%
86.35
%
86.62
%
(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 plus other revenues, less advisor deferred compensation expenses. Below is a reconciliation of interest income and other, net against the Company's interest income and other revenues for the periods presented (in thousands):
Q3 2021
Q2 2021
Q3 2020
Interest income
$
7,365
$
6,914
$
6,623
Plus: Other revenue
1,218
30,078
20,796
Plus (Less): Advisor deferred compensation expenses
1,516
(25,881)
(18,935)
Interest income and other, net
$
10,099
$
11,111
$
8,484
17
(9) 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 core G&A to the Company's total operating expenses for the periods presented (in thousands):
Q3 2021
Q2 2021
Q3 2020
Core G&A Reconciliation
Total operating expenses
$
1,855,721
$
1,711,438
$
1,299,792
Advisory and commission
1,366,832
1,273,202
936,766
Depreciation and amortization
38,409
36,704
27,548
Amortization of intangible assets
21,531
19,925
16,829
Brokerage, clearing and exchange
22,828
23,459
17,834
Total G&A
406,121
358,148
300,815
Promotional (ongoing)(10)
83,630
64,135
57,970
Acquisition costs(10)
35,887
23,782
-
Employee share-based compensation
9,763
11,136
7,420
Regulatory charges
5,976
7,416
8,326
Core G&A
$
270,865
$
251,679
$
227,099
(10) Acquisition costs incurred during the third quarter of 2021 include the cost to setup, onboard and integrate acquired entities and are driven primarily by $14.8 million of compensation and benefits expenses, $12.4 million of promotional expenses, $5.8 million of professional services expenses, and other expenses that are included in the respective line items in the Condensed Consolidated Statements of Income. Acquisition costs incurred during the second quarter of 2021 primarily include $13.9 million of compensation and benefits expenses, $6.3 million of professional services expenses, $1.6 million of occupancy and equipment expenses, and $1.2 million of communications expenses.
(11) 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 EBITDA to the Company's net income for the periods presented (in thousands):
Q3 2021
Q2 2021
Q3 2020
EBITDA Reconciliation
Net income
$
103,064
$
119,101
$
103,789
Non-operating interest expense and other
27,063
25,171
25,179
Provision for income taxes
34,915
42,548
31,541
Depreciation and amortization
38,409
36,704
27,548
Amortization of intangible assets
21,531
19,925
16,829
EBITDA
$
224,982
$
243,449
$
204,886
18
(12) Adjusted net income and EPS prior to amortization of intangible assets and acquisition costs are non-GAAP financial measures. Please see a description of adjusted net income and EPS prior to amortization of intangible assets and acquisition costs under the "Non-GAAP Financial Measures" section of this release for additional information. Below is a reconciliation net income and earnings per diluted share to adjusted net income and EPS prior to amortization of intangible assets and acquisition costs (in thousands, except per share data):
Q3 2021
Q2 2021
Q3 2020
Amount
Per Share
Amount
Per Share
Amount
Per Share
Net income / earnings per diluted share
$
103,064
$
1.26
$
119,101
$
1.46
$
103,789
$
1.29
Amortization of intangible assets
21,531
0.26
19,925
0.24
16,829
0.21
Acquisition costs
35,887
0.44
23,782
0.29
-
-
Tax benefit
(15,399)
(0.19)
(11,700)
(0.14)
(4,712)
(0.06)
Adjusted net income / EPS prior to amortization of intangible assets and acquisition costs
$
145,083
$
1.77
$
151,108
1.85
$
115,906
$
1.44
Diluted share count
81,849
81,728
80,550
(13) Consists of total advisory assets under custody at LPL Financial and Waddell & Reed, LLC.
(14) Consists of brokerage assets serviced by advisors licensed with LPL Financial and Waddell & Reed, LLC.
(15) Consists of total assets on LPL Financial's corporate advisory platform serviced by investment advisor representatives of LPL Financial or Allen & Company of Florida, LLC.
(16) 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.
(17) Represents those advisory assets in LPL Financial's Model Wealth Portfolios, Optimum Market Portfolios, Personal Wealth Portfolios and Guided Wealth Portfolios platforms.
(18) Consists of total client deposits into advisory accounts, including advisory assets serviced by former BMO Harris Financial Advisors, Lucia and E.K. Riley 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.
(19) Consists of total client deposits into brokerage accounts, less total client withdrawals from brokerage accounts, plus dividends, plus interest. The Company considers conversions from and to advisory accounts as deposits and withdrawals, respectively.
(20) Consists of net new assets excluding the Waddell & Reed Acquisition.
(21) Consists of existing custodied assets that converted from brokerage to advisory, less existing custodied assets that converted from advisory to brokerage.
(22) 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.
(23) Consists of total client deposits into advisory accounts on LPL Financial's corporate advisory platform less total client withdrawals from advisory accounts on its corporate advisory platform, plus dividends, plus interest, minus advisory fees.
(24) Consists of total client deposits into advisory accounts on LPL Financial's independent advisory platform less total client withdrawals from advisory accounts on its independent advisory platform, plus dividends, plus interest, minus advisory fees.
(25) Consists of total client deposits into centrally managed assets accounts less total client withdrawals from centrally managed assets accounts, plus dividends, plus interest, minus advisory fees.
(26) Calculated by dividing revenue for the period by the average balance during the period.
(27) 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.
19
(28) 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 EBITDA and Credit Agreement EBITDA to net income for the periods presented (in thousands):
Q3 2021
Q2 2021
Q4 2020
EBITDA and Credit Agreement EBITDA Reconciliations
Net income
$
463,333
$
464,058
$
472,640
Non-operating interest expense and other
102,272
100,388
105,765
Provision for income taxes
147,270
143,896
153,433
Depreciation and amortization
139,262
128,401
109,732
Amortization of intangible assets
76,157
71,455
67,358
EBITDA
$
928,294
$
908,198
$
908,928
Credit Agreement Adjustments:
Employee share-based compensation expense
$
39,797
$
37,454
$
31,650
Advisor share-based compensation expense
2,316
2,252
2,321
M&A accretion
65,379
77,017
-
Loss on extinguishment of debt
24,400
24,400
-
Other
81,383
45,144
18,326
Credit Agreement EBITDA (trailing twelve months)
$
1,141,569
$
1,094,465
$
961,225
(29) Calculated based on the average advisor count from the current period and prior period.
(30) Calculated based on the end-of-period total advisory and brokerage assets divided by end-of-period advisor count.
(31) Represents amortization expense on forgivable loans for transition assistance to advisors and financial institutions.
(32) Refers to active and contracted subscriptions related to Professional Services (Admin, Marketing and CFO Solutions) and Business Optimizers (Assurance Plan, Remote Office and M&A Solutions).
(33) Represents advisory revenues as a percentage of Corporate Platform Advisory Assets for the trailing twelve month period.
(34) Represents gross profit, a non-GAAP financial measure, for the trailing twelve month period, divided by average month-end total advisory and brokerage assets for the trailing twelve month period.
(35) Represents operating expenses for the trailing twelve month period, excluding production-related expense, divided by average month-end total advisory and brokerage assets for the trailing twelve month 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, a non-GAAP financial measure, as well as regulatory charges, promotional, employee share-based compensation, depreciation and amortization, and amortization of intangible assets.
(36) EBIT ROA is calculated as gross profit ROA less OPEX as a percentage of advisory and brokerage assets.
(37) Reflects retention of total advisory and brokerage assets, calculated by deducting quarterly annualized attrition from total advisory and brokerage assets, over the prior-quarter total advisory and brokerage assets.
(38) 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.
(39) Capital expenditures represent cash payments for fixed assets during the period.
20
(40) Total capital allocated per share equals the amount of capital allocated for share repurchases and cash dividends divided by the diluted weighted-average shares outstanding.
21
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LPL Financial Holdings Inc. published this content on 28 October 2021 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 28 October 2021 20:30:21 UTC.
LPL Financial Holdings Inc. is an independent broker-dealer and an investment advisory firm company. The Company offers an integrated platform of brokerage and investment advisory services to independent financial advisors and financial advisors at enterprises (collectively, advisors) in the United States. Through its comprehensive platform, it offers integrated technology solutions; brokerage and advisory platforms; clearing, compliance, business and planning and advice services; consultative practice management programs and training, and in-house research. Through its custody and clearing platform, using both proprietary and third-party technology, the Company offers access to diversified financial products and services, enabling its advisors to offer personalized financial advice and brokerage services to retail investors. Its products include alternative investments, annuities, exchange-traded products, insurance-based products, mutual funds, and retirement plan products.