01—Abstract
Summary
Summary of the 10-K/A filed February 27, 2018. Cited figures are marked; the original filing is the authoritative source.
LPL Financial Holdings Inc. (LPLA) reported net income of $238.9 milliona, or $2.59 per diluted share, for 2017, up from $191.9 million, or $2.13 per share, in 2016.
Net revenues rose to $4.28 billionb from $4.05 billion. The company describes itself as a leader in the retail financial advice market and the nation's largest independent broker-dealer, serving more than 15,000 independent financial advisors and approximately 4.8 million client accounts. Total brokerage and advisory assets served grew to $615.1 billion at December 31, 2017, from $509.4 billion, with total net new assets of $43.4 billion, versus $5.9 billion in 2016.
Growth was supported by cash sweep revenue, which rose to $301.4 millionc from $173.7 million, and by the acquisition of certain assets of National Planning Holdings, Inc. (NPH), which onboarded $34.2 billion in assets in the first wave. The company refinanced its debt in 2017, issuing a $1.7 billion Term Loan B, $500.0 million of 5.75% senior unsecured notes, and $400.0 million of add-on notes. Total long-term borrowings were $2.39 billion at year-end, of which $1.5 billion carried floating rates.
The company returned $204.0 milliond to shareholders through $90.3 million of dividends and $113.7 million of share repurchases. Risks highlighted in the filing include a putative class action lawsuit related to share repurchases and financial performance in late 2015, ongoing regulatory matters including blue sky compliance, and uncertainty around the Department of Labor fiduciary rule, whose full implementation was delayed to July 1, 2019. The filing also notes that the Tax Cuts and Jobs Act reduced the federal corporate tax rate from 35% to 21%, producing a one-time net tax benefit of $8.8 million in the fourth quarter of 2017.
The company's effective tax rate was 34.5% for 2017. Total payout ratio to advisors increased to 86.67% from 85.91%.
02—Key points
Key Highlights
- Net income rose to $238.9 million ($2.59 diluted EPS) in 2017 from $191.9 million ($2.13 diluted EPS) in 2016.
- Total brokerage and advisory assets served reached $615.1 billion, up from $509.4 billion at year-end 2016, with net new assets of $43.4 billion versus $5.9 billion in 2016.
- Asset-based revenue increased 27.3% to $708.3 million, driven primarily by cash sweep revenue of $301.4 million, up from $173.7 million.
- The NPH Acquisition closed in August 2017 for $325 million at closing plus a potential contingent payment of up to $122.8 million; $34.2 billion in assets were onboarded in Wave 1.
- Recurring revenue was 78.1% of net revenue in 2017, compared with 74.4% in 2016.
- Total indebtedness was $2.4 billion at December 31, 2017, with $1.5 billion subject to floating interest rates; the company was in compliance with its financial covenants.
- A putative class action lawsuit alleging misstatements related to share repurchases and financial performance in late 2015 has been filed against the company and certain executive officers; the company intends to defend vigorously.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-K/AFY2017filed February 27, 2018Financial Statements
FY2017 against FY2016
| Line item | FY2017FY2016 | Change |
|---|---|---|
| Revenue | $4.28B$4.05B | +5.7% |
| Operating Expenses | $3.79B$3.66B | +3.6% |
| Net Income | $238.86M$191.93M | +24.5% |
| EPS (Basic) | $2.65$2.15 | +23.3% |
| EPS (Diluted) | $2.59$2.13 | +21.6% |
| Shares Outstanding (Basic) | 90.00M89.07M | +1.0% |
| Shares Outstanding (Diluted) | 92.11M90.01M | +2.3% |
05—Questions
Frequently Asked Questions
How did LPL Financial's profitability change in 2017?
Net income increased to $238.9 million, or $2.59 per diluted share, from $191.9 million, or $2.13 per diluted share, in 2016. Net revenues rose to $4.28 billion from $4.05 billion. The filing attributes the earnings per share growth primarily to increased asset-based fee revenue and advisory fee revenue.
What drove the growth in asset-based revenue?
Asset-based revenue rose 27.3% to $708.3 million. The increase was due primarily to cash sweep revenue, which grew to $301.4 million from $173.7 million, reflecting the increase in the federal funds target range, partially offset by lower average cash sweep balances of $28.7 billion versus $29.9 billion.
What was the NPH Acquisition and what did it add?
On August 15, 2017, the company acquired certain assets and rights of National Planning Holdings, Inc. and its four broker-dealer subsidiaries, including business relationships with financial advisors who became affiliated with LPL Financial. The company paid $325 million at closing and agreed to a potential contingent payment of up to $122.8 million. Wave 1 onboarded $34.2 billion in brokerage and advisory assets, including $26.5 billion in brokerage assets and $7.7 billion in advisory assets.
What are the main legal and regulatory risks disclosed?
The filing discloses a putative class action lawsuit against the company and certain executive officers alleging misstatements related to share repurchases and financial performance in late 2015. It also notes pending regulatory matters, including compliance with state blue sky laws, and that the Department of Labor fiduciary rule became applicable on June 9, 2017, with full implementation of certain exemption conditions delayed until July 1, 2019.
How much did the company return to shareholders in 2017?
The company returned $204.0 million to shareholders, including $90.3 million of dividends and $113.7 million of share repurchases, representing 2,619,532 shares. The board declared a quarterly dividend of $0.25 per share in each quarter of 2017, and on February 16, 2018 declared another $0.25 per share dividend payable March 23, 2018.
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