LPL Financial Holdings Inc.

Good afternoon and thank you for joining the first quarter 2026 earnings conference call for LPL Financial Holdings Inc. Joining the call today are Chief Executive Officer Rich Steinmeier and President and Chief Financial Officer Matt Audet. 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, investor.lpl.com. Today's call will include forward-looking statements, including statements about LPL Financial's 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 disclosures set forth under the captioned 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 investor.lpl.com. With that, I will turn the call over to Mr. Steinmeier.

Thanks, Operator, and thank you to everyone for joining our call. It is a pleasure to speak with you again. It's been a strong start to the year for LPL. We delivered solid organic asset growth and continued to progress and build our recruiting pipelines. We advanced the operational work in preparation to onboard Commonwealth Financial Network, and we made meaningful progress driving improved operating leverage. We accomplished all this against the backdrop of rising macroeconomic and geopolitical uncertainties. and an increasingly loud and often speculative narrative around the role of artificial intelligence in wealth management, whether enabler or disruptor. It's periods like this that serve as a reminder of the value of professional advice, the importance of our responsibility to support our advisors and institutions, and the strength and resiliency of our business model. Okay, now let's turn to our Q1 results. In the quarter, total assets decreased to $2.3 trillion as organic growth was more than offset by lower equity markets. We attracted organic net new assets of $21 billion, representing a 4% annualized growth rate. Our first quarter business results led to strong financial performance with record adjusted EPS $5.60, an increase of 9% from a year ago. Next, let's turn to our strategic plan and how we are progressing against our organic and inorganic initiatives. Our vision is clear. We aspire to be the best firm in wealth management. To do that, we remain focused on three key priorities. One, maintaining the client centricity the firm was built upon. Two, empowering our employees to deliver exceptionally for our advisors and their clients. And three, delivering improved operating leverage. Effectively executing on these focus areas will help us sustain our industry-leading growth while advancing the efficiency and effectiveness of our model. With that as context, let's review a few highlights of our business growth. In Q1, recruited assets improved to $17 billion, a solid outcome in what is typically our slowest quarter of the year. Throughout Q1, we advanced opportunities into the later stages of our recruiting pipeline while pushing the overall pipeline to record levels. We continue to expect the pull-through to improve over the course of the year, supporting improved organic growth. In our traditional markets, we added approximately $15 billion in assets during Q1, as we improved on our already industry-leading capture rates of advisors in motion. With respect to our expanded affiliation models, strategic wealth, independent employee, and our enhanced RAA offering, we delivered another solid quarter, recruiting roughly $2 billion in assets. Turning to overall asset retention, it was 98% for Q1 and 97% over the last 12 months. 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 for Commonwealth, the integration is progressing well. Advisors are completing their diligence, and as they do, we are pleased that many are deciding to stay with Commonwealth. In terms of asset retention, we are in the mid 80s today and we continue to track towards our target of 90% retention. At the same time, we are working closely with our Commonwealth partners to jointly map the path forward to ensure we are bringing together the best of Commonwealth and LPL. With several foundational elements we are looking to embrace. For example, Commonwealth's indispensable approach to advisor satisfaction and their commitment to responsiveness is woven into the fabric of their culture and something that must be preserved. As a key step to enable this, we are developing a comprehensive case management solution to serve as a foundation for an evolved approach to how we route work and communicate progress to our advisors. The modernized platform will connect advisors' offices to critical systems from relationship management to service to operations to product experience functions, helping ensure greater continuity, consistency, and follow-through across every step of the advisor experience. Beyond the work we're doing to prepare for the onboarding of Commonwealth advisors in Q4, we've continued to advance our capabilities to better meet the needs of high net worth individuals. We've expanded the inventory of alternative investment products available on the platform and are delivering more personalized investment solutions through enhanced direct indexing and tax loss harvesting capabilities. In closing, the first quarter was a strong start to the year, and we feel great about our position as a critical partner to advisors and institutions. As we continue to improve the efficiency of our operations, we are creating capacity to reinvest in growth while driving stronger operating leverage. We believe this positions us to deliver sustained value for both our advisors and 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. As we move into 2026, we continue to advance our key priorities, which include driving solid organic growth, driving improved operating leverage by enhancing efficiencies and better monetizing the value we deliver, providing a market-leading advisor experience through ongoing investments in our platform, and advancing our M&A initiatives as we continue our preparation to onboard Commonwealth, announce the acquisition of Mariner Advisor Network, and continue to execute on our liquidity and succession strategy. These efforts resulted in strong first quarter business and financial performance and position us well for the year ahead. Now turning to a few highlights from our Q1 business results. Total client assets were $2.3 trillion, down slightly from Q4 as continued organic growth was more than offset by lower equity markets. Total organic net new assets were $21 billion, and approximately 4% annualized growth rate. As for our Q1 financial results, the combination of organic growth and expense discipline led to adjusted pre-tax margin of approximately 38% and record adjusted EPS of $5.60. Gross profit was $1,593,000,000, up $51,000,000 sequentially. As for the key drivers, commission advisory fees net of payout, were $487 million, up $33 million from Q4. Our payout rate was 87.2%, down 80 basis points from Q4, largely due to the seasonal reset of the production bonus at the beginning of the year. Looking ahead, we expect our payout rate will increase approximately 50 basis points in Q2, driven by the typical seasonal build. With respect to client cash revenue, It was $460 million, up $4 million as the growth in average cash balances more than offset the full quarter impact of short-term rates. Overall client cash balances ended the quarter at $59 billion, down $2 billion, primarily driven by record net buying in Q1. Within our ICA portfolio, the mix of fixed rate balances ended the quarter at roughly 60%, within our target range of 50% to 75%. Looking more closely at our ICA yield, it was 336 basis points in Q1, down five basis points sequentially, driven by the full quarter impact from the Q4 rate cuts. As we look ahead to Q2, based on where our client cash balances and interest rates are today, we expect our ICA yield to be roughly flat. As for service and fee revenue, it was $211 million in Q1, up $30 million from Q4, as the benefits from our previously announced fee changes more than offset the seasonal decline in conference revenue. Looking ahead to Q2, we expect service and fee revenue to increase by approximately $5 million as the previously announced direct mutual fund fees go into effect. Moving on to Q1 transaction revenue. It was $81 million, up $6 million from Q4, driven by record trading volume. As we look ahead to Q2, we expect trading activity to normalize and transaction revenue to decline by roughly $5 million. With respect to other revenue, it was $4 million in Q1. Going forward, we expect this to be roughly $6 million per quarter. Now, turning to our acquisition of Commonwealth. As Rich mentioned, the transaction continues to progress well, and we remain on track to onboard in the fourth quarter. As for the financials, accounting for the market-driven decline in Q1 assets, We now estimate run rate EBITDA of approximately $410 million once fully integrated. Next, let's move on to expenses, starting with Core G&A. It was $532 million in Q1, below the low end of our outlook range, reflecting our continued progress in driving greater efficiency and reducing our cost to serve. For the full year, given our progress to date, we are lowering the upper end of our outlook range by $20 million. We now anticipate 2026 core G&A to be in a range of $2,155,000,000 to $2,190,000,000. To give you a sense of the near-term timing of this spend, we expect Q2 core G&A to be in a range of $540,000,000 to $560,000,000. Turning to TA loan amortization, it was $136,000,000 in Q1, up $3,000,000 from Q4. As we look ahead to the second quarter, we expect TA loan amortization to increase by roughly 10 million, driven by the strengthening of our recruiting activity. As for promotional expense, it totaled 76 million in the first quarter, roughly flat with Q4. Looking ahead to Q2, we expect promotional expense to increase 5 million, driven by conference spend. Moving on to share-based compensation expense, it was 22 million in Q1, and we expect this to increase a few million sequentially as we head into Q2. Turning to our tax rate, it was approximately 26.5% in Q1, and we expect a similar tax rate in Q2. Regarding capital management, we ended Q1 with corporate cash of $567 million, up $98 million from Q4. As for our leverage ratio, it was 1.86 times at the end of Q1, just under the midpoint of our target range. Moving on to capital deployment, our framework remains the same, focused on allocating capital aligned with the returns we generate, investing in organic growth first and foremost, pursuing M&A where appropriate, and returning excess capital to shareholders. In Q1, we continued to deploy capital in line with our priorities, investing primarily in organic growth and M&A, where we advanced the Commonwealth integration and continued to allocate capital to our liquidity and succession solutions. Regarding share of purchases, a reminder that we paused buybacks following the announcement of the Commonwealth acquisition with a plan to revisit following the onboard. Given our progress to date with leverage slightly below the midpoint of our target range, the operational work to onboard Commonwealth on track, and the dislocation of the price of our stock, we opportunistically resumed buybacks earlier this month with roughly $125 million planned for Q2. We will continue to remain flexible and dynamic with our capital deployment as we advance through the year. In closing, we delivered another quarter of strong business and financial results. As we look forward, we remain excited about the opportunities we have to continue to drive growth, deliver operating leverage, and create long-term shareholder value. With that, operator, please open the call for questions.