EX-99.1 2 a2018q1earningsrelease.htm PRESS RELEASE Exhibit


lpllogo541largenewnolinesa06.jpg
Investor Relations - Chris Koegel, (617) 897-4574
For Immediate Release
Media Relations - Jeff Mochal, (704) 733-3589
 
 
investor.lpl.com/contactus.cfm
LPL Financial Announces First Quarter 2018 Results

Key Performance Indicators
Earnings per share ("EPS") increased 94% year-over-year to $1.01.
Q1 2018 EPS included $0.29 of cost from NPH and Q1 2017 included $0.14 of debt refinancing cost. Prior to these costs, Q1 2018 EPS increased 96% year-over-year to $1.30.
Net Income increased 94% year-over-year to $94 million.
Net Income prior to the costs noted above increased 97% year-over-year to $120 million.
EPS prior to Amortization of Intangible Assets** increased 90% year-over-year to $1.11.
Prior to Q1 2018 NPH costs and Q1 2017 debt refinancing cost, EPS prior to Amortization of Intangible Assets increased 86% year-over-year to $1.36.
Total Brokerage and Advisory Assets increased 22% year-over-year to $648 billion, up 5% sequentially.
Total Brokerage and Advisory Assets prior to NPH increased 9% year-over-year to $578 billion, down 0.4% sequentially.
Total Net New Assets were an inflow of $38.9 billion, including $36.0 billion from NPH.
Total Net New Assets prior to NPH were an inflow of $2.9 billion, translating to a 2.0% annualized growth rate.
Net new advisory assets prior to NPH were an inflow of $6.9 billion, translating to a 10.5% annualized growth rate.
Net new brokerage assets prior to NPH were an outflow of $4.1 billion, translating to a (5.2%) annualized rate.
Total Net New Assets from NPH in Q4 2017 and Q1 2018 totaled $70.2 billion.
Advisor count increased to 16,067, including 941 advisors joining from NPH. In total, approximately 1,900 advisors joined from NPH.
Production retention rate year-to-date was 96%.
Gross Profit** increased 23% year-over-year to $464 million, including approximately $24 million generated by NPH advisors.
EBITDA** increased 21% year-over-year to $183 million.
EBITDA prior to NPH increased 40% year-over-year to $213 million.
EBITDA as a percentage of Gross Profit was 40%, flat from a year ago.
EBITDA as a percentage of Gross Profit prior to NPH was 48%, up from 40% a year ago.
Core G&A** increased 14% year-over-year to $201 million, and increased 3% sequentially.
Core G&A prior to NPH increased 3% year-over-year to $182 million, and decreased 0.3% sequentially.




1




Key Updates
Increased estimated NPH annual run-rate EBITDA accretion from $85 million to approximately $90 million by the end of 2018 based on the improved macro environment.
The Company continues to anticipate total asset transfer from NPH within a range of $70 to $75 billion.
Returned $83 million of capital to shareholders in Q1 through $61 million of share repurchases and $23 million of dividends for the quarter.

SAN DIEGO - May 3, 2018LPL Financial Holdings Inc. (NASDAQ: LPLA) (the “Company”) today announced results for its first quarter ended March 31, 2018, reporting net income of $94 million, or $1.01 per share. This compares with $48 million, or $0.52 per share, in the first quarter of 2017 and $64 million, or $0.69 per share, in the prior quarter.
“We started 2018 with another quarter of business and earnings growth,” said Dan Arnold, president and CEO. “Looking ahead, our strategic priorities remain growing our core business and executing with excellence.  We continue our focus on making it easier for advisors to do business with us, investing in technology, and enhancing capabilities.  We believe this focus will enable our advisors’ practices to thrive and drive future growth.”

“This quarter our earnings continued to grow, nearly doubling from a year ago,” said Matt Audette, CFO. “We grew gross profit, remained disciplined on expenses, and drove operating leverage. Our share repurchases also increased from the prior quarter. Going forward, our capital allocation priorities remain investing for organic growth, taking advantage of M&A opportunities if they arise, and returning capital to shareholders."

Additional First Quarter 2018 Financial and Business Highlights
NPH Update
Onboarded $36.0 billion in Total Brokerage and Advisory Assets, including $29.9 billion in brokerage assets and $6.2 billion in advisory assets in Q1.
Q1 onboarding expenses were $16 million, including $6 million of Core G&A expense and $10 million of promotional expense. Total onboarding expense including 2017 and Q1 2018 was $36 million.
Q1 financial assistance was $53 million, including $34 million provided as forgivable loans and $19 million provided as cash assistance. Total financial assistance including 2017 and Q1 2018 was $97 million.
Finalized the purchase price of the NPH transaction at $325 million following the onboarding of the second wave of advisors, including $211 million of intangible assets. This increased Q1 amortization of intangible assets expense by $3 million sequentially. 



2



Capital Management
The Company returned capital to shareholders totaling $83 million in Q1 2018, translating to $0.90 per share.
Deployed $61 million of capital to repurchase 968 thousand shares at an average price of $62.84 per share in Q1 2018.
Paid dividends of $23 million on March 23, 2018.
Capital expenditures were primarily driven by technology spend and totaled $23 million in Q1.
Cash available for corporate use was $474 million as of quarter-end, and Credit Agreement Net Leverage Ratio, which only applies to the revolving credit facility, was 2.46x, down 0.35x from the prior quarter.
After applying $300 million of cash available for corporate use to Credit Agreement Net Debt, this left an additional $174 million of cash, which if applied to the debt, would further reduce the Credit Agreement Net Leverage Ratio to 2.25x.
Conference Call and Additional Information
The Company will hold a conference call to discuss its results at 5:00 p.m. EDT on Thursday, May 3. To listen, call 877-677-9122 (domestic) or 708-290-1401 (international); passcode 9793629, 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 May 10 and May 24, respectively. For telephonic replay, call 855-859-2056 (domestic) or 404-537-3406 (international); passcode 9793629.
About LPL Financial
LPL Financial is a leader in the retail financial advice market and the nation’s largest independent broker/dealer*. We serve independent financial advisors and financial institutions, providing them with the technology, research, clearing and compliance services, and practice management programs they need to create and grow thriving practices. LPL enables them to provide objective guidance to millions of American families seeking wealth management, retirement planning, financial planning and asset management solutions. LPL.com

*based on total revenues, Financial Planning magazine June 1996-2017.
Securities and Advisory Services offered through LPL Financial. A Registered Investment Advisor, Member FINRA/SIPC.
**Non-GAAP Financial Measures
Management believes that presenting certain non-GAAP financial measures by excluding or including certain items can be helpful to investors and analysts who may wish to use this information to analyze the Company’s current performance, prospects, and valuation. Management uses this non-GAAP information internally to evaluate operating performance and in formulating the budget for future periods. Management believes that the non-GAAP financial measures and metrics discussed below are appropriate for evaluating the performance of the Company.
EPS Prior to Amortization of Intangible Assets is defined as GAAP EPS plus the per share impact of Amortization of Intangible Assets. The per share impact is calculated as Amortization of Intangible Assets expense, net of applicable tax benefit, divided by the number of shares outstanding for the applicable period. The Company presents EPS Prior to Amortization of Intangible Assets because management believes that the metric can provide investors with useful insight into the Company’s core operating performance by excluding non-cash items that management does not believe impact the Company’s ongoing operations. EPS Prior to Amortization of Intangible Assets is not a measure of the Company's financial performance under GAAP and should not be considered as an alternative to GAAP EPS or any other performance measure derived in accordance with GAAP. For a reconciliation of EPS Prior to Amortization of Intangible Assets to GAAP EPS, please see footnote 32 on page 21 of this release.
Gross Profit is calculated as net revenues, which were $1,242 million for the three months ended March 31, 2018, less commission and advisory expenses and brokerage, clearing, and exchange fees, which were $762 million and $16 million, respectively, for the three months ended March 31, 2018. All other expense categories, including depreciation and amortization of fixed assets and amortization of intangible assets, are considered general and

3



administrative in nature. Because the Company’s gross profit amounts do not include any depreciation and amortization expense, the Company considers its gross profit amounts to be non-GAAP financial measures that may not be comparable to those of others in its industry. Management believes that Gross Profit can provide investors with useful insight into the Company’s core operating performance before indirect costs that are general and administrative in nature.
Core G&A consists of total operating expenses, which were $1,092 million for the three months ended March 31, 2018, excluding the following expenses: commission and advisory, regulatory charges, promotional, employee share-based compensation, depreciation and amortization, amortization of intangible assets, and brokerage, clearing, and exchange. Management presents Core G&A because it believes Core G&A reflects the corporate operating expense categories over which management can generally exercise a measure of control, compared with expense items over which management either cannot exercise control, such as commission and advisory expenses, or which management views as promotional expense necessary to support advisor growth and retention including conferences and transition assistance. Core G&A is not a measure of the Company’s total operating expenses as calculated in accordance with GAAP. For a reconciliation of Core G&A against the Company’s total operating expenses, please see footnote 3 on page 19 of this release. The Company does not provide an outlook for its total operating expenses because it contains expense components, such as commission and advisory expenses, that are market-driven and over which the Company cannot exercise control. Accordingly a reconciliation of the Company’s outlook for Core G&A to an outlook for total operating expenses cannot be made available without unreasonable effort.
EBITDA is defined as net income plus interest expense, income tax expense, depreciation, amortization and loss on extinguishment of debt. The Company presents EBITDA because management believes that it can be a useful financial metric in understanding the Company’s earnings from operations. EBITDA is not a measure of the Company's financial performance under GAAP and should not be considered as an alternative to net income or any other performance measure derived in accordance with GAAP, or as an alternative to cash flows from operating activities as a measure of profitability or liquidity. In addition, the Company’s EBITDA can differ significantly from EBITDA calculated by other companies, depending on long-term strategic decisions regarding capital structure, the tax jurisdictions in which companies operate, and capital investments.
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 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, including the Company's acquisition of the broker/dealer network of National Planning Holdings, Inc. ("NPH"). The Company presents Credit Agreement EBITDA because management believes that it can be a useful financial metric in understanding the Company’s debt capacity and covenant compliance under its Credit Agreement. Credit Agreement EBITDA is not a measure of the Company's financial performance under GAAP and should not be considered as an alternative to net income or any other performance measure derived in accordance with GAAP, or as an alternative to cash flows from operating activities as a measure of profitability or liquidity. In addition, the Company’s Credit Agreement-defined EBITDA can differ significantly from adjusted EBITDA calculated by other companies, depending on long-term strategic decisions regarding capital structure, the tax jurisdictions in which companies operate, capital investments, and types of adjustments made by such companies.
Note on Pro Forma Calculations
This press release includes pro forma calculations, including EPS and net income prior to the impact of NPH and debt refinancing costs. 2018 pro forma amounts were calculated using a 28% effective tax rate, which is the mid-point of the Company’s expected effective tax rate between 27-29% for 2018. 2017 pro forma amounts were calculated using a 39.5% effective rate, which was the Company's prior expected effective tax rate.
Forward-Looking Statements
Statements in this press release regarding the Company's future financial and operating results, outlook, growth, priorities and business strategies, including forecasts and statements relating to NPH annual run-rate EBITDA accretion, total anticipated asset transfer from NPH, future expenses, future capital allocation, as well as any other statements that are not related to present facts or current conditions or that are not purely historical, constitute forward-looking statements. These forward-looking statements are based on the Company's historical performance and its plans, estimates, and expectations as of May 3, 2018. Forward-looking statements are not guarantees that the future results, plans, intentions, or expectations expressed or implied by the Company will be achieved. Matters

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subject to forward-looking statements involve known and unknown risks and uncertainties, including economic, legislative, regulatory, competitive, and other factors, which may cause actual financial or operating results, levels of activity, or the timing of events, to be materially different than those expressed or implied by forward-looking statements. Important factors that could cause or contribute to such differences include: changes in general economic and financial market conditions, including retail investor sentiment; changes in interest rates and fees payable by banks participating in the Company's cash sweep program, the Company's strategy and success in managing cash sweep program fees; changes in the growth and profitability of the Company's fee-based business;
fluctuations in the value and levels of advisory and brokerage assets and the related impact on revenue; effects of competition in the financial services industry and the success of the Company in attracting and retaining financial advisors and institutions; whether the retail investors served by newly-recruited advisors choose to open accounts and/or move their respective assets to new accounts at the Company; the effect of current, pending and future legislation, regulation and regulatory actions, including changes in the retail retirement savings area and disciplinary actions imposed by federal and state securities regulators and self-regulatory organizations; the costs of settling and remediating issues related to pending or future regulatory matters or legal proceedings; changes made to the Company’s offerings, services, and pricing, and the effect that such changes may have on the Company’s gross profit streams and costs; execution of the Company's plans and its success in realizing the synergies, expense savings, service improvements, and/or efficiencies expected to result from its initiatives and programs, including as a result of the NPH acquisition; and the other factors set forth in Part I, “Item 1A. Risk Factors” in the Company's 2017 Annual Report on Form 10-K, as may be amended or updated in the Company's Quarterly Reports on Form 10-Q or subsequent filings with the SEC. 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.




5



LPL Financial Holdings Inc.
Condensed Consolidated Statements of Income
(In thousands, except per share data)
(Unaudited)
 
Three Months Ended March 31,
 
 
 
2018
 
2017
 
% Change
REVENUES
 
 
 
 
 
Commission
$
474,811

 
$
421,164

 
13
%
Advisory
422,387

 
329,859

 
28
%
Asset-based
219,336

 
157,223

 
40
%
Transaction and fee
116,649

 
108,162

 
8
%
Interest income, net of interest expense
7,781

 
5,793

 
34
%
Other
593

 
13,226

 
(96
%)
Total net revenues
1,241,557

 
1,035,427

 
20
%
EXPENSES
 
 
 
 
 
Commission and advisory
761,697

 
645,063

 
18
%
Compensation and benefits
123,517

 
113,212

 
9
%
Promotional
67,427

 
36,654

 
84
%
Depreciation and amortization
20,701

 
20,747

 
%
Amortization of intangible assets
13,222

 
9,491

 
39
%
Occupancy and equipment
27,636

 
25,199

 
10
%
Professional services
22,172

 
15,537

 
43
%
Brokerage, clearing and exchange
15,877

 
14,186

 
12
%
Communications and data processing
11,174

 
11,014

 
1
%
Other
28,586

 
22,563

 
27
%
Total operating expenses
1,092,009

 
913,666

 
20
%
Non-operating interest expense
29,622

 
25,351

 
17
%
Loss on extinguishment of debt

 
21,139

 
n/m

INCOME BEFORE PROVISION FOR INCOME TAXES
119,926

 
75,271

 
59
%
PROVISION FOR INCOME TAXES
26,396

 
27,082

 
(3
%)
NET INCOME
$
93,530

 
$
48,189

 
94
%
EARNINGS PER SHARE
 
 
 
 
 
Earnings per share, basic
$
1.04

 
$
0.54

 
93
%
Earnings per share, diluted
$
1.01

 
$
0.52

 
94
%
Weighted-average shares outstanding, basic
89,997

 
89,868

 
%
Weighted-average shares outstanding, diluted
92,784

 
92,004

 
1
%








6



LPL Financial Holdings Inc.
Condensed Consolidated Statements of Income Trend
(In thousands, except per share data)
(Unaudited)
 
Quarterly Results
 
Q1 2018
 
Q4 2017
 
Q3 2017
REVENUES
 
 
 
 
 
Commission
$
474,811

 
$
425,943

 
$
403,011

Advisory
422,387

 
375,928

 
356,945

Asset-based
219,336

 
193,707

 
183,953

Transaction and fee
116,649

 
103,145

 
103,999

Interest income, net of interest expense
7,781

 
6,542

 
6,162

Other
593

 
11,177

 
10,038

Total net revenues
1,241,557

 
1,116,442

 
1,064,108

EXPENSES
 
 
 
 
 
Commission and advisory
761,697

 
697,725

 
663,765

Compensation and benefits
123,517

 
119,748

 
113,659

Promotional
67,427

 
60,066

 
42,935

Depreciation and amortization
20,701

 
20,138

 
21,996

Amortization of intangible assets
13,222

 
9,997

 
9,352

Occupancy and equipment
27,636

 
26,343

 
22,803

Professional services
22,172

 
20,675

 
16,438

Brokerage, clearing and exchange expense
15,877

 
15,480

 
13,491

Communications and data processing
11,174

 
12,416

 
10,866

Other
28,586

 
25,070

 
24,376

Total operating expenses
1,092,009

 
1,007,658

 
939,681

Non-operating interest expense
29,622

 
28,894

 
26,519

Loss on extinguishment of debt

 

 
1,268

INCOME BEFORE PROVISION FOR INCOME TAXES
119,926

 
79,890

 
96,640

PROVISION FOR INCOME TAXES
26,396

 
15,792

 
38,498

NET INCOME
$
93,530

 
$
64,098

 
$
58,142

EARNINGS PER SHARE
 
 
 
 
 
Earnings per share, basic
$
1.04

 
$
0.71

 
$
0.65

Earnings per share, diluted
$
1.01

 
$
0.69

 
$
0.63

Weighted-average shares outstanding, basic
89,997

 
89,921

 
89,967

Weighted-average shares outstanding, diluted
92,784

 
92,386

 
92,042


7



LPL Financial Holdings Inc.
Condensed Consolidated Statements of Financial Condition
(Dollars in thousands, except par value)
(Unaudited)
 
 
March 31,
2018
 
December 31, 2017
ASSETS
Cash and cash equivalents
 
$
820,056

 
$
811,136

Cash segregated under federal and other regulations
 
650,335

 
763,831

Restricted cash
 
55,418

 
50,688

Receivables from:
 
 
 
 
Clients, net of allowance of $514 at March 31, 2018 and $466 at December 31, 2017
 
384,215

 
344,230

Product sponsors, broker-dealers, and clearing organizations
 
216,733

 
196,207

Advisor loans, net of allowance of $3,446 at March 31, 2018 and $3,264 at December 31, 2017
 
232,904

 
219,157

Others, net of allowance of $7,283 at March 31, 2018 and $6,115 at December 31, 2017
 
245,120

 
228,986

Securities owned:
 
 
 
 
Trading — at fair value
 
16,255

 
17,879

Held-to-maturity — at amortized cost
 
10,585

 
11,833

Securities borrowed
 
6,663

 
12,489

Fixed assets, net of accumulated depreciation and amortization of $445,555 at March 31, 2018 and $427,344 at December 31, 2017
 
411,272

 
412,684

Goodwill
 
1,476,775

 
1,427,769

Intangible assets, net of accumulated amortization of $432,288 at March 31, 2018 and $419,066 at December 31, 2017
 
513,592

 
414,093

National Planning Holdings acquisition
 

 
162,500

Other assets
 
308,095

 
285,269

Total assets
 
$
5,348,018

 
$
5,358,751

LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES:
 
 
 
 
Drafts payable
 
$
136,936

 
$
185,929

Payables to clients
 
917,506

 
962,891

Payables to broker-dealers and clearing organizations
 
62,156

 
54,262

Accrued commission and advisory expenses payable
 
151,141

 
147,095

Accounts payable and accrued liabilities
 
447,943

 
461,149

Income taxes payable
 
23,425

 
469

Unearned revenue
 
96,410

 
72,222

Securities sold, but not yet purchased — at fair value
 
334

 
1,182

Long-term borrowing, net of unamortized debt issuance cost of $21,989 at March 31, 2018 and $22,812 at December 31, 2017
 
2,381,719

 
2,385,022

Leasehold financing and capital lease obligations
 
106,076

 
107,518

Deferred income taxes, net
 
15,879

 
16,004

Total liabilities
 
4,339,525

 
4,393,743

STOCKHOLDERS’ EQUITY:
 
 
 
 
Common stock, $.001 par value; 600,000,000 shares authorized; 124,037,616 shares issued at March 31, 2018 and 123,030,383 shares issued at December 31, 2017
 
124

 
123

Additional paid-in capital
 
1,592,436

 
1,556,117

Treasury stock, at cost — 34,270,821 shares at March 31, 2018 and 33,262,115 shares at December 31, 2017
 
(1,373,457
)
 
(1,309,568
)
Retained earnings
 
789,390

 
718,336

Total stockholders’ equity
 
1,008,493

 
965,008

Total liabilities and stockholders’ equity
 
$
5,348,018

 
$
5,358,751


8



LPL Financial Holdings Inc.
Management's Statements of Operations (1)
(In thousands, except per share data)
(Unaudited)
The information presented on pages 9-18 of this release is presented as reviewed by the Company’s management and includes information derived from the Company’s Unaudited Condensed Consolidated Statements of Income, non-GAAP financial measures, and operational and performance metrics. For information on non-GAAP financial measures, please see the section titled "Non-GAAP Financial Measures" that begins on page 3 of this release.
 
Quarterly Results
 
Q1 2018
 
Q4 2017
 
% Change
 
Q1 2017
 
% Change
Gross Profit(1)
 
 
 
 
 
 
 
 
 
Sales-based commissions
$
187,233

 
$
174,052

 
8
%
 
$
186,577

 
%
Trailing commissions
287,578

 
251,891

 
14
%
 
234,587

 
23
%
Advisory
422,387

 
375,928

 
12
%
 
329,859

 
28
%
Commission and advisory fees
897,198

 
801,871

 
12
%
 
751,023

 
19
%
Commission and advisory expense
(761,697
)
 
(697,725
)
 
9
%
 
(645,063
)
 
18
%
Commission and advisory fees, net of payout
135,501

 
104,146

 
30
%
 
105,960

 
28
%
Cash sweep
104,084

 
88,333

 
18
%
 
59,651

 
74
%
Other asset-based(2)
115,252

 
105,374

 
9
%
 
97,572

 
18
%
Transaction and fee
116,649

 
103,145

 
13
%
 
108,162

 
8
%
Interest income and other
8,374

 
17,719

 
(53
%)
 
19,019

 
(56
%)
Total net commission and advisory fees and attachment revenue
479,860


418,717

 
15
%
 
390,364

 
23
%
Brokerage, clearing, and exchange expense
(15,877
)
 
(15,480
)
 
3
%
 
(14,186
)
 
12
%
Gross Profit(1)
463,983

 
403,237

 
15
%
 
376,178

 
23
%
 
 
 
 
 
 
 
 
 
 
G&A Expense
 
 
 
 
 
 
 
 
 
Core G&A(3)
201,039

 
194,607

 
3
%
 
177,026

 
14
%
Regulatory charges
6,440

 
5,433

 
n/m

 
5,270

 
n/m

Promotional
67,427

 
60,066

 
12
%
 
36,654

 
84
%
Employee share-based compensation
5,606

 
4,212

 
33
%
 
5,229

 
7
%
Total G&A
280,512

 
264,318

 
6
%
 
224,179

 
25
%
EBITDA(1)
183,471

 
138,919

 
32
%
 
151,999

 
21
%
Depreciation and amortization
20,701

 
20,138

 
3
%
 
20,747

 
%
Amortization of intangible assets
13,222

 
9,997

 
32
%
 
9,491

 
39
%
Non-operating interest expense
29,622

 
28,894

 
3
%
 
25,351

 
17
%
Loss on extinguishment of debt

 

 
n/m

 
21,139

 
n/m

INCOME BEFORE PROVISION FOR INCOME TAXES
119,926

 
79,890

 
50
%
 
75,271

 
59
%
PROVISION FOR INCOME TAXES
26,396

 
15,792

 
67
%
 
27,082

 
(3
%)
NET INCOME
$
93,530

 
$
64,098

 
46
%
 
$
48,189

 
94
%
Earnings per share, diluted
$
1.01

 
$
0.69

 
46
%
 
$
0.52

 
94
%
Weighted-average shares outstanding, diluted
92,784

 
92,386

 
%
 
92,004

 
1
%

9



LPL Financial Holdings Inc.
Management's Statements of Operations Trend (1)
(In thousands, except per share data)
(Unaudited)
The information presented on pages 9-18 of this release is presented as reviewed by the Company’s management and includes information derived from the Company’s Unaudited Condensed Consolidated Statements of Income, non-GAAP financial measures, and operational and performance metrics. For information on non-GAAP financial measures, please see the section titled "Non-GAAP Financial Measures" that begins on page 3 of this release.
 
Quarterly Results
 
Q1 2018
 
Q4 2017
 
Q3 2017
Gross Profit(1)
 
 
 
 
 
Sales-based commissions
$
187,233

 
$
174,052

 
$
160,098

Trailing commissions
287,578

 
251,891

 
242,913

Advisory
422,387

 
375,928

 
356,945

Commission and advisory fees
897,198

 
801,871

 
759,956

Commission and advisory expense
(761,697
)
 
(697,725
)
 
(663,765
)
Commission and advisory fees, net of payout
135,501

 
104,146

 
96,191

Cash sweep
104,084

 
88,333

 
81,617

Other asset-based(2)
115,252

 
105,374

 
102,336

Transaction and fee
116,649

 
103,145

 
103,999

Interest income and other
8,374

 
17,719

 
16,200

Total net commission and advisory fees and attachment revenue
479,860

 
418,717


400,343

Brokerage, clearing, and exchange expense
(15,877
)
 
(15,480
)
 
(13,491
)
Gross Profit(1)
463,983

 
403,237

 
386,852

 
 
 
 
 
 
G&A Expense
 
 
 
 
 
Core G&A(3)
201,039

 
194,607

 
178,769

Regulatory charges
6,440

 
5,433

 
4,433

Promotional
67,427

 
60,066

 
42,935

Employee share-based compensation
5,606

 
4,212

 
4,940

Total G&A
280,512

 
264,318

 
231,077

EBITDA(1)
183,471

 
138,919

 
155,775

Depreciation and amortization
20,701

 
20,138

 
21,996

Amortization of intangible assets
13,222

 
9,997

 
9,352

Non-operating interest expense
29,622

 
28,894

 
26,519

Loss on extinguishment of debt

 

 
1,268

INCOME BEFORE PROVISION FOR INCOME TAXES
119,926

 
79,890

 
96,640

PROVISION FOR INCOME TAXES
26,396

 
15,792

 
38,498

NET INCOME
$
93,530

 
$
64,098

 
$
58,142

Earnings per share, diluted
$
1.01

 
$
0.69

 
$
0.63

Weighted-average shares outstanding, diluted
92,784

 
92,386

 
92,042


10



LPL Financial Holdings Inc.
Operating Measures (1)
(Dollars in billions, except where noted) (Unaudited)
 
Q1 2018
 
Q4 2017
 
Change
 
Q1 2017
 
Change
Market Drivers
 
 
 
 
 
 
 
 
 
S&P 500 Index (end of period)
2,641

 
2,674

 
(1%)
 
2,363

 
12%
Fed Funds Daily Effective Rate (FFER) (average bps)
145

 
120

 
25bps
 
70

 
75bps
Assets
 
 
 
 
 
 
 
 
 
Advisory Assets(4)
$
283.5

 
$
273.0

 
4%
 
$
225.7

 
26%
Brokerage Assets(5)
364.1

 
342.1

 
6%
 
304.6

 
20%
Total Brokerage and Advisory Assets
$
647.5


$
615.1

 
5%
 
$
530.3

 
22%
Advisory % of Total Assets
43.8
%
 
44.4
%
 
(60bps)
 
42.6
%
 
120bps
Assets Prior to NPH
 
 
 
 
 
 
 
 
 
Advisory Assets(4)
$
269.8

 
$
265.2

 
2%
 
$
225.7

 
20%
Brokerage Assets(5)
308.4

 
315.5

 
(2)%
 
304.6

 
1%
Total Brokerage and Advisory Assets
$
578.1

 
$
580.7

 
—%
 
$
530.3

 
9%
Advisory % of Total Assets
46.7
%
 
45.7
%
 
100bps
 
42.6
%
 
410bps
 
 
 
 
 
 
 
 
 
 
Assets by Platform
 
 
 
 
 
 
 
 
 
Corporate Platform Advisory Assets(6)
$
167.7

 
$
160.0

 
5%
 
$
133.6

 
26%
Hybrid Platform Advisory Assets(7)
115.7

 
113.0

 
2%
 
92.1

 
26%
Brokerage Assets
364.1

 
342.1

 
6%
 
304.6

 
20%
Total Brokerage and Advisory Assets
$
647.5


$
615.1

 
5%
 
$
530.3

 
22%
Assets by Platform Prior to NPH
 
 
 
 
 
 
 
 
 
Corporate Platform Advisory Assets(6)
$
155.7

 
$
152.7

 
2%
 
$
133.6

 
17%
Hybrid Platform Advisory Assets(7)
114.1

 
112.5

 
1%
 
92.1

 
24%
Brokerage Assets
308.4

 
315.5

 
(2%)
 
304.6

 
1%
Total Brokerage and Advisory Assets
$
578.1

 
$
580.7

 
—%
 
$
530.3

 
9%
 
 
 
 
 
 
 
 
 
 
Centrally Managed Assets
 
 
 
 
 
 
 
 
 
Centrally Managed Assets(8)
$
35.9

 
$
32.9

 
9%
 
$
25.0

 
44%
Centrally Managed % of Total Advisory Assets
12.7
%
 
12.1
%
 
60bps
 
11.1
%
 
160bps
Centrally Managed Assets Prior to NPH
 
 
 
 
 
 
 
 
 
Centrally Managed Assets(8)
$
33.3

 
$
31.8

 
5%
 
$
25.0

 
33%
Centrally Managed % of Total Advisory Assets
12.3
%
 
12.0
%
 
30bps
 
11.1
%
 
120bps
 
 
 
 
 
 
 
 
 
 
Retirement Assets
 
 
 
 
 
 
 
 
 
Advisory Retirement Assets
$
159.2

 
$
152.6

 
4%
 
$
124.5

 
28%
Brokerage Retirement Assets
186.3

 
168.7

 
10%
 
148.4

 
26%
Total Retirement Assets(9)
$
345.5


$
321.3

 
8%
 
$
272.9

 
27%
Retirement % of Total Assets
53.4
%

52.2
%
 
120bps
 
51.5
%
 
190bps
Retirement Assets Prior to NPH
 
 
 
 
 
 
 
 
 
Advisory Retirement Assets
$
150.6

 
$
147.8

 
2%
 
$
124.5

 
21%
Brokerage Retirement Assets
156.2

 
158.6

 
(2)%
 
148.4

 
5%
Total Retirement Assets(9)
$
306.8

 
$
306.4

 
—%
 
$
272.9

 
12%
Retirement % of Total Assets
53.1
%
 
52.8
%
 
30bps
 
51.5
%
 
160bps

11



LPL Financial Holdings Inc.
Operating Measures (1)
(Dollars in billions, except where noted) (Unaudited)
 
Q1 2018
 
Q4 2017
 
Change
 
Q1 2017
 
Change
Net New Assets (NNA)
 
 
 
 
 
 
 
 
 
Net New Advisory Assets(10)
$
13.1

 
$
14.0

 
n/m
 
$
6.0

 
n/m
Net New Brokerage Assets(11)
25.8

 
23.5

 
n/m
 
(3.4
)
 
n/m
Total Net New Assets
$
38.9


$
37.5


n/m

$
2.6


n/m
Net Brokerage to Advisory Conversions(12)
$
2.5

 
$
2.1

 
n/m
 
$
2.3

 
n/m
 
 
 
 
 
 
 
 
 
 
Net New Assets Prior to NPH
 
 
 
 
 
 
 
 
 
Net New Advisory Assets(10)
$
6.9

 
$
6.3

 
n/m
 
$
6.0

 
n/m
Net New Brokerage Assets(11)
(4.1
)
 
(3.0
)
 
n/m
 
(3.4
)
 
n/m
Total Net New Assets
$
2.9

 
$
3.3

 
n/m
 
$
2.6

 
n/m
Advisory NNA Annualized Growth(13)
10
%
 
10
%
 
n/m
 
11
%
 
n/m
Total NNA Annualized Growth(13)
2
%
 
2
%
 
n/m
 
2
%
 
n/m
 
 
 
 
 
 
 
 
 
 
Net New Advisory Assets
 
 
 
 
 
 
 
 
 
Corporate Platform Net New Advisory Assets(14)
$
10.4

 
$
11.1

 
n/m
 
$
3.5

 
n/m
Hybrid Platform Net New Advisory Assets(15)
2.7

 
2.9

 
n/m
 
2.5

 
n/m
Total Net New Advisory Assets
$
13.1

 
$
14.0

 
n/m
 
$
6.0

 
n/m
Centrally Managed Net New Advisory Assets(16)
$
3.3

 
$
2.5

 
n/m
 
$
0.9

 
n/m
 
 
 
 
 
 
 
 
 
 
Net New Advisory Assets Prior to NPH
 
 
 
 
 
 
 
 
 
Corporate Platform Net New Advisory Assets(14)
$
4.3

 
$
3.9

 
n/m
 
$
3.5

 
n/m
Hybrid Platform Net New Advisory Assets(15)
2.6

 
2.4

 
n/m
 
2.5

 
n/m
Total Net New Advisory Assets
$
6.9

 
$
6.3

 
n/m
 
$
6.0

 
n/m
Centrally Managed Net New Advisory Assets(16)
$
1.8

 
$
1.4

 
n/m
 
$
0.9

 
n/m
 
 
 
 
 
 
 
 
 
 
Cash Sweep Balances
 
 
 
 
 
 
 
 
 
Insured Cash Account Balances
$
22.6

 
$
22.9

 
(1%)
 
$
22.0

 
3%
Deposit Cash Account Balances
4.2

 
4.2

 
—%
 
4.2

 
—%
Money Market Account Cash Balances
2.9

 
2.7

 
7%
 
3.8

 
(24%)
Total Cash Sweep Balances
$
29.6

 
$
29.8

 
(1%)
 
$
30.0

 
(1%)
Cash Sweep % of Total Assets
4.6
%
 
4.8
%
 
(20bps)
 
5.7
%
 
(110bps)
Cash Sweep Balances Prior to NPH
 
 
 
 
 
 
 
 
 
Insured Cash Account Balances
$
21.7

 
$
22.5

 
(4%)
 
$
22.0

 
(1%)
Deposit Cash Account Balances
3.8

 
4.0

 
(5%)
 
4.2

 
(10%)
Money Market Account Cash Balances
2.1

 
2.3

 
(9%)
 
3.8

 
(45%)
Total Cash Sweep Balances
$
27.6

 
$
28.8

 
(4%)
 
$
30.0

 
(8%)
Cash Sweep % of Total Assets
4.8
%
 
5.0
%
 
(20bps)
 
5.7
%
 
(90bps)
 
 
 
 
 
 
 
 
 
 
Cash Sweep Average Fees
 
 
 
 
 
 
 
 
 
Insured Cash Account Average Fee - bps(17)
152

 
132

 
20
 
88

 
64
Deposit Cash Account Fee Average Fee - bps(17)
150

 
113

 
37
 
62

 
88
Money Market Account Average Fee - bps(17)
71

 
69

 
2
 
53

 
18
Total Cash Sweep Average Fee - bps(17)
144

 
124

 
20
 
80

 
64

12



LPL Financial Holdings Inc.
Monthly Metrics (1)
(Dollars in billions, except where noted)
(Unaudited)
 
 
March 2018
 
February 2018
 
Feb to Mar Change
 
January 2018
 
December 2017
Assets Served
 
 
 
 
 
 
 
 
 
 
Advisory Assets(4)
 
$
283.5

 
$
284.3

 
(0.3%)
 
$
284.2

 
$
273.0

Brokerage Assets(5)
 
364.1

 
366.6

 
(0.7%)
 
352.3

 
342.1

Total Brokerage and Advisory Assets
 
$
647.5

 
$
650.9

 
(0.5%)
 
$
636.5

 
$
615.1

 
 
 
 
 
 

 
 
 
 
Assets Served Prior to NPH
 
 
 
 
 
 
 
 
 
 
Advisory Assets(4)
 
$
269.8

 
$
270.6

 
(0.3%)
 
$
276.0

 
$
265.2

Brokerage Assets(5)
 
308.4

 
313.6

 
(1.7%)
 
322.4

 
315.5

Total Brokerage and Advisory Assets
 
$
578.1

 
$
584.2

 
(1.0%)
 
$
598.4

 
$
580.7

 
 
 
 
 
 
 
 
 
 
 
Net New Assets
 
 
 
 
 
 
 
 
 
 
Net New Advisory Assets(10)
 
$
1.7

 
$
8.4

 
n/m
 
$
3.0

 
$
10.0

Net New Brokerage Assets(11)
 
2.1

 
23.0

 
n/m
 
0.7

 
25.6

Total Net New Assets
 
$
3.8

 
$
31.4

 
n/m
 
$
3.7

 
$
35.6

Net Brokerage to Advisory Conversions(12)
 
$
0.7

 
$
0.8

 
n/m
 
$
1.0

 
$
0.7

 
 
 
 
 
 
 
 
 
 
 
Net New Assets Prior to NPH
 
 
 
 
 
 
 
 
 
 
Net New Advisory Assets(10)
 
$
1.7

 
$
2.5

 
n/m
 
$
2.8

 
$
2.4

Net New Brokerage Assets(11)
 
(1.6
)
 
(0.9
)
 
n/m
 
(1.6
)
 
(0.9
)
Total Net New Assets
 
$
0.1

 
$
1.6

 
n/m
 
$
1.2

 
$
1.5

 
 
 
 
 
 
 
 
 
 
 
Cash Sweep Balances
 
 
 
 
 
 
 
 
 
 
Insured Cash Account Balances
 
$
22.6

 
$
22.6

 
—%
 
$
22.2

 
$
22.9

Deposit Cash Account Balances
 
4.2

 
4.1

 
2.4%
 
4.0

 
4.2

Money Market Account Cash Balances
 
2.9

 
3.0

 
(3.3%)
 
2.5

 
2.7

Total Client Cash Sweep Balances
 
$
29.6

 
$
29.7

 
(0.3%)
 
$
28.7

 
$
29.8

 
 
 
 
 
 

 
 
 
 
Cash Sweep Balances Prior to NPH
 
 
 
 
 
 
 
 
 
 
Insured Cash Account Balances
 
$
21.7

 
$
21.8

 
(0.5%)
 
$
21.7

 
$
22.5

Deposit Cash Account Balances
 
3.8

 
3.8

 
—%
 
3.8

 
4.0

Money Market Account Cash Balances
 
2.1

 
2.2

 
(4.5%)
 
2.2

 
2.3

Total Client Cash Sweep Balances
 
$
27.6

 
$
27.7

 
(0.4%)
 
$
27.7

 
$
28.8

 
 
 
 
 
 
 
 
 
 
 
Market Indices
 
 
 
 
 

 
 
 
 
S&P 500 Index (end of period)
 
2,641

 
2,714

 
(2.7%)
 
2,824

 
2,674

Fed Funds Effective Rate (average bps)
 
151

 
142

 
9bps
 
142

 
130


13



LPL Financial Holdings Inc.
Financial Measures (1)
(Dollars in thousands, except where noted)
(Unaudited)

 
Q1 2018
 
Q4 2017
 
% Change
 
Q1 2017
 
% Change
Commission Revenue by Product
 
 
 
 
 
 
 
 
 
Variable annuities
$
200,043

 
$
174,209

 
15%
 
$
166,796

 
20%
Mutual funds
153,745

 
137,316

 
12%
 
131,474

 
17%
Alternative investments
5,567

 
6,547

 
(15%)
 
7,171

 
(22%)
Fixed annuities
34,055

 
32,054

 
6%
 
36,912

 
(8%)
Equities
23,601

 
20,659

 
14%
 
21,974

 
7%
Fixed income
30,324

 
26,373

 
15%
 
27,495

 
10%
Insurance
18,494

 
19,998

 
(8%)
 
17,722

 
4%
Group annuities
8,894

 
8,638

 
3%
 
11,479

 
(23%)
Other
88

 
149

 
(41%)
 
141

 
(38%)
Total commission revenue
$
474,811

 
$
425,943

 
11%
 
$
421,164

 
13%
 
 
 
 
 

 
 
 

Commission Revenue by Sales-based and Trailing Commission
 

 
 
 

Sales-based commissions
 
 
 
 
 
 
 
 
 
Variable annuities
$
53,902

 
$
51,523

 
5%
 
$
50,925

 
6%
Mutual funds
37,057

 
32,318

 
15%
 
36,461

 
2%
Alternative investments
1,830

 
2,940

 
(38%)
 
5,154

 
(64%)
Fixed annuities
28,337

 
26,767

 
6%
 
32,094

 
(12%)
Equities
23,601

 
20,659

 
14%
 
21,974

 
7%
Fixed income
24,355

 
20,548

 
19%
 
21,902

 
11%
Insurance
16,865

 
18,512

 
(9%)
 
16,146

 
4%
Group annuities
1,198

 
636

 
88%
 
1,780

 
(33%)
Other
88

 
149

 
(41%)
 
141

 
(38%)
Total sales-based commissions
$
187,233

 
$
174,052

 
8%
 
$
186,577

 
—%
Trailing commissions
 
 
 
 

 
 
 

Variable annuities
$
146,141

 
$
122,686

 
19%
 
$
115,871

 
26%
Mutual funds
116,688

 
104,998

 
11%
 
95,013

 
23%
Alternative investments
3,737

 
3,607

 
4%
 
2,017

 
85%
Fixed annuities
5,718

 
5,287

 
8%
 
4,818

 
19%
Fixed income
5,969

 
5,825

 
2%
 
5,593

 
7%
Insurance
1,629

 
1,486

 
10%
 
1,576

 
3%
Group annuities
7,696

 
8,002

 
(4%)
 
9,699

 
(21%)
Total trailing commissions
$
287,578

 
$
251,891

 
14%
 
$
234,587

 
23%
Total commission revenue
$
474,811

 
$
425,943

 
11%
 
$
421,164

 
13%



14



LPL Financial Holdings Inc.
Financial Measures (1)
(Dollars in thousands, except where noted)
(Unaudited)
 
Q1 2018
 
Q4 2017
 
Change
 
Q1 2017
 
Change
Payout Rate
 
 
 
 
 
 
 
 
 
Base Payout Rate
82.60
%
 
82.56
%
 
4bps
 
82.99
%
 
(39bps)
Production Based Bonuses
2.05
%
 
3.28
%
 
(123bps)
 
1.72
%
 
33bps
GDC Sensitive Payout
84.65
%
 
85.84
%
 
(119bps)
 
84.71
%
 
(6bps)
Non-GDC Sensitive Payout
0.25
%
 
1.17
%
 
(92bps)
 
1.18
%
 
(93bps)
Total Payout Ratio
84.90
%
 
87.01
%
 
(211bps)
 
85.89
%
 
(99bps)
Production Based Bonuses Ratio (Trailing Twelve Months)
2.73
%
 
2.65
%
 
8bps
 
2.65
%
 
8bps

15



LPL Financial Holdings Inc.
Capital Management Measures (1)
(Dollars in thousands, except where noted)
(Unaudited)
 
Q1 2018
 
Q4 2017
Credit Agreement EBITDA Trailing Twelve Months(1)(18)
 
 
 
Net income
$
284,204

 
$
238,863

Non-operating interest expense
111,296

 
107,025

Provision for income taxes
125,021

 
125,707

Loss on extinguishment of debt
1,268

 
22,407

Depreciation and amortization
84,025

 
84,071

Amortization of intangible assets
42,024

 
38,293

EBITDA(1)
$
647,838

 
$
616,366

Credit Agreement Adjustments:
 
 
 
Employee share-based compensation expense
$
19,790

 
$
19,413

Advisor share-based compensation expense
9,358

 
9,109

NPH run-rate EBITDA accretion(19)
90,000

 
42,500

Realized NPH EBITDA Offset(20)
(4,500
)
 
2,100

NPH onboarding costs
67,516

 
31,831

Other(21)
20,769

 
24,017

Credit Agreement EBITDA Trailing Twelve Months(1)(18)
$
850,771

 
$
745,336

 
 
 
 
Cash Available for Corporate Use(22)
 
 
 
Cash at Parent
$
429,715

 
$
387,446

Excess Cash at Broker-Dealer subsidiary per Credit Agreement
36,342

 
44,031

Other Available Cash
8,237

 
7,996

Total Cash Available for Corporate Use
$
474,294

 
$
439,473

 
 
 
 
Credit Agreement Net Leverage
 
 
 
Total Debt (does not include unamortized premium)
$
2,392,500

 
$
2,396,250

Cash Available (up to $300 million)
300,000

 
300,000

Credit Agreement Net Debt
$
2,092,500

 
$
2,096,250

Credit Agreement EBITDA Trailing Twelve Months(18)
$
850,771

 
$
745,336

Credit Agreement Net Leverage Ratio
2.46
x
 
2.81
x

16



LPL Financial Holdings Inc.
Debt Schedule (1)
(Dollars in thousands, except where noted)
(Unaudited)

Total Debt
 
Outstanding (end of period)
 
Current Applicable
Margin
 
Yield At Issuance
 
Interest Rate (end of period)
 
Maturity
Revolving Credit Facility(a)
 
$

 
LIBOR+125bps(b)
 
 
 
%
 
9/21/2022
Senior Secured Term Loan B
 
1,492,500

 
LIBOR+225 bps(b)
 
 
 
4.56
%
 
9/21/2024
Senior Unsecured Notes(c)
 
500,000

 
5.75% Fixed
 
5.750
%
 
5.75
%
 
9/15/2025
Senior Unsecured Notes(c)
 
400,000

(d)
5.75% Fixed
 
5.115
%
 
5.75
%
 
9/15/2025
Total / Weighted Average
 
$
2,392,500

 
 
 
 
 
5.01
%
 
 

(a)
The Revolving Credit Facility has a borrowing capacity of $500 million.
(b)
The LIBOR rate option is one-, two-, three- or six-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 $11.2 million as of March 31, 2018.


17



LPL Financial Holdings Inc.
Key Business and Financial Metrics (1)
(Dollars in thousands, except where noted)
(Unaudited)
 
Q1 2018
 
Q4 2017
 
Change
 
Q1 2017
 
Change
Advisors
 
 
 
 
 
 
 
 
 
Advisors
16,067

 
15,210

 
6
%
 
14,354

 
12
%
Net New Advisors
857

 
957

 
n/m

 
(23
)
 
n/m

Annualized commission and advisory fees per Advisor(23)
$
230

 
$
218

 
6
%
 
$
209

 
10
%
Average Total Assets per Advisor ($ in millions)(24)
$
40.3

 
$
40.4

 
%
 
$
36.9

 
9
%
Transition assistance loan amortization($ in millions)(25)
$
16.8

 
$
14.5

 
16
%
 
$
13.6

 
24
%
Total client accounts (in millions)
5.3

 
4.8

 
10
%
 
4.6

 
15
%
 
 
 
 
 
 
 
 
 
 
Employees - period end
3,838

 
3,736

 
3
%
 
3,306

 
16
%
 
 
 
 
 
 
 
 
 
 
Productivity Metrics
 
 
 
 
 
 
 
 
 
Annualized Advisory Revenue as a percentage of Corporate Advisory Assets
1.06
%
 
1.04
%
 
2
bps
 
1.04
%
 
2
bps
Gross Profit ROA(26)
28.8
bps
 
27.5
bps
 
1.3
bps
 
28.7
bps
 
0.1
bps
OPEX ROA(27)
19.5
bps
 
20.1
bps
 
(0.6
bps)
 
19.4
bps
 
0.1
bps
EBIT ROA(28)
9.3
bps
 
7.4
bps
 
1.9
bps
 
9.3
bps
 

Production Retention Rate (YTD annualized)(29)
96.2
%
 
95.0
%
 
120
bps
 
95.4
%
 
80
bps
Recurring Gross Profit Rate (trailing twelve months) (30)
83.9
%
 
82.6
%
 
130
bps
 
80.9
%
 
300
bps
EBITDA as a percentage of Gross Profit
39.5
%
 
34.5
%
 
500
bps
 
40.4
%
 
(90
bps)
 
 
 
 
 
 
 
 
 
 
Productivity Metrics Prior to NPH
 
 
 
 
 
 
 
 
 
Gross Profit ROA(26)
30.0
bps
 
27.8
bps
 
2.2
bps
 
28.7
bps
 
1.3
bps
OPEX ROA(26)
17.5
bps
 
18.0
bps
 
(0.5
bps)
 
19.4
bps
 
(1.9
bps)
EBIT ROA(27)
12.5
bps
 
9.8
bps
 
2.7
bps
 
9.3
bps
 
3.2
bps
EBITDA as a percentage of Gross Profit
48.4
%
 
42.6
%
 
580
bps
 
40.4
%
 
800
bps
 
 
 
 
 
 
 
 
 
 
Capital Allocation per Share(31)
(in millions, except per share data)
 
 
 
 


 
 
 


Share Repurchases
$
60.8

 
$
30.0

 
103
%
 
$
22.5

 
170
%
Dividends
22.6

 
22.5

 
%
 
22.6

 
%
Total Capital Allocated
$
83.4

 
$
52.5

 
59
%
 
$
45.1

 
85
%
Weighted-average Share Count, Diluted
92.8

 
92.4

 
%
 
92.0

 
1
%
Total Capital Allocated per Share(31)
$
0.90

 
$
0.57

 
58
%
 
$
0.49

 
84
%

18



Endnote Disclosures
(1)
The information presented on pages 9-18 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.
(2)
Other asset-based revenues consist of revenues from the Company's sponsorship programs with financial product manufacturers and omnibus processing and networking services, but does not include fees from cash sweep 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.
(3)
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 expense for the periods presented:
 
Q1 2018
 
Q4 2017
 
Q1 2017
Operating Expense Reconciliation (in thousands)
 
 
 
 
 
Core G&A
$
201,039

 
$
194,607

 
$
177,026

Regulatory charges
6,440

 
5,433

 
5,270

Promotional
67,427

 
60,066

 
36,654

Employee share-based compensation
5,606

 
4,212

 
5,229

Total G&A
280,512

 
264,318

 
224,179

Commissions and advisory
761,697

 
697,725

 
645,063

Depreciation & amortization
20,701

 
20,138

 
20,747

Amortization of intangible assets
13,222

 
9,997

 
9,491

Brokerage, clearing and exchange
15,877

 
15,480

 
14,186

Total operating expense
$
1,092,009


$
1,007,658


$
913,666


(4)
Consists of total advisory assets under custody at the Company’s broker-dealer subsidiary LPL Financial LLC (“LPL Financial”).
(5)
Consists of brokerage assets serviced by advisors licensed with LPL Financial.
(6)
Consists of total assets on LPL Financial's corporate advisory platform serviced by investment advisor representatives of LPL Financial.
(7)
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.
(8)
Centrally Managed Assets represents those Advisory Assets in LPL Financial’s Model Wealth Portfolios, Optimum Market Portfolios, Personal Wealth Portfolios, and Guided Wealth Portfolios platforms.
(9)
Total Retirement Assets are a component of Total Brokerage and Advisory Assets. This measure does not include additional retirement plan assets custodied with third parties, estimated to be $140 billion as of March 31, 2018.
(10)
Consists of total client deposits into advisory accounts less total client withdrawals from advisory accounts. The Company considers conversions from and to brokerage accounts as deposits and withdrawals respectively.
(11)
Consists of total client deposits into brokerage accounts less total client withdrawals from brokerage accounts. The Company considers conversions from and to advisory accounts as deposits and withdrawals respectively.
(12)
Consists of existing custodied assets that converted from brokerage to advisory, less existing custodied assets that converted from advisory to brokerage.
(13)
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.
(14)
Consists of total client deposits into advisory accounts on LPL Financial's corporate advisory platform (FN 6) less total client withdrawals from advisory accounts on its corporate advisory platform.

19



(15)
Consists of total client deposits into advisory accounts on LPL Financial's independent advisory platform (FN 7) less total client withdrawals from advisory accounts on its independent advisory platform.
(16)
Consists of total client deposits into Centrally Managed Assets accounts (FN 8) less total client withdrawals from Centrally Managed Assets accounts.
(17)
Calculated by dividing revenue for the period by the average balance during the period.
(18)
Under the Credit Agreement, management calculates Credit Agreement EBITDA for a trailing twelve month period at the end of each fiscal quarter.
(19)
Represents estimated potential future cost savings, operating expense reductions or other synergies included in Credit Agreement EBITDA in accordance with the Credit Agreement relating to the acquisition of NPH. Such amounts do not represent actual performance and there can be no assurance that any such cost savings, operating expense reductions or other synergies will be realized.
(20)
Represents the portion of Credit Agreement EBITDA that management estimates to be attributable to the NPH acquisition, which is added back to offset NPH run-rate EBITDA accretion, in accordance with the Credit Agreement.
(21)
Represents items that are adjustable in accordance with the Credit Agreement to calculate Credit Agreement EBITDA, including employee severance costs, employee signing costs, employee retention or completion bonuses, and other non-recurring costs.
(22)
Consists of cash unrestricted by the Credit Agreement and other regulations available for operating, investing, and financing uses.
(23)
Calculated based on the average advisor count from the current period and prior period.
(24)
Calculated based on the end of period Total Brokerage and Advisory Assets divided by end of period Advisor count.
(25)
Represents the amortization expense amount of forgivable loans from transition assistance paid to advisors and financial institutions.
(26)
Represents annualized Gross Profit (FN 1) for the period, divided by average month-end Total Brokerage and Advisory Assets for the period. Prior to Q4 2017, Management calculated Gross Profit ROA by dividing annualized Gross Profit for the period by Total Brokerage and Advisory Assets at the end of the period. Amounts in this release reflect this new methodology.
(27)
Represents annualized operating expenses for the 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 3), Regulatory, Promotional, Employee Share Based Compensation, Depreciation & Amortization, and Amortization of Intangible Assets. Prior to Q4 2017, Management calculated OPEX ROA by dividing annualized operating expenses for the period by Total Brokerage and Advisory Assets at the end of the period. Amounts in this release reflect this new methodology.
(28)
EBIT ROA is calculated as Gross Profit ROA less OPEX ROA.
(29)
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.
(30)
Recurring Gross Profit Rate refers to the percentage of the Company’s gross profit, a non-GAAP financial measure, that was recurring for the period presented. 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, cash sweep 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, such as non-GDC sensitive production expenses, on a pro-rata basis against specific revenue lines at its discretion.
(31)
Capital Allocation per Share equals the amount of capital allocated for share repurchases and cash dividends divided by the diluted weighted-average shares outstanding.






20





(32)
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 against the Company’s GAAP EPS for the periods presented:
EPS Reconciliation (in thousands, except per share data)
Q1 2018
EPS
$
1.01

Amortization of Intangible Assets
$
13,222

Tax Benefit
(3,702
)
  Amortization of Intangible Assets Net of Tax Benefit
$
9,520

Diluted Share Count
92,784

EPS Impact
$
0.10

EPS Prior to Amortization of Intangible Assets
$
1.11

 

21