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LPL Financial Announces Third Quarter 2022 Results

Key Financial Results

  • Net Income was $232 million, translating to diluted earnings per share ("EPS") of $2.86, up 127% from a year ago
  • EPS prior to amortization of intangible assets and acquisition costs* increased 77% year-over-year to $3.13
    • Gross profit* increased 33% year-over-year to $838 million
    • Core G&A* increased 10% year-over-year to $298 million
    • EBITDA* increased 84% year-over-year to $414 million

Key Business Results

  • Total advisory and brokerage assets decreased 8% year-over-year to $1.04 trillion
    • Advisory assets decreased 9% year-over-year to $543 billion
    • Advisory assets as a percentage of total assets decreased to 52.3%, down from 52.4% a year ago
  • Total organic net new assets were $20 billion, representing 7% annualized growth, and $101 billion over the past twelve months, representing 9% growth
    • Organic net new advisory assets were $11 billion, representing 8% annualized growth
    • Organic net new brokerage assets were $9 billion, representing 7% annualized growth
  • Recruited assets(1) were $13 billion
    • Recruited assets over the trailing twelve months were $84 billion, up approximately 2% from a year ago
  • LPL Services Group had annualized revenue of $34 million in Q3, up approximately 51% from a year ago
    • Services Group subscriptions were 4,233 at the end of Q3, up 1,635 year-over-year
  • Advisor count(2) was 21,044, up 173 sequentially and 1,417 year-over-year
  • Total client cash balances were $67 billion, a decrease of $3 billion sequentially and an increase of $16 billion year-over-year
    • Client cash balances as a percentage of total assets were 6.4%, down from 6.5% in the prior quarter, and up from 4.5% a year ago

Key Capital and Liquidity Results

  • Corporate cash(3) was $424 million
  • Leverage ratio(4) was 1.72x
  • Share repurchases were $75 million for 366 thousand shares at an average price of $205 per share
  • Dividends paid of $20 million

Key Updates

  • People's United Bank: Onboarded the retail brokerage and advisory business of People's United Bank, with $4.4 billion of total assets, of which $3.0 billion transitioned onto our platform in Q3
  • Cash Sweep Program: Implemented the client cash account ("CCA") as our primary sweep overflow vehicle
  • Core G&A*: Raised the low end of our 2022 outlook range by $15 million, translating to an updated 2022 Core G&A* range of $1,185 million to $1,195 million
  • Capital Management:
    • Lowered management target leverage ratio to a range of 1.5x to 2.5x, from 2.0x to 2.75x
    • Plan to increase share repurchases in Q4 to $150 million
    • Announced an increase to the Company's share repurchase authorization with $2 billion available for repurchases beginning in 2023

*See the Non-GAAP Financial Measures section and the endnotes to this release for further details about these non-GAAP financial measures.

SAN DIEGO, Oct. 27, 2022 (GLOBE NEWSWIRE) -- LPL Financial Holdings Inc. (Nasdaq: LPLA) (the “Company”) today announced results for its third quarter ended September 30, 2022, reporting net income of $232 million, or $2.86 per share. This compares with $103 million, or $1.26 per share, in the third quarter of 2021 and $161 million, or $1.97 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 continue to enhance the appeal of our model, by helping our advisors differentiate and win with their clients, and operate thriving businesses. This combination contributed to another quarter of solid recruiting, retention, and business growth."

"We delivered another quarter of solid results in Q3," said Matt Audette, CFO. "We invested to drive growth while staying disciplined on expenses, successfully onboarded People’s United Bank, and continued to deliver solid organic growth. Going forward, our business momentum and financial strength position us well to continue creating long-term shareholder value."

Dividend Declaration

The Company's Board of Directors declared a $0.25 per share dividend to be paid on November 28, 2022 to all stockholders of record as of November 10, 2022.

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 27. The conference call will be accessible at investor.lpl.com/events, with a replay available until November 17.

Contacts

Investor Relations
investor.relations@lplfinancial.com
(617) 897-4574

Media Relations
media.relations@lplfinancial.com
(980) 321-1232

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(5), supporting more than 21,000 financial advisors, including advisors at approximately 1,100 institution-based investment programs and at approximately 500 registered investment advisor ("RIA") firms nationwide. We are steadfast in our commitment to the advisor-centered model and the belief that investors deserve access to personalized 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.

LPL and its affiliated companies provide financial services only from the United States.

Securities and Advisory services offered through LPL Financial LLC ("LPL Financial"), an SEC-registered broker-dealer and 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

This press release contains statements regarding:

  • the amount and timing of the onboarding of brokerage and advisory assets from People's United Bank ("People's United");
  • the Company's future financial and operating results, growth, priorities and business strategies, including forecasts and statements relating to future expenses (including 2022 Core G&A* outlook) and target leverage ratio; and
  • future capabilities, future advisor service experience, future investments and capital deployment, including share repurchase activity, if any, and long-term shareholder value.

These and any other statements that are not related to present facts or current conditions, or that are not purely historical, constitute forward-looking statements. They reflect the Company's expectations and objectives as of October 27, 2022 and are not guarantees that expectations or objectives expressed or implied will be achieved. The achievement of such expectations and objectives involves risks and uncertainties that may cause actual results, levels of activity or the timing of events to differ materially from the expressed or implied expectations of the forward-looking statements. Important factors that could cause or contribute to such differences include:

  • difficulties and delays in onboarding the assets of People's United's advisors;
  • disruptions in the businesses of the Company or People's United that could make it more difficult to maintain relationships with their respective advisors and their clients;
  • the choice by clients of People's United advisors not to open brokerage and/or advisory accounts at the Company;
  • 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;
  • 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; and
  • the other factors set forth in the Company's most recent Annual Report on Form 10-K, as may be amended or updated in the Company's Quarterly Reports on Form 10-Q 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, and you should not rely on statements contained herein as representing the Company's view as of any date subsequent to the date of this press release.

LPL Financial Holdings Inc.
Condensed Consolidated Statements of Income(6)
(In thousands, except per share data)
(Unaudited)

 Three Months Ended Three Months Ended 
 September 30,June 30, September 30,  
  2022  2022 Change 2021Change
REVENUE     
Advisory$923,766 $1,001,851 (8%)$959,733(4%)
Commission 584,980  573,376 2% 610,384(4%)
Asset-based 489,263  363,597 35% 301,70162%
Service and fee 121,745  112,802 8% 105,07916%
Transaction 43,328  44,416 (2%) 35,28323%
Interest income, net 22,092  10,121 118% 7,365200%
Other (22,116) (67,276)n/m  1,218n/m 
Total revenue 2,163,058  2,038,887 6% 2,020,7637%
EXPENSE     
Advisory and commission 1,304,528  1,304,422 % 1,366,832(5%)
Compensation and benefits 208,051  196,699 6% 185,98012%
Promotional 94,510  78,027 21% 96,012(2%)
Occupancy and equipment 54,636  55,906 (2%) 52,6954%
Depreciation and amortization 51,669  48,453 7% 38,40935%
Interest expense on borrowings 33,186  28,755 15% 27,06323%
Amortization of other intangibles 22,654  21,168 7% 21,5315%
Brokerage, clearing and exchange 20,850  23,362 (11%) 22,828(9%)
Communications and data processing 17,812  16,223 10% 17,824%
Professional services 16,871  17,290 (2%) 16,7221%
Other 31,557  36,261 (13%) 36,888(14%)
Total expense 1,856,324  1,826,566 2% 1,882,784(1%)
INCOME BEFORE PROVISION FOR INCOME TAXES 306,734  212,321 44% 137,979122%
PROVISION FOR INCOME TAXES 74,403  51,776 44% 34,915113%
NET INCOME$232,331 $160,545 45%$103,064125%
EARNINGS PER SHARE     
Earnings per share, basic$2.91 $2.01 45%$1.29126%
Earnings per share, diluted$2.86 $1.97 45%$1.26127%
Weighted-average shares outstanding, basic 79,805  79,947 % 80,182%
Weighted-average shares outstanding, diluted 81,250  81,410 % 81,849(1%)



LPL Financial Holdings Inc.

Condensed Consolidated Statements of Income(6)
(In thousands, except per share data)
(Unaudited)

 Nine Months Ended 
 September 30, 
  2022  2021Change
REVENUE   
Advisory$2,972,714 $2,528,09218%
Commission 1,743,881  1,765,846(1%)
Asset-based 1,149,261  846,02736%
Service and fee 347,359  301,37615%
Transaction 134,470  117,03015%
Interest income, net 39,958  20,79792%
Other (120,005) 47,470n/m 
Total revenue 6,267,638  5,626,63811%
EXPENSE   
Advisory and commission 3,983,084  3,748,9336%
Compensation and benefits 596,784  531,37312%
Promotional 259,539  214,54221%
Occupancy and equipment 161,654  137,73117%
Depreciation and amortization 145,576  110,61232%
Interest expense on borrowings 89,152  77,29315%
Brokerage, clearing and exchange 66,812  65,6512%
Amortization of other intangibles 65,018  58,88710%
Professional services 53,183  54,847(3%)
Communications and data processing 49,162  44,74710%
Loss on extinguishment of debt   24,400(100%)
Other 105,240  92,85213%
Total expense 5,575,204  5,161,8688%
INCOME BEFORE PROVISION FOR INCOME TAXES 692,434  464,77049%
PROVISION FOR INCOME TAXES 165,814  112,98547%
NET INCOME$526,620 $351,78550%
EARNINGS PER SHARE   
Earnings per share, basic$6.59 $4.4050%
Earnings per share, diluted$6.47 $4.3050%
Weighted-average shares outstanding, basic 79,909  79,981%
Weighted-average shares outstanding, diluted 81,415  81,772%



LPL Financial Holdings Inc.

Condensed Consolidated Statements of Financial Condition
(In thousands, except share data)
(Unaudited)

 September 30, 2022June 30, 2022December 31, 2021
ASSETS
Cash and equivalents$1,219,418 $700,395 $495,246 
Cash and equivalents segregated under federal or other regulations 2,268,090  863,500  1,496,463 
Restricted cash 91,712  89,833  80,655 
Receivables from clients, net 635,380  695,405  578,889 
Receivables from brokers, dealers and clearing organizations 120,211  71,555  102,503 
Advisor loans, net 1,022,546  1,035,158  963,869 
Other receivables, net 645,731  600,906  581,483 
Investment securities ($45,093, $35,377 and $39,274 at fair value at September 30, 2022, June 30, 2022 and December 31, 2021, respectively) 62,177  47,695  49,192 
Property and equipment, net 751,478  726,224  658,841 
Goodwill 1,642,468  1,642,468  1,642,443 
Other intangibles, net 427,791  433,485  455,028 
Other assets 808,781  829,862  886,988 
Total assets$9,695,783 $7,736,486 $7,991,600 
LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES:   
Client payables$3,275,860 $1,498,374 $1,712,224 
Payables to brokers, dealers and clearing organizations 168,485  154,909  170,119 
Accrued advisory and commission expenses payable 194,480  199,691  222,379 
Corporate debt and other borrowings, net 2,719,096  2,720,747  2,814,044 
Accounts payable and accrued liabilities 392,810  363,768  384,025 
Other liabilities 945,540  954,937  1,018,276 
Total liabilities 7,696,271  5,892,426  6,321,067 
STOCKHOLDERS’ EQUITY:   
Common stock, $0.001 par value; 600,000,000 shares authorized; 129,543,504 shares, 129,365,714 shares and 128,758,086 shares issued at September 30, 2022, June 30, 2022 and December 31, 2021, respectively 129  129  129 
Additional paid-in capital 1,896,433  1,879,312  1,841,402 
Treasury stock, at cost — 49,784,348 shares, 49,427,892 shares and 48,768,145 shares at September 30, 2022, June 30, 2022 and December 31, 2021, respectively (2,696,591) (2,620,798) (2,498,600)
Retained earnings 2,799,541  2,585,417  2,327,602 
Total stockholders’ equity 1,999,512  1,844,060  1,670,533 
Total liabilities and stockholders’ equity$9,695,783 $7,736,486 $7,991,600 



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 2022Q2 2022ChangeQ3 2021Change
Gross Profit(7)     
Advisory$923,766 $1,001,851 (8%)$959,733 (4%)
Sales-based commissions 269,893  252,493 7% 239,804 13%
Trailing commissions 315,087  320,883 (2%) 370,580 (15%)
Advisory fees and commissions 1,508,746  1,575,227 (4%) 1,570,117 (4%)
Production-based payout(8) (1,326,331) (1,370,046)(3%) (1,368,348)(3%)
Advisory fees and commissions, net of payout 182,415  205,181 (11%) 201,769 (10%)
Client cash(9) 303,681  156,219 94% 90,941 234%
Other asset-based(10) 194,270  208,489 (7%) 211,050 (8%)
Service and fee 121,745  112,802 8% 105,079 16%
Transaction 43,328  44,416 (2%) 35,283 23%
Interest income and other, net(11) 13,091  7,358 78% 9,809 33%
Total net advisory fees and commissions and attachment revenue 858,530  734,465 17% 653,931 31%
Brokerage, clearing and exchange expense (20,850) (23,362)(11%) (22,828)(9%)
Gross Profit(7) 837,680  711,103 18% 631,103 33%
      
G&A Expense     
Core G&A(12) 298,026  285,973 4% 270,865 10%
Regulatory charges 7,847  8,069 (3%) 5,976 31%
Promotional (ongoing)(13)(14) 98,667  83,791 18% 83,630 18%
Acquisition costs(14) 7,498  8,909 (16%) 35,887 (79%)
Employee share-based compensation 11,399  13,664 (17%) 9,763 17%
Total G&A 423,437  400,406 6% 406,121 4%
EBITDA(15) 414,243  310,697 33% 224,982 84%
Depreciation and amortization 51,669  48,453 7% 38,409 35%
Amortization of other intangibles 22,654  21,168 7% 21,531 5%
Interest expense on borrowings 33,186  28,755 15% 27,063 23%
INCOME BEFORE PROVISION FOR INCOME TAXES 306,734  212,321 44% 137,979 122%
PROVISION FOR INCOME TAXES 74,403  51,776 44% 34,915 113%
NET INCOME$232,331 $160,545 45%$103,064 125%
Earnings per share, diluted$2.86 $1.97 45%$1.26 127%
Weighted-average shares outstanding, diluted 81,250  81,410 % 81,849 (1%)
EPS prior to amortization of intangible assets and acquisition costs(16)$3.13 $2.24 40%$1.77 77%



LPL Financial Holdings Inc.

Operating Metrics
(Dollars in billions, except where noted)
(Unaudited)

 Q3 2022Q2 2022ChangeQ3 2021Change
Market Drivers     
S&P 500 Index (end of period) 3,586  3,785 (5%) 4,308 (17%)
Russell 2000 Index (end of period) 1,665  1,708 (3%) 2,204 (24%)
Fed Funds daily effective rate (average bps) 219  73 146bps 9 210bps
      
Advisory and Brokerage Assets(17)     
Advisory assets$542.6 $558.6 (3%)$594.0 (9%)
Brokerage assets 495.8  506.0 (2%) 538.6 (8%)
Total Advisory and Brokerage Assets$1,038.4 $1,064.6 (2%)$1,132.6 (8%)
Advisory as a % of Total Advisory and Brokerage Assets 52.3% 52.5%(20bps) 52.4%(10bps)
      
Assets by Platform     
Corporate advisory assets(18)$361.6 $372.1 (3%)$395.6 (9%)
Independent RIA advisory assets(18) 181.0  186.5 (3%) 198.4 (9%)
Brokerage assets 495.8  506.0 (2%) 538.6 (8%)
Total Advisory and Brokerage Assets$1,038.4 $1,064.6 (2%)$1,132.6 (8%)
      
Centrally Managed Assets     
Centrally managed assets(19)$83.0 $85.6 (3%)$88.6 (6%)
Centrally Managed as a % of Total Advisory Assets 15.3% 15.3%—bps 14.9%40bps



LPL Financial Holdings Inc.

Operating Metrics
(Dollars in billions, except where noted)
(Unaudited)

 Q3 2022Q2 2022ChangeQ3 2021Change
Net New Assets (NNA)(20)     
Net new advisory assets$11.0 $11.4 n/m$21.7 n/m
Net new brokerage assets 8.9  25.8 n/m 7.3 n/m
Total Net New Assets$19.9 $37.2 n/m$29.0 n/m
      
Organic Net New Assets(21)     
Organic net new advisory assets$11.0 $11.4 n/m$21.1 n/m
Organic net new brokerage assets 8.9  25.8 n/m 5.6 n/m
Total Organic Net New Assets$19.9 $37.2 n/m$26.7 n/m
      
Net brokerage to advisory conversions(22)$1.7 $1.8 n/m$3.1 n/m
Organic advisory NNA annualized growth(23) 7.9% 7.3%n/m 15.6%n/m
Total organic NNA annualized growth(23) 7.5% 12.8%n/m 10.2%n/m
      
Net New Advisory Assets(20)     
Corporate platform net new advisory assets$7.1 $8.3 n/m$15.2 n/m
Independent RIA net new advisory assets 3.9  3.1 n/m 6.5 n/m
Total Net New Advisory Assets$11.0 $11.4 n/m$21.7 n/m
Centrally managed net new advisory assets(20)$2.2 $3.2 n/m$3.9 n/m
      
Client Cash Balances(24)     
Insured cash account sweep$47.7 $40.8 17%$30.5 56%
Deposit cash account sweep 12.7  12.3 3% 8.6 48%
Total Bank Sweep 60.3  53.1 14% 39.0 55%
Money market sweep 3.2  15.0 (79%) 9.9 (68%)
Total Client Cash Sweep Held by Third Parties 63.5  68.1 (7%) 48.9 30%
Client cash account 3.3  1.5 120% 1.6 106%
Total Client Cash Balances$66.8 $69.6 (4%)$50.5 32%
Client Cash Balances as a % of Total Assets 6.4% 6.5%(10bps) 4.5%190bps
      
Client Cash Balance Average Yields - bps(25)     
Insured cash account sweep 212  134 78 101 111
Deposit cash account sweep 157  63 94 24 133
Money market sweep 38  44 (6) 3 35
Client cash account(26) 208  52 156 14 194
Total Client Cash Balance Average Yield - bps 180  98 82 75 105
      
Net buy (sell) activity(27)$20.3 $5.3 n/m$17.6 n/m



LPL Financial Holdings Inc.

Monthly Metrics
(Dollars in billions, except where noted)
(Unaudited)

 September 2022August 2022ChangeJuly 2022June 2022
Advisory and Brokerage Assets(17)     
Advisory assets$542.6$580.0(6%)$593.4$558.6
Brokerage assets 495.8 524.9(6%) 530.9 506.0
Total Advisory and Brokerage Assets$1,038.4$1,104.8(6%)$1,124.3$1,064.6
      
Net New Assets (NNA)(20)     
Net new advisory assets$3.8$4.2n/m$3.0$4.1
Net new brokerage assets 1.6 5.5n/m 1.8 6.5
Total Net New Assets$5.4$9.7n/m$4.8$10.5
Net brokerage to advisory conversions(22)$0.4$0.9n/m$0.4$0.5
      
Organic Net New Assets (NNA)(21)     
Net new advisory assets$3.8$4.2n/m$3.0$4.1
Net new brokerage assets 1.6 5.5n/m 1.8 6.5
Total Organic Net New Assets$5.4$9.7n/m$4.8$10.5
      
Client Cash Balances(24)     
Insured cash account sweep$47.7$47.11%$41.9$40.8
Deposit cash account sweep 12.7 12.42% 12.3 12.3
Total Bank Sweep 60.3 59.51% 54.2 53.1
Money market sweep 3.2 3.2—% 13.9 15.0
Total Client Cash Sweep Held by Third Parties 63.5 62.71% 68.1 68.1
Client cash account 3.3 3.16% 1.3 1.5
Total Client Cash Balances$66.8$65.82%$69.4$69.6
      
Net buy (sell) activity(27)$5.2$10.0n/m$5.1$2.0
      
Market Drivers     
S&P 500 index (end of period) 3,586 3,955(9%) 4,130 3,785
Russell 2000 Index (end of period) 1,665 1,844(10%) 1,885 1,708
Fed funds effective rate (average bps) 260 23327bps 164 119



LPL Financial Holdings Inc.

Financial Measures
(Dollars in thousands, except where noted)
(Unaudited)

 Q3 2022Q2 2022ChangeQ3 2021Change
Commission Revenue by Product     
Annuities$327,386 $311,263 5%$314,134 4%
Mutual funds 164,190  168,234 (2%) 201,120 (18%)
Fixed income 32,729  29,013 13% 30,092 9%
Equities 24,278  29,909 (19%) 28,943 (16%)
Other 36,397  34,957 4% 36,095 1%
Total commission revenue$584,980 $573,376 2%$610,384 (4%)
      
Commission Revenue by Sales-based and Trailing   
Sales-based commissions     
Annuities$152,343 $129,371 18%$108,983 40%
Mutual funds 34,074  39,522 (14%) 46,934 (27%)
Fixed income 32,729  29,013 13% 30,092 9%
Equities 24,278  29,909 (19%) 28,943 (16%)
Other 26,469  24,678 7% 24,852 7%
Total sales-based commissions$269,893 $252,493 7%$239,804 13%
Trailing commissions     
Annuities$175,043 $181,892 (4%)$205,151 (15%)
Mutual funds 130,116  128,712 1% 154,186 (16%)
Other 9,928  10,279 (3%) 11,243 (12%)
Total trailing commissions$315,087 $320,883 (2%)$370,580 (15%)
Total commission revenue$584,980 $573,376 2%$610,384 (4%)
      
Payout Rate(8) 87.91% 86.97%94bps 87.15%76bps



LPL Financial Holdings Inc.

Capital Management Measures
(Dollars in thousands, except where noted)
(Unaudited)

 Q3 2022Q2 2022Q4 2021
Cash and equivalents$1,219,418 $700,395 $495,246 
Cash at regulated subsidiaries (917,700) (546,299) (284,105)
Excess cash at regulated subsidiaries per the Credit Agreement 122,562  87,400  25,846 
Corporate Cash(3)$424,280 $241,496 $236,987 
    
Corporate Cash(3)   
Cash at Parent$292,885 $144,358 $202,407 
Excess cash at regulated subsidiaries per the Credit Agreement 122,562  87,400  25,846 
Cash at non-regulated subsidiaries 8,833  9,738  8,734 
Corporate Cash$424,280 $241,496 $236,987 
    
Leverage Ratio   
Total debt$2,740,575 $2,743,250 $2,838,600 
Total corporate cash 424,280  241,496  236,987 
Credit Agreement Net Debt$2,316,295 $2,501,754 $2,601,613 
Credit Agreement EBITDA (trailing twelve months)(28)$1,344,524 $1,194,944 $1,150,691 
Leverage Ratio1.72x2.09x2.26x


 September 30, 2022 
Total DebtBalanceCurrent Applicable
Margin
Interest RateMaturity
Revolving Credit Facility(a)$LIBOR+125bps4.393%3/15/2026
Broker-Dealer Revolving Credit Facility(b) FFR+125bps4.330%8/3/2023
Senior Secured Term Loan B 1,040,575LIBOR+175 bps(c)4.314%11/12/2026
Senior Unsecured Notes 400,0004.625% Fixed4.625%11/15/2027
Senior Unsecured Notes 900,0004.000% Fixed4.000%3/15/2029
Senior Unsecured Notes 400,0004.375% Fixed4.375%5/15/2031
Total / Weighted Average$2,740,575 4.265% 

(a)   Secured borrowing capacity of $1 billion at LPL Holdings, Inc. (the "Parent").
(b)   Unsecured borrowing capacity of $1 billion 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.

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

 Q3 2022Q2 2022ChangeQ3 2021Change
Advisors     
Advisors 21,044  20,871 1% 19,627 7%
Net new advisors 173  780 n/m 513 n/m
Annualized advisory fees and commissions per advisor(29)$288 $308 (6%)$324 (11%)
Average total assets per advisor ($ in millions)(30)$49.3 $51.0 (3%)$57.7 (15%)
Transition assistance loan amortization ($ in millions)(31)$42.5 $42.7 —%$38.4 11%
Total client accounts (in millions) 7.8  7.6 3% 7.1 10%
      
Employees 6,141  6,099 1% 5,421 13%
      
Services Group     
Services Group subscriptions(32)     
Professional Services 1,459  1,377 6% 1,099 33%
Business Optimizers 2,605  2,425 7% 1,499 74%
Planning and Advice 169  94 80%  100%
Total Services Group subscriptions 4,233  3,896 9% 2,598 63%
      
AUM retention rate (quarterly annualized)(33) 98.4% 98.0%40bps 97.8%60bps
      
Capital Management     
Capital expenditures ($ in millions)(34)$82.4 $76.3 8%$54.9 50%
      
Share repurchases ($ in millions)$75.0 $50.0 50%$40.0 88%
Dividends ($ in millions) 20.0  20.0 —% 20.1 —%
Total Capital Returned ($ in millions)$95.0 $70.0 36%$60.1 58%

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 other intangibles and acquisition costs, divided by the weighted average number of diluted shares outstanding for the applicable period. The Company presents adjusted net income and EPS prior to amortization of intangible assets and acquisition costs because management believes that these metrics can provide investors with useful insight into the Company’s core operating performance by excluding non-cash items and acquisition costs that management does not believe impact the Company’s ongoing operations. Adjusted net income and EPS prior to amortization of intangible assets and acquisition costs are not measures of the Company's financial performance under GAAP and should not be considered as alternatives to net income, earnings per diluted share or any other performance measure derived in accordance with GAAP. 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 revenue less advisory and commission expense and brokerage, clearing and exchange expense. All other expense categories, including depreciation and amortization of property and equipment and amortization of other intangibles, are considered 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 expense less the following expenses: advisory and commission; depreciation and amortization; interest expense on borrowings; brokerage, clearing and exchange; amortization of other intangibles; loss on extinguishment of debt; promotional; acquisition costs; employee share-based compensation; and regulatory charges. Management presents core G&A because it believes core G&A reflects the corporate expense categories over which management can generally exercise a measure of control, compared with expense items over which management either cannot exercise control, such as advisory and commission, or which management views as promotional expense necessary to support advisor growth and retention, including conferences and transition assistance. Core G&A is not a measure of the Company’s total expense as calculated in accordance with GAAP. For a reconciliation of the Company's total expense to core G&A, please see the endnote disclosures of this release. The Company does not provide an outlook for its total expense because it contains expense components, such as advisory and commission, that are market-driven and over which the Company cannot exercise control. Accordingly a reconciliation of the Company’s outlook for total expense to an outlook for core G&A cannot be made available without unreasonable effort.

EBITDA

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

Credit Agreement EBITDA

Credit Agreement EBITDA is defined in, and calculated by management in accordance with, the Company's amended and restated credit agreement (“Credit Agreement”) as “Consolidated EBITDA,” which is Consolidated Net Income (as defined in the Credit Agreement) plus interest expense on borrowings, provision for income taxes, depreciation and amortization, and amortization of other intangibles, and is further adjusted to exclude certain non-cash charges and other adjustments, including unusual or non-recurring charges, and gains, and to include future expected cost savings, operating expense reductions or other synergies from certain transactions. 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 net income to Credit Agreement EBITDA, please see the endnote disclosures in 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 LLC ("LPL Financial"), associated with advisors who transferred their licenses to LPL Financial during the period. The estimate is based on prior business reported by the advisors, which has not been independently and fully verified by LPL Financial. The actual transition of assets to LPL Financial generally occurs over several quarters 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 advisor. Year-over-year figure reflects the addition of 282 advisors from Waddell & Reed, LLC in Q3 2021 and 562 advisors from CUNA Brokerage Services, Inc. in Q2 2022.

(3) Corporate cash, a component of cash and equivalents, is the sum of cash and equivalents from the following: (1) cash and equivalents held at LPL Holdings, Inc., (2) cash and equivalents held at regulated subsidiaries as defined by the Company's Credit Agreement, which include LPL Financial and The Private Trust Company N.A., in excess of the capital requirements of the Company's Credit Agreement (which, in the case of LPL Financial, is net capital in excess of 10% of its aggregate debits, or five times the net capital required in accordance with Exchange Act Rule 15c3-1) and (3) cash and equivalents held at non-regulated subsidiaries.

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

(5) The Company was named Top RIA custodian (Cerulli Associates, 2020 U.S. RIA Marketplace Report); No. 1 Independent Broker-Dealer in the U.S. (based on total revenues, Financial Planning magazine 1996-2022); and, among third-party providers of brokerage services to banks and credit unions, No. 1 in AUM Growth from Financial Institutions; No. 1 in Market Share of AUM from Financial Institutions; No. 1 in Market Share of Revenue from Financial Institutions; No. 1 on Financial Institution Market Share; No. 1 on Share of Advisors (2021-2022 Kehrer Bielan Research and Consulting Annual TPM Report). Fortune 500 as of June 2021.

(6) Certain financial statement line items in the condensed consolidated statements of income have been reclassified to more closely align with industry practice and the Company's business and to better serve financial statement users. Prior period amounts have been reclassified to conform to current presentation; however, these reclassifications did not impact total net income. See Note 2 - Summary of Significant Accounting Policies in the Company's 2021 Annual Report on Form 10-K and subsequent Quarterly Reports on Form 10-Q for additional information.

(7) 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 2022Q2 2022Q3 2021
Total revenue$2,163,058$2,038,887$2,020,763
Advisory and commission expense 1,304,528 1,304,422 1,366,832
Brokerage, clearing and exchange expense 20,850 23,362 22,828
Gross profit$837,680$711,103$631,103

(8) Production-based payout is a financial measure calculated as advisory and commission expense plus (less) advisor deferred compensation expense. The payout rate is calculated by dividing the production-based payout by total advisory and commission revenue. Below is a reconciliation of the Company’s advisory and commission expense to the production-based payout and a calculation of the payout rate for the periods presented (in thousands, except payout rate):

 Q3 2022Q2 2022Q3 2021
Advisory and commission expense$1,304,528 $1,304,422 $1,366,832 
Plus (Less): Advisor deferred compensation expense 21,803  65,624  1,516 
Production-based payout$1,326,331 $1,370,046 $1,368,348 
    
Advisory and commission revenue$1,508,746 $1,575,227 $1,570,117 
    
Payout rate 87.91% 86.97% 87.15%

(9) The following table sets forth asset-based revenue disaggregated by product category and reconciles this revenue to client cash revenue as presented in Management's Statements of Operations for the periods presented (in thousands):

 Q3 2022Q2 2022Q3 2021
Asset-based revenue - Condensed Consolidated Statements of Income   
Client cash$294,993$154,700$91,257 
Other asset-based(10) 194,270 208,897 210,444 
Total asset-based revenue$489,263$363,597$301,701 
    
Client cash- Management's Statements of Operations   
Client cash$294,993$154,700$91,257 
Plus: Interest income CCA balances segregated under federal or other regulations(11) 8,688 1,111 290 
Plus (Less): Revenue from purchased money funds(10)  408 (606)
Total client cash revenue$303,681$156,219$90,941 

(10) Consists of revenue from the Company's sponsorship programs with financial product manufacturers and omnibus processing and networking services and revenue from purchased money market funds but does not include fees from client cash programs. Other asset-based revenue is a component of asset-based revenue and is derived from the Company's condensed consolidated statements of income.

(11) Interest income and other, net is a financial measure calculated as interest income, net plus (less) other revenue, plus (less) advisor deferred compensation expense, less interest income on CCA balances segregated under federal or other regulations. Below is a reconciliation of interest income, net and other revenue to interest income and other, net for the periods presented (in thousands):     

 Q3 2022Q2 2022Q3 2021
Interest income, net$22,092 $10,121 $7,365 
(Less) Plus: Other revenue (22,116) (67,276) 1,218 
Plus (Less): Advisor deferred compensation expense 21,803  65,624  1,516 
(Less): Interest income on CCA balances segregated under federal or other regulations (8,688) (1,111) (290)
Interest income and other, net$13,091 $7,358 $9,809 

(12) 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 the Company's total expense to core G&A for the periods presented (in thousands):

 Q3 2022Q2 2022Q3 2021
Core G&A Reconciliation   
Total expense$1,856,324$1,826,566$1,882,784
Advisory and commission 1,304,528 1,304,422 1,366,832
Depreciation and amortization 51,669 48,453 38,409
Interest expense on borrowings 33,186 28,755 27,063
Brokerage, clearing and exchange 20,850 23,362 22,828
Amortization of other intangibles 22,654 21,168 21,531
Total G&A 423,437 400,406 406,121
Promotional (ongoing)(13)(14) 98,667 83,791 83,630
Employee share-based compensation 11,399 13,664 9,763
Acquisition costs(14) 7,498 8,909 35,887
Regulatory charges 7,847 8,069 5,976
Core G&A$298,026$285,973$270,865

(13) Promotional (ongoing) for the three months ended September 30, 2022 and June 30, 2022 includes $4.4 million and $5.8 million, respectively, of support costs related to full-time employees that are classified within Compensation and benefits expense in the condensed consolidated statements of income.

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

 Q3 2022Q2 2022Q3 2021
Acquisition costs   
Compensation and benefits$4,722$6,661$14,843
Professional services 2,132 1,898 5,804
Promotional(13) 282 31 12,382
Other 362 319 2,858
Acquisition costs$7,498$8,909$35,887

(15) 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 net income to EBITDA for the periods presented (in thousands):

 Q3 2022Q2 2022Q3 2021
EBITDA Reconciliation   
Net income$232,331$160,545$103,064
Interest expense on borrowings 33,186 28,755 27,063
Provision for income taxes 74,403 51,776 34,915
Depreciation and amortization 51,669 48,453 38,409
Amortization of other intangibles 22,654 21,168 21,531
EBITDA$414,243$310,697$224,982

(16) 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 of 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 2022Q2 2022Q3 2021
 AmountPer ShareAmountPer ShareAmountPer Share
Net income / earnings per diluted share$232,331 $2.86 $160,545 $1.97 $103,064 $1.26 
Amortization of other intangibles 22,654  0.28  21,168  0.26  21,531  0.26 
Acquisition costs 7,498  0.09  8,909  0.11  35,887  0.44 
Tax benefit (7,930) (0.10) (7,880) (0.10) (15,399) (0.19)
Adjusted net income / EPS prior to amortization of intangible assets and acquisition costs$254,553 $3.13 $182,742  2.24 $145,083 $1.77 
Diluted share count 81,250   81,410   81,849  

(17) Consists of total advisory and brokerage assets under custody at the Company's broker-dealer subsidiary, LPL Financial, and Waddell & Reed, LLC. As of September 30, 2022, there were no assets under custody at Waddell & Reed, LLC.

(18) Assets on the Company's corporate advisory platform are serviced by investment advisor representatives of LPL Financial or Allen & Company of Florida, LLC. Assets on the Company's independent RIA advisory platform are serviced by investment advisor representatives of separate registered investment advisor firms rather than representatives of LPL Financial.

(19) Consists of advisory assets in LPL Financial’s Model Wealth Portfolios, Optimum Market Portfolios, Personal Wealth Portfolios and Guided Wealth Portfolios platforms.

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

(21) Prior to Q4 2021, organic net new assets do not include the assets of Waddell & Reed, LLC.

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

(23) 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. Prior to Q4 2021, organic net new assets growth rates do not include the assets of Waddell & Reed, LLC.

(24) During the second quarter of 2022, the Company updated its definition of client cash balances to include CCA and exclude purchased money market funds. CCA balances include cash that clients have deposited with LPL Financial that is included in Client payables in the condensed consolidated balance sheets. Prior period disclosures have been updated to reflect this change as applicable. The following table presents the Company's purchased money market funds for the periods presented (in billions):

 Q3 2022Q2 2022Q3 2021
Purchased money market funds$4.2$1.9$1.8

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

(26) Calculated by dividing interest income earned on cash held in the CCA for the period by the average CCA balance, excluding cash held in CCA that has been used to fund margin lending, during the period. The remaining cash is primarily held in cash segregated under federal or other regulations in the condensed consolidated balance sheets. Cash held in the CCA that has been used to fund margin lending is as follows for the periods presented (in billions):

 Q3 2022Q2 2022Q3 2021
CCA balances that have been used to fund margin$0.5$0.5$0.5

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

(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 trailing twelve month net income to trailing twelve month EBITDA and Credit Agreement EBITDA for the periods presented (in thousands):         

 Q3 2022Q2 2022Q4 2021
EBITDA and Credit Agreement EBITDA Reconciliations   
Net income$634,701$505,434$459,866
Interest expense on borrowings 116,272 110,150 104,414
Provision for income taxes 194,292 154,804 141,463
Depreciation and amortization 186,392 173,131 151,428
Amortization of other intangibles 85,391 84,268 79,260
EBITDA$1,217,048$1,027,787$936,431
Credit Agreement Adjustments:   
Acquisition costs and other$58,825$86,944$92,142
Employee share-based compensation expense 47,407 45,771$41,844
M&A accretion(35) 18,742 32,103 53,550
Advisor share-based compensation expense 2,502 2,339 2,324
Loss on extinguishment of debt   24,400
Credit Agreement EBITDA$1,344,524$1,194,944$1,150,691

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

(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 subscriptions related to professional services offerings (Business Strategy Services (formerly CFO Solutions), Marketing Solutions, and Admin Solutions) and business optimizer offerings (M&A Solutions, Digital Office, Resilience Plans, and Assurance Plans), as well as planning and advice services (Paraplanning) for which subscriptions are the number of advisors using the service.

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

(34) Capital expenditures represent cash payments for property and equipment during the period.

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


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