01—Abstract
Summary
Summary of the 10-K filed February 26, 2014. Cited figures are marked; the original filing is the authoritative source.
LPL Financial Holdings Inc. (LPLA) reported net revenues of $4.14 billiona for 2013, up from $3.66 billion in 2012, and net income of $181.9 million, or $1.72 per diluted share, compared with $151.9 million in 2012.
The company describes itself as the nation's largest independent broker-dealer, a top custodian for registered investment advisors, and a leading independent consultant to retirement plans, supporting more than 13,600 independent financial advisors and 3,185 employees. Advisory and brokerage assets reached $438.4 billionb at December 31, 2013, up from $373.3 billion, and advisory assets under custody were $151.6 billion. Recurring revenue was 65% of net revenue in 2013.
Total debt was $1.54 billionc at year-end, with a senior secured credit facility and a leverage ratio of 2.34 against a 4.25 covenant maximum. Adjusted EBITDA was $511.4 million and Adjusted Earnings per diluted share was $2.44. The company returned capital through $219.1 million of share repurchases and $68.0 million of dividends paid in 2013.
In February 2014 it declared a $0.24d quarterly dividend, expanded its repurchase authorization by $150.0 million to $218.0 million, and repurchased 1.9 million shares from TPG Capital for $100.0 million. The filing also highlights the Service Value Commitment, a program expected to be completed in 2015 with total charges estimated at $65.0 million and expected annual pre-tax savings of approximately $30.0 million by 2015. Key risks noted include dependence on attracting advisors, sensitivity of cash sweep revenue to low interest rates, regulatory change under the Dodd-Frank Act, and reliance on outsourced service providers.
02—Key points
Key Highlights
- Net revenues rose to $4.14 billion in 2013 from $3.66 billion in 2012; net income increased to $181.9 million from $151.9 million.
- Diluted EPS was $1.72 in 2013 versus $1.37 in 2012; Adjusted Earnings per diluted share was $2.44 versus $2.03.
- Advisory and brokerage assets grew to $438.4 billion from $373.3 billion, with advisory assets under custody at $151.6 billion.
- Recurring revenue was 65% of total net revenue in 2013, and no single advisor accounted for more than 1% of net revenues.
- The company returned $287.1 million to shareholders in 2013 through $219.1 million of share repurchases and $68.0 million of dividends paid.
- Cash sweep program revenue declined to $119.6 million from $138.1 million due to re-pricing of contracts under the low interest rate environment.
- Total debt was $1.54 billion at year-end, with a leverage ratio of 2.34 against a covenant maximum of 4.25.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2013filed February 26, 2014Financial Statements
FY2013 against FY2012
| Line item | FY2013FY2012 | Change |
|---|---|---|
| Revenue | $4.14B$3.66B | +13.1% |
| Operating Expenses | $3.79B$3.34B | +13.5% |
| Net Income | $181.86M$151.92M | +19.7% |
| EPS (Basic) | $1.74$1.39 | +25.2% |
| EPS (Diluted) | $1.72$1.37 | +25.5% |
| Shares Outstanding (Basic) | 104.70M109.44M | −4.3% |
| Shares Outstanding (Diluted) | 106.00M111.06M | −4.6% |
05—Questions
Frequently Asked Questions
How did LPL Financial perform financially in 2013?
Net revenues increased 13.1% to $4.14 billion, net income rose to $181.9 million from $151.9 million, and diluted EPS was $1.72 compared with $1.37 in 2012. Commission revenue grew 14.1% and advisory revenue grew 11.8%.
What is the Service Value Commitment and what savings does it target?
The Service Value Commitment is a program announced in February 2013 to reposition the labor force and transition select non-advisor-facing functions to third-party providers. Total charges are estimated at $65.0 million, the program is expected to be completed in 2015, and the company expects annual pre-tax savings of approximately $30.0 million by 2015.
How much debt does LPL Financial carry and how is it structured?
Total indebtedness was $1.5 billion at December 31, 2013, consisting of Term Loan A, Amended Term Loan B and a $250.0 million revolving credit facility. The leverage ratio was 2.34 against a covenant maximum of 4.25, and the interest coverage ratio was 10.91 against a minimum of 3.00.
What capital return actions did the company take?
In 2013 the company repurchased shares for $219.1 million and paid $68.0 million in dividends. In February 2014 it declared a $0.24 quarterly dividend, increased its repurchase authorization by $150.0 million to $218.0 million, and repurchased 1.9 million shares from TPG Capital at $52.00 per share for $100.0 million.
What are the main risks to the business highlighted in the filing?
Key risks include dependence on attracting and retaining experienced advisors, exposure of cash sweep fees to low interest rates, possible regulatory changes including the Dodd-Frank Act and a potential stricter fiduciary standard, reliance on outsourced service providers, and execution risk on the Service Value Commitment.
06—Continue