LPL Financial (LPLA) 30 Jul 212021 Q2 Earnings call transcript

Good afternoon. And thank you for joining the second quarter 2021 earnings conference call for LPL financial holdings, Inc.

Joining the call today are our president and chief executive officer Dan Arnold and chief financial officer, Matt Audette hat and Matt will offer introductory remarks and then the call will be open for questions. The company would appreciate if analysts would limit themselves to one question and one follow-up speech, the company has posted its earnings, press release and supplementary information on the investor relations section of the company's website, investor.lpl.com. Today's call those include forward-looking statements, including statements about LPL financials, future financial, and operating results, outlook, business strategies, and plans as well as other opportunities and potential risk that management foresees.Such forward looking statements reflect management's current estimates or beliefs and are subject to known and unknown risks and uncertainties that may cause actual results or the timing of events to differ materially from those expressed or implied in such forward looking statements. and to statements set release with in as risk listeners captioned under as the refers and such the looking contain risk Commission forward the factors information Securities company and the recent or forth disclosure the well the Exchange The company's disclosures more filings about other earnings uncertainties. press and

guest a also figures. reconciliation company's which the turn call, I Mr. non-gap certain to the to the discuss the refer Arnold. will over company measures Please will comparable such to earnings of can measures We During non-gap be now financial for didn't call financial release, the found@investor.lpl.com. have,

for our to Thank you, thanks RJ. call joining And everyone today.

or clients our achieve financial reached journey solid us also taking was advisors quarter time, the $X.X our driven appreciation. mission make progress the with I'd & another results. can primarily increase than their results client's care year plan. goals acquisition to Waddell business trillion on growth life's both we a Reed by positioned with our our XX% deliver assets new to personalized clients. more of high areas, quarter, This up starting strategic This at our past total remain review provide In these and continued Over quarter, equity a ago. continuing like on second the of of to market guidance of quarter organic combination of to from dreams. advisors take their and And continued on same while care of they focused their so to

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across Looking of ahead, we our affiliation see a models. new growing all pipeline

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businesses focused independent advisors the fourth strategic is successful Our play most the helping marketplace. on in run

focus our of which components One growing of portfolio their their more solutions, of and practices. can is advisors serving clients effectively play business they this on the operate businesses so key helps their

who we &Reed. new double our subscription-based quarter, continued joined solutions, additional solutions in last to and scale growth including existing more Waddell the subscriptions business As ago. to about a solutions we for to with than introducing This expand XXXX quarter, approximately second multiple In from subscribers, pathways discussed continued our advisors advisors delivering see includes to XX portfolio. product monthly year

portfolio, three now Now the in a through offerings more additional product the opportunities solutions portfolio. on pilot handful the solutions, the available in we solve have find our of business work solutions more work help challenges our business We the product advisors phase. we our solutions, in incubation X to of more and expansion additional on other

wrote the add while market same innovation, our I continue shape refine ongoing new want instrumental which our expect we to to out and As XX of is ago. adviser In to foreclosing, solutions, quarter, the strategy. to than time, the our our adjustable highlight pace accelerating promise, efforts modern executing our founders is expand actively our advisor centric second creed we at culture, the more evolution years commitment rolled a advisor the which we of

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our Matt. that. differentiate result and shareholder remain we value to help the long-term ahead, turn call look the I'll as we on As further And executing strategy with win advisors over drive our to in focused a marketplace.

I'm who shareholder on everyone our This highest In the organic of second trillion. over billion our helping assets focus $X.X glad business you, addition, quarter M&T and we of platform, our speak right. Reed, three value. have remain over quarter, growth partners and serving And BMO, added assets today's with in now on-boarded delivering to All Waddell & call. we XXX our the to total focused led And Thank our in Dan. our history. advisors, to largest on growing of drive collectively in to

all growth,total turn three same-store which Now by growth, XX% strength let's Starting $XX to net new driven sales with assets our was across This recruiting billion, quarter results. organic and annualized of rate. channels growth were to translates second a retention. business

at recruited the which $XX total $XX month billion. history Looking strongest recruiting in QX high of new a billion, XX and to our assets were at our more brought closely

growth. Moving on a rate to new with XX% growth to positive for $XX our annualized business mix, net this trends advisory, assets see in QX we billion. continue We're

of assets. Our total advisory assets XX% are

the capabilities from As trend continue towards and we advisory. secular to differentiated benefit deliver advisory

to intangibles to $X.XX combined Now acquisition with reached top-line our let's ago, discipline turn at year costs a to new net million QX. strong prior QX, of and million a results, at & growth or from looking looking organic $XX high commission profit QX Reed EPS of fees, XX% expense gross led up assets our million growth $XXX by driven in components organic and the advisory Waddell payout. We're $XX of growth $XXX sequentially from financial million up up from X% primarily

Our XX.X% from XX up points seasonality. due parent basis about ratio QX was to typical

we of aren't platform. our QX, the assets, be Waddell well approximately to and on ratio payout which onboarding production expected seasonal the anticipate ahead by XXX up slightly points will Reed bonus, their basis payout approximately as lower build & driven a Looking as

an million to and revenues appreciation. sequentially.This Moving revenues to $XX equity in of based average Waddell market increase million were assets & growth. in by Reed sponsor asset on was due driven $XXX organic QX

Turning the to during balances lower revenues,they by cash quarter. $XX million were QX down, million from driven the ICA client $X

roughly It with overall at in balances, flat QX. billion more a closely flat points with IC relatively yield. client looking XX quarter, at Looking were basis cash last our $XX QX, they was

rates look As our today, flat and interest QX where ahead are balances to to we be ICU QX given QX. to expect quiet roughly rates, we cash

as said steepened the in Now we XX our fixed curve looking third portfolio, earlier quarter, market. the that basis fixed of a return lower reminder, QX, which starts that yield see to I we our the will suite the yield at to would approximately a demand have as highlight rate end at a by QX saw maturity points fixed rate rate

basis were in basis our and QX point using at about recent which current profit. 'XX we to into will would of it would beyond million balances XXX betas million suite new of annual experienced looking XX XXXX.We rising short-term point, funds gross 'XX, to to fixed cycle.Using be rate economic time, share benefit $XXX contracts a expectation at that increase $XXX thought helpful the or result, interest the three-year of in a the As enter rates rising rates the rates begin deposit points fed given was able the interest the in early we most rate late the approximately translate

QX to were driven decreased $X on $XXX the Moving throughout revenues,they by transaction trading sequentially million volume down and quarter. million that fee

expect Looking ahead in-line relatively & Reed, to transaction to QX prior and be fee we to Waddell with revenue QX.

anticipate national seasonally, and advisor be transaction fees our offset we from lower IRA by revenues As volumes conference. will

Turning to approximately for XXXX from roughly annual more serving including importantly, their quarter growing advisors free to the now XXX help a more last And time subscriptions, on ago. they practices. activities, with is ended additional business valuable offerings clients quarter revenue. year their we more double solutions, and of generate These which than $XX million and spend up up

QX $XXX core starting was we cords to continue unit prior DNA. expenses a anticipate million $XXX range full ahead, in and to in looking $XXX $X outreach million to of million turn year billion. to let's Now be XXXX It what to with

were As includes million expense. to but large support increased & expenses. onboarding to two moving costs,promotion a sequentially.Prior was $XX million BMO million on and reminder, They sequentially, million $XX promotional up institution $XX up driven two, cost Reed M&T and it's marketing read primarily to Waddell to financial by I associated what this with $X would expenses prior

Turning to around anticipate Waddell we expense QX, $XX million. prior & Reed, will promotional by increase to

half As QX. a year would in have of spending our advisor of conferences we largest to first quarter, conferences are have I the level several note promotional will to in the typically that similar two lead we QX. the this fourth that also shifted likely of

However, our environment. plans the could change depending on

we'll more So update give specific a quarter. you next

transaction overall, we even better Now progressing across let's fronts. multiple move the than & Reed to Waddell is expected

approximately this our is of As rate least the platform, in advisor up client continue higher middle by estimate the mentioned assets level of We of we run which EBITDA next benefit factoring XX% million. at from Reed from levels. have and to this reach Waddell be our prior And to & serving current XX% rate expect expect now up retention $XX $XX joined of million to year. asset run

in X.X sheet deployment. strong QX million on at our to management, capital of the balance corporate and for Moving capital $XXX as remains with times leverage cash ratio

capital growth In of and appropriate returns and we Our supporting with foremost, generate organic this year, focused framework majority M&A to remains on growth investing capital shareholders. aligned the half of in the organic pursuing allocating capital the where first and deployment first returning on M&A. excess our was focused

we to to the continue Waddell including history. we Reed, focusing be we just opportunities we organic compelling shareholder board on & And quarter, which continue additional program. investing, capital, opportunities deploy of flexible from and per we week forward, last estimate we to will, and the should repurchase create offset about business business, results, while shares growth another to look the questions. strong value. financial advisors, call open the In quarter to well deploy on dilution, we repurchasing course that best our to remain ahead to as of our positioned growth to to share restart operator,please of we our serve closing, Looking $XX to advisors, grow excited for With see growth, our opportunities in long-term see drive approximately million capital, and emerge. drive dynamic feel Initially remain delivered also

you. of Thank from question the [Operator comes Wolfe line Chubakfrom Steven Instructions].The first Research.

open. is line Your

at the question encouraging of tepid. if remains ICA the dynamics did with some bank certainly zero, but partners rates mat for deposit concerns just Why remain money, to dated the see off start demand interest some bank rest, of to the on but I some a longer from ICA

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take I'll I'll, I obviously. Steven, Yeah, that

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that's approach awhile. So for our been

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would them we that once I something the is sweet relatively able to really really, into the what we're think I think intentions actions, an from amount, think there looking start XX the side. it and there's which fixed on I bank to come when partners, I of execute we're on economics XXX curve think seeing would when hearing and year that their some to -- There's probably really your a some their QX at it's market indicator that it it's, you right. market was from the really to approach but saw be think to a I And XXX that's and rate economics just loudly to that small our back what zone, steepness spoke point were more was their is when at return. had and

things a it's So move good that look not in very but as we're think idea moment, this rates again. what to like,if I obviously could at up environment

most given that know, quite the a remarks just investors XXX Dan, you and points affiliation seems the seeing better seeing? this maybe you're algorithm, speak is especially [Indiscernible] growth momentum organic prepared some institutional of that one accelerating we channel given touched think sustainable field of in I balance of to organic adding across terms questions in non-traditional new you you different particular, you're continues and road? in seeing plus my the new on your from this what at bit follow-up all could just the I in didn't the the I progress to on options mean, often the if least the trying be for within build that probably growth given momentum unpack Dan, seeing, which organic you're of organic a of to the growth like from the that areas you're the some rate? seeing success you're here? do side, growth is to if organic basis Actually

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it's a as so And perhaps way to.

makes about sense. microphone I have sorry the Helps That if on, that? Thanks.

context, a over that, March sort from we're three perhaps for and the for, years, Right. job focused on about done the of great X% that team of the XX%. Yeah, months, that, XX look, growth last organic has past over expanding think to

all and peel back really think, durability oars those And that little right. from is speaks to oars bit three balanced same I attrition. further, sales from to you break your has the the store think in thirds those down traditional of at across get that a you a contribution if come that that you if two new of talk about which So sales, that growth, question, water, store I three if well

then think I two if and institutions look that's being you, I that from the, M&T capabilities about financial we created our supporting with at X% again, thirds model. large remaining invest XX%. partnered our institutions. capabilities to think very if the third, into large journey So you appeal we're the of that's vesting we And and, in continue our for think BMO come And, that, entry appealing in enrichens that to which just of and these the institutions, for as an we've intentional from solution

markets least to pull institutions.And XX dynamics contributor see might got that we pipeline years our at to pull good of these trying which or is have ability going we and to So the be to, next we've durability the higher. so got strategy, to through our through and new key way at marketplace. to the perhaps three do around, growth growth about our traditional continue focused and about how several end optimistic on think rate a think we're about And, this to to a the of look of to quite an day. a that then ongoing of point them markets, we three the to our contributor Organic and as continue how from that drive new over avenues there and growth through forward we're institution's that expanded

that helps. So hope and I color gives some you

line of next comes Citigroup. Katz Bill the Your from question from

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evening, good on. And taking a for you just everyone. up And question thank to the want follow

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picking from, and As I sold, shift look also you're at to be up where seem sizes rising. that mandate

else, So to seeing speak something as a is why maybe the what you idiosyncratic helping bit that is here bolster sort is the, cumulative a penetration? to this time the there just could Fort better the maybe recruitment, you, of have saw you efficacy or little

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to invest within that continue You capabilities your in model. enrich

it successfully clients. deliver You to

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you That's And you a Thank that. the Okay. buyback helpful. we how'd taking see of maybe for bit offset. glad from one maybe to at Matt, sooner, arrive sort dilution then little the modeling

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So continue forward. to it approach that's how going we'll

Stanley. of comes Cyprys Morgan from Your next line the question Michael from

Your line is open.

the taking question. thanks Hey, for

the with the, Dell in transactions, bit on takes. elaborate you on can some of Just in puts help the little the a of and terms quarter contribution

costs as partially I think there well. were was that some some drag there some one-time maybe also things or offsetting

it'd Waddell? elaborate in of thinking be, particularly be we from you could second the timing the So terms of the we the ramp on here and half of about that little should the year as go a into how contribution bit

sure. Michael, hopefully bit, I, on I talk in think our I or little But you at on good you, look deck that. look with some get little that disclosures sure, I'll that maybe metrics as that, slide I when here. later got a we've here, helps think even X Yeah, can team color as bit a at, of

or ago. from I and run an little think the That's $XX really the, transaction in action second kind was, able of bit had when that look see closing rate the was why million we quarter, you basis. we're to the a of actually on main quarter activity synergies annual get you first some than expected that, a of expense round earlier hitting, that

quarter, had, integration that activity, ahead the what months For weekend. happened the last the we is two key really just to it's QX as in on onboarding we look about which, board

gross higher also So grid, onto payout advisers which some lead synergies, our more and that'll a profits to the the little is their moving cost then custodian. of bit eliminating

through that coincidentally QX rate but about of will middle net and plus of expense the why activities And synergies the middle of is the then is of being you $XX million at this lot activities And really $XX about rest by see same next year QX point the out, million forward Now, that things, meeting bring from are those integration. the rate, next that happening. of year. run run us in those still to a which kind but,

we the timers, the be run So, in item, the your line or shows to the of quarter third closing. think really question I the, hundred that integration which will largest I'd so acquisition from on of a hundred now kind going on the estimate, the increase that And which highlight a million of in quarter cost total that on million. the one you saw the that's costs with quarter total rate amount up path the the, acquisition be probably second then a and side a is around that

Our estimate the really right naturally activity most the encouraged which onboarding costs. tied the and that now range that's which to is in $XX is $XX the million are, activities, to

helps So that hope

Super, thank you.

the follow-up decline quick the in the balances. overflow on a ICA We quarter. bit saw Just a balances

what do down the to really say? sort is Would overflows and Just you expand that? to of balances or variable appetite those curious ability zero. potential take to the there the What's

demand I rate there, market picking would checking's signs row in banks a think really substantial amount to the the, I there's of and to in the of things right. I sit when, floating of the liquidity earlier in right,that's needing continue that we're see come savings demand that that balance returning from to think to to beginning a there's three activity the lead the the cash.So to ultimately we're, in lead meaning meaning for going to they're loaning sheets. there's Well, spending, a, out right. market, I the demand I up point, but back up. that think that you're fixed some you that, on along to that ultimately of think coming when the, accounts Loan liquidity if the starting second is that it's on at bit would think I banks, demand see side, Consumer where amount some now quarter, trends curve, picking those I side, liquidity move just there five-year the think are to rates little just rate we out grow, talked a up, gets when banks. still And about, when in balance their that's the the back today, where

next Your KBW. Kyle from comes line question of the Voigt from

Your line is open.

good evening. Hi,

two that benefit noted So two hikes of through rate part gross you your maybe the a four a profit percent think half in beta on I your in last from some sensitivities the you've first from, question, cycle. changed And was hikes. the and rate the deck

hiking you during dynamics sensitivity expect first cycle? is second So we you back next the like into in increase that terms rate you However, you're, yes, to technology should spot it's a And the ongoing spending you're gross the last advantage profit question psyching mean really the took if really platform. the reinvest the of in the different is, the beta part and of look to question reinvestment during platform? cycle, of similar today take benefit in

wanting cycle So as about to as very that hiking we bottom profit the you environment fall how to benefits, business take and could meaningful, -- of of in profit advantage should towards line outlined think of how reinvest the rate and gross spending? we next look to, versus the to the much ahead kind increased

at interest most information to trying betas half XX%, XXXX that's Yeah,Yeah, from do two I which of on expectation last the on and think the, part think a cycle, where an that I recently. now, to part happened beta happened deposit our is is chair there metrics cycle later I But 'XX. get early data what, really, of to the the, updated to what sensitivities, show, our and think that were an but it the pricing demand average then we period what was to rate the the market right and look think some was we cycle then go. that from of XXXX, and what And the on give best I ultimately empirical market of our what drives

the it's the our goes. So thing will market to at probably determine I best at. But history look where looking chair, think the, the, that think dynamics from I the

point you the there's will our of, go which where we're capital applying things that growth that capital if the, to that highest can, in those of today the returns just there. M&A standpoint, things with to then returning delivering, a are and shareholders, it thing allocation a And drive there, are The best form and back focus up what on in we drive revenue, do operating right. to framework, then organic from incremental I and platform, return think on look to that Now when and profit leverage. investing same your can the at can gross margin show to

I models channels and Dan we can what an emphasize, step we and at about different our a earlier we, on when building opportunity I the just time. and environment grow think have, continue think on So it'll was to our be about based we that opportunities back just we're take when just where set talking I even excited And in further.

This question of the Blosteinfrom comes Alex line from Goldman Sachs.

Your line is open.

then you that profit financial maybe most? that that assets You think advisors go? around appetite capabilities on-boarded hundred that in just of putting what And put some a the ultimately do kind LPL where's some, enhance offer billion numbers resonates gross quarter. could can now. a bit that dollars talk And the of Can about to on little second you

first half you Matt, take second. and take me of the Let that, the

do respect to us look, that might the with typically Alex typical has partner that, the, to or to yeah, with principles advisors with enhanced choose one use technology the to, selection institution capabilities. large the might, to So make

that, that efficiency at that cetera, provide on continue their spend So we the it their of become day appropriate we and, into they is and, becomes teams of they They you can good and do that big sort that And a work on that of a coaching, technology don't you on and et for And sure to level and, spend offering. bit priority so clients to automated quickly. and can time up point. work it one, get them time. them ensure to that comprehensive time proficient training, technology, drive a free that workflows, but prospects in leverage takes and making leverage practices, and to

one We options be area look platform we they of breadth from that a from A one to content set alternatives. the at. an a have and from second the investment that tend them that give capability would So and is standpoint, advisory pricing a to support end differentiate of growth from help and their them clients a of for doing value to their them aspirations. to certainly or and business enhanced a, is vertical to, expanded provide their, is ultimately advice way integration ease that that

a And day, also end for client great experience tailwinds so growth. matched there of at the with you the get some

so would support and right -- institutions provide to value. level, tend for we at that macro them a, a support a through cetera, provide make a were enhanced in element it. I arrangement. second entire their shifts to level good an and I level the the risk where compliance deal as management can and got business economics some to you've then and cost think if structure typically area so that the, and profile well would and are labor typically the the can advice to partner stop from outsourced with clients, model high more those shifting maybe And to a institution and creates A improved And there, this the is go And of initiative. just et do investment have you economic, a for risk it I'll and at be look in one our as We an institutional unimportant improvement that second technology, advisors at ability you that through highlight. of the for a see overall as enhancement but things the whole. And and

financial return right, just on at bit question, of little side. the brokerage typically side, to the point then and first now look the focused part larger institutions on gross the a the, then, the you heavily when channel, much the of And profit your or they're on it's

brokerage or So you get RIAthat are that RIAare. as where a starting closer point

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them. we share of gross we, some with that profit So

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as over grow economics deeper those time you, you as the So into get contract.

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maybe quick That around a the clarification helps. dynamics. Thanks. and ICA just

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think that XX% it to I Alex. to Yeah, XX% approach. goes back

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Gerry the Your next comes from question line Jefferies. from of O'Hara

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Securities. comes from of Ryan Devin JMP the question line next Your from

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anything want You to that? add to

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AI for more spectrum assessments assessments. opportunities quicker broader have also to You and use robust,

leverage So our may a greater place oversight may step controls And in folks our volumes for think own you work to not do. real eliminate efficient, jobs, that forward of but use of assess about of controls. and or the of, of, as go as you could that's the use management that of in compliance business. efficacy risk scalability as for of automation where effective And a that, to point AI of more that because case, that create lots the greater a,

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think deliver, think I We're back invest. that you leverage. And focused what I would gets time, be I you same to our that support see could think right amount the doing Right. to that but at the I we think both operating to it principles at now. of us growth, when that, look on going delivering, investing that

same your I'd this. with forward. the in using and scalability modern And efficacy drive and third and of about technology client going to management have Think risk overall advisor automation approach future I that Yeah. as end as technology leave and the you allude dry finally the it oversight, experience think operations.

to no to turn call the sir. Arnold would time. over closing there questions Mr. this are the for line And back over I remarks, phone Dan like other at

it. the us this you thanks look to we RJ. We again. with time everyone join Thanks And forward really for much to And taking appreciate afternoon. speaking

Next quarter, great day a have

this all and for call. concludes participating. gentlemen, Thank Ladies you today's conference

You disconnect. now may