LPL Financial Holdings Inc. Q1 FY2025 earnings call

• Strong start to the year with $1.8 trillion in total assets and $71 billion in organic net new assets. - Reached an agreement to acquire Commonwealth, accelerating progress towards being the best wealth management firm. - Three key priorities: novel strategies for sustained success, extraordinary employee experience for client experience, and operational excellence. - In Q1, recruited $39 billion in assets, with $20 billion in the traditional independent market and $2 billion in expanded affiliation models. - Added $1 billion in assets in the traditional bank and credit union market. - Onboarded WinTrust and completed Prudential Advisors transition. - Asset retention at industry-leading 98% for Q1 and last twelve months. - Closed and onboarded acquisition of the investment center, and began onboarding Atria Wealth Solutions. - Planned acquisition of Commonwealth to preserve its service experience and leverage LPL's resources.

Total advisory and brokerage assets were $1.8 trillion, up 3% from Q4. Organic net new assets were $71 billion, representing a 16% annualized growth rate. Adjusted EPS was a record $5.15. Commission advisory fees net of payout were $363 million, up $50 million from Q4. Client cash revenue was $408 million, up $11 million from Q4. Service and fee revenue was $145 million, up $6 million from Q4. Transaction revenue was $68 million, up $6 million sequentially. Recruited assets in Q1 were $39 billion, with $16 billion from WinTrust. Prior to large institutions, recruited assets were approximately $22 billion. Total assets increased to a new quarterly high of $1.8 trillion with record organic net new assets of $71 billion.

• Core G&A for full year 2025 now expected to be in the range of $1.730 billion to $1.765 billion, lowering the upper end by $15 million. - Q2 core G&A expected to be in the range of $435 million to $445 million. - Anticipate ICA yield to be roughly flat to Q1 in Q2. - Expect service and fee revenue to increase by approximately $5 million sequentially in Q2. - Expect transaction revenue to be roughly flat in Q2. - Interest expense expected to increase by approximately $20 million sequentially in Q2 due to senior notes issued for Commonwealth acquisition. - Interest income expected to increase by approximately $30 million sequentially in Q2. - Leverage ratio expected to be approximately 2.25 times following Commonwealth acquisition, with plan to reduce leverage closer to mid-point by end of 2026.

• Forward-looking statements subject to known and unknown risks and uncertainties that may cause actual results to differ. - Macroeconomic uncertainty posing challenges. - Integration risks with acquisitions like Commonwealth and Atria.

Q: Could you provide additional context on the recruiting process with Commonwealth, financial packages, and reactions from LPL and other advisors?

A: Transaction with Commonwealth is going well, tracking towards 90% retention target. Engaged with Commonwealth advisors, reflecting positively on the deal. LPL advisors are supportive, seeing the benefit of combining the two firms' capabilities.

Q: On expenses, can you provide more context on the source of efficiencies and confidence in delivering operating leverage while investing in services?

A: Efficiencies come from automating manual processes, reducing friction, which improves client and employee experience and cuts costs. Conviction is high in continuing to deliver operating leverage as these efficiencies are ingrained in culture and related to investing in services.

Q: Talk about the recruiting pipeline in a volatile market backdrop, advisor movement, and pipeline shape across channels?

A: Advisor movement is in a new normal around 5%. LPL has industry-leading win rates. In volatile markets, advisors may stay put, but end investors flight to quality benefits advisors. Pipelines are growing with good conversations, though volatility may cause some movement to push out.

Q: Same store sales dynamics in volatile market and cash update?

A: In volatile markets, advisors may win more new clients while losing less. April cash decreased by about $1.3 billion to $51.8 billion, with seasonal factors like tax payments and advisory fees. April organic growth came in around 4% with seasonality considered.

Q: Update on integration and onboarding of Atria and PRU?

A: Atria on track with 80% retention estimate, run rate EBITDA benefit of $150 million by end of year. PRU onboarding completed, adding $67 billion in assets, with run rate EBITDA expected to hit $80 million.

Q: Pipeline for institution wins and cadence?

A: Large bank market has $1.5 trillion opportunity with First Horizon onboarded. Insurance BD and product manufacturers present $1.5 trillion opportunity. Focusing resources on current onboarding and acquisitions, so few large announcements soon.

Q: Strategic responses by smaller players and competition with Commonwealth deal?

A: Small firms may carve unique positions, but harder for non-scale players to compete with LPL's scale, capacity, and commitment. Commonwealth deal offers unique value with preserved experience and scale.

Q: Internal capacity for onboarding deals and partnerships?

A: Built strong team and capabilities, but focused on current initiatives like Atria conversions and Commonwealth acquisition, so few near-term large deal announcements.

Q: Annuity sales activity and driver?

A: Annuity sales strong, with Prudential onboarding contributing three-fourths of growth, and core business contributing the rest. Macro drivers like interest rates and volatility affect, but core offering is significant.