LPL Financial Holdings Inc. Q2 FY2025 earnings call

Key Points from Rich Steinmeier - Spoke about strong business performance despite macroeconomic uncertainty, total assets at record $1.9T, organic net new assets $21B. - Strategic priorities: pursuing novel strategies, creating extraordinary employee experience, leading with operational excellence. - Highlights include recruited assets $18B in Q2, trailing 12-month total $161B; traditional independent market added ~$15B; expanded affiliation models added ~$3B; added ~$1B in traditional bank and credit union market; completed Atria conversion, preparing for First Horizon onboarding, progressing on Commonwealth acquisition. ### Key Points from Matt Audette - Discussed Q2 financial results: adjusted EPS $4.51, adjusted pretax margin ~38%, gross profit $1.304B. - Payout rate, client cash revenue, service and fee revenue, transaction revenue details. - Expenses: core G&A $426M in Q2, revised 2025 core G&A outlook, promotional expense, depreciation and amortization, interest expense. - Capital management: paused share repurchases, focus on organic growth, M&A, and returning excess capital.

In the second quarter, total assets increased to a record $1.9 trillion. Organic net new assets were $21 billion, representing a 5% annualized growth rate. Recruited assets were $18 billion in Q2, bringing the trailing 12-month total to $161 billion. In the traditional independent market, approximately $15 billion in assets were added. The expanded affiliation models, strategic wealth, independent employee, and enhanced RIA offering added roughly $3 billion. Approximately $1 billion of assets were added in the traditional bank and credit union market. Asset retention remained industry-leading at 98% for Q2 and over the last 12 months.

Adjusted 2025 Core G&A - Lowered 2025 core G&A outlook to $1.720B-$1.750B, with new core G&A outlook including Commonwealth at $1.880B-$1.920B. ### Commonwealth Acquisition - Expect to close Commonwealth transaction tomorrow, convert assets in Q4 2026. Run rate EBITDA expected to be ~$120M at close and ~$415M fully integrated. ### Financial Metrics - Anticipate ICA yield to be roughly flat sequentially in Q3. Service and fee revenue expected to increase, transaction revenue expected to increase.

• Macroeconomic uncertainty and market weakness. - Regulatory environment ambiguity, such as SEC evaluation on RIA registration threshold. - Competitive transition assistance environment.

Q: Alex Blostein from Goldman Sachs asked about Commonwealth retention and EBITDA run rate.

A: Rich Steinmeier spoke about positive engagement with Commonwealth, confident in 90% retention due to understanding advisers and culture, and Matt Audette explained run rate EBITDA considering AUM and cash balance mix.

Q: Steven Chubak from Wolfe Research asked about expense optimization and long-term G&A growth.

A: Matt Audette stated there's good momentum on efficiency work with long runway for further gains.

Q: Craig Siegenthaler from Bank of America asked about net new assets in independent RIA channel.

A: Matt Audette and Rich Steinmeier discussed factors like regulatory ambiguity affecting flows to independent RIAs.

Q: Devin Ryan from Citizens asked about Commonwealth advisers setting up their own RIAs.

A: Rich Steinmeier explained advisers evaluating options, but LPL can support them in RIA or shared ADV models.

Q: Dan Fannon from Jefferies asked about recruiting backdrop and NNA outlook.

A: Rich Steinmeier discussed truncated adviser movement due to macro uncertainty but industry-leading win rates.

Q: Benjamin Budish from Barclays asked about gross profit ROA.

A: Matt Audette explained ROA decline driven by diversified revenue and not all metrics AUM-driven.

Q: Michael Cyprys from Morgan Stanley asked about capital allocation and Liquidity & Succession.

A: Matt Audette discussed capital allocation plans and progress in Liquidity & Succession.

Q: Jeff Schmitt from William Blair asked about Commonwealth core G&A and efficiency.

A: Matt Audette said not to get hung up on initial run rate numbers.

Q: Kyle Voigt from KBW asked about sweep cash volatility.

A: Matt Audette explained cash volatility driven by seasonal factors and denominator growth.

Q: Bill Katz from TD Cowen asked about Commonwealth AUM split and Liquidity & Succession multiples.

A: Matt Audette provided AUM split details and said no impact from private equity on L&S multiples.