EX-99.1 2 a2019q2earningsrelease.htm PRESS RELEASE Exhibit


lpllogo541largenewnolinesa11.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 Second Quarter 2019 Results
Second Quarter 2019 Key Performance Indicators
•
Earnings per share ("EPS") increased 32% year-over-year to $1.71.
◦
Net Income increased 23% year-over-year to $146 million.
•
EPS Prior to Amortization of Intangible Assets** increased 30% year-over-year to $1.85.
•
Total Brokerage and Advisory Assets increased 7% year-over-year to $706 billion.
•
Total Net New Assets were an inflow of $4.0 billion, translating to a 2.3% annualized growth rate.
◦
Prior to the impact of a hybrid firm that formed its own broker-dealer, total net new assets were an inflow of $5.2 billion, translating to an annualized growth rate of 3.0%
◦
Total Net New Assets increased throughout the quarter from $0.7 billion in April to $1.4 billion in May to $1.9 billion in June.
◦
Net new advisory assets were an inflow of $6.6 billion, translating to a 8.4% annualized growth rate.
◦
Net new brokerage assets were an outflow of $2.6 billion, translating to a (2.7)% annualized rate.
◦
Recruited Assets(1) were $8.5 billion, contributing to a trailing twelve-month total of $33.3 billion.
◦
Advisor count was 16,161, and production retention rate was 96%.
▪
Prior to the impact of a hybrid firm that formed its own broker-dealer, advisor count increased by 161 sequentially and 372 year-over-year.
•
Total client cash balances were $30.1 billion, down $0.7 billion sequentially.
◦
Total client cash balances increased throughout the quarter, from $29.6 billion in April to $29.8 billion in May to $30.1 billion in June.
•
Gross Profit** increased 11% year-over-year to $536 million.
•
EBITDA** increased 15% year-over-year to $268 million.
◦
EBITDA** as a percentage of Gross Profit** was 50%, up from 48% a year ago.
◦
Core G&A** increased 10% year-over-year to $211 million, down 1% sequentially.
•
Shareholder capital returns were $146 million, translating to $1.71 per share.
◦
Share repurchases were $125 million for 1.6 million shares at an average purchase price of $78.54.
◦
Weighted average fully diluted share count was 85.4 million, down 7% year-over-year.
◦
Dividends were $21 million.
•
Cash available for corporate use was $296 million.
•
Credit Agreement Net Leverage Ratio(2) was 1.99x, down 0.06x from the prior quarter.
Key Updates
•
Anticipate Allen & Co.* acquisition will close by the end of Q3 2019.
•
Updated 2019 Core G&A** outlook range to $860 to $875 million by both tightening the range and adding $5 million related to the acquisition of Allen & Co.
•
Completed $125 million of share repurchases in the second quarter.


1


SAN DIEGO - July 25, 2019 — LPL Financial Holdings Inc. (Nasdaq: LPLA) (the “Company”) today announced results for its second quarter ended June 30, 2019, reporting net income of $146 million, or $1.71 per share. This compares with $119 million, or $1.30 per share, in the second quarter of 2018 and $155 million, or $1.79 per share, in the prior quarter.

“We believe a well-positioned strategy combined with extraordinary execution and a mission-driven culture will drive long-term growth and value,” said Dan Arnold, President and CEO. “In the second quarter, this approach helped us deliver business and financial growth, including surpassing $700 billion in total brokerage and advisory assets served for the first time. Going forward, we will continue to focus on our strategy as we work to innovate on new advisor affiliation models and capabilities, deliver an industry-leading service experience, and create a new layer of value in the independent marketplace.”

“We delivered solid business and financial results in the second quarter,” said Matt Audette, CFO. “Organic growth increased throughout the quarter, earnings per share grew year-over-year, and we continued our pace of capital return to shareholders. We also ramped our investment in technology to support our advisors and drive future growth. Looking forward, we believe our business and financial strength positions us well to drive long-term shareholder value.”

Dividend Declaration
The Company's Board of Directors declared a $0.25 per share dividend to be paid on August 23, 2019 to all stockholders of record as of August 13, 2019.
Conference Call and Additional Information
The Company will hold a conference call to discuss its results at 5:00 p.m. EDT on Thursday, July 25. To listen, call 877-677-9122 (domestic) or 708-290-1401 (international); passcode 6269674, 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 August 1 and August 15, respectively. For telephonic replay, call 855-859-2056 (domestic) or 404-537-3406 (international); passcode 6269674.
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 their 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 1996-2018.
Securities and Advisory Services offered through LPL Financial. A Registered Investment Advisor, Member FINRA/SIPC.
*Allen & Company of Florida, Inc. (“Allen & Co.”)

2


**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 33 on page 19 of this release.
Gross Profit is calculated as net revenues, which were $1,390 million for the three months ended June 30, 2019, less commission and advisory expenses and brokerage, clearing, and exchange fees, which were $838 million and $16 million, respectively, for the three months ended June 30, 2019. 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 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 $1,161 million for the three months ended June 30, 2019, 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 7 on page 18 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 and other expense, income tax expense, depreciation and amortization and amortization of intangibles 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, 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. 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

3


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.
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 2019 Core G&A** outlook), the acquisition of Allen & Co., future advisor affiliation models and capabilities, future advisor service experience, future capital returns and long-term shareholder value, 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 July 25, 2019. 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 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 client cash programs, the Company's strategy and success in managing client cash program fees; changes in the growth and profitability of the Company's fee-based business; fluctuations in the levels of advisory and brokerage assets, including net new assets, and the related impact on revenue; effects of competition in the financial services industry and the success of the Company in attracting and retaining financial advisors and 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; 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, and the other factors set forth in Part I, “Item 1A. Risk Factors” in the Company's 2018 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 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.




4


LPL Financial Holdings Inc.
Condensed Consolidated Statements of Income
(In thousands, except per share data)
(Unaudited)
 
Three Months Ended June 30,
 
 
 
Six Months Ended June 30,
 
 
 
2019
 
2018
 
% Change
 
2019
 
2018
 
% Change
REVENUES
 
 
 
 
 
 
 
 
 
 
 
Commission
$
479,135

 
$
488,085

 
(2
%)
 
$
940,494

 
$
962,896

 
(2
%)
Advisory
481,309

 
438,917

 
10
%
 
935,247

 
861,304

 
9
%
Asset-based
288,551

 
238,603

 
21
%
 
584,914

 
457,939

 
28
%
Transaction and fee
118,335

 
116,455

 
2
%
 
240,815

 
233,104

 
3
%
Interest income, net of interest expense
11,690

 
10,133

 
15
%
 
24,011

 
17,914

 
34
%
Other
10,737

 
6,611

 
n/m

 
35,955

 
7,204

 
n/m

Total net revenues
1,389,757

 
1,298,804

 
7
%
 
2,761,436

 
2,540,361

 
9
%
EXPENSES
 
 
 
 
 
 
 
 
 
 
 
Commission and advisory
838,022

 
800,619

 
5
%
 
1,637,720

 
1,562,316

 
5
%
Compensation and benefits
131,788

 
122,360

 
8
%
 
268,700

 
245,877

 
9
%
Promotional
41,423

 
43,407

 
(5
%)
 
92,772

 
110,834

 
(16
%)
Depreciation and amortization
22,584

 
22,220

 
2
%
 
46,054

 
42,921

 
7
%
Amortization of intangible assets
16,249

 
15,682

 
4
%
 
32,417

 
28,904

 
12
%
Occupancy and equipment
33,320

 
26,904

 
24
%
 
66,426

 
54,540

 
22
%
Professional services
18,837

 
15,922

 
18
%
 
38,449

 
38,094

 
1
%
Brokerage, clearing and exchange
15,994

 
15,433

 
4
%
 
32,138

 
31,310

 
3
%
Communications and data processing
12,532

 
11,038

 
14
%
 
24,859

 
22,212

 
12
%
Other
29,975

 
30,370

 
(1
%)
 
56,378

 
58,956

 
(4
%)
Total operating expenses
1,160,724

 
1,103,955

 
5
%
 
2,295,913

 
2,195,964

 
5
%
Non-operating interest expense and other
33,957

 
31,940

 
6
%
 
66,673

 
61,562

 
8
%
INCOME BEFORE PROVISION FOR INCOME TAXES
195,076

 
162,909

 
20
%
 
398,850

 
282,835

 
41
%
PROVISION FOR INCOME TAXES
48,984

 
44,143

 
11
%
 
97,360

 
70,539

 
38
%
NET INCOME
$
146,092

 
$
118,766

 
23
%
 
$
301,490

 
$
212,296

 
42
%
EARNINGS PER SHARE
 
 
 
 
 
 
 
 
 
 
 
Earnings per share, basic
$
1.75

 
$
1.33

 
32
%
 
$
3.59

 
$
2.37

 
51
%
Earnings per share, diluted
$
1.71

 
$
1.30

 
32
%
 
$
3.50

 
$
2.30

 
52
%
Weighted-average shares outstanding, basic
83,247

 
89,128

 
(7
%)
 
83,869

 
89,560

 
(6
%)
Weighted-average shares outstanding, diluted
85,350

 
91,684

 
(7
%)
 
86,052

 
92,236

 
(7
%)







5


LPL Financial Holdings Inc.
Condensed Consolidated Statements of Income Trend
(In thousands, except per share data)
(Unaudited)
 
Quarterly Results
 
Q2 2019
 
Q1 2019
 
Q4 2018
REVENUES
 
 
 
 
 
Commission
$
479,135

 
$
461,359

 
$
469,923

Advisory
481,309

 
453,938

 
474,102

Asset-based
288,551

 
296,363

 
265,681

Transaction and fee
118,335

 
122,480

 
119,254

Interest income, net of interest expense
11,690

 
12,321

 
11,784

Other
10,737

 
25,218

 
(23,702
)
Total net revenues
1,389,757

 
1,371,679

 
1,317,042

EXPENSES
 
 
 
 
 
Commission and advisory
838,022

 
799,698

 
793,310

Compensation and benefits
131,788

 
136,912

 
132,766

Promotional
41,423

 
51,349

 
45,141

Depreciation and amortization
22,584

 
23,470

 
21,897

Amortization of intangible assets
16,249

 
16,168

 
15,672

Occupancy and equipment
33,320

 
33,106

 
30,750

Professional services
18,837

 
19,612

 
24,428

Brokerage, clearing and exchange expense
15,994

 
16,144

 
16,000

Communications and data processing
12,532

 
12,327

 
11,776

Other
29,975

 
26,403

 
31,103

Total operating expenses
1,160,724

 
1,135,189

 
1,122,843

Non-operating interest expense and other
33,957

 
32,716

 
31,756

INCOME BEFORE PROVISION FOR INCOME TAXES
195,076

 
203,774

 
162,443

PROVISION FOR INCOME TAXES
48,984

 
48,376

 
42,145

NET INCOME
$
146,092

 
$
155,398

 
$
120,298

EARNINGS PER SHARE
 
 
 
 
 
Earnings per share, basic
$
1.75

 
$
1.84

 
$
1.40

Earnings per share, diluted
$
1.71

 
$
1.79

 
$
1.36

Weighted-average shares outstanding, basic
83,247

 
84,487

 
85,976

Weighted-average shares outstanding, diluted
85,350

 
86,742

 
88,163


6



LPL Financial Holdings Inc.
Condensed Consolidated Statements of Financial Condition
(Dollars in thousands, except par value)
(Unaudited)
 
 
June 30, 2019
 
March 31, 2019
 
December 31, 2018
ASSETS
Cash and cash equivalents
 
$
403,813

 
$
676,903

 
$
511,096

Cash segregated under federal and other regulations
 
708,613

 
708,241

 
985,195

Restricted cash
 
48,906

 
42,827

 
65,828

Receivables from:
 
 
 
 
 
 
Clients, net of allowance
 
462,327

 
393,099

 
412,944

Product sponsors, broker-dealers, and clearing organizations
 
176,323

 
156,915

 
166,793

Advisor loans, net of allowance
 
355,077

 
320,379

 
298,821

Others, net of allowance
 
263,246

 
269,153

 
248,711

Securities owned:
 
 
 
 
 
 
Trading — at fair value
 
29,422

 
27,361

 
29,267

Held-to-maturity — at amortized cost
 
11,771

 
13,005

 
13,001

Securities borrowed
 
7,246

 
2,670

 
4,829

Fixed assets, net of accumulated depreciation and amortization
 
485,571

 
472,528

 
461,418

Operating lease assets
 
105,390

 
106,821

 
—

Goodwill
 
1,490,247

 
1,490,247

 
1,490,247

Intangible assets, net of accumulated amortization
 
451,945

 
468,058

 
484,171

Other assets
 
364,059

 
343,983

 
305,147

Total assets
 
$
5,363,956

 
$
5,492,190

 
$
5,477,468

LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES:
 
 
 
 
 
 
Drafts payable
 
$
184,361

 
$
186,116

 
$
225,034

Payables to clients
 
760,120

 
778,902

 
950,946

Payables to broker-dealers and clearing organizations
 
57,665

 
134,375

 
76,180

Accrued commission and advisory expenses payable
 
152,697

 
154,840

 
164,211

Accounts payable and accrued liabilities
 
439,679

 
411,316

 
478,644

Income taxes payable
 
13,220

 
74,740

 
32,990

Unearned revenue
 
94,579

 
99,035

 
80,524

Securities sold, but not yet purchased — at fair value
 
82

 
66

 
169

Long-term borrowing, net of unamortized debt issuance cost
 
2,363,441

 
2,368,501

 
2,371,808

Operating lease liabilities
 
145,602

 
147,326

 
—

Finance lease liabilities
 
107,084

 
106,987

 
—

Leasehold financing and capital lease obligations
 
—

 
—

 
104,564

Deferred income taxes, net
 
20,309

 
20,291

 
18,325

Total liabilities
 
4,338,839

 
4,482,495

 
4,503,395

STOCKHOLDERS’ EQUITY:
 
 
 
 
 
 
Common stock, $.001 par value; 600,000,000 shares authorized; 125,971,003 shares issued at June 30, 2019
 
126

 
126

 
125

Additional paid-in capital
 
1,673,155

 
1,658,631

 
1,634,337

Treasury stock, at cost — 43,192,521 shares at June 30, 2019
 
(1,984,223
)
 
(1,859,484
)
 
(1,730,535
)
Retained earnings
 
1,336,059

 
1,210,422

 
1,070,146

Total stockholders’ equity
 
1,025,117

 
1,009,695

 
974,073

Total liabilities and stockholders’ equity
 
$
5,363,956

 
$
5,492,190

 
$
5,477,468


7


LPL Financial Holdings Inc.
Management's Statements of Operations(3) 
(In thousands, except per share data)
(Unaudited)
Certain information presented on pages 8-16 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
 
Q2 2019

Q1 2019
 
% Change
 
Q2 2018
 
% Change
Gross Profit(3)
 
 
 
 
 
 
 
 
 
Sales-based commissions
$
203,531

 
$
190,999

 
7
%
 
$
196,530

 
4
%
Trailing commissions
275,604

 
270,360

 
2
%
 
291,555

 
(5
%)
Advisory
481,309

 
453,938

 
6
%
 
438,917

 
10
%
Commission and advisory fees
960,444

 
915,297

 
5
%
 
927,002

 
4
%
Production based payout(4)
(831,178
)
 
(777,889
)
 
7
%
 
(797,785
)
 
4
%
Commission and advisory fees, net of payout
129,266

 
137,408

 
(6
%)
 
129,217

 
—
%
Client cash
161,815

 
173,139

 
(7
%)
 
121,386

 
33
%
Other asset-based(5)
126,736

 
123,224

 
3
%
 
117,217

 
8
%
Transaction and fee
118,335

 
122,480

 
(3
%)
 
116,455

 
2
%
Interest income and other, net(6)
15,583

 
15,730

 
n/m

 
13,910

 
n/m

Total net commission and advisory fees and attachment revenue
551,735


571,981

 
(4
%)
 
498,185

 
11
%
Brokerage, clearing, and exchange expense
(15,994
)
 
(16,144
)
 
(1
%)
 
(15,433
)
 
4
%
Gross Profit(3)
535,741

 
555,837

 
(4
%)
 
482,752

 
11
%
 
 
 
 
 
 
 
 
 
 
G&A Expense
 
 
 
 
 
 
 
 
 
Core G&A(7)
210,514

 
212,520

 
(1
%)
 
192,148

 
10
%
Regulatory charges
8,632

 
7,873

 
n/m

 
8,321

 
n/m

Promotional
41,423

 
51,349

 
(19
%)
 
43,407

 
(5
%)
Employee share-based compensation
7,306

 
7,967

 
(8
%)
 
6,125

 
19
%
Total G&A
267,875

 
279,709

 
(4
%)
 
250,001

 
7
%
EBITDA(3)
267,866

 
276,128

 
(3
%)
 
232,751

 
15
%
Depreciation and amortization
22,584

 
23,470

 
(4
%)
 
22,220

 
2
%
Amortization of intangible assets
16,249

 
16,168

 
1
%
 
15,682

 
4
%
Non-operating interest expense and other
33,957

 
32,716

 
4
%
 
31,940

 
6
%
INCOME BEFORE PROVISION FOR INCOME TAXES
195,076

 
203,774

 
(4
%)
 
162,909

 
20
%
PROVISION FOR INCOME TAXES
48,984

 
48,376

 
1
%
 
44,143

 
11
%
NET INCOME
$
146,092

 
$
155,398

 
(6
%)
 
$
118,766

 
23
%
Earnings per share, diluted
$
1.71

 
$
1.79

 
(4
%)
 
$
1.30

 
32
%
Weighted-average shares outstanding, diluted
85,350

 
86,742

 
(2
%)
 
91,684

 
(7
%)
EPS Prior to Amortization of Intangible Assets(3)(33)
$
1.85

 
$
1.93

 
(4
%)
 
$
1.42

 
30
%

8


LPL Financial Holdings Inc.
Management's Statements of Operations Trend (3) 
(In thousands, except per share data)
(Unaudited)
 
Quarterly Results
 
Q2 2019

Q1 2019
 
Q4 2018
Gross Profit(3)
 
 
 
 
 
Sales-based commissions
$
203,531

 
$
190,999

 
$
199,468

Trailing commissions
275,604

 
270,360

 
270,455

Advisory
481,309

 
453,938

 
474,102

Commission and advisory fees
960,444

 
915,297

 
944,025

Production based payout(4)
(831,178
)
 
(777,889
)
 
(818,382
)
Commission and advisory fees, net of payout
129,266

 
137,408

 
125,643

Client cash
161,815

 
173,139

 
147,774

Other asset-based(5)
126,736

 
123,224

 
117,907

Transaction and fee
118,335

 
122,480

 
119,254

Interest income and other, net (6)
15,583

 
15,730

 
13,154

Total net commission and advisory fees and attachment revenue
551,735

 
571,981


523,732

Brokerage, clearing, and exchange expense
(15,994
)
 
(16,144
)
 
(16,000
)
Gross Profit(3)
535,741

 
555,837

 
507,732

 
 
 
 
 
 
G&A Expense
 
 
 
 
 
Core G&A(7)
210,514

 
212,520

 
216,185

Regulatory charges
8,632

 
7,873

 
9,593

Promotional
41,423

 
51,349

 
45,141

Employee share-based compensation
7,306

 
7,967

 
5,045

Total G&A
267,875

 
279,709

 
275,964

EBITDA(3)
267,866

 
276,128

 
231,768

Depreciation and amortization
22,584

 
23,470

 
21,897

Amortization of intangible assets
16,249

 
16,168

 
15,672

Non-operating interest expense and other
33,957

 
32,716

 
31,756

INCOME BEFORE PROVISION FOR INCOME TAXES
195,076

 
203,774

 
162,443

PROVISION FOR INCOME TAXES
48,984

 
48,376

 
42,145

NET INCOME
$
146,092

 
$
155,398

 
$
120,298

Earnings per share, diluted
$
1.71

 
$
1.79

 
$
1.36

Weighted-average shares outstanding, diluted
85,350

 
86,742

 
88,163

EPS Prior to Amortization of Intangible Assets(3)(33)
$
1.85

 
$
1.93

 
$
1.49


9


LPL Financial Holdings Inc.
Operating Measures(3) 
(Dollars in billions, except where noted) (Unaudited)
 
Q2 2019

Q1 2019

Change

Q2 2018
 
Change
Market Drivers
 
 
 
 
 
 
 
 
 
S&P 500 Index (end of period)
2,942

 
2,834

 
4%
 
2,718

 
8%
Fed Funds Daily Effective Rate (FFER) (average bps)
240

 
240

 
—
 
174

 
66bps
 
 
 
 
 
 
 
 
 
 
Assets
 
 
 
 
 
 
 
 
 
Advisory Assets(8)
$
327.3

 
$
311.9

 
5%
 
$
291.5

 
12%
Brokerage Assets(9)
378.7

 
372.1

 
2%
 
367.5

 
3%
Total Brokerage and Advisory Assets
$
706.0


$
684.0

 
3%
 
$
659.1

 
7%
Advisory % of Total Brokerage and Advisory Assets
46.4
%
 
45.6
%
 
80bps
 
44.2
%
 
220bps
 
 
 
 
 
 
 
 
 
 
Assets by Platform
 
 
 
 
 
 
 
 
 
Corporate Platform Advisory Assets(10)
$
201.9

 
$
191.8

 
5%
 
$
173.9

 
16%
Hybrid Platform Advisory Assets(11)
125.4

 
120.1

 
4%
 
117.7

 
7%
Brokerage Assets
378.7

 
372.1

 
2%
 
367.5

 
3%
Total Brokerage and Advisory Assets
$
706.0


$
684.0

 
3%
 
$
659.1

 
7%
 
 
 
 
 
 
 
 
 
 
Centrally Managed Assets
 
 
 
 
 
 
 
 
 
Centrally Managed Assets(12)
$
45.7

 
$
42.9

 
7%
 
$
37.9

 
21%
Centrally Managed % of Total Advisory Assets
14.0
%
 
13.8
%
 
20bps
 
13.0
%
 
100bps

10


LPL Financial Holdings Inc.
Operating Measures(3) 
(Dollars in billions, except where noted) (Unaudited)
 
Q2 2019
 
Q1 2019
 
Change
 
Q2 2018
 
Change
Net New Assets (NNA)
 
 
 
 
 
 
 
 
 
Net New Advisory Assets(13)
$
6.6

 
$
4.6

 
n/m
 
$
4.3

 
n/m
Net New Brokerage Assets(14)
(2.6
)
 
(0.7
)
 
n/m
 
(1.9
)
 
n/m
Total Net New Assets
$
4.0


$
4.0


n/m

$
2.5


n/m
 
 
 
 
 
 
 
 
 
 
Net Brokerage to Advisory Conversions(15)
$
1.8

 
$
1.4

 
n/m
 
$
1.8

 
n/m
Advisory NNA Annualized Growth(16)
8.4
%
 
6.5
%
 
n/m
 
6.1
%
 
n/m
Total NNA Annualized Growth(16)
2.3
%
 
2.5
%
 
n/m
 
1.5
%
 
n/m
 
 
 
 
 
 
 
 
 
 
Net New Advisory Assets
 
 
 
 
 
 
 
 
 
Corporate Platform Net New Advisory Assets(17)
$
5.1

 
$
4.2

 
n/m
 
$
3.8

 
n/m
Hybrid Platform Net New Advisory Assets(18)
1.4

 
0.4

 
n/m
 
0.6

 
n/m
Total Net New Advisory Assets
$
6.6

 
$
4.6

 
n/m
 
$
4.3

 
n/m
Centrally Managed Net New Advisory Assets(19)
$
1.2

 
$
1.0

 
n/m
 
$
1.7

 
n/m
 
 
 
 
 
 
 
 
 
 
Client Cash Balances
 
 
 
 
 
 
 
 
 
Insured Cash Account Balances
$
21.3

 
$
21.7

 
(2%)
 
$
21.7

 
(2%)
Deposit Cash Account Balances
4.3

 
4.3

 
—%
 
4.0

 
8%
Total Insured Sweep Balances
25.5

 
25.9

 
(2%)
 
25.7

 
(1%)
Money Market Account Cash Balances
3.5

 
4.8

 
(27%)
 
2.9

 
21%
Purchased Money Market Funds
1.0

 
—

 
—%
 
—

 
—%
Total Client Cash Balances
$
30.1

 
$
30.7

 
(2%)
 
$
28.6

 
5%
Client Cash Balances % of Total Assets
4.3
%
 
4.5
%
 
(20bps)
 
4.3
%
 
—
 
 
 
 
 
 
 
 
 
 
Client Cash Balance Average Fees
 
 
 
 
 
 
 
 
 
Insured Cash Account Average Fee - bps(20)
249

 
250

 
(1)
 
179

 
70
Deposit Cash Account Average Fee - bps(20)
226

 
220

 
6
 
175

 
51
Money Market Account Average Fee - bps(20)
74

 
77

 
(3)
 
72

 
2
Purchased Money Market Fund Average Fee - bps(20)
29

 
—

 
n/m
 
—

 
n/m
Total Client Cash Balance Average Fee - bps(20)
217

 
220

 
(3)
 
168

 
49
 
 
 
 
 
 
 
 
 
 
Net Buy (Sell) Activity(21)
$
9.7

 
$
12.9

 
n/m
 
$
8.5

 
n/m

11


LPL Financial Holdings Inc.
Monthly Metrics(3) 
(Dollars in billions, except where noted)
(Unaudited)
 
 
June 2019
 
May 2019
 
May to Jun Change
 
April 2019
 
March 2019
Assets Served
 
 
 
 
 
 
 
 
 
 
Advisory Assets(8)
 
$
327.3

 
$
311.3

 
5.1%
 
$
320.5

 
$
311.9

Brokerage Assets(9)
 
378.7

 
366.0

 
3.5%
 
378.8

 
372.1

Total Brokerage and Advisory Assets
 
$
706.0

 
$
677.3

 
4.2%
 
$
699.3

 
$
684.0

 
 
 
 
 
 

 
 
 
 
Net New Assets (NNA)
 
 
 
 
 
 
 
 
 
 
Net New Advisory Assets(13)
 
$
2.4

 
$
2.5

 
n/m
 
$
1.6

 
$
2.2

Net New Brokerage Assets(14)
 
(0.5
)
 
(1.1
)
 
n/m
 
(1.0
)
 
0.1

Total Net New Assets
 
$
1.9

 
$
1.4

 
n/m
 
$
0.7

 
$
2.3

Net Brokerage to Advisory Conversions(15)
 
$
0.4

 
$
0.8

 
n/m
 
$
0.6

 
$
0.5

 
 
 
 
 
 
 
 
 
 
 
Client Cash Balances
 
 
 
 
 
 
 
 
 
 
Insured Cash Account Balances
 
$
21.3

 
$
20.9

 
1.9%
 
$
20.7

 
$
21.7

Deposit Cash Account Balances
 
4.3

 
4.2

 
2.4%
 
4.1

 
4.3

Total Insured Sweep Balances
 
25.5

 
25.1

 
1.6%
 
24.8

 
25.9

Money Market Account Cash Balances
 
3.5

 
4.0

 
(12.5%)
 
4.4

 
4.8

Purchased Money Market Funds
 
1.0

 
0.8

 
25.0%
 
0.4

 
—

Total Client Cash Balances
 
$
30.1

 
$
29.8

 
1.0%
 
$
29.6

 
$
30.7

 
 
 
 
 
 

 
 
 
 
Net Buy (Sell) Activity(21)
 
$
2.8

 
$
3.4

 
(17.6%)
 
$
3.5

 
$
3.6

 
 
 
 
 
 
 
 
 
 
 
Market Indices
 
 
 
 
 

 
 
 
 
S&P 500 Index (end of period)
 
2,942

 
2,752

 
6.9%
 
2,946

 
2,834

Fed Funds Effective Rate (average bps)
 
238

 
239

 
(1bps)
 
242

 
240


12


LPL Financial Holdings Inc.
Financial Measures(3) 
(Dollars in thousands, except where noted)
(Unaudited)

 
Q2 2019
 
Q1 2019
 
% Change
 
Q2 2018
 
% Change
Commission Revenue by Product
 
 
 
 
 
 
 
 
 
Variable annuities
$
196,884

 
$
187,406

 
5%
 
$
196,496

 
—%
Mutual funds
149,380

 
140,662

 
6%
 
161,340

 
(7%)
Alternative investments
5,273

 
6,786

 
(22%)
 
6,704

 
(21%)
Fixed annuities
50,992

 
51,573

 
(1%)
 
46,116

 
11%
Equities
19,700

 
18,364

 
7%
 
19,388

 
2%
Fixed income
30,821

 
29,742

 
4%
 
30,898

 
—%
Insurance
17,009

 
18,072

 
(6%)
 
17,344

 
(2%)
Group annuities
8,795

 
8,474

 
4%
 
9,619

 
(9%)
Other
281

 
280

 
—%
 
180

 
56%
Total commission revenue
$
479,135

 
$
461,359

 
4%
 
$
488,085

 
(2%)
 
 
 
 
 

 
 
 

Commission Revenue by Sales-based and Trailing Commission
 

 
 
 

Sales-based commissions
 
 
 
 
 
 
 
 
 
Variable annuities
$
58,158

 
$
50,128

 
16%
 
$
57,095

 
2%
Mutual funds
38,095

 
34,631

 
10%
 
37,533

 
1%
Alternative investments
2,077

 
1,890

 
10%
 
1,805

 
15%
Fixed annuities
43,977

 
44,230

 
(1%)
 
39,333

 
12%
Equities
19,700

 
18,364

 
7%
 
19,388

 
2%
Fixed income
24,604

 
24,195

 
2%
 
24,474

 
1%
Insurance
15,449

 
16,024

 
(4%)
 
15,578

 
(1%)
Group annuities
1,190

 
1,257

 
(5%)
 
1,144

 
4%
Other
281

 
280

 
—%
 
180

 
56%
Total sales-based commissions
$
203,531

 
$
190,999

 
7%
 
$
196,530

 
4%
Trailing commissions
 
 
 
 

 
 
 

Variable annuities
$
138,726

 
$
137,278

 
1%
 
$
139,401

 
—%
Mutual funds
111,285

 
106,031

 
5%
 
123,807

 
(10%)
Alternative investments
3,196

 
4,896

 
(35%)
 
4,899

 
(35%)
Fixed annuities
7,015

 
7,343

 
(4%)
 
6,783

 
3%
Fixed income
6,217

 
5,547

 
12%
 
6,424

 
(3%)
Insurance
1,560

 
2,048

 
(24%)
 
1,766

 
(12%)
Group annuities
7,605

 
7,217

 
5%
 
8,475

 
(10%)
Total trailing commissions
$
275,604

 
$
270,360

 
2%
 
$
291,555

 
(5%)
Total commission revenue
$
479,135

 
$
461,359

 
4%
 
$
488,085

 
(2%)



13


LPL Financial Holdings Inc.
Financial Measures(3) 
(Dollars in thousands, except where noted)
(Unaudited)
 
Q2 2019
 
Q1 2019
 
Change
 
Q2 2018
 
Change
Payout Rate
 
 
 
 
 
 
 
 
 
Base Payout Rate
83.39
%
 
82.95
%
 
44bps
 
83.25
%
 
14bps
Production Based Bonuses
3.15
%
 
2.04
%
 
111bps
 
2.81
%
 
34bps
Total Payout Ratio
86.54
%
 
84.99
%
 
155bps
 
86.06
%
 
48bps

14


LPL Financial Holdings Inc.
Capital Management Measures(3) 
(Dollars in thousands, except where noted)
(Unaudited)
 
Q2 2019
 
Q1 2019
Cash Available for Corporate Use(22)
 
 
 
Cash at Parent
$
240,865

 
$
263,122

Excess Cash at Broker-Dealer subsidiary per Credit Agreement
42,496

 
103,369

Other Available Cash
12,889

 
9,533

Total Cash Available for Corporate Use
$
296,250

 
$
376,024

 
 
 
 
Credit Agreement Net Leverage
 
 
 
Total Debt (does not include unamortized premium)
$
2,373,750

 
$
2,377,500

Cash Available (up to $300 million)
296,250

 
300,000

Credit Agreement Net Debt
$
2,077,500

 
$
2,077,500

Credit Agreement EBITDA Trailing Twelve Months(23)
$
1,042,984

 
$
1,012,397

Credit Agreement Net Leverage Ratio
1.99
x
 
2.05
x

 
 
June 30, 2019
 
 
Total Debt
 
Balance
 
Current Applicable
Margin
 
Yield At Issuance
 
Interest Rate
 
Maturity
Revolving Credit Facility(a)
 
$
—

 
LIBOR+125bps(b)
 
 
 
—
%
 
9/21/2022
Senior Secured Term Loan B
 
1,473,750

 
LIBOR+225 bps(b)
 
 
 
4.65
%
 
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
 
$
2,373,750

 
 
 
 
 
5.07
%
 
 

(a)
The Revolving Credit Facility has a borrowing capacity of $500 million.
(b)
The LIBOR rate option is one-month LIBOR rate and subject to an interest rate floor of 0 basis points.
(c)
The Senior Unsecured Notes were issued in two separate transactions; $500 million in notes were issued in March 2017 at par; the remaining $400 million were issued in September 2017 and priced at 103% of the aggregate principal amount.
(d)
Does not include unamortized premium of approximately $9.3 million as of June 30, 2019.


15


LPL Financial Holdings Inc.
Key Business and Financial Metrics(3) 
(Dollars in thousands, except where noted)
(Unaudited)
 
Q2 2019

Q1 2019
 
Change
 
Q2 2018
 
Change
Advisors
 
 
 
 
 
 
 
 
 
Advisors
16,161
 
16,189
 
—
%
 
16,049
 
1
%
Net New Advisors
(28
)
 
80

 
n/m

 
(18
)
 
n/m

Annualized commission and advisory fees per Advisor(24)
$
238

 
$
227

 
5
%
 
$
231

 
3
%
Average Total Assets per Advisor ($ in millions)(25)
$
43.7

 
$
42.2

 
4
%
 
$
41.1

 
6
%
Transition assistance loan amortization($ in millions)(26)
$
22.6

 
$
23.2

 
(3
%)
 
$
18.1

 
25
%
Total client accounts (in millions)
5.5

 
5.5

 
—
%
 
5.4

 
2
%
 
 
 
 
 
 
 
 
 
 
Employees - period end
4,364
 
4,269
 
2
%
 
4,005
 
9
%
 
 
 
 
 
 
 
 
 
 
Productivity Metrics
 
 
 
 
 
 
 
 


Advisory Revenue as a percentage of Corporate Advisory Assets (trailing four-quarter average)
1.03
%
 
1.04
%
 
(1
bps)
 
1.04
%
 
(1
bps)
Gross Profit ROA(27)
30.9
bps
 
33.0
bps
 
(2.1
bps)
 
29.4
bps
 
1.5
bps
OPEX ROA(28)
17.7
bps
 
19.0
bps
 
(1.3
bps)
 
17.5
bps
 
0.2
bps
EBIT ROA(29)
13.2
bps
 
14.0
bps
 
(0.8
bps)
 
11.9
bps
 
1.3
bps
Production Retention Rate (YTD annualized)(30)
96.2
%
 
96.2
%
 
—

 
96.0
%
 
20
bps
Recurring Gross Profit Rate (trailing twelve months) (31)
86.5
%
 
86.3
%
 
20
bps
 
84.7
%
 
180
bps
EBITDA as a percentage of Gross Profit
50.0
%
 
49.7
%
 
30
bps
 
48.2
%
 
180
bps
 
 
 
 
 
 
 
 
 
 
Capital Expenditure ($ in millions)
$
33.2

 
$
30.3

 
10
%
 
$
25.8

 
29
%
 
 
 
 
 
 
 
 
 
 
Share Repurchases
$
125.0

 
$
125.0

 
—
%
 
$
116.8

 
7
%
Dividends
20.8

 
21.1

 
(1
%)
 
22.3

 
(7
%)
Total Capital Allocated
$
145.9

 
$
146.1

 
—
%
 
$
139.1

 
5
%
Weighted-average Share Count, Diluted
85.4

 
86.7

 
(1
%)
 
91.7

 
(7
%)
Total Capital Allocated per Share(32)
$
1.71

 
$
1.68

 
2
%
 
$
1.52

 
13
%

16


Endnote Disclosures
(1)
Represents the estimated total brokerage and advisory assets expected to transition to the Company's broker-dealer subsidiary, LPL Financial LLC ("LPL Financial"), associated with advisors who transferred their licenses to LPL Financial during the period. The estimate is based on prior business reported by the advisors, which has not been independently and fully verified by LPL Financial. The actual transition of assets to LPL Financial generally occurs over several quarters including the initial quarter of the transition, and the actual amount transitioned may vary from the estimate.
(2)
Compliance with the Credit Agreement Leverage Ratio is only required under the revolving credit facility.
(3)
Certain information presented on pages 8-16 includes non-GAAP financial measures and operational and performance metrics. For more information on non-GAAP financial measures, please see the section titled “Non-GAAP Financial Measures” on page 3.
(4)
Production based payout is an operating measure calculated as a commission and advisory expense less advisor deferred compensation expense. Below is a reconciliation of production based payout against the Company’s commission and advisory expense for the periods presented (in thousands):
 
Q2 2019
 
Q1 2019
 
Q4 2018
 
Q2 2018
Production based payout
$
831,178

 
$
777,889

 
$
818,382

 
$
797,785

Advisor deferred compensation expense
6,844

 
21,809

 
(25,072
)
 
2,834

Commission and advisory expense
$
838,022

 
$
799,698

 
$
793,310

 
$
800,619


(5)
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.
(6)
Interest income and other, net is an operating measure calculated as interest income, net of interest expense plus other revenue, less advisor deferred compensation expense. Below is a reconciliation of interest income and other, net against the Company’s interest income, net of interest expense and other revenue for the periods presented (in thousands):
 
Q2 2019
 
Q1 2019
 
Q4 2018
 
Q2 2018
Interest income, net of interest expense
$
11,690

 
$
12,321

 
$
11,784

 
$
10,133

Plus: Other revenue
10,737

 
25,218

 
(23,702
)
 
6,611

Less: Advisor deferred compensation expense
(6,844
)
 
(21,809
)
 
25,072

 
(2,834
)
Interest income and other, net
$
15,583

 
$
15,730

 
$
13,154

 
$
13,910
















17


(7)
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:
 
Q2 2019
 
Q1 2019
 
Q4 2018
 
Q2 2018
Operating Expense Reconciliation (in thousands)
 
 
 
 
 
 
 
Core G&A
$
210,514

 
$
212,520

 
$
216,185

 
$
192,148

Regulatory charges
8,632

 
7,873

 
9,593

 
8,321

Promotional
41,423

 
51,349

 
45,141

 
43,407

Employee share-based compensation
7,306

 
7,967

 
5,045

 
6,125

Total G&A
267,875

 
279,709

 
275,964

 
250,001

Commissions and advisory
838,022

 
799,698

 
793,310

 
800,619

Depreciation & amortization
22,584

 
23,470

 
21,897

 
22,220

Amortization of intangible assets
16,249

 
16,168

 
15,672

 
15,682

Brokerage, clearing and exchange
15,994

 
16,144

 
16,000

 
15,433

Total operating expense
$
1,160,724


$
1,135,189

 
$
1,122,843


$
1,103,955


(8)
Consists of total advisory assets under custody at LPL Financial.
(9)
Consists of brokerage assets serviced by advisors licensed with LPL Financial.
(10)
Consists of total assets on LPL Financial's corporate advisory platform serviced by investment advisor representatives of LPL Financial.
(11)
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.
(12)
Represents those advisory assets in LPL Financial’s Model Wealth Portfolios, Optimum Market Portfolios, Personal Wealth Portfolios, and Guided Wealth Portfolios platforms.
(13)
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.
(14)
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.
(15)
Consists of existing custodied assets that converted from brokerage to advisory, less existing custodied assets that converted from advisory to brokerage.
(16)
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.
(17)
Consists of total client deposits into advisory accounts on LPL Financial's corporate advisory platform (FN 10) less total client withdrawals from advisory accounts on its corporate advisory platform.
(18)
Consists of total client deposits into advisory accounts on LPL Financial's independent advisory platform (FN 11) less total client withdrawals from advisory accounts on its independent advisory platform.
(19)
Consists of total client deposits into centrally managed assets accounts (FN 12) less total client withdrawals from centrally managed assets accounts. The Company does not consider conversions from or to advisory accounts on LPL Financial’s advisory platforms as deposits or withdrawals, respectively.
(20)
Calculated by dividing revenue for the period by the average balance during the period.
(21)
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.
(22)
Consists of cash unrestricted by the Credit Agreement and other regulations available for operating, investing, and financing uses.
 

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(23)
Credit agreement EBITDA is a non-GAAP financial measure. Please see a description of credit agreement EBITDA under “Non-GAAP Financial Measures” on page 3 of this release for additional information. Under the Credit Agreement, management calculates credit agreement EBITDA for a trailing twelve month period at the end of each fiscal quarter, and in doing so may make further adjustments to prior quarters.
(24)
Calculated based on the average advisor count from the current period and prior period.
(25)
Calculated based on the end of period total brokerage and advisory assets divided by end of period advisor count.
(26)
Represents the amortization expense amount of forgivable loans for transition assistance to advisors and financial institutions.
(27)
Represents annualized Gross Profit (FN 3) for the period, divided by average month-end total brokerage and advisory assets for the period.
(28)
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 7), regulatory, promotional, employee share based compensation, depreciation & amortization, and amortization of intangible Assets.
(29)
EBIT ROA is calculated as Gross Profit ROA less OPEX ROA.
(30)
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.
(31)
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.
(32)
Capital Allocated per Share equals the amount of capital allocated for share repurchases and cash dividends divided by the diluted weighted-average shares outstanding.
(33)
EPS prior to amortization of intangible assets is a non-GAAP financial measure. Please see a description of EPS prior to amortization of intangible assets under “Non-GAAP Financial Measures” on page 3 of this release for additional information. Below is a reconciliation of EPS prior to amortization of intangible assets to the Company’s GAAP EPS for the periods presented:
EPS Reconciliation (in thousands, except per share data)
Q2 2019
EPS
$
1.71

Amortization of Intangible Assets
16,249

Tax Benefit
(4,550
)
  Amortization of Intangible Assets Net of Tax Benefit
$
11,699

Diluted Share Count
85,350

EPS Impact
$
0.14

EPS Prior to Amortization of Intangible Assets
$
1.85





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