EX-99.1 2 a2019q4earningsrelease.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 Fourth Quarter and Full Year 2019 Results

Fourth Quarter 2019 Key Performance Indicators
Earnings per share ("EPS") increased 13% year-over-year to $1.53.
Net Income increased 5% year-over-year to $127 million.
EPS Prior to Amortization of Intangible Assets** increased 13% year-over-year to $1.68.
Total Brokerage and Advisory Assets increased 22% year-over-year to $764 billion.
Total organic net new assets were an inflow of $8.8 billion, translating to a 4.9% annualized growth rate.
Organic net new advisory assets were an inflow of $9.6 billion, translating to an 11.4% annualized growth rate.
Organic net new brokerage assets were an outflow of $0.8 billion, translating to a (0.9)% annualized growth rate.
Recruited Assets(1) were $10.6 billion, contributing to a trailing twelve-month total of $35.0 billion.
Advisor count was 16,464, up 115 sequentially, and year-to-date production retention rate was 96.5%.
Advisor count was up 554 year-over-year prior to the impact of a hybrid firm that formed its own broker-dealer and departed.
Total client cash balances were $33.7 billion, up $2.5 billion or 8% sequentially.
Client cash balances as a percentage of total assets were 4.4%, up from 4.3% in Q3.
Gross Profit** increased 6% year-over-year to $538 million.
EBITDA** increased 4% year-over-year to $242 million.
EBITDA** as a percentage of Gross Profit** was 45%, down from 46% a year ago.
Core G&A** increased 6% year-over-year to $230 million, up 7% sequentially.
Shareholder capital returns were $140 million, translating to $1.70 per share.
Share repurchases were $120 million for 1.4 million shares at an average purchase price of $85.06.
Weighted-average fully diluted share count was 82.7 million, down 6% year-over-year.
Dividends were $20 million.
Cash available for corporate use was $204 million.
Credit Agreement Net Leverage Ratio(2) was 2.05x.






1



Full Year 2019 Key Performance Indicators
EPS increased 36% year-over-year to $6.62.
Net Income increased 27% year-over-year to $560 million.
EPS prior to Amortization of Intangible Assets** increased 35% year-over-year to $7.17.
Total organic net new assets were $23.8 billion, translating to a 3.8% annualized growth rate, up from 2.3% in 2018.
Gross Profit** increased 12% year-over-year to $2.17 billion.
EBITDA** increased 20% year-over-year to $1.04 billion.
EBITDA** as a percentage of Gross Profit** was 48%, up from 44% a year ago.
Core G&A** was $868 million, up 6% year-over-year. This included $3 million of expenses related to the acquisition of Allen & Company*.
Shareholder capital returns were $583 million, translating to $6.89 per share.
Share repurchases were $500 million for 6.4 million shares at an average purchase price of $77.96.
Weighted-average fully diluted share count was 84.6 million, down 7% year-over-year.
Dividends were $83 million.

Key Updates
Shifted $3.3 billion of Insured Cash Accounts (ICA) balances to fixed rate contracts in Q4 which brought fixed rate balances to $12.3 billion, or ~50% of the total ICA portfolio, up from ~40% in Q3.
2019 Core G&A** was $868 million, which translates to a ~6% growth rate from 2018 and within our outlook range of $860 to $870 million.
Established 2020 Core G&A** outlook range of $915 to $940 million, which translates to a ~5.5% to 8% growth rate from 2019.


SAN DIEGO - January 30, 2020LPL Financial Holdings Inc. (Nasdaq: LPLA) (the “Company”) today announced results for its fourth quarter ended December 31, 2019, reporting net income of $127 million, or $1.53 per share. This compares with $120 million, or $1.36 per share, in the fourth quarter of 2018 and $132 million, or $1.57 per share, in the prior quarter.

“In 2019, we delivered another year of solid business and financial growth, including increases in assets, organic growth, and earnings,” said Dan Arnold, President and CEO. “As we look ahead to 2020, we remain focused on executing our strategy of winning in our traditional markets, deploying new affiliation models, creating an industry-leading service experience, and innovating on a new layer of value for our advisors’ practices.  We believe this approach will drive long-term value across our stakeholders.”

“We continued to build financial and balance sheet strength in 2019,” said Matt Audette, CFO. “We invested to drive growth while staying disciplined on expenses, extended the duration of our cash sweep portfolio, refinanced our debt, and returned capital to our shareholders. Going forward, we plan to continue to deploy capital to drive growth, take advantage of M&A opportunities when appropriate, 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 March 31, 2020 stockholders of record as of March 18, 2020.

2



Conference Call and Additional Information
The Company will hold a conference call to discuss its results at 5:00 p.m. EDT on Thursday, January 30. To listen, call 877-677-9122 (domestic) or 708-290-1401 (international); passcode 4628048, 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 February 6 and February 20, respectively. For telephonic replay, call 855-859-2056 (domestic) or 404-537-3406 (international); passcode 4628048.
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”)

3



**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 34 on page 20 of this release.
Gross Profit is calculated as net revenues, which were $1,448 million for the three months ended December 31, 2019, less commission and advisory expenses and brokerage, clearing, and exchange fees, which were $894 million and $16 million, respectively, for the three months ended December 31, 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 $1,248 million for the three months ended December 31, 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 17 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

4



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 23 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 2020 Core G&A** outlook), future capabilities and affiliation models, 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 January 30, 2020. 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 2019 Annual Report on Form 10K, 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.




5



LPL Financial Holdings Inc.
Condensed Consolidated Statements of Income
(In thousands, except per share data)
(Unaudited)
 
Three Months Ended December 31,
 
 
 
Years Ended December 31,
 
 
 
2019
 
2018
 
% Change
 
2019
 
2018
 
% Change
REVENUES
 
 
 
 
 
 
 
 
 
 
 
Commission
$
476,920

 
$
469,923

 
1
%
 
$
1,892,407

 
$
1,919,694

 
(1
%)
Advisory
533,259

 
474,102

 
12
%
 
1,982,869

 
1,793,493

 
11
%
Asset-based
288,925

 
265,681

 
9
%
 
1,165,979

 
972,515

 
20
%
Transaction and fee
118,291

 
119,254

 
(1
%)
 
480,328

 
471,299

 
2
%
Interest income, net of interest expense
10,966

 
11,784

 
(7
%)
 
46,508

 
40,210

 
16
%
Other
19,534

 
(23,702
)
 
n/m

 
56,765

 
(8,811
)
 
n/m

Total net revenues
1,447,895

 
1,317,042

 
10
%
 
5,624,856

 
5,188,400

 
8
%
EXPENSES
 
 
 
 
 
 
 
 
 
 
 
Commission and advisory
893,831

 
793,310

 
13
%
 
3,388,186

 
3,177,576

 
7
%
Compensation and benefits
149,128

 
132,766

 
12
%
 
556,128

 
506,650

 
10
%
Promotional
51,050

 
45,141

 
13
%
 
205,537

 
208,603

 
(1
%)
Depreciation and amortization
25,663

 
21,897

 
17
%
 
95,779

 
87,656

 
9
%
Amortization of intangible assets
16,631

 
15,672

 
6
%
 
65,334

 
60,252

 
8
%
Occupancy and equipment
35,320

 
30,750

 
15
%
 
136,163

 
115,598

 
18
%
Professional services
17,772

 
24,428

 
(27
%)
 
73,887

 
85,651

 
(14
%)
Brokerage, clearing and exchange
15,927

 
16,000

 
%
 
64,445

 
63,154

 
2
%
Communications and data processing
12,465

 
11,776

 
6
%
 
49,859

 
46,322

 
8
%
Other
30,569

 
31,103

 
(2
%)
 
114,546

 
119,278

 
(4
%)
Total operating expenses
1,248,356

 
1,122,843

 
11
%
 
4,749,864

 
4,470,740

 
6
%
Non-operating interest expense and other
31,384

 
31,756

 
(1
%)
 
130,001

 
125,023

 
4
%
Loss on extinguishment of debt
3,156

 

 
n/m

 
3,156

 

 
n/m

INCOME BEFORE PROVISION FOR INCOME TAXES
164,999

 
162,443

 
2
%
 
741,835

 
592,637

 
25
%
PROVISION FOR INCOME TAXES
38,323

 
42,145

 
(9
%)
 
181,955

 
153,178

 
19
%
NET INCOME
$
126,676

 
$
120,298

 
5
%
 
$
559,880

 
$
439,459

 
27
%
EARNINGS PER SHARE
 
 
 
 
 
 
 
 
 
 
 
Earnings per share, basic
$
1.57

 
$
1.40

 
12
%
 
$
6.78

 
$
4.99

 
36
%
Earnings per share, diluted
$
1.53

 
$
1.36

 
13
%
 
$
6.62

 
$
4.85

 
36
%
Weighted-average shares outstanding, basic
80,701

 
85,976

 
(6
%)
 
82,552

 
88,119

 
(6
%)
Weighted-average shares outstanding, diluted
82,695

 
88,163

 
(6
%)
 
84,624

 
90,619

 
(7
%)







6



LPL Financial Holdings Inc.
Condensed Consolidated Statements of Income Trend
(In thousands, except per share data)
(Unaudited)
 
Quarterly Results
 
Q4 2019
 
Q3 2019
 
Q2 2019
REVENUES
 
 
 
 
 
Commission
$
476,920

 
$
474,993

 
$
479,135

Advisory
533,259

 
514,363

 
481,309

Asset-based
288,925

 
292,140

 
288,551

Transaction and fee
118,291

 
121,222

 
118,335

Interest income, net of interest expense
10,966

 
11,531

 
11,690

Other
19,534

 
1,276

 
10,737

Total net revenues
1,447,895

 
1,415,525

 
1,389,757

EXPENSES
 
 
 
 
 
Commission and advisory
893,831

 
856,635

 
838,022

Compensation and benefits
149,128

 
138,300

 
131,788

Promotional
51,050

 
61,715

 
41,423

Depreciation and amortization
25,663

 
24,062

 
22,584

Amortization of intangible assets
16,631

 
16,286

 
16,249

Occupancy and equipment
35,320

 
34,417

 
33,320

Professional services
17,772

 
17,666

 
18,837

Brokerage, clearing and exchange expense
15,927

 
16,380

 
15,994

Communications and data processing
12,465

 
12,535

 
12,532

Other
30,569

 
27,599

 
29,975

Total operating expenses
1,248,356

 
1,205,595

 
1,160,724

Non-operating interest expense and other
31,384

 
31,944

 
33,957

Loss on extinguishment of debt
3,156

 

 

INCOME BEFORE PROVISION FOR INCOME TAXES
164,999

 
177,986

 
195,076

PROVISION FOR INCOME TAXES
38,323

 
46,272

 
48,984

NET INCOME
$
126,676

 
$
131,714

 
$
146,092

EARNINGS PER SHARE
 
 
 
 
 
Earnings per share, basic
$
1.57

 
$
1.61

 
$
1.75

Earnings per share, diluted
$
1.53

 
$
1.57

 
$
1.71

Weighted-average shares outstanding, basic
80,701

 
81,833

 
83,247

Weighted-average shares outstanding, diluted
82,695

 
83,844

 
85,350


7



LPL Financial Holdings Inc.
Condensed Consolidated Statements of Financial Condition
(Dollars in thousands, except par value)
(Unaudited)
 
 
December 31, 2019
 
September 30, 2019
 
December 31, 2018
ASSETS
Cash and cash equivalents
 
$
590,209

 
$
929,536

 
$
511,096

Cash segregated under federal and other regulations
 
822,697

 
526,741

 
985,195

Restricted cash
 
58,872

 
52,406

 
65,828

Receivables from:
 
 
 
 
 
 
Clients, net of allowance
 
433,986

 
418,976

 
412,944

Product sponsors, broker-dealers, and clearing organizations
 
177,654

 
171,151

 
166,793

Advisor loans, net of allowance
 
441,743

 
397,653

 
298,821

Others, net of allowance
 
298,790

 
268,262

 
248,711

Securities owned:
 
 
 
 
 
 
Trading — at fair value
 
46,447

 
32,774

 
29,267

Held-to-maturity — at amortized cost
 
11,806

 
13,043

 
13,001

Securities borrowed
 
17,684

 
10,231

 
4,829

Fixed assets, net of accumulated depreciation and amortization
 
533,044

 
504,410

 
461,418

Operating lease assets
 
102,477

 
104,305

 

Goodwill
 
1,503,648

 
1,502,679

 
1,490,247

Intangible assets, net of accumulated amortization
 
439,838

 
456,469

 
484,171

Other assets
 
401,343

 
351,912

 
305,147

Total assets
 
$
5,880,238

 
$
5,740,548

 
$
5,477,468

LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES:
 
 
 
 
 
 
Drafts payable
 
$
218,636

 
$
141,423

 
$
225,034

Payables to clients
 
1,058,873

 
1,119,575

 
950,946

Payables to broker-dealers and clearing organizations
 
92,002

 
85,341

 
76,180

Accrued commission and advisory expenses payable
 
174,330

 
162,104

 
164,211

Accounts payable and accrued liabilities
 
557,969

 
487,399

 
478,644

Income taxes payable
 
20,129

 
7,146

 
32,990

Unearned revenue
 
82,842

 
85,003

 
80,524

Securities sold, but not yet purchased — at fair value
 
176

 
206

 
169

Long-term borrowing, net of unamortized debt issuance cost
 
2,398,818

 
2,360,218

 
2,371,808

Operating lease liabilities
 
141,900

 
144,194

 

Finance lease liabilities
 
108,592

 
107,184

 

Leasehold financing and capital lease obligations
 

 

 
104,564

Deferred income taxes, net
 
2,098

 
20,805

 
18,325

Total liabilities
 
4,856,365

 
4,720,598

 
4,503,395

STOCKHOLDERS’ EQUITY:
 
 
 
 
 
 
Common stock, $.001 par value; 600,000,000 shares authorized; 126,494,028 shares issued at December 31, 2019
 
126

 
126

 
125

Additional paid-in capital
 
1,703,973

 
1,687,021

 
1,634,337

Treasury stock, at cost — 46,259,989 shares at December 31, 2019
 
(2,234,793
)
 
(2,114,814
)
 
(1,730,535
)
Retained earnings
 
1,554,567

 
1,447,617

 
1,070,146

Total stockholders’ equity
 
1,023,873

 
1,019,950

 
974,073

Total liabilities and stockholders’ equity
 
$
5,880,238

 
$
5,740,548

 
$
5,477,468


8



LPL Financial Holdings Inc.
Management's Statements of Operations(3) 
(In thousands, except per share data)
(Unaudited)
Certain information presented on pages 9-16 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 4 of this release.
 
Quarterly Results
 
Q4 2019

Q3 2019
 
% Change
 
Q4 2018
 
% Change
Gross Profit(3)
 
 
 
 
 
 
 
 
 
Sales-based commissions
$
193,980

 
$
194,342

 
%
 
$
199,468

 
(3
%)
Trailing commissions
282,940

 
280,651

 
1
%
 
270,455

 
5
%
Advisory
533,259

 
514,363

 
4
%
 
474,102

 
12
%
Commission and advisory fees
1,010,179

 
989,356

 
2
%
 
944,025

 
7
%
Production based payout(4)
(876,654
)
 
(857,384
)
 
2
%
 
(818,382
)
 
7
%
Commission and advisory fees, net of payout
133,525

 
131,972

 
1
%
 
125,643

 
6
%
Client cash
155,322

 
162,517

 
(4
%)
 
147,774

 
5
%
Other asset-based(5)
133,603

 
129,623

 
3
%
 
117,907

 
13
%
Transaction and fee
118,291

 
121,222

 
(2
%)
 
119,254

 
(1
%)
Interest income and other, net(6)
13,323

 
13,556

 
(2
%)
 
13,154

 
1
%
Total net commission and advisory fees and attachment revenue
554,064


558,890

 
(1
%)
 
523,732

 
6
%
Brokerage, clearing, and exchange expense
(15,927
)
 
(16,380
)
 
(3
%)
 
(16,000
)
 
%
Gross Profit(3)
538,137

 
542,510

 
(1
%)
 
507,732

 
6
%
 
 
 
 
 
 
 
 
 
 
G&A Expense
 
 
 
 
 
 
 
 
 
Core G&A(7)
230,182

 
215,198

 
7
%
 
216,185

 
6
%
Regulatory charges
7,893

 
7,905

 
n/m

 
9,593

 
n/m

Promotional
51,050

 
61,715

 
(17
%)
 
45,141

 
13
%
Employee share-based compensation
7,179

 
7,414

 
(3
%)
 
5,045

 
42
%
Total G&A
296,304

 
292,232

 
1
%
 
275,964

 
7
%
EBITDA(3)
241,833

 
250,278

 
(3
%)
 
231,768

 
4
%
Depreciation and amortization
25,663

 
24,062

 
7
%
 
21,897

 
17
%
Amortization of intangible assets
16,631

 
16,286

 
2
%
 
15,672

 
6
%
Non-operating interest expense and other
31,384

 
31,944

 
(2
%)
 
31,756

 
(1
%)
Loss on extinguishment of debt
3,156

 

 
n/m

 

 
n/m

INCOME BEFORE PROVISION FOR INCOME TAXES
164,999

 
177,986

 
(7
%)
 
162,443

 
2
%
PROVISION FOR INCOME TAXES
38,323

 
46,272

 
(17
%)
 
42,145

 
(9
%)
NET INCOME
$
126,676

 
$
131,714

 
(4
%)
 
$
120,298

 
5
%
Earnings per share, diluted
$
1.53

 
$
1.57

 
(3
%)
 
$
1.36

 
13
%
Weighted-average shares outstanding, diluted
82,695

 
83,844

 
(1
%)
 
88,163

 
(6
%)
EPS Prior to Amortization of Intangible Assets(3)(34)
$
1.68

 
$
1.71

 
(2
%)
 
$
1.49

 
13
%

9



LPL Financial Holdings Inc.
Management's Statements of Operations Trend(3) 
(In thousands, except per share data)
(Unaudited)
 
Quarterly Results
 
Q4 2019

Q3 2019
 
Q2 2019
Gross Profit(3)
 
 
 
 
 
Sales-based commissions
$
193,980

 
$
194,342

 
$
203,531

Trailing commissions
282,940

 
280,651

 
275,604

Advisory
533,259

 
514,363

 
481,309

Commission and advisory fees
1,010,179

 
989,356

 
960,444

Production based payout(4)
(876,654
)
 
(857,384
)
 
(831,178
)
Commission and advisory fees, net of payout
133,525

 
131,972

 
129,266

Client cash
155,322

 
162,517

 
161,815

Other asset-based(5)
133,603

 
129,623

 
126,736

Transaction and fee
118,291

 
121,222

 
118,335

Interest income and other, net (6)
13,323

 
13,556

 
15,583

Total net commission and advisory fees and attachment revenue
554,064

 
558,890


551,735

Brokerage, clearing, and exchange expense
(15,927
)
 
(16,380
)
 
(15,994
)
Gross Profit(3)
538,137

 
542,510

 
535,741

 
 
 
 
 
 
G&A Expense
 
 
 
 
 
Core G&A(7)
230,182

 
215,198

 
210,514

Regulatory charges
7,893

 
7,905

 
8,632

Promotional
51,050

 
61,715

 
41,423

Employee share-based compensation
7,179

 
7,414

 
7,306

Total G&A
296,304

 
292,232

 
267,875

EBITDA(3)
241,833

 
250,278

 
267,866

Depreciation and amortization
25,663

 
24,062

 
22,584

Amortization of intangible assets
16,631

 
16,286

 
16,249

Non-operating interest expense and other
31,384

 
31,944

 
33,957

Loss on extinguishment of debt
3,156

 

 

INCOME BEFORE PROVISION FOR INCOME TAXES
164,999

 
177,986

 
195,076

PROVISION FOR INCOME TAXES
38,323

 
46,272

 
48,984

NET INCOME
$
126,676

 
$
131,714

 
$
146,092

Earnings per share, diluted
$
1.53

 
$
1.57

 
$
1.71

Weighted-average shares outstanding, diluted
82,695

 
83,844

 
85,350

EPS Prior to Amortization of Intangible Assets(3)(34)
$
1.68

 
$
1.71

 
$
1.85


10



LPL Financial Holdings Inc.
Operating Measures(3) 
(Dollars in billions, except where noted) (Unaudited)
 
Q4 2019

Q3 2019

Change

Q4 2018
 
Change
Market Drivers
 
 
 
 
 
 
 
 
 
S&P 500 Index (end of period)
3,231

 
2,977

 
9%
 
2,507

 
29%
Fed Funds Daily Effective Rate (FFER) (average bps)
165

 
220

 
(55bps)
 
222

 
(57bps)
 
 
 
 
 
 
 
 
 
 
Assets
 
 
 
 
 
 
 
 
 
Advisory Assets(8)
$
365.8

 
$
338.0

 
8%
 
$
282.0

 
30%
Brokerage Assets(9)
398.6

 
381.3

 
5%
 
346.0

 
15%
Total Brokerage and Advisory Assets
$
764.4


$
719.3

 
6%
 
$
628.1

 
22%
Advisory % of Total Brokerage and Advisory Assets
47.8
%
 
47.0
%
 
80bps
 
44.9
%
 
290bps
 
 
 
 
 
 
 
 
 
 
Assets by Platform
 
 
 
 
 
 
 
 
 
Corporate Platform Advisory Assets(10)
$
228.3

 
$
209.4

 
9%
 
$
172.3

 
33%
Hybrid Platform Advisory Assets(11)
137.5

 
128.6

 
7%
 
109.7

 
25%
Brokerage Assets
398.6

 
381.3

 
5%
 
346.0

 
15%
Total Brokerage and Advisory Assets
$
764.4


$
719.3

 
6%
 
$
628.1

 
22%
 
 
 
 
 
 
 
 
 
 
Centrally Managed Assets
 
 
 
 
 
 
 
 
 
Centrally Managed Assets(12)
$
52.4

 
$
47.8

 
10%
 
$
38.5

 
36%
Centrally Managed % of Total Advisory Assets
14.3
%
 
14.1
%
 
20bps
 
13.7
%
 
60bps

11



LPL Financial Holdings Inc.
Operating Measures(3) 
(Dollars in billions, except where noted) (Unaudited)
 
Q4 2019
 
Q3 2019
 
Change
 
Q4 2018
 
Change
Net New Assets (NNA)
 
 
 
 
 
 
 
 
 
Net New Advisory Assets(13)
$
9.6

 
$
9.2

 
n/m
 
$
5.0

 
n/m
Net New Brokerage Assets(14)
(0.8
)
 
0.6

 
n/m
 
0.9

 
n/m
Total Net New Assets
$
8.8


$
9.9


n/m

$
5.9


n/m
 
 
 
 
 
 
 
 
 
 
Net New Assets (NNA) Prior to Allen & Co.
 
 
 
 
 
 
 
 
 
Net New Advisory Assets
$
9.6

 
$
8.2

 
n/m
 
$
5.0

 
n/m
Net New Brokerage Assets
(0.8
)
 
(1.2
)
 
n/m
 
0.9

 
n/m
Total Net New Assets
$
8.8

 
$
7.0

 
n/m
 
$
5.9

 
n/m
 
 
 
 
 
 
 
 
 
 
Net Brokerage to Advisory Conversions(15)
$
1.9

 
$
1.7

 
n/m
 
$
1.4

 
n/m
Advisory NNA Annualized Growth Prior to Allen & Co.(16)
11.4
%
 
10.0
%
 
n/m
 
6.5
%
 
n/m
Total NNA Annualized Growth, Prior to Allen & Co.(16)
4.9
%
 
4.0
%
 
n/m
 
3.5
%
 
n/m
 
 
 
 
 
 
 
 
 
 
Net New Advisory Assets
 
 
 
 
 
 
 
 
 
Corporate Platform Net New Advisory Assets(17)
$
7.5

 
$
6.6

 
n/m
 
$
5.1

 
n/m
Hybrid Platform Net New Advisory Assets(18)
2.1

 
2.6

 
n/m
 
(0.2
)
 
n/m
Total Net New Advisory Assets
$
9.6

 
$
9.2

 
n/m
 
$
5.0

 
n/m
Centrally Managed Net New Advisory Assets(19)
$
2.0

 
$
1.9

 
n/m
 
$
1.4

 
n/m
 
 
 
 
 
 
 
 
 
 
Client Cash Balances
 
 
 
 
 
 
 
 
 
Insured Cash Account Balances
$
24.4

 
$
22.2

 
10%
 
$
24.8

 
(2%)
Deposit Cash Account Balances
5.0

 
4.6

 
9%
 
5.1

 
(2%)
Total Insured Sweep Balances
29.4

 
26.8

 
10%
 
29.9

 
(2%)
Money Market Account Cash Balances
1.9

 
2.6

 
(27%)
 
4.9

 
(61%)
Purchased Money Market Funds
2.4

 
1.8

 
33%
 

 
—%
Total Money Market Balances
4.3

 
4.4

 
(2%)
 
4.9

 
(12%)
Total Client Cash Balances
$
33.7

 
$
31.2

 
8%
 
$
34.9

 
(3%)
Client Cash Balances % of Total Assets
4.4
%
 
4.3
%
 
10bps
 
5.6
%
 
(120bps)
 
 
 
 
 
 
 
 
 
 
Client Cash Balance Average Fees
 
 
 
 
 
 
 
 
 
Insured Cash Account Average Fee - bps(20)
222

 
241

 
(19)
 
215

 
7
Deposit Cash Account Average Fee - bps(20)
184

 
217

 
(33)
 
207

 
(23)
Money Market Account Average Fee - bps(20)
69

 
68

 
1
 
75

 
(6)
Purchased Money Market Fund Average Fee - bps(20)
29

 
29

 
n/m
 

 
n/m
Total Client Cash Balance Average Fee - bps(20)
193

 
211

 
(18)
 
196

 
(3)
 
 
 
 
 
 
 
 
 
 
Net Buy (Sell) Activity(21)
$
9.8

 
$
9.0

 
n/m
 
$
2.3

 
n/m

12



LPL Financial Holdings Inc.
Monthly Metrics(3) 
(Dollars in billions, except where noted)
(Unaudited)
 
 
December 2019
 
November 2019
 
Nov to Dec Change
 
October 2019
 
September 2019
Assets Served
 
 
 
 
 
 
 
 
 
 
Advisory Assets(8)
 
$
365.8

 
$
354.9

 
3.1%
 
$
345.3

 
$
338.0

Brokerage Assets(9)
 
398.6

 
392.9

 
1.5%
 
386.5

 
381.3

Total Brokerage and Advisory Assets
 
$
764.4

 
$
747.8

 
2.2%
 
$
731.7

 
$
719.3

 
 
 
 
 
 

 
 
 
 
Net New Assets (NNA)
 
 
 
 
 
 
 
 
 
 
Net New Advisory Assets(13)
 
$
3.8

 
$
2.9

 
n/m
 
$
3.0

 
$
2.2

Net New Brokerage Assets(14)
 
(0.9
)
 
(0.3
)
 
n/m
 
0.3

 
(0.4
)
Total Net New Assets
 
$
2.9

 
$
2.6

 
n/m
 
$
3.3

 
$
1.8

Net Brokerage to Advisory Conversions(15)
 
$
0.6

 
$
0.7

 
n/m
 
$
0.6

 
$
0.5

 
 
 
 
 
 
 
 
 
 
 
Client Cash Balances
 
 
 
 
 
 
 
 
 
 
Insured Cash Account Balances
 
$
24.4

 
$
22.9

 
6.6%
 
$
22.6

 
$
22.2

Deposit Cash Account Balances
 
5.0

 
4.6

 
8.7%
 
4.6

 
4.6

Total Insured Sweep Balances
 
29.4

 
27.5

 
6.9%
 
27.2

 
26.8

Money Market Account Cash Balances
 
1.9

 
2.0

 
(5.0%)
 
2.3

 
2.6

Purchased Money Market Funds
 
2.4

 
2.2

 
9.1%
 
2.1

 
1.8

Total Money Market Balances
 
4.3

 
4.3

 
—%
 
4.4

 
4.4

Total Client Cash Balances
 
$
33.7

 
$
31.8

 
6.0%
 
$
31.6

 
$
31.2

 
 
 
 
 
 

 
 
 
 
Net Buy (Sell) Activity(21)
 
$
3.2

 
$
3.3

 
(3.0%)
 
$
3.3

 
$
2.9

 
 
 
 
 
 
 
 
 
 
 
Market Indices
 
 
 
 
 

 
 
 
 
S&P 500 Index (end of period)
 
3,231

 
3,141

 
2.9%
 
3,038

 
2,977

Fed Funds Effective Rate (average bps)
 
155

 
155

 
 
183

 
205


13



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

 
Q4 2019
 
Q3 2019
 
Change
 
Q4 2018
 
Change
Commission Revenue by Product
 
 
 
 
 
 
 
 
 
Annuities
$
244,249

 
$
252,433

 
(3%)
 
$
247,212

 
(1%)
Mutual funds
150,697

 
148,672

 
1%
 
145,780

 
3%
Fixed income
34,647

 
30,917

 
12%
 
29,201

 
19%
Equities
21,233

 
20,149

 
5%
 
22,752

 
(7%)
Other
26,094

 
22,822

 
14%
 
24,978

 
4%
Total commission revenue
$
476,920

 
$
474,993

 
—%
 
$
469,923

 
1%
 
 
 
 
 

 
 
 

Commission Revenue by Sales-based and Trailing Commission
 

 
 
 

Sales-based commissions
 
 
 
 
 
 
 
 
 
Annuities
$
86,141

 
$
95,236

 
(10%)
 
$
99,441

 
(13%)
Mutual funds
37,611

 
36,358

 
3%
 
33,687

 
12%
Fixed income
28,642

 
24,950

 
15%
 
23,504

 
22%
Equities
21,233

 
20,149

 
5%
 
22,752

 
(7%)
Other
20,353

 
17,649

 
15%
 
20,084

 
1%
Total sales-based commissions
$
193,980

 
$
194,342

 
—%
 
$
199,468

 
(3%)
Trailing commissions
 
 
 
 

 
 
 

Annuities
$
158,108

 
$
157,197

 
1%
 
$
147,771

 
7%
Mutual funds
113,086

 
112,314

 
1%
 
112,093

 
1%
Fixed income
6,005

 
5,967

 
1%
 
5,697

 
5%
Other
5,741

 
5,173

 
11%
 
4,894

 
17%
Total trailing commissions
$
282,940

 
$
280,651

 
1%
 
$
270,455

 
5%
Total commission revenue
$
476,920

 
$
474,993

 
—%
 
$
469,923

 
1%
 
 
 
 
 
 
 
 
 
 
Payout Rate
 
 
 
 
 
 
 
 
 
Base Payout Rate
82.82
%
 
83.05
%
 
(23bps)
 
82.81
%
 
1bps
Production Based Bonuses
3.96
%
 
3.61
%
 
35bps
 
3.88
%
 
8bps
Total Payout Ratio
86.78
%
 
86.66
%
 
12bps
 
86.69
%
 
9bps


14



LPL Financial Holdings Inc.
Capital Management Measures(3) 
(Dollars in thousands, except where noted)
(Unaudited)
 
Q4 2019
 
Q3 2019
Cash Available for Corporate Use(22)
 
 
 
Cash at Parent
$
115,252

 
$
86,987

Excess Cash at Broker-Dealer subsidiary per Credit Agreement
66,842

 
117,355

Other Available Cash
21,597

 
22,601

Total Cash Available for Corporate Use
$
203,691

 
$
226,943

 
 
 
 
Credit Agreement Net Leverage
 
 
 
Total Debt (does not include unamortized premium)
$
2,415,000

 
$
2,370,000

Cash Available (up to $300 million)
203,691

 
226,943

Credit Agreement Net Debt
$
2,211,309

 
$
2,143,057

Credit Agreement EBITDA (trailing twelve months) (23)
$
1,080,847

 
$
1,069,878

Credit Agreement Net Leverage Ratio
2.05
x
 
2.00
x

 
 
December 31, 2019
 
 
Total Debt
 
Balance
 
Current Applicable
Margin
 
Yield At Issuance
 
Interest Rate
 
Maturity
Revolving Credit Facility(a)
 
$
45,000

 
ABR+25bps(b)
 
 
 
5.000
%
 
11/12/2024
Senior Secured Term Loan B
 
1,070,000

 
LIBOR+175 bps(c)
 
 
 
3.542
%
 
11/12/2026
Senior Unsecured Notes(d)
 
500,000

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

(e)
5.75% Fixed
 
5.115
%
 
5.750
%
 
9/15/2025
Senior Unsecured Notes(f)
 
400,000

 
4.625% Fixed
 
4.625
%
 
4.625
%
 
11/15/2027
Total / Weighted Average
 
$
2,415,000

 
 
 
 
 
4.571
%
 
 

(a)
The Revolving Credit Facility has a borrowing capacity of $750 million.
(b)
The alternate base rate (ABR) was the effective PRIME rate on December 31, 2019, the date of the borrowing.
(c)
The LIBOR rate option is one-month LIBOR rate and subject to an interest rate floor of 0 basis points.
(d)
The Senior Unsecured Notes were issued in 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.
(e)
Does not include unamortized premium of approximately $8.6 million as of December 31, 2019.
(f)
The Senior Unsecured Notes were issued in November 2019 at par.


15



LPL Financial Holdings Inc.
Key Business and Financial Metrics(3) 
(Dollars in thousands, except where noted)
(Unaudited)
 
Q4 2019

Q3 2019
 
Change
 
Q4 2018
 
Change
Advisors
 
 
 
 
 
 
 
 
 
Advisors
16,464
 
16,349
 
1
%
 
16,109
 
2
%
Net New Advisors
115

 
188

 
n/m

 
(65
)
 
n/m

Annualized commission and advisory fees per Advisor(24)
$
246

 
$
243

 
1
%
 
$
234

 
5
%
Average Total Assets per Advisor ($ in millions)(25)
$
46.4

 
$
44.0

 
5
%
 
$
39.0

 
19
%
Transition assistance loan amortization ($ in millions)(26)
$
26.1

 
$
24.4

 
7
%
 
$
21.3

 
23
%
Total client accounts (in millions)
5.7

 
5.5

 
4
%
 
5.4

 
6
%
 
 
 
 
 
 
 
 
 
 
Employees - period end
4,343
 
4,353
 
%
 
4,229
 
3
%
 
 
 
 
 
 
 
 
 
 
Productivity Metrics
 
 
 
 
 
 
 
 


Advisory Revenue as a % of Corporate Advisory Assets (27)
1.02
%
 
1.02
%
 

 
1.05
%
 
(3
bps)
Gross Profit ROA (28)
30.7
bps
 
31.4
bps
 
(0.7
bps)
 
29.7
bps
 
1.0
bps
OPEX as a % of Brokerage and Advisory Assets (29)
18.3
bps
 
18.7
bps
 
(0.4
bps)
 
18.8
bps
 
(0.5
bps)
EBIT ROA (30)
12.4
bps
 
12.8
bps
 
(0.4
bps)
 
10.9
bps
 
1.5
bps
Production Retention Rate (YTD annualized) (31)
96.5
%
 
96.3
%
 
20
bps
 
95.9
%
 
60
bps
Recurring Gross Profit Rate (32)
85.9
%
 
87.1
%
 
(120
bps)
 
86.7
%
 
(80
bps)
EBITDA as a % of Gross Profit
44.9
%
 
46.1
%
 
(120
bps)
 
45.6
%
 
(70
bps)
 
 
 
 
 
 
 
 
 
 
Capital Expenditure ($ in millions)
$
52.1

 
$
40.7

 
28
%
 
$
47.5

 
10
%
 
 
 
 
 
 
 
 
 
 
Share Repurchases ($ in millions)
$
120.0

 
$
130.3

 
(8
%)
 
$
117.8

 
2
%
Dividends ($ in millions)
20.2

 
20.5

 
(1
%)
 
21.5

 
(6
%)
Total Capital Allocated ($ in millions)
$
140.2

 
$
150.8

 
(7
%)
 
$
139.3

 
1
%
Weighted-average Share Count, Diluted
82.7

 
83.8

 
(1
%)
 
88.2

 
(6
%)
Total Capital Allocated per Share(33)
$
1.70

 
$
1.80

 
(6
%)
 
$
1.58

 
8
%

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 Net Leverage Ratio is only required under the revolving credit facility.
(3)
Certain information presented on pages 9-16 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 4.
(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):
 
Q4 2019
 
Q3 2019
 
Q2 2019
 
Q4 2018
Production based payout
$
876,654

 
$
857,384

 
$
831,178

 
$
818,382

Advisor deferred compensation expense
17,177

 
(749
)
 
6,844

 
(25,072
)
Commission and advisory expense
$
893,831

 
$
856,635

 
$
838,022

 
$
793,310

(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):
 
Q4 2019
 
Q3 2019
 
Q2 2019
 
Q4 2018
Interest income, net of interest expense
$