LPL Reports Earnings Surge During Second Quarter
LPL Financial, the nation’s largest independent broker-dealer, announced its financial results for second quarter ended June 30, 2018.
LPL Financial, the nation’s largest independent broker-dealer, announced its financial results for second quarter ended June 30, 2018.
The company reported net income of $119 million, or $1.30 per share. This compares with $68 million, or $0.74 per share, in the second quarter of 2017 and $94 million, or $1.01 per share, in the prior quarter.
“Our earnings continued to grow in the second quarter, driven by asset growth, improved return on assets, and expense discipline,” said Matt Audette, LPL’s chief financial officer. “We also deployed more capital into share repurchases. Going forward, we plan to continue investing for organic growth, taking advantage of M&A opportunities when appropriate, and returning capital to shareholders.”
During the company’s recent quarterly call, president and CEO Dan Arnold commented on completing the onboarding process associated with its acquisition of the National Planning Holdings broker-dealer network.
“We completed the onboarding of the remaining assets from [the NPH] transaction. For the second quarter, we had $1.5 billion of net new assets associated with NPH, bringing our total to $72 billion,” said Arnold. “Advisers from NPH are now actively running their practices on our platform and are beginning to use our suite of services.
“They ramped up faster than we expected, which is a testament to their focus on transition and a commitment to maintaining continuity for their clients,” he added. “As a result, we reached our year-end goal of $90 million of run-rate EBITDA in the second quarter.”
Second Quarter 2018 Financial and Business Highlights
Key Performance Indicators
- Earnings per share increased 76 percent year-over-year to $1.30.
- Net income increased 74 percent year-over-year to $119 million.
- Total brokerage and advisory assets increased 22 percent year-over-year to $659 billion, up 2 percent sequentially.
- Total brokerage and advisory assets prior to NPH increased 8 percent year-over-year to $587 billion, up 2 percent sequentially.
- Total net new assets were an inflow of $2.5 billion, including $1.5 billion from NPH.
- Total net new assets prior to NPH were an inflow of $1.0 billion, translating to a 0.7 percent annualized growth rate.
- Net new advisory assets prior to NPH were an inflow of $4.1 billion, translating to a 6.1 percent annualized growth rate.
- Net new brokerage assets prior to NPH were an outflow of $3.1 billion, translating to a (4.1) percent annualized rate.
- Recruited assets were $6.0 billion in the second quarter, and $9.6 billion year-to-date.
- Advisor count was 16,049 and production retention rate year-to-date was 96 percent.
- Prior to NPH, net new advisors were 35.
- Gross profit increased 24 percent year-over-year to $483 million, including approximately $42 million generated by NPH advisors.
- EBITDA increased 37 percent year-over-year to $233 million.
- EBITDA prior to NPH increased 26 percent year-over-year to $214 million.
- EBITDA as a percentage of gross profit was 48 percent, up from 44 percent a year ago.
- EBITDA as a percentage of gross profit prior to NPH was 49 percent, up from 44 percent a year ago.
- Core G&A increased 9 percent year-over-year to $192 million and decreased 4 percent sequentially.
- Core G&A prior to NPH was flat from a year ago at $176 million and decreased 3 percent sequentially.
Key Updates
- Completed NPH asset onboarding in the second quarter, and total net new assets from this transaction were approximately $72 billion.
- Reached the company’s $90 million NPH annual run-rate EBITDA accretion estimate in the second quarter, ahead of its anticipated end of 2018 timing.
- Tightened 2018 core G&A outlook range of $805 to $825 million from prior outlook of $800 to $830 million.
- Returned $139 million of capital to shareholders in Q2, through $117 million of share repurchases and $22 million of dividends.
Capital Management
- The company returned capital to shareholders totaling $139 million in the second quarter 2018, translating to $1.52 per share.
- Deployed $117 million of capital to repurchase 1.8 million shares at an average price of $65.20 per share in the second quarter 2018.
- Paid dividends of $22 million on June 1, 2018. For the third quarter, the company’s board of directors declared a $0.25 per share dividend to be paid on August 23, 2018 to all stockholders of record as of August 9, 2018.
- Capital expenditures were primarily driven by technology spend and totaled $26 million the second quarter.
- Cash available for corporate use was $446 million as of quarter-end, and credit agreement net leverage ratio, which only applies to the revolving credit facility, was 2.34x, down 0.12x from the prior quarter.
- After applying $300 million of cash available for corporate use to credit agreement net debt, this left an additional $146 million of cash, which if applied to the debt, would further reduce the credit agreement net leverage ratio to 2.17x.
LPL Financial oversees approximately $659 billion in brokerage and advisory assets as of June 30, 2018 and serves more than 16,000 financial advisors. NPH is comprised of INVEST Financial Corporation, Investment Centers of America Inc., National Planning Corporation, and SII Investments Inc.
