01—Abstract
Summary
Summary of the 10-K filed March 24, 2009. Cited figures are marked; the original filing is the authoritative source.
LPL Investment Holdings Inc. (now LPL Financial Holdings Inc.) reported total revenues of $3.12 billiona for 2008, up from $2.72 billion in 2007, while net income fell to $45.5 million from $61.1 million.
The company describes itself as a provider of technology, brokerage and investment advisory services to independent financial advisors, registered investment advisors and financial institutions, with 11,920 financial advisors licensed with its broker-dealer subsidiaries and $234 billionb in client assets as of December 31, 2008. Revenue growth was driven largely by acquisitions of UVEST, IASG and IFMG, while production expenses (commissions and advisory fees paid out to customers) rose to $2.16 billion, with a stated production payout of 86.3% in 2008. Investors should weigh the company's leverage and cost pressures.
Total indebtedness was $1.47 billionc at December 31, 2008, including $550.00 million of 10.75% senior unsecured subordinated notes due 2015. Adjusted EBITDA rose to $360.0 million from $342.4 million, and the company recorded a $14.97 million restructuring charge tied to a workforce reduction of about 275 employees.
The company stated it paid no dividends in the past three fiscal years and does not plan to pay dividends, and that there is no established trading market for its common equity. The Majority Holders, TPG and Hellman & Friedman, own approximately 60%d of capital stock on a fully-diluted basis and have significant influence over corporate decisions.
02—Key points
Key Highlights
- Total revenues of $3.12 billion in 2008, up 14.7% from $2.72 billion in 2007, with commissions of $1.64 billion and advisory fees of $830.6 million as the largest components.
- Net income declined to $45.5 million in 2008 from $61.1 million in 2007, with the effective tax rate rising to 51.0% from 43.4%.
- Adjusted EBITDA of $360.0 million in 2008 versus $342.4 million in 2007, a figure used in covenant compliance under the senior credit facilities.
- Total indebtedness of $1.47 billion at December 31, 2008, including $827.65 million under senior secured credit facilities and $550.00 million of 10.75% senior unsecured subordinated notes due 2015.
- Recurring revenue represented 58.5% of total revenue in 2008, and cash sweep program client assets increased 62.3% to $22.11 billion.
- Restructuring charge of $14.97 million recorded in the fourth quarter of 2008 in connection with a workforce reduction of approximately 275 employees, or 10% of the workforce.
- No dividends paid in the past three fiscal years and none planned; there is no established public trading market for the common equity, and the Majority Holders own approximately 60% on a fully-diluted basis.
03—Questions
Frequently Asked Questions
Is LPL Investment Holdings publicly traded, and does it pay dividends?
The filing states there is no established trading market for the company's common equity. No dividends were paid during the past three fiscal years, and the company does not plan to pay dividends in the future.
How much debt does the company carry and what are its main terms?
Total indebtedness was $1.47 billion at December 31, 2008. This consisted of $827.65 million under senior secured credit facilities, which bear floating rates tied to LIBOR, and $550.00 million of senior unsecured subordinated notes that bear 10.75% interest and mature in 2015. Interest rate swaps cover $495.00 million of the floating-rate term loan.
What drove the increase in revenue in 2008?
The filing attributes the revenue increase mainly to the commission and advisory fee base obtained through acquisitions, including UVEST, IASG and IFMG. Commission revenue rose 11.6% and advisory fees rose 12.4%, while organic commission growth was described as relatively flat. Asset-based fees rose 35.0%, driven by cash sweep programs.
Why did net income decline in 2008 even though revenue grew?
Total non-interest expenses rose 16.9% to $2.91 billion, outpacing revenue growth. Compensation and benefits rose 33.4%, general and administrative expenses rose 33.3%, and the company recorded a $14.97 million restructuring charge. The effective tax rate also increased to 51.0% from 43.4%.
Who controls the company and what risks does that create for investors?
Investment funds affiliated with TPG Partners IV, LP and Hellman & Friedman Capital Partners, LP, referred to as the Majority Holders, own approximately 60% of capital stock on a fully-diluted basis. The filing states that they have significant influence over corporate transactions and may have conflicts of interest with the company, and that anti-takeover provisions in the certificate of incorporation and bylaws may deter a change of control.
04—Continue