LPL Financial Announces Second Quarter 2012 Financial Results

-- Strong Business Development Leads to Addition of 223 Net New Advisors --

-- Company Declares Initial $0.12 Quarterly Cash Dividend --

Jul 31, 2012, 06:00 ET from LPL Financial Holdings Inc.

BOSTON, July 31, 2012 /PRNewswire/ -- LPL Financial Holdings Inc. (NASDAQ: LPLA) (the "Company"), parent company of LPL Financial LLC ("LPL Financial"), today announced second quarter net income of $39.5 million, or $0.35 per diluted share, down $6.0 million compared to second quarter 2011 net income of $45.5 million, or $0.40 per diluted share. Adjusted Earnings, a non-GAAP measure, which excludes certain non-cash charges and other adjustments, were $55.0 million, or $0.49 per diluted share, down $3.8 million or 6.5% compared to $58.8 million, or $0.52 per diluted share, in the second quarter of 2011. Net revenues for the second quarter of 2012 increased 1.5% to $907.8 million, from $894.0 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 six months of 2012, net income of $80.7 million was down $13.8 million or 14.6% compared to $94.5 million for the same period in 2011, due primarily to a $16.5 million pre-tax charge related to the completion of the refinancing of our senior secured credit facilities in the first quarter of 2012. Adjusted Earnings through June 30, 2012 were $118.2 million, which were consistent with the comparable period in 2011. Net revenues for the first six months of 2012 were $1.8 billion, an increase of 2.4% over the comparable period of 2011.   

"Investors are exhibiting more cautious behavior in light of the uncertain market conditions, which manifests itself in lower investment activity and reduced trading.  As a result, net revenues only grew 1.5% year-over-year," said Mark Casady, LPL Financial chairman and CEO.  "At the same time, our performance has been impacted by our ongoing commitment to additional investment.  This strategy is driven by our confidence in the strength of our underlying business and in our competitive position, but has placed further pressure on our bottom-line results this quarter.  Year-over-year we dedicated additional transition assistance to support strong advisor growth, incurred incremental expenses from our acquisitions of Concord and Fortigent and made additional investments in the retirement and mass-market spaces. Taken together this increase in investments reduced Adjusted Earnings by $4.1 million and impacted Adjusted Earnings per diluted share by $0.04 year-over-year. The result was Adjusted Earnings per Share declined 5.8% year-over-year to $0.49 for the quarter."

Mr. Casady continued, "We have not wavered from managing the company for long-term growth.  The solid performance this quarter of several key metrics reinforces this strategy and positions the Company for future success. Our recurring revenue remains a valuable component of our business, and new advisor growth was robust with 223 net new advisors joining this quarter. We continue to see strong asset flows, as reflected by $2.8 billion in net new advisory assets representing 10% annualized growth."

Total advisory and brokerage assets were $353.0 billion at the end of the quarter, which increased 3.6% from $340.8 billion as of June 30, 2011 and decreased 0.3% from $354.1 billion as of March 31, 2012. Supported by net new advisory assets of $2.8 billion during the second quarter, advisory assets under management were $111.4 billion at quarter-end.

Dan Arnold, chief financial officer, commented, "In addition to the challenging market conditions and our incremental investments, we are experiencing increasing payout rates year-over-year due to the continued growth from our larger advisor practices and the UVEST conversion.  Under these conditions, we continue our ongoing review of the needs of the business and our pursuit of efficiencies. Operationally, we are providing our advisors and their clients with the high level of service and execution they are accustomed to, and stand ready to support them when growth returns. We are balancing this approach by taking proactive steps to realize cost management savings and reduce our core expenses."

Mr. Arnold continued, "One of the distinguishing strengths of our platform is the ability to sustain strong free cash flows under varying market conditions. As a result, I am pleased to share that our Board of Directors has approved an initial quarterly cash dividend of $0.12 per share. This is in addition to our recent special dividend of $223 million and our ongoing share repurchase program, under which we repurchased 0.6 million shares during the second quarter for a total of $18.4 million, or an average of $33.17 per share. Since the IPO, we have returned $367.5 million to our shareholders through share repurchases and dividends, and invested an additional $83.0 million in acquisitions. Our strong cash flows permit us the flexibility concurrently to reinvest in the business, reward shareholders and pursue attractive strategic opportunities when they present themselves."

Mr. Casady concluded, "Overall we feel very good about the future of independent advice and our place in leading its growth as we expand our capabilities. We have great confidence in the deep relationships our advisors have with their clients and that our advisors have with us. With the addition of new advisors and investment in new ventures, we have nurtured a strong growth portfolio. When this cycle of cautious investor sentiment subsides, we are well positioned to deliver strong growth and related margin expansion as we have delivered historically.  While the quarterly milestones that pave the way to the future may be more challenging than we would like, we remain steadfast in our conviction that our model will deliver strong financial performance over time. We believe our strategy will deliver success in an evolving and consolidating market place, and will create value for our shareholders."

Financial Highlights

  • The Board of Directors declared a one-time special cash dividend of $2.00 per share, paid on May 25, 2012 to all common stockholders of record as of the close of business on May 15, 2012. In addition, the Board of Directors has declared an initial quarterly cash dividend of $0.12 per share on the Company's outstanding common stock to be paid on August 30, 2012 to all stockholders of record on August 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 of Directors. 
  • During the second quarter of 2012, the Company repurchased 0.6 million shares of its common stock for a total of $18.4 million, or an average price of $33.17 per share. As of June 30, 2012, the Company had used approximately 93% of the $70.0 million authorized under its existing repurchase program. On May 25, 2012, the Board of Directors approved an additional share repurchase program in which the Company may purchase up to $75.0 million of its outstanding common stock. 
  • Net revenue for the second quarter of 2012 increased 1.5% to $907.8 million from $894.0 million in the second quarter of 2011. Key components of this change include:
    • Commission revenue decreased 2.7% for the second quarter of 2012 compared to the prior year period, as commissions per advisor declined 6.2%, offset by growth in advisor headcount.
    • Advisory revenue increased 1.5% for the second quarter of 2012 compared to the prior year period, primarily reflecting growth in net advisory assets over the last four quarters, as well as market appreciation, partially offset by a decrease in advisory revenues as a percent of advisory assets.
    • Recurring revenue, a statistical measure reflecting a level of stability in our performance, represented 65.3% of net revenue for the quarter, compared to 62.4% for the prior year period.
  • Total advisory and brokerage assets ended at $353.0 billion as of June 30, 2012, up 3.6% compared to $340.8 billion as of June 30, 2011. Key drivers of this trend include:
    • Advisory assets in the Company's fee-based platforms were $111.4 billion at June 30, 2012, up 7.9% from $103.2 billion at June 30, 2011.
    • Net new advisory assets, which exclude market movement, were $2.8 billion for the three months ended June 30, 2012. On an annualized basis, this represents 10.0% growth.
  • Revenues generated from the Company's cash sweep programs increased 14.4% to $34.1 million compared to $29.8 million in the prior year period. The assets in the Company's cash sweep programs averaged $22.6 billion for the second quarter of 2012 and $19.5 billion in the year-ago quarter. Revenues benefited from increased cash sweep balances and an increase in the effective federal funds rate, which averaged 0.15% for the second quarter of 2012 compared to 0.09% 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, and the impact of a contract renegotiation in the second quarter as previously communicated.

Operational Highlights

  • The Company added 671 net new advisors during the twelve months ending June 30, 2012, excluding the attrition of 146 advisors from the UVEST conversion. During the second quarter of 2012, 223 net new advisors joined LPL Financial as the Company continues to build relationships with advisors from all channels across the financial services industry.
  • Assets under custody in the LPL Financial RIA platform, which provides integrated fee- and commission-based capabilities for independent advisors, grew 52.6% to $29.9 billion as of June 30, 2012 encompassing 166 RIA firms, compared to $19.6 billion and 128 RIA firms as of June 30, 2011.
  • In the second quarter, LPL Financial received broad industry recognition for its advisors, technology and services.
    • LPL Financial was named the nation's largest independent broker-dealer based on total revenues for the seventeenth consecutive year by Financial Planning magazine.
    • LPL Financial received the Digital Marketer of the Year Award for 2012 in recognition of outstanding marketing support delivered to financial advisors based on four criteria: marketing leadership, technology innovation, setting success measurement and return on investment metrics, and organizational dynamics that facilitate a culture of collaboration.
    • Bank Investment Consultant magazine named nine LPL Financial program managers in their 2012 Top Program Managers list of the twenty most productive bank and credit union-based advisors.
    • LPL Financial's Advisory and Brokerage Consulting team has been named the Field Sales Team of the Year by the Money Management Institute, in recognition of their support to financial advisors in providing their clients with the diverse platforms, strategies and advice to meet their financial goals.

Conference Call and Additional Information

The Company will hold a conference call to discuss results at 8 a.m. EDT on July 31, 2012.  The conference call can be accessed by dialing (877) 677-9122 (domestic) or (708) 290-1401 (international) and entering passcode 94099570. For additional information, please visit the Company's website to access the Q2 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 one hour after the call and can be accessed by dialing (855) 859-2056 (domestic) or 404-537-3406 (international) and entering passcode 94099570. The telephonic replay will be available until 11:59 pm on August 7, 2012.

Financial Highlights and Key Metrics (Dollars in thousands, except per share data and where noted)

Three Months Ended June 30,

Six Months Ended June 30,

2012

2011

% Change

2012

2011

% Change

Financial Highlights (unaudited)

Net Revenue

$

907,843

$

893,996

1.5%

$

1,809,616

$

1,767,865

2.4%

Net Income

$

39,502

$

45,507

(13.2)%

$

80,681

$

94,506

(14.6)%

Earnings Per Share — diluted

$

0.35

$

0.40

(12.5)%

$

0.72

$

0.82

(12.2)%

Non-GAAP Measures:

Adjusted Earnings(1)

$

54,973

$

58,807

(6.5)%

$

118,172

$

118,180

—%

Adjusted Earnings Per Share(1)

$

0.49

$

0.52

(5.8)%

$

1.05

$

1.04

1.0%

Adjusted EBITDA(1)

$

111,579

$

122,997

(9.3)%

$

236,534

$

247,328

(4.4)%

 

As of June 30,

2012

2011

% Change

Metric Highlights (unaudited)

Advisors(2)

13,185

12,660

4.1%

Advisory and Brokerage Assets (billions)(3)

$

353.0

$

340.8

3.6%

Advisory Assets Under Management (billions)(4)

$

111.4

$

103.2

7.9%

Net New Advisory Assets (billions)(5)

$

5.3

$

6.8

(22.1)%

Insured Cash Account Balances (billions)(4)

$

14.6

$

13.2

10.6%

Money Market Account Balances (billions)(4)

$

8.5

$

8.2

3.7%

(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:

  • Adjusted EBITDA, Adjusted Earnings, and Adjusted Earnings per share do not reflect all cash expenditures, future requirements for capital expenditures, or contractual commitments;
  • Adjusted EBITDA, Adjusted Earnings, and Adjusted Earnings per share do not reflect changes in, or cash requirements for, working capital needs; and
  • 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

June 30,

Six Months Ended

June 30,

2012

2011

2012

2011

(unaudited)

Net income

$

39,502

$

45,507

$

80,681

$

94,506

Interest expense

13,439

18,154

29,471

36,326

Income tax expense

27,806

29,972

53,490

62,531

Amortization of purchased intangible assets and software(a)

9,948

9,686

19,780

19,223

Depreciation and amortization of all other fixed assets

7,464

8,721

14,807

17,349

EBITDA

98,159

112,040

198,229

229,935

EBITDA Adjustments:

Employee share-based compensation expense(b)

5,176

3,427

9,336

7,287

Acquisition and integration related expenses(c)

5,056

1,548

6,914

2,964

Restructuring and conversion costs(d)

2,164

4,599

4,174

5,434

Debt extinguishment costs(e)

109

16,652

Equity issuance and related offering costs(f)

446

1,349

446

1,641

Other(g)

469

34

783

67

Total EBITDA Adjustments

13,420

10,957

38,305

17,393

Adjusted EBITDA

$

111,579

$

122,997

$

236,534

$

247,328

Three Months Ended

June 30,

Six Months Ended

June 30,

2012

2011

2012

2011

(unaudited)

Net income

$

39,502

$

45,507

$

80,681

$

94,506

After-Tax:

EBITDA Adjustments(h)

Employee share-based compensation expense(i)

3,806

2,677

6,973

5,578

Acquisition and integration related expenses(j)

3,561

955

4,707

1,829

Restructuring and conversion costs

1,335

2,838

2,575

3,353

Debt extinguishment costs

67

10,274

Equity issuance and related offering costs

275

832

275

1,012

Other

289

21

483

41

Total EBITDA Adjustments

9,333

7,323

25,287

11,813

Amortization of purchased intangible assets and software(h)

6,138

5,977

12,204

11,861

Adjusted Earnings

$

54,973

$

58,807

$

118,172

$

118,180

Adjusted Earnings per share(k)

$

0.49

$

0.52

$

1.05

$

1.04

Weighted average shares outstanding — diluted(l)

112,834

113,150

112,679

113,155

(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 for stock options awarded to employees and non-executive directors based on the grant date fair value under the Black-Scholes valuation model.

(c)

Represents acquisition and integration costs resulting from certain of the Company's acquisitions.

(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 June 30, 2012, approximately 78% and 97%, respectively, of costs related to these two initiatives have been recognized. The remaining costs largely consist of transition payments to be made in connection with these two conversions for the retention of advisors and institutions, and conversion and transfer costs that are expected to be recognized into earnings by December 2014. 

(e)

Represents expenses incurred resulting from the early extinguishment and repayment of the Company's senior secured credit facilities under its Third Amended and Restated Credit Agreement, 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 development 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.

(g)

Represents certain excise and other taxes.

(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 six months ended June 30, 2012 and 2011, net of the federal tax benefit.

(i)

Represents the after-tax expense of non-qualified stock options in which the Company receives a tax deduction upon exercise, and the full expense impact of incentive stock options granted to employees that have vested and qualify for preferential tax treatment and conversely, 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 June 30, 2012 and 2011. For the six month periods ending June 30, 2012 and 2011, share-based compensation for vesting of incentive stock options was $3.2 million and $2.8 million, respectively.

(j)

Represents the after-tax expense of acquisition and related costs in which the Company receives a tax deduction, and the full expense impact of transaction costs for which the Company does not receive a tax deduction. Non-deductible transaction costs were $1.2 million for the three and six months ended June 30, 2012.

(k)

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:

 

For the Three Months Ended June 30,

For the Six Months Ended June 30,

2012

2011

2012

2011

(unaudited)

Earnings per share — diluted

$

0.35

$

0.40

$

0.72

$

0.82

Adjustment for allocation of undistributed earnings to stock

   units

0.01

0.01

After-Tax:

EBITDA Adjustments per share

0.08

0.06

0.22

0.11

Amortization of purchased intangible assets and software

   per share

0.06

0.05

0.11

0.10

Adjusted Earnings per share

$

0.49

$

0.52

$

1.05

$

1.04

 

(l)

Included within the weighted average share count for the three and six months ended June 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 six months ended June 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 number of advisors at June 30, 2012 reflects attrition of 146 advisors related to the integration of the UVEST platform.

(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 client assets held in retirement plans administered by the Company, and trust assets supported by Concord Wealth Management.

(4)

Advisory assets under management, insured cash account balances and money market account balances are components of advisory and brokerage assets. 

(5)

Represents net new advisory assets that are custodied in our fee-based advisory platforms during the six month ended June 30, 2012 and 2011. Net new advisory assets for the three months ended June 30, 2012 and 2011 were $2.8 billion and $3.1 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, dividends and liquidity, 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 July 31, 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 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; fluctuations in the value of assets under management; 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; the Company's success in integrating the operations of acquired businesses; the effect of current, pending and future legislation, regulation and regulatory actions; 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 Wealth Management and Fortigent Holdings Company, 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 headquarters in Boston, Charlotte, and San Diego. For more information, please visit www.lpl.com.

Securities offered through LPL Financial.  Member FINRA/SIPC

LPLA-F

Media Relations

Investor Relations

Michael Herley

Trap Kloman

LPL Financial

LPL Financial

Phone: (212) 521-4897

Phone: (617) 897-4574

Email: michael-herley@kekst.com             

Email: investor.relations@lpl.com

 

LPL Financial Holdings Inc. Condensed Consolidated Statements of Operations (Dollars in thousands, except per share data) (Unaudited)

Three Months Ended

June 30,

Six Months Ended

June 30,

2012

2011

%

Change

2012

2011

%

Change

Revenues

Commissions

$

447,243

$

459,882

(2.7)%

$

910,896

$

911,759

(0.1)%

Advisory fees

268,192

264,289

1.5%

519,173

508,376

2.1%

Asset-based fees

102,784

90,504

13.6%

200,025

180,327

10.9%

Transaction and other fees

78,894

68,755

14.7%

153,466

142,504

7.7%

Other

10,730

10,566

1.6%

26,056

24,899

4.6%

Net revenues

907,843

893,996

1.5%

1,809,616

1,767,865

2.4%

Expenses

Production

630,136

634,088

(0.6)%

1,257,043

1,238,415

1.5%

Compensation and benefits

93,034

81,410

14.3%

182,046

165,552

10.0%

General and administrative

84,457

61,644

37.0%

152,023

128,612

18.2%

Depreciation and amortization

17,412

18,407

(5.4)%

34,587

36,572

(5.4)%

Restructuring charges

2,057

4,814

(57.3)%

3,751

5,351

(29.9)%

Total operating expenses

827,096

800,363

3.3%

1,629,450

1,574,502

3.5%

Non-operating interest expense

13,439

18,154

(26.0)%

29,471

36,326

(18.9)%

Loss on extinguishment of debt

*

16,524

*

Total expenses

840,535

818,517

2.7%

1,675,445

1,610,828

4.0%

Income before provision for income

   taxes

67,308

75,479

(10.8)%

134,171

157,037

(14.6)%

Provision for income taxes

27,806

29,972

(7.2)%

53,490

62,531

(14.5)%

Net income

$

39,502

$

45,507

(13.2)%

$

80,681

$

94,506

(14.6)%

Earnings per share

Basic

$

0.36

$

0.41

(12.2)%

$

0.73

$

0.86

(15.1)%

Diluted

$

0.35

$

0.40

(12.5)%

$

0.72

$

0.82

(12.2)%

* Not Meaningful

 

LPL Financial Holdings Inc. Financial Highlights (Dollars in thousands, except per share data and where noted) (Unaudited)

Three Month Quarterly Results

Q2 2012

Q1 2012

Q4 2011

Q3 2011

Q2 2011

REVENUES

Commissions

$

447,243

$

463,653

$

404,382

$

438,294

$

459,882

Advisory fees

268,192

250,981

251,219

267,878

264,289

Asset-based fees

102,784

97,241

89,706

89,691

90,504

Transaction and other fees

78,894

74,572

71,227

78,476

68,755

Other

10,730

15,326

12,119

8,518

10,566

Net revenues

907,843

901,773

828,653

882,857

893,996

EXPENSES

Production(1)

630,136

626,907

586,123

623,886

634,088

Compensation and benefits

93,034

89,012

79,237

77,337

81,410

General and administrative

84,457

67,566

58,553

76,063

61,644

Depreciation and amortization

17,412

17,175

16,947

19,222

18,407

Restructuring charges

2,057

1,694

8,372

7,684

4,814

Total operating expenses

827,096

802,354

749,232

804,192

800,363

Non-operating interest expense

13,439

16,032

15,835

16,603

18,154

Loss on extinguishment of debt

16,524

Total expenses

840,535

834,910

765,067

820,795

818,517

INCOME BEFORE PROVISION FOR

   INCOME TAXES

67,308

66,863

63,586

62,062

75,479

PROVISION FOR INCOME TAXES

27,806

25,684

24,138

25,634

29,972

NET INCOME

$

39,502

$

41,179

$

39,448

$

36,428

$

45,507

EARNINGS PER SHARE

Basic

$

0.36

$

0.38

$

0.36

$

0.33

$

0.41

Diluted

$

0.35

$

0.37

$

0.35

$

0.32

$

0.40

FINANCIAL CONDITION

Total Cash & Cash Equivalents (billions)

$

0.5

$

0.7

$

0.7

$

0.7

$

0.7

Total Assets (billions)

$

3.6

$

3.8

$

3.8

$

3.7

$

3.7

Total Debt (billions)(2)

$

1.3

$

1.4

$

1.3

$

1.3

$

1.3

Stockholders' Equity (billions)

$

1.2

$

1.2

$

1.3

$

1.3

$

1.3

KEY METRICS

Advisors

13,185

12,962

12,847

12,799

12,660

Production Payout(1)

86.7%

86.4%

88.0%

87.0%

86.3%

Advisory and Brokerage Assets (billions)

$

353.0

$

354.1

$

330.3

$

316.4

$

340.8

Advisory Assets Under Management

   (billions)

$

111.4

$

110.8

$

101.6

$

96.3

$

103.2

Net New Advisory Assets (billions)(3)

$

2.8

$

2.5

$

1.0

$

3.0

$

3.1

Insured Cash Account Balances (billions)(4)

$

14.6

$

13.9

$

14.4

$

14.2

$

13.2

Money Market Account Balances

   (billions)(4)

$

8.5

$

7.7

$

8.0

$

8.9

$

8.2

Adjusted EBITDA(5)

$

111,579

$

124,955

$

100,796

$

111,596

$

122,997

Adjusted Earnings(5)

$

54,973

$

63,199

$

48,838

$

51,567

$

58,807

Adjusted Earnings per share(5)

$

0.49

$

0.56

$

0.44

$

0.46

$

0.52

(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 that are custodied in our fee-based advisory platforms during the three month periods then ended.

(4)

Represents insured cash and money market account balances as 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):

 

Q2 2012

Q1 2012

Q4 2011

Q3 2011

Q2 2011

(unaudited)

Net income

$

39,502

$

41,179

$

39,448

$

36,428

$

45,507

Interest expense

13,439

16,032

15,835

16,603

18,154

Income tax expense

27,806

25,684

24,138

25,634

29,972

Amortization of purchased intangible assets and

   software(a)

9,948

9,832

9,849

9,909

9,686

Depreciation and amortization of all other fixed

   assets

7,464

7,343

7,098

9,313

8,721

EBITDA

98,159

100,070

96,368

97,887

112,040

EBITDA Adjustments:

Employee share-based compensation

   expense(b)

5,176

4,160

3,858

3,833

3,427

Acquisition and integration related expenses(c)

5,056

1,858

(8,020)

1,241

1,548

Restructuring and conversion costs(d)

2,164

2,010

8,532

8,086

4,599

Debt extinguishment costs(e)

109

16,543

Equity issuance and offering related costs(f)

446

421

1,349

Other(g)

469

314

58

128

34

Total EBITDA Adjustments

13,420

24,885

4,428

13,709

10,957

Adjusted EBITDA

$

111,579

$

124,955

$

100,796

$

111,596

$

122,997

Q2 2012

Q1 2012

Q4 2011

Q3 2011

Q2 2011

(unaudited)

Net income

$

39,502

$

41,179

$

39,448

$

36,428

$

45,507

After-Tax:

EBITDA Adjustments(h)

Employee share-based compensation

   expense(i)

3,806

3,167

2,961

2,933

2,677

Acquisition and integration related expenses(j)

3,561

1,146

(4,948)

765

955

Restructuring and conversion costs

1,335

1,240

5,264

4,989

2,838

Debt extinguishment costs

67

10,207

Equity issuance and offering related costs

275

260

832

Other

289

194

36

79

21

Total EBITDA Adjustments

9,333

15,954

3,313

9,026

7,323

Amortization of purchased intangible assets

   and software(h)

6,138

6,066

6,077

6,113

5,977

Adjusted Earnings

$

54,973

$

63,199

$

48,838

$

51,567

$

58,807

Adjusted Earnings per share(k)

$

0.49

$

0.56

$

0.44

$

0.46

$

0.52

Weighted average shares outstanding — diluted(l)

112,834

112,529

111,095

111,173

113,150

(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 employee share-based compensation for stock options awarded to employees and non-executive directors based on the grant date fair value under the Black-Scholes valuation model.

(c)

Represents acquisition and integration costs resulting from certain of the Company's acquisitions. 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 June 30, 2012, approximately 78% and 97%, respectively, of costs related to these two initiatives have been recognized.  The remaining costs largely consist of transition payments made in connection with these two conversions for the retention of advisors and institutions, and conversion and transfer costs that are expected to be recognized into earnings by December 2014. 

(e)

Represents expenses incurred resulting from the early extinguishment and repayment of the Company's senior secured credit facilities under its Third Amended and Restated Credit Agreement, 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 development 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.

(g)

Represents certain excise and other taxes.

(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 in which the Company receives a tax deduction upon exercise, and the full expense impact of incentive stock options granted to employees that have vested and qualify for preferential tax treatment and conversely, the Company does not receive a tax deduction. Employee share-based compensation for vesting of incentive stock options was $1.6 million, $1.6 million, $1.5 million, $1.5 million and $1.5 million for the three months ended June 30, 2012, March 31, 2012, December 31, 2011, September 30, 2011 and June 30, 2011, respectively.

(j)

Represents the after-tax expense of acquisition and related costs in which the Company receives a tax deduction, and the full expense impact of transaction costs for which the Company does not receive a tax deduction. Non-deductible transaction costs were $1.2 million for the three months ended June 30, 2012.

(k)

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:

 

Q2 2012

Q1 2012

Q4 2011

Q3 2011

Q2 2011

(unaudited)

Earnings per share — diluted

$

0.35

$

0.37

$

0.35

$

0.32

$

0.40

Adjustment for allocation of undistributed

   earnings to stock units

0.01

0.01

After-Tax:

EBITDA Adjustments per share

0.08

0.14

0.03

0.09

0.06

Amortization of purchased intangible assets 

   per share

0.06

0.05

0.05

0.05

0.05

Adjusted Earnings per share

$

0.49

$

0.56

$

0.44

$

0.46

$

0.52

(l)

The weighted average share count for the first and second quarters of 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.



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