01—Abstract
Summary
Summary of the 10-K filed March 31, 2008. Cited figures are marked; the original filing is the authoritative source.
LPL Investment Holdings Inc. (now LPL Financial Holdings Inc.) reports a 2007 year in which total revenues rose to $2.72 billiona from $1.74 billion in 2006, and net income increased to $61.07 million from $33.64 million.
The growth was driven by commission and advisory revenue, an increase in the number of licensed advisors to 11,089 at December 31, 2007 (from 7,006), and four acquisitions completed in 2007, including UVEST, IASG (Affiliated Broker-Dealers) and IFMG. The filing states that 2007 acquisitions added $412.75 millionb of revenue, and that excluding them, the number of overall FAs grew 15.2%. Profitability and leverage remain significant considerations.
Income before taxes was $107.83 millionc, but interest expense from senior credit facilities and subordinated notes was $122.82 million. Total indebtedness was $1.45 billion at year-end, including $550.00 million of 10.75% senior unsecured subordinated notes due 2015. Operating cash flow fell to $10.07 million from $139.23 million in 2006, which the company attributed largely to increased segregated customer cash requirements.
Total assets were $3.29 billiond and stockholders' equity was $747.17 million. Ownership and governance are concentrated.
Investment funds affiliated with TPG and Hellman & Friedman own approximately 59.3% of capital stock on a fully diluted basis, and the company states there is no established trading market for its common equity. The filing also discloses a FINRA complaint filed July 23, 2007 against subsidiary Mutual Service Corporation, for which the company states it is indemnified by prior owners.
02—Key points
Key Highlights
- Total revenues increased 56.2% to $2.72 billion in 2007 from $1.74 billion in 2006; 2007 acquisitions contributed $412.75 million of the increase.
- Net income rose to $61.07 million in 2007 from $33.64 million in 2006; income before taxes was $107.83 million, up 96.5%.
- Licensed IFAs reached 11,089 at December 31, 2007, up 58.3% over 2006, following recruiting and the acquisitions of IASG, UVEST and IFMG.
- Recurring revenue was 59.4% of total revenue in 2007, down from 61.5% in 2006, primarily due to the 2007 acquisitions.
- Total indebtedness was $1.45 billion at December 31, 2007, including $550.00 million of 10.75% senior unsecured subordinated notes due 2015.
- Operating cash flow was $10.07 million in 2007 versus $139.23 million in 2006, largely due to higher cash required in a segregated customer reserve account.
- Majority Holders (TPG and Hellman & Friedman affiliated funds) own approximately 59.3% of capital stock on a fully diluted basis, and there is no established public trading market for the common stock.
03—Questions
Frequently Asked Questions
Is the company's growth in 2007 mainly organic or acquisition-driven?
Both contributed. Total revenue rose $977.67 million, or 56.2%. The filing states that the 2007 acquisitions of UVEST, IASG and IFMG added $412.75 million, or 42.2%, of that increase. Excluding the acquisitions, the number of overall FAs grew 15.2%, from 7,006 to 8,069 at year-end 2006 and 2007.
How heavily is the company leveraged?
Total indebtedness was $1.45 billion at December 31, 2007. Interest expense from senior credit facilities and subordinated notes was $122.82 million in 2007, compared with income before taxes of $107.83 million. The filing notes that a decline in operating performance could lead rating agencies to downgrade the senior subordinated notes.
Why did operating cash flow decline sharply in 2007?
Net cash provided by operating activities was $10.07 million in 2007, compared with $139.23 million in 2006. The filing attributes the decrease largely to an increase in cash required to remain in a segregated reserve account for the exclusive benefit of customers, and to income taxes payable of $51.14 million realized in 2006 that did not recur in 2007.
Can investors easily trade the company's shares?
No. The filing states there is no established trading market for the common equity. As of December 31, 2007 there were 65 holders of common stock, and the company has not paid dividends in the past two fiscal years and does not plan to pay dividends in the future.
Are there material regulatory or legal matters disclosed?
The filing discloses that in November 2005 FINRA issued a Wells notice to subsidiary Mutual Service Corporation regarding supervisory procedures and books and records for certain variable annuity transactions, and that on July 23, 2007 the staff filed a complaint. The company is indemnified for such claims by the prior owners, and management believes none of its current legal proceedings will have a material adverse impact.
04—Continue