01—Abstract
Summary
Summary of the 10-K filed March 9, 2011. Cited figures are marked; the original filing is the authoritative source.
LPL Investment Holdings Inc. reported a net loss of $56.9 milliona for 2010 (diluted loss per share of $0.64), compared with net income of $47.5 million in 2009, driven primarily by a $222.0 million share-based compensation charge and $240.9 million of equity issuance and IPO-related costs recorded in connection with its initial public offering, which closed in November 2010 at $30.00 per share.
Net revenues rose 13.2% to $3.11 billionb, led by a 22.2% increase in advisory fees and a 9.7% increase in commissions, while total advisory and brokerage assets grew to $315.6 billion and the company supported 12,444 advisors. Adjusted EBITDA increased to $413.1 million and Adjusted Earnings to $172.7 million ($1.71 per diluted share), both non-GAAP measures the company emphasizes. The company's balance sheet carried $1.39 billion of senior secured credit facilities and subordinated notes at year-end, after it refinanced in May 2010 by redeeming $550.0 million of 10.75% notes with a new $580.0 million term loan maturing in 2017.
Management reported that it was in compliance with all covenants, with a leverage ratio of 2.64 against a 3.70 maximum and interest coverage of 4.81 against a 2.60 minimum. The company also disclosed that it expects approximately $237.3 millionc of total tax benefits from the IPO-related deductions, and that the Majority Holders own about 62.9% of common stock, which gives them significant control over stockholder matters. Investors should weigh the company's strong revenue recovery and recurring-revenue base, which it stated was over 60% of revenue in 2010, against the reported loss, the heavy reliance on advisor retention, exposure to low interest rates on its cash sweep programs, and the lock-up expiration in mid-May 2011 that could pressure the share price.
02—Key points
Key Highlights
- Net revenues increased 13.2% to $3.11 billion in 2010, while the company reported a net loss of $56.9 million ($0.64 per diluted share) versus net income of $47.5 million in 2009.
- A $222.0 million share-based compensation charge tied to the release of 7.4 million advisor shares at the $30.00 IPO price, and $240.9 million of equity issuance and IPO-related costs, drove the 2010 loss.
- Advisory and brokerage assets reached $315.6 billion at December 31, 2010, up from $279.4 billion, with advisory assets under management at $93.0 billion.
- Adjusted EBITDA rose to $413.1 million from $356.1 million, and Adjusted Earnings were $172.7 million, or $1.71 per diluted share, versus $1.32 in 2009.
- Total debt was $1.39 billion at year-end; the May 2010 refinancing redeemed $550.0 million of 10.75% notes using a new $580.0 million 2017 term loan, and the company was in compliance with all covenants.
- The company stated that over 60% of 2010 revenue was recurring, and that no single advisor accounted for more than 1% of net revenues.
- The Majority Holders own about 62.9% of common stock, and lock-up agreements expire in mid-May 2011, which could lead to substantial share sales.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2010filed March 9, 2011Financial Statements
FY2010 against FY2009
| Line item | FY2010FY2009 | Change |
|---|---|---|
| Revenue | $3.11B$2.75B | +13.2% |
| Operating Expenses | $3.07B$2.58B | +19.3% |
| Net Income | -$56.86M$47.52M | −219.7% |
| EPS (Basic) | $-0.64$0.54 | −218.5% |
| EPS (Diluted) | $-0.64$0.47 | −236.2% |
| Shares Outstanding (Basic) | 89.44M86.65M | +3.2% |
| Shares Outstanding (Diluted) | 89.44M98.49M | −9.2% |
05—Questions
Frequently Asked Questions
Why did LPL report a net loss in 2010 after profitable prior years?
The net loss of $56.9 million was driven mainly by a $222.0 million share-based compensation charge recorded when restrictions lifted on 7.4 million advisor shares at the $30.00 IPO price, along with $240.9 million of equity issuance and IPO-related EBITDA adjustments and $38.0 million of loss on debt extinguishment. The company noted that Adjusted Earnings, which excludes these items, rose to $172.7 million.
How did the company's revenues and advisor base perform in 2010?
Net revenues rose 13.2% to $3.11 billion, with advisory fees up 22.2% and commissions up 9.7%. The advisor base grew from 11,950 at the end of 2009 to 12,444 at December 31, 2010, and advisory assets under management increased 20.5% to $93.0 billion.
What is the company's debt position and how did it change?
Total debt was $1.39 billion at December 31, 2010. In May 2010 the company amended its credit agreement to add a $580.0 million 2017 term loan and used it, with cash on hand, to redeem $550.0 million of 10.75% senior unsecured subordinated notes. The company reported a leverage ratio of 2.64 against a covenant maximum of 3.70 and interest coverage of 4.81 against a minimum of 2.60.
What risks should investors consider regarding ownership and share price?
The Majority Holders own approximately 62.9% of common stock and can strongly influence corporate decisions. Lock-up agreements covering substantially all pre-IPO shares expire around May 16, 2011, which could depress the stock price if many shares are sold. The company also does not intend to pay dividends in the foreseeable future.
How does the company's revenue sensitivity to interest rates and markets affect its outlook?
The company noted that revenue from its cash sweep programs declined to $119.7 million in 2010 amid low federal funds rates averaging 0.18%. A 10 basis point downward rate change could reduce income before taxes by $12.2 million annually, while equity market recovery boosted asset-based and advisory revenues.
06—Continue