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8-K - FORM 8-K - LPL Financial Holdings Inc. | b84752e8vk.htm |
Exhibit 99.1
LPL Financial Announces Fourth Quarter and Full-Year 2010 Financial Results
Record Levels of Advisory and Brokerage Assets Help Fuel Record Full Year Profitability
Strong Net New Advisor Growth Underpins Fourth Quarter Expansion
Strong Net New Advisor Growth Underpins Fourth Quarter Expansion
Boston, MA February 7, 2011 LPL Investment Holdings Inc. (NASDAQ: LPLA), (the
Company), parent company of LPL Financial LLC (LPL Financial), announced today a fourth quarter
net loss of $116.6 million, or $1.20 per diluted share, compared to fourth quarter 2009 net income
of $18.6 million, or $0.19 per diluted share. Adjusted Net Income, which excludes certain non-cash
charges and other adjustments, including charges related to the initial public offering (IPO),
rose 6.2% for the fourth quarter to $44.7 million, or $0.42 per diluted share, from $42.1 million,
or $0.43 per diluted share, in the fourth quarter of 2009. Adjusted EBITDA for the quarter was
$99.2 million, up 4.5% from $94.8 million in the year-ago quarter. A reconciliation of these
non-GAAP measures to GAAP measures, along with an explanation of these metrics, is provided below.
Net revenue for the fourth quarter of 2010 increased 11.6% to $820.0 million from $734.9 million in
the fourth quarter of 2009. The strong revenue growth in the quarter was driven by double-digit
growth in the Companys advisory fee and asset-based revenues, combined with modest growth in
transaction-based fees, as well as market appreciation.
The Company had a full-year 2010 net loss of $56.9 million, or $0.64 per diluted share, compared to
a net income of $47.5 million, or $0.47 per diluted share, in 2009. The current-year net loss was
driven by the previously disclosed charges recorded in the fourth quarter associated with the
Companys IPO. Adjusted Net Income for 2010 rose 33.3% to a record $172.7 million, or $1.71 per
diluted share, versus $129.6 million, or $1.32 per diluted
share, in 2009. Adjusted EBITDA for 2010 was $413.1 million, up 16.0%
from $356.1 million in 2009.
Net revenue for 2010 was $3.1 billion, a 13.2% increase over the prior year. The solid growth was
driven by strong growth in the Companys advisory fee and asset-based revenues, as well as
trail-based commissions, resulting from a combination of advisor-generated growth in assets as well
as improved equity market performance relative to 2009.
The commitment of our financial advisors to help their clients meet their financial goals, coupled
with the strength of our business model and breadth of support we provide our customers, enabled us
to deliver record profitability to shareholders despite the challenging operating environment of
2010, said Mark Casady, LPL Financial chairman and CEO. At the same time, we achieved many
important milestones during 2010, including successfully completing our IPO, continuing to provide
our advisors and institutions with greater value through our unique integrated technology platform,
and expanding our product and service offerings.
The increasing demand for unbiased, conflict-free investment advice continues to fuel the strong
momentum in our business development efforts. We achieved strong net new advisor growth during the
quarter and continue to see excellent growth in our hybrid RIA platform that ended the year well
over planned objectives. As we enter 2011, our new business pipeline remains on very solid footing
as LPL Financial remains the top choice for advisors and institutions that value working in a
conflict-free environment.
Robert Moore, chief financial officer, said, Our results for both the quarter and full year, which
included record Adjusted EBITDA and Adjusted Net Income, were achieved through a combination of
factors that include diverse sources of revenues, the majority of which are recurring; growth in
advisory and brokerage assets; a continued focus on disciplined expense management; and instituting
operational efficiencies across the organization. These factors, combined with our
1
significant scale, enabled margin expansion for the year,
furthering our ability to convert an even
greater portion of revenue growth to bottom-line profitability. The successful refinancing of our
debt along with our IPO, places the Company on a strong financial
foundation as we look to further expand and
grow into the future.
Operational Highlights
| Revenue increased 11.6% from the year-ago quarter. Key drivers of this growth include: |
o | Advisory assets in the Companys fee-based platforms were $93.0 billion at December 31, 2010, up 20.5% from $77.2 billion at December 31, 2009, outpacing the S&P 500, which increased 12.8% from December 31, 2009. | ||
o | Net new advisory assets were $8.5 billion during the twelve months ended December 31, 2010, up 21.4% compared to $7.0 billion for the twelve months ended December 31, 2009, primarily driven by strong new business development in 2009 and mix shift toward a higher percentage of advisory business. | ||
o | Asset-based fees increased by 21.5% due to growth in record-keeping, omnibus processing, and other administrative fees. | ||
o | Mid single-digit commission and transaction fee growth reflects improving advisor confidence in the outlook for equity markets. |
| The Company added 494 net new advisors during the year ending December 31, 2010, including 206 advisors who moved their registrations from National Retirement Partners (NRP) to the Company, as noted below. This constitutes an increase of 427 net new advisors during the fourth quarter. | |
| Total advisory and brokerage assets hit a record level of $315.6 billion as of December 31, 2010, up 13.0% compared to $279.4 billion as of December 31, 2009. | |
| Assets under custody in the LPL Financial hybrid RIA platform, which provides integrated fee and commission-based capabilities for independent advisors with their own Registered Investment Adviser (RIA), grew to $13.5 billion as of December 31, 2010, and encompassed 114 RIA firms, compared to $7.3 billion and 92 RIA firms as of December 31, 2009. This strong growth in the firms RIA business over the last several years makes LPL Financial one of the largest RIA custodians in the industry. | |
| Revenues generated from the Companys cash sweep programs increased by $5.7 million, or 21.5%, to $32.2 million in the fourth quarter of 2010 compared to $26.5 million in the prior-year period. Variances in fees generated are impacted by assets in the Companys cash sweep programs, which averaged $18.4 billion for the fourth quarter of 2010 and $18.7 billion for the year-ago quarter, as well as the effective federal funds rate, which averaged 0.19% for the fourth quarter of 2010 compared to 0.12% for the same period in the prior year. The effective federal funds rate remaining at historical low levels dampens revenue growth from cash sweep programs overall. | |
| Interest expense for the fourth quarter of 2010 declined $5.4 million compared to the fourth quarter of 2009, largely as the result of debt refinancing in the second quarter of 2010, which included a redemption of the Companys senior unsecured subordinated notes. At current interest rates, the Company expects annual interest savings of approximately $16.9 million. | |
| In connection with the Companys previously announced agreement to acquire certain assets of NRP, 206 advisors previously registered with (or licensed through) NRP transferred their securities and advisory licenses and registrations to LPL Financial. Approximately 3,800 client accounts with brokerage and advisory assets of $564.3 million were converted from NRPs former clearing firm to the Company. |
Conference Call
The Company will hold a conference call to discuss results at 8:30 a.m. EST on Tuesday, February 8,
2011. The conference call can be accessed by dialing 877-677-9122 (domestic) or 708-290-1401
(international) and entering passcode 35467436.
The conference call will also be webcast simultaneously on the Investor Relations section of
Companys 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 800-642-1687 (domestic) or 706-645-9291 (international) and entering passcode 35467436. The
telephonic replay will be available until 11:59 p.m. on February 22, 2011.
2
Financial Highlights and Key Metrics
(Dollars in thousands except per share data and where noted)
(Dollars in thousands except per share data and where noted)
Three Months Ended December 31, | Year Ended December 31, | |||||||||||||||||||||||
2010 | 2009 | Change | 2010 | 2009 | Change | |||||||||||||||||||
Financial Highlights (unaudited) |
||||||||||||||||||||||||
Net Revenue |
$ | 819,955 | $ | 734,884 | 11.6 | % | $ | 3,113,486 | $ | 2,749,505 | 13.2 | % | ||||||||||||
Net (Loss) Income |
$ | (116,560 | ) | $ | 18,598 | * | $ | (56,862 | ) | $ | 47,520 | * | ||||||||||||
Adjusted Net Income (1) |
$ | 44,677 | $ | 42,057 | 6.2 | % | $ | 172,720 | $ | 129,556 | 33.3 | % | ||||||||||||
(Loss) Earnings Per Share (diluted) |
$ | (1.20 | ) | $ | 0.19 | * | $ | (0.64 | ) | $ | 0.47 | * | ||||||||||||
Adjusted Net
Income per Share (1) |
$ | 0.42 | $ | 0.43 | (2.3 | )% | $ | 1.71 | $ | 1.32 | 29.5 | % | ||||||||||||
Adjusted EBITDA (1) |
$ | 99,159 | $ | 94,849 | 4.5 | % | $ | 413,113 | $ | 356,068 | 16.0 | % |
As of December 31, | ||||||||||||
2010 | 2009 | Change | ||||||||||
Metric Highlights |
||||||||||||
Financial Advisors (2) |
12,444 | 11,950 | 4.1 | % | ||||||||
Advisory and Brokerage Assets (3) (billions) |
$ | 315.6 | $ | 279.4 | 13.0 | % | ||||||
Net New Advisory Assets (4) (billions) |
$ | 8.5 | $ | 7.0 | 21.4 | % | ||||||
Insured Cash Account Balances (billions) |
$ | 12.2 | $ | 11.6 | 5.2 | % | ||||||
Money Market Account Balances (billions) |
$ | 6.9 | $ | 7.0 | (1.4 | )% |
* | Not meaningful |
(1) | Adjusted EBITDA, Adjusted Net Income, and Adjusted Net Income per share have limitations as analytical tools and should not be considered in isolation or as substitutes for analysis of the Companys results as reported under GAAP. Some of these limitations are: |
| Adjusted EBITDA, Adjusted Net Income, and Adjusted Net Income per share do not reflect all cash expenditures, future requirements for capital expenditures, or contractual commitments; |
| Adjusted EBITDA, Adjusted Net Income, and Adjusted Net Income 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 (loss) income to Adjusted EBITDA and Adjusted Net Income for the periods presented is as follows (in thousands): |
Three Months Ended | Year Ended | |||||||||||||||
December 31, | December 31, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
(unaudited) | (unaudited) | |||||||||||||||
Net (loss) income |
$ | (116,560 | ) | $ | 18,598 | $ | (56,862 | ) | $ | 47,520 | ||||||
Interest expense |
18,877 | 24,323 | 90,407 | 100,922 | ||||||||||||
Income tax (benefit) expense |
(71,645 | ) | 1,521 | (31,987 | ) | 25,047 | ||||||||||
Amortization of purchased intangible assets and software (a) |
9,257 | 14,416 | 43,658 | 59,577 | ||||||||||||
Depreciation and amortization of all other fixed assets |
9,308 | 12,284 | 42,379 | 48,719 | ||||||||||||
EBITDA |
(150,763 | ) | 71,142 | 87,595 | 281,785 | |||||||||||
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Three Months Ended | Year Ended | |||||||||||||||
December 31, | December 31, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
(unaudited) | (unaudited) | |||||||||||||||
EBITDA Adjustments: |
||||||||||||||||
Share-based
compensation expense (b) |
2,801 | 2,525 | 10,429 | 6,437 | ||||||||||||
Acquisition and integration related expenses (c) |
2,784 | 648 | 12,569 | 3,037 | ||||||||||||
Restructuring and conversion costs (d) |
6,122 | 20,139 | 22,835 | 64,078 | ||||||||||||
Debt amendment and extinguishment costs (e) |
| | 38,633 | | ||||||||||||
Equity issuance and IPO related costs (f) |
238,177 | 358 | 240,902 | 580 | ||||||||||||
Other (g) |
38 | 37 | 150 | 151 | ||||||||||||
Total EBITDA Adjustments |
249,922 | 23,707 | 325,518 | 74,283 | ||||||||||||
Adjusted EBITDA |
$ | 99,159 | $ | 94,849 | $ | 413,113 | $ | 356,068 | ||||||||
Three Months Ended | Year Ended | |||||||||||||||
December 31, | December 31, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
(unaudited) | (unaudited) | |||||||||||||||
Net (loss) income |
$ | (116,560 | ) | $ | 18,598 | $ | (56,862 | ) | $ | 47,520 | ||||||
After-Tax: |
||||||||||||||||
EBITDA Adjustments (h) |
||||||||||||||||
Share-based compensation expense (i) |
2,263 | 1,940 | 8,400 | 5,146 | ||||||||||||
Acquisition and integration related expenses |
1,692 | 392 | 7,638 | 1,833 | ||||||||||||
Restructuring and conversion costs |
3,721 | 12,174 | 13,877 | 38,669 | ||||||||||||
Debt amendment and extinguishment costs |
| | 23,477 | | ||||||||||||
Equity issuance and IPO related costs (j) |
147,912 | 216 | 149,568 | 350 | ||||||||||||
Other |
23 | 23 | 91 | 91 | ||||||||||||
Total EBITDA Adjustments |
155,611 | 14,745 | 203,051 | 46,089 | ||||||||||||
Amortization of purchased intangible assets and software (h) |
5,626 | 8,714 | 26,531 | 35,947 | ||||||||||||
Adjusted Net Income |
$ | 44,677 | $ | 42,057 | $ | 172,720 | $ | 129,556 | ||||||||
Adjusted Net Income per share (k) |
$ | 0.42 | $ | 0.43 | $ | 1.71 | $ | 1.32 | ||||||||
Weighted average shares outstanding diluted |
105,873 | 98,787 | 100,933 | 98,494 |
(a) | Represents amortization of intangible assets and software as a result of the Companys purchase accounting adjustments from its merger transaction in 2005 and its 2007 broker-dealer acquisitions. | |
(b) | Represents share-based compensation related to vested 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 Companys 2007 broker-dealer acquisitions. Included in the year ended December 31, 2010, are expenditures for certain legal settlements that have not been resolved with the indemnifying party. | |
(d) | Represents organizational restructuring charges incurred in 2009 and 2010 for severance and one-time termination benefits, asset impairments, lease and contract termination fees and other transfer costs. | |
(e) | Represents debt amendment costs incurred in 2010 for amending and restating the credit agreement to establish a new term loan tranche and to extend the maturity of an existing tranche on the senior credit facilities, and debt extinguishment costs to redeem the subordinated notes, as well as certain professional fees incurred. | |
(f) | Represents equity issuance and related costs for the Companys IPO, which was completed in the fourth quarter of 2010. Costs that were previously classified as restructuring and conversion have been reclassified to conform to current period presentation. Upon closing of the offering, the restriction of approximately 7.4 million shares of common stock issued to advisors under the Companys Fifth Amended and Restated 2000 Stock Bonus Plan was released. Accordingly, the Company recorded a share-based compensation charge of $222.0 million, representing the offering price of $30.00 per share multiplied by 7.4 million shares. | |
(g) | Represents 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 ranged from 4.23% to 4.71%, net of the federal tax benefit. In April 2010, a step up in basis of $89.1 million for internally developed software that was established at the |
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time of the 2005 merger transaction became fully amortized, resulting in lower balances of intangible assets that are amortized. | ||
(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 $1.4 million and $1.0 million, respectively, for the three months ending December 31, 2010 and 2009, and $5.3 million and $3.2 million, respectively for the years ended December 31, 2010 and 2009. | |
(j) | Represents the after-tax expense of equity issuance and IPO related costs in which the Company receives a tax deduction, as well as the full expense impact of $8.1 million of offering costs incurred in the fourth quarter of 2010 in which the Company does not receive a tax deduction. | |
(k) | Represents Adjusted Net Income divided by weighted average number of shares outstanding on a fully diluted basis. Set forth is a reconciliation of (loss) earnings per share on a fully diluted basis as calculated in accordance with GAAP to Adjusted Net Income per share: |
For the Three | ||||||||||||||||
Months Ended | For the Year Ended | |||||||||||||||
December 31, | December 31, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
(unaudited) | (unaudited) | |||||||||||||||
(Loss) earnings per share diluted |
$ | (1.20 | ) | $ | 0.19 | $ | (0.64 | ) | $ | 0.47 | ||||||
Adjustment to include dilutive shares, not included in GAAP loss
per share |
0.10 | | 0.08 | | ||||||||||||
Adjustment for allocation of undistributed earnings to stock units |
| | | 0.01 | ||||||||||||
After-Tax: |
||||||||||||||||
EBITDA Adjustments per share |
1.47 | 0.15 | 2.01 | 0.47 | ||||||||||||
Amortization of purchased intangible assets and software per
share |
0.05 | 0.09 | 0.26 | 0.37 | ||||||||||||
Adjusted Net Income per share |
$ | 0.42 | $ | 0.43 | $ | 1.71 | $ | 1.32 | ||||||||
(2) | Advisors are defined as those investment professionals who are licensed to do business with the Companys broker-dealer subsidiaries. | |
(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. | |
(4) | Represents net new advisory assets that are custodied in the Companys fee-based advisory platforms. |
Non-GAAP Financial Measures
Adjusted Net Income represents net income before: (a) share-based compensation expense, (b)
amortization of intangible assets and software, a component of depreciation and amortization,
resulting from the merger transaction in 2005 and the 2007 acquisition of certain broker-dealers,
(c) debt amendment and extinguishment costs (d) restructuring and conversion costs and (e) equity
issuance and IPO related 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 Net
Income per share represents Adjusted Net Income divided by weighted average outstanding shares on a
fully diluted basis. The Company prepared Adjusted Net Income and Adjusted Net Income 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 Net Income
and Adjusted Net Income per share are not measures of the Companys 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.
5
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 Companys 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 Companys 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
This press release may contain forward-looking statements (regarding the Companys future financial
condition, results of operations, business strategy and financial needs, and other similar matters)
that involve risks and uncertainties. Forward-looking statements can be identified by words such as
anticipates, expects, believes, plans, predicts, and similar terms. Forward-looking
statements are not guarantees of future performance and actual results may differ significantly
from the results discussed in the forward-looking statements. Important factors that may cause such
differences include, but are not limited to, 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 Companys financial advisors and
institutions and their ability to effectively market financial products and services, the effect of
current, pending and future legislation, regulation and regulatory actions, and other factors set
forth in the Companys Prospectus filed on November 18,
2010, which is available on www.sec.gov.
About LPL Financial
LPL Financial, a wholly owned subsidiary of LPL Investment Holdings Inc., is an independent
broker-dealer. LPL Financial and its affiliates offer proprietary technology, comprehensive
clearing and compliance services, practice management programs and training, and independent
research to over 12,400 independent financial advisors and financial advisors at financial
institutions. Additionally, LPL Financial supports approximately 4,000 financial advisors who are
affiliated and licensed with insurance companies with customized clearing, advisory platforms and
technology solutions. LPL Financial and its affiliates have over 2,500 employees with employees and
offices in Boston, Charlotte, and San Diego. For more information,
please visit www.lpl.com. Member
FINRA/SIPC
# # #
LPLA-F
Media Relations
|
Investor Relations | |
Joseph Kuo
|
Mark Barnett | |
LPL Financial
|
LPL Financial | |
Phone: 704-733-3931
|
Phone: 617-897-4574 | |
Email: media.inquiries@lpl.com
|
Email: investor.relations@lpl.com |
6
LPL Investment Holdings Inc.
Condensed Consolidated Statements of Income
(Dollars in thousands except per share data and where noted)
(Unaudited)
Condensed Consolidated Statements of Income
(Dollars in thousands except per share data and where noted)
(Unaudited)
Three Months Ended | Year Ended | |||||||||||||||||||||||
December 31, | % | December 31, | % | |||||||||||||||||||||
2010 | 2009 | Change | 2010 | 2009 | Change | |||||||||||||||||||
Revenues |
||||||||||||||||||||||||
Commissions |
$ | 426,397 | $ | 392,755 | 8.6 | % | $ | 1,620,811 | $ | 1,477,655 | 9.7 | % | ||||||||||||
Advisory fees |
226,407 | 196,630 | 15.1 | % | 860,227 | 704,139 | 22.2 | % | ||||||||||||||||
Asset-based fees |
87,020 | 71,606 | 21.5 | % | 317,505 | 272,893 | 16.3 | % | ||||||||||||||||
Transaction and other fees |
68,410 | 63,863 | 7.1 | % | 274,148 | 255,574 | 7.3 | % | ||||||||||||||||
Other |
11,721 | 10,030 | 16.9 | % | 40,795 | 39,244 | 4.0 | % | ||||||||||||||||
Net revenues |
819,955 | 734,884 | 11.6 | % | 3,113,486 | 2,749,505 | 13.2 | % | ||||||||||||||||
Expenses |
||||||||||||||||||||||||
Production |
802,167 | 516,878 | 55.2 | % | 2,397,535 | 1,904,579 | 25.9 | % | ||||||||||||||||
Compensation and benefits |
85,632 | 72,280 | 18.5 | % | 308,656 | 270,436 | 14.1 | % | ||||||||||||||||
General and administrative |
56,430 | 53,257 | 6.0 | % | 233,015 | 218,416 | 6.7 | % | ||||||||||||||||
Depreciation and amortization |
18,565 | 26,700 | (30.5 | )% | 86,037 | 108,296 | (20.6 | )% | ||||||||||||||||
Restructuring charges |
3,488 | 17,000 | (79.5 | )% | 13,922 | 58,695 | (76.3 | )% | ||||||||||||||||
Other |
23,025 | 4,291 | 436.6 | % | 34,826 | 15,294 | 127.7 | % | ||||||||||||||||
Total operating expenses |
989,307 | 690,406 | 43.3 | % | 3,073,991 | 2,575,716 | 19.3 | % | ||||||||||||||||
Non-operating interest expense |
18,877 | 24,323 | (22.4 | )% | 90,407 | 100,922 | (10.4 | )% | ||||||||||||||||
Loss on extinguishment of debt |
| | * | 37,979 | | * | ||||||||||||||||||
(Gain) loss on equity method
investment |
(24 | ) | 36 | * | (42 | ) | 300 | * | ||||||||||||||||
Total expenses |
1,008,160 | 714,765 | 41.0 | % | 3,202,335 | 2,676,938 | 19.6 | % | ||||||||||||||||
(Loss) Income before
(benefit) provision for
income taxes |
(188,205 | ) | 20,119 | * | (88,849 | ) | 72,567 | * | ||||||||||||||||
(Benefit) Provision for
income taxes |
(71,645 | ) | 1,521 | * | (31,987 | ) | 25,047 | * | ||||||||||||||||
Net (loss) income |
$ | (116,560 | ) | $ | 18,598 | * | $ | (56,862 | ) | $ | 47,520 | * | ||||||||||||
(Loss) Earnings per share |
||||||||||||||||||||||||
Basic |
$ | (1.20 | ) | $ | 0.21 | * | $ | (0.64 | ) | $ | 0.54 | * | ||||||||||||
Diluted |
$ | (1.20 | ) | $ | 0.19 | * | $ | (0.64 | ) | $ | 0.47 | * |
* | Not meaningful |
7
LPL Investment Holdings Inc.
Financial Highlights
(Dollars in thousands, unless otherwise noted)
(Unaudited)
Financial Highlights
(Dollars in thousands, unless otherwise noted)
(Unaudited)
Three Month Quarterly Results | ||||||||||||||||||||
Q4 2010 | Q3 2010 | Q2 2010 | Q1 2010 | Q4 2009 | ||||||||||||||||
REVENUES |
||||||||||||||||||||
Commissions |
$ | 426,397 | $ | 385,273 | $ | 420,169 | $ | 388,972 | $ | 392,755 | ||||||||||
Advisory fees |
226,407 | 212,344 | 215,146 | 206,330 | 196,630 | |||||||||||||||
Asset-based fees |
87,020 | 81,599 | 77,436 | 71,450 | 71,606 | |||||||||||||||
Transaction and other fees |
68,410 | 70,243 | 68,132 | 67,363 | 63,863 | |||||||||||||||
Other |
11,721 | 10,505 | 9,278 | 9,291 | 10,030 | |||||||||||||||
Net revenues |
819,955 | 759,964 | 790,161 | 743,406 | 734,884 | |||||||||||||||
EXPENSES |
||||||||||||||||||||
Production (1) |
802,167 | 525,628 | 556,538 | 513,202 | 516,878 | |||||||||||||||
Compensation and benefits |
85,632 | 74,627 | 74,822 | 73,575 | 72,280 | |||||||||||||||
General and administrative |
56,430 | 68,798 | 54,550 | 53,237 | 53,257 | |||||||||||||||
Depreciation and amortization |
18,565 | 19,772 | 22,110 | 25,590 | 26,700 | |||||||||||||||
Restructuring charges |
3,488 | 1,863 | 4,622 | 3,949 | 17,000 | |||||||||||||||
Other |
23,025 | 3,750 | 3,274 | 4,777 | 4,291 | |||||||||||||||
Total operating expenses |
989,307 | 694,438 | 715,916 | 674,330 | 690,406 | |||||||||||||||
Non-operating interest expense |
18,877 | 19,511 | 27,683 | 24,336 | 24,323 | |||||||||||||||
Loss on extinguishment of debt |
| | 37,979 | | | |||||||||||||||
Gain (loss) on equity method investment |
(24 | ) | 3 | (45 | ) | 24 | 36 | |||||||||||||
Total expenses |
1,008,160 | 713,952 | 781,533 | 698,690 | 714,765 | |||||||||||||||
(LOSS) INCOME BEFORE PROVISION FOR INCOME TAXES |
(188,205 | ) | 46,012 | 8,628 | 44,716 | 20,119 | ||||||||||||||
(BENEFIT) PROVISION FOR INCOME TAXES (2) |
(71,645 | ) | 19,868 | 628 | 19,162 | 1,521 | ||||||||||||||
NET (LOSS) INCOME |
$ | (116,560 | ) | $ | 26,144 | $ | 8,000 | $ | 25,554 | $ | 18,598 | |||||||||
(LOSS) EARNINGS PER SHARE |
||||||||||||||||||||
Basic |
$ | (1.20 | ) | $ | 0.30 | $ | 0.09 | $ | 0.29 | $ | 0.21 | |||||||||
Diluted |
$ | (1.20 | ) | $ | 0.26 | $ | 0.08 | $ | 0.25 | $ | 0.19 | |||||||||
FINANCIAL CONDITION |
||||||||||||||||||||
Total Cash & Cash Equivalents |
$ | 419,208 | $ | 442,547 | $ | 402,741 | $ | 324,761 | $ | 378,594 | ||||||||||
Total Assets |
$ | 3,646,167 | $ | 3,364,896 | $ | 3,315,310 | $ | 3,343,286 | $ | 3,336,936 | ||||||||||
Total Debt (3) |
$ | 1,386,639 | $ | 1,390,132 | $ | 1,393,625 | $ | 1,407,117 | $ | 1,369,223 | ||||||||||
Stockholders Equity |
$ | 1,173,755 | $ | 927,335 | $ | 897,863 | $ | 883,157 | $ | 850,875 | ||||||||||
Capital
Expenditures (4) |
$ | 12,161 | $ | 7,282 | $ | 2,189 | $ | 1,463 | $ | 1,910 | ||||||||||
KEY METRICS |
||||||||||||||||||||
Financial Advisors |
12,444 | 12,017 | 12,066 | 12,026 | 11,950 | |||||||||||||||
Advisory and
Brokerage Assets (billions) |
$ | 315.6 | $ | 293.3 | $ | 276.9 | $ | 284.6 | $ | 279.4 | ||||||||||
Insured Cash Account Balances (5) (billions) |
$ | 12.2 | $ | 11.7 | $ | 11.8 | $ | 11.4 | $ | 11.6 | ||||||||||
Money Market Account Balances (5) (billions) |
$ | 6.9 | $ | 6.9 | $ | 7.2 | $ | 6.7 | $ | 7.0 | ||||||||||
Adjusted
EBITDA (6) |
$ | 99,159 | $ | 98,633 | $ | 109,864 | $ | 105,457 | $ | 94,849 | ||||||||||
Adjusted Net
Income (6) |
$ | 44,677 | $ | 40,526 | $ | 46,418 | $ | 41,099 | $ | 42,057 | ||||||||||
Adjusted Net
Income per share (6) |
$ | 0.42 | $ | 0.41 | $ | 0.47 | $ | 0.42 | $ | 0.43 |
(1) | Upon closing of the Companys IPO in the fourth quarter of 2010, the restriction of approximately 7.4 million shares of common stock issued to advisors under the Fifth Amended and Restated 2000 Stock Bonus Plan was released. Accordingly, the Company recorded a share-based compensation charge of $222.0 million in the fourth quarter of 2010, representing the offering price of $30.00 per share multiplied by 7.4 million shares. This charge has been classified as production expense in the Companys consolidated statements of income. | |
(2) | The Company reported a low effective income tax rate for the three months ended June 30, 2010, due to a favorable state apportionment ruling covering the current and previous years and due to the revision of certain settlement contingencies for prior periods. The ruling resulted in a reduction of |
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27.8% and the revision to settlement contingencies resulted in a reduction of 9.6%, respectively, to the Companys effective income tax rate. | ||
(3) | Represents borrowings on the Companys senior secured credit facility, senior unsecured subordinated notes, revolving line of credit and bank loans payable. | |
(4) | Represents capital expenditures incurred during the three months ended as of each reporting period. | |
(5) | Represents insured cash and money market account balances as of each reporting period. | |
(6) | The reconciliation from net (loss) income to Adjusted EBITDA and Adjusted Net Income for the periods presented is as follows (in thousands): |
Q4 | Q3 | Q2 | Q1 | Q4 | ||||||||||||||||
2010 | 2010 | 2010 | 2010 | 2009 | ||||||||||||||||
(unaudited) | ||||||||||||||||||||
Net (loss) income |
$ | (116,560 | ) | $ | 26,144 | $ | 8,000 | $ | 25,554 | $ | 18,598 | |||||||||
Interest expense |
18,877 | 19,511 | 27,683 | 24,336 | 24,323 | |||||||||||||||
Income tax (benefit) expense |
(71,645 | ) | 19,868 | 628 | 19,162 | 1,521 | ||||||||||||||
Amortization of purchased intangible assets and
software (a) |
9,257 | 9,352 | 10,938 | 14,111 | 14,416 | |||||||||||||||
Depreciation and amortization of all other fixed
assets |
9,308 | 10,420 | 11,172 | 11,479 | 12,284 | |||||||||||||||
EBITDA |
$ | (150,763 | ) | $ | 85,295 | $ | 58,421 | $ | 94,642 | $ | 71,142 | |||||||||
EBITDA Adjustments: |
||||||||||||||||||||
Share-based
compensation expense (b) |
$ | 2,801 | $ | 2,853 | $ | 2,239 | $ | 2,536 | $ | 2,525 | ||||||||||
Acquisition and integration related expenses (c) |
2,784 | 6,268 | 3,377 | 140 | 648 | |||||||||||||||
Restructuring and conversion costs (d) |
6,122 | 3,115 | 5,619 | 7,979 | 20,139 | |||||||||||||||
Debt amendment and extinguishment costs (e) |
| 28 | 38,484 | 121 | | |||||||||||||||
Equity issuance and IPO related costs (f) |
238,177 | 1,038 | 1,687 | | 358 | |||||||||||||||
Other (g) |
38 | 36 | 37 | 39 | 37 | |||||||||||||||
Total EBITDA Adjustments |
249,922 | 13,338 | 51,443 | 10,815 | 23,707 | |||||||||||||||
Adjusted EBITDA |
$ | 99,159 | $ | 98,633 | $ | 109,864 | $ | 105,457 | $ | 94,849 | ||||||||||
Net (loss) income |
$ | (116,560 | ) | $ | 26,144 | $ | 8,000 | $ | 25,554 | $ | 18,598 | |||||||||
After-Tax: |
||||||||||||||||||||
EBITDA
Adjustments (h) |
||||||||||||||||||||
Share-based compensation expense (i) |
2,263 | 2,257 | 1,870 | 2,010 | 1,940 | |||||||||||||||
Acquisition and integration related expenses |
1,692 | 3,809 | 2,052 | 85 | 392 | |||||||||||||||
Restructuring and conversion costs |
3,721 | 1,918 | 3,415 | 4,823 | 12,174 | |||||||||||||||
Debt amendment and extinguishment costs |
| 17 | 23,387 | 73 | | |||||||||||||||
Equity issuance and IPO related costs (j) |
147,912 | 631 | 1,025 | | 216 | |||||||||||||||
Other |
23 | 22 | 22 | 24 | 23 | |||||||||||||||
Total EBITDA Adjustments |
155,611 | 8,654 | 31,771 | 7,015 | 14,745 | |||||||||||||||
Amortization of purchased intangible assets and
software (h)(i) |
5,626 | 5,728 | 6,647 | 8,530 | 8,714 | |||||||||||||||
Adjusted Net Income |
$ | 44,677 | $ | 40,526 | $ | 46,418 | $ | 41,099 | $ | 42,057 | ||||||||||
Adjusted Net Income per share (k) |
$ | 0.42 | $ | 0.41 | $ | 0.47 | $ | 0.42 | $ | 0.43 | ||||||||||
Weighted average shares outstanding diluted |
105,873 | 99,612 | 99,487 | 98,945 | 98,787 |
(a) | Represents amortization of intangible assets and software as a result of the Companys purchase accounting adjustments from its merger transaction in 2005 and its 2007 broker-dealer 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 Companys 2007 broker-dealer acquisitions. Included in the three months ended September 30, 2010, are expenditures for certain legal settlements that have not been resolved with the indemnifying party. |
9
(d) | Represents organizational restructuring charges incurred in 2009 and 2010 for severance and one-time termination benefits, asset impairments, lease and contract termination fees, and other transfer costs. | |
(e) | Represents debt amendment costs incurred in 2010 for amending and restating the credit agreement to establish a new term loan tranche and to extend the maturity of an existing tranche on the senior credit facilities, and debt extinguishment costs to redeem the subordinated notes, as well as certain professional fees incurred. | |
(f) | Represents equity issuance and related costs for the Companys IPO, which was completed in the fourth quarter of 2010. Costs that were previously classified as restructuring and conversion have been reclassified to conform to current period presentation. Upon closing of the offering, the restriction of approximately 7.4 million shares of common stock issued to advisors under the Companys Fifth Amended and Restated 2000 Stock Bonus Plan was released. Accordingly, the Company recorded a share-based compensation charge of $222.0 million, representing the initial public offering price of $30.00 per share multiplied by 7.4 million shares. | |
(g) | Represents 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 ranged from 4.23% to 4.71%, net of the federal tax benefit. | |
(i) | Represents amortization of intangible assets and software which were $9.3 million, $9.4 million, $10.9 million, $14.1 million and $14.4 million before taxes for the three months ended December 31, 2010, September 30, 2010, June 30, 2010, March 31, 2010, and December 31, 2009, respectively. The amortization of intangible assets and software was a result of the purchase accounting adjustments from the Companys merger transaction in 2005 and its Companys 2007 broker-dealer acquisitions. In April 2010, a step up in basis of $89.1 million for internally developed software that was established at the time of the 2005 merger transaction became fully amortized, resulting in lower balances in those intangible assets that are amortized. | |
(j) | Represents the after-tax expense of equity issuance and IPO related costs in which the Company receives a tax deduction, as well as the full expense impact of $8.1 million of offering costs incurred in the fourth quarter of 2010 in which the Company does not receive a tax deduction. | |
(k) | Set forth is a reconciliation of (loss) earnings per share on a fully diluted basis as calculated in accordance with GAAP to Adjusted Net Income per share: |
Q4 | Q3 | Q2 | Q1 | Q4 | ||||||||||||||||
2010 | 2010 | 2010 | 2010 | 2009 | ||||||||||||||||
(unaudited) | ||||||||||||||||||||
(Loss) earnings per share diluted |
$ | (1.20 | ) | $ | 0.26 | $ | 0.08 | $ | 0.25 | $ | 0.19 | |||||||||
Adjustment to include dilutive shares, not
included in GAAP loss per share |
0.10 | | | | | |||||||||||||||
Adjustment for allocation of undistributed earnings
to stock units |
| | | 0.01 | | |||||||||||||||
After-Tax: |
||||||||||||||||||||
EBITDA Adjustments per share |
1.47 | 0.09 | 0.32 | 0.07 | 0.15 | |||||||||||||||
Amortization of purchased intangible assets per
share |
0.05 | 0.06 | 0.07 | 0.09 | 0.09 | |||||||||||||||
Adjusted Net Income per share |
$ | 0.42 | $ | 0.41 | $ | 0.47 | $ | 0.42 | $ | 0.43 | ||||||||||
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