Key Performance Indicators

  • Earnings per share ("EPS") increased 94% year-over-year to $1.01.
    • Q1 2018 EPS included $0.29 of cost from NPH and Q1 2017 included $0.14 of debt refinancing cost.  Prior to these costs, Q1 2018 EPS increased 96% year-over-year to $1.30.
    • Net Income increased 94% year-over-year to $94 million.
    • Net Income prior to the costs noted above increased 97% year-over-year to $120 million.
  • EPS prior to Amortization of Intangible Assets** increased 90% year-over-year to $1.11.
    • Prior to Q1 2018 NPH costs and Q1 2017 debt refinancing cost, EPS prior to Amortization of Intangible Assets increased 86% year-over-year to $1.36.
  • Total Brokerage and Advisory Assets increased 22% year-over-year to $648 billion, up 5% sequentially.
    • Total Brokerage and Advisory Assets prior to NPH increased 9% year-over-year to $578 billion, down 0.4% sequentially.
  • Total Net New Assets were an inflow of $38.9 billion, including $36.0 billion from NPH.
    • Total Net New Assets prior to NPH were an inflow of $2.9 billion, translating to a 2.0% annualized growth rate.
      • Net new advisory assets prior to NPH were an inflow of $6.9 billion, translating to a 10.5% annualized growth rate.
      • Net new brokerage assets prior to NPH were an outflow of $4.1 billion, translating to a (5.2%) annualized rate.
    • Total Net New Assets from NPH in Q4 2017 and Q1 2018 totaled $70.2 billion.
    • Advisor count increased to 16,067, including 941 advisors joining from NPH. In total, approximately 1,900 advisors joined from NPH.
    • Production retention rate year-to-date was 96%.
  • Gross Profit** increased 23% year-over-year to $464 million, including approximately $24 million generated by NPH advisors.
  • EBITDA** increased 21% year-over-year to $183 million.
    • EBITDA prior to NPH increased 40% year-over-year to $213 million.
    • EBITDA as a percentage of Gross Profit was 40%, flat from a year ago.
      • EBITDA as a percentage of Gross Profit prior to NPH was 48%, up from 40% a year ago.
    • Core G&A** increased 14% year-over-year to $201 million, and increased 3% sequentially.
      • Core G&A prior to NPH increased 3% year-over-year to $182 million, and decreased 0.3% sequentially.

Key Updates

  • Increased estimated NPH annual run-rate EBITDA accretion from $85 million to approximately $90 million by the end of 2018 based on the improved macro environment.
  • The Company continues to anticipate total asset transfer from NPH within a range of $70 to $75 billion.
  • Returned $83 million of capital to shareholders in Q1 through $61 million of share repurchases and $23 million of dividends for the quarter.

SAN DIEGO, May 03, 2018 (GLOBE NEWSWIRE) -- LPL Financial Holdings Inc. (NASDAQ:LPLA) (the “Company”) today announced results for its first quarter ended March 31, 2018, reporting net income of $94 million, or $1.01 per share. This compares with $48 million, or $0.52 per share, in the first quarter of 2017 and $64 million, or $0.69 per share, in the prior quarter.

“We started 2018 with another quarter of business and earnings growth,” said Dan Arnold, president and CEO. “Looking ahead, our strategic priorities remain growing our core business and executing with excellence.  We continue our focus on making it easier for advisors to do business with us, investing in technology, and enhancing capabilities.  We believe this focus will enable our advisors’ practices to thrive and drive future growth.”

“This quarter our earnings continued to grow, nearly doubling from a year ago,” said Matt Audette, CFO. “We grew gross profit, remained disciplined on expenses, and drove operating leverage.  Our share repurchases also increased from the prior quarter.  Going forward, our capital allocation priorities remain investing for organic growth, taking advantage of M&A opportunities if they arise, and returning capital to shareholders."

Additional First Quarter 2018 Financial and Business Highlights
NPH Update

  • Onboarded $36.0 billion in Total Brokerage and Advisory Assets, including $29.9 billion in brokerage assets and $6.2 billion in advisory assets in Q1.
  • Q1 onboarding expenses were $16 million, including $6 million of Core G&A expense and $10 million of promotional expense.  Total onboarding expense including 2017 and Q1 2018 was $36 million.
  • Q1 financial assistance was $53 million, including $34 million provided as forgivable loans and $19 million provided as cash assistance.  Total financial assistance including 2017 and Q1 2018 was $97 million.
  • Finalized the purchase price of the NPH transaction at $325 million following the onboarding of the second wave of advisors, including $211 million of intangible assets.  This increased Q1 amortization of intangible assets expense by $3 million sequentially. 

Capital Management

  • The Company returned capital to shareholders totaling $83 million in Q1 2018, translating to $0.90 per share.
    • Deployed $61 million of capital to repurchase 968 thousand shares at an average price of $62.84 per share in Q1 2018.
    • Paid dividends of $23 million on March 23, 2018.
  • Capital expenditures were primarily driven by technology spend and totaled $23 million in Q1.
  • Cash available for corporate use was $474 million as of quarter-end, and Credit Agreement Net Leverage Ratio, which only applies to the revolving credit facility, was 2.46x, down 0.35x from the prior quarter.
    • After applying $300 million of cash available for corporate use to Credit Agreement Net Debt, this left an additional $174 million of cash, which if applied to the debt, would further reduce the Credit Agreement Net Leverage Ratio to 2.25x.

Conference Call and Additional Information

The Company will hold a conference call to discuss its results at 5:00 p.m. EDT on Thursday, May 3.  To listen, call 877-677-9122 (domestic) or 708-290-1401 (international); passcode 9793629, 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 May 10 and May 24, respectively.  For telephonic replay, call 855-859-2056 (domestic) or 404-537-3406 (international); passcode 9793629.

About LPL Financial

LPL Financial is a leader in the retail financial advice market and the nation’s largest independent broker/dealer*. We serve independent financial advisors and financial institutions, providing them with the technology, research, clearing and compliance services, and practice management programs they need to create and grow thriving practices.  LPL enables them to provide objective guidance to millions of American families seeking wealth management, retirement planning, financial planning and asset management solutions.  LPL.com

*based on total revenues, Financial Planning magazine June 1996-2017.

Securities and Advisory Services offered through LPL Financial. A Registered Investment Advisor, Member FINRA/SIPC.

**Non-GAAP Financial Measures

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

EPS Prior to Amortization of Intangible Assets is defined as GAAP EPS plus the per share impact of Amortization of Intangible Assets. The per share impact is calculated as Amortization of Intangible Assets expense, net of applicable tax benefit, divided by the number of shares outstanding for the applicable period. The Company presents EPS Prior to Amortization of Intangible Assets because management believes that the metric can provide investors with useful insight into the Company’s core operating performance by excluding non-cash items that management does not believe impact the Company’s ongoing operations. EPS Prior to Amortization of Intangible Assets is not a measure of the Company's financial performance under GAAP and should not be considered as an alternative to GAAP EPS or any other performance measure derived in accordance with GAAP. For a reconciliation of EPS Prior to Amortization of Intangible Assets to GAAP EPS, please see footnote 32 on page 21 of this release.

Gross Profit is calculated as net revenues, which were $1,242 million for the three months ended March 31, 2018, less commission and advisory expenses and brokerage, clearing, and exchange fees, which were $762 million and $16 million, respectively, for the three months ended March 31, 2018. All other expense categories, including depreciation and amortization of fixed assets and amortization of intangible assets, are considered general and administrative in nature. Because the Company’s gross profit amounts do not include any depreciation and amortization expense, the Company considers its gross profit amounts to be non-GAAP financial measures that may not be comparable to those of others in its industry. Management believes that Gross Profit can provide investors with useful insight into the Company’s core operating performance before indirect costs that are general and administrative in nature.

Core G&A consists of total operating expenses, which were $1,092 million for the three months ended March 31, 2018, excluding the following expenses: commission and advisory, regulatory charges, promotional, employee share-based compensation, depreciation and amortization, amortization of intangible assets, and brokerage, clearing, and exchange. Management presents Core G&A because it believes Core G&A reflects the corporate operating expense categories over which management can generally exercise a measure of control, compared with expense items over which management either cannot exercise control, such as commission and advisory expenses, or which management views as promotional expense necessary to support advisor growth and retention including conferences and transition assistance. Core G&A is not a measure of the Company’s total operating expenses as calculated in accordance with GAAP. For a reconciliation of Core G&A against the Company’s total operating expenses, please see footnote 3 on page 19 of this release. The Company does not provide an outlook for its total operating expenses because it contains expense components, such as commission and advisory expenses, that are market-driven and over which the Company cannot exercise control. Accordingly a reconciliation of the Company’s outlook for Core G&A to an outlook for total operating expenses cannot be made available without unreasonable effort.

EBITDA is defined as net income plus interest expense, income tax expense, depreciation, amortization and loss on extinguishment of debt. The Company presents EBITDA because management believes that it can be a useful financial metric in understanding the Company’s earnings from operations. EBITDA is not a measure of the Company's financial performance under GAAP and should not be considered as an alternative to net income or any other performance measure derived in accordance with GAAP, or as an alternative to cash flows from operating activities as a measure of profitability or liquidity. In addition, the Company’s EBITDA can differ significantly from EBITDA calculated by other companies, depending on long-term strategic decisions regarding capital structure, the tax jurisdictions in which companies operate, and capital investments.

Credit Agreement EBITDA is defined in, and calculated by management in accordance with, the Company's credit agreement (“Credit Agreement”) as “Consolidated EBITDA,” which is Consolidated Net Income (as defined in the Credit Agreement) plus interest expense, tax expense, depreciation and amortization and further adjusted to exclude certain non-cash charges and other adjustments, including unusual or non-recurring charges and gains, and to include future expected cost savings, operating expense reductions or other synergies from certain transactions, including the Company's acquisition of the broker/dealer network of National Planning Holdings, Inc. ("NPH"). The Company presents Credit Agreement EBITDA because management believes that it can be a useful financial metric in understanding the Company’s debt capacity and covenant compliance under its Credit Agreement. Credit Agreement EBITDA is not a measure of the Company's financial performance under GAAP and should not be considered as an alternative to net income or any other performance measure derived in accordance with GAAP, or as an alternative to cash flows from operating activities as a measure of profitability or liquidity. In addition, the Company’s Credit Agreement-defined EBITDA can differ significantly from adjusted EBITDA calculated by other companies, depending on long-term strategic decisions regarding capital structure, the tax jurisdictions in which companies operate, capital investments, and types of adjustments made by such companies.

Note on Pro Forma Calculations

This press release includes pro forma calculations, including EPS and net income prior to the impact of NPH and debt refinancing costs. 2018 pro forma amounts were calculated using a 28% effective tax rate, which is the mid-point of the Company’s expected effective tax rate between 27-29% for 2018. 2017 pro forma amounts were calculated using a 39.5% effective rate, which was the Company's prior expected effective tax rate

Forward-Looking Statements

Statements in this press release regarding the Company's future financial and operating results, outlook, growth, priorities and business strategies, including forecasts and statements relating to NPH annual run-rate EBITDA accretion, total anticipated asset transfer from NPH, future expenses, future capital allocation, as well as any other statements that are not related to present facts or current conditions or that are not purely historical, constitute forward-looking statements. These forward-looking statements are based on the Company's historical performance and its plans, estimates, and expectations as of May 3, 2018. Forward-looking statements are not guarantees that the future results, plans, intentions, or expectations expressed or implied by the Company will be achieved. Matters subject to forward-looking statements involve known and unknown risks and uncertainties, including economic, legislative, regulatory, competitive, and other factors, which may cause actual financial or operating results, levels of activity, or the timing of events, to be materially different than those expressed or implied by forward-looking statements. Important factors that could cause or contribute to such differences include: changes in general economic and financial market conditions, including retail investor sentiment; changes in interest rates and fees payable by banks participating in the Company's cash sweep program, the Company's strategy and success in managing cash sweep program fees; changes in the growth and profitability of the Company's fee-based business;
fluctuations in the value and levels of advisory and brokerage assets and the related impact on revenue; effects of competition in the financial services industry and the success of the Company in attracting and retaining financial advisors and institutions; whether the retail investors served by newly-recruited advisors choose to open accounts and/or move their respective assets to new accounts at the Company; the effect of current, pending and future legislation, regulation and regulatory actions, including changes in the retail retirement savings area and disciplinary actions imposed by federal and state securities regulators and self-regulatory organizations; the costs of settling and remediating issues related to pending or future regulatory matters or legal proceedings; changes made to the Company’s offerings, services, and pricing, and the effect that such changes may have on the Company’s gross profit streams and costs; execution of the Company's plans and its success in realizing the synergies, expense savings, service improvements, and/or efficiencies expected to result from its initiatives and programs, including as a result of the NPH acquisition; and the other factors set forth in Part I, “Item 1A. Risk Factors” in the Company's 2017 Annual Report on Form 10-K, as may be amended or updated in the Company's Quarterly Reports on Form 10-Q or subsequent filings with the SEC. Except as required by law, the Company specifically disclaims any obligation to update any forward-looking statements as a result of developments occurring after the date of this earnings release, even if its estimates change, and you should not rely on statements contained herein as representing the Company's views as of any date subsequent to the date of this press release.

Investor Relations - Chris Koegel, (617) 897-4574
Media Relations - Jeff Mochal, (704) 733-3589
investor.lpl.com/contactus.cfm


LPL Financial Holdings Inc.
Condensed Consolidated Statements of Income
(In thousands, except per share data)
(Unaudited)

 Three Months Ended  March 31,  
 2018 2017 %  Change
REVENUES     
Commission$474,811  $421,164  13%
Advisory422,387  329,859  28%
Asset-based219,336  157,223  40%
Transaction and fee116,649  108,162  8%
Interest income, net of interest expense7,781  5,793  34%
Other593  13,226  (96%)
Total net revenues1,241,557  1,035,427  20%
EXPENSES     
Commission and advisory761,697  645,063  18%
Compensation and benefits123,517  113,212  9%
Promotional67,427  36,654  84%
Depreciation and amortization20,701  20,747  %
Amortization of intangible assets13,222  9,491  39%
Occupancy and equipment27,636  25,199  10%
Professional services22,172  15,537  43%
Brokerage, clearing and exchange15,877  14,186  12%
Communications and data processing11,174  11,014  1%
Other28,586  22,563  27%
Total operating expenses1,092,009  913,666  20%
Non-operating interest expense29,622  25,351  17%
Loss on extinguishment of debt  21,139  n/m 
INCOME BEFORE PROVISION FOR INCOME TAXES119,926  75,271  59%
PROVISION FOR INCOME TAXES26,396  27,082  (3%)
NET INCOME$93,530  $48,189  94%
EARNINGS PER SHARE     
Earnings per share, basic$1.04  $0.54  93%
Earnings per share, diluted$1.01  $0.52  94%
Weighted-average shares outstanding, basic 89,997   89,868  %
Weighted-average shares outstanding, diluted 92,784   92,004  1%


LPL Financial Holdings Inc.
Condensed Consolidated Statements of Income Trend
(In thousands, except per share data)
(Unaudited)

 Quarterly Results
 Q1 2018 Q4 2017 Q3 2017
REVENUES     
Commission$474,811  $425,943  $403,011 
Advisory422,387  375,928  356,945 
Asset-based219,336  193,707  183,953 
Transaction and fee116,649  103,145  103,999 
Interest income, net of interest expense7,781  6,542  6,162 
Other593  11,177  10,038 
Total net revenues1,241,557  1,116,442  1,064,108 
EXPENSES     
Commission and advisory761,697  697,725  663,765 
Compensation and benefits123,517  119,748  113,659 
Promotional67,427  60,066  42,935 
Depreciation and amortization20,701  20,138  21,996 
Amortization of intangible assets13,222  9,997  9,352 
Occupancy and equipment27,636  26,343  22,803 
Professional services22,172  20,675  16,438 
Brokerage, clearing and exchange expense15,877  15,480  13,491 
Communications and data processing11,174  12,416  10,866 
Other28,586  25,070  24,376 
Total operating expenses1,092,009  1,007,658  939,681 
Non-operating interest expense29,622  28,894  26,519 
Loss on extinguishment of debt    1,268 
INCOME BEFORE PROVISION FOR INCOME TAXES119,926  79,890  96,640 
PROVISION FOR INCOME TAXES26,396  15,792  38,498 
NET INCOME$93,530  $64,098  $58,142 
EARNINGS PER SHARE     
Earnings per share, basic$1.04  $0.71  $0.65 
Earnings per share, diluted$1.01  $0.69  $0.63 
Weighted-average shares outstanding, basic 89,997  89,921  89,967 
Weighted-average shares outstanding, diluted 92,784  92,386  92,042 


LPL Financial Holdings Inc.
Condensed Consolidated Statements of Financial Condition
(Dollars in thousands, except par value)
(Unaudited)

  March 31, 2018 December 31, 2017
ASSETS
Cash and cash equivalents $820,056  $811,136 
Cash segregated under federal and other regulations 650,335  763,831 
Restricted cash 55,418  50,688 
Receivables from:    
Clients, net of allowance of $514 at March 31, 2018 and $466 at December 31, 2017 384,215  344,230 
Product sponsors, broker-dealers, and clearing organizations 216,733  196,207 
Advisor loans, net of allowance of $3,446 at March 31, 2018 and $3,264 at December 31, 2017 232,904  219,157 
Others, net of allowance of $7,283 at March 31, 2018 and $6,115 at December 31, 2017 245,120  228,986 
Securities owned:    
Trading — at fair value 16,255  17,879 
Held-to-maturity — at amortized cost 10,585  11,833 
Securities borrowed 6,663  12,489 
Fixed assets, net of accumulated depreciation and amortization of $445,555 at March 31, 2018 and $427,344 at December 31, 2017 411,272  412,684 
Goodwill 1,476,775  1,427,769 
Intangible assets, net of accumulated amortization of $432,288 at March 31, 2018 and $419,066 at December 31, 2017 513,592  414,093 
National Planning Holdings acquisition   162,500 
Other assets 308,095  285,269 
Total assets $5,348,018  $5,358,751 
LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES:    
Drafts payable $136,936  $185,929 
Payables to clients 917,506  962,891 
Payables to broker-dealers and clearing organizations 62,156  54,262 
Accrued commission and advisory expenses payable 151,141  147,095 
Accounts payable and accrued liabilities 447,943  461,149 
Income taxes payable 23,425  469 
Unearned revenue 96,410  72,222 
Securities sold, but not yet purchased — at fair value 334  1,182 
Long-term borrowing, net of unamortized debt issuance cost of $21,989 at March 31, 2018 and $22,812 at December 31, 2017 2,381,719  2,385,022 
Leasehold financing and capital lease obligations 106,076  107,518 
Deferred income taxes, net 15,879  16,004 
Total liabilities 4,339,525  4,393,743 
STOCKHOLDERS’ EQUITY:    
Common stock, $.001 par value; 600,000,000 shares authorized; 124,037,616 shares issued at March 31, 2018 and 123,030,383 shares issued at December 31, 2017 124  123 
Additional paid-in capital 1,592,436  1,556,117 
Treasury stock, at cost — 34,270,821 shares at March 31, 2018 and 33,262,115 shares at December 31, 2017 (1,373,457) (1,309,568)
Retained earnings 789,390  718,336 
Total stockholders’ equity 1,008,493  965,008 
Total liabilities and stockholders’ equity $5,348,018  $5,358,751 


LPL Financial Holdings Inc.
Management's Statements of Operations (1)
(In thousands, except per share data)
(Unaudited)

The information presented on pages 9-18 of this release is presented as reviewed by the Company’s management and includes information derived from the Company’s Unaudited Condensed Consolidated Statements of Income, non-GAAP financial measures, and operational and performance metrics. For information on non-GAAP financial measures, please see the section titled "Non-GAAP Financial Measures" that begins on page 3 of this release. 

 Quarterly Results
 Q1 2018 Q4 2017 %  Change Q1 2017 %  Change
Gross Profit(1)         
Sales-based commissions$187,233  $174,052  8% $186,577  %
Trailing commissions287,578  251,891  14% 234,587  23%
Advisory422,387  375,928  12% 329,859  28%
Commission and advisory fees897,198  801,871  12% 751,023  19%
Commission and advisory expense(761,697) (697,725) 9% (645,063) 18%
Commission and advisory fees, net of payout135,501  104,146  30% 105,960  28%
Cash sweep104,084  88,333  18% 59,651  74%
Other asset-based(2)115,252  105,374  9% 97,572  18%
Transaction and fee116,649  103,145  13% 108,162  8%
Interest income and other8,374  17,719  (53%) 19,019  (56%)
Total net commission and advisory fees and attachment revenue479,860  418,717  15% 390,364  23%
Brokerage, clearing, and exchange expense(15,877) (15,480) 3% (14,186) 12%
Gross Profit(1)463,983  403,237  15% 376,178  23%
          
G&A Expense         
Core G&A(3)201,039  194,607  3% 177,026  14%
Regulatory charges6,440  5,433  n/m  5,270  n/m 
Promotional67,427  60,066  12% 36,654  84%
Employee share-based compensation5,606  4,212  33% 5,229  7%
Total G&A280,512  264,318  6% 224,179  25%
EBITDA(1)183,471  138,919  32% 151,999  21%
Depreciation and amortization20,701  20,138  3% 20,747  %
Amortization of intangible assets13,222  9,997  32% 9,491  39%
Non-operating interest expense29,622  28,894  3% 25,351  17%
Loss on extinguishment of debt    n/m  21,139  n/m 
INCOME BEFORE PROVISION FOR INCOME TAXES119,926  79,890  50% 75,271  59%
PROVISION FOR INCOME TAXES26,396  15,792  67% 27,082  (3%)
NET INCOME$93,530  $64,098  46% $48,189  94%
Earnings per share, diluted$1.01  $0.69  46% $0.52  94%
Weighted-average shares outstanding, diluted 92,784  92,386  %  92,004  1%


LPL Financial Holdings Inc.
Management's Statements of Operations Trend (1)
(In thousands, except per share data)
(Unaudited)

The information presented on pages 9-18 of this release is presented as reviewed by the Company’s management and includes information derived from the Company’s Unaudited Condensed Consolidated Statements of Income, non-GAAP financial measures, and operational and performance metrics. For information on non-GAAP financial measures, please see the section titled "Non-GAAP Financial Measures" that begins on page 3 of this release. 

 Quarterly Results
 Q1 2018 Q4 2017 Q3 2017
Gross Profit(1)     
Sales-based commissions$187,233  $174,052  $160,098 
Trailing commissions287,578  251,891  242,913 
Advisory422,387  375,928  356,945 
Commission and advisory fees897,198  801,871  759,956 
Commission and advisory expense(761,697) (697,725) (663,765)
Commission and advisory fees, net of payout135,501  104,146  96,191 
Cash sweep104,084  88,333  81,617 
Other asset-based(2)115,252  105,374  102,336 
Transaction and fee116,649  103,145  103,999 
Interest income and other8,374  17,719  16,200 
Total net commission and advisory fees and attachment revenue479,860  418,717  400,343 
Brokerage, clearing, and exchange expense(15,877) (15,480) (13,491)
Gross Profit(1)463,983  403,237  386,852 
      
G&A Expense     
Core G&A(3)201,039  194,607  178,769 
Regulatory charges6,440  5,433  4,433 
Promotional67,427  60,066  42,935 
Employee share-based compensation5,606  4,212  4,940 
Total G&A280,512  264,318  231,077 
EBITDA(1)183,471  138,919  155,775 
Depreciation and amortization20,701  20,138  21,996 
Amortization of intangible assets13,222  9,997  9,352 
Non-operating interest expense29,622  28,894  26,519 
Loss on extinguishment of debt    1,268 
INCOME BEFORE PROVISION FOR INCOME TAXES119,926  79,890  96,640 
PROVISION FOR INCOME TAXES26,396  15,792  38,498 
NET INCOME$93,530  $64,098  $58,142 
Earnings per share, diluted$1.01  $0.69  $0.63 
Weighted-average shares outstanding, diluted 92,784  92,386   92,042 


LPL Financial Holdings Inc.
Operating Measures (1)
(Dollars in billions, except where noted) (Unaudited)

 Q1 2018 Q4 2017 Change Q1 2017 Change
Market Drivers         
S&P 500 Index (end of period)2,641  2,674  (1%) 2,363  12%
Fed Funds Daily Effective Rate (FFER) (average bps)145  120  25bps 70  75bps
Assets         
Advisory Assets(4)$283.5  $273.0  4% $225.7  26%
Brokerage Assets(5)364.1  342.1  6% 304.6  20%
Total Brokerage and Advisory Assets$647.5  $615.1  5% $530.3  22%
Advisory % of Total Assets43.8% 44.4% (60bps) 42.6% 120bps
Assets Prior to NPH         
Advisory Assets(4)$269.8  $265.2  2% $225.7  20%
Brokerage Assets(5)308.4  315.5  (2)% 304.6  1%
Total Brokerage and Advisory Assets$578.1  $580.7  % $530.3  9%
Advisory % of Total Assets46.7% 45.7% 100bps 42.6% 410bps
          
Assets by Platform         
Corporate Platform Advisory Assets(6)$167.7  $160.0  5% $133.6  26%
Hybrid Platform Advisory Assets(7)115.7  113.0  2% 92.1  26%
Brokerage Assets364.1  342.1  6% 304.6  20%
Total Brokerage and Advisory Assets$647.5  $615.1  5% $530.3  22%
Assets by Platform Prior to NPH         
Corporate Platform Advisory Assets(6)$155.7  $152.7  2% $133.6  17%
Hybrid Platform Advisory Assets(7)114.1  112.5  1% 92.1  24%
Brokerage Assets308.4  315.5  (2%) 304.6  1%
Total Brokerage and Advisory Assets$578.1  $580.7  % $530.3  9%
          
Centrally Managed Assets         
Centrally Managed Assets(8)$35.9  $32.9  9% $25.0  44%
Centrally Managed  % of Total Advisory Assets12.7% 12.1% 60bps 11.1% 160bps
Centrally Managed Assets Prior to NPH         
Centrally Managed Assets(8)$33.3  $31.8  5% $25.0  33%
Centrally Managed % of Total Advisory Assets12.3% 12.0% 30bps 11.1% 120bps
          
Retirement Assets         
Advisory Retirement Assets$159.2  $152.6  4% $124.5  28%
Brokerage Retirement Assets186.3  168.7  10% 148.4  26%
Total Retirement Assets(9)$345.5  $321.3  8% $272.9  27%
Retirement % of Total Assets53.4% 52.2% 120bps 51.5% 190bps
Retirement Assets Prior to NPH         
Advisory Retirement Assets$150.6  $147.8  2% $124.5  21%
Brokerage Retirement Assets156.2  158.6  (2)% 148.4  5%
Total Retirement Assets(9)$306.8  $306.4  % $272.9  12%
Retirement % of Total Assets53.1% 52.8% 30bps 51.5% 160bps


LPL Financial Holdings Inc.
Operating Measures (1)
(Dollars in billions, except where noted) (Unaudited)

 Q1 2018 Q4 2017 Change Q1 2017 Change
Net New Assets (NNA)         
Net New Advisory Assets(10)$13.1  $14.0  n/m $6.0  n/m
Net New Brokerage Assets(11)25.8  23.5  n/m (3.4) n/m
Total Net New Assets$38.9  $37.5  n/m $2.6  n/m
Net Brokerage to Advisory Conversions(12)$2.5  $2.1  n/m $2.3  n/m
          
Net New Assets Prior to NPH         
Net New Advisory Assets(10)$6.9  $6.3  n/m $6.0  n/m
Net New Brokerage Assets(11)(4.1) (3.0) n/m (3.4) n/m
Total Net New Assets$2.9  $3.3  n/m $2.6  n/m
Advisory NNA Annualized Growth(13)10% 10% n/m 11% n/m
Total NNA Annualized Growth(13)2% 2% n/m 2% n/m
          
Net New Advisory Assets         
Corporate Platform Net New Advisory Assets(14)$10.4  $11.1  n/m $3.5  n/m
Hybrid Platform Net New Advisory Assets(15)2.7  2.9  n/m 2.5  n/m
Total Net New Advisory Assets$13.1  $14.0  n/m $6.0  n/m
Centrally Managed Net New Advisory Assets(16)$3.3  $2.5  n/m $0.9  n/m
          
Net New Advisory Assets Prior to NPH         
Corporate Platform Net New Advisory Assets(14)$4.3  $3.9  n/m $3.5  n/m
Hybrid Platform Net New Advisory Assets(15)2.6  2.4  n/m 2.5  n/m
Total Net New Advisory Assets$6.9  $6.3  n/m $6.0  n/m
Centrally Managed Net New Advisory Assets(16)$1.8  $1.4  n/m $0.9  n/m
          
Cash Sweep Balances         
Insured Cash Account Balances$22.6  $22.9  (1%) $22.0  3%
Deposit Cash Account Balances4.2  4.2  % 4.2  %
Money Market Account Cash Balances2.9  2.7  7% 3.8  (24%)
Total Cash Sweep Balances$29.6  $29.8  (1%) $30.0  (1%)
Cash Sweep % of Total Assets4.6% 4.8% (20bps) 5.7% (110bps)
Cash Sweep Balances Prior to NPH         
Insured Cash Account Balances$21.7  $22.5  (4%) $22.0  (1%)
Deposit Cash Account Balances3.8  4.0  (5%) 4.2  (10%)
Money Market Account Cash Balances2.1  2.3  (9%) 3.8  (45%)
Total Cash Sweep Balances$27.6  $28.8  (4%) $30.0  (8%)
Cash Sweep % of Total Assets4.8% 5.0% (20bps) 5.7% (90bps)
          
Cash Sweep Average Fees         
Insured Cash Account Average Fee - bps(17)152  132  20  88  64 
Deposit Cash Account Fee Average Fee - bps(17)150  113  37  62  88 
Money Market Account Average Fee - bps(17)71  69  2  53  18 
Total Cash Sweep Average Fee - bps(17)144  124  20  80  64 


LPL Financial Holdings Inc.
Monthly Metrics (1)
(Dollars in billions, except where noted)
(Unaudited)

  March 2018 February 2018 Feb to Mar Change January 2018 December 2017
Assets Served          
Advisory Assets(4) $283.5  $284.3  (0.3%) $284.2  $273.0 
Brokerage Assets(5) 364.1  366.6  (0.7%) 352.3  342.1 
Total Brokerage and Advisory Assets $647.5  $650.9  (0.5%) $636.5  $615.1 
           
Assets Served Prior to NPH          
Advisory Assets(4) $269.8  $270.6  (0.3%) $276.0  $265.2 
Brokerage Assets(5) 308.4  313.6  (1.7%) 322.4  315.5 
Total Brokerage and Advisory Assets $578.1  $584.2  (1.0%) $598.4  $580.7 
           
Net New Assets          
Net New Advisory Assets(10) $1.7  $8.4  n/m $3.0  $10.0 
Net New Brokerage Assets(11) 2.1  23.0  n/m 0.7  25.6 
Total Net New Assets $3.8  $31.4  n/m $3.7  $35.6 
Net Brokerage to Advisory Conversions(12) $0.7  $0.8  n/m $1.0  $0.7 
           
Net New Assets Prior to NPH          
Net New Advisory Assets(10) $1.7  $2.5  n/m $2.8  $2.4 
Net New Brokerage Assets(11) (1.6) (0.9) n/m (1.6) (0.9)
Total Net New Assets $0.1  $1.6  n/m $1.2  $1.5 
           
Cash Sweep Balances          
Insured Cash Account Balances $22.6  $22.6  % $22.2  $22.9 
Deposit Cash Account Balances 4.2  4.1  2.4% 4.0  4.2 
Money Market Account Cash Balances 2.9  3.0  (3.3%) 2.5  2.7 
Total Client Cash Sweep Balances $29.6  $29.7  (0.3%) $28.7  $29.8 
           
Cash Sweep Balances Prior to NPH          
Insured Cash Account Balances $21.7  $21.8  (0.5%) $21.7  $22.5 
Deposit Cash Account Balances 3.8  3.8  % 3.8  4.0 
Money Market Account Cash Balances 2.1  2.2  (4.5%) 2.2  2.3 
Total Client Cash Sweep Balances $27.6  $27.7  (0.4%) $27.7  $28.8 
           
Market Indices          
S&P 500 Index (end of period) 2,641  2,714  (2.7%) 2,824  2,674 
Fed Funds Effective Rate (average bps) 151  142  9bps 142  130 


LPL Financial Holdings Inc.
Financial Measures (1)
(Dollars in thousands, except where noted)
(Unaudited)

 Q1 2018 Q4 2017 % Change Q1 2017 % Change
Commission Revenue by Product         
Variable annuities$200,043  $174,209  15% $166,796  20%
Mutual funds153,745  137,316  12% 131,474  17%
Alternative investments5,567  6,547  (15%) 7,171  (22%)
Fixed annuities34,055  32,054  6% 36,912  (8%)
Equities23,601  20,659  14% 21,974  7%
Fixed income30,324  26,373  15% 27,495  10%
Insurance18,494  19,998  (8%) 17,722  4%
Group annuities8,894  8,638  3% 11,479  (23%)
Other88  149  (41%) 141  (38%)
Total commission revenue$474,811  $425,943  11% $421,164  13%
          
Commission Revenue by Sales-based and Trailing Commission      
Sales-based commissions         
Variable annuities$53,902  $51,523  5% $50,925  6%
Mutual funds37,057  32,318  15% 36,461  2%
Alternative investments1,830  2,940  (38%) 5,154  (64%)
Fixed annuities28,337  26,767  6% 32,094  (12%)
Equities23,601  20,659  14% 21,974  7%
Fixed income24,355  20,548  19% 21,902  11%
Insurance16,865  18,512  (9%) 16,146  4%
Group annuities1,198  636  88% 1,780  (33%)
Other88  149  (41%) 141  (38%)
Total sales-based commissions$187,233  $174,052  8% $186,577  %
Trailing commissions         
Variable annuities$146,141  $122,686  19% $115,871  26%
Mutual funds116,688  104,998  11% 95,013  23%
Alternative investments3,737  3,607  4% 2,017  85%
Fixed annuities5,718  5,287  8% 4,818  19%
Fixed income5,969  5,825  2% 5,593  7%
Insurance1,629  1,486  10% 1,576  3%
Group annuities7,696  8,002  (4%) 9,699  (21%)
Total trailing commissions$287,578  $251,891  14% $234,587  23%
Total commission revenue$474,811  $425,943  11% $421,164  13%


LPL Financial Holdings Inc.
Financial Measures (1)
(Dollars in thousands, except where noted)
(Unaudited)

 Q1 2018 Q4 2017 Change Q1 2017 Change
Payout Rate         
Base Payout Rate82.60% 82.56% 4bps 82.99% (39bps)
Production Based Bonuses2.05% 3.28% (123bps) 1.72% 33bps
GDC Sensitive Payout84.65% 85.84% (119bps) 84.71% (6bps)
Non-GDC Sensitive Payout0.25% 1.17% (92bps) 1.18% (93bps)
Total Payout Ratio84.90% 87.01% (211bps) 85.89% (99bps)
Production Based Bonuses Ratio (Trailing Twelve Months)2.73% 2.65% 8bps 2.65% 8bps


LPL Financial Holdings Inc.
Capital Management Measures (1)
(Dollars in thousands, except where noted)
(Unaudited)

 Q1 2018 Q4 2017
Credit Agreement EBITDA Trailing Twelve Months(1)(18)   
Net income$284,204  $238,863 
Non-operating interest expense111,296  107,025 
Provision for income taxes125,021  125,707 
Loss on extinguishment of debt1,268  22,407 
Depreciation and amortization84,025  84,071 
Amortization of intangible assets42,024  38,293 
EBITDA(1)$647,838  $616,366 
Credit Agreement Adjustments:   
Employee share-based compensation expense$19,790  $19,413 
Advisor share-based compensation expense9,358  9,109 
NPH run-rate EBITDA accretion(19)90,000  42,500 
Realized NPH EBITDA Offset(20)(4,500) 2,100 
NPH onboarding costs67,516  31,831 
Other(21)20,769  24,017 
Credit Agreement EBITDA Trailing Twelve Months(1)(18)$850,771  $745,336 
    
Cash Available for Corporate Use(22)   
Cash at Parent$429,715  $387,446 
Excess Cash at Broker-Dealer subsidiary per Credit Agreement36,342  44,031 
Other Available Cash8,237  7,996 
Total Cash Available for Corporate Use$474,294  $439,473 
    
Credit Agreement Net Leverage   
Total Debt (does not include unamortized premium)$2,392,500  $2,396,250 
Cash Available (up to $300 million)300,000  300,000 
Credit Agreement Net Debt$2,092,500  $2,096,250 
Credit Agreement EBITDA Trailing Twelve Months(18)$850,771  $745,336 
Credit Agreement Net Leverage Ratio2.46x 2.81x


LPL Financial Holdings Inc.
Debt Schedule (1)
(Dollars in thousands, except where noted)
(Unaudited)

Total Debt Outstanding (end of period) Current Applicable
Margin
 Yield At Issuance Interest Rate (end of period) Maturity
Revolving Credit Facility(a) $  LIBOR+125bps(b)   % 9/21/2022
Senior Secured Term Loan B 1,492,500  LIBOR+225 bps(b)   4.56% 9/21/2024
Senior Unsecured Notes(c) 500,000  5.75% Fixed 5.750% 5.75% 9/15/2025
Senior Unsecured Notes(c) 400,000 (d)5.75% Fixed 5.115% 5.75% 9/15/2025
Total / Weighted Average $2,392,500      5.01%  

(a)  The Revolving Credit Facility has a borrowing capacity of $500 million.
(b)  The LIBOR rate option is one-, two-, three- or six-month LIBOR rate and subject to an interest rate floor of 0 basis points.
(c)  The Senior Unsecured Notes were issued in two separate transactions; $500 million in notes were issued in March 2017 at par; the remaining $400 million were issued in September 2017 and priced at 103% of the aggregate principal amount.
(d)  Does not include unamortized premium of approximately $11.2 million as of March 31, 2018.


LPL Financial Holdings Inc.
Key Business and Financial Metrics (1)
(Dollars in thousands, except where noted)
(Unaudited)

 Q1 2018 Q4 2017 Change Q1 2017 Change
Advisors         
Advisors16,067  15,210  6% 14,354  12%
Net New Advisors857  957  n/m  (23) n/m 
Annualized commission and advisory fees per Advisor(23)$230  $218  6% $209  10%
Average Total Assets per Advisor ($ in millions)(24)$40.3  $40.4  % $36.9  9%
Transition assistance loan amortization($ in millions)(25)$16.8  $14.5  16% $13.6  24%
Total client accounts (in millions)5.3  4.8  10% 4.6  15%
          
Employees - period end3,838  3,736  3% 3,306  16%
          
Productivity Metrics         
Annualized Advisory Revenue as a percentage of Corporate Advisory Assets1.06% 1.04% 2bps 1.04% 2bps
Gross Profit ROA(26)28.8bps 27.5bps 1.3bps 28.7bps 0.1bps
OPEX ROA(27)19.5bps 20.1bps (0.6bps) 19.4bps 0.1bps
EBIT ROA(28)9.3bps 7.4bps 1.9bps 9.3bps bps
Production Retention Rate (YTD annualized)(29)96.2% 95.0% 120bps 95.4% 80bps
Recurring Gross Profit Rate (trailing twelve months) (30)83.9% 82.6% 130bps 80.9% 300bps
EBITDA as a percentage of Gross Profit39.5% 34.5% 500bps 40.4% (90bps)
          
Productivity Metrics Prior to NPH         
Gross Profit ROA(26)30.0bps 27.8bps 2.2bps 28.7bps 1.3bps
OPEX ROA(26)17.5bps 18.0bps (0.5bps) 19.4bps (1.9bps)
EBIT ROA(27)12.5bps 9.8bps 2.7bps 9.3bps 3.2bps
EBITDA as a percentage of Gross Profit48.4% 42.6% 580bps 40.4% 800bps
          
Capital Allocation per Share(31)
(in millions, except per share data)
         
Share Repurchases$60.8  $30.0  103% $22.5  170%
Dividends22.6  22.5  % 22.6  %
Total Capital Allocated$83.4  $52.5  59% $45.1  85%
Weighted-average Share Count, Diluted92.8  92.4  % 92.0  1%
Total Capital Allocated per Share(31)$0.90  $0.57  58% $0.49  84%


Endnote Disclosures

(1)  The information presented on pages 9-18 includes non-GAAP financial measures and operational and performance metrics. For more information on non-GAAP financial measures, please see the section titled “Non-GAAP Financial Measures” on page 3.
(2)  Other asset-based revenues consist of revenues from the Company's sponsorship programs with financial product manufacturers and omnibus processing and networking services, but does not include fees from cash sweep 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.
(3)  Core G&A is a non-GAAP financial measure. Please see a description of Core G&A under “Non-GAAP Financial Measures” on page 3 of this release for additional information. Below is a reconciliation of Core G&A against the Company’s total operating expense for the periods presented:

 Q1 2018 Q4 2017 Q1 2017
Operating Expense Reconciliation (in thousands)     
Core G&A$201,039  $194,607  $177,026 
Regulatory charges6,440  5,433  5,270 
Promotional67,427  60,066  36,654 
Employee share-based compensation5,606  4,212  5,229 
Total G&A280,512  264,318  224,179 
Commissions and advisory761,697  697,725  645,063 
Depreciation & amortization20,701  20,138  20,747 
Amortization of intangible assets13,222  9,997  9,491 
Brokerage, clearing and exchange15,877  15,480  14,186 
Total operating expense$1,092,009  $1,007,658  $913,666 

(4)  Consists of total advisory assets under custody at the Company’s broker-dealer subsidiary LPL Financial LLC (“LPL Financial”).
(5)  Consists of brokerage assets serviced by advisors licensed with LPL Financial.
(6)  Consists of total assets on LPL Financial's corporate advisory platform serviced by investment advisor representatives of LPL Financial.
(7)  Consists of total assets on LPL Financial's independent advisory platform serviced by investment advisor representatives of separate investment advisor firms ("Hybrid RIAs"), rather than of LPL Financial.
(8)  Centrally Managed Assets represents those Advisory Assets in LPL Financial’s Model Wealth Portfolios, Optimum Market Portfolios, Personal Wealth Portfolios, and Guided Wealth Portfolios platforms.
(9)  Total Retirement Assets are a component of Total Brokerage and Advisory Assets. This measure does not include additional retirement plan assets custodied with third parties, estimated to be $140 billion as of March 31, 2018.
(10)  Consists of total client deposits into advisory accounts less total client withdrawals from advisory accounts. The Company considers conversions from and to brokerage accounts as deposits and withdrawals respectively.
(11)  Consists of total client deposits into brokerage accounts less total client withdrawals from brokerage accounts. The Company considers conversions from and to advisory accounts as deposits and withdrawals respectively.
(12)  Consists of existing custodied assets that converted from brokerage to advisory, less existing custodied assets that converted from advisory to brokerage.
(13)  Calculated as annualized current period net new assets divided by preceding period assets in their respective categories of advisory assets or total brokerage and advisory assets.
(14)  Consists of total client deposits into advisory accounts on LPL Financial's corporate advisory platform (FN 6) less total client withdrawals from advisory accounts on its corporate advisory platform.
(15)  Consists of total client deposits into advisory accounts on LPL Financial's independent advisory platform (FN 7) less total client withdrawals from advisory accounts on its independent advisory platform.
(16)  Consists of total client deposits into Centrally Managed Assets accounts (FN 8) less total client withdrawals from Centrally Managed Assets accounts.
(17)  Calculated by dividing revenue for the period by the average balance during the period.
(18)  Under the Credit Agreement, management calculates Credit Agreement EBITDA for a trailing twelve month period at the end of each fiscal quarter.
(19)  Represents estimated potential future cost savings, operating expense reductions or other synergies included in Credit Agreement EBITDA in accordance with the Credit Agreement relating to the acquisition of NPH.  Such amounts do not represent actual performance and there can be no assurance that any such cost savings, operating expense reductions or other synergies will be realized.
(20)  Represents the portion of Credit Agreement EBITDA that management estimates to be attributable to the NPH Acquisition, which is added back to offset NPH run-rate EBITDA accretion, in accordance with the Credit Agreement.
(21)  Represents items that are adjustable in accordance with the Credit Agreement to calculate Credit Agreement EBITDA, including employee severance costs, employee signing costs, employee retention or completion bonuses, and other non-recurring costs.
(22)  Consists of cash unrestricted by the Credit Agreement and other regulations available for operating, investing, and financing uses.
(23)  Calculated based on the average advisor count from the current period and prior period.
(24)  Calculated based on the end of period Total Brokerage and Advisory Assets divided by end of period Advisor count.
(25)  Represents the amortization expense amount of forgivable loans from transition assistance paid to advisors and financial institutions.
(26)  Represents annualized Gross Profit (FN 1) for the period, divided by average month-end Total Brokerage and Advisory Assets for the period.  Prior to Q4 2017, Management calculated Gross Profit ROA by dividing annualized Gross Profit for the period by Total Brokerage and Advisory Assets at the end of the period. Amounts in this release reflect this new methodology.
(27)  Represents annualized operating expenses for the period, excluding production-related expense, divided by average month-end Total Brokerage and Advisory Assets for the period. Production-related expense includes commissions and advisory expense and brokerage, clearing and exchange expense. For purposes of this metric, operating expenses includes Core G&A (FN 3), Regulatory, Promotional, Employee Share Based Compensation, Depreciation & Amortization, and Amortization of Intangible Assets.  Prior to Q4 2017, Management calculated OPEX ROA by dividing annualized operating expenses for the period by Total Brokerage and Advisory Assets at the end of the period. Amounts in this release reflect this new methodology.
(28)  EBIT ROA is calculated as Gross Profit ROA less OPEX ROA.
(29)  Reflects retention of commission and advisory revenues, calculated by deducting the prior year production of the annualized year-to-date attrition rate, over the prior year total production.
(30)  Recurring Gross Profit Rate refers to the percentage of the Company’s gross profit, a non-GAAP financial measure, that was recurring for the period presented. 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, cash sweep 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, such as non-GDC sensitive production expenses, on a pro-rata basis against specific revenue lines at its discretion.
(31)  Capital Allocation per Share equals the amount of capital allocated for share repurchases and cash dividends divided by the diluted weighted-average shares outstanding.
(32)  EPS prior to amortization of intangible assets is a non-GAAP financial measure. Please see a description of EPS prior to amortization of intangible assets under “Non-GAAP Financial Measures” on page 3 of this release for additional information. Below is a reconciliation of EPS, prior to amortization of intangible assets against the Company’s GAAP EPS for the periods presented:

EPS Reconciliation (in thousands, except per share data)Q1 2018
EPS$1.01 
Amortization of Intangible Assets$13,222 
Tax Benefit(3,702)
Amortization of Intangible Assets Net of Tax Benefit$9,520 
Diluted Share Count92,784 
EPS Impact$0.10 
EPS Prior to Amortization of Intangible Assets$1.11