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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
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