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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, 2023
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 classTrading 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, a 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 filerxAccelerated 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 26, 2023 was 76,297,391.


TABLE OF CONTENTS
Page
ii
ii
Note 1 - Organization and Description of the Company
Note 2 - Summary of Significant Accounting Policies
Note 4 - Acquisitions
Note 5 - Fair Value Measurements
Note 6 - Investment Securities
Note 7 - Goodwill and Other Intangibles, Net
Note 9 - Corporate Debt and Other Borrowings, Net
Note 10 - Commitments and Contingencies
Note 11 - Stockholders’ Equity
Note 12 - Share-based Compensation
Note 13 - Earnings per Share
Note 14 - Net Capital and Regulatory Requirements
Note 15 - Financial Instruments with Off-Balance Sheet Credit Risk and Concentrations of Credit Risk

i
Table of Contents
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 (the “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@lplfinancial.com), telephone ((617) 897-4574) or mail (LPL Financial Investor Relations at 1055 LPL Way, Fort Mill, SC 29715). 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, future share repurchases and dividends, 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, enterprises and assets in connection with our acquisition and recruitment activity;
•market and macroeconomic trends, including the effects of inflation and the interest rate environment;
•projected savings and anticipated improvements to the Company’s operating model, services and technologies as a result of its investments, initiatives, programs and acquisitions; 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 reflect the Company’s expectations and objectives as of August 1, 2023. 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 expectations or objectives expressed or implied by the Company will be achieved. The achievement of such expectations and objectives involves risks and uncertainties that may cause actual results, levels of activity or the timing of events to differ materially 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;
•the success of the Company in attracting and retaining financial advisors and enterprises, 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;
•difficulties and delays in onboarding the assets of acquired or recruited advisors;
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•disruptions in the businesses of the Company that could make it more difficult to maintain relationships with advisors and their clients;
•the choice by clients of acquired or recruited advisors not to open brokerage and/or advisory 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 (the “Credit Agreement”), the committed revolving credit facility at our primary broker-dealer subsidiary, LPL Financial LLC (the “Broker-Dealer Revolving Credit Facility”), and the indentures governing the Company’s senior unsecured notes (the “Indentures”);
•the price, 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 failure to satisfy the closing conditions applicable to the Company’s acquisition of the assets of Crown Capital Securities, L.P., including receipt of transaction approval from the Financial Industry Regulatory Authority (“FINRA”);
•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 coronavirus disease 2019 (“COVID-19”) pandemic, including efforts to contain it; and
•the other factors set forth in the Company’s most recent 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, and you should not rely on statements contained herein as representing the Company’s view as of any date subsequent to the date of this Quarterly Report on Form 10-Q.

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GLOSSARY OF TERMS
Adjusted EPS: A non-GAAP financial measure defined as Adjusted Net Income divided by the weighted average number of diluted shares outstanding for the applicable period.
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; market fluctuations on employee deferred compensation; promotional (ongoing); employee share-based compensation; regulatory charges; and acquisition costs.
Corporate Cash: A component of cash and equivalents that 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, which include LPL Financial LLC, Financial Resources Group Investment Services, LLC and The Private Trust Company, N.A., in excess of the capital requirements of the Company’s Credit Agreement, which, in the case of LPL Financial LLC and Financial Resources Group Investment Services, LLC, is net capital in excess of 10% of their aggregate debits, or five times the net capital required in accordance with the Uniform Net Capital Rule, and (3) cash and equivalents held at non-regulated subsidiaries.
Credit Agreement: The Company’s amended and restated credit agreement.
Credit Agreement EBITDA: A non-GAAP financial measure defined in 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.
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.
FINRA: The Financial Industry Regulatory Authority.
GAAP: Accounting principles generally accepted in the United States of America.
Gross Profit: A non-GAAP financial measure defined as total revenue less advisory and commission expense; brokerage, clearing and exchange expense; and market fluctuations on employee deferred compensation.
Indentures: 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.
SEC: The U.S. Securities and Exchange Commission.
Uniform Net Capital Rule: Refers to Rule 15c3-1 under the Exchange Act, which specifies minimum capital requirements that are intended to ensure the general financial soundness and liquidity of broker-dealers.
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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 marketplace as the nation’s largest independent broker-dealer, a leading investment advisory firm and a top custodian. We serve nearly 22,000 financial advisors, including advisors at approximately 1,100 enterprises and at approximately 550 registered investment advisor (“RIA”) firms nationwide, providing the front-, middle- and back-office support our advisors need. We offer integrated technology solutions; brokerage and advisory platforms; clearing, compliance, business and planning and advice services; consultative practice management programs and training; and in-house research to help our advisors run successful businesses.
We are steadfast in our commitment to the advisor-mediated model and the belief that investors deserve access to personalized guidance from a financial advisor. We believe advisors should have the freedom to choose the business model, services and technology they need and to manage their client relationships. We believe investors achieve better outcomes when working with a financial advisor, and we strive to make it easy for advisors to do what is best for their 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 account balances 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, cash and equivalents segregated under federal or other regulations, advisor repayable loans and operating cash, which is included in interest income, net in the condensed consolidated statements of income. 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.
Significant Events
Entered into an agreement to acquire the assets of Crown Capital Securities, L.P. (“Crown Capital”)
On July 21, 2023, we entered into an agreement to acquire the assets of the wealth management business of Crown Capital, a firm with approximately 260 advisors who collectively serve approximately $6.5 billion of brokerage and advisory assets. The acquisition is expected to close in early 2024, subject to receipt of regulatory approval and other customary closing conditions.
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Executive Summary
Financial Highlights
Results for the second quarter of 2023 included net income of $285.5 million, or $3.65 per diluted share, which compares to $160.5 million, or $1.97 per diluted share, for the second quarter of 2022.
Asset Trends
Total advisory and brokerage assets served were $1.2 trillion at June 30, 2023, compared to $1.1 trillion for the same period in 2022. Total net new assets were $21.7 billion for the three months ended June 30, 2023, compared to $37.2 billion for the same period in 2022.
Net new advisory assets were $18.1 billion for the three months ended June 30, 2023, compared to $11.4 billion for the same period in 2022. Advisory assets were $661.6 billion, or 53.3% of total advisory and brokerage assets served, at June 30, 2023, up 18% from $558.6 billion at June 30, 2022.
Net new brokerage assets were $3.6 billion for the three months ended June 30, 2023, compared to $25.8 billion for the same period in 2022. Brokerage assets were $578.6 billion at June 30, 2023, up 14% from $506.0 billion at June 30, 2022.
Gross Profit Trend
Gross profit, a non-GAAP financial measure, was $989.8 million for the three months ended June 30, 2023, an increase of 39% from $711.1 million for the three months ended June 30, 2022. 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, 2023, we paid stockholders cash dividends of $23.1 million and repurchased 1.8 million of our outstanding shares for a total of $350.0 million.

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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)
202320232022
Advisory and Brokerage Assets(2)
Advisory assets$661.6 $620.9 $558.6 
Brokerage assets578.6 554.3 506.0 
Total Advisory and Brokerage Assets$1,240.2 $1,175.2 $1,064.6 
Advisory as a % of total Advisory and Brokerage Assets53.3%52.8%52.5%
Net New Assets(3)
Net new advisory assets$18.1 $14.6 $11.4 
Net new brokerage assets3.6 9.9 25.8 
Total Net New Assets$21.7 $24.5 $37.2 
Organic Net New Assets
Organic net new advisory assets$18.1 $13.7 $11.4 
Organic net new brokerage assets3.6 7.1 25.8 
Total Organic Net New Assets$21.7 $20.8 $37.2 
Organic advisory net new assets annualized growth(4)
11.7%9.4%7.3%
Total organic net new assets annualized growth(4)
7.4%7.5%12.8%
Client Cash Balances
Insured cash account sweep$36.0 $39.7 $40.8 
Deposit cash account sweep9.5 10.2 12.3 
Total Bank Sweep45.5 49.9 53.1 
Money market sweep 2.3 2.6 15.0 
Total Client Cash Sweep Held by Third Parties47.9 52.5 68.1 
Client cash account2.1 2.1 1.5 
Total Client Cash Balances$50.0 $54.6 $69.6 
Client Cash Balances as a % of Total Assets4.0%4.6%6.5%
Net buy (sell) activity(5)
$32.3 $36.9 $5.3 
As of and for the Three Months Ended
June 30,March 31,June 30,
Business and Financial Metrics (dollars in millions)202320232022
Advisors21,942 21,521 20,871 
Average total assets per advisor(6)
$56.5 $54.6 $51.0 
Share repurchases$350.0 $275.0 $50.0 
Dividends$23.1 $23.6 $20.0 
Leverage ratio(7)
1.25 1.34 2.09 
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Three Months Ended June 30,Six Months Ended June 30,
Financial Metrics (dollars in millions, except per share data)2023202220232022
Total revenue$2,468.8 $2,038.9 $4,886.6 $4,104.6 
Net income$285.5 $160.5 $624.4 $294.3 
Earnings per share (“EPS”), diluted$3.65 $1.97 $7.90 $3.61 
Non-GAAP Financial Metrics (dollars in millions, except per share data)
Adjusted EPS(8)
$3.94 $2.24 $8.44 $4.20 
Gross profit(9)
$989.8 $711.1 $2,009.8 $1,380.1 
EBITDA(10)
$518.8 $310.7 $1,082.6 $577.9 
Core G&A(11)
$337.0 $286.0 $663.2 $566.9 
_______________________________
(1)Totals may not foot due to rounding.
(2)Consists of total advisory and brokerage assets under custody at the Company’s primary broker-dealer subsidiary, LPL Financial LLC (“LPL Financial”). Please consult the “Results of Operations” section for a tabular presentation of advisory and brokerage assets.
(3)Consists of total client deposits into advisory or brokerage accounts less total client withdrawals from advisory or brokerage accounts, plus dividends, plus interest, minus advisory fees. We consider conversions from and to brokerage or advisory accounts as deposits and withdrawals, respectively.
(4)Calculated as annualized current period organic net new assets divided by preceding period assets in their respective categories of advisory assets or total advisory and brokerage assets.
(5)Represents the amount of securities purchased less the amount of securities sold in client accounts custodied with LPL Financial.
(6)Calculated based on the end of period total advisory and brokerage assets divided by the end of period advisor count.
(7)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 financial 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 are reconciliations 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 Reconciliation202320232022
Corporate debt and other borrowings$3,019.6 $2,870.2 $2,743.3 
Corporate Cash(12)
(325.5)(234.2)(241.5)
Credit Agreement Net Debt(†)
$2,694.1 $2,636.0 $2,501.8 
June 30,March 31,June 30,
EBITDA and Credit Agreement EBITDA Reconciliation202320232022
Net income$1,175.8 $1,050.8 $505.4 
Interest expense on borrowings154.3 138.2 110.2 
Provision for income taxes383.5 331.9 154.8 
Depreciation and amortization220.3 210.4 173.1 
Amortization of other intangibles96.0 90.5 84.3 
EBITDA(†)
$2,029.9 $1,821.9 $1,027.8 
Credit Agreement Adjustments:
Acquisition costs and other$35.9 $42.0 $86.9 
Employee share-based compensation58.4 55.3 45.8 
M&A accretion(13)
36.4 42.0 32.1 
Advisor share-based compensation2.6 2.6 2.3 
Credit Agreement EBITDA(†)
$2,163.2 $1,963.7 $1,194.9 
June 30,March 31,June 30,
202320232022
Leverage Ratio1.25 1.34 2.09 
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(†)    Totals may not foot due to rounding.
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(8)Adjusted EPS 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 adjusted EPS 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 adjusted EPS 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 adjusted EPS for the periods presented (in millions, except per share data):
Three Months Ended June 30,Six Months Ended June 30,
2023202220232022
Adjusted Net Income / Adjusted EPS ReconciliationAmountPer ShareAmountPer ShareAmountPer ShareAmountPer Share
Net income / earnings per diluted share$285.5 $3.65 $160.5 $1.97 $624.4 $7.90 $294.3 $3.61 
Amortization of other intangibles 26.7 0.34 21.2 0.26 50.8 0.64 42.4 0.52 
Acquisition costs(14)
4.1 0.05 8.9 0.11 7.2 0.09 22.2 0.27 
Tax benefit(8.1)(0.10)(7.9)(0.10)(15.2)(0.19)(16.9)(0.21)
Adjusted Net Income / Adjusted EPS(†)
$308.3 $3.94 $182.7 $2.24 $667.2 $8.44 $342.0 $4.20 
Weighted-average shares outstanding, diluted78.2 81.4 79.1 81.5 
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(†)    Totals may not foot due to rounding.
(9)Gross profit is a non-GAAP financial measure defined as total revenue less advisory and commission expense; brokerage, clearing and exchange expense; and market fluctuations on employee deferred compensation. 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 calculation of gross profit for the periods presented (in millions):
Three Months Ended June 30,Six Months Ended June 30,
Gross Profit2023202220232022
Total revenue$2,468.8 $2,038.9 $4,886.6 $4,104.6 
Advisory and commission expense1,448.8 1,304.4 2,819.4 2,678.6 
Brokerage, clearing and exchange expense29.1 23.4 55.3 46.0 
Employee deferred compensation(15)
1.1 — 2.2 — 
Gross Profit(†)
$989.8 $711.1 $2,009.8 $1,380.1 
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(†)    Totals may not foot due to rounding.
(10)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 net income to EBITDA for the periods presented (in millions):
Three Months Ended June 30,Six Months Ended June 30,
EBITDA Reconciliation2023202220232022
Net income$285.5 $160.5 $624.4 $294.3 
Interest expense on borrowings44.8 28.8 84.0 56.0 
Provision for income taxes103.3 51.8 208.9 91.4 
Depreciation and amortization58.4 48.5 114.4 93.9 
Amortization of other intangibles26.7 21.2 50.8 42.4 
EBITDA(†)
$518.8 $310.7 $1,082.6 $577.9 
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(†)    Totals may not foot due to rounding.
        
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(11)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; market fluctuations on employee deferred compensation; promotional (ongoing); employee share-based compensation; regulatory charges; and acquisition costs. 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 the Company’s total expense to core G&A for the periods presented (in millions):
Three Months Ended June 30,Six Months Ended June 30,
Core G&A Reconciliation2023202220232022
Total expense$2,080.0 $1,826.6 $4,053.3 $3,718.9 
Advisory and commission(1,448.8 )(1,304.4 )(2,819.4 )(2,678.6 )
Depreciation and amortization(58.4 )(48.5 )(114.4 )(93.9 )
Interest expense on borrowings(44.8 )(28.8 )(84.0 )(56.0 )
Brokerage, clearing and exchange(29.1 )(23.4 )(55.3 )(46.0 )
Amortization of other intangibles(26.7 )(21.2 )(50.8 )(42.4 )
Employee deferred compensation(15)
(1.1 )— (2.2 )— 
Total G&A(†)
471.0 400.4 927.2 802.1 
Promotional (ongoing)(14)(16)
(106.5 )(83.8 )(207.7 )(171.2 )
Employee share-based compensation(16.8 )(13.7 )(34.7 )(26.4 )
Regulatory charges(6.6 )(8.1 )(14.3 )(15.4 )
Acquisition costs(14)
(4.1 )(8.9 )(7.2 )(22.2 )
Core G&A(†)
$337.0 $286.0 $663.2 $566.9 
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(†)    Totals may not foot due to rounding.
(12)See the “Liquidity and Capital Resources” section for additional information about Corporate Cash.
(13)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 such acquisition.
(14)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 costs2023202220232022
Professional services$2.6 $1.9 $4.2 $7.5 
Compensation and benefits1.0 6.7 1.9 12.3
Promotional(16)
0.3 —0.5 1.9
Other0.2 0.3 0.6 0.5 
Acquisition costs$4.1 $8.9 $7.2 $22.2 
(15)During the first quarter of 2023, the Company updated its presentation of employee deferred compensation to be consistent with its presentation of advisor deferred compensation. This change has not been applied retroactively as the impact on prior periods was not material.
(16)Promotional (ongoing) for the three and six months ended June 30, 2023 includes $4.2 million and $7.4 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 compared to $5.8 million and $8.1 million for the same periods in 2022. Promotional (ongoing) excludes costs that have been incurred as part 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 and state government agencies as well as various self-regulatory organizations. Compliance with all applicable laws and regulations involves a significant investment in time and resources, and we continue to invest in our compliance functions to monitor our adherence to the numerous legal and regulatory requirements applicable to our business. 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. We seek to participate in the development of significant rules and regulations that govern our industry.
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
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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, 2023, 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.
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. Our recent acquisition activity includes the following:
•On January 31, 2023, we acquired Financial Resources Group Investment Services, LLC (“FRGIS”), an independent branch office and broker-dealer, for an initial payment of approximately $140 million with potential contingent payments over the three years following the closing.
•We acquired intangible assets of $171.1 million as a result of other acquisitions, including acquisitions as part of our Liquidity & Succession solution under which we buy advisor practices, during the six months ended June 30, 2023.
•On July 21, 2023, we entered into an agreement to acquire the assets of the wealth management business of Crown Capital, a firm with approximately 260 advisors who collectively serve approximately $6.5 billion of brokerage and advisory assets. The acquisition is expected to close in early 2024, subject to receipt of regulatory approval and other customary closing conditions.
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 financial markets in the United States. According to the most recent estimate from the U.S. Bureau of Economic Analysis, the U.S. economy grew at an annualized pace of 2.4% in the second quarter of 2023 after growing at an annualized pace of 2.0% in the first quarter of 2023.
Although inflation, rising interest rates, and volatile global markets were all headwinds, the U.S. economy added roughly 730,000 jobs in the second quarter of this year. The unemployment rate averaged 3.6% in the second quarter of 2023, up slightly from the 3.5% average in the prior quarter, but still historically low, indicating a tight labor market. The equity and bond markets experienced volatility from an increasingly hawkish Federal Reserve (“Fed”) and uncertainty about future economic growth. The S&P 500 increased 8% and the Bloomberg Barclays U.S. Aggregate Bond Index decreased 0.9% during the second quarter of 2023.

Our business is also sensitive to current and expected short-term interest rates, which are largely driven by Fed policy. At the end of the second quarter of 2023, Fed policymakers increased the target range for the federal funds rate to 5.00% to 5.25%. To the extent they pursue tighter monetary policy, the Federal Open Market Committee
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members will take into account the cumulative impacts from higher rates, the inflation trajectory and global financial conditions.

Please consult the “Risks Related to Our Business and Industry” section within Part I, “Item 1A. Risk Factors” in our 2022 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.
Results of Operations
The following discussion presents an analysis of our results of operations for the three and six months ended June 30, 2023 and 2022 (in thousands):
Three Months Ended June 30,Six Months Ended June 30,
20232022% Change20232022% Change
REVENUE
Advisory$1,014,565 $1,001,851 1 %$1,968,622 $2,048,948 (4)%
Commission:
Trailing323,925 320,883 1 %641,578 666,077 (4)%
Sales-based298,961 252,493 18 %585,033 492,824 19 %
Total commission622,886 573,376 9 %1,226,611 1,158,901 6 %
Asset-based:
Client cash378,415 154,700 145 %796,690 239,416 n/m
Other asset-based211,300 208,897 1 %414,773 420,582 (1)%
Total asset-based589,715 363,597 62 %1,211,463 659,998 84 %
Service and fee123,122 112,802 9 %242,109 225,614 7 %
Transaction46,936 44,416 6 %95,871 91,142 5 %
Interest income, net37,972 10,121 n/m75,330 17,866 n/m
Other33,608 (67,276)(150 %)66,630 (97,889)(168 %)
Total revenue    
2,468,804 2,038,887 21 %4,886,636 4,104,580 19 %
EXPENSE
Advisory and commission1,448,763 1,304,422 11 %2,819,397 2,678,556 5 %
Compensation and benefits231,680 196,699 18 %465,213 388,733 20 %
Promotional102,565 78,027 31 %200,788 165,029 22 %
Occupancy and equipment65,005 55,906 16 %125,178 107,018 17 %
Depreciation and amortization58,377 48,453 20 %114,431 93,907 22 %
Interest expense on borrowings44,842 28,755 56 %84,026 55,966 50 %
Brokerage, clearing and exchange29,148 23,362 25 %55,274 45,962 20 %
Amortization of other intangibles26,741 21,168 26 %50,833 42,364 20 %
Communications and data processing20,594 16,223 27 %38,269 31,350 22 %
Professional services18,092 17,290 5 %32,312 36,312 (11)%
Other34,178 36,261 (6 %)67,599 73,683 (8)%
Total expense    
2,079,985 1,826,566 14 %4,053,320 3,718,880 9 %
INCOME BEFORE PROVISION FOR INCOME TAXES
388,819 212,321 83 %833,316 385,700 116 %
PROVISION FOR INCOME TAXES
103,299 51,776 100 %208,912 91,411 129 %
NET INCOME
$285,520 $160,545 78 %$624,404 $294,289 112 %
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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 on a quarterly basis in advance, 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 these 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 RIA advisory platform is proposed by the advisor and agreed to by the client and was approximately 1% of the underlying assets for the six months ended June 30, 2023.
We also support independent RIA firms that conduct their business through 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. However, 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 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,
20232022$ Change% Change
Corporate advisory assets$442.1 $372.1 $70.0 19 %
Independent RIA advisory assets219.5 186.5 33.0 18 %
Total advisory assets$661.6 $558.6 $103.0 18 %

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,
2023202220232022
Balance - Beginning of period$620.9 $624.3 $583.1 $643.2 
Net new advisory assets(1)
18.1 11.4 32.7 28.8 
Market impact(2)
22.6 (77.1)45.8 (113.4)
Balance - End of period$661.6 $558.6 $661.6 $558.6 
_______________________________
(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.
Advisory revenue increased during the three months ended June 30, 2023 and decreased during the six months ended June 30, 2023 as compared to the same periods in 2022. The increase during the three months ended June 30, 2023 was due primarily to an increase in advisory asset balances related to market changes. The decrease in advisory revenue during the six months ended June 30, 2023 as compared to the same period in 2022 was due to decreases in average eligible advisory asset balances and fee rates. Market decreases during 2022 reduced eligible advisory asset balances at the beginning of 2023, resulting in lower average eligible advisory asset balances for the six months ended June 30, 2023 compared to the same period in 2022.

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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 for the periods presented (in thousands):
Three Months Ended June 30,Six Months Ended June 30,
20232022$ Change% Change20232022$ Change% Change
Trailing$323,925 $320,883 $3,042 1 %$641,578 $666,077 $(24,499)(4)%
Sales-based298,961 252,493 46,468 18 %585,033 492,824 92,209 19 %
Total commission revenue
$622,886 $573,376 $49,510 9 %$1,226,611 $1,158,901 $67,710 6 %
The decrease in trailing commission revenue for the six months ended June 30, 2023 compared to 2022 was primarily due to volatility-driven declines in trail eligible annuities and mutual funds during the period. The increase in sales-based commission revenue for the three and six months ended June 30, 2023 compared to 2022 was primarily driven by an increase in sales of annuities as a result of the higher interest rate environment, partially offset by a decrease in sales of mutual funds and equities.
The following table summarizes activity impacting brokerage assets for the periods presented (in billions):
Three Months Ended June 30,Six Months Ended June 30,
2023202220232022
Balance - Beginning of period$554.3 $538.8 $527.7 $563.2 
Net new brokerage assets(1)
3.6 25.8 13.5 26.0 
Market impact(2)
20.7 (58.6)37.4 (83.2)
Balance - End of period$578.6 $506.0 $578.6 $506.0 
_______________________________
(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 accounts. 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, 2023 increased by $226.1 million and $551.5 million compared to 2022, due primarily to an increase in client cash revenue. Client cash revenue for the three and six months ended June 30, 2023 increased compared to 2022 due to increases to the federal funds effective rate, partially offset by lower average client cash balances during the three and six months ended June 30, 2023 as compared to 2022. For the three months ended June 30, 2023, our average client cash balances decreased to
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$49.0 billion compared to $63.2 billion in 2022. For the six months ended June 30, 2023, our average client cash balances decreased to $52.3 billion compared to $60.4 billion in 2022.
Service and Fee
Service and fee revenue is generated from advisor and retail investor services, including technology, insurance, conferences, licensing, business services and planning and advice services, Individual Retirement Account (“IRA”) custodian and other client account fees. We charge separate fees to RIAs on our Independent RIA advisory platform 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, 2023 increased compared to 2022, primarily due to increases in IRA custodian fees, business services and planning and advice services fees, and fees relating to confirmations and error and omission insurance.
Transaction
Transaction revenue includes transaction charges generated in both advisory and brokerage accounts from mutual funds, exchange-traded funds and fixed income products. Transaction revenue for the three and six months ended June 30, 2023 increased compared to 2022, primarily due to increases in the number of transactions and transaction charges for fixed income products, partially offset by a decrease in charges for managed assets.
Interest Income, net
We earn interest income primarily from client margin loans, client cash account (“CCA”) balances segregated under federal or other regulations and advisor repayable loans. Interest income, net for the three and six months ended June 30, 2023 increased compared to 2022, primarily due to increases in interest earned on bank deposits, short-term U.S. treasury bills and margin loans, partially offset by an increase in interest paid on CCA balances.
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, 2023 increased compared to 2022, primarily due to unrealized gains 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, and a related 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 enterprises based on advisory and commission revenue earned on each client’s account, production-based bonuses earned by advisors and enterprises based on the levels of advisory and commission revenue they produce, compensation and benefits paid to employee advisors, the recognition of share-based compensation expense from equity awards granted to advisors and enterprises 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, for the periods presented:
Three Months Ended June 30,Six Months Ended June 30,
20232022Change20232022Change
Payout rate86.70%86.97%(27 bps)86.45%86.53%(8 bps)
Our payout rate for the three and six months ended June 30, 2023 decreased slightly compared to 2022, primarily due to the effect of the FRGIS acquisition and lower production bonus.
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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 periods presented:
Three Months Ended June 30,Six Months Ended June 30,
20232022Change20232022Change
Average number of employees7,4576,10722%7,2916,08320%
Compensation and benefits expense for the three and six months ended June 30, 2023 increased by $35.0 million and $76.5 million compared to 2022, primarily due to an increase in average 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, 2023 increased by $24.5 million and $35.8 million compared to 2022, primarily due to increases in recruited assets and advisors that led to higher costs to support transition assistance and retention.
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, 2023 increased by $9.1 million and $18.2 million compared to 2022, primarily due to increased expense 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, 2023 increased by $9.9 million and $20.5 million compared to 2022, primarily due to our continued investment in technology to support integrations, enhance our advisor platform and experience, and support onboarding of enterprises.
Interest Expense on Borrowings
Interest expense on borrowings includes the interest associated with the Company’s senior notes and senior secured Term Loan B (“Term Loan B”), amortization of debt issuance costs and fees associated with the Company’s revolving lines of credit. Interest expense on borrowings for the three and six months ended June 30, 2023 increased by $16.1 million and $28.1 million compared to 2022, primarily due to increased interest rates on our Term Loan B and revolving credit facilities and higher outstanding balances on LPL Holdings, Inc.’s revolving credit facility. See Note 9 - Corporate Debt and Other Borrowings, Net, within the notes to the condensed consolidated financial statements for further detail.
Provision for Income Taxes
Our effective income tax rate was 26.6% and 24.4% for the three months ended June 30, 2023 and 2022, respectively, and 25.1% and 23.7% for the six months ended June 30, 2023 and 2022, 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, reserves for uncertain tax positions and non-deductible expenses. These additional tax expenses are partially offset by the benefit of tax credits as well as share-based compensation vesting and exercises. The increase in our effective tax rate for the three- and six-month periods ended June 30, 2023 was primarily driven by less tax benefits related to share-based-compensation during 2023.
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 primary 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.
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Liquidity
Our liquidity needs are primarily driven by capital requirements at LPL Financial, interest due on our corporate debt and other capital returns to stockholders. 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 cash balances and external liquidity sources, we have adequate liquidity to satisfy our short-term and long-term working capital needs, the payment of all of our obligations and the funding of anticipated capital expenditures.
Parent Company Liquidity
LPL Holdings, Inc. (the “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 Credit Agreement, which include LPL Financial, FRGIS and The Private Trust Company, N.A. (“PTC”), in excess of the capital requirements of the Credit Agreement (which, in the case of LPL Financial and FRGIS, is net capital in excess of 10% of their 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.
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, 2023December 31, 2022
Cash and equivalents$761,187 $847,519 
Cash at regulated subsidiaries(648,981)(392,571)
Excess cash at regulated subsidiaries per the Credit Agreement213,254 4,439 
Corporate Cash$325,460 $459,387 
Corporate Cash
Cash at the Parent$104,967 $448,180 
Excess cash at regulated subsidiaries per the Credit Agreement213,254 4,439 
Cash at non-regulated subsidiaries7,239 6,768 
Corporate Cash$325,460 $459,387 
Corporate Cash is monitored as part of our liquidity risk management. We target maintaining approximately $200.0 million in Corporate Cash, which covers approximately 18 months of principal and interest due on our corporate debt. As of June 30, 2023, the Parent 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 LPL Financial are the primary sources of liquidity for the Parent. 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, 2023 and 2022, LPL Financial paid dividends of $395.0 million and $328.0 million to the Parent, respectively.
Cash requirements and liquidity needs are primarily funded through our cash flow from operations and our capacity for additional borrowing. We actively monitor changes to our liquidity needs caused by general business volumes and price volatility, including higher margin requirements of clearing corporations and exchanges, and stress scenarios involving a sustained market downturn and the persistence of current interest rates. We believe that based on current levels of operations and anticipated growth, our cash flow from operations, together with other available sources of funds, which include five uncommitted lines of credit, the revolving credit facility established through our Credit Agreement and the committed revolving credit facility of LPL Financial, will provide us with adequate liquidity to satisfy our short-term and long-term working capital needs, the payment of all of our obligations and the funding of anticipated capital expenditures.
We regularly evaluate our existing indebtedness, including potential refinancing opportunities, based on a number of factors, including our capital requirements, future prospects, contractual restrictions, the availability of refinancing on attractive terms and general market conditions. As of June 30, 2023, the earliest principal maturity date for our
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corporate debt with outstanding balances is in 2026 and our revolving credit facilities and uncommitted lines of credit mature between 2023 and 2026, which makes us less dependent on capital markets in the near-term.
Share Repurchases
We engage in a share repurchase program that was approved by our Board of Directors (the “Board”), 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 stockholders. We repurchased 2,982,985 shares for a total of $625 million during the six months ended June 30, 2023. As of June 30, 2023 we had $1.4 billion remaining under our existing repurchase program. 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, as well as certain limits under our Credit Agreement and the Indentures. The Board approved an increase to the quarterly cash dividend to $0.30 per share beginning in the first quarter of 2023. See Note 11 - Stockholders’ Equity, within the notes to the condensed consolidated financial statements for additional information regarding our dividends.
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 $1.2 billion at June 30, 2023. 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, 2023 (in millions):
DescriptionBorrowerMaturity DateOutstandingAvailable
Senior secured, revolving credit facility(1)
LPL Holdings, Inc.March 2026$287 $713 
Broker-dealer revolving credit facility(2)
LPL Financial LLCAugust 2023$— $1,000 
Unsecured, uncommitted lines of creditLPL Financial LLCSeptember 2023$— $75 
Unsecured, uncommitted lines of creditLPL Financial LLCSeptember 2023$— $50 
Unsecured, uncommitted lines of creditLPL Financial LLCNone$— $75 
Secured, uncommitted lines of creditLPL Financial LLCNone$— unspecified
Secured, uncommitted lines of creditLPL Financial LLCNone$— unspecified
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(1)On July 18, 2023, LPL Holdings, Inc. amended its revolving credit facility to increase the maximum borrowing from $1.0 billion to $2.0 billion. See Note 9 - Corporate Debt and Other Borrowings, Net, within the notes to the condensed consolidated financial statements for additional details.
(2)On July 18, 2023, LPL Financial LLC renewed its revolving credit facility and extended the maturity date to July 16, 2024. See Note 9 - Corporate Debt and Other Borrowings, Net, within the notes to the condensed consolidated financial statements for additional details.
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 stockholders.
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, 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.
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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 capital requirements necessary to effect client transactions in securities markets and cash sweep balances held at third-party banks that arise from the delayed receipt of client funds. These capital requirements 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.
Our broker-dealer subsidiaries are subject to the SEC’s Uniform Net Capital Rule (Rule 15c3-1 under the Exchange Act), which requires the maintenance of minimum net capital. LPL Financial, our primary broker-dealer subsidiary, 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.
The following table presents the net capital position of the Company’s primary broker-dealer subsidiary (in thousands):
June 30, 2023
LPL Financial LLC
Net capital$279,982 
Less: required net capital16,154 
Excess net capital$263,828 
Payment by our broker-dealer subsidiaries of dividends greater than 10% of their respective excess net capital during any 35-day rolling period requires approval from FINRA. In addition, each broker-dealer subsidiary’s ability to pay dividends would be restricted if its net capital would be less than 5% of aggregate customer debit balances.
LPL Financial also acts as an introducing broker-dealer for commodities and futures. Accordingly, its trading activities are subject to the National Futures Association’s (“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 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
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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, 2023, we were in compliance with our Credit Agreement financial covenants, which include 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, 2023
Financial RatioCovenant RequirementActual Ratio
Leverage Ratio (Maximum)(1)
5.001.25
Interest Coverage (Minimum)3.0015.19
_______________________________
(1)On July 18, 2023, LPL Holdings, Inc. amended its revolving credit facility to, among other things, decrease the maximum Leverage Ratio to 4.00. See Note 9 - Corporate Debt and Other Borrowings, Net, within the notes to the condensed consolidated financial statements for additional details.
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, 2023, there were no material changes in our contractual obligations, other than in the ordinary course of business, from those disclosed in our 2022 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 2022 Annual Report on Form 10-K, for further detail.
Risk Management
In order to assist in the mitigation and control of operational risk, we have an enterprise risk management (“ERM”) framework that is designed to enable assessment and reporting on operational risk across the firm. This framework aims to ensure policies and procedures are in place and appropriately designed to identify and manage operational risk at appropriate levels throughout our organization and within various departments. These control mechanisms attempt to ensure that operational policies and procedures are being followed and that our employees and advisors operate within established corporate policies and limits. Please consult the “Risks Related to Our Technology” and the “Risks Related to Our Business and Industry” sections within Part I, “Item 1A. Risk Factors” in our 2022 Annual Report on Form 10-K for more information about the risks associated with our technology, including risks related to security, our risk management policies and procedures, and the potential related effects on our operations.
We employ an ERM framework that is intended to address key risks and responsibilities, enable us to execute our business strategy and protect our Company and its franchise. For a discussion of our ERM framework, please see the “Risk Management” section within Part II, “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2022 Annual Report on Form 10-K.
Operational Risk
Operational risk is defined as the risk of loss resulting from failed or inadequate processes or systems, actions by people or external events. We operate in diverse markets and are reliant on the ability of our employees and information technology systems, as well as third-party service providers and their systems, to manage a large volume of transactions and confidential information, including personally identifiable information, effectively and securely. Managing these risks is critical, particularly in a rapidly changing operating environment with increasing transaction volumes and in light of increasing reliance on systems capabilities and performance, as well as third-party service providers. In the event of the breakdown, obsolescence or improper operation of systems, malicious cyber activity or improper action by employees, advisors or third-party service providers, we could suffer business disruptions, financial loss, data loss, regulatory sanctions and damage to our reputation. Although we have developed business continuity and disaster recovery plans, those plans could be inadequate, disrupted or otherwise unsuccessful in maintaining the competitiveness, stability, security or continuity of critical systems as a result of,
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among other things, obsolescence, improper operation, third-party dependencies or limitations of our current technology.
Regulatory and Legal Risk
The regulatory environment in which we operate is discussed in detail within Part I, “Item 1. Business” in our 2022 Annual Report on Form 10-K. In recent years, and during the periods presented in this Quarterly Report on Form 10-Q, we have observed the SEC, FINRA, the U.S. Department of Labor and state regulators broaden the scope, frequency and depth of their examinations and inquiries to include greater emphasis on the quality, consistency and oversight of our compliance systems and programs. Please consult the “Risks Related to Our Regulatory Environment” and the “Risks Related to Our Business and Industry” sections within Part I, “Item 1A. Risk Factors” in our 2022 Annual Report on Form 10-K for more information about the risks associated with operating within our regulatory environment, pending regulatory matters and the potential related effects on our operations.
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 2022 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 2022 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,
2023202220232022
REVENUE
 Advisory$1,014,565 $1,001,851 $1,968,622 $2,048,948 
Commission:
Trailing323,925 320,883 641,578 666,077 
Sales-based298,961 252,493 585,033 492,824 
Total commission622,886 573,376 1,226,611 1,158,901 
Asset-based:
Client cash378,415 154,700 796,690 239,416 
Other asset-based211,300 208,897 414,773 420,582 
Total asset-based589,715 363,597 1,211,463 659,998 
Service and fee123,122 112,802 242,109 225,614 
Transaction46,936 44,416 95,871 91,142 
Interest income, net37,972 10,121 75,330 17,866 
Other33,608 (67,276)66,630 (97,889)
Total revenue2,468,804 2,038,887 4,886,636 4,104,580 
EXPENSE 
Advisory and commission1,448,763 1,304,422 2,819,397 2,678,556 
Compensation and benefits231,680 196,699 465,213 388,733 
Promotional102,565 78,027 200,788 165,029 
Occupancy and equipment65,005 55,906 125,178 107,018 
Depreciation and amortization58,377 48,453 114,431 93,907 
Interest expense on borrowings44,842 28,755 84,026 55,966 
Brokerage, clearing and exchange29,148 23,362 55,274 45,962 
Amortization of other intangibles26,741 21,168 50,833 42,364 
Communications and data processing20,594 16,223 38,269 31,350 
Professional services18,092 17,290 32,312 36,312 
Other34,178 36,261 67,599 73,683 
Total expense2,079,985 1,826,566 4,053,320 3,718,880 
INCOME BEFORE PROVISION FOR INCOME TAXES388,819 212,321 833,316 385,700 
PROVISION FOR INCOME TAXES103,299 51,776 208,912 91,411 
NET INCOME$285,520 $160,545 $624,404 $294,289 
EARNINGS PER SHARE 
Earnings per share, basic$3.70 $2.01 $8.01 $3.68 
Earnings per share, diluted$3.65 $1.97 $7.90 $3.61 
Weighted-average shares outstanding, basic77,234 79,947 77,988 79,961 
Weighted-average shares outstanding, diluted78,194 81,410 79,083 81,493 
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)
ASSETSJune 30, 2023December 31, 2022
Cash and equivalents$761,187 $847,519 
Cash and equivalents segregated under federal or other regulations1,548,065 2,199,362 
Restricted cash103,741 90,389 
Receivables from clients, net579,143 561,569 
Receivables from brokers, dealers and clearing organizations66,924 56,276 
Advisor loans, net1,230,477 1,123,004 
Other receivables, net670,998 677,766 
Investment securities50,080 52,610 
Property and equipment, net850,139 780,357 
Goodwill1,772,162 1,642,468 
Other intangibles, net606,180 427,676 
Other assets1,153,100 1,023,230 
Total assets$9,392,196 $9,482,226 
LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES:
Client payables$2,088,669 $2,694,929 
Payables to brokers, dealers and clearing organizations155,985 147,752 
Accrued advisory and commission expenses payable208,314 203,292 
Corporate debt and other borrowings, net3,001,136 2,717,444 
Accounts payable and accrued liabilities421,043 448,630 
Other liabilities1,394,983 1,102,627 
Total liabilities7,270,130 7,314,674 
Commitments and contingencies (Note 10)
STOCKHOLDERS’ EQUITY:
Common stock, $0.001 par value; 600,000,000 shares authorized; 130,141,562 shares and 129,655,843 shares issued at June 30, 2023 and December 31, 2022, respectively
130 130 
Additional paid-in capital1,952,828 1,912,886 
Treasury stock, at cost — 53,515,229 shares and 50,407,844 shares at June 30, 2023 and December 31, 2022, respectively
(3,514,364)(2,846,536)
Retained earnings3,683,472 3,101,072 
Total stockholders’ equity2,122,066 2,167,552 
Total liabilities and stockholders’ equity$9,392,196 $9,482,226 

See notes to unaudited condensed consolidated financial statements.
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LPL FINANCIAL HOLDINGS INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Stockholders’ Equity
(In thousands)
(Unaudited)
Additional
Paid-In
Capital		Retained
Earnings		Total
Stockholders’
Equity
 Common StockTreasury Stock
 SharesAmountSharesAmount
BALANCE — March 31, 2022129,221 $129 $1,861,019 49,160 $(2,569,035)$2,442,893 $1,735,006 
Net income— — — — — 160,545 160,545 
Issuance of common stock to settle restricted stock units32 — — 13 (2,397)— (2,397)
Treasury stock purchases— — — 272 (50,005)— (50,005)
Cash dividends on common stock - $0.25 per share
— — — — — (19,982)(19,982)
Stock option exercises and other113 — 3,975 (17)639 1,961 6,575 
Share-based compensation— — 14,318 — — — 14,318 
BALANCE — June 30, 2022129,366 $129 $1,879,312 49,428 $(2,620,798)$2,585,417 $1,844,060 
Additional
Paid-In
Capital		Retained
Earnings		Total
Stockholders’
Equity
Common StockTreasury Stock
SharesAmountSharesAmount
BALANCE — March 31, 2023130,086 $130 $1,933,988 51,749 $(3,159,714)$3,418,529 $2,192,933 
Net income— — — — — 285,520 285,520 
Issuance of common stock to settle restricted stock units28 — — 10 (1,994)— (1,994)
Treasury stock purchases— — — 1,777 (353,405)— (353,405)
Cash dividends on common stock - $0.30 per share
— — — — — (23,139)(23,139)
Stock option exercises and other28 — 1,422 (21)749 2,562 4,733 
Share-based compensation— — 17,418 — — — 17,418 
BALANCE — June 30, 2023130,142 $130 $1,952,828 53,515 $(3,514,364)$3,683,472 $2,122,066 
Additional
Paid-In
Capital
Retained
Earnings
Total
Stockholders’
Equity
 Common StockTreasury Stock
 SharesAmountSharesAmount
BALANCE — December 31, 2021128,758 $129 $1,841,402 48,768 $(2,498,600)$2,327,602 $1,670,533 
Net income— — — — — 294,289 294,289 
Issuance of common stock to settle restricted stock units311 — —