UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2022

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from            to

Commission File Number: 001-34963

LPL Financial Holdings Inc.

(Exact name of registrant as specified in its charter)

Delaware	20-3717839
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

4707 Executive Drive, San Diego, California 92121

(Address of Principal Executive Offices) (Zip Code)

(800) 877-7210

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class	Trading Symbol(s)	Name of Each Exchange on Which Registered
Common Stock - $0.001 par value per share	LPLA	The Nasdaq Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes   o No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). x Yes   o No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer	x	Accelerated Filer	☐
Non-accelerated Filer	☐	Smaller Reporting Company	☐
		Emerging Growth Company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  

☐ Yes   x No

The number of shares of Common Stock, par value $0.001 per share, outstanding as of July 28, 2022 was 79,769,788.

TABLE OF CONTENTS	Page
WHERE YOU CAN FIND MORE INFORMATION	ii
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS	ii
Glossary of Terms	iv
PART I — FINANCIAL INFORMATION	1
1. Financial Statements (unaudited)	19
Condensed Consolidated Statements of Income (unaudited)	19
Condensed Consolidated Statements of Financial Condition (unaudited)	20
Condensed Consolidated Statements of Stockholders’ Equity (unaudited)	21
Condensed Consolidated Statements of Cash Flows (unaudited)	22
Notes to Condensed Consolidated Financial Statements (unaudited)	24
Note 1 - Organization and Description of the Company	24
Note 2 - Summary of Significant Accounting Policies	24
Note 3 - Revenue	26
Note 4 - Acquisitions	27
Note 5 - Fair Value Measurements	28
Note 6 - Investment Securities	32
Note 7 - Goodwill and Other Intangibles, Net	33
Note 8 - Other Assets and Other Liabilities	34
Note 9 - Corporate Debt and Other Borrowings, Net	35
Note 10 - Commitments and Contingencies	36
Note 11 - Stockholders’ Equity	38
Note 12 - Share-based Compensation	38
Note 13 - Earnings per Share	41
Note 14 - Net Capital and Regulatory Requirements	41
Note 15 - Financial Instruments with Off-Balance Sheet Credit Risk and Concentrations of Credit Risk	41
Note 16 - Subsequent Events	42
2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	1
Business Overview	1
Our Sources of Revenue	1
Executive Summary	2
Key Performance Metrics	3
Legal and Regulatory Matters	7
Acquisitions, Integrations and Divestitures	8
Economic Overview and Impact of Financial Market Events	8
Results of Operations	9
Liquidity and Capital Resources	14
Debt and Related Covenants	17
Contractual Obligations	17
Critical Accounting Policies and Estimates	18
3. Quantitative and Qualitative Disclosures About Market Risk	43
4. Controls and Procedures	45
PART II — OTHER INFORMATION	46
1. Legal Proceedings	46
1A. Risk Factors	46
2. Unregistered Sales of Equity Securities and Use of Proceeds	46
3. Defaults Upon Senior Securities	46
4. Mine Safety Disclosures	46
5. Other Information	46
6. Exhibits	47
SIGNATURES	48

i

WHERE YOU CAN FIND MORE INFORMATION

We file annual, quarterly and current reports, proxy statements and other information required by the Securities Exchange Act of 1934, as amended (“Exchange Act”), with the Securities and Exchange Commission (“SEC”). Our SEC filings are available to the public on the SEC’s website at sec.gov.

We post the following filings to our website at lpl.com as soon as reasonably practicable after they are electronically filed with or furnished to the SEC: our annual reports on Form 10-K, our proxy statements, our quarterly reports on Form 10-Q, our current reports on Form 8-K and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act. Copies of all such filings are available free of charge by request via email (investor.relations@lpl.com), telephone ((617) 897-4574) or mail (LPL Financial Investor Relations at 75 State Street, 22nd Floor, Boston, MA 02109). The information contained or incorporated on our website is not a part of this Quarterly Report on Form 10-Q.

We may use our website as a means of disclosing material information and for complying with our disclosure obligations under Regulation Fair Disclosure promulgated by the SEC. These disclosures are included on our website in the “Investor Relations” or “Press Releases” sections. Accordingly, investors should monitor these portions of our website in addition to following the Company’s press releases, SEC filings, public conference calls and webcasts.

When we use the terms “LPLFH”, “LPL”, “we”, “us”, “our” and “the Company”, we mean LPL Financial Holdings Inc., a Delaware corporation, and its consolidated subsidiaries, taken as a whole, unless the context otherwise indicates.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Statements in Part I, Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and other sections of this Quarterly Report on Form 10-Q regarding:

•the Company’s future financial and operating results, outlook, growth, plans, business strategies, liquidity and future share repurchases, including statements regarding future resolution of regulatory matters, legal proceedings and related costs;

•the Company’s future revenue and expense;

•future affiliation models and capabilities;

•the expected onboarding of advisors, institutions and assets in connection with our acquisition and recruitment activity;

•market and macroeconomic trends;

•projected savings and anticipated improvements to the Company’s operating model, services and technologies as a result of its investments, initiatives, programs and acquisitions;

•expected impacts of the coronavirus disease 2019 (“COVID-19”) pandemic on the Company’s business; and

•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 August 4, 2022. The words “anticipates,” “believes,” “expects,” “may,” “plans,” “predicts,” “will” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. Forward-looking statements are not guarantees that the future results, plans, intentions or expectations expressed or implied by the Company 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 from 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, including the Company’s success in negotiating agreements with current or additional counterparties;

•the Company’s strategy and success in managing client cash program fees;

•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;

ii

•the success of the Company in attracting and retaining financial advisors and institutions, and their ability to market financial products and services effectively;

•whether retail investors served by newly-recruited advisors choose to move their respective assets to new accounts at the Company;

•changes in growth and profitability of the Company’s fee-based offerings;

•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;

•the cost 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, including in response to competitive developments and current, pending and future legislation, regulation and regulatory actions, and the effect that such changes may have on the Company’s gross profit streams and costs;

•execution of the Company’s capital management plans, including its compliance with the terms of the Company’s amended and restated credit agreement (“Credit Agreement”) and the indentures governing the Company’s senior unsecured notes (the “Indentures”);

•the price, the availability and trading volumes of shares of the Company’s common stock, which will affect the timing and size of future share repurchases by the Company, if any;

•execution of the Company’s plans and its success in realizing the synergies, expense savings, service improvements or efficiencies expected to result from its investments, initiatives and acquisitions, expense plans and technology initiatives;

•the performance of third-party service providers to which business processes have been transitioned;

•the Company’s ability to control operating risks, information technology systems risks, cybersecurity risks and sourcing risks;

•the effects of the COVID-19 pandemic, including efforts to contain it; and

•the other factors set forth in Part I, “Item 1A. Risk Factors” in the Company’s 2021 Annual Report on Form 10-K, as may be amended or updated in the Company’s Quarterly Reports on Form 10-Q.

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 Quarterly Report on Form 10-Q, 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 Quarterly Report on Form 10-Q.

iii

GLOSSARY OF TERMS

Adjusted Net Income: A non-GAAP financial measure defined as net income plus the after-tax impact of amortization of other intangibles and acquisition costs.

Basis Point: One basis point equals 1/100th of 1%.

Core G&A: A non-GAAP financial measure defined as total expense excluding the following expenses: advisory and commission; depreciation and amortization; interest expense on borrowings; brokerage, clearing and exchange; amortization of other intangibles; loss on extinguishment of debt; promotional; acquisition costs; employee share-based compensation; and regulatory charges.

Corporate Cash: A component of cash and equivalents which includes the sum of cash and equivalents from the following: (1) cash and equivalents held at LPL Holdings, Inc., (2) cash and equivalents held at regulated subsidiaries as defined by the Company’s Credit Agreement (as defined below), which include LPL Financial LLC and The Private Trust Company N.A., in excess of the capital requirements of the Company’s Credit Agreement (as defined below), which, in the case of LPL Financial LLC, is net capital in excess of 10% of its aggregate debits, or five times the net capital required in accordance with the Uniform Net Capital Rule (as defined below), and (3) cash and equivalents held at non-regulated subsidiaries.

Credit Agreement: The Company’s amended and restated credit agreement.

Credit Agreement EBITDA: The equivalent of “Consolidated EBITDA,” as defined in the Credit Agreement, which is Consolidated Net Income (as defined in the Credit Agreement) plus interest expense on borrowings, provision for income taxes, depreciation and amortization, and amortization of other intangibles, and is 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.

EBITDA: A non-GAAP financial measure defined as net income plus interest expense on borrowings, provision for income taxes, depreciation and amortization, and amortization of other intangibles.

EPS Prior to Amortization of Intangible Assets and Acquisition Costs: A non-GAAP financial measure defined as Adjusted Net Income divided by the weighted average number of diluted shares outstanding for the applicable period.

FINRA: The Financial Industry Regulatory Authority.

GAAP: Accounting principles generally accepted in the United States of America.

Gross Profit: Non-GAAP financial measure defined as total revenue less advisory and commission expense and brokerage, clearing and exchange expense.

Indentures: Refers to the indentures governing the Company’s senior unsecured notes.

Leverage Ratio: A financial metric from our Credit Agreement that is calculated by dividing Credit Agreement Net Debt, which equals consolidated total debt less Corporate Cash, by Credit Agreement EBITDA.

NFA: The National Futures Association.

OCC: The Office of the Comptroller of the Currency.

RIA: Registered investment advisor.

Uniform Net Capital Rule: Refers to Rule 15c3-1 under the Securities Exchange Act of 1934, which specifies minimum capital requirements that are intended to ensure the general financial soundness and liquidity of broker-dealers.

iv

PART I — FINANCIAL INFORMATION

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Business Overview

LPL serves the advisor-mediated advice marketplace as the nation’s largest independent broker-dealer, a leading investment advisory firm, and a top custodian. We support nearly 21,000 financial advisors, including advisors at approximately 1,100 institution-based investment programs and at approximately 500 registered investment advisor (“RIA”) firms nationwide, providing the front-, middle- and back-office support our clients need to serve the large and growing market for comprehensive financial advice from an advisor. We offer a customizable platform of integrated technology, brokerage and advisory platforms, digital capabilities, clearing and compliance services, business services, planning and advice services and strategic growth resources to help our clients run their perfect practices.

We are steadfast in our commitment to the advisor-centered model and the belief that Americans deserve access to personalized guidance from a financial advisor. We believe advisors should have the freedom to manage their client relationships because they know their clients best. We believe investors achieve better outcomes when working with a financial advisor. We strive to make it easy for advisors to do what is best for their clients by promoting freedom and choice through access to a wide range of diligently evaluated non-proprietary products while protecting advisors and clients.

We believe that we are the only company that offers the unique combination of an integrated technology platform, comprehensive self-clearing services, and access to a wide range of curated non-proprietary products, all delivered in an environment unencumbered by conflicts from product manufacturing, underwriting and market-making.

Our Sources of Revenue

Our revenue is derived primarily from fees and commissions from products and advisory services offered by our advisors to their clients, a substantial portion of which we pay out to our advisors, as well as fees we receive from our advisors for the use of our technology, custody, clearing, trust and reporting platforms. We also generate asset-based revenue through our insured bank sweep vehicles, money market programs and the access we provide to a variety of product providers with the following product lines:

• Alternative Investments	• Retirement Plan Products
• Annuities	• Separately Managed Accounts
• Exchange Traded Products	• Structured Products
• Insurance Based Products	• Unit Investment Trusts
• Mutual Funds

Under our self-clearing platform, we custody the majority of client assets invested in these financial products, for which we provide statements, transaction processing and ongoing account management. In return for these services, mutual funds, insurance companies, banks and other financial product sponsors pay us fees based on asset levels or number of accounts managed. We also earn interest from margin loans made to our advisors’ clients. A portion of our revenue is not asset-based or correlated with the equity financial markets.

We regularly review various aspects of our operations and service offerings, including our policies, procedures and platforms, in response to marketplace developments. We seek to continuously improve and enhance aspects of our operations and service offerings in order to position our advisors for long-term growth and to align with competitive and regulatory developments. For example, we regularly review the structure and fees of our products and services, including related disclosures, in the context of the changing regulatory environment and competitive landscape for advisory and brokerage accounts.

1

Executive Summary

Financial Highlights

Results for the second quarter of 2022 included net income of $160.5 million, or $1.97 per diluted share, which compares to $119.1 million, or $1.46 per diluted share, for the second quarter of 2021.

Asset Trends

Total advisory and brokerage assets served were $1.1 trillion at both June 30, 2022 and 2021. Total net new assets were $37.2 billion for the three months ended June 30, 2022, compared to $106.0 billion for the same period in 2021.

Net new advisory assets were $11.4 billion for the three months ended June 30, 2022, compared to $54.9 billion for the same period in 2021. Advisory assets were $558.6 billion, or 52% of total advisory and brokerage assets served, at June 30, 2022, down 3% from $577.6 billion at June 30, 2021.

Net new brokerage assets were $25.8 billion for the three months ended June 30, 2022, compared to $51.1 billion for the same period in 2021. Brokerage assets were $506.0 billion at June 30, 2022, down 5% from $534.7 billion at June 30, 2021.

Gross Profit Trends

Gross profit, a non-GAAP financial measure, was $711.1 million for the three months ended June 30, 2022, and increased 18% from $601.6 million for the three months ended June 30, 2021. See the “Key Performance Metrics” section for additional information on gross profit.

Common Stock Dividends and Share Repurchases

During the three months ended June 30, 2022, we paid shareholders cash dividends of $20.0 million and repurchased 272,359 of our outstanding shares for a total of $50.0 million.

COVID-19 Response

In response to the COVID-19 pandemic, we have taken measures to protect the health and safety of our employees, as well as the stability and continuity of our operations. For example, we have equipped and enabled a substantial majority of employees to work remotely, enhanced cleaning protocols throughout our corporate offices, and worked closely with our vendors to maintain service continuity throughout the market volatility and increased operational volumes that have occurred from time to time during the pandemic. We also made extra support available to our advisors by extending service hours and providing additional resources to enable them to deliver differentiated services to their clients. Please consult Part I, “Item 1A. Risk Factors” in our 2021 Annual Report on Form 10-K for more information about the risks associated with COVID-19.

2

Key Performance Metrics

We focus on several key metrics in evaluating the success of our business relationships and our resulting financial position and operating performance. Our key operating, business and financial metrics are as follows:

	As of and for the Three Months Ended
	June 30,		March 31,		June 30,
Operating Metrics (dollars in billions)(1)	2022		2022		2021
Advisory and Brokerage Assets
Advisory assets(2)(3)	$	558.6	$	624.3	$	577.6
Brokerage assets(2)(4)	506.0		538.8		534.7
Total Advisory and Brokerage Assets(2)	$	1,064.6	$	1,163.1	$	1,112.3
Advisory as a % of total Advisory and Brokerage Assets	52.5%		53.7%		51.9%
Net New Assets
Net new advisory assets(5)	$	11.4	$	17.4	$	54.9
Net new brokerage assets(6)	25.8		0.2		51.1
Total Net New Assets	$	37.2	$	17.6	$	106.0
Organic Net New Assets(7)
Organic net new advisory assets	$	11.4	$	17.4	$	21.4
Organic net new brokerage assets	25.8		0.2		15.6
Total Organic Net New Assets	$	37.2	$	17.6	$	37.1
Organic advisory net new assets annualized growth(7)	7.3%		10.8%		17.3%
Total organic net new assets annualized growth(7)	12.8%		5.8%		15.5%
Client Cash Balances(2)(8)
Insured cash account sweep	$	40.8	$	32.6	$	34.1
Deposit cash account sweep	12.3		9.4		7.6
Total Bank Sweep	53.1		42.0		41.7
Money market sweep	15.0		18.2		5.0
Total Client Cash Sweep Held by Third Parties	68.1		60.2		46.7
Client cash account	1.5		1.6		1.5
Total Client Cash Balances	$	69.6	$	61.7	$	48.2
Client Cash Balances as a % of Total Assets	6.5%		5.3%		4.3%
Net buy (sell) activity(9)	$	5.3	$	11.0	$	18.1

	As of and for the Three Months Ended
	June 30,		March 31,		June 30,
Business and Financial Metrics (dollars in millions)	2022		2022		2021
Advisors	20,871		20,091		19,114
Average total assets per advisor(10)	$	51.0	$	57.9	$	58.2
Employees	6,099		6,026		5,265
Share repurchases	$	50.0	$	50.0	$	—
Dividends	$	20.0	$	20.0	$	20.0
Leverage ratio(11)	2.09		2.16		2.26

3

	Three Months Ended June 30,				Six Months Ended June 30,
Financial Metrics (dollars in millions, except per share data)	2022		2021		2022		2021
Total revenue	$	2,038.9	$	1,898.3	$	4,104.6	$	3,605.9
Net income	$	160.5	$	119.1	$	294.3	$	248.7
Earnings per share (“EPS”), diluted	$	1.97	$	1.46	$	3.61	$	3.05
Non-GAAP Financial Metrics (dollars in millions, except per share data)
EPS prior to amortization of intangible assets and acquisition costs(12)	$	2.24	$	1.85	$	4.20	$	3.62
Gross profit(13)	$	711.1	$	601.6	$	1,380.1	$	1,181.0
EBITDA(14)	$	310.7	$	243.4	$	577.9	$	486.6
Core G&A(15)	$	286.0	$	251.7	$	566.9	$	487.9

_______________________________

(1)Totals may not foot due to rounding.

(2)Advisory and brokerage assets consist of assets that are custodied, networked and non-networked and reflect market movement in addition to new assets, inclusive of new business development and net of attrition. Client cash balances are also included in total advisory and brokerage assets.

(3)Advisory assets consist of total advisory assets under custody at the Company’s broker-dealer subsidiary, LPL Financial LLC (“LPL Financial”), and Waddell & Reed, LLC. As of June 30, 2022, there were no advisory assets under custody at Waddell & Reed, LLC. Please consult the “Results of Operations” section for a tabular presentation of advisory assets.

(4)Brokerage assets consist of total brokerage assets under custody at the Company’s broker-dealer subsidiary, LPL Financial, and Waddell & Reed, LLC. As of June 30, 2022, there were no brokerage assets under custody at Waddell & Reed, LLC. Please consult the “Results of Operations” section for a tabular presentation of brokerage assets.

(5)Net new advisory assets consist of total client deposits into custodied advisory accounts less total client withdrawals from custodied advisory accounts, plus dividends, plus interest, minus advisory fees. We consider conversions from and to brokerage accounts as deposits and withdrawals, respectively.

(6)Net new brokerage assets consist of total client deposits into brokerage accounts less total client withdrawals from brokerage accounts, plus dividends, plus interest. We consider conversions from and to advisory accounts as deposits and withdrawals, respectively.

(7)Calculated as annualized current period net new assets divided by preceding period assets in their respective categories of advisory assets or total advisory and brokerage assets.

(8)During the second quarter of 2022, the Company updated its definition of client cash balances to include client cash accounts and exclude purchased money market funds. Client cash accounts include cash that clients have deposited with LPL Financial that is included in Client payables in the condensed consolidated balance sheets. Prior period disclosures have been updated to reflect this change as applicable.

(9)Represents the amount of securities purchased less the amount of securities sold in client accounts custodied with LPL Financial.

(10)Calculated based on the end-of-period total advisory and brokerage assets divided by the end-of-period advisor count.

4

(11)The leverage ratio is a financial metric from our Credit Agreement and is calculated by dividing Credit Agreement net debt, which equals consolidated total debt less Corporate Cash, by Credit Agreement EBITDA. Credit Agreement EBITDA, a non-GAAP measure, is defined by the Credit Agreement as “Consolidated EBITDA,” which is Consolidated Net Income (as defined in the Credit Agreement) plus interest expense on borrowings, provision for income taxes, depreciation and amortization, and amortization of other intangibles, and is 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. Please consult the “Debt and Related Covenants” section for more information. Below is a reconciliation of corporate debt and other borrowings to Credit Agreement net debt as of the dates below and net income to EBITDA and Credit Agreement EBITDA for the trailing twelve month periods presented below (in millions):

	June 30,		March 31,		June 30,
Credit Agreement Net Debt Reconciliation	2022		2022		2021
Corporate debt and other borrowings	$	2,743.3	$	2,745.9	$	2,754.0
Corporate cash(16)	(241.5)		(270.2)		(278.4)
Credit Agreement Net Debt(†)	$	2,501.8	$	2,475.8	$	2,475.6
	June 30,		March 31,		June 30,
EBITDA and Credit Agreement EBITDA Reconciliation	2022		2022		2021
Net income	$	505.4	$	464.0	$	464.1
Interest expense on borrowings	110.2		106.6		100.4
Provision for income taxes	154.8		145.6		143.9
Depreciation and amortization	173.1		161.4		128.4
Amortization of other intangibles	84.3		83.0		71.5
EBITDA(†)	$	1,027.8	$	960.5	$	908.2
Credit Agreement Adjustments:
Acquisition costs and other	$	86.9	$	101.2	$	45.1
Employee share-based compensation expense	45.8		43.2		37.5
M&A accretion(17)	32.1		40.4		77.0
Advisor share-based compensation expense	2.3		2.3		2.3
Loss on extinguishment of debt	—		—		24.4
Credit Agreement EBITDA(†)	$	1,194.9	$	1,147.7	$	1,094.5
	June 30,		March 31,		June 30,
	2022		2022		2021
Leverage Ratio	2.09		2.16		2.26

_______________________________

(†)    Totals may not foot due to rounding.

(12)EPS prior to amortization of intangible assets and acquisition costs is a non-GAAP financial measure defined as adjusted net income, a non-GAAP financial measure defined as net income plus the after-tax impact of amortization of other intangibles and acquisition costs, divided by the weighted average number of diluted shares outstanding for the applicable period. The Company presents adjusted net income and EPS prior to amortization of intangible assets and acquisition costs because management believes that these metrics can provide investors with useful insight into the Company’s core operating performance by excluding non-cash items and acquisition costs that management does not believe impact the Company’s ongoing operations. Adjusted net income and EPS prior to amortization of intangible assets and acquisition costs are not measures of the Company's financial performance under GAAP and should not be considered as alternatives to net income, earnings per diluted share or any other performance measure derived in accordance with GAAP. Below is a reconciliation of net income and earnings per diluted share to adjusted net income and EPS prior to amortization of intangible assets and acquisition costs for the periods presented (in millions, except per share data):

	Three Months Ended June 30,								Six Months Ended June 30,
	2022				2021				2022				2021
Adjusted net income / EPS prior to amortization of intangible assets and acquisition costs Reconciliation	Amount		Per Share		Amount		Per Share		Amount		Per Share		Amount		Per Share
Net income / earnings per diluted share	$	160.5	$	1.97	$	119.1	$	1.46	$	294.3	$	3.61	$	248.7	$	3.05
Amortization of other intangibles	21.2		0.26		19.9		0.24		42.4		0.52		37.4		0.46
Acquisition costs(18)	8.9		0.11		23.8		0.29		22.2		0.27		26.2		0.32
Tax benefit	(7.9)		(0.10)		(11.7)		(0.14)		(16.9)		(0.21)		(17.0)		(0.21)
Adjusted net income / EPS prior to amortization of intangible assets and acquisition costs(†)	$	182.7	$	2.24	$	151.1	$	1.85	$	342.0	$	4.20	$	295.3	$	3.62
Weighted-average shares outstanding, diluted	81.4				81.7				81.5				81.6

_______________________________

(†)    Totals may not foot due to rounding.

5

(13)Gross profit is a non-GAAP financial measure defined as total revenue less advisory and commission expense and brokerage, clearing and exchange expense. All other expense categories, including depreciation and amortization of property and equipment and amortization of other intangibles, are considered by management to be general and administrative in nature. Because our gross profit amounts do not include any depreciation and amortization expense, we consider our gross profit amounts to be non-GAAP financial measures that may not be comparable to those of others in our industry. We believe that gross profit amounts can provide investors with useful insight into our core operating performance before indirect costs that are general and administrative in nature. Below is a reconciliation of gross profit for the periods presented (in millions):

	Three Months Ended June 30,				Six Months Ended June 30,
Gross Profit Reconciliation	2022		2021		2022		2021
Total revenue	$	2,038.9	$	1,898.3	$	4,104.6	$	3,605.9
Advisory and commission expense	1,304.4		1,273.2		2,678.6		2,382.1
Brokerage, clearing and exchange expense	23.4		23.5		46.0		42.8
Gross Profit(†)	$	711.1	$	601.6	$	1,380.1	$	1,181.0

_______________________________

(†)    Totals may not foot due to rounding.

(14)EBITDA is a non-GAAP financial measure defined as net income plus interest expense on borrowings, provision for income taxes, depreciation and amortization, and amortization of other intangibles. 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. Below is a reconciliation of EBITDA for the periods presented (in millions):

	Three Months Ended June 30,				Six Months Ended June 30,
EBITDA Reconciliation	2022		2021		2022		2021
Net income	$	160.5	$	119.1	$	294.3	$	248.7
Interest expense on borrowings	28.8		25.2		$	56.0	50.2
Provision for income taxes	51.8		42.5		$	91.4	78.1
Depreciation and amortization	48.5		36.7		$	93.9	72.2
Amortization of other intangibles	21.2		19.9		$	42.4	37.4
EBITDA(†)	$	310.7	$	243.4	$	577.9	$	486.6

_______________________________

(†)    Totals may not foot due to rounding.

(15)Core G&A is a non-GAAP financial measure defined as total expense less the following expenses: advisory and commission; depreciation and amortization; interest expense on borrowings; brokerage, clearing and exchange; amortization of other intangibles; loss on extinguishment of debt; promotional; acquisition costs; employee share-based compensation; and regulatory charges. Management presents Core G&A because it believes Core G&A reflects the corporate 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 advisory and commission expense, 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 expense as calculated in accordance with GAAP. Below is a reconciliation of Core G&A for the periods presented (in millions):

	Three Months Ended June 30,				Six Months Ended June 30,
Core G&A Reconciliation	2022		2021		2022		2021
Total expense	$	1,826.6	$	1,736.6	$	3,718.9	$	3,279.1
Advisory and commission	1,304.4		1,273.2		2,678.6		2,382.1
Depreciation and amortization	48.5		36.7		93.9		72.2
Interest expense on borrowings	28.8		25.2		56.0		50.2
Brokerage, clearing and exchange	23.4		23.5		46.0		42.8
Amortization of other intangibles	21.2		19.9		42.4		37.4
Loss on extinguishment of debt	—		—		—		24.4
Total G&A(†)	400.4		358.1		802.1		670.0
Promotional (ongoing)(18)(19)	83.8		64.1		171.2		118.3
Employee share-based compensation	13.7		11.1		26.4		22.5
Acquisition costs(18)	8.9		23.8		22.2		26.2
Regulatory charges	8.1		7.4		15.4		15.0
Core G&A(†)	$	286.0	$	251.7	$	566.9	$	487.9

_______________________________

(†)    Totals may not foot due to rounding.

6

(16)See the “Liquidity and Capital Resources” section for additional information about Corporate Cash.

(17)M&A accretion is an adjustment to reflect the annualized expected run rate EBITDA of an acquisition as permitted by the Credit Agreement for up to eight fiscal quarters following the close of the transaction.

(18)Acquisition costs include the costs to setup, onboard and integrate acquired entities. The below table summarizes the primary components of acquisition costs for the periods presented (in millions):

	Three Months Ended June 30,				Six Months Ended June 30,
Acquisition costs	2022		2021		2022		2021
Compensation and benefits	$	6.7	$	13.9	$	12.3	$	15.5
Professional services	1.9		6.3		7.5		6.9
Promotional(19)	—		0.2		1.9		0.2
Other	0.3		3.4		0.5		3.6
Acquisition costs	$	8.9	$	23.8	$	22.2	$	26.2

(19)Promotional (ongoing) for the three and six months ended June 30, 2022 includes $5.8 million and $8.1 million, respectively, of support costs related to full-time employees that are classified within Compensation and benefits expense in the condensed consolidated statements of income. Promotional (ongoing) for the six months ended June 30, 2022 excludes $1.9 million of expenses incurred as a result of acquisitions, which are included in the Acquisition costs line item.

Legal and Regulatory Matters

The financial services industry is subject to extensive regulation by U.S. federal, state and international government agencies as well as various self-regulatory organizations. We seek to participate in the development of significant rules and regulations that govern our industry. We have been investing in our compliance functions to monitor our adherence to the numerous legal and regulatory requirements applicable to our business. Compliance with all applicable laws and regulations involves a significant investment in time and resources. Any new laws or regulations applicable to our business, any changes to existing laws or regulations, or any changes to the interpretations or enforcement of those laws or regulations may affect our operations and/or financial condition.

As a regulated entity, we are subject to regulatory oversight and inquiries related to, among other items, our compliance and supervisory systems and procedures and other controls, as well as our disclosures, supervision and reporting. We review these items in the ordinary course of business in our effort to adhere to legal and regulatory requirements applicable to our operations. Nevertheless, additional regulation and enhanced regulatory enforcement has resulted, and may result in the future, in additional operational and compliance costs, as well as increased costs in the form of penalties and fines, investigatory and settlement costs, customer restitution and remediation related to regulatory matters. In the ordinary course of business, we periodically identify or become aware of purported inadequacies, deficiencies and other issues. It is our policy to evaluate these matters for potential legal or regulatory violations and other potential compliance issues. It is also our policy to self-report known violations and issues as required by applicable law and regulation. When deemed probable that matters may result in financial losses, we accrue for those losses based on an estimate of possible fines, customer restitution and losses related to the repurchase of sold securities and other losses, as applicable. Certain regulatory and other legal claims and losses may be covered through our wholly-owned captive insurance subsidiary, which is chartered with the insurance commissioner in the state of Tennessee.

Assessing the probability of a loss occurring and the timing and amount of any loss related to a regulatory matter or legal proceeding, whether or not covered by our captive insurance subsidiary, is inherently difficult and requires judgments based on a variety of factors and assumptions. There are particular uncertainties and complexities involved when assessing the adequacy of loss reserves for potential liabilities that are self-insured by our captive insurance subsidiary, which depends in part on historical claims experience, including the actual timing and costs of resolving matters that begin in one policy period and are resolved in a subsequent period.

Our accruals, including those established through our captive insurance subsidiary at June 30, 2022, include estimated costs for significant regulatory matters or legal proceedings, generally relating to the adequacy of our compliance and supervisory systems and procedures and other controls, for which we believe losses are both probable and reasonably estimable.

The outcome of regulatory or legal proceedings could result in legal liability, regulatory fines or monetary penalties in excess of our accruals and insurance, which could have a material adverse effect on our business, results of operations, cash flows or financial condition. For more information on management’s loss contingency policies, see Note 10 - Commitments and Contingencies, within the notes to the condensed consolidated financial statements.

7

Acquisitions, Integrations and Divestitures

We continuously assess the competitive landscape in connection with our capital allocation framework as we pursue acquisitions, integrations and divestitures. These activities are part of our overall growth strategy but can distort comparability when reviewing revenue and expense trends for periods presented. On April 30, 2021, we acquired the wealth management business of Waddell & Reed Financial, Inc. (“Waddell & Reed”). See Note 4 - Acquisitions, within the notes to the condensed consolidated financial statements for further detail.

Economic Overview and Impact of Financial Market Events

Our business is directly and indirectly sensitive to several macroeconomic factors and the state of the United States financial markets. According to the most recent estimate from the U.S. Bureau of Economic Analysis, the U.S. economy contracted at an annualized pace of 0.9% in the second quarter of 2022 after contracting at an annualized pace of 1.6% in the first quarter of 2022. The economy was negatively impacted by elevated inflation, a drag from net exports and geopolitical uncertainties from the Russian invasion of Ukraine.

Although inflation was an issue for policy-makers and consumers alike, companies continued to add jobs: the U.S. economy added 1.1 million jobs in the second quarter of 2022. The unemployment rate remained unchanged throughout the quarter at 3.6%, signaling a tight labor market. The equity markets experienced intense volatility from an increasingly hawkish Federal Reserve (“Fed”) and from monthly inflation metrics that regularly were higher than anticipated. The S&P 500 and the Bloomberg Barclays U.S. Aggregate Bond Index declined 16.1% and 4.7%, respectively, during the second quarter of 2022.

Our business is also sensitive to current and expected short-term interest rates, which are largely driven by Fed policy. During the second quarter of 2022, Fed policymakers increased the target range for the federal funds rate to 1.50% to 1.75%. Fed policymakers further raised rates by 0.75% at the July policy meeting, increasing the target range for the federal funds rate to 2.25% to 2.50%. The Fed anticipates that ongoing increases to the target range will be appropriate.

Please consult the “Risks Related to Our Business and Industry” section within Part I, “Item 1A. Risk Factors” in our 2021 Annual Report on Form 10-K for more information about the risks associated with significant interest rate changes and the potential related effects on our profitability and financial condition.

8

Results of Operations

The following discussion presents an analysis of our results of operations for the three and six months ended June 30, 2022 and 2021 (in thousands):

	Three Months Ended June 30,						Six Months Ended June 30,
	2022		2021		% Change		2022		2021		% Change
REVENUE
Advisory	$	1,001,851	$	846,313	18.4	%	$	2,048,948	$	1,568,359	30.6	%
Commission	573,376		598,233		(4.2)	%	1,158,901		1,155,462		0.3	%
Asset-based	363,597		279,620		30.0	%	659,998		544,326		21.3	%
Service and fee	112,802		99,473		13.4	%	225,614		196,297		14.9	%
Transaction	44,416		37,627		18.0	%	91,142		81,747		11.5	%
Interest income	10,121		6,914		46.4	%	17,866		13,432		33.0	%
Other	(67,276)		30,078		n/m		(97,889)		46,252		n/m
Total revenue	2,038,887		1,898,258		7.4	%	4,104,580		3,605,875		13.8	%
EXPENSE
Advisory and commission	1,304,422		1,273,202		2.5	%	2,678,556		2,382,101		12.4	%
Compensation and benefits	196,699		183,853		7.0	%	388,733		345,393		12.5	%
Promotional	78,027		64,349		21.3	%	165,029		118,530		39.2	%
Occupancy and equipment	55,906		41,452		34.9	%	107,018		85,036		25.9	%
Depreciation and amortization	48,453		36,704		32.0	%	93,907		72,203		30.1	%
Interest expense on borrowings	28,755		25,171		14.2	%	55,966		50,230		11.4	%
Brokerage, clearing and exchange	23,362		23,459		(0.4)	%	45,962		42,823		7.3	%
Amortization of other intangibles	21,168		19,925		6.2	%	42,364		37,356		13.4	%
Professional services	17,290		22,500		(23.2)	%	36,312		38,125		(4.8)	%
Communications and data processing	16,223		14,930		8.7	%	31,350		26,923		16.4	%
Loss on extinguishment of debt	—		—		—	%	—		24,400		(100.0)	%
Other	36,261		31,064		16.7	%	73,683		55,964		31.7	%
Total expense	1,826,566		1,736,609		5.2	%	3,718,880		3,279,084		13.4	%
INCOME BEFORE PROVISION FOR INCOME TAXES	212,321		161,649		31.3	%	385,700		326,791		18.0	%
PROVISION FOR INCOME TAXES	51,776		42,548		21.7	%	91,411		78,070		17.1	%
NET INCOME	$	160,545	$	119,101	34.8	%	$	294,289	$	248,721	18.3	%

9

Revenue

Advisory

Advisory revenue represents fees charged to advisors’ clients’ advisory accounts on our corporate RIA advisory platform and is based on a percentage of the market value of the eligible assets in the clients’ advisory accounts. We provide ongoing investment advice and act as a custodian, providing brokerage and execution services on transactions, and perform administrative services for these accounts. Advisory fees are primarily billed to clients in advance, on a quarterly basis, and are recognized as revenue ratably during the quarter. The performance obligation for advisory fees is considered a series of distinct services that are substantially the same and are satisfied daily. As the value of the eligible assets in an advisory account is susceptible to changes due to customer activity, this revenue includes variable consideration and is constrained until the date that the fees are determinable. The majority of our client accounts are on a calendar quarter and are billed using values as of the last business day of the preceding quarter. The value of the eligible assets in an advisory account on the billing date is adjusted for estimates of contributions and withdrawals to determine the amount billed, and accordingly, the revenue earned in the following three-month period. Advisory revenue collected on our corporate advisory platform is proposed by the advisor and agreed to by the client and averaged 1% on an annualized basis of the underlying assets for the six months ended June 30, 2022.

We also support separate investment advisor firms (“Independent RIAs”) through our Independent RIA advisory platform, which allows advisors to engage us for technology, clearing and custody services, as well as access the capabilities of our investment platforms. The assets held under an Independent RIA’s investment advisory accounts custodied with LPL Financial are included in total advisory assets and net new advisory assets. The advisory revenue generated by an Independent RIA is not included in our advisory revenue. We charge separate fees to Independent RIAs for technology, clearing, administrative, oversight and custody services, which may vary and are included in our Service and fee revenue in our condensed consolidated statements of income.

The following table summarizes the composition of advisory assets for the periods presented (in billions):

	June 30,
	2022		2021		$ Change		% Change
Corporate platform advisory assets	$	372.1	$	383.6	$	(11.5)	(3.0)	%
Independent RIA advisory assets	186.5		194.0		(7.5)		(3.9)	%
Total advisory assets	$	558.6	$	577.6	$	(19.0)	(3.3)	%

Net new advisory assets are generated throughout the quarter, therefore, the full impact of net new advisory assets to advisory revenue is not realized in the same period. The following table summarizes activity impacting advisory assets for the periods presented (in billions):

	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Balance - Beginning of period	$	624.3	$	496.7	$	643.2	$	461.2
Net new advisory assets(1)	11.4		54.9		28.8		77.6
Market impact(2)	(77.1)		26.0		(113.4)		38.8
Balance - End of period	$	558.6	$	577.6	$	558.6	$	577.6

_______________________________

(1)Net new advisory assets consist of total client deposits into custodied advisory accounts less total client withdrawals from custodied advisory accounts, plus dividends, plus interest, minus advisory fees. We consider conversions from and to brokerage accounts as deposits and withdrawals, respectively.

(2)Market impact is the difference between the beginning and ending asset balance less the net new asset amounts, representing the implied growth or decline in asset balances due to market changes over the same period of time.

The growth in advisory revenue for the three and six months ended June 30, 2022 compared to 2021 was due to an increase in billable advisory assets from continued organic growth and the completion of onboarding Waddell & Reed assets during the third quarter of 2021, partially offset by a decline in advisory asset balances due to market changes.

10

Commission

We generate two types of commission revenue: (1) sales-based commissions that are recognized at the point of sale on the trade date and are based on a percentage of an investment product’s current market value at the time of purchase and (2) trailing commissions that are recognized over time as earned and are generally based on the market value of investment holdings in trail-eligible assets. Sales-based commission revenue, which occurs when clients trade securities or purchase various types of investment products, primarily represents gross commissions generated by our advisors, and can vary from period to period based on the overall economic environment, number of trading days in the reporting period and investment activity of our advisors’ clients. We earn trailing commission revenue primarily on mutual funds and variable annuities held by clients of our advisors. See Note 3 - Revenue, within the notes to the condensed consolidated financial statements for further detail regarding our commission revenue by product category.

The following table sets forth the components of our commission revenue (in thousands):

	Three Months Ended June 30,								Six Months Ended June 30,
	2022		2021		$ Change		% Change		2022		2021		$ Change		% Change
Sales-based	$	252,493	$	249,596	$	2,897	1.2	%	$	492,824	$	485,869	$	6,955	1.4	%
Trailing	320,883		348,637		(27,754)		(8.0)	%	666,077		669,593		(3,516)		(0.5)	%
Total commission revenue	$	573,376	$	598,233	$	(24,857)	(4.2)	%	$	1,158,901	$	1,155,462	$	3,439	0.3	%

The increase in sales-based commission revenue for the three and six months ended June 30, 2022 compared to 2021 was primarily driven by increases in sales of annuities and insurance products due to rising interest rates, which were partially offset by decreases in sales of mutual funds, equity and fixed income products. The decrease in trailing commission revenue for the three and six months ended June 30, 2022 compared to 2021 was primarily due to volatility driven declines in trail eligible assets.

Commission revenue is generated from trading activity related to brokerage assets. The following table summarizes activity impacting brokerage assets for the periods presented (in billions):

	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Balance - Beginning of period	$	538.8	$	461.6	$	563.2	$	441.9
Net new brokerage assets(1)	25.8		51.1		26.0		57.3
Market impact(2)	(58.6)		22.0		(83.2)		35.5
Balance - End of period	$	506.0	$	534.7	$	506.0	$	534.7

_______________________________

(1) Net new brokerage assets consist of total client deposits into brokerage accounts less total client withdrawals from brokerage accounts, plus dividends, plus interest. We consider conversions from and to advisory accounts as deposits and withdrawals, respectively.

(2) Market impact is the difference between the beginning and ending asset balance less the net new asset amounts, representing the implied growth or decline in asset balances due to market changes over the same period of time.

Asset-Based

Asset-based revenue consists of fees from our client cash programs, fees from our sponsorship programs with financial product manufacturers, and fees from omnibus processing and networking services (collectively referred to as “recordkeeping”). Client cash revenue is generated on advisors’ clients’ cash balances in insured bank sweep accounts and money market programs. We also receive fees from certain financial product manufacturers in connection with sponsorship programs that support our marketing and sales force education and training efforts. Compensation for these performance obligations is either a fixed fee, a percentage of the average annual amount of product sponsor assets held in advisors’ clients’ accounts, a percentage of new sales or a combination. Omnibus processing revenue is paid to us by mutual fund product sponsors or their affiliates and is based on the value of mutual fund assets in accounts for which the Company provides omnibus processing services and the number of accounts in which the related mutual fund positions are held. Networking revenue on brokerage assets is correlated to the number of positions we administer and is paid to us by mutual fund product sponsors and annuity product manufacturers.

Asset-based revenue for the three and six months ended June 30, 2022 increased compared to 2021, due to increases in client cash revenue and revenues from recordkeeping and sponsorship programs.

11

Revenue for our recordkeeping and sponsorship programs for the three and six months ended June 30, 2022, which is largely based on the market value of the underlying assets, increased compared to 2021 primarily due to continued organic growth in our assets under management.

Client cash revenue for the three and six months ended June 30, 2022 increased compared to 2021, primarily due to increases to the federal funds effective rate in the three and six months ended June 30, 2022.

Service and Fee

Service and fee revenue is generated from advisor and retail investor services, including technology, insurance, conferences, licensing, LPL Services Group, which includes Business Services and Planning and Advice Services, IRA custodian, and other client account fees. We charge separate fees to Independent RIAs for technology, clearing, administrative, oversight and custody services, which may vary. We also host certain advisor conferences that serve as training, education, sales and marketing events for which we charge sponsors a fee. Service and fee revenue for the three and six months ended June 30, 2022 increased compared to 2021, primarily due to increases in contract and licensing fees, fees from LPL Services Group solutions, conference fees and other client account fees.

Interest Income

We earn interest income primarily from client margin loans and advisor loans. Period-over-period variances correspond to changes in the average balances of loans, as well as changes in interest rates. Interest income for the three and six months ended June 30, 2022 increased compared to 2021, primarily due to an increase in interest earned on advisor and margin loans.

Other

Other revenue primarily includes unrealized gains and losses on assets held by us in our advisor non-qualified deferred compensation plan and model research portfolios, and other miscellaneous revenue, which is not generated from contracts with customers.

Other revenue for the three and six months ended June 30, 2022 decreased compared to 2021, primarily due to realized and unrealized losses on assets held in our advisor non-qualified deferred compensation plan, which are based on the market performance of the underlying investment allocations chosen by advisors in the plan, partially offset by an increase in dividend income on assets held in our advisor non-qualified deferred compensation plan.

Expense

Advisory and Commission

Advisory and commission expense consists of the following: payout amounts that are earned by and paid out to advisors and institutions based on advisory and commission revenue earned on each client’s account, production- based bonuses earned by advisors and institutions based on the levels of advisory and commission revenue they produce, the recognition of share-based compensation expense from equity awards granted to advisors and financial institutions based on the fair value of the awards at grant date and the deferred advisory and commission fee expense associated with mark-to-market gains or losses on the non-qualified deferred compensation plan offered to our advisors.

The following table sets forth our payout rate, which is a statistical or operating measure:

	Three Months Ended June 30,					Six Months Ended June 30,
	2022		2021		Change	2022		2021		Change
Payout rate	86.97	%	86.35	%	62 bps	86.53	%	86.01	%	52 bps

Our payout rate for the three and six months ended June 30, 2022 increased compared to 2021, primarily due to the impact of onboarding large financial institutions during 2021.

12

Compensation and Benefits

Compensation and benefits expense includes salaries, wages, benefits, share-based compensation and related taxes for our employees, as well as compensation for temporary workers and contractors. The following table sets forth our average number of employees for the three and six months ended June 30, 2022 as compared to 2021:

	Three Months Ended June 30,			Six Months Ended June 30,
	2022	2021	Change	2022	2021	Change
Average number of employees	6,107	5,137	18.9%	6,083	4,962	22.6%

Compensation and benefits expense for the three and six months ended June 30, 2022 increased by $12.8 million and $43.3 million compared to 2021, primarily due to an increase in salary and employee benefit expense resulting from an increase in headcount.

Promotional

Promotional expense includes business development costs related to advisor recruitment and retention, costs related to hosting certain advisory conferences that serve as training, sales and marketing events, and other costs that support advisor business growth. Promotional expense for the three and six months ended June 30, 2022 increased by $13.7 million and $46.5 million compared to 2021, primarily due to increases in recruited assets and advisors that led to higher costs to support transition assistance and retention, as well as increases in conference spend as we returned to in-person events.

Occupancy and Equipment

Occupancy and equipment expense includes the costs of leasing and maintaining our office spaces, software licensing and maintenance costs and maintenance expense on computer hardware and other equipment. Occupancy and equipment expense for the three and six months ended June 30, 2022 increased by $14.5 million and $22.0 million compared to 2021, primarily due to increases in expenses related to software licenses and our technology portfolio.

Depreciation and Amortization

Depreciation and amortization expense relates to the use of property and equipment, which includes internally developed software, hardware, leasehold improvements and other equipment. Depreciation and amortization expense for the three and six months ended June 30, 2022 increased by $11.7 million and $21.7 million compared to 2021, primarily due to our continued investment in technology to support integrations, enhance our advisor platform and end-client experience, and support large financial institution onboarding.

Brokerage, Clearing and Exchange

Brokerage, clearing and exchange expense includes expenses originating from trading or clearing operations as well as any exchange membership fees. These fees fluctuate largely in line with the volume of sales and trading activity. Brokerage, clearing and exchange expense remained constant for the three months ended June 30, 2022 and increased by $3.1 million for the six months ended June 30, 2022 compared to 2021, primarily due to an increase in the volume of sales and trading activity.

Amortization of Other Intangibles

Amortization of other intangibles expense represents the benefits received for the use of long-lived intangible assets established through our acquisitions. Amortization of other intangibles for the three and six months ended June 30, 2022 increased by $1.2 million and $5.0 million compared to 2021, primarily due to increases in intangible assets resulting from our acquisition of the wealth management business of Waddell & Reed on April 30, 2021. See Note 4 - Acquisitions, for additional information.

Professional Services

Professional services expense includes costs paid to outside firms for assistance with legal, accounting, technology, regulatory and general corporate matters, as well as non-capitalized costs related to service and technology enhancements. Professional services expense for the three and six months ended June 30, 2022 decreased by $5.2 million and $1.8 million compared to 2021, primarily due to a decrease in consulting services as internal hiring has replaced the use of certain consultants.

13

Communications and Data Processing

Communications and data processing expense consists primarily of the cost of voice and data telecommunication lines supporting our business, including connectivity to data centers, exchanges and markets, as well as customer statement processing and postage costs. Communications and data processing expense for the three and six months ended June 30, 2022 increased by $1.3 million and $4.4 million compared to 2021, primarily due to increases in costs associated with client statement production due to growth in our advisor count, which led to an increase in the customer base.

Loss on Extinguishment of Debt

On March 15, 2021, we issued senior unsecured notes due in 2029 and redeemed our existing senior unsecured notes due in 2025. In connection with these transactions, we incurred a $24.4 million loss on extinguishment of debt for the six months ended June 30, 2021.

Other Expense

Other expense includes the costs of the investigation, settlement and resolution of regulatory matters (including customer restitution and remediation), licensing fees, insurance, broker-dealer regulatory fees, travel-related expenses and other miscellaneous expenses. Other expense depends in part on the size and timing of resolving regulatory matters and the availability of self-insurance coverage, which depends in part on the amount and timing of resolving historical claims. Other expense for the three months ended June 30, 2022 increased by $5.2 million compared to 2021, primarily due to increases in travel related costs. Other expense for the six months ended June 30, 2022 increased by $17.7 million compared to 2021, primarily due to Waddell & Reed transitional support through April 2022 and an increase in travel related costs.

Provision for Income Taxes

Our effective income tax rate was 24.4% and 26.3% for the three months ended June 30, 2022 and 2021, respectively, and 23.7% and 23.9% for the six months ended June 30, 2022 and 2021, respectively. The Company’s effective income tax rate differs from the federal corporate tax rate of 21.0%, primarily as a result of state taxes, state and federal settlement contingencies, tax credits and other permanent differences in tax deductibility of certain expenses. Our effective income tax rates for the three and six months ended June 30, 2022 and 2021 benefited from share-based compensation and option exercises during those periods, partially offset by settlement contingencies recognized during the three and six months ended June 30, 2022 and 2021.

Liquidity and Capital Resources

We have established liquidity and capital policies intended to support the execution of strategic initiatives, while meeting regulatory capital requirements and maintaining ongoing and sufficient liquidity. We believe liquidity is of critical importance to the Company and, in particular, to LPL Financial, our broker-dealer subsidiary. The objective of our policies is to ensure that we can meet our strategic, operational and regulatory liquidity and capital requirements under both normal operating conditions and under periods of stress in the financial markets.

Liquidity

Our liquidity needs are primarily driven by capital requirements at LPL Financial, interest due on our corporate debt and other capital returns to shareholders. Our liquidity needs at LPL Financial are driven primarily by the level and volatility of our client activity. Management maintains a set of liquidity sources and monitors certain business trends and market metrics closely in an effort to ensure we have sufficient liquidity. We believe that based on current levels of cash flows from operations and anticipated growth, together with available external liquidity sources, we have adequate liquidity to satisfy our working capital needs, the payment of all of our obligations and the funding of anticipated capital expenditures for the foreseeable future.

Parent Company Liquidity

LPL Holdings, Inc. (“Parent”), the direct holding company of our operating subsidiaries, considers its primary source of liquidity to be Corporate Cash. Corporate Cash, a component of cash and equivalents, is the sum of cash and equivalents from the following: (1) cash and equivalents held at the Parent, (2) cash and equivalents held at regulated subsidiaries as defined by the Company’s Credit Agreement, which include LPL Financial and The Private Trust Company, N.A. (“PTC”), in excess of the capital requirements of the Company’s Credit Agreement (which, in the case of LPL Financial, is net capital in excess of 10% of its aggregate debits, or five times the net capital required in accordance with Exchange Act Rule 15c3-1), and (3) cash and equivalents held at non-regulated subsidiaries.

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We believe Corporate Cash is a useful measure of the Parent’s liquidity, as it represents the capital available for use in excess of the amount we are required to reserve pursuant to the Credit Agreement. The following table presents the components of Corporate Cash (in thousands):

	June 30, 2022		December 31, 2021
Cash and equivalents	$	700,395	$	495,246
Cash at regulated subsidiaries	(546,299)		(284,105)
Excess cash at regulated subsidiaries per the Credit Agreement	87,400		25,846
Corporate Cash	$	241,496	$	236,987
Corporate Cash
Cash at Parent	$	144,358	$	202,407
Excess cash at regulated subsidiaries per the Credit Agreement	87,400		25,846
Cash at non-regulated subsidiaries	9,738		8,734
Corporate Cash	$	241,496	$	236,987

Corporate Cash is monitored as part of our liquidity risk management. We target maintaining $200.0 million in Corporate Cash, which covers approximately 18 months of principal and interest due on our corporate debt. The Company maintains additional liquidity through a $1.0 billion secured committed revolving credit facility. The Parent has the ability to borrow against the credit facility for working capital and general corporate purposes. Dividends from and excess capital generated by regulated subsidiaries are the primary sources of liquidity. Subject to regulatory approval or notification, capital generated by regulated subsidiaries can be distributed to the Parent to the extent the capital levels exceed regulatory requirements, Credit Agreement requirements and internal capital thresholds. During the six months ended June 30, 2022 and 2021, regulated subsidiaries paid dividends of $331.0 million and $275.0 million to the Parent, respectively.

Share Repurchases

We engage in share repurchase programs, which are approved by our Board of Directors, pursuant to which we may repurchase our issued and outstanding shares of common stock from time to time. Purchases may be effected in open market or privately negotiated transactions. Our current capital deployment framework remains focused on investing in organic growth first, pursuing acquisitions where appropriate, and returning excess capital to shareholders. In the first half of 2021, the majority of our capital deployment was focused on supporting organic growth and acquisitions. While we continue to see opportunities to deploy capital in this manner, we resumed share repurchases in the third quarter of 2021 with the initial focus on an amount to offset dilution. We repurchased $100.0 million, representing 564,522 shares, during the six months ended June 30, 2022. The timing and amount of share repurchases, if any, is determined at our discretion within the constraints of our Credit Agreement, the Indentures, applicable laws and consideration of our general liquidity needs. See Note 11 - Stockholders’ Equity, within the notes to the condensed consolidated financial statements for additional information regarding our share repurchases.

Common Stock Dividends

The payment, timing and amount of any dividends are subject to approval by the Board of Directors, as well as certain limits under our Credit Agreement and the Indentures. See Note 11 - Stockholders’ Equity, within the notes to the condensed consolidated financial statements for additional information regarding our dividends.

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LPL Financial Liquidity

LPL Financial relies primarily on client payables to fund margin lending. LPL Financial maintains additional liquidity through external lines of credit totaling $500.0 million at June 30, 2022. LPL Financial also maintains a line of credit with the Parent.

External Liquidity Sources

The following table presents amounts outstanding and available under our external lines of credit at June 30, 2022 (in millions):

Description	Borrower	Maturity Date	Outstanding		Available
Senior secured, revolving credit facility	LPL Holdings, Inc.	March 2026	$	—	$	1,000
Broker-dealer revolving credit facility(1)	LPL Financial LLC	July 2024	$	—	$	300
Unsecured, uncommitted lines of credit	LPL Financial LLC	September 2022	$	—	$	75
Unsecured, uncommitted lines of credit	LPL Financial LLC	September 2022	$	—	$	50
Unsecured, uncommitted lines of credit	LPL Financial LLC	None	$	—	$	75
Secured, uncommitted lines of credit	LPL Financial LLC	None	$	—	unspecified
Secured, uncommitted lines of credit	LPL Financial LLC	None	$	—	unspecified

_____________________________

(1)On August 4, 2022, LPL Financial LLC entered into a committed senior unsecured revolving credit facility that matures on August 3, 2023 and allows for a maximum borrowing of $1.0 billion. This credit facility replaced the $300.0 million committed senior unsecured revolving credit facility that was scheduled to mature on July 31, 2024.

Capital Resources

The Company seeks to manage capital levels in support of its business strategy of generating and effectively deploying capital for the benefit of our shareholders.

Our primary requirement for working capital relates to funds we loan to our advisors’ clients for trading conducted on margin and funds we are required to maintain for regulatory capital and reserves based on the requirements of our regulators and clearing organizations, which also consider client balances and trading activities. We have several sources of funds that enable us to meet increases in working capital requirements that relate to increases in client margin activities and balances. These sources include cash and equivalents on hand, cash segregated under federal or other regulations, the committed revolving credit facility of LPL Financial and proceeds from repledging or selling client securities in margin accounts. When an advisor’s client purchases securities on margin or uses securities as collateral to borrow from us on margin, we are permitted, pursuant to the applicable securities industry regulations, to repledge, loan or sell securities, up to 140% of the client’s margin loan balance, that collateralize those margin accounts.

Our other working capital needs are primarily related to loans we are making to advisors and timing associated with receivables and payables, which we have satisfied in the past from internally generated cash flows.

We may sometimes be required to fund timing differences arising from the delayed receipt of client funds associated with the settlement of client transactions in securities markets. These timing differences are funded either with internally generated cash flows or, if needed, with funds drawn on our uncommitted lines of credit at LPL Financial or one of our revolving credit facilities.

LPL Financial is subject to the SEC’s Uniform Net Capital Rule, which requires the maintenance of minimum net capital. LPL Financial computes net capital requirements under the alternative method, which requires firms to maintain minimum net capital equal to the greater of $250,000 or 2% of aggregate debit balances arising from client transactions. At June 30, 2022, LPL Financial had net capital of $156.9 million with a minimum net capital requirement of $15.4 million.

LPL Financial’s ability to pay dividends greater than 10% of its excess net capital during any 35-day rolling period requires approval from FINRA. In addition, payment of dividends is restricted if LPL Financial’s net capital would be less than 5% of aggregate customer debit balances.

LPL Financial also acts as an introducing broker for commodities and futures. Accordingly, its trading activities are subject to the NFA financial requirements and it is required to maintain net capital that is in excess of or equal to the greatest of NFA’s minimum financial requirements. The NFA was designated by the Commodity Futures Trading

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Commission as LPL Financial’s primary regulator for such activities. Currently, the highest NFA requirement is the minimum net capital calculated and required pursuant to the SEC’s Uniform Net Capital Rule.

Our subsidiary PTC is also subject to various regulatory capital requirements. Failure to meet the respective minimum capital requirements can result in certain mandatory and discretionary actions by regulators that, if undertaken, could have substantial monetary and non-monetary impacts on PTC’s operations.

Debt and Related Covenants

The Credit Agreement and the Indentures contain a number of covenants that, among other things, restrict, subject to certain exceptions, our ability to:

•incur additional indebtedness or issue disqualified stock or preferred stock;

•declare dividends, or other distributions to stockholders;

•repurchase equity interests;

•redeem indebtedness that is subordinated in right of payment to certain debt instruments;

•make investments or acquisitions;

•create liens;

•sell assets;

•guarantee indebtedness;

•engage in certain transactions with affiliates;

•enter into agreements that restrict dividends or other payments from subsidiaries; and

•consolidate, merge or transfer all or substantially all of our assets.

Our Credit Agreement and the Indentures allow us to pay dividends and distributions or repurchase our common stock only when certain conditions are met. In addition, our revolving credit facility requires us to be in compliance with certain financial covenants as of the last day of each fiscal quarter. The financial covenants require the calculation of Credit Agreement EBITDA, as defined in, and calculated by management in accordance with, the Credit Agreement. The Credit Agreement defines Credit Agreement EBITDA as “Consolidated EBITDA,” which is Consolidated Net Income (as defined in the Credit Agreement) plus interest expense on borrowings, provision for income taxes, depreciation and amortization, and amortization of other intangibles, and is 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.

As of June 30, 2022, we were in compliance with both financial covenants, a maximum Consolidated Total Debt to Consolidated EBITDA Ratio (as defined in the Credit Agreement) or “Leverage Ratio” and a minimum Consolidated EBITDA to Consolidated Interest Expense Ratio (as defined in the Credit Agreement) or “Interest Coverage”. The breach of these financial covenants would be subject to certain equity cure rights. The required ratios under our financial covenants and actual ratios were as follows:

	June 30, 2022
Financial Ratio	Covenant Requirement	Actual Ratio
Leverage Ratio (Maximum)	5.00	2.09
Interest Coverage (Minimum)	3.00	12.22

See Note 9 - Corporate Debt and Other Borrowings, Net, within the notes to the condensed consolidated financial statements for further detail regarding the Credit Agreement and the Indentures.

Contractual Obligations

During the six months ended June 30, 2022, there were no material changes in our contractual obligations, other than in the ordinary course of business, from those disclosed in our 2021 Annual Report on Form 10-K. See Note 9 - Corporate Debt and Other Borrowings, Net and Note 10 - Commitments and Contingencies, within the notes to the condensed consolidated financial statements, as well as the Contractual Obligations section within Part II, “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2021 Annual Report on Form 10-K, for further detail.

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Critical Accounting Policies and Estimates

In the notes to our consolidated financial statements and in Part II, “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our 2021 Annual Report on Form 10-K, we have disclosed those accounting policies that we consider to be most significant in determining our results of operations and financial condition and involve a higher degree of judgment and complexity. There have been no changes to those policies that we consider to be material since the filing of our 2021 Annual Report on Form 10-K. The accounting principles used in preparing our condensed consolidated financial statements conform in all material respects to GAAP.

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Item 1. Financial Statements (unaudited)

LPL FINANCIAL HOLDINGS INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Income

(In thousands, except per share data)

(Unaudited)

	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
REVENUE
Advisory	$	1,001,851	$	846,313	$	2,048,948	$	1,568,359
Commission	573,376		598,233		1,158,901		1,155,462
Asset-based	363,597		279,620		659,998		544,326
Service and fee	112,802		99,473		225,614		196,297
Transaction	44,416		37,627		91,142		81,747
Interest income	10,121		6,914		17,866		13,432
Other	(67,276)		30,078		(97,889)		46,252
Total revenue	2,038,887		1,898,258		4,104,580		3,605,875
EXPENSE
Advisory and commission	1,304,422		1,273,202		2,678,556		2,382,101
Compensation and benefits	196,699		183,853		388,733		345,393
Promotional	78,027		64,349		165,029		118,530
Occupancy and equipment	55,906		41,452		107,018		85,036
Depreciation and amortization	48,453		36,704		93,907		72,203
Interest expense on borrowings	28,755		25,171		55,966		50,230
Brokerage, clearing and exchange	23,362		23,459		45,962		42,823
Amortization of other intangibles	21,168		19,925		42,364		37,356
Professional services	17,290		22,500		36,312		38,125
Communications and data processing	16,223		14,930		31,350		26,923
Loss on extinguishment of debt	—		—		—		24,400
Other	36,261		31,064		73,683		55,964
Total expense	1,826,566		1,736,609		3,718,880		3,279,084
INCOME BEFORE PROVISION FOR INCOME TAXES	212,321		161,649		385,700		326,791
PROVISION FOR INCOME TAXES	51,776		42,548		91,411		78,070
NET INCOME	$	160,545	$	119,101	$	294,289	$	248,721
EARNINGS PER SHARE
Earnings per share, basic	$	2.01	$	1.49	$	3.68	$	3.11
Earnings per share, diluted	$	1.97	$	1.46	$	3.61	$	3.05
Weighted-average shares outstanding, basic	79,947		80,063		79,961		79,880
Weighted-average shares outstanding, diluted	81,410		81,728		81,493		81,608

See notes to unaudited condensed consolidated financial statements.

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LPL FINANCIAL HOLDINGS INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Financial Condition

(In thousands, except share data)

(Unaudited)

ASSETS	June 30, 2022		December 31, 2021
Cash and equivalents	$	700,395	$	495,246
Cash segregated under federal or other regulations	863,500		1,496,463
Restricted cash	89,833		80,655
Receivables from clients, net	695,405		578,889
Receivables from brokers, dealers and clearing organizations	71,555		102,503
Advisor loans, net	1,035,158		963,869
Other receivables, net	600,906		581,483
Investment securities	47,695		49,192
Property and equipment, net	726,224		658,841
Goodwill	1,642,468		1,642,443
Other intangibles, net	433,485		455,028
Other assets	829,862		886,988
Total assets	$	7,736,486	$	7,991,600
LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES:
Client payables	$	1,498,374	$	1,712,224
Payables to brokers, dealers and clearing organizations	154,909		170,119
Accrued advisory and commission expenses payable	199,691		222,379
Corporate debt and other borrowings, net	2,720,747		2,814,044
Accounts payable and accrued liabilities	363,768		384,025
Other liabilities	954,937		1,018,276
Total liabilities	5,892,426		6,321,067
Commitments and contingencies (Note 10)
STOCKHOLDERS’ EQUITY:
Common stock, $0.001 par value; 600,000,000 shares authorized; 129,365,714 shares and 128,758,086 shares issued at June 30, 2022 and December 31, 2021, respectively	129		129
Additional paid-in capital	1,879,312		1,841,402
Treasury stock, at cost — 49,427,892 shares and 48,768,145 shares at June 30, 2022 and December 31, 2021, respectively	(