EX-99.1 2 a2019q3earningsrelease.htm PRESS RELEASE DATED OCTOBER 24,2019 ("LPL FINANCIAL ANNOUNCES THIRD QUARTER 2019 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 Third Quarter 2019 Results

Third Quarter 2019 Key Performance Indicators
Earnings per share ("EPS") increased 32% year-over-year to $1.57.
Net Income increased 23% year-over-year to $132 million.
EPS Prior to Amortization of Intangible Assets** increased 30% year-over-year to $1.71.
Total Brokerage and Advisory Assets increased 6% year-over-year to $719 billion.
Total organic net new assets(1) were an inflow of $7.0 billion, translating to a 4.0% annualized growth rate.
Prior to the impact of a hybrid firm that formed its own broker-dealer and departed, total organic net new assets were an inflow of $8.0 billion, translating to an annualized growth rate of 4.5%.
Organic net new advisory assets were an inflow of $8.2 billion, translating to a 10.0% annualized growth rate.
Organic net new brokerage assets were an outflow of $1.2 billion, translating to a (1.2)% annualized growth rate.
Recruited Assets(2) were $8.7 billion, contributing to a trailing twelve-month total of $32.9 billion.
Advisor count was 16,349, up 188 sequentially, and year-to-date production retention rate was 96.3%.
The Company closed its acquisition of Allen & Company*, which added $2.9 billion of total brokerage and advisory assets.
The Company expects to onboard the assets from Allen & Company onto its platform by the end of 2019.
The Company also retained 100% of the 36 Allen & Company advisors.
Total client cash balances were $31.2 billion, up $1.1 billion or 4% sequentially.
Gross Profit** increased 10% year-over-year to $543 million.
EBITDA** increased 15% year-over-year to $250 million.
EBITDA** as a percentage of Gross Profit** was 46%, up from 44% a year ago.
Core G&A** increased 3% year-over-year to $215 million, up 2% sequentially. This included $1 million of onboarding and operating expense related to Allen & Company.
Shareholder capital returns were $151 million, translating to $1.80 per share.
Share repurchases were $130 million for 1.7 million shares at an average purchase price of $78.09.
Weighted average fully diluted share count was 83.8 million, down 7% year-over-year.
Dividends were $20 million.
Cash available for corporate use was $227 million.
Credit Agreement Net Leverage Ratio(3) was 2.00x, in line with the prior quarter.






1




Key Updates
Closed the acquisition of Allen & Company on August 1, 2019, which added $2.9 billion in total brokerage and advisory assets and 36 advisors.
Lowered top end of 2019 Core G&A** outlook range by $5 million, resulting in an updated range of $860 to $870 million.
Completed $130 million of share repurchases in the third quarter.


SAN DIEGO - October 24, 2019LPL Financial Holdings Inc. (Nasdaq: LPLA) (the “Company”) today announced results for its third quarter ended September 30, 2019, reporting net income of $132 million, or $1.57 per share. This compares with $107 million, or $1.19 per share, in the third quarter of 2018 and $146 million, or $1.71 per share, in the prior quarter.

“Our focus on our strategy positioned us to drive continued business and financial growth in the third quarter,” said Dan Arnold, president and CEO. “Strength in advisor recruiting and retention drove $7 billion of organic net new assets, which translates to a 4% annualized growth rate. We also closed our acquisition of Allen & Company, and are excited that their advisors have joined our team. Looking forward, we are focused on helping our advisors continue to win in the marketplace by delivering differentiated capabilities, an industry-leading service experience, and next generation wealth management solutions.”

“In Q3, we continued to grow assets, gross profit, and earnings per share as we work to create long-term shareholder value,” said Matt Audette, CFO. “To support these outcomes, we actively deployed capital. We invested for organic growth across recruiting and technology, completed the acquisition of Allen & Company, and returned capital to shareholders through share repurchases and dividends. We believe our business and financial strength position us well to continue to deploy capital to drive growth and create long-term shareholder value.”

Dividend Declaration
The Company's Board of Directors declared a $0.25 per share dividend to be paid on November 21, 2019 to all stockholders of record as of November 7, 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, October 24. To listen, call 877-677-9122 (domestic) or 708-290-1401 (international); passcode 3882976, 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 October 31 and November 14, respectively. For telephonic replay, call 855-859-2056 (domestic) or 404-537-3406 (international); passcode 3882976.
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 1996-2019.
Securities and Advisory Services offered through LPL Financial. A Registered Investment Advisor, Member FINRA/SIPC.
*Allen & Company of Florida, LLC (“Allen & Company”)

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 35 on page 20 of this release.
Gross Profit is calculated as net revenues, which were $1,416 million for the three months ended September 30, 2019, less commission and advisory expenses and brokerage, clearing, and exchange fees, which were $857 million and $16 million, respectively, for the three months ended September 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 $1,206 million for the three months ended September 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 8 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 intangible assets. The Company presents EBITDA because management believes that it can be a useful financial metric in understanding the Company’s earnings from operations. EBITDA is not a measure of the Company's financial performance under GAAP and should not be considered as an alternative to net income or any other performance measure derived in accordance with GAAP, 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, amortization of Intangible assets, 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

3



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. For a reconciliation of Credit Agreement EBITDA to Net Income, please see footnote 24 on page 19 of this release.
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 onboarding of assets of Allen & Company, future capabilities and solutions, future advisor service experience, future capital deployment 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 October 24, 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, acquisitions 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 September 30,
 
 
 
Nine Months Ended September 30,
 
 
 
2019
 
2018
 
% Change
 
2019
 
2018
 
% Change
REVENUES
 
 
 
 
 
 
 
 
 
 
 
Commission
$
474,993

 
$
486,875

 
(2
%)
 
$
1,415,487

 
$
1,449,771

 
(2
%)
Advisory
514,363

 
458,087

 
12
%
 
1,449,610

 
1,319,391

 
10
%
Asset-based
292,140

 
248,895

 
17
%
 
877,054

 
706,834

 
24
%
Transaction and fee
121,222

 
118,941

 
2
%
 
362,037

 
352,045

 
3
%
Interest income, net of interest expense
11,531

 
10,512

 
10
%
 
35,542

 
28,426

 
25
%
Other
1,276

 
7,687

 
n/m

 
37,231

 
14,891

 
n/m

Total net revenues
1,415,525

 
1,330,997

 
6
%
 
4,176,961

 
3,871,358

 
8
%
EXPENSES
 
 
 
 
 
 
 
 
 
 
 
Commission and advisory
856,635

 
821,950

 
4
%
 
2,494,355

 
2,384,266

 
5
%
Compensation and benefits
138,300

 
128,007

 
8
%
 
407,000

 
373,884

 
9
%
Promotional
61,715

 
52,628

 
17
%
 
154,487

 
163,462

 
(5
%)
Depreciation and amortization
24,062

 
22,838

 
5
%
 
70,116

 
65,759

 
7
%
Amortization of intangible assets
16,286

 
15,676

 
4
%
 
48,703

 
44,580

 
9
%
Occupancy and equipment
34,417

 
30,308

 
14
%
 
100,843

 
84,848

 
19
%
Professional services
17,666

 
23,129

 
(24
%)
 
56,115

 
61,223

 
(8
%)
Brokerage, clearing and exchange
16,380

 
15,844

 
3
%
 
48,518

 
47,154

 
3
%
Communications and data processing
12,535

 
12,334

 
2
%
 
37,394

 
34,546

 
8
%
Other
27,599

 
29,219

 
(6
%)
 
83,977

 
88,175

 
(5
%)
Total operating expenses
1,205,595

 
1,151,933

 
5
%
 
3,501,508

 
3,347,897

 
5
%
Non-operating interest expense and other
31,944

 
31,705

 
1
%
 
98,617

 
93,267

 
6
%
INCOME BEFORE PROVISION FOR INCOME TAXES
177,986

 
147,359

 
21
%
 
576,836

 
430,194

 
34
%
PROVISION FOR INCOME TAXES
46,272

 
40,494

 
14
%
 
143,632

 
111,033

 
29
%
NET INCOME
$
131,714

 
$
106,865

 
23
%
 
$
433,204

 
$
319,161

 
36
%
EARNINGS PER SHARE
 
 
 
 
 
 
 
 
 
 
 
Earnings per share, basic
$
1.61

 
$
1.22

 
32
%
 
$
5.20

 
$
3.59

 
45
%
Earnings per share, diluted
$
1.57

 
$
1.19

 
32
%
 
$
5.07

 
$
3.49

 
45
%
Weighted-average shares outstanding, basic
81,833

 
87,426

 
(6
%)
 
83,315

 
88,841

 
(6
%)
Weighted-average shares outstanding, diluted
83,844

 
89,878

 
(7
%)
 
85,421

 
91,447

 
(7
%)







5



LPL Financial Holdings Inc.
Condensed Consolidated Statements of Income Trend
(In thousands, except per share data)
(Unaudited)
 
Quarterly Results
 
Q3 2019
 
Q2 2019
 
Q1 2019
REVENUES
 
 
 
 
 
Commission
$
474,993

 
$
479,135

 
$
461,359

Advisory
514,363

 
481,309

 
453,938

Asset-based
292,140

 
288,551

 
296,363

Transaction and fee
121,222

 
118,335

 
122,480

Interest income, net of interest expense
11,531

 
11,690

 
12,321

Other
1,276

 
10,737

 
25,218

Total net revenues
1,415,525

 
1,389,757

 
1,371,679

EXPENSES
 
 
 
 
 
Commission and advisory
856,635

 
838,022

 
799,698

Compensation and benefits
138,300

 
131,788

 
136,912

Promotional
61,715

 
41,423

 
51,349

Depreciation and amortization
24,062

 
22,584

 
23,470

Amortization of intangible assets
16,286

 
16,249

 
16,168

Occupancy and equipment
34,417

 
33,320

 
33,106

Professional services
17,666

 
18,837

 
19,612

Brokerage, clearing and exchange expense
16,380

 
15,994

 
16,144

Communications and data processing
12,535

 
12,532

 
12,327

Other
27,599

 
29,975

 
26,403

Total operating expenses
1,205,595

 
1,160,724

 
1,135,189

Non-operating interest expense and other
31,944

 
33,957

 
32,716

INCOME BEFORE PROVISION FOR INCOME TAXES
177,986

 
195,076

 
203,774

PROVISION FOR INCOME TAXES
46,272

 
48,984

 
48,376

NET INCOME
$
131,714

 
$
146,092

 
$
155,398

EARNINGS PER SHARE
 
 
 
 
 
Earnings per share, basic
$
1.61

 
$
1.75

 
$
1.84

Earnings per share, diluted
$
1.57

 
$
1.71

 
$
1.79

Weighted-average shares outstanding, basic
81,833

 
83,247

 
84,487

Weighted-average shares outstanding, diluted
83,844

 
85,350

 
86,742


6



LPL Financial Holdings Inc.
Condensed Consolidated Statements of Financial Condition
(Dollars in thousands, except par value)
(Unaudited)
 
 
September 30, 2019
 
June 30, 2019
 
December 31, 2018
ASSETS
Cash and cash equivalents
 
$
929,536

 
$
403,813

 
$
511,096

Cash segregated under federal and other regulations
 
526,741

 
708,613

 
985,195

Restricted cash
 
52,406

 
48,906

 
65,828

Receivables from:
 
 
 
 
 
 
Clients, net of allowance
 
418,976

 
462,327

 
412,944

Product sponsors, broker-dealers, and clearing organizations
 
171,151

 
176,323

 
166,793

Advisor loans, net of allowance
 
397,653

 
355,077

 
298,821

Others, net of allowance
 
268,262

 
263,246

 
248,711

Securities owned:
 
 
 
 
 
 
Trading — at fair value
 
32,774

 
29,422

 
29,267

Held-to-maturity — at amortized cost
 
13,043

 
11,771

 
13,001

Securities borrowed
 
10,231

 
7,246

 
4,829

Fixed assets, net of accumulated depreciation and amortization
 
504,410

 
485,571

 
461,418

Operating lease assets
 
104,305

 
105,390

 

Goodwill
 
1,502,679

 
1,490,247

 
1,490,247

Intangible assets, net of accumulated amortization
 
456,469

 
451,945

 
484,171

Other assets
 
351,912

 
364,059

 
305,147

Total assets
 
$
5,740,548

 
$
5,363,956

 
$
5,477,468

LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES:
 
 
 
 
 
 
Drafts payable
 
$
141,423

 
$
184,361

 
$
225,034

Payables to clients
 
1,119,575

 
760,120

 
950,946

Payables to broker-dealers and clearing organizations
 
85,341

 
57,665

 
76,180

Accrued commission and advisory expenses payable
 
162,104

 
152,697

 
164,211

Accounts payable and accrued liabilities
 
487,399

 
439,679

 
478,644

Income taxes payable
 
7,146

 
13,220

 
32,990

Unearned revenue
 
85,003

 
94,579

 
80,524

Securities sold, but not yet purchased — at fair value
 
206

 
82

 
169

Long-term borrowing, net of unamortized debt issuance cost
 
2,360,218

 
2,363,441

 
2,371,808

Operating lease liabilities
 
144,194

 
145,602

 

Finance lease liabilities
 
107,184

 
107,084

 

Leasehold financing and capital lease obligations
 

 

 
104,564

Deferred income taxes, net
 
20,805

 
20,309

 
18,325

Total liabilities
 
4,720,598

 
4,338,839

 
4,503,395

STOCKHOLDERS’ EQUITY:
 
 
 
 
 
 
Common stock, $.001 par value; 600,000,000 shares authorized; 126,186,912 shares issued at September 30, 2019
 
126

 
126

 
125

Additional paid-in capital
 
1,687,021

 
1,673,155

 
1,634,337

Treasury stock, at cost — 44,858,459 shares at September 30, 2019
 
(2,114,814
)
 
(1,984,223
)
 
(1,730,535
)
Retained earnings
 
1,447,617

 
1,336,059

 
1,070,146

Total stockholders’ equity
 
1,019,950

 
1,025,117

 
974,073

Total liabilities and stockholders’ equity
 
$
5,740,548

 
$
5,363,956

 
$
5,477,468


7



LPL Financial Holdings Inc.
Management's Statements of Operations(4) 
(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
 
Q3 2019

Q2 2019
 
% Change
 
Q3 2018
 
% Change
Gross Profit(4)
 
 
 
 
 
 
 
 
 
Sales-based commissions
$
194,342

 
$
203,531

 
(5
%)
 
$
193,545

 
%
Trailing commissions
280,651

 
275,604

 
2
%
 
293,330

 
(4
%)
Advisory
514,363

 
481,309

 
7
%
 
458,087

 
12
%
Commission and advisory fees
989,356

 
960,444

 
3
%
 
944,962

 
5
%
Production based payout(5)
(857,384
)
 
(831,178
)
 
3
%
 
(817,211
)
 
5
%
Commission and advisory fees, net of payout
131,972

 
129,266

 
2
%
 
127,751

 
3
%
Client cash
162,517

 
161,815

 
%
 
127,174

 
28
%
Other asset-based(6)
129,623

 
126,736

 
2
%
 
121,721

 
6
%
Transaction and fee
121,222

 
118,335

 
2
%
 
118,941

 
2
%
Interest income and other, net(7)
13,556

 
15,583

 
(13
%)
 
13,460

 
1
%
Total net commission and advisory fees and attachment revenue
558,890


551,735

 
1
%
 
509,047

 
10
%
Brokerage, clearing, and exchange expense
(16,380
)
 
(15,994
)
 
2
%
 
(15,844
)
 
3
%
Gross Profit(4)
542,510

 
535,741

 
1
%
 
493,203

 
10
%
 
 
 
 
 
 
 
 
 
 
G&A Expense
 
 
 
 
 
 
 
 
 
Core G&A(8)
215,198

 
210,514

 
2
%
 
209,244

 
3
%
Regulatory charges
7,905

 
8,632

 
n/m

 
7,421

 
n/m

Promotional
61,715

 
41,423

 
49
%
 
52,628

 
17
%
Employee share-based compensation
7,414

 
7,306

 
1
%
 
6,332

 
17
%
Total G&A
292,232

 
267,875

 
9
%
 
275,625

 
6
%
EBITDA(4)
250,278

 
267,866

 
(7
%)
 
217,578

 
15
%
Depreciation and amortization
24,062

 
22,584

 
7
%
 
22,838

 
5
%
Amortization of intangible assets
16,286

 
16,249

 
%
 
15,676

 
4
%
Non-operating interest expense and other
31,944

 
33,957

 
(6
%)
 
31,705

 
1
%
INCOME BEFORE PROVISION FOR INCOME TAXES
177,986

 
195,076

 
(9
%)
 
147,359

 
21
%
PROVISION FOR INCOME TAXES
46,272

 
48,984

 
(6
%)
 
40,494

 
14
%
NET INCOME
$
131,714

 
$
146,092

 
(10
%)
 
$
106,865

 
23
%
Earnings per share, diluted
$
1.57

 
$
1.71

 
(8
%)
 
$
1.19

 
32
%
Weighted-average shares outstanding, diluted
83,844

 
85,350

 
(2
%)
 
89,878

 
(7
%)
EPS Prior to Amortization of Intangible Assets(4)(35)
$
1.71

 
$
1.85

 
(8
%)
 
$
1.32

 
30
%

8



LPL Financial Holdings Inc.
Management's Statements of Operations Trend (4) 
(In thousands, except per share data)
(Unaudited)
 
Quarterly Results
 
Q3 2019

Q2 2019
 
Q1 2019
Gross Profit(4)
 
 
 
 
 
Sales-based commissions
$
194,342

 
$
203,531

 
$
190,999

Trailing commissions
280,651

 
275,604

 
270,360

Advisory
514,363

 
481,309

 
453,938

Commission and advisory fees
989,356

 
960,444

 
915,297

Production based payout(5)
(857,384
)
 
(831,178
)
 
(777,889
)
Commission and advisory fees, net of payout
131,972

 
129,266

 
137,408

Client cash
162,517

 
161,815

 
173,139

Other asset-based(6)
129,623

 
126,736

 
123,224

Transaction and fee
121,222

 
118,335

 
122,480

Interest income and other, net (7)
13,556

 
15,583

 
15,730

Total net commission and advisory fees and attachment revenue
558,890

 
551,735


571,981

Brokerage, clearing, and exchange expense
(16,380
)
 
(15,994
)
 
(16,144
)
Gross Profit(4)
542,510

 
535,741

 
555,837

 
 
 
 
 
 
G&A Expense
 
 
 
 
 
Core G&A(8)
215,198

 
210,514

 
212,520

Regulatory charges
7,905

 
8,632

 
7,873

Promotional
61,715

 
41,423

 
51,349

Employee share-based compensation
7,414

 
7,306

 
7,967

Total G&A
292,232

 
267,875

 
279,709

EBITDA(4)
250,278

 
267,866

 
276,128

Depreciation and amortization
24,062

 
22,584

 
23,470

Amortization of intangible assets
16,286

 
16,249

 
16,168

Non-operating interest expense and other
31,944

 
33,957

 
32,716

INCOME BEFORE PROVISION FOR INCOME TAXES
177,986

 
195,076

 
203,774

PROVISION FOR INCOME TAXES
46,272

 
48,984

 
48,376

NET INCOME
$
131,714

 
$
146,092

 
$
155,398

Earnings per share, diluted
$
1.57

 
$
1.71

 
$
1.79

Weighted-average shares outstanding, diluted
83,844

 
85,350

 
86,742

EPS Prior to Amortization of Intangible Assets(4)(35)
$
1.71

 
$
1.85

 
$
1.93


9



LPL Financial Holdings Inc.
Operating Measures(4) 
(Dollars in billions, except where noted) (Unaudited)
 
Q3 2019

Q2 2019

Change

Q3 2018
 
Change
Market Drivers
 
 
 
 
 
 
 
 
 
S&P 500 Index (end of period)
2,977

 
2,942

 
1%
 
2,914

 
2%
Fed Funds Daily Effective Rate (FFER) (average bps)
220

 
240

 
(20bps)
 
192

 
28bps
 
 
 
 
 
 
 
 
 
 
Assets
 
 
 
 
 
 
 
 
 
Advisory Assets(9)
$
338.0

 
$
327.3

 
3%
 
$
306.1

 
10%
Brokerage Assets(10)
381.3

 
378.7

 
1%
 
374.9

 
2%
Total Brokerage and Advisory Assets
$
719.3


$
706.0

 
2%
 
$
681.0

 
6%
Advisory % of Total Brokerage and Advisory Assets
47.0
%
 
46.4
%
 
60bps
 
44.9
%
 
210bps
 
 
 
 
 
 
 
 
 
 
Assets Prior to Allen & Co.
 
 
 
 
 
 
 
 
 
Advisory Assets
$
337.0

 
$
327.3

 
3%
 
$
306.1

 
10%
Brokerage Assets
379.5

 
378.7

 
—%
 
374.9

 
1%
Total Brokerage and Advisory Assets
$
716.5

 
$
706.0

 
1%
 
$
681.0

 
5%
Advisory % of Total Brokerage and Advisory Assets
47.0
%
 
46.4
%
 
60bps
 
44.9
%
 
210bps
 
 
 
 
 
 
 
 
 
 
Assets by Platform
 
 
 
 
 
 
 
 
 
Corporate Platform Advisory Assets(11)
$
209.4

 
$
201.9

 
4%
 
$
184.8

 
13%
Hybrid Platform Advisory Assets(12)
128.6

 
125.4

 
3%
 
121.3

 
6%
Brokerage Assets
381.3

 
378.7

 
1%
 
374.9

 
2%
Total Brokerage and Advisory Assets
$
719.3


$
706.0

 
2%
 
$
681.0

 
6%
 
 
 
 
 
 
 
 
 
 
Centrally Managed Assets
 
 
 
 
 
 
 
 
 
Centrally Managed Assets(13)
$
47.8

 
$
45.7

 
5%
 
$
40.8

 
17%
Centrally Managed % of Total Advisory Assets
14.1
%
 
14.0
%
 
10bps
 
13.3
%
 
80bps

10



LPL Financial Holdings Inc.
Operating Measures(4) 
(Dollars in billions, except where noted) (Unaudited)
 
Q3 2019
 
Q2 2019
 
Change
 
Q3 2018
 
Change
Net New Assets (NNA)
 
 
 
 
 
 
 
 
 
Net New Advisory Assets(14)
$
9.2

 
$
6.6

 
n/m
 
$
5.1

 
n/m
Net New Brokerage Assets(15)
0.6

 
(2.6
)
 
n/m
 
(0.8
)
 
n/m
Total Net New Assets
$
9.9


$
4.0


n/m

$
4.4


n/m
 
 
 
 
 
 
 
 
 
 
Net New Assets (NNA) Prior to Allen & Co.
 
 
 
 
 
 
 
 
 
Net New Advisory Assets
$
8.2

 
$
6.6

 
n/m
 
$
5.1

 
n/m
Net New Brokerage Assets
(1.2
)
 
(2.6
)
 
n/m
 
(0.8
)
 
n/m
Total Net New Assets
$
7.0

 
$
4.0

 
n/m
 
$
4.4

 
n/m
 
 
 
 
 
 
 
 
 
 
Net Brokerage to Advisory Conversions(16)
$
1.7

 
$
1.8

 
n/m
 
$
1.7

 
n/m
Advisory NNA Annualized Growth Prior to Allen & Co. (17)
10.0
%
 
8.4
%
 
n/m
 
7.0
%
 
n/m
Total NNA Annualized Growth, Prior to Allen & Co.(17)
4.0
%
 
2.3
%
 
n/m
 
2.7
%
 
n/m
 
 
 
 
 
 
 
 
 
 
Net New Advisory Assets
 
 
 
 
 
 
 
 
 
Corporate Platform Net New Advisory Assets(18)
$
6.6

 
$
5.1

 
n/m
 
$
5.9

 
n/m
Hybrid Platform Net New Advisory Assets(19)
2.6

 
1.4

 
n/m
 
(0.8
)
 
n/m
Total Net New Advisory Assets
$
9.2

 
$
6.6

 
n/m
 
$
5.1

 
n/m
Centrally Managed Net New Advisory Assets(20)
$
1.9

 
$
1.2

 
n/m
 
$
1.8

 
n/m
 
 
 
 
 
 
 
 
 
 
Client Cash Balances
 
 
 
 
 
 
 
 
 
Insured Cash Account Balances
$
22.2

 
$
21.3

 
4%
 
$
21.0

 
6%
Deposit Cash Account Balances
4.6

 
4.3

 
7%
 
3.9

 
18%
Total Insured Sweep Balances
26.8

 
25.5

 
5%
 
25.0

 
7%
Money Market Account Cash Balances
2.6

 
3.5

 
(26%)
 
3.3

 
(21%)
Purchased Money Market Funds
1.8

 
1.0

 
80%
 

 
—%
Total Money Market Balances
4.4

 
4.5

 
(2%)
 
3.3

 
33%
Total Client Cash Balances
$
31.2

 
$
30.1

 
4%
 
$
28.2

 
11%
Client Cash Balances % of Total Assets
4.3
%
 
4.3
%
 
—%
 
4.1
%
 
20bps
 
 
 
 
 
 
 
 
 
 
Client Cash Balance Average Fees
 
 
 
 
 
 
 
 
 
Insured Cash Account Average Fee - bps(21)
241

 
249

 
(8)
 
189

 
52
Deposit Cash Account Average Fee - bps(21)
217

 
226

 
(9)
 
198

 
19
Money Market Account Average Fee - bps(21)
68

 
74

 
(6)
 
75

 
(7)
Purchased Money Market Fund Average Fee - bps(21)
29

 
29

 
n/m
 

 
n/m
Total Client Cash Balance Average Fee - bps(21)
211

 
217

 
(6)
 
178

 
33
 
 
 
 
 
 
 
 
 
 
Net Buy (Sell) Activity(22)
$
9.0

 
$
9.7

 
n/m
 
$
9.2

 
n/m

11



LPL Financial Holdings Inc.
Monthly Metrics(4) 
(Dollars in billions, except where noted)
(Unaudited)
 
 
September 2019
 
August 2019
 
Aug to Sep Change
 
July 2019
 
June 2019
Assets Served
 
 
 
 
 
 
 
 
 
 
Advisory Assets(9)
 
$
338.0

 
$
333.0

 
1.5%
 
$
332.1

 
$
327.3

Brokerage Assets(10)
 
381.3

 
378.7

 
0.7%
 
381.3

 
378.7

Total Brokerage and Advisory Assets
 
$
719.3

 
$
711.7

 
1.1%
 
$
713.4

 
$
706.0

 
 
 
 
 
 

 
 
 
 
Net New Assets (NNA)
 
 
 
 
 
 
 
 
 
 
Net New Advisory Assets(14)
 
$
2.2

 
$
4.0

 
n/m
 
$
2.9

 
$
2.4

Net New Brokerage Assets(15)
 
(0.4
)
 
1.3

 
n/m
 
(0.2
)
 
(0.5
)
Total Net New Assets
 
$
1.8

 
$
5.3

 
n/m
 
$
2.7

 
$
1.9

Net Brokerage to Advisory Conversions(16)
 
$
0.5

 
$
0.5

 
n/m
 
$
0.6

 
$
0.4

 
 
 
 
 
 
 
 
 
 
 
Client Cash Balances
 
 
 
 
 
 
 
 
 
 
Insured Cash Account Balances
 
$
22.2

 
$
22.0

 
0.9%
 
$
21.3

 
$
21.3

Deposit Cash Account Balances
 
4.6

 
4.5

 
2.2%
 
4.2

 
4.3

Total Insured Sweep Balances
 
26.8

 
26.5

 
1.1%
 
25.5

 
25.5

Money Market Account Cash Balances
 
2.6

 
2.8

 
(7.1%)
 
3.0

 
3.5

Purchased Money Market Funds
 
1.8

 
1.7

 
5.9%
 
1.3

 
1.0

Total Money Market Balances
 
4.4

 
4.5

 
(2.2%)
 
4.3

 
4.5

Total Client Cash Balances
 
$
31.2

 
$
31.0

 
0.6%
 
$
29.9

 
$
30.1

 
 
 
 
 
 

 
 
 
 
Net Buy (Sell) Activity(22)
 
$
2.9

 
$
2.8

 
3.6%
 
$
3.3

 
$
2.8

 
 
 
 
 
 
 
 
 
 
 
Market Indices
 
 
 
 
 

 
 
 
 
S&P 500 Index (end of period)
 
2,977

 
2,926

 
1.7%
 
2,980

 
2,942

Fed Funds Effective Rate (average bps)
 
205

 
213

 
(8bps)
 
240

 
238


12



LPL Financial Holdings Inc.
Financial Measures(4) 
(Dollars in thousands, except where noted)
(Unaudited)

 
Q3 2019
 
Q2 2019
 
% Change
 
Q3 2018
 
% Change
Commission Revenue by Product
 
 
 
 
 
 
 
 
 
Variable annuities
$
202,131

 
$
196,884

 
3%
 
$
201,075

 
1%
Mutual funds
148,672

 
149,380

 
—%
 
155,579

 
(4%)
Alternative investments
5,467

 
5,273

 
4%
 
6,331

 
(14%)
Fixed annuities
41,541

 
50,992

 
(19%)
 
47,117

 
(12%)
Equities
20,149

 
19,700

 
2%
 
19,082

 
6%
Fixed income
30,917

 
30,821

 
—%
 
32,144

 
(4%)
Insurance
17,004

 
17,009

 
—%
 
16,155

 
5%
Group annuities
8,761

 
8,795

 
—%
 
9,064

 
(3%)
Other
351

 
281

 
25%
 
328

 
7%
Total commission revenue
$
474,993

 
$
479,135

 
(1%)
 
$
486,875

 
(2%)
 
 
 
 
 

 
 
 

Commission Revenue by Sales-based and Trailing Commission
 

 
 
 

Sales-based commissions
 
 
 
 
 
 
 
 
 
Variable annuities
$
59,948

 
$
58,158

 
3%
 
$
57,491

 
4%
Mutual funds
36,358

 
38,095

 
(5%)
 
33,319

 
9%
Alternative investments
2,009

 
2,077

 
(3%)
 
1,822

 
10%
Fixed annuities
34,309

 
43,977

 
(22%)
 
40,040

 
(14%)
Equities
20,149

 
19,700

 
2%
 
19,082

 
6%
Fixed income
24,950

 
24,604

 
1%
 
25,757

 
(3%)
Insurance
15,289

 
15,449

 
(1%)
 
14,433

 
6%
Group annuities
979

 
1,190

 
(18%)
 
1,273

 
(23%)
Other
351

 
281

 
25%
 
328

 
7%
Total sales-based commissions
$
194,342

 
$
203,531

 
(5%)
 
$
193,545

 
—%
Trailing commissions
 
 
 
 

 
 
 

Variable annuities
$
142,183

 
$
138,726

 
2%
 
$
143,584

 
(1%)
Mutual funds
112,314

 
111,285

 
1%
 
122,260

 
(8%)
Alternative investments
3,458

 
3,196

 
8%
 
4,509

 
(23%)
Fixed annuities
7,232

 
7,015

 
3%
 
7,077

 
2%
Fixed income
5,967

 
6,217

 
(4%)
 
6,387

 
(7%)
Insurance
1,715

 
1,560

 
10%
 
1,722

 
—%
Group annuities
7,782

 
7,605

 
2%
 
7,791

 
—%
Total trailing commissions
$
280,651

 
$
275,604

 
2%
 
$
293,330

 
(4%)
Total commission revenue
$
474,993

 
$
479,135

 
(1%)
 
$
486,875

 
(2%)



13



LPL Financial Holdings Inc.
Financial Measures(4) 
(Dollars in thousands, except where noted)
(Unaudited)
 
Q3 2019
 
Q2 2019
 
Change
 
Q3 2018
 
Change
Payout Rate
 
 
 
 
 
 
 
 
 
Base Payout Rate
83.05
%
 
83.39
%
 
(34bps)
 
83.12
%
 
(7bps)
Production Based Bonuses
3.61
%
 
3.15
%
 
46bps
 
3.36
%
 
25bps
Total Payout Ratio
86.66
%
 
86.54
%
 
12bps
 
86.48
%
 
18bps

14



LPL Financial Holdings Inc.
Capital Management Measures(4) 
(Dollars in thousands, except where noted)
(Unaudited)
 
Q3 2019
 
Q2 2019
Cash Available for Corporate Use(23)
 
 
 
Cash at Parent
$
86,987

 
$
240,865

Excess Cash at Broker-Dealer subsidiary per Credit Agreement
117,355

 
42,496

Other Available Cash
22,601

 
12,889

Total Cash Available for Corporate Use
$
226,943

 
$
296,250

 
 
 
 
Credit Agreement Net Leverage
 
 
 
Total Debt (does not include unamortized premium)
$
2,370,000

 
$
2,373,750

Cash Available (up to $300 million)
226,943

 
296,250

Credit Agreement Net Debt
$
2,143,057

 
$
2,077,500

Credit Agreement EBITDA (trailing twelve months) (24)
$
1,069,878

 
$
1,042,984

Credit Agreement Net Leverage Ratio
2.00
x
 
1.99
x

 
 
September 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
 
1,470,000

 
LIBOR+225 bps(b)
 
 
 
4.30
%
 
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
 
$
2,370,000

 
 
 
 
 
4.85
%
 
 

(a)
The Revolving Credit Facility has a borrowing capacity of $500 million.
(b)
The LIBOR rate option is one-month LIBOR rate and subject to an interest rate floor of 0 basis points.
(c)
The Senior Unsecured Notes were issued in two separate transactions; $500 million in notes were issued in March 2017 at par; the remaining $400 million were issued in September 2017 and priced at 103% of the aggregate principal amount.
(d)
Does not include unamortized premium of approximately $9.0 million as of September 30, 2019.


15



LPL Financial Holdings Inc.
Key Business and Financial Metrics(4) 
(Dollars in thousands, except where noted)
(Unaudited)
 
Q3 2019

Q2 2019
 
Change
 
Q3 2018
 
Change
Advisors
 
 
 
 
 
 
 
 
 
Advisors
16,349
 
16,161
 
1
%
 
16,174
 
1
%
Net New Advisors
188

 
(28
)
 
n/m

 
125

 
n/m

Annualized commission and advisory fees per Advisor(25)
$
243

 
$
238

 
2
%
 
$
235

 
3
%
Average Total Assets per Advisor ($ in millions)(26)
$
44.0

 
$
43.7

 
1
%
 
$
42.1

 
5
%
Transition assistance loan amortization ($ in millions)(27)
$
24.4

 
$
22.6

 
8
%
 
$
19.2

 
27
%
Total client accounts (in millions)
5.5

 
5.5

 
%
 
5.4

 
2
%
 
 
 
 
 
 
 
 
 
 
Employees - period end
4,353
 
4,364
 
%
 
4,101
 
6
%
 
 
 
 
 
 
 
 
 
 
Productivity Metrics
 
 
 
 
 
 
 
 


Advisory Revenue as a % of Corporate Advisory Assets (28)
1.02
%
 
1.03
%
 
(1
bps)
 
1.05
%
 
(3
bps)
Gross Profit ROA (29)
31.4
bps
 
31.1
bps
 
0.3
bps
 
28.8
bps
 
2.6
bps
OPEX as a % of Brokerage and Advisory Assets (30)
18.7
bps
 
18.6
bps
 
0.1
bps
 
18.9
bps
 
(0.2
bps)
EBIT ROA (31)
12.8
bps
 
12.5
bps
 
0.3
bps
 
9.9
bps
 
2.9
bps
Production Retention Rate (YTD annualized) (32)
96.3
%
 
96.2
%
 
10
bps
 
96.1
%
 
20
bps
Recurring Gross Profit Rate (33)
87.1
%
 
86.5
%
 
60
bps
 
85.0
%
 
210
bps
EBITDA as a % of Gross Profit
46.1
%
 
50.0
%
 
(390
bps)
 
44.1
%
 
200
bps
 
 
 
 
 
 
 
 
 
 
Capital Expenditure ($ in millions)
$
40.7

 
$
33.2

 
23
%
 
$
36.4

 
12
%
 
 
 
 
 
 
 
 
 
 
Share Repurchases ($ in millions)
$
130.3

 
$
125.0

 
4
%
 
$
122.5

 
6
%
Dividends ($ in millions)
20.5

 
20.8

 
(1
%)
 
21.9

 
(6
%)
Total Capital Allocated ($ in millions)
$
150.8

 
$
145.9

 
3
%
 
$
144.4

 
4
%
Weighted-average Share Count, Diluted
83.8

 
85.4

 
(2
%)
 
89.9

 
(7
%)
Total Capital Allocated per Share(34)
$
1.80

 
$
1.71

 
5
%
 
$
1.61

 
12
%

16



Endnote Disclosures
(1)
Consists of total client deposits into advisory and brokerage accounts less total client withdrawals from advisory and brokerage accounts. This does not include $2.9 billion of total brokerage and advisory assets attributable to Allen & Company.
(2)
Represents the estimated total brokerage and advisory assets expected to transition to the Company's broker-dealer subsidiary, LPL Financial LLC ("LPL Financial"), associated with advisors who transferred their licenses to LPL Financial during the period. The estimate is based on prior business reported by the advisors, which has not been independently and fully verified by LPL Financial. The actual transition of assets to LPL Financial generally occurs over several quarters including the initial quarter of the transition, and the actual amount transitioned may vary from the estimate.
(3)
Compliance with the Credit Agreement Net Leverage Ratio is only required under the revolving credit facility.
(4)
Certain information presented on pages 8-16 includes non-GAAP financial measures and operational and performance metrics. For more information on non-GAAP financial measures, please see the section titled “Non-GAAP Financial Measures” on page 3.
(5)
Production based payout is an operating measure calculated as a commission and advisory expense less advisor deferred compensation expense. Below is a reconciliation of production based payout against the Company’s commission and advisory expense for the periods presented (in thousands):
 
Q3 2019
 
Q2 2019
 
Q1 2019
 
Q3 2018
Production based payout
$
857,384

 
$
831,178

 
$
777,889

 
$
817,211

Advisor deferred compensation expense
(749
)
 
6,844

 
21,809

 
4,739

Commission and advisory expense
$
856,635

 
$
838,022

 
$
799,698

 
$
821,950


(6)
Consists of revenues from the Company's sponsorship programs with financial product manufacturers and omnibus processing and networking services, but does not include fees from client cash programs. Other asset-based revenues are a component of asset-based revenues and are derived from the Company's Unaudited Condensed Consolidated Statements of Income.
(7)
Interest income and other, net is an operating measure calculated as interest income, net of interest expense plus other revenue, less advisor deferred compensation expense. Below is a reconciliation of interest income and other, net against the Company’s interest income, net of interest expense and other revenue for the periods presented (in thousands):
 
Q3 2019
 
Q2 2019
 
Q1 2019
 
Q3 2018
Interest income, net of interest expense
$
11,531

 
$
11,690

 
$
12,321

 
$
10,512

Plus: Other revenue
1,276

 
10,737

 
25,218

 
7,687

Less: Advisor deferred compensation expense
749

 
(6,844
)
 
(21,809
)
 
(4,739
)
Interest income and other, net
$
13,556

 
$
15,583

 
$
15,730

 
$
13,460















17




(8)
Core G&A is a non-GAAP financial measure. Please see a description of Core G&A under “Non-GAAP Financial Measures” on page 3 of this release for additional information. Below is a reconciliation of Core G&A against the Company’s total operating expenses for the periods presented:
 
Q3 2019
 
Q2 2019
 
Q1 2019
 
Q3 2018
Operating Expense Reconciliation (in thousands)
 
 
 
 
 
 
 
Core G&A
$
215,198

 
$
210,514

 
$
212,520

 
$
209,244

Regulatory charges
7,905

 
8,632

 
7,873

 
7,421

Promotional
61,715

 
41,423

 
51,349

 
52,628

Employee share-based compensation
7,414

 
7,306

 
7,967

 
6,332

Total G&A
292,232

 
267,875

 
279,709

 
275,625

Commissions and advisory
856,635

 
838,022

 
799,698

 
821,950

Depreciation & amortization
24,062

 
22,584

 
23,470

 
22,838

Amortization of intangible assets
16,286

 
16,249

 
16,168

 
15,676

Brokerage, clearing and exchange
16,380

 
15,994

 
16,144

 
15,844

Total operating expenses
$
1,205,595


$
1,160,724

 
$
1,135,189


$
1,151,933


(9)
Consists of total advisory assets under custody at LPL Financial, plus advisory assets serviced by Allen & Company advisors.
(10)
Consists of brokerage assets serviced by advisors licensed with LPL Financial or Allen & Company.
(11)
Consists of total assets on LPL Financial's corporate advisory platform serviced by investment advisor representatives of LPL Financial or Allen & Company.
(12)
Consists of total assets on LPL Financial's independent advisory platform serviced by investment advisor representatives of separate investment advisor firms ("Hybrid RIAs"), rather than of LPL Financial.
(13)
Represents those advisory assets in LPL Financial’s Model Wealth Portfolios, Optimum Market Portfolios, Personal Wealth Portfolios, and Guided Wealth Portfolios platforms.
(14)
Consists of total client deposits into advisory accounts including advisory assets serviced by Allen & Company advisors less total client withdrawals from advisory accounts. The Company considers conversions from and to brokerage accounts as deposits and withdrawals respectively.
(15)
Consists of total client deposits into brokerage accounts including brokerage assets serviced by Allen & Company advisors less total client withdrawals from brokerage accounts. The Company considers conversions from and to advisory accounts as deposits and withdrawals, respectively.
(16)
Consists of existing custodied assets that converted from brokerage to advisory, less existing custodied assets that converted from advisory to brokerage.
(17)
Calculated as annualized current period net new assets divided by preceding period assets in their respective categories of advisory assets or total brokerage and advisory assets.
(18)
Consists of total client deposits into advisory accounts on LPL Financial's corporate advisory platform (FN 11) less total client withdrawals from advisory accounts on its corporate advisory platform.
(19)
Consists of total client deposits into advisory accounts on LPL Financial's independent advisory platform (FN 12) less total client withdrawals from advisory accounts on its independent advisory platform.
(20)
Consists of total client deposits into centrally managed assets accounts (FN 13) less total client withdrawals from centrally managed assets accounts. The Company does not consider conversions from or to advisory accounts on LPL Financial’s advisory platforms as deposits or withdrawals, respectively.
(21)
Calculated by dividing revenue for the period by the average balance during the period.
(22)
Represents the amount of securities purchased less the amount of securities sold in client accounts custodied with LPL Financial. Reported activity does not include any other cash activity, such as deposits, withdrawals, dividends received, or fees paid.
(23)
Consists of cash unrestricted by the Credit Agreement and other regulations available for operating, investing, and financing uses.

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(24)
Credit Agreement EBITDA is a non-GAAP financial measure. Please see a description of Credit Agreement EBITDA under “Non-GAAP Financial Measures” on page 3 of this release for additional information. Under the Credit Agreement, management calculates Credit Agreement EBITDA for a trailing twelve month period at the end of each fiscal quarter, and in doing so may make further adjustments to prior quarters. Below is a reconciliation of Credit Agreement EBITDA to net income for the periods presented:
 
Q3 2019
 
Q2 2019
Credit Agreement EBITDA (trailing twelve months)
 
 
 
Net income
$
553,502

 
$
528,653

Non-operating interest expense
130,373

 
130,134

Provision for income taxes
185,777

 
179,999

Depreciation and amortization
92,013

 
90,789

Amortization of intangible assets
64,375

 
63,765

EBITDA
$
1,026,040

 
$
993,340

Credit Agreement Adjustments:
 
 
 
Employee share-based compensation expense
$
27,732

 
$
26,650

Advisor share-based compensation expense
2,889

 
3,342

Other
13,217

 
19,652

Credit Agreement EBITDA (trailing twelve months)
$
1,069,878

 
$
1,042,984

(25)
Calculated based on the average advisor count from the current period and prior period.
(26)
Calculated based on the end of period total brokerage and advisory assets divided by end of period advisor count.
(27)
Represents the amortization expense amount of forgivable loans for transition assistance to advisors and financial institutions.
(28)
Represents advisory revenue as a % of Corporate Advisory Assets for the trailing twelve month period.
(29)
Represents Gross Profit (FN 4) for the trailing twelve month period, divided by average month-end total brokerage and advisory assets for the trailing twelve month period.
(30)
Represents operating expenses for the trailing twelve month period, excluding production-related expense, divided by average month-end total brokerage and advisory assets for the period. Production-related expense includes commissions and advisory expense and brokerage, clearing and exchange expense. For purposes of this metric, operating expenses includes core G&A (FN 8), regulatory, promotional, employee share based compensation, depreciation & amortization, and amortization of intangible assets.
(31)
EBIT ROA is calculated as Gross Profit ROA less OPEX as a % of Total Brokerage and Advisory Assets.
(32)
Reflects retention of commission and advisory revenues, calculated by deducting the prior year production of the annualized year-to-date attrition rate, over the prior year total production.
(33)
Recurring Gross Profit Rate refers to the percentage of the Company’s gross profit, a non-GAAP financial measure, that was recurring for the trailing twelve month period. Management tracks recurring gross profit, a characterization of gross profit and a statistical measure, which is defined to include the Company’s revenues from asset-based fees, advisory fees, trailing commissions, client cash programs, and certain other fees that are based upon client accounts and advisors, less the expenses associated with such revenues and certain other recurring expenses not specifically associated with a revenue line. Management allocates such other recurring expenses on a pro-rata basis against specific revenue lines at its discretion.
(34)
Capital Allocated per Share equals the amount of capital allocated for share repurchases and cash dividends divided by the diluted weighted-average shares outstanding.

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(35)
EPS Prior to Amortization of Intangible Assets is a non-GAAP financial measure. Please see a description of EPS Prior to Amortization of Intangible Assets under “Non-GAAP Financial Measures” on page 3 of this release for additional information. Below is a reconciliation of EPS Prior to Amortization of Intangible Assets to the Company’s GAAP EPS for the periods presented:
EPS Reconciliation (in thousands, except per share data)
Q3 2019
EPS
$
1.57

Amortization of Intangible Assets
16,286

Tax Benefit
(4,560
)
  Amortization of Intangible Assets Net of Tax Benefit
$
11,726

Diluted Share Count
83,844

EPS Impact
$
0.14

EPS Prior to Amortization of Intangible Assets
$
1.71





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