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LPL Reports 11.5% Increase in Net Income, Recruitment Flat

LPL Financial Holdings Inc. (NASDAQ: LPLA) announced results for its third quarter ended September 30, 2017, reporting net income of $58 million, or $0.63 per share. This compares with $52 million, or $0.58 per share, in the third quarter of 2016 and $68 million, or $0.74 per share, in the prior quarter. The company also reported essentially flat recruitment numbers, with no significant change in its number of wealth advisors.

“We remained focused on our strategic priorities of growing our core business and executing with excellence in the third quarter,” said Dan Arnold, president and CEO. “Consistent with that focus, we announced and closed our acquisition of NPH, and we are working hard to share our value proposition with NPH advisors and enable a smooth onboarding process.”

“We actively used our balance sheet strength in the quarter to deploy capital on several fronts,” said Matt Audette, CFO. “We acquired NPH, invested in growth through technology and recruiting, refinanced our debt, and returned capital to shareholders through share repurchases and dividends.”

Additional third quarter 2017 highlights, as reported by the company:

• Announced and closed the acquisition of NPH on August 15, 2017.

  • As of June 30th, 2017, NPH broker-dealers served approximately 3,200  advisors and $120 billion of client assets.
  • Initial purchase price of $325 million paid at closing and a potential contingent payment of up to $123 million in the first half of 2018.
  • NPH advisors and assets are scheduled to onboard in two waves scheduled for Q4 2017 and Q1 2018, respectively.

• Completed debt refinancing in September to fund NPH-related costs, shift mix from floating to fixed rate debt, reduce pricing, and extend maturities. Results include:

  • Issued $400 million of add-on senior unsecured notes (now totaling $900 million) above par with a yield to worst of 5.115% (coupon at 5.750%). Used $200 million to reduce term loan balance and plan to use the remaining proceeds for general corporate purposes, including to fund NPH-related costs.
  • Reduced term loan and revolving credit facility spreads above LIBOR by 25 basis points each, and lowered senior secured term loan balance to $1.5 billion.

• Returned capital to shareholders totaling $48 million or $0.52 per share.

  • Deployed $25 million of capital to repurchase 539 thousand shares at an average price of $46.37 per share.
  • Paid dividends of $23 million on August 24, 2017. For the fourth quarter, the Company’s Board of Directors has declared a $0.25 cent quarterly dividend to be paid on November 27, 2017 to shareholders of record as of November 9, 2017.

• Capital expenditures were $27 million, primarily driven by technology spend.

• Cash available for corporate use was $514 million as of quarter-end, and Credit Agreement Net Leverage Ratio, which only applies to the revolving credit facility, was 3.21x, up 0.13x from the prior quarter.

  • After applying $300 million of cash available for corporate use to Credit Agreement Net Debt, this left an additional $214 million of cash, which if applied to the debt, would further reduce the Credit Agreement Net Leverage Ratio to 2.88x.

LPL Holdings is the parent company of LPL Financial, the nation’s largest independent broker-dealer, with more than 14,000 advisors.

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