Key Financial Results

  • Net Income was $103 million, translating to diluted earnings per share (“EPS”) of $1.26.
  • EPS prior to amortization of intangible assets and acquisition costs* increased 23% year-over-year to $1.77.
    • Gross profit* increased 25% year-over-year to $631 million.
    • Core G&A* increased 19% year-over-year to $271 million.
    • EBITDA* increased 10% year-over-year to $225 million and EBITDA* as a percentage of Gross profit* was 36%.

Key Business Results

  • Total advisory and brokerage assets increased 40% year-over-year to $1.13 trillion.
    • Advisory assets increased 46% year-over-year to $594 billion.
    • Advisory assets as a percentage of total assets increased to 52.4%, up from 50.1% a year ago.
  • Total organic net new assets were $27 billion, translating to 10% annualized growth, and $110 billion over the past twelve months, translating to 14% annualized growth.
    • Organic net new advisory assets were $21 billion, translating to 16% annualized growth.
    • Organic net new brokerage assets were $6 billion, translating to 4% annualized growth.
    • Acquired net new assets were $2.3 billion, of which $0.6 billion were advisory and $1.7 billion were brokerage, bringing us to a total of $71 billion of acquired net new assets from our acquisition of Waddell & Reed.
  • Recruited assets(1) were $13 billion, up by 24% from a year ago.
    • Recruited assets over the trailing twelve-months were $83 billion, more than double a year ago.
  • Business Solutions subscriptions increased to 2,598, up 513 sequentially and more than double a year ago.
    • Annualized revenue from Business Solutions increased to approximately $25 million, up by over 60% year-over-year.
  • Advisor count(2) was 19,627, up 513 sequentially and 2,459 year-over-year**.
  • Total client cash balances were $51 billion, an increase of $2 billion sequentially.
    • Client cash balances as a percentage of total assets were 4.5%.

*See the Non-GAAP Financial Measures section and the end notes to this release for further details about these non-GAAP financial measures.
**This included the addition of approximately 280 associate advisors with Waddell & Reed that became financial professionals with LPL Financial upon onboarding to LPL’s platform.

Key Updates

  • Waddell & Reed: Completed onboarding of $71 billion of Waddell & Reed client assets in Q3, translating to retention of approximately 99%.
  • M&T Bank: Onboarded $4.5 billion of brokerage assets from M&T Bank in Q3, which substantially completes the onboarding of M&T’s approximately $22 billion total assets.

Key Capital and Liquidity Results

  • Corporate cash(3) was $266 million.
  • Leverage ratio(4) was 2.18x.
  • Share repurchases were $40 million for 277 thousand shares at an average price of $145 per share.
  • Dividends paid of $20 million.

SAN DIEGO, Oct. 28, 2021 (GLOBE NEWSWIRE) — LPL Financial Holdings Inc. (Nasdaq: LPLA) (the “Company”) today announced results for its third quarter ended September 30, 2021, reporting net income of $103 million, or $1.26 per share. This compares with $104 million, or $1.29 per share, in the third quarter of 2020 and $119 million, or $1.46 per share, in the prior quarter.

“Over the past quarter, we remained focused on our mission of taking care of our advisors, so they can take of their clients,” said Dan Arnold, President and CEO. “At the same time, we continued to enhance the appeal of our model and increase our market share within the advisor-centered marketplace. This combination contributed to another quarter of solid recruiting, retention, and business growth.”

“We delivered another quarter of strong results in Q3”, said Matt Audette, CFO. “We drove assets to new highs and recorded another quarter of double-digit organic growth. With the onboarding of Waddell & Reed, BMO, and M&T complete, we are continuing to help advisors acclimate and leverage our platform and capabilities, while also preparing to onboard CUNA next year. As we look ahead, we are excited by a strong and growing pipeline, which positions us to drive additional growth and long-term shareholder value.”

Dividend Declaration

The Company’s Board of Directors declared a $0.25 per share dividend to be paid on November 29, 2021 to all stockholders of record as of November 11, 2021.

Conference Call and Additional Information

The Company will hold a conference call to discuss its results at 5:00 p.m. ET on Thursday, October 28. To listen, call 877-677-9122 (domestic) or 708-290-1401 (international); passcode 2968493, or visit investor.lpl.com (webcast). Replays will be available by phone and on investor.lpl.com beginning two hours after the call and until November 4, and November 18, respectively. For telephonic replay, call 855-859-2056 (domestic) or 404-537-3406 (international); passcode 2968493.

About LPL Financial

LPL Financial Holdings Inc. (Nasdaq: LPLA) was founded on the principle that the firm should work for the advisor, and not the other way around. Today, LPL is a leader* in the markets we serve, supporting more than 19,000 financial advisors, and approximately 800 institution-based investment programs and 450 independent RIA firms nationwide. We are steadfast in our commitment to the advisor-centered model and the belief that Americans deserve access to objective guidance from a financial advisor. At LPL, independence means that advisors have the freedom they deserve to choose the business model, services, and technology resources that allow them to run their perfect practice. And they have the freedom to manage their client relationships, because they know their clients best. Simply put, we take care of our advisors, so they can take care of their clients.

* Top RIA custodian (Cerulli Associates, 2019 U.S. RIA Marketplace Report)
No. 1 Independent Broker-Dealer in the U.S (Based on total revenues, Financial Planning magazine 1996-2021)
No. 1 provider of third-party brokerage services to banks and credit unions (2020-2021 Kehrer Bielan Research & Consulting Annual TPM Report)
Fortune 500 as of June 2021

Securities and Advisory services offered through LPL Financial LLC (“LPL Financial”), a registered investment advisor. Member FINRA/SIPC. We routinely disclose information that may be important to shareholders in the “Investor Relations” or “Press Releases” section of our website.

Forward-Looking Statements

Statements in this press release regarding:

  • the Company’s future financial and operating results, growth, priorities and business strategies, including forecasts and statements relating to future expenses (including 2021 Core G&A* outlook);
  • future capabilities, future advisor service experience, future investments and capital deployment, long-term shareholder value and the continued integration of Waddell & Reed’s wealth management business (the “Waddell & Reed Acquisition”); 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 October 28, 2021. Forward-looking statements are not guarantees that the future results, plans, intentions or expectations expressed or implied will be achieved. Matters subject to forward-looking statements involve known and unknown risks and uncertainties, including economic, legislative, regulatory, competitive and other factors, which may cause actual financial or operating results, levels of activity or the timing of events to be materially different 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 strategy and success in managing client cash program fees;
  • changes in the growth and profitability of the Company’s fee-based offerings;
  • fluctuations in the levels of advisory and brokerage assets, including net new assets, and the related impact on revenues;
  • effects of competition in the financial services industry and the success of the Company in attracting and retaining financial advisors and institutions;
  • whether the retail investors served by newly-recruited advisors choose to move their respective assets to new accounts at the Company; the effect of current, pending and future legislation, regulation and regulatory actions, including disciplinary actions imposed by federal and state regulators and self-regulatory organizations and the implementation of Regulation BI (Best Interest);
  • the costs of settling and remediating issues related to regulatory matters or legal proceedings, including actual costs of reimbursing customers for losses in excess of our reserves;
  • changes made to the Company’s services and pricing, and the effect that such changes may have on the Company’s gross profit streams and costs;
  • the execution of the Company’s plans and its success in realizing the synergies, expense savings, service improvements and efficiencies expected to result from its initiatives, acquisitions and programs;
  • the effects of the COVID-19 pandemic, including efforts to contain it;
  • the successful onboarding of advisors and client assets in connection with the Waddell & Reed Acquisition; and
  • the other factors set forth in Part I, “Item 1A. Risk Factors” in the Company’s 2020 Annual Report on Form 10-K, as may be amended or updated in the Company’s Quarterly Reports on Form 10-Q or other filings with the Securities and Exchange Commission. 

Except as required by law, the Company specifically disclaims any obligation to update any forward-looking statements as a result of developments occurring after the date of this earnings release, even if its estimates change, and you should not rely on statements contained herein as representing the Company’s views as of any date subsequent to the date of this press release.

Investor Relations – Chris Koegel, (617) 897-4574
Media Relations – Lauren Hoyt-Williams, (813) 351-9203
investor.lpl.com/contactus.cfm

 
LPL Financial Holdings Inc.
Condensed Consolidated Statements of Income
(In thousands, except per share data)
(Unaudited)
               
  Three Months Ended       Three Months Ended    
  September 30,   June 30,       September 30,    
  2021   2021   % Change   2020   % Change
REVENUE                  
Advisory $ 959,733     $ 846,313     13 %   $ 586,941     64 %
Commission 610,384     598,233     2 %   472,643     29 %
Asset-based 301,701     279,620     8 %   253,551     19 %
Transaction and fee 140,362     137,100     2 %   119,747     17 %
Interest income 7,365     6,914     7 %   6,623     11 %
Other 1,218     30,078     (96 %)   20,796     (94 %)
Total revenue 2,020,763     1,898,258     6 %   1,460,301     38 %
EXPENSE                  
Advisory and commission 1,366,832     1,273,202     7 %   936,766     46 %
Compensation and benefits 185,980     183,853     1 %   151,271     23 %
Promotional 96,012     64,349     49 %   57,970     66 %
Depreciation and amortization 38,409     36,704     5 %   27,548     39 %
Amortization of intangible assets 21,531     19,925     8 %   16,829     28 %
Occupancy and equipment 52,695     41,452     27 %   41,874     26 %
Professional services 16,722     22,500     (26 %)   12,301     36 %
Brokerage, clearing and exchange 22,828     23,459     (3 %)   17,834     28 %
Communications and data processing 17,824     14,930     19 %   12,547     42 %
Other 36,888     31,064     19 %   24,852     48 %
Total operating expense 1,855,721     1,711,438     8 %   1,299,792     43 %
Non-operating interest expense and other 27,063     25,171     8 %   25,179     7 %
INCOME BEFORE PROVISION FOR INCOME TAXES 137,979     161,649     (15 %)   135,330     2 %
PROVISION FOR INCOME TAXES 34,915     42,548     (18 %)   31,541     11 %
NET INCOME $ 103,064     $ 119,101     (13 %)   $ 103,789     (1 %)
EARNINGS PER SHARE                  
Earnings per share, basic $ 1.29     $ 1.49     (13 %)   $ 1.31     (2 %)
Earnings per share, diluted $ 1.26     $ 1.46     (14 %)   $ 1.29     (2 %)
Weighted-average shares outstanding, basic 80,182   80,063   %   79,176   1 %
Weighted-average shares outstanding, diluted 81,849   81,728   %   80,550   2 %
                       

 

LPL Financial Holdings Inc.
Condensed Consolidated Statements of Income
(In thousands, except per share data)
(Unaudited)
 
  Nine Months Ended    
  September 30,    
  2021   2020   % Change
REVENUE          
Advisory $ 2,528,092     $ 1,689,338     50 %
Commission 1,765,846     1,403,540     26 %
Asset-based 846,027     786,124     8 %
Transaction and fee 418,406     376,321     11 %
Interest income 20,797     22,705     (8 %)
Other 47,470     12,329     285 %
Total revenue 5,626,638     4,290,357     31 %
EXPENSE          
Advisory and commission 3,748,933     2,667,408     41 %
Compensation and benefits 531,373     441,393     20 %
Promotional 214,542     159,908     34 %
Depreciation and amortization 110,612     81,082     36 %
Amortization of intangible assets 58,887     50,088     18 %
Occupancy and equipment 137,731     124,486     11 %
Professional services 54,847     40,526     35 %
Brokerage, clearing and exchange 65,651     53,423     23 %
Communications and data processing 44,747     37,743     19 %
Other 92,852     73,274     27 %
Total operating expense 5,060,175     3,729,331     36 %
Non-operating interest expense and other 77,293     80,786     (4 %)
Loss on extinguishment of debt 24,400         100 %
INCOME BEFORE PROVISION FOR INCOME TAXES 464,770     480,240     (3 %)
PROVISION FOR INCOME TAXES 112,985     119,148     (5 %)
NET INCOME $ 351,785     $ 361,092     (3 %)
EARNINGS PER SHARE          
Earnings per share, basic $ 4.40     $ 4.56     (4 %)
Earnings per share, diluted $ 4.30     $ 4.48     (4 %)
Weighted-average shares outstanding, basic 79,981   79,207   1 %
Weighted-average shares outstanding, diluted 81,772   80,612   1 %
             

 

LPL Financial Holdings Inc.
Condensed Consolidated Statements of Financial Condition
(In thousands, except share data)
(Unaudited)
 
    September 30,
2021
  June 30,
2021
  December 31,
2020
ASSETS
Cash and cash equivalents   $ 977,789     $ 906,720     $ 808,612  
Cash segregated under federal and other regulations   811,716     741,432     923,158  
Restricted cash   85,381     78,648     67,264  
Receivables from:            
Clients, net of allowance   592,170     531,784     405,106  
Product sponsors, broker-dealers and clearing organizations   257,742     275,189     233,192  
Advisor loans, net of allowance   814,514     776,513     547,372  
Others, net of allowance   453,245     371,240     306,640  
Securities owned:            
Trading — at fair value   32,085     30,169     29,252  
Held-to-maturity — at amortized cost   11,183     10,708     13,235  
Securities borrowed   10,217     13,395     30,130  
Fixed assets, net of accumulated depreciation and amortization   624,529     600,763     582,868  
Operating lease assets   96,716     96,844     101,921  
Goodwill   1,641,238     1,646,631     1,513,866  
Intangible assets, net of accumulated amortization   470,989     486,355     397,486  
Deferred income taxes, net   24,489     24,364     24,112  
Other assets   651,803     629,261     539,357  
Total assets   $ 7,555,806     $ 7,220,016     $ 6,523,571  
LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES:            
Drafts payable   $ 190,451     $ 154,230     $ 178,403  
Payables to clients   1,419,889     1,329,397     1,356,083  
Payables to broker-dealers and clearing organizations   148,193     109,089     89,743  
Accrued advisory and commission expenses payable   224,438     215,107     187,040  
Accounts payable and accrued liabilities   815,632     747,669     681,554  
Income taxes payable   8,082     5,718     28,145  
Unearned revenue   168,331     135,600     95,328  
Securities sold, but not yet purchased — at fair value   170     1,398     206  
Long-term and other borrowings, net   2,725,691     2,727,336     2,345,414  
Operating lease liabilities   132,394     133,321     139,377  
Finance lease liabilities   106,146     106,239     107,424  
Total liabilities   5,939,417     5,665,104     5,208,717  
STOCKHOLDERS’ EQUITY:            
Common stock, $0.001 par value; 600,000,000 shares authorized; 128,602,814 shares
issued at September 30, 2021 and 127,585,764 shares issued at December 31, 2020
  128     128     127  
Additional paid-in capital   1,826,247     1,808,135     1,762,770  
Treasury stock, at cost — 48,475,390 shares at September 30, 2021 and 48,115,037 shares
at December 31, 2020
  (2,447,933 )   (2,407,035 )   (2,391,062 )
Retained earnings   2,237,947     2,153,684     1,943,019  
Total stockholders’ equity   1,616,389     1,554,912     1,314,854  
Total liabilities and stockholders’ equity   $ 7,555,806     $ 7,220,016     $ 6,523,571  
                         

LPL Financial Holdings Inc.
Management’s Statements of Operations
(In thousands, except per share data)
(Unaudited)

Certain information in this release is presented as reviewed by the Company’s management and includes information derived from the Company’s unaudited condensed consolidated statements of income, non-GAAP financial measures, and operational and performance metrics. For information on non-GAAP financial measures, please see the section titled “Non-GAAP Financial Measures” in this release.

  Quarterly Results
  Q3 2021   Q2 2021   % Change   Q3 2020   % Change
Gross Profit(5)                  
Advisory $ 959,733     $ 846,313     13 %   $ 586,941     64 %
Sales-based commissions 239,804     249,596     (4 %)   180,357     33 %
Trailing commissions 370,580     348,637     6 %   292,286     27 %
Advisory fees and commissions 1,570,117     1,444,546     9 %   1,059,584     48 %
Production-based payout(6) (1,368,348 )   (1,247,321 )   10 %   (917,831 )   49 %
Advisory fees and commissions, net of payout 201,769     197,225     2 %   141,753     42 %
Client cash 91,257     90,377     1 %   108,705     (16 %)
Other asset-based(7) 210,444     189,243     11 %   144,846     45 %
Transaction and fee 140,362     137,100     2 %   119,747     17 %
Interest income and other, net(8) 10,099     11,111     (9 %)   8,484     19 %
Total net advisory fees and commissions and attachment revenue 653,931     625,056     %   523,535     25  %
Brokerage, clearing and exchange expense (22,828 )   (23,459 )   (3 %)   (17,834 )   28 %
Gross Profit(5) 631,103     601,597     %   505,701     25  %
                   
G&A Expense                  
Core G&A(9) 270,865     251,679     8 %   227,099     19 %
Regulatory charges 5,976     7,416     (19 %)   8,326     (28 %)
Promotional (ongoing)(10) 83,630     64,135     30 %   57,970     44 %
Acquisition costs(10) 35,887     23,782     51 %       100 %
Employee share-based compensation 9,763     11,136     (12 %)   7,420     32 %
Total G&A 406,121     358,148     13  %   300,815     35  %
EBITDA(11) 224,982     243,449     (8  %)   204,886     10  %
Depreciation and amortization 38,409     36,704     5 %   27,548     39 %
Amortization of intangible assets 21,531     19,925     8 %   16,829     28 %
Non-operating interest expense and other 27,063     25,171     8 %   25,179     7 %
INCOME BEFORE PROVISION FOR INCOME TAXES 137,979     161,649      (15  %)   135,330     %
PROVISION FOR INCOME TAXES 34,915     42,548     (18 %)   31,541     11 %
NET INCOME $ 103,064     $ 119,101      (13  %)   $ 103,789     (1  %)
Earnings per share, diluted $ 1.26     $ 1.46     (14 %)   $ 1.29     (2 %)
Weighted-average shares outstanding, diluted   81,849       81,728     %     80,550     2 %
EPS prior to amortization of intangible assets and acquisition costs(12) $ 1.77     $ 1.85     (4 %)   $ 1.44     23 %
                                   

 

LPL Financial Holdings Inc.
Operating Metrics
(Dollars in billions, except where noted)
(Unaudited)
 
  Q3 2021   Q2 2021   Change   Q3 2020   Change
Market Drivers                  
S&P 500 Index (end of period) 4,308     4,298     %   3,363     28 %
Fed Funds daily effective rate (average bps) 9     7     2bps   9     —bps
                   
Advisory and Brokerage Assets                  
Advisory assets(13) $ 594.0     $ 577.6     3 %   $ 405.9     46 %
Brokerage assets(14) 538.6     534.7     1 %   404.4     33 %
Total Advisory and Brokerage Assets $ 1,132.6     $ 1,112.3     2 %   $ 810.4     40 %
Advisory as a % of Total Advisory and Brokerage Assets 52.4 %   51.9 %   50bps   50.1 %   230bps
                   
Assets by Platform                  
Corporate platform advisory assets(15) $ 395.6     $ 383.6     3 %   $ 253.9     56 %
Hybrid platform advisory assets(16) 198.4     194.0     2 %   152.0     31 %
Brokerage assets 538.6     534.7     1 %   404.4     33 %
Total Advisory and Brokerage Assets $ 1,132.6     $ 1,112.3     2 %   $ 810.4     40 %
                   
Centrally Managed Assets                  
Centrally managed assets(17) $ 88.6     $ 84.7     5 %   $ 59.0     50 %
Centrally Managed as a % of Total Advisory Assets 14.9 %   14.7 %   20bps   14.5 %   40bps
                         

 

LPL Financial Holdings Inc.
Operating Metrics
(Dollars in billions, except where noted)
(Unaudited)
 
  Q3 2021   Q2 2021   Change   Q3 2020   Change
Net New Assets (NNA)                  
Net new advisory assets(18) $ 21.7     $ 54.9     n/m   $ 10.4     n/m
Net new brokerage assets(19) 7.3     51.1     n/m   0.7     n/m
Total Net New Assets $ 29.0     $ 106.0     n/m   $ 11.1     n/m
                   
Organic Net New Assets (NNA)(20)                  
Organic net new advisory assets $ 21.1     $ 21.4     n/m   $ 10.4     n/m
Organic net new brokerage assets 5.6     15.6     n/m   0.7     n/m
Total Organic Net New Assets $ 26.7     $ 37.1     n/m   $ 11.1     n/m
                   
Net brokerage to advisory conversions(21) $ 3.1     $ 3.2     n/m   $ 2.0     n/m
Organic advisory NNA annualized growth(22) 15.6 %   17.3 %   n/m   11.0 %   n/m
Total organic NNA annualized growth(22) 10.2 %   15.5 %   n/m   5.8 %   n/m
                   
Net New Advisory Assets                  
Corporate platform net new advisory assets(23) $ 15.2     $ 49.0     n/m   $ 7.8     n/m
Hybrid platform net new advisory assets(24) 6.5     6.0     n/m   2.6     n/m
Total Net New Advisory Assets $ 21.7     $ 54.9     n/m   $ 10.4     n/m
Centrally managed net new advisory assets(25) $ 3.9     $ 4.0     n/m   $ 1.9     n/m
                   
Client Cash Balances                  
Insured cash account balances $ 30.5     $ 34.1     (11 %)   $ 34.7     (12 %)
Deposit cash account balances 8.6     7.6     13 %   8.0     8 %
Total Bank Sweep Balances 39.0     41.7     (6 %)   42.7     (9 %)
Money market account cash balances 9.9     5.0     98 %   1.5     n/m
Purchased money market funds 1.8     1.7     6 %   2.3     (22 %)
Total Money Market Balances 11.7     6.7     75 %   3.9     200 %
Total Client Cash Balances $ 50.7     $ 48.4     5 %   $ 46.6     9 %
Client Cash Balances as a % of Total Assets 4.5 %   4.4 %   10bps   5.7 %   (120bps)
                   
Client Cash Balance Average Fees(26)                  
Insured cash account average fee – bps 101     98     3     118     (17 )
Deposit cash account average fee – bps 24     24     —bps   38     (14 )
Money market account average fee – bps 3     1     2     9     (6 )
Purchased money market fund average fee – bps 7     9     (2 )   20     (13 )
Total Client Cash Balance Average Fee – bps 74     77     (3 )   95     (21 )
                   
Net buy (sell) activity(27) $ 17.6     $ 18.1     n/m   $ 9.3     n/m
                               

 

LPL Financial Holdings Inc.
Monthly Metrics
(Dollars in billions, except where noted)
(Unaudited)
 
    September
2021
  August
2021
  Aug to
September
Change
  July
2021
  June
2021
Advisory and Brokerage Assets                    
Advisory assets(13)   $ 594.0     $ 604.6     (2 %)   $ 588.4     $ 577.6  
Brokerage assets(14)   538.6     552.3     (2 %)   541.4     534.7  
Total Advisory and Brokerage Assets   $ 1,132.6     $ 1,156.9     (2 %)   $ 1,129.9     $ 1,112.3  
                     
Net New Assets (NNA)                    
Net new advisory assets(18)   $ 9.6     $ 6.4     n/m   $ 5.7     $ 11.2  
Net new brokerage assets(19)   1.8     1.2     n/m   4.3     14.8  
Total Net New Assets   $ 11.4     $ 7.6     n/m   $ 10.0     $ 26.0  
Net brokerage to advisory conversions(21)   $ 1.1     $ 1.2     n/m   $ 0.8     $ 0.9  
                     
Organic Net New Assets (NNA)(20)                    
Net new advisory assets(18)   $ 9.0     $ 6.4     n/m   $ 5.7     $ 11.2  
Net new brokerage assets(19)   0.1     1.2     n/m   4.3     14.8  
Total Organic Net New Assets   $ 9.1     $ 7.6     n/m   $ 10.0     $ 26.0  
                     
Client Cash Balances                    
Insured cash account balances   $ 30.5     $ 33.2     (8 %)   $ 34.4     $ 34.1  
Deposit cash account balances   8.6     8.2     5 %   7.9     7.6  
Total Bank Sweep Balances   39.0     41.4     (6 %)   42.2     41.7  
Money market account cash balances   9.9     6.3     57 %   4.3     5.0  
Purchased money market funds   1.8     1.9     (5 %)   1.9     1.7  
Total Money Market Balances   11.7     8.3     41 %   6.3     6.7  
Total Client Cash Balances   $ 50.7     $ 49.7     2 %   $ 48.5     $ 48.4  
                     
Net buy (sell) activity(27)   $ 5.5     $ 5.6     n/m   $ 6.5     $ 6.0  
                     
Market Indices                    
S&P 500 index (end of period)   4,308     4,523     (5 %)   4,395     4,298  
Fed funds effective rate (average bps)   8     9     (1bps)   10     8  

 

LPL Financial Holdings Inc.
Financial Measures
(Dollars in thousands, except where noted)
(Unaudited)
 
  Q3 2021   Q2 2021   Change   Q3 2020   Change
Commission Revenues by Product                  
Annuities $ 314,134      $ 305,100      3 %   $ 250,823      25 %
Mutual funds 201,120      195,688      3 %   146,788      37 %
Fixed income 30,092      34,862      (14 %)   16,731      80 %
Equities 28,943      30,517      (5 %)   30,283      (4 %)
Other 36,095      32,066      13 %   28,018      29 %
Total commission revenues $ 610,384      $ 598,233      2 %   $ 472,643      29 %
                   
Commission Revenues by Sales-based and Trailing            
Sales-based commissions                  
 Annuities $ 108,983      $ 112,619      (3 %)   $ 81,475      34 %
 Mutual funds 46,934      50,250      (7 %)   33,871      39 %
 Fixed income 30,092      34,862      (14 %)   16,731      80 %
 Equities 28,943      30,517      (5 %)   30,283      (4 %)
 Other 24,852      21,348      16 %   17,997      38 %
Total sales-based commissions $ 239,804      $ 249,596      (4 %)   $ 180,357      33 %
Trailing commissions                  
 Annuities $ 205,151      $ 192,481      7 %   $ 169,348      21 %
 Mutual funds 154,186      145,438      6 %   112,917      37 %
 Other 11,243      10,718      5 %   10,021      12 %
Total trailing commissions $ 370,580      $ 348,637      6 %   $ 292,286      27 %
Total commission revenues $ 610,384      $ 598,233      2 %   $ 472,643      29 %
                   
Payout Rate(6) 87.15 %   86.35 %   80bps   86.62 %   53bps
                         

 

LPL Financial Holdings Inc.
Capital Management Measures
(Dollars in thousands, except where noted)
(Unaudited)
 
  Q3 2021   Q2 2021   Q4 2020
Corporate Cash(3)          
Cash at Parent $ 181,061     $ 170,258     $ 201,385  
Excess cash at LPL Financial LLC per Credit Agreement 62,637     74,152     67,574  
Other available cash 21,953     33,983     10,960  
Total Corporate Cash $ 265,651     $ 278,393     $ 279,919  
           
Leverage Ratio          
Total debt $ 2,751,275     $ 2,753,950     $ 2,359,300  
Total corporate cash 265,651     278,393     279,919  
Credit Agreement Net Debt $ 2,485,624     $ 2,475,557     $ 2,079,381  
Credit Agreement EBITDA (trailing twelve months)(28) $ 1,141,569     $ 1,094,465     $ 961,225  
Leverage Ratio 2.18 x   2.26 x   2.16 x
                 

 

    September 30, 2021    
Total Debt   Balance   Current Applicable
Margin
  Yield At
Issuance
  Interest Rate   Maturity
Revolving Credit Facility(a)   $     ABR+25bps       %   3/15/2026
Broker-Dealer Revolving Credit Facility(b)       FFR+125bps       %   7/31/2024
Senior Secured Term Loan B   1,051,275     LIBOR+175 bps(c)       1.834 %   11/12/2026
Senior Unsecured Notes(d)   400,000     4.625% Fixed   4.625 %   4.625 %   11/15/2027
Senior Unsecured Notes(e)   900,000     4.000% Fixed   4.000 %   4.000 %   3/15/2029
Senior Unsecured Notes(f)   400,000     4.375% Fixed   4.375 %   4.375 %   5/15/2031
Total / Weighted Average   $ 2,751,275             3.318 %    

(a)  Secured borrowing capacity of $1 billion at LPL Holdings, Inc. (the “Parent”).
(b)  Unsecured borrowing capacity of $300 million at LPL Financial LLC.
(c)  The LIBOR rate option is one-month LIBOR rate and subject to an interest rate floor of 0 basis points.
(d)  The Senior Unsecured Notes were issued in November 2019 at par.
(e)  The Senior Unsecured Notes were issued in March 2021 at par.
(f)   The Senior Unsecured Notes were issued in May 2021 at par.

 

 
LPL Financial Holdings Inc.
Key Business and Financial Metrics
(Dollars in thousands, except where noted)
(Unaudited)
 
  Q3 2021   Q2 2021   Change   Q3 2020   Change
Advisors                  
Advisors 19,627   19,114   3 %   17,168   14 %
Net new advisors 513   1,442   n/m   195     n/m
Annualized advisory fees and commissions per advisor(29) $ 324     $ 314     3 %   $ 248     31 %
Average total assets per advisor ($ in millions)(30) $ 57.7     $ 58.2     (1 %)   $ 47.2     22 %
Transition assistance loan amortization ($ in millions)(31) $ 38.4     $ 34.7     11 %   $ 30.4     26 %
Total client accounts (in millions) 7.1     6.7     6 %   5.9     20 %
                   
Employees – period end 5,457     5,344     2 %   4,658   17 %
                   
Productivity Metrics                  
Business Solutions subscriptions(32) 2,598   2,085   25 %   1,219   113 %
Advisory revenues as a % of corporate advisory assets(33) 1.00 %   1.00 %   —bps   1.02 %   (2bps)
Gross profit ROA(34) 23.5 bps   24.3 bps   (0.8bps)   27.9 bps   (4.4bps)
OPEX as a % of advisory and brokerage assets(35) 15.5 bps   16.0 bps   (0.5bps)   17.8 bps   (2.3bps)
EBIT ROA(36) 8.0 bps   8.3 bps   (0.3bps)   10.1 bps   (2.1bps)
AUM retention rate (quarterly annualized)(37) 97.8 %   98.4 %   (60bps)   97.3 %   50bps
Recurring gross profit rate(38) 84.4 %   83.2 %   120bps   86.1 %   (170bps)
EBITDA as a % of gross profit 35.6 %   40.5 %   (490bps)   40.5 %   (490bps)
                   
Capital expenditure ($ in millions)(39) $ 54.9     $ 43.9     25 %   $ 40.1     37 %
                   
Share repurchases ($ in millions) $ 40.0     $     100 %   $     100 %
Dividends ($ in millions) 20.1     20.0     1 %   19.8     2 %
Total Capital Allocated ($ in millions) $ 60.1     $ 20.0     201 %   $ 19.8     204 %
Weighted-average share count, diluted 81.8     81.7     %   80.6     2 %
Total Capital Allocated per Share(40) $ 0.73     $ 0.25     192 %   $ 0.25     192 %

Non-GAAP Financial Measures

Management believes that presenting certain non-GAAP financial measures by excluding or including certain items can be helpful to investors and analysts who may wish to use this information to analyze the Company’s current performance, prospects and valuation. Management uses this non-GAAP information internally to evaluate operating performance and in formulating the budget for future periods. Management believes that the non-GAAP financial measures and metrics discussed below are appropriate for evaluating the performance of the Company.

EPS prior to amortization of intangible assets and acquisition costs and Adjusted net income

EPS prior to amortization of intangible assets and acquisition costs is defined as adjusted net income, a non-GAAP measure defined as net income plus the after-tax impact of amortization of intangible assets 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 an alternative to net income, earnings per diluted share or any other performance measure derived in accordance with GAAP. For 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, please see the endnote disclosures in this release.

Gross profit

Gross profit is calculated as total revenues, less advisory and commission expenses and brokerage, clearing and exchange fees. All other expense categories, including depreciation and amortization of fixed assets and amortization of intangible assets, are considered general and administrative in nature. Because the Company’s gross profit amounts do not include any depreciation and amortization expense, the Company considers gross profit to be a non-GAAP financial measure that may not be comparable to similar measures used by others in its industry. Management believes that gross profit can provide investors with useful insight into the Company’s core operating performance before indirect costs that are general and administrative in nature. For a calculation of gross profit, please see the endnote disclosures in this release.

Core G&A

Core G&A consists of total operating expenses less the following expenses: advisory and commission, regulatory charges, promotional, employee share-based compensation, depreciation and amortization, amortization of intangible assets, brokerage, clearing and exchange and acquisition costs. Management presents core G&A because it believes core G&A reflects the corporate operating expense categories over which management can generally exercise a measure of control, compared with expense items over which management either cannot exercise control, such as advisory and commission expenses, or which management views as promotional expense necessary to support advisor growth and retention, including conferences and transition assistance. Core G&A is not a measure of the Company’s total operating expenses as calculated in accordance with GAAP. For a reconciliation of core G&A to the Company’s total operating expenses, please see the endnote disclosures of this release. The Company does not provide an outlook for its total operating expenses because it contains expense components, such as advisory and commission expenses, that are market-driven and over which the Company cannot exercise control. Accordingly a reconciliation of the Company’s outlook for core G&A to an outlook for total operating expenses cannot be made available without unreasonable effort.

EBITDA

EBITDA is defined as net income plus interest and other expense, income tax expense, depreciation and amortization, and amortization of intangible assets. The Company presents EBITDA because management believes that it can be a useful financial metric in understanding the Company’s earnings from operations. EBITDA is not a measure of the Company’s financial performance under GAAP and should not be considered as an alternative to net income or any other performance measure derived in accordance with GAAP. For a reconciliation of EBITDA to net income, please see the endnote disclosures of this release.

Credit Agreement EBITDA

Credit Agreement EBITDA is defined in, and calculated by management in accordance with, the Company’s credit agreement (“Credit Agreement”) as “Consolidated EBITDA,” which is consolidated net income (as defined in the Credit Agreement) plus interest expense, tax expense, depreciation and amortization, and amortization of intangible assets, 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. The Company presents Credit Agreement EBITDA because management believes that it can be a useful financial metric in understanding the Company’s debt capacity and covenant compliance under its Credit Agreement. Credit Agreement EBITDA is not a measure of the Company’s financial performance under GAAP and should not be considered as an alternative to net income or any other performance measure derived in accordance with GAAP. For a reconciliation of Credit Agreement EBITDA to net income, please see the endnote disclosures of this release.

Endnote Disclosures

(1) Represents the estimated total advisory and brokerage assets expected to transition to the Company’s broker-dealer subsidiary, LPL Financial, associated with advisors who transferred their licenses to LPL Financial during the period. The estimate is based on prior business reported by the advisors, which has not been independently and fully verified by LPL Financial. The actual transition of assets to LPL Financial generally occurs over several quarters, including the initial quarter of the transition, and the actual amount transitioned may vary from the estimate.

(2) The terms “Financial Advisors” and “Advisors” refer to registered representatives and/or investment advisor representatives affiliated with LPL Financial, an SEC registered broker-dealer and investment adviser.

(3) We define corporate cash as the sum of cash and cash equivalents from the following: (1) cash held at the Parent, (2) excess cash at LPL Financial per the Credit Agreement, which is the net capital held at LPL Financial 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) other available cash, which includes cash and cash equivalents held at The Private Trust Company, N.A. in excess of Credit Agreement capital requirements, excess cash at Waddell & Reed, LLC per the Credit Agreement, or the net capital held in excess of 10% of its aggregate indebtedness, and cash and cash equivalents held at non-regulated subsidiaries.

(4) Compliance with the Leverage Ratio is only required under our revolving credit facility.

(5) Gross profit is a non-GAAP financial measure. Please see a description of gross profit under the “Non-GAAP Financial Measures” section of this release for additional information. Below is a calculation of gross profit for the periods presented (in thousands):

  Q3 2021   Q2 2021   Q3 2020
Total revenue $ 2,020,763     $ 1,898,258     $ 1,460,301  
Advisory and commission expense 1,366,832     1,273,202     936,766  
Brokerage, clearing and exchange fees 22,828     23,459     17,834  
Gross profit(+) $ 631,103     $ 601,597     $ 505,701  

____________________

(+)   Balances may not foot due to rounding.

(6) Production-based payout is an operating measure calculated as advisory and commission expenses less advisor deferred compensation expenses. The payout rate is calculated by dividing the production-based payout by total advisory fees and commissions revenue. Below is a reconciliation of production-based payout to the Company’s advisory and commission expenses and a calculation of the payout rate for the periods presented (in thousands except payout rate):         

  Q3 2021   Q2 2021   Q3 2020
Production-based payout $ 1,368,348     $ 1,247,321     $ 917,831  
Advisor deferred compensation expenses (1,516 )   25,881     18,935  
Advisory and commission expense $ 1,366,832     $ 1,273,202     $ 936,766  
Advisory fees and commissions revenue $ 1,570,117     $ 1,444,546     $ 1,059,584  
Payout rate 87.15 %   86.35 %   86.62 %

(7) Consists of revenues from the Company’s sponsorship programs with financial product manufacturers and omnibus processing and networking services, but does not include fees from client cash programs. Other asset-based revenues are a component of asset-based revenues and are derived from the Company’s unaudited condensed consolidated statements of income.

(8) Interest income and other, net is an operating measure calculated as interest income plus other revenues, less advisor deferred compensation expenses. Below is a reconciliation of interest income and other, net against the Company’s interest income and other revenues for the periods presented (in thousands):         

  Q3 2021   Q2 2021   Q3 2020
Interest income $ 7,365      $ 6,914      $ 6,623   
Plus: Other revenue 1,218      30,078      20,796   
Plus (Less): Advisor deferred compensation expenses 1,516      (25,881 )   (18,935 )
Interest income and other, net $ 10,099     $ 11,111     $ 8,484  

(9) Core G&A is a non-GAAP financial measure. Please see a description of core G&A under the “Non-GAAP Financial Measures” section of this release for additional information. Below is a reconciliation of core G&A to the Company’s total operating expenses for the periods presented (in thousands):

  Q3 2021   Q2 2021   Q3 2020
Core G&A Reconciliation          
Total operating expenses $ 1,855,721     $ 1,711,438     $ 1,299,792  
Advisory and commission 1,366,832     1,273,202     936,766  
Depreciation and amortization 38,409     36,704     27,548  
Amortization of intangible assets 21,531     19,925     16,829  
Brokerage, clearing and exchange 22,828     23,459     17,834  
Total G&A 406,121      358,148      300,815   
Promotional (ongoing)(10) 83,630     64,135     57,970  
Acquisition costs(10) 35,887     23,782      
Employee share-based compensation 9,763     11,136     7,420  
Regulatory charges 5,976     7,416     8,326  
Core G&A $ 270,865      $ 251,679      $ 227,099   

(10) Acquisition costs incurred during the third quarter of 2021 include the cost to setup, onboard and integrate acquired entities and are driven primarily by $14.8 million of compensation and benefits expenses, $12.4 million of promotional expenses, $5.8 million of professional services expenses, and other expenses that are included in the respective line items in the Condensed Consolidated Statements of Income. Acquisition costs incurred during the second quarter of 2021 primarily include $13.9 million of compensation and benefits expenses, $6.3 million of professional services expenses, $1.6 million of occupancy and equipment expenses, and $1.2 million of communications expenses.

(11) EBITDA is a non-GAAP financial measure. Please see a description of EBITDA under the “Non-GAAP Financial Measures” section of this release for additional information. Below is a reconciliation of EBITDA to the Company’s net income for the periods presented (in thousands):

  Q3 2021   Q2 2021   Q3 2020
EBITDA Reconciliation          
Net income $ 103,064     $ 119,101     $ 103,789  
Non-operating interest expense and other 27,063     25,171     25,179  
Provision for income taxes 34,915     42,548     31,541  
Depreciation and amortization 38,409     36,704     27,548  
Amortization of intangible assets 21,531     19,925     16,829  
EBITDA $ 224,982      $ 243,449      $ 204,886   

(12) Adjusted net income and EPS prior to amortization of intangible assets and acquisition costs are non-GAAP financial measures. Please see a description of adjusted net income and EPS prior to amortization of intangible assets and acquisition costs under the “Non-GAAP Financial Measures” section of this release for additional information. Below is a reconciliation net income and earnings per diluted share to adjusted net income and EPS prior to amortization of intangible assets and acquisition costs (in thousands, except per share data):

  Q3 2021   Q2 2021   Q3 2020
  Amount Per Share   Amount Per Share   Amount Per Share
Net income / earnings per diluted share $ 103,064   $ 1.26     $ 119,101   $ 1.46     $ 103,789   $ 1.29  
Amortization of intangible assets 21,531   0.26     19,925   0.24     16,829   0.21  
Acquisition costs 35,887   0.44     23,782   0.29        
Tax benefit (15,399 ) (0.19 )   (11,700 ) (0.14 )   (4,712 ) (0.06 )
Adjusted net income / EPS prior to
amortization of intangible assets and
acquisition costs
$ 145,083   $ 1.77     $ 151,108   1.85     $ 115,906   $ 1.44  
Diluted share count 81,849       81,728       80,550    

(13) Consists of total advisory assets under custody at LPL Financial and Waddell & Reed, LLC.

(14) Consists of brokerage assets serviced by advisors licensed with LPL Financial and Waddell & Reed, LLC.

(15) Consists of total assets on LPL Financial’s corporate advisory platform serviced by investment advisor representatives of LPL Financial or Allen & Company of Florida, LLC.

(16) Consists of total assets on LPL Financial’s independent advisory platform serviced by investment advisor representatives of separate registered investment advisor firms (“Hybrid RIAs”), rather than of LPL Financial.

(17) Represents those advisory assets in LPL Financial’s Model Wealth Portfolios, Optimum Market Portfolios, Personal Wealth Portfolios and Guided Wealth Portfolios platforms.

(18) Consists of total client deposits into advisory accounts, including advisory assets serviced by former BMO Harris Financial Advisors, Lucia and E.K. Riley advisors, less total client withdrawals from advisory accounts, plus dividends, plus interest, minus advisory fees. The Company considers conversions from and to brokerage accounts as deposits and withdrawals, respectively.

(19) Consists of total client deposits into brokerage accounts, less total client withdrawals from brokerage accounts, plus dividends, plus interest. The Company considers conversions from and to advisory accounts as deposits and withdrawals, respectively.

(20) Consists of net new assets excluding the Waddell & Reed Acquisition.

(21) Consists of existing custodied assets that converted from brokerage to advisory, less existing custodied assets that converted from advisory to brokerage.

(22) 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.

(23) Consists of total client deposits into advisory accounts on LPL Financial’s corporate advisory platform less total client withdrawals from advisory accounts on its corporate advisory platform, plus dividends, plus interest, minus advisory fees.

(24) Consists of total client deposits into advisory accounts on LPL Financial’s independent advisory platform less total client withdrawals from advisory accounts on its independent advisory platform, plus dividends, plus interest, minus advisory fees.

(25) Consists of total client deposits into centrally managed assets accounts less total client withdrawals from centrally managed assets accounts, plus dividends, plus interest, minus advisory fees.

(26) Calculated by dividing revenue for the period by the average balance during the period.

(27) Represents the amount of securities purchased less the amount of securities sold in client accounts custodied with LPL Financial. Reported activity does not include any other cash activity, such as deposits, withdrawals, dividends received or fees paid.

(28) EBITDA and Credit Agreement EBITDA are non-GAAP financial measures. Please see a description of EBITDA and Credit Agreement EBITDA under the “Non-GAAP Financial Measures” section of this release for additional information. Under the Credit Agreement, management calculates Credit Agreement EBITDA for a trailing twelve month period at the end of each fiscal quarter, and in doing so may make further adjustments to prior quarters. Below are reconciliations of EBITDA and Credit Agreement EBITDA to net income for the periods presented (in thousands):         

  Q3 2021   Q2 2021   Q4 2020
EBITDA and Credit Agreement EBITDA Reconciliations          
Net income $ 463,333     $ 464,058     $ 472,640  
Non-operating interest expense and other 102,272     100,388     105,765  
Provision for income taxes 147,270     143,896     153,433  
Depreciation and amortization 139,262     128,401     109,732  
Amortization of intangible assets 76,157     71,455     67,358  
EBITDA $ 928,294      $ 908,198      $ 908,928   
Credit Agreement Adjustments:          
Employee share-based compensation expense $ 39,797     $ 37,454     $ 31,650  
Advisor share-based compensation expense 2,316     2,252     2,321  
M&A accretion 65,379     77,017      
Loss on extinguishment of debt 24,400     24,400      
Other 81,383     45,144     18,326  
Credit Agreement EBITDA (trailing twelve months) $ 1,141,569      $ 1,094,465      $ 961,225   

(29) Calculated based on the average advisor count from the current period and prior period.

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

(31) Represents amortization expense on forgivable loans for transition assistance to advisors and financial institutions.

(32) Refers to active and contracted subscriptions related to Professional Services (Admin, Marketing and CFO Solutions) and Business Optimizers (Assurance Plan, Remote Office and M&A Solutions).

(33) Represents advisory revenues as a percentage of Corporate Platform Advisory Assets for the trailing twelve month period.

(34) Represents gross profit, a non-GAAP financial measure, for the trailing twelve month period, divided by average month-end total advisory and brokerage assets for the trailing twelve month period.

(35) Represents operating expenses for the trailing twelve month period, excluding production-related expense, divided by average month-end total advisory and brokerage assets for the trailing twelve month period. Production-related expense includes commissions and advisory expense and brokerage, clearing and exchange expense. For purposes of this metric, operating expenses includes core G&A, a non-GAAP financial measure, as well as regulatory charges, promotional, employee share-based compensation, depreciation and amortization, and amortization of intangible assets.

(36) EBIT ROA is calculated as gross profit ROA less OPEX as a percentage of advisory and brokerage assets.

(37) Reflects retention of total advisory and brokerage assets, calculated by deducting quarterly annualized attrition from total advisory and brokerage assets, over the prior-quarter total advisory and brokerage assets.

(38) Recurring gross profit rate refers to the percentage of the Company’s gross profit, a non-GAAP financial measure, that was recurring for the trailing twelve month period. Management tracks recurring gross profit, a characterization of gross profit and a statistical measure, which is defined to include the Company’s revenues from asset-based fees, advisory fees, trailing commissions, client cash programs and certain other fees that are based upon client accounts and advisors, less the expenses associated with such revenues and certain other recurring expenses not specifically associated with a revenue line. Management allocates such other recurring expenses on a pro-rata basis against specific revenue lines at its discretion.

(39) Capital expenditures represent cash payments for fixed assets during the period.

(40) Total capital allocated per share equals the amount of capital allocated for share repurchases and cash dividends divided by the diluted weighted-average shares outstanding.