LPL Financial Holdings Inc.

Joining the call today are our Chief Executive Officer Rich Steinmeier and President and Chief Financial Officer Matt Audit. Rich and Matt will offer introductory remarks and then the call will be open for questions. The company would appreciate if analysts would limit themselves to only one question. To ask a follow-up please re-enter the queue. The company has posted its earnings press release and supplementary information on the investor relations section of the company's website .lpl.com. Today's call will include forward-looking statements including statements about LPL financials future financial and operating results, outlook, business strategies, and plans as well as other opportunities and potential risks that management foresees. Such forward-looking statements reflect management's current estimates or beliefs and are subject to known and unknown risks and uncertainties that may cause actual results or the timing of events to differ materially from those expressed or implied in such forward-looking statements. For more information about such risks and uncertainties the company refers listeners to the disclosure set forth under the caption forward-looking statements in the earnings press release as well as the risk factors and other disclosures contained in the company's recent filings with the Securities and Exchange Commission. During the call the company will also discuss certain non-GAAP financial measures. For a reconciliation of such non-GAAP financial measures to the comparable GAAP figures please refer to the company's earnings release which can be found at .lpl.com. With that I will now turn the call over to Mr. Steinmeier.

Thanks operator and thank you to everyone for joining our call. It's a pleasure to speak with you again. After an outstanding start to the year we delivered another quarter of strong business performance and excellent financial results while continuing to advance key initiatives. We entered the second quarter against a backdrop of elevated macroeconomic uncertainty and market weakness. While markets rebounded sharply as the quarter progressed questions remain regarding the resiliency of the equity markets. In this rapidly evolving operating environment our advisors continued to serve at the steady hand helping to guide their clients and reinforcing our commitment to support them. Okay now let's turn to our Q2 results. In the quarter total assets increased to a record 1.9 trillion dollars. A solid organic growth was complemented by higher equity markets. We attracted organic net new assets of 21 billion dollars representing a five percent annualized growth rate. Our second quarter business results led to strong financial performance with the adjusted EPS of four dollars and fifty one cents. An increase of 16% from a year ago. Next let's turn to our strategic plan and progress across our organic and inorganic initiatives. Our vision is clear. We aspire to be the best firm in wealth management. To do that we are focused on three key priorities. One pursuing novel and differentiated strategies that enable the firm's sustained success. Two creating an extraordinary employee experience so employees in turn deliver an unparalleled client experience. And three leading the firm with operational excellence through increased intentionality and rigor. Effectively executing on these focus areas will help us sustain our industry leading growth while delivering improved operating leverage. With that as context let's review a few highlights of our business growth. In the second quarter recruited assets were 18 billion dollars bringing our total for the trailing 12 months to 161 billion dollars. In our traditional independent market we added approximately 15 billion dollars in assets during Q2. Where despite a broader slowdown of industry-wide advisor movement we maintained our industry leading capture rates of advisors in motion while also expanding the breadth and depth of our baseline. With respect to our expanded affiliation models, strategic wealth, independent employee and our enhanced RIA offering we delivered another solid quarter recruiting roughly three billion dollars in assets. And as we look ahead we expect that the increasing awareness of these models in the marketplace and the ongoing enhancements to our capabilities will drive sustainable growth. Next we added approximately one billion dollars of assets in the traditional bank and credit union market. We also continue to make progress with large institutions where we announced that First Horizon would transition its wealth management business to our institutional services platform. As a reminder First Horizon supports approximately 120 financial advisors managing roughly 17 billion dollars in client assets which we expect to onboard later in Q3. Turning to overall asset retention it remains industry leading at This is a testament to our continued efforts to enhance the advisor experience through the delivery of new capabilities and technology and the evolution of our service and operations functions. As a complement to our organic growth in July we completed the conversion of Atria wealth solutions. This is no small feat when you consider that Atria had seven distinct broker dealers that used This is a testament to our experienced team and the diligent investments we've made in recent years and it highlights our differentiated transition capabilities relative to the rest of industry. As for retention we're still finalizing results but anticipate asset retention landing at approximately 82% ahead of our initial target of 80%. Now as for our pending acquisition of Commonwealth Financial Network our leadership team has had the pleasure of spending focused time with Commonwealth advisors and leadership over the last four months. This has been time well spent helping to foster increasingly constructive conversations. Today we have a better understanding of what's important to them preserving and fostering the Commonwealth community and culture. Plus we've had the opportunity to showcase the resources and capabilities at LPL. The combination creates a firm with the scale, the experience, and the permanent capital needed to serve and support their growth for decades to come. As a result we've made steady progress with advisor commitments and remain on track to achieve our retention target. We expect to close the transaction tomorrow morning and are excited to hit the ground running as we prepare to onboard this community of advisors. To summarize we are pleased with the second quarter results and we feel great about our position as a critical partner to our shareholders. With that I'll turn the call over to Matt.

Thanks Rich. I'm glad to speak with everyone on today's call. To Rich's point it's been an active quarter with the team delivering tremendous results at a radical pace. To reiterate some of those highlights we delivered another quarter of industry-leading organic growth, launched our first ever national marketing campaign, continued to make progress in the institutional channel as we prepared to onboard first crisis, successfully onboarded Atria, and completed all pre-closed work for acquisition of commonwealth. Our discipline execution continues to translate into strong business and financial results with our cost efficiency work pulling through to sustainable improvements in our margin. Now turning to a few highlights from our Q2 business results. Total advisory and brokerage assets were 1.9 trillion, up 7% from Q1. This continued organic growth was complemented by higher equity. Total organic net new assets were 21 billion and approximately 5% annualized growth. A strong result both on an absolute and relative basis. On the recruiting front Q2 recruited assets were 18 billion contributing to 161 billion over the trailing 12 months. With respect to large onboardings during the quarter we successfully completed the conversion of Atria's seven broker dealers, continued to prepare for first horizon which we expect to onboard and queue through, and we're progressing towards closing Commonwealth as planned. As Rich mentioned we expect to close the transaction tomorrow and convert Commonwealth assets to our platform in the fourth quarter of 2026 which has moved out slightly from our original timeframe as we begun to scope the tech and operational work required to ensure advisors have an exceptional experience. At close we continue to expect run rate EBITDA to be roughly 120 million and approximately 415 million once fully integrated which is underpinned by our 90% retention target. With that as context and given the timing of the close we'll include Commonwealth in our guidance items today. I would just note Given we have not yet closed the deal there could be some variability in the line item geography. Looking at Q2 financial results the combination of organic growth and expense discipline led to an adjusted pre-tax margin approximately 38% an adjusted EPS of $4.51. First profit was 1 billion 304 million up 32 million sequentially. As for the key drivers, Commission and Advisory fees net of payout were 349 million down 14 million from Q1. Our payout rate was .3% up approximately 60 basis points from Q1 largely due to typical seasonality. Looking ahead to Q3 we anticipate our payout rate will increase to approximately .6% driven by the typical seasonal build in the production bonus as well as our