LPL Financial Announces Third Quarter 2012 Financial Results
LPL Financial Announces Third Quarter 2012 Financial Results
- Brokerage and Advisory Assets Grow 17% Year-Over-Year to $371 Billion -
- Company Declares Quarterly Cash Dividend of $0.12 per share -
PR Newswire
BOSTON, Oct. 31, 2012
BOSTON, Oct. 31, 2012 /PRNewswire/ -- LPL Financial Holdings Inc. (NASDAQ:
LPLA) (the "Company"), parent company of LPL Financial LLC ("LPL Financial"),
today announced third quarter net income of $34.3 million, or $0.31 per
diluted share, down $2.1 million compared to third quarter 2011 net income of
$36.4 million, or $0.32 per diluted share. Adjusted Earnings, a non-GAAP
measure, which excludes certain non-cash charges and other adjustments, were
$53.0 million, or $0.47 per diluted share, up $1.4 million or 2.8% compared to
$51.6 million, or $0.46 per diluted share, in the third quarter of 2011. Net
revenues for the third quarter of 2012 increased 2.8% to $907.2 million, from
$882.9 million in the prior year period. A reconciliation of GAAP measures to
our non-GAAP measures, along with an explanation of these metrics, is provided
below.
For the first nine months of 2012, net income of $115.0 million was down 12.2%
compared to $130.9 million for the same period in 2011. Adjusted Earnings for
the nine months ended September 30, 2012 were $171.2 million, an increase of
0.8% compared to $169.7 million for the nine months ended September 30, 2011.
Net revenues for the first nine months of 2012 were $2.7 billion, an increase
of 2.5% over the comparable period of 2011.
"With the backdrop of an uncertain economic environment, individual investors
continued to take a cautious approach to engaging with the markets, which led
to the subdued levels of advisor productivity we experienced this quarter,"
said Mark Casady, LPL Financial chairman and CEO. "The cornerstone of our
success has always been our conflict-free service to our advisors, which
enables them to build trusted relationships with their clients and to grow
assets on our platform. This foundation remains firmly intact. Our platform
continues to attract a diverse set of advisors, including larger practices,
RIAs, and retirement producers, in addition to core and financial institution
based advisors. For the first nine months of 2012, we added 323 net new
advisors. In addition, we continued to see strong asset flows, as reflected by
the $2.9 billion in net new advisory assets for the quarter, representing 10%
annualized growth. The performance of these fundamentals contributed to
recurring revenues growing to 67% of net revenues this quarter."
Total advisory and brokerage assets were $371.4 billion at the end of the
quarter, which increased 17.4% from $316.4 billion as of September 30, 2011
and increased 5.2% from $353.0 billion as of June 30, 2012. Supported by net
new advisory assets of $2.9 billion during the third quarter, advisory assets
under custody were $118.6 billion at quarter-end.
Dan Arnold, chief financial officer, commented, "We are focused on optimizing
the cost to serve our advisors by managing both our payout rate and our
expenses. LPL Financial has been attracting an increasing number of large
practices, and these offices continue to add production at a greater rate than
more traditional practices. Our ability to support these larger practices
speaks to the flexibility and attractiveness of our platform, but at the same
time we recognize the need to manage our cost to serve these businesses. We
are collaborating with these large advisor branches to establish a mutually
beneficial structure to promote our combined success on a sustainable basis.
With regards to our expenses, we remain committed to managing our cost
structure in light of the challenging market conditions. Our expenses remained
in line with the second quarter, as increased levels of conference expense
were partially offset by tighter controls on discretionary expenses, reduced
professional fees and management of our compensation expense."
Mr. Arnold continued, "We maintain our flexibility in managing our capital
resources as a result of our strong free cash flow performance. Based upon our
liquidity and our belief that our share price does not reflect the long term
earnings power of the Company, we expanded our share repurchases beyond
mitigating the expected dilution resulting from future stock option exercises.
In the third quarter, we spent $54.6 million buying back 1.9 million shares at
a weighted average price of $28.67 per share, which reduced our diluted
weighted average share count to 111.9 million. The Board likewise approved
additional future repurchases of up to $150 million, providing us with ongoing
flexibility to manage capital efficiently. Lastly, the Board approved a $0.12
per share quarterly dividend, to be paid on November 30, 2012 to all
stockholders of record on November 15, 2012. These actions reflect the success
of the Company and our positive outlook on future capital resources."
Mr. Casady concluded, "We now have the tools and services necessary to serve
over 90 percent of the assets in the retail market, broadening and deepening
our growth opportunities along several fronts. We have driven positive
developments across the investments we have made over the last few years. Our
acquisitions and investments in the retirement, high-net worth, trust services
and mass market spaces have expanded our ability to serve advisors in a
variety of settings and target markets. We are seeing the benefit of our
investments through the development of new business opportunities. Fortigent
and Concord have teamed together to attract new business to LPL and are
winning incremental assets from trust departments within several of our
existing Institution Services clients. Our retirement solution is working with
new and larger retirement plan business. With our wider strategic footprint in
place, our focus is now firmly on enhancing the fundamentals of the Company to
drive future financial success."
Financial Highlights
o Total advisory and brokerage assets ended at $371.4 billion as of
September 30, 2012, up 17.4% compared to $316.4 billion as of
September 30, 2011. Key drivers of this trend include:
o Advisory assets in the Company's fee-based platforms were $118.6
billion at September 30, 2012, up 23.2% from $96.3 billion at
September 30, 2011.
o Net new advisory assets, which exclude market movement, were $2.9
billion for the three months ended September 30, 2012. On an
annualized basis, this represents 9.8% growth.
o Net revenue for the third quarter of 2012 increased 2.8% to $907.2 million
from $882.9 million in the third quarter of 2011. Key drivers of this
trend include:
o Commission revenue increased 0.9% for the third quarter of 2012
compared to the prior year period.
o Advisory revenue decreased 0.2% for the third quarter of 2012
compared to the prior year period. The continued shift of advisors to
the Independent RIA platform and a re-pricing in one of the Company's
significant custom clearing agreements have caused the rate of
revenue growth to diverge from the rate of advisory asset growth.
o Asset-based revenue increased 11.5% for the third quarter of 2012
compared to the prior year period, in part due to the Company's
successful integration of UVEST onto the LPL platform and market
appreciation.
o Recurring revenue, a statistical measure reflecting a level of
stability in the Company's performance, represented 66.5% of net
revenue for the quarter, compared to 63.1% for the prior year period.
o Revenues generated from the Company's cash sweep programs increased 8.9%
to $34.4 million compared to $31.6 million in the prior year period. The
assets in the Company's cash sweep programs averaged $22.1 billion for the
third quarter of 2012 and $22.2 billion in the year-ago quarter. Revenues
benefited from an increase in the effective federal funds rate, which
averaged 0.14% for the third quarter of 2012 compared to 0.08% for the
same period in the prior year. These benefits were partially offset by new
assets earning a lower weighted average fee than the existing base,
resulting from a contract renegotiation in the first quarter as previously
communicated.
o The Board declared a quarterly cash dividend of $0.12 per share on the
Company's outstanding common stock, to be paid on November 30, 2012 to all
stockholders of record on November 15, 2012. The declarations of future
quarterly dividends, as well as the timing of record and payment dates,
remain subject to approval by the Board.
o During the third quarter of 2012, the Company repurchased 1.9 million
shares of its common stock for a total of $54.6 million, or a weighted
average price of $28.67 per share. The Company continued repurchasing
shares in October and spent approximately $20.2 million buying back 0.7
million shares through October 26 at a weighted average price of $28.59
per share. The Board has approved an additional share repurchase program
in which the Company may purchase up to $150.0 million of its outstanding
common stock from time to time in open market or privately negotiated
transactions. As a result, the Company was authorized to repurchase up to
$155.3 million in additional shares as of October 26, 2012.
Operational Highlights
o The Company added 495 net new advisors during the twelve months ended
September 30, 2012, excluding the attrition of 124 advisors from the UVEST
conversion. During the third quarter of 2012, the number of advisors
declined by 15, which was driven by the loss of a bank program with 181
advisors. The bank's parent company consolidated the bank's external
operations onto the broker-dealer platform of an affiliate within its
organization.
o Assets under custody on the LPL Financial Independent RIA platform, which
provides integrated advisory fee- and commission-based capabilities for
independent advisors, grew 75.2% to $35.4 billion as of September 30, 2012
encompassing 180 RIA firms, compared to $20.2 billion and 142 RIA firms as
of September 30, 2011. Of the $35.4 billion in assets under custody, $18.6
billion were in advisory fee accounts custodied by LPL, and $16.8 billion
were in LPL brokerage accounts.
o In August, LPL Financial hosted more than 2,500 financial advisors in San
Diego for its annual advisor conference, focus12: Building a Winning
Business. For three days, advisors attended keynote presentations and
participated in educational meetings, workshops, technology demonstrations
and coaching sessions. The advisors also networked with each other,
approximately 500 LPL Financial employees, and over 1,100 product
providers and other partners representing a diverse array of investment,
insurance, and technology solutions.
o In September, the Company expanded its Model Wealth Portfolios platform
through the addition of two new portfolios from LPL Financial Research as
well as two managed alternative investment portfolios from Fortigent
Holdings Company, Inc. ("Fortigent"). This expansion provides access to
the two new models designed by LPL Financial Research using its
proprietary quad-core approach to create bond-like exposure without
holding bonds as well as Fortigent's alternative strategy models designed
to capture performance with lower volatility in client portfolios. These
strategies enable advisors to help meet their clients' needs in today's
rapidly-evolving financial environment.
o In the third quarter, LPL Financial received broad industry recognition
for its advisors, technology and services.
o Cogent Research, a leading independent research firm, released a
study which showed that 22% of all advisors, and 29% of advisors
working for a national wirehouse, said that they are considering a
move to a new firm in the next two years. In that study, LPL
received the highest ranking among all broker-dealers as the leading
destination, with 43% of advisors indicating they would consider
LPL.
o Five of LPL Financial's leading advisors were recognized in the "2012
Top 100 Independent Wealth Advisors" ranking by Barron's. Rankings
were based in part on assets under management, as well as revenue
generated by each advisor and the overall quality of the practice.
o LPL Financial ranked 26^th in the Barron's 2012 survey of the "Top 40
Wealth Managers" in the United States. The annual ranking, which was
published in the September 17 issue of Barron's, is based on the over
$18 billion in assets under management in LPL Financial accounts of
advisors' clients of $5 million or more as of June 30, 2012.
Conference Call and Additional Information
The Company will hold a conference call to discuss results at 8:00 a.m. EDT on
Wednesday, October 31, 2012. The conference call can be accessed by dialing
877-303-3145 (domestic) or 408-427-3861 (international) and entering passcode
36208482. For additional information, please visit the Company's website to
access the Q3 2012 Financial Supplement.
The conference call will also be webcast simultaneously on the Investor
Relations section of the Company's website (www.lpl.com), where a replay of
the call will also be available following the live webcast. A telephonic
replay will be available two hours after the call and can be accessed by
dialing 855-859-2056 (domestic) or 408-537-3406 (international) and entering
passcode 36208482. The telephonic replay will be available until 11:59 p.m. on
November 7, 2012.
Financial Highlights and Key Metrics
(Dollars in thousands, except per share data and where noted)
Three Months Ended September Nine Months Ended September 30,
30,
2012 2011 % 2012 2011 % Change
Change
Financial
Highlights
(unaudited)
Net Revenue $ 907,228 $ 882,857 2.8 % $ 2,716,844 $ 2,650,722 2.5 %
Net Income $ 34,299 $ 36,428 (5.8) % $ 114,980 $ 130,934 (12.2) %
Earnings
Per Share — $ 0.31 $ 0.32 (3.1) % $ 1.02 $ 1.15 (11.3) %
diluted
Non-GAAP
Measures:
Adjusted $ 52,999 $ 51,567 2.8 % $ 171,172 $ 169,747 0.8 %
Earnings(1)
Adjusted
Earnings $ 0.47 $ 0.46 2.2 % $ 1.52 $ 1.51 0.7 %
Per
Share(1)
Adjusted $ 108,000 $ 111,596 (3.2) % $ 344,534 $ 358,924 (4.0) %
EBITDA(1)
As of September 30,
2012 2011 % Change
Metric Highlights (unaudited)
Advisors(2) 13,170 12,799 2.9 %
Advisory and Brokerage Assets (billions)(3) $ 371.4 $ 316.4 17.4 %
Advisory Assets Under Custody $ 118.6 $ 96.3 23.2 %
(billions)(4)(5)
Net New Advisory Assets (billions)(6) $ 8.2 $ 9.8 (16.3) %
Insured Cash Account Balances (billions)(5) $ 14.2 $ 14.2 — %
Money Market Account Balances (billions)(5) $ 7.4 $ 8.9 (16.9) %
(1) Adjusted EBITDA, Adjusted Earnings, and Adjusted Earnings per share have
limitations as analytical tools and
should not be considered in isolation or as substitutes for analysis of
the Company's results as reported under
GAAP. Some of these limitations are:
o Adjusted EBITDA, Adjusted Earnings, and Adjusted Earnings per share do not
reflect all cash expenditures, future requirements for capital
expenditures, or contractual commitments;
o Adjusted EBITDA, Adjusted Earnings, and Adjusted Earnings per share do not
reflect changes in, or cash requirements for, working capital needs; and
o Adjusted EBITDA does not reflect the significant interest expense, or the
cash requirements necessary to service interest or principal payments, on
debt.
The reconciliation from net income to non-GAAP measures Adjusted EBITDA and
Adjusted Earnings for the periods presented is as follows (in thousands):
Three Months Ended Nine Months Ended
September 30, September 30,
2012 2011 2012 2011
(unaudited)
Net income $ 34,299 $ 36,428 $ 114,980 $ 130,934
Interest expense 12,826 16,603 42,297 52,929
Income tax expense 19,939 25,634 73,429 88,165
Amortization of purchased
intangible assets and 9,971 9,909 29,751 29,132
software(a)
Depreciation and amortization 8,452 9,313 23,259 26,662
of all other fixed assets
EBITDA 85,487 97,887 283,716 327,822
EBITDA Adjustments:
Employee share-based 4,439 3,833 13,775 11,120
compensation expense(b)
Acquisition and integration 10,528 1,241 17,442 4,205
related expenses(c)
Restructuring and conversion 1,217 8,086 5,391 13,520
costs(d)
Debt extinguishment costs(e) — — 16,652 —
Equity issuance and related 4,040 421 4,486 2,062
offering costs(f)
Other(g) 2,289 128 3,072 195
Total EBITDA Adjustments 22,513 13,709 60,818 31,102
Adjusted EBITDA $ 108,000 $ 111,596 $ 344,534 $ 358,924
Three Months Ended Nine Months Ended
September 30, September 30,
2012 2011 2012 2011
(unaudited)
Net income $ 34,299 $ 36,428 $ 114,980 $ 130,934
After-Tax:
EBITDA Adjustments(h)
Employee share-based 3,357 2,933 10,330 8,511
compensation expense(i)
Acquisition and integration 4,307 765 9,014 2,594
related expenses(j)
Restructuring and conversion 751 4,989 3,326 8,342
costs
Debt extinguishment costs — — 10,274 —
Equity issuance and related 3,986 260 4,262 1,272
offering costs(k)
Other 1,412 79 1,895 120
Total EBITDA Adjustments 13,813 9,026 39,101 20,839
Amortization of purchased
intangible assets and 6,152 6,113 18,356 17,974
software(h)
Acquisition related benefit for
a net operating loss carry- (1,265) — (1,265) —
forward(l)
Adjusted Earnings $ 52,999 $ 51,567 $ 171,172 $ 169,747
Adjusted Earnings per share(m) $ 0.47 $ 0.46 $ 1.52 $ 1.51
Weighted average shares 111,877 111,173 112,436 112,483
outstanding — diluted(n)
___________________
(a) Represents amortization of intangible assets and software as a result of
the Company's purchase
accounting adjustments from its 2005 merger transaction, as well as
various acquisitions.
(b) Represents share-based compensation based on the grant date fair value
under the Black-Scholes
valuation model for: i) stock options awarded to employees and officers;
ii) restricted stock awarded to
non-employee directors; and iii) beginning in the third quarter of 2012,
shares awarded to employees
under the 2012 Employee Stock Purchase Plan ("ESPP").
(c) Represents acquisition and integration costs resulting from various
acquisitions, including changes in the
estimated fair value of future payments, or contingent consideration,
required to be made to former
shareholders of certain acquired entities. During the three and nine
months ended September 30, 2012,
approximately $9.2 million and $9.9 million, respectively, was recognized
as a charge against earnings
due to a net increase in the estimated fair value of contingent
consideration.
(d) Represents organizational restructuring charges and conversion and other
related costs incurred resulting
from the 2011 consolidation of UVEST Financial Services Group, Inc.
("UVEST") and the 2009
consolidation of Associated Securities Corp., Inc., Mutual Service
Corporation and Waterstone Financial
Group, Inc. (together, the "Affiliated Entities"). As of September 30,
2012, approximately 86% and 98%,
respectively, of costs related to these two initiatives had been
recognized. The remaining costs largely
consist of the amortization of transition payments that have been made in
connection with these two
conversions for the retention of advisors and financial institutions that
are expected to be recognized into
earnings by December 2014.
(e) Represents expenses incurred resulting from the early extinguishment and
repayment of amounts under
the prior senior secured credit facilities, including the write-off of
$16.5 million of unamortized debt
issuance costs that have no future economic benefit, as well as various
other charges incurred in
connection with the repayment of the prior senior secured credit
facilities and the establishment of the new
senior secured credit facilities.
(f) Represents equity issuance and offering costs incurred in the three and
nine months ended
September 30, 2012 and 2011, related to the closing of a secondary
offering in the second quarter of
2012, and the closing of a secondary offering in the second quarter of
2011. In addition, results for the
three and nine months ended September 30, 2012 include a $3.9 million
charge relating to the late deposit
of withholding taxes related to the exercise of certain non-qualified
stock options in connection with the
Company's 2010 initial public offering.
(g) Represents certain excise and other taxes. In addition, results for the
three and nine months ended
September 30, 2012 include approximately $2.3 million for consulting
services aimed at enhancing the
Company's performance in support of its advisors while operating at a
lower cost.
(h) EBITDA adjustments and amortization of purchased intangible assets and
software have been tax effected
using a federal rate of 35% and the applicable effective state rate,
which was 3.30% for the three and nine
months ended September 30, 2012 and 2011, net of the federal tax benefit.
(i) Represents the after-tax expense of non-qualified stock options for which
the Company receives a tax
deduction upon exercise, restricted stock awards for which the Company
receives a tax deduction upon
vesting, shares awarded to employees under the ESPP for which the Company
receives a tax deduction,
and the full expense impact of incentive stock options granted to
employees that have vested and qualify
for preferential tax treatment and conversely, for which the Company does
not receive a tax deduction.
Share-based compensation for vesting of incentive stock options was $1.6
million and $1.5 million,
respectively, for the three months ending September 30, 2012 and 2011.
For the nine month periods
ending September 30, 2012 and 2011, share-based compensation for vesting
of incentive stock options
was $4.8 million and $4.3 million, respectively.
(j) Represents the after-tax expense of acquisition and related costs for
which the Company receives a tax
deduction. The three and nine months ended September 30, 2012 included a
$5.7 million reduction of
expense relating to the fair value of contingent consideration for the
stock acquisition of Concord Wealth
Management ("Concord"), that is not deductible for tax purposes and that
the Company does not consider
to be indicative of its core performance.
(k) Represents the after-tax expense of equity issuance and offering costs
related to the closing of a
secondary offering that occurred in the second quarter of 2012, and the
closing of a secondary offering
that occurred in the second quarter of 2011. Results for the three and
nine months ended September 30,
2012 include the full expense impact of a $3.9 million charge relating to
the late deposit of withholding
taxes related to the exercise of certain non-qualified stock options in
connection with the Company's 2010
initial public offering, that is not deductible for tax purposes.
(l) Represents the expected tax benefit available to the Company from the
accumulated net operating losses
of Concord that arose prior to its acquisition by the Company; such
benefits were recorded in the third
quarter of 2012.
(m) Represents Adjusted Earnings, a non-GAAP measure, divided by weighted
average number of shares
outstanding on a fully diluted basis. Set forth is a reconciliation of
earnings per share on a fully diluted
basis, as calculated in accordance with GAAP to Adjusted Earnings per
share, a non-GAAP measure:
Three Months Ended Nine Months Ended
September 30, September 30,
2012 2011 2012 2011
(unaudited)
Earnings per share — diluted $ 0.31 $ 0.32 $ 1.02 $ 1.15
Adjustment for allocation of
undistributed earnings to stock — — — 0.01
units
After-Tax:
EBITDA Adjustments per share 0.12 0.09 0.35 0.19
Amortization of purchased intangible 0.05 0.05 0.16 0.16
assets and software
Acquisition related benefit for a net
operating loss carry- (0.01) — (0.01) —
forward
Adjusted Earnings per share $ 0.47 $ 0.46 $ 1.52 $ 1.51
(n) Included within the weighted average share count for the three and
nine months ended September 30,
2012, is approximately 850,000 shares resulting from the
distribution pursuant to the 2008 Nonqualified
Deferred Compensation Plan that were not included in the weighted
average share count for the three and
nine months ended September 30, 2011.
(2) Advisors are defined as those independent financial advisors and financial
advisors at financial institutions who
are licensed to do business with the Company's broker-dealer subsidiaries.
The Company consolidated the
operations of UVEST with LPL Financial which resulted, as expected, in the
attrition of 124 advisors during the
trailing twelve months ended September 30, 2012. Excluding attrition from
the integration of the UVEST
platform, the Company added 495 net new advisors during the twelve months
ended September 30, 2012.
(3) Advisory and brokerage assets are comprised of assets that are custodied,
networked, and non-networked and
reflect market movement in addition to new assets, inclusive of new
business development and net of
attrition. Such totals do not include the market value of other client
assets as of September 30, 2012,
comprised of $41.6 billion held in retirement plans supported by advisors
licensed with LPL Financial, $11.1
billion of trust assets supported by Concord and $58.7 billion of assets
supported by Fortigent Holdings
Company, Inc. Data regarding certain of these assets was not available at
September 30, 2011, and therefore
is not meaningful for comparison. In addition, retirement plan assets
represent assets that are custodied with
26 third-party providers of retirement plan administrative services who
provide reporting feeds. The Company
estimates the total assets in retirement plans served to be between $65.0
billion and $80.0 billion. If the
Company receives reporting feeds in the future from providers from whom it
does not currently receive feeds,
the Company intends to include and identify such additional assets in this
metric.
(4) In reporting financial and operating results for the three and nine months
ended September 30, 2012 and 2011,
the Company renamed this business metric advisory assets under custody
(formerly known as advisory assets
under management). Advisory assets under custody are comprised of advisory
assets under management in
the Company's corporate RIA platform, and Independent RIA assets in
advisory accounts custodied by the
Company.
(5) Advisory assets under custody, insured cash account balances and money
market account balances are
components of advisory and brokerage assets.
(6) Represents net new advisory assets consisting of funds from new accounts
and additional funds deposited into
existing advisory accounts that were custodied in the Company's fee-based
advisory platforms during the nine
months ended September 30, 2012 and 2011. Net new advisory assets for the
three months ended
September 30, 2012 and 2011 were $2.9 billion and $3.0 billion,
respectively.
Non-GAAP Financial Measures
Adjusted Earnings represent net income before: (a) employee share-based
compensation expense, (b) amortization of intangible assets and software, a
component of depreciation and amortization, resulting from previous
acquisitions, (c) debt extinguishment costs (d) restructuring and conversion
costs and (e) equity issuance and related offering costs. Reconciling items
are tax effected using the income tax rates in effect for the applicable
period, adjusted for any potentially non-deductible amounts. Adjusted Earnings
per share represents Adjusted Earnings divided by weighted average outstanding
shares on a fully diluted basis. The Company prepared Adjusted Earnings and
Adjusted Earnings per share to eliminate the effects of items that it does not
consider indicative of its core operating performance. The Company believes
this measure provides investors with greater transparency by helping
illustrate the underlying financial and business trends relating to results of
operations and financial condition and comparability between current and prior
periods. Adjusted Earnings and Adjusted Earnings per share are not measures of
the Company's financial performance under GAAP and should not be considered as
an alternative to net income or earnings per share 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.
Adjusted EBITDA is defined as EBITDA (net income plus interest expense, income
tax expense, depreciation and amortization), further adjusted to exclude
certain non-cash charges and other adjustments set forth in the table above.
The Company presents Adjusted EBITDA because the Company considers it a useful
financial metric in assessing the Company's operating performance from period
to period by excluding certain items that the Company believes are not
representative of its core business, such as certain material non-cash items
and other adjustments that are outside the control of management. Adjusted
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, Adjusted EBITDA can differ significantly from company
to company depending on long-term strategic decisions regarding capital
structure, the tax jurisdictions in which companies operate and capital
investments.
Forward-Looking Statements
Statements in this press release regarding the Company's future financial and
operating results, growth, business strategy, projected costs, plans,
liquidity, and ability and plans to repurchase shares and pay dividends in the
future, as well as any other statements that are not purely historical,
constitute forward-looking statements. These forward-looking statements are
based on the Company's historical performance and its plans, estimates and
expectations as of October 30, 2012. The words "anticipates," "believes,"
"expects," "may," "plans," "predicts," "will" and similar expressions are
intended to identify forward-looking statements, although not all
forward-looking statements contain these identifying words. Forward-looking
statements are not guarantees that the future results, plans, intentions or
expectations expressed or implied by the Company will be achieved. Matters
subject to forward-looking statements involve known and unknown risks and
uncertainties, including economic, legislative, regulatory, competitive and
other factors, which may cause actual financial or operating results, levels
of activity, or the timing of events, to be materially different 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;
fluctuations in the value of assets under custody; effects of competition in
the financial services industry; changes in the number of the Company's
financial advisors and institutions, and their ability to market effectively
financial products and services; changes in interest rates payable by banks
participating in the Company's cash sweep program, including the Company's
success in negotiating agreements with current or additional counterparties;
the Company's success in integrating the operations of acquired businesses;
the effect of current, pending and future legislation, regulation and
regulatory actions, including disciplinary actions imposed by self-regulatory
organizations; and the other factors set forth in Part I, "Item 1A. Risk
Factors" in the Company's 2011 Annual Report on Form 10-K. For example, the
Company may be unable to successfully integrate the systems and operations
related to our acquisitions of Concord, Fortigent and Veritat Advisors, Inc.
and realize the expected synergies from these transactions. Except as required
by law, the Company specifically disclaims any obligation to update any
forward-looking statements as a result of developments occurring after the
date of this quarterly report, even if its estimates change, and you should
not rely on those statements as representing the Company's views as of any
date subsequent to the date of this press release.
About LPL Financial
LPL Financial, a wholly owned subsidiary of LPL Financial Holdings Inc.
(NASDAQ: LPLA), is the nation's largest independent broker-dealer (based on
total revenues, Financial Planning magazine, June 1996-2012), a top RIA
custodian, and a leading independent consultant to retirement plans. LPL
Financial offers integrated technology, comprehensive clearing and compliance
services, practice management programs and training, and independent research
to over 13,100 financial advisors and approximately 685 financial
institutions. In addition, LPL Financial supports over 4,500 financial
advisors licensed with insurance companies by providing customized clearing,
advisory platforms and technology solutions. LPL Financial and its affiliates
have approximately 2,900 employees with primary offices in Boston, Charlotte,
and San Diego. For more information, please visit www.lpl.com.
Securities offered through LPL Financial. Member FINRA/SIPC
LPLA-F
Investor Relations Media Relations
Trap Kloman Betsy Weinberger
LPL Financial LPL Financial
Phone: (617) Phone: (858) 900-7122
897-4574
Email: investor.relations@lpl.com Email:
betsy.weinberger@lpl.com
Michael Herley
Kekst & Company
Phone: (212) 521-4897
Email:
michael-herley@kekst.com
LPL Financial Holdings Inc.
Condensed Consolidated Statements of Operations
(Dollars in thousands, except per share data)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
% %
2012 2011 2012 2011
Change Change
Revenues
Commissions $ 442,129 $ 438,294 0.9 % $ 1,353,025 $ 1,350,053 0.2 %
Advisory fees 267,334 267,878 (0.2) % 786,507 776,254 1.3 %
Asset-based 100,024 89,691 11.5 % 300,049 270,018 11.1 %
fees
Transaction 84,730 78,476 8.0 % 238,196 220,980 7.8 %
and other fees
Other 13,011 8,518 52.7 % 39,067 33,417 16.9 %
Net revenues 907,228 882,857 2.8 % 2,716,844 2,650,722 2.5 %
Expenses
Production 630,103 623,886 1.0 % 1,887,146 1,862,301 1.3 %
Compensation 91,309 77,337 18.1 % 273,355 242,889 12.5 %
and benefits
General and 99,118 76,063 30.3 % 251,141 204,675 22.7 %
administrative
Depreciation
and 18,423 19,222 (4.2) % 53,010 55,794 (5.0) %
amortization
Restructuring 1,211 7,684 (84.2) % 4,962 13,035 (61.9) %
charges
Total
operating 840,164 804,192 4.5 % 2,469,614 2,378,694 3.8 %
expenses
Non-operating
interest 12,826 16,603 (22.7) % 42,297 52,929 (20.1) %
expense
Loss on
extinguishment — — * 16,524 — *
of debt
Total expenses 852,990 820,795 3.9 % 2,528,435 2,431,623 4.0 %
Income before
provision for
income 54,238 62,062 (12.6) % 188,409 219,099 (14.0) %
taxes
Provision for 19,939 25,634 (22.2) % 73,429 88,165 (16.7) %
income taxes
Net income $ 34,299 $ 36,428 (5.8) % $ 114,980 $ 130,934 (12.2) %
Earnings per
share
Basic $ 0.31 $ 0.33 (6.1) % $ 1.05 $ 1.19 (11.8) %
Diluted $ 0.31 $ 0.32 (3.1) % $ 1.02 $ 1.15 (11.3) %
___________________
* Not Meaningful
LPL Financial Holdings Inc.
Financial Highlights
(Dollars in thousands, except per share data and where noted)
(Unaudited)
Three Month Quarterly Results
Q3 2012 Q2 2012 Q1 2012 Q4 2011 Q3 2011
REVENUES
Commissions $ 442,129 $ 447,243 $ 463,653 $ 404,382 $ 438,294
Advisory fees 267,334 268,192 250,981 251,219 267,878
Asset-based 100,024 102,784 97,241 89,706 89,691
fees
Transaction 84,730 78,894 74,572 71,227 78,476
and other fees
Other 13,011 10,730 15,326 12,119 8,518
Net revenues 907,228 907,843 901,773 828,653 882,857
EXPENSES
Production(1) 630,103 630,136 626,907 586,123 623,886
Compensation 91,309 93,034 89,012 79,237 77,337
and benefits
General and 99,118 84,457 67,566 58,553 76,063
administrative
Depreciation
and 18,423 17,412 17,175 16,947 19,222
amortization
Restructuring 1,211 2,057 1,694 8,372 7,684
charges
Total
operating 840,164 827,096 802,354 749,232 804,192
expenses
Non-operating
interest 12,826 13,439 16,032 15,835 16,603
expense
Loss on
extinguishment — — 16,524 — —
of debt
Total expenses 852,990 840,535 834,910 765,067 820,795
INCOME BEFORE
PROVISION FOR
54,238 67,308 66,863 63,586 62,062
INCOME
TAXES
PROVISION FOR 19,939 27,806 25,684 24,138 25,634
INCOME TAXES
NET INCOME $ 34,299 $ 39,502 $ 41,179 $ 39,448 $ 36,428
EARNINGS PER
SHARE
Basic $ 0.31 $ 0.36 $ 0.38 $ 0.36 $ 0.33
Diluted $ 0.31 $ 0.35 $ 0.37 $ 0.35 $ 0.32
FINANCIAL
CONDITION
Total Cash &
Cash $ 0.4 $ 0.5 $ 0.7 $ 0.7 $ 0.7
Equivalents
(billions)
Total Assets $ 3.7 $ 3.6 $ 3.8 $ 3.8 $ 3.7
(billions)
Total Debt $ 1.3 $ 1.3 $ 1.4 $ 1.3 $ 1.3
(billions)(2)
Stockholders'
Equity $ 1.2 $ 1.2 $ 1.2 $ 1.3 $ 1.3
(billions)
KEY METRICS
Advisors 13,170 13,185 12,962 12,847 12,799
Production 87.4 % 86.7 % 86.4 % 88.0 % 87.0 %
Payout(1)
Advisory and
Brokerage $ 371.4 $ 353.0 $ 354.1 $ 330.3 $ 316.4
Assets
(billions)
Advisory
Assets Under
Management $ 118.6 $ 111.4 $ 110.8 $ 101.6 $ 96.3
(billions)
Net New
Advisory $ 2.9 $ 2.8 $ 2.5 $ 1.0 $ 3.0
Assets
(billions)(3)
Insured Cash
Account
Balances $ 14.2 $ 14.6 $ 13.9 $ 14.4 $ 14.2
(billions)
(4)
Money Market
Account
Balances $ 7.4 $ 8.5 $ 7.7 $ 8.0 $ 8.9
(billions)(4)
Adjusted $ 108,000 $ 111,579 $ 124,955 $ 100,796 $ 111,596
EBITDA(5)
Adjusted $ 52,999 $ 54,973 $ 63,199 $ 48,838 $ 51,567
Earnings(5)
Adjusted
Earnings per $ 0.47 $ 0.49 $ 0.56 $ 0.44 $ 0.46
share(5)
_____________________________
(1) Production expense is comprised of commission and advisory fees and
brokerage, clearing and exchange
fees. Production payout, a statistical measure, excludes brokerage,
clearing and exchange fees and is
calculated as commission and advisory fees divided by commission and
advisory revenues.
(2) Represents borrowings on the Company's senior secured credit facilities,
revolving line of credit and bank
loans payable.
(3) Represents net new advisory assets consisting of funds from new accounts
and additional funds deposited into
existing advisory accounts that are custodied in the Company's fee-based
advisory platforms during the three
month periods then ended.
(4) Represents insured cash and money market account balances as of the end of
each reporting period.
(5) The reconciliation from net income to non-GAAP measures Adjusted EBITDA
and Adjusted Earnings for the
periods presented is as follows (in thousands, except per share data):
Q3 2012 Q2 2012 Q1 2012 Q4 2011 Q3 2011
(unaudited)
Net income $ 34,299 $ 39,502 $ 41,179 $ 39,448 $ 36,428
Interest expense 12,826 13,439 16,032 15,835 16,603
Income tax expense 19,939 27,806 25,684 24,138 25,634
Amortization of
purchased
intangible assets 9,971 9,948 9,832 9,849 9,909
and
software(a)
Depreciation and
amortization of all
other fixed 8,452 7,464 7,343 7,098 9,313
assets
EBITDA 85,487 98,159 100,070 96,368 97,887
EBITDA Adjustments:
Employee
share-based
compensation 4,439 5,176 4,160 3,858 3,833
expense(b)
Acquisition and
integration related 10,528 5,056 1,858 (8,020) 1,241
expenses(c)
Restructuring and 1,217 2,164 2,010 8,532 8,086
conversion costs(d)
Debt extinguishment — 109 16,543 — —
costs(e)
Equity issuance and
related offering 4,040 446 — — 421
costs(f)
Other(g) 2,289 469 314 58 128
Total EBITDA 22,513 13,420 24,885 4,428 13,709
Adjustments
Adjusted EBITDA $ 108,000 $ 111,579 $ 124,955 $ 100,796 $ 111,596
Q3 2012 Q2 2012 Q1 2012 Q4 2011 Q3 2011
(unaudited)
Net income $ 34,299 $ 39,502 $ 41,179 $ 39,448 $ 36,428
After-Tax:
EBITDA
Adjustments(h)
Employee
share-based
compensation 3,357 3,806 3,167 2,961 2,933
expense(i)
Acquisition and
integration related 4,307 3,561 1,146 (4,948) 765
expenses(j)
Restructuring and 751 1,335 1,240 5,264 4,989
conversion costs
Debt extinguishment — 67 10,207 — —
costs
Equity issuance and
related offering 3,986 275 — — 260
costs(k)
Other 1,412 289 194 36 79
Total EBITDA 13,813 9,333 15,954 3,313 9,026
Adjustments
Amortization of
purchased
intangible assets 6,152 6,138 6,066 6,077 6,113
and software(h)
Acquisition related
benefit for a net
operating (1,265) — — — —
loss
carry-forward(l)
Adjusted Earnings $ 52,999 $ 54,973 $ 63,199 $ 48,838 $ 51,567
Adjusted Earnings $ 0.47 $ 0.49 $ 0.56 $ 0.44 $ 0.46
per share(m)
Weighted average
shares outstanding
— diluted 111,877 112,834 112,529 111,095 111,173
(n)
______________________________
(a) Represents amortization of intangible assets and software as a result of
the Company's purchase accounting
adjustments from its 2005 merger transaction, as well as various
acquisitions.
(b) Represents share-based compensation expense based on the grant date fair
value under the Black-Scholes
valuation model for: i) stock options awarded to employees and officers;
ii) restricted stock awarded to non-
employee directors; and iii) beginning in the third quarter of 2012,
shares awarded to employees under the
ESPP.
(c) Represents acquisition and integration costs resulting from various
acquisitions, including changes in the
estimated fair value of future payments, or contingent consideration,
required to be made to former
shareholders of certain acquired entities. During the third quarter of
2012, approximately $9.2 million was
recognized as a charge against earnings due to a net increase in the
estimated fair value of contingent
consideration. Also, as previously disclosed, the Company has been
involved in a legal dispute with a third-
party indemnitor under a purchase and sale agreement with respect to the
indemnitor's refusal to make
indemnity payments that the Company believed were required under the
purchase and sale agreement. The
Company settled this legal dispute in the fourth quarter of 2011.
Accordingly, the Company received a $10.5
million cash settlement, $9.8 million of which has been excluded from the
presentation of Adjusted EBITDA, a
non-GAAP measure.
(d) Represents organizational restructuring charges and conversion and other
related costs incurred resulting from
the 2011 consolidation of UVEST and the 2009 consolidation of the
Affiliated Entities. As of September 30,
2012, approximately 86% and 98%, respectively, of costs related to these
two initiatives had been
recognized. The remaining costs largely consist of the amortization of
transition payments that have been
made in connection with these two conversions for the retention of
advisors and financial institutions that are
expected to be recognized into earnings by December 2014.
(e) Represents expenses incurred resulting from the early extinguishment and
repayment of the prior senior
secured credit facilities, including the write-off of $16.5 million of
unamortized debt issuance costs that have no
future economic benefit, as well as various other charges incurred in
connection with the repayment of the prior
senior secured credit facilities and the establishment of the new senior
secured credit facilities.
(f) Represents equity issuance and offering costs related to the closing of a
secondary offering in the second
quarter of 2012, and the closing of a secondary offering in the second
quarter of 2011. In addition, results for
the three months ended September 30, 2012, include a $3.9 million charge
relating to the late deposit of
withholding taxes related to the exercise of certain non-qualified stock
options in connection with the
Company's 2010 initial public offering.
(g) Represents certain excise and other taxes. In addition, results for the
three months ended September 30, 2012
include approximately $2.3 million for consulting services aimed at
enhancing the Company's performance in
support of its advisors while operating at a lower cost.
(h) EBITDA Adjustments and amortization of purchased intangible assets, a
component of depreciation and
amortization, have been tax effected using a federal rate of 35% and the
applicable effective state rate, which
was 3.30% for the periods presented, net of the federal tax benefit.
(i) Represents the after-tax expense of non-qualified stock options for which
the Company receives a tax
deduction upon exercise, restricted stock awards for which the Company
receives a tax deduction upon
vesting, shares awarded to employees under the ESPP for which the Company
receives a tax deduction, and
the full expense impact of incentive stock options granted to employees
that have vested and qualify for
preferential tax treatment and conversely, for which the Company does not
receive a tax deduction. Share-
based compensation for vesting of incentive stock options was $1.6
million, $1.6 million, $1.6 million, $1.5
million and $1.5 million for the three months ended September 30, 2012,
June 30, 2012, March 31, 2012,
December 31, 2011 and September 30, 2011, respectively.
(j) Represents the after-tax expense of acquisition and related costs for
which the Company receives a tax
deduction. The three months ended September 30, 2012 included a $5.7
million reduction of expense relating
to the fair value of contingent consideration for the stock acquisition of
Concord, that is not deductible for tax
purposes and that the Company does not consider to be indicative of its
core performance.
(k) Represents the after-tax expense of equity issuance and offering costs
related to the closing of a secondary
offering in the second quarter of 2012, and the closing of a secondary
offering in the second quarter of 2011.
Results for the three months ended September 30, 2012 include the full
expense impact of a $3.9 million
charge relating to the late deposit of withholding taxes related to the
exercise of certain non-qualified stock
options in connection with the Company's 2010 initial public offering,
that is not deductible for tax purposes.
(l) Represents the expected tax benefit available to the Company from the
accumulated net operating losses of
Concord that arose prior to its acquisition by the Company; such benefits
were recorded in the third quarter of
2012.
(m) Set forth is a reconciliation of earnings per share on a fully diluted
basis as calculated in accordance with
GAAP to Adjusted Earnings per share, a non-GAAP measure:
Q3 2012 Q2 2012 Q1 2012 Q4 2011 Q3 2011
(unaudited)
Earnings per share — diluted $ 0.31 $ 0.35 $ 0.37 $ 0.35 $ 0.32
Adjustment for allocation of
undistributed — — — 0.01 —
earnings to stock units
After-Tax:
EBITDA Adjustments per share 0.12 0.08 0.14 0.03 0.09
Amortization of purchased
intangible assets 0.05 0.06 0.05 0.05 0.05
and software
Acquisition related benefit for a
net operating (0.01) — — — —
loss carry-forward
Adjusted Earnings per share $ 0.47 $ 0.49 $ 0.56 $ 0.44 $ 0.46
(n) The weighted average share count for the quarters in 2012 includes
approximately 850,000 shares resulting
from the distribution pursuant to the 2008 Nonqualified Deferred
Compensation Plan that were not previously
included in the quarterly weighted average share count.
SOURCE LPL Financial Holdings Inc.
Website: http://www.lpl.com
Sponsored Links
Advertisement
Advertisements
Sponsored Links
Advertisement
Rate this Page