Home News LPL Earnings Down, Revenue Up in 1Q17, CEO Predicts DOL Fiduciary Will...

LPL Earnings Down, Revenue Up in 1Q17, CEO Predicts DOL Fiduciary Will Benefit Nation’s Largest IBD

LPL Financial Holdings Inc. (NASDAQ: LPLA) announced its financial results for the first quarter of 2017. Earnings per share declined 7 percent compared to 1Q16, while revenue increased 3 percent.

“We had a solid start to the year,” said president and CEO Dan Arnold. “We have heard positive sentiment from our advisors, who are energized by the improved macro environment, LPL’s enhanced capabilities, and their opportunities to win in the marketplace. We grew our core business, as existing advisors gathered assets and new advisors joined LPL, and our continued expense discipline generated operating leverage.”

Arnold added on the company’s earnings call with analysts that he expects the Obama-era Department of Labor fiduciary rule, currently in limbo pending a review ordered by the Trump administration, will ultimately take effect to LPL’s benefit.

“We expect the rule to create disruption that will lead to movement of both advisers and assets in the coming months and years [to LPL],” said Arnold.

Key Performance Indicators

• Earnings per share decreased 7 percent year-over-year to $0.52, up 13 percent since the fourth quarter of 2016. According to the company, this includes a charge related to the March 2017 debt refinancing that reduced earnings per share by $0.14. Excluding this charge, earnings per share was $0.66, up 18 percent year-over-year.

• Net Income decreased 4 percent year-over-year to $48 million, up 15 percent since the fourth quarter of 2016. Excluding the debt refinancing charge, net income was $61 million, up 21 percent year-over-year, the company noted.

• Total brokerage and advisory assets increased 11 percent year-over-year to $530 billion, up 4 percent since last quarter.

• Total net new assets were an inflow of $2.6 billion, translating to a 2 percent annualized growth rate.

• Net new advisory assets were an inflow of $6 billion, translating to an 11 percent annualized growth rate.

• Net new brokerage assets were an outflow of $3.4 billion, translating to a (5 percent) annualized rate.

• Advisor count decreased to 14,354, down 23 since last quarter and up 261 year-over-year. The company noted that excluding anticipated departures announced in its fourth quarter 2016 earnings call, total net new assets were an inflow of $6.5 billion, net new advisory assets were an inflow of $7.1 billion, net new brokerage assets were an outflow of $0.6 billion, and advisor count increased by 95.

• Gross profit increased 6 percent year-over-year to $376 million, up 8 percent since last quarter.

• EBITDA increased 11 percent year-over-year to $152 million, up 28 percent since last quarter.

• EBITDA as a percentage of gross profit was 40.4 percent, up from 38.5 percent a year ago, and up 34.4 percent since the fourth quarter of 2016.

• Core general and administrative expenses increased 1 percent year-over-year to $177 million, down 2 percent compared to the fourth quarter of 2016.

First Quarter 2017 Financial and Business Highlights

Market Drivers

• S&P 500 index ended the quarter at 2,363, up 6 percent sequentially. The S&P 500 index averaged 2,326 during the quarter, up 6 percent sequentially.

• Federal Funds Daily Effective Rate averaged 70 bps during the quarter, up 25 bps sequentially.

Advisors

• Production retention rate was 95.4 percent. Excluding anticipated departures announced on the company’s Q4 2016 earnings call, production retention was 97.6 percent.

Gross Profit

• Gross profit increased 8 percent since last quarter, which the company said was primarily driven by increased cash sweep and transaction and fee revenue, and seasonally lower payout rate.

Expenses

•Core G&A expenses decreased 2 percent sequentially, which the company said was primarily driven by lower seasonal expenses.

• Promotional expenses increased 3 percent sequentially, which the company said was primarily driven by higher conference-related expenses.

• Results include $21 million in loss on extinguishment of debt related to the Company’s debt refinancing that closed on March 10, 2017.

Taxes

• The company’s tax rate was 36 percent, below its typical range. A new accounting standard for share-based compensation went into effect in the first quarter, and stock option exercises in the quarter decreased its effective tax rate, the company said.

Capital Management

• Completed $2.2 billion leverage-neutral debt refinancing on March 10, 2017. Results included extended debt maturities, reduced interest rates, expanded capacity on the revolving credit facility, and the company no longer has term loan B financial maintenance covenants.

• Credit agreement net leverage ratio, which now only applies to the revolving credit facility, was 3.32x, down 0.11x from the prior quarter.

• The company noted that after applying $300 million of cash available for corporate use to credit agreement net debt, this left an additional $251 million of cash, which if applied to the debt, would further reduce the credit agreement net leverage ratio to 2.88x. The company maintained its target range for its credit agreement net leverage ratio at 3.25 to 3.5 times.

• Returned capital to shareholders totaling $45 million or $0.49 per share.

• Restarted share repurchases, buying 567,000 shares for $22 million at an average price of $39.68.

• Dividends were $23 million, paid on March 24, 2017. For the second quarter, the Company’s Board of Directors has declared a 25 cent quarterly dividend to be paid on May 25, 2017 to shareholders of record as of May 15, 2017.

• Capital expenditures were $31 million, which the company said was primarily driven by technology investments.

• Cash available for corporate use was $551 million as of quarter-end.

LPL Financial, a wholly owned subsidiary of LPL Financial Holdings Inc. (NASDAQ: LPLA), served approximately $530 billion in brokerage and advisory assets as of March 31, 2017. LPL is the nation’s largest independent broker-dealer based on total revenues. The company provides proprietary technology, comprehensive clearing and compliance services, practice management programs and training, and independent research to more than 14,000 independent financial advisors and more than 700 financial institutions. LPL Financial and its affiliates have more than 3,200 employees with primary offices in Boston, Charlotte, and San Diego.

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