01—Abstract
Summary
Summary of the 10-K filed February 21, 2020. Cited figures are marked; the original filing is the authoritative source.
LPL Financial Holdings Inc. reported net income of $559.9 milliona, or $6.62 per diluted share, for 2019, up from $439.5 million, or $4.85 per diluted share, in 2018.
Net revenues rose to $5.62 billionb from $5.19 billion, and the company describes itself as the nation's largest independent broker-dealer, serving independent financial advisors and financial institutions with about 5.7 million client accounts and roughly 16,464 advisors at year-end 2019. Total brokerage and advisory assets served reached $764.4 billion at December 31, 2019, up from $628.1 billion, though total net new assets fell to $26.6 billion from $51.6 billion, as net new brokerage assets were outflows of $3.4 billion versus inflows of $24.1 billion in 2018. Advisory assets grew to $365.8 billion and represented 47.8% of total assets served.
Gross profit, a non-GAAP measure, was $2.17 billionc, up 11.5%, and the company returned $583.0 million to stockholders through $82.6 million of dividends and $500.4 million of share repurchases. The filing highlights ongoing regulatory exposure, including the SEC's Regulation BI with a compliance date of June 30, 2020, a pending Department of Labor fiduciary rule, and state-level standards of conduct.
Total indebtedness was $2.4 billiond at year-end, and the company issued $400.0 million of 4.625% senior notes due 2027 in November 2019. Management reported the company was in compliance with its financial covenants.
02—Key points
Key Highlights
- Net income of $559.9 million, or $6.62 per diluted share, versus $439.5 million, or $4.85 per diluted share, in 2018
- Net revenues of $5.62 billion, up from $5.19 billion in 2018
- Total brokerage and advisory assets served of $764.4 billion at December 31, 2019, up from $628.1 billion; total net new assets of $26.6 billion versus $51.6 billion in 2018
- Net new brokerage assets were outflows of $3.4 billion in 2019, compared with inflows of $24.1 billion in 2018
- Gross profit (non-GAAP) of $2.17 billion, up 11.5%; total payout ratio of 86.27%
- Capital returned to stockholders of $583.0 million, including $500.4 million of share repurchases and $82.6 million of dividends
- Total indebtedness of $2.4 billion; $400.0 million of 4.625% senior unsecured notes due 2027 issued in November 2019
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2019filed February 21, 2020Financial Statements
FY2019 against FY2018
| Line item | FY2019FY2018 | Change |
|---|---|---|
| Revenue | $5.62B$5.19B | +8.4% |
| Operating Expenses | $4.88B$4.47B | +9.2% |
| Interest Expense | $130.00M— | — |
| Net Income | $559.88M$439.46M | +27.4% |
| EPS (Basic) | $6.78$4.99 | +35.9% |
| EPS (Diluted) | $6.62$4.85 | +36.5% |
| Shares Outstanding (Basic) | 82.55M88.12M | −6.3% |
| Shares Outstanding (Diluted) | 84.62M90.62M | −6.6% |
05—Questions
Frequently Asked Questions
How did LPL's profitability change in 2019?
Net income rose to $559.9 million, or $6.62 per diluted share, from $439.5 million, or $4.85 per diluted share, in 2018. Total net revenues increased to $5.62 billion from $5.19 billion, and the effective income tax rate declined to 24.5% from 25.8%.
What drove the change in client asset flows?
Total net new assets fell to $26.6 billion from $51.6 billion. Net new advisory assets increased to $30.0 billion from $27.6 billion, while net new brokerage assets turned to outflows of $3.4 billion, compared with inflows of $24.1 billion in 2018 that included onboarding of National Planning Holdings assets.
What regulatory changes does the company highlight as risks?
The filing cites Regulation BI, adopted by the SEC in June 2019 with a compliance date of June 30, 2020, and a potential new Department of Labor fiduciary rule expected in 2020. It also notes state standards such as Nevada's fiduciary statute and New York's best interest standard for certain annuity and insurance products.
How much capital did LPL return to shareholders and how leveraged is it?
The company returned $583.0 million to stockholders in 2019, including $500.4 million of repurchases representing 6,418,542 shares and $82.6 million of dividends at $0.25 per quarter. Total indebtedness was $2.4 billion at year-end, with $1.1 billion subject to floating rates, and the company reported compliance with its leverage and interest coverage covenants, showing an actual leverage ratio of 2.05 against a 5.0 maximum.
What is the company's advisor base and how is it compensated?
LPL reported 16,464 advisors at December 31, 2019 supporting about 5.7 million client accounts. Advisors receive a total payout ratio of 86.27% of commission and advisory revenues in 2019, up from 86.04% in 2018, mainly due to higher production-based bonuses.
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