Delaware | 001-34963 | 20-3717839 |
(State or other jurisdictions of incorporation or organization) | (Commission File Number) | (I.R.S. Employer Identification Nos.) |
o | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
o | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
o | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
o | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Item 2.02 | Results of Operations and Financial Condition. |
Item 9.01 | Financial Statements and Exhibits. | ||
(d) | Exhibits | ||
99.1 | Press Release dated October 29, 2015 ("LPL Financial Announces Financial Results for Third Quarter 2015 and Updates Capital and Expense Management Plans") |
LPL FINANCIAL HOLDINGS INC. | ||
By: | /s/ Matthew J. Audette | |
Name: Matthew J. Audette | ||
Title: Chief Financial Officer |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||
2015 | 2014 | % Change | 2015 | 2014 | % Change | ||||||||||||||||
Financial Highlights (unaudited) | (dollars in thousands, except per share data) | ||||||||||||||||||||
GAAP Measures: | |||||||||||||||||||||
Net Revenue | $ | 1,054,745 | $ | 1,089,234 | (3.2 | )% | $ | 3,254,708 | $ | 3,269,394 | (0.4 | )% | |||||||||
Net Income | $ | 41,052 | $ | 33,272 | 23.4 | % | $ | 141,972 | $ | 129,498 | 9.6 | % | |||||||||
Earnings Per Share — diluted | $ | 0.43 | $ | 0.33 | 30.3 | % | $ | 1.46 | $ | 1.26 | 15.9 | % | |||||||||
Non-GAAP Measures: | |||||||||||||||||||||
Gross Profit(1) | $ | 339,757 | $ | 331,143 | 2.6 | % | $ | 1,035,342 | $ | 990,594 | 4.5 | % | |||||||||
Adjusted Earnings | $ | 52,772 | $ | 48,773 | 8.2 | % | $ | 179,190 | $ | 181,577 | (1.3 | )% | |||||||||
Adjusted Earnings Per Share | $ | 0.55 | $ | 0.48 | 14.6 | % | $ | 1.84 | $ | 1.77 | 4.0 | % | |||||||||
Adjusted EBITDA | $ | 118,352 | $ | 108,878 | 8.7 | % | $ | 388,846 | $ | 378,554 | 2.7 | % |
(1) | Because the Company’s gross profit amounts do not include any depreciation and amortization expense, the Company considers its gross profit amounts to be non-GAAP measures that may not be comparable to those of others in its industry. |
September 30, | ||||||||||
2015 | 2014 | % Change | ||||||||
Business Highlights (unaudited) | ||||||||||
Advisory and Brokerage Assets (billions)(1) | $ | 461.8 | $ | 464.8 | (0.6 | )% | ||||
Advisory Assets Under Custody (billions)(2) | $ | 179.7 | $ | 169.5 | 6.0 | % | ||||
Advisors | 14,073 | 13,910 | 1.2 | % |
• | Strong asset gathering as net new advisory assets totaled $4.2 billion in the quarter, translating to a 9.3% annualized growth rate. |
• | Reduction in market-sensitive asset valuations offset strong asset flows, and brokerage and advisory assets declined 5% sequentially. |
• | Advisory asset growth continued to outpace growth in total assets and advisory assets represented 39% of advisory and brokerage assets at quarter-end. Hybrid RIA platform assets were 24% of advisory and brokerage assets served. |
• | The Company continued to recruit high-producing advisors that have fueled much of its net new advisory growth. The Company’s recruiting outlook remains positive given competitive and regulatory dynamics. |
• | Advisor production retention also remained high at 97 percent during the quarter. |
• | Overall advisor count declined in the third quarter, but the Company has been pleased with the high quality of the new assets and advisors that joined the firm during the quarter. Gross recruiting wins were offset by the departure of lower-producing advisors. |
• | Third quarter gross profit of $340 million was flat sequentially in spite of declines in the valuations of advisory and brokerage assets. |
• | The declining value of customer assets reduced market-sensitive revenue streams such as trail commissions, advisory fees, and sponsor revenue, but volatile equity markets contributed to record transaction volumes and revenues. |
• | Sales commissions for variable annuity products in the third quarter continued to be low due to 10-year treasury rates remaining below 3%. Alternative investment sales commissions were also challenged by a mature real estate market. |
• | Third quarter cash sweep revenues increased sequentially to $24 million as client cash balances reached a record $28 billion at the end of the third quarter. |
• | Third quarter Core G&A expenses, excluding regulatory charges, were flat sequentially at $171 million and up 5% year-over-year. The Company expects full year 2015 Core G&A expenses to be in its expected range of 7.5 to 8.5% year-over-year growth, and likely in the lower part of that range. |
• | Promotional expenses in the third quarter increased sequentially to $42 million due to the $15 million expense of the Company's annual national advisor conference. |
• | Regulatory-related charges increased by $1 million sequentially to $8 million in the third quarter, as the Company reached agreements to resolve several regulatory matters that it had been working on. |
• | The Company returned $49 million of capital to shareholders during the third quarter, including $24 million of dividends and $25 million of share repurchases. The Company purchased approximately 600,000 shares at a weighted-average price of $42.12 per share. |
• | Year to date, the Company has returned $213 million of capital to shareholders through $72 million of dividends and $141 million of share repurchases. |
• | The Company's Board of Directors declared a cash dividend of $0.25 per share on the Company's outstanding common stock to be paid on November 24, 2015 to stockholders of record on November 12, 2015. |
• | Capital expenditures for technology to support growth and for the construction of the Company's new campus in Fort Mill, South Carolina totaled $20 million. |
• | The Company announced the repositioning of its capital management plan to create greater shareholder value, including: |
◦ | Increased share repurchase authorization to $500 million. Repurchases may be effected in open market or privately negotiated transactions, which may include a combination of an accelerated share repurchase program and open market purchases. |
◦ | Increased target leverage to net debt of approximately 4 times adjusted EBITDA. The Company is planning to amend its credit agreement to provide for incremental upsizing of its credit facilities by up to $700 million, extension of the maturity of certain or all currently outstanding term B loans (from March 2019 to March 2021), and modification of the restricted payment provisions to enable execution of the full amount of the increased share repurchase authorization. |
• | The Company and Board are committed to moving forward as quickly as possible consistent with best execution, its general operating needs, and any applicable constraints under its credit agreement. |
• | The Company announced that it expects 2 to 4% Core G&A growth in 2016 compared to 2015, including: |
◦ | Full-year cost of 2015 investments; |
◦ | Prioritized 2016 investments in the Company's business, including accelerated development of its ClientWorkssm platform; |
◦ | Planned enhancements for its financial advisors, as well as potential costs to comply with the final Department of Labor fiduciary rule; and |
◦ | Efforts and initiatives to keep other Core G&A expenses flat. |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||
2015 | 2014 | % Change | 2015 | 2014 | % Change | ||||||||||||||||
Revenues | |||||||||||||||||||||
Commission | $ | 480,271 | $ | 520,388 | (7.7 | )% | $ | 1,513,359 | $ | 1,590,139 | (4.8 | )% | |||||||||
Advisory | 341,217 | 340,369 | 0.2 | % | 1,028,213 | 998,016 | 3.0 | % | |||||||||||||
Asset-based | 123,921 | 121,283 | 2.2 | % | 369,625 | 354,494 | 4.3 | % | |||||||||||||
Transaction and fee | 105,593 | 94,674 | 11.5 | % | 305,099 | 276,284 | 10.4 | % | |||||||||||||
Other | 3,743 | 12,520 | (70.1 | )% | 38,412 | 50,461 | (23.9 | )% | |||||||||||||
Net revenues | 1,054,745 | 1,089,234 | (3.2 | )% | 3,254,708 | 3,269,394 | (0.4 | )% | |||||||||||||
Expenses | |||||||||||||||||||||
Production | 714,988 | 758,091 | (5.7 | )% | 2,219,366 | 2,278,800 | (2.6 | )% | |||||||||||||
Compensation and benefits | 110,494 | 106,290 | 4.0 | % | 335,111 | 317,459 | 5.6 | % | |||||||||||||
General and administrative | 117,246 | 122,056 | (3.9 | )% | 331,057 | 323,232 | 2.4 | % | |||||||||||||
Depreciation and amortization | 26,766 | 24,519 | 9.2 | % | 79,564 | 70,618 | 12.7 | % | |||||||||||||
Restructuring charges | 3,071 | 9,928 | (69.1 | )% | 11,487 | 26,473 | (56.6 | )% | |||||||||||||
Total operating expenses | 972,565 | 1,020,884 | (4.7 | )% | 2,976,585 | 3,016,582 | (1.3 | )% | |||||||||||||
Non-operating interest expense | 13,493 | 12,897 | 4.6 | % | 40,671 | 38,651 | 5.2 | % | |||||||||||||
Total expenses | 986,058 | 1,033,781 | (4.6 | )% | 3,017,256 | 3,055,233 | (1.2 | )% | |||||||||||||
Income before provision for income taxes | 68,687 | 55,453 | 23.9 | % | 237,452 | 214,161 | 10.9 | % | |||||||||||||
Provision for income taxes | 27,635 | 22,181 | 24.6 | % | 95,480 | 84,663 | 12.8 | % | |||||||||||||
Net income | $ | 41,052 | $ | 33,272 | 23.4 | % | $ | 141,972 | $ | 129,498 | 9.6 | % | |||||||||
Earnings per share | |||||||||||||||||||||
Basic | $ | 0.43 | $ | 0.33 | 30.3 | % | $ | 1.48 | $ | 1.29 | 14.7 | % | |||||||||
Diluted | $ | 0.43 | $ | 0.33 | 30.3 | % | $ | 1.46 | $ | 1.26 | 15.9 | % | |||||||||
Weighted-average shares outstanding — basic | 94,972 | 100,052 | (5.1 | )% | 95,744 | 100,519 | (4.8 | )% | |||||||||||||
Weighted-average shares outstanding — diluted | 96,472 | 101,834 | (5.3 | )% | 97,303 | 102,384 | (5.0 | )% |
a. | Adjusted EBITDA, Adjusted Earnings, and Adjusted Earnings per share do not reflect all cash expenditures, or contractual commitments; and do not reflect changes in, or cash requirements for, working capital needs; and |
b. | Adjusted EBITDA does not reflect the significant interest expense, or the cash requirements necessary to service interest or principal payments, on debt. |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2015 | 2014 | 2015 | 2014 | ||||||||||||
(unaudited) | |||||||||||||||
Net income | $ | 41,052 | $ | 33,272 | $ | 141,972 | $ | 129,498 | |||||||
Non-operating interest expense | 13,493 | 12,897 | 40,671 | 38,651 | |||||||||||
Provision for income taxes | 27,635 | 22,181 | 95,480 | 84,663 | |||||||||||
Amortization of intangible assets | 9,534 | 9,634 | 28,707 | 29,046 | |||||||||||
Depreciation and amortization of fixed assets | 17,231 | 14,885 | 50,856 | 41,572 | |||||||||||
EBITDA | 108,945 | 92,869 | 357,686 | 323,430 | |||||||||||
EBITDA Adjustments: | |||||||||||||||
Employee share-based compensation expense(a) | 6,250 | 5,550 | 19,213 | 16,087 | |||||||||||
Acquisition and integration related expenses(b) | (8 | ) | (328 | ) | 58 | 764 | |||||||||
Restructuring and conversion costs(c) | 3,080 | 9,958 | 11,487 | 26,606 | |||||||||||
Other(d) | 85 | 829 | 402 | 11,667 | |||||||||||
Total EBITDA Adjustments | 9,407 | 16,009 | 31,160 | 55,124 | |||||||||||
Adjusted EBITDA | $ | 118,352 | $ | 108,878 | $ | 388,846 | $ | 378,554 |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2015 | 2014 | 2015 | 2014 | ||||||||||||
(unaudited) | |||||||||||||||
Net income | $ | 41,052 | $ | 33,272 | $ | 141,972 | $ | 129,498 | |||||||
After-Tax: | |||||||||||||||
EBITDA Adjustments(e) | |||||||||||||||
Employee share-based compensation expense(f) | 3,928 | 3,666 | 12,256 | 10,778 | |||||||||||
Acquisition and integration related expenses | (5 | ) | (703 | ) | 36 | (33 | ) | ||||||||
Restructuring and conversion costs | 1,891 | 6,114 | 7,053 | 16,336 | |||||||||||
Other | 52 | 509 | 247 | 7,164 | |||||||||||
Total EBITDA Adjustments | 5,866 | 9,586 | 19,592 | 34,245 | |||||||||||
Amortization of intangible assets(e) | 5,854 | 5,915 | 17,626 | 17,834 | |||||||||||
Adjusted Earnings | $ | 52,772 | $ | 48,773 | $ | 179,190 | $ | 181,577 | |||||||
Adjusted Earnings per share(g) | $ | 0.55 | $ | 0.48 | $ | 1.84 | $ | 1.77 | |||||||
Weighted-average shares outstanding — diluted | 96,472 | 101,834 | 97,303 | 102,384 |
(a) | Represents share-based compensation for equity awards granted to employees, officers, and directors. Such awards are measured based on the grant-date fair value and recognized over the requisite service period of the individual awards, which generally equals the vesting period. |
(b) | Represents acquisition and integration costs resulting from various acquisitions, including changes in the estimated fair value of future payments, or contingent consideration that may be required to be made to former shareholders of certain acquired entities. |
(c) | Represents organizational restructuring charges, conversion, and other related costs primarily resulting from the expansion of the Company's Service Value Commitment initiative. Results for the three and nine months ended September 30, 2015 also include charges related to the restructuring of the business of the Company's subsidiary, Fortigent Holdings Company, Inc. |
(d) | Results for the three and nine months ended September 30, 2014 include approximately $0.6 million and $9.8 million, respectively, in parallel rent, property tax, fixed asset disposals, and common area maintenance expenses incurred in connection with the Company's relocation to its San Diego office building. |
(e) | Generally, EBITDA Adjustments and amortization of intangible assets have been tax effected using a federal rate of 35.0% and the applicable effective state rate, which was 3.6%, net of the federal tax benefit, for the periods ended September 30, 2015 and 2014, except as discussed in footnotes (f) and (g) below. |
(f) | Includes the impact of incentive stock options granted to employees that qualify for preferential tax treatment and conversely for which the Company does not receive a tax deduction. |
(g) | Represents Adjusted Earnings, a non-GAAP measure, divided by weighted-average number of shares outstanding on a fully diluted basis. Set forth below is a reconciliation of earnings per share on a fully diluted basis, as calculated in accordance with GAAP, to Adjusted Earnings per share: |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2015 | 2014 | 2015 | 2014 | ||||||||||||
(unaudited) | |||||||||||||||
Earnings per share — diluted | $ | 0.43 | $ | 0.33 | $ | 1.46 | $ | 1.26 | |||||||
After-Tax: | |||||||||||||||
EBITDA Adjustments per share | 0.06 | 0.09 | 0.20 | 0.33 | |||||||||||
Amortization of intangible assets per share | 0.06 | 0.06 | 0.18 | 0.18 | |||||||||||
Adjusted Earnings per share | $ | 0.55 | $ | 0.48 | $ | 1.84 | $ | 1.77 |
Investor Relations | Media Relations |
Chris Koegel | Brett Weinberg |
LPL Financial | LPL Financial |
Phone: (617) 897-4275 | Phone: (980) 321-1904 |
Email: investor.relations@lpl.com | Email: brett.weinberg@lpl.com |
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