LPL Financial Holdings Inc.

Good afternoon and thank you for joining the second 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 Audette. 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 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 comparable GAAP figures, please refer to the company's earnings release, which can be found at investor.lpl.com. With that, I'll 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 a strong start to the year, we continued our momentum in Q2. We delivered improved organic growth during the quarter, while driving recruiting pipelines to record levels. We made meaningful progress in preparing to onboard Commonwealth Financial Network, and we drove material improvements in our operating leverage. We achieved this in a rapidly evolving environment as elevated macroeconomic uncertainty and market volatility at the start of the quarter gave way to a sharp market recovery during the quarter, serving as the latest reminder of the value of professional advice and the resilience of our business model. Underlying this consistent performance was the exceptional work and dedication of our teams, including the talented colleagues who joined us from Commonwealth. In recognition of these efforts, J.D. Power ranked Commonwealth and LPL number one and number two for independent advisor satisfaction. Commonwealth's award is its 13th straight number one ranking. This is a remarkable achievement and a meaningful validation of the complementary nature of our organization and the culture we are building together. Now, to highlight some of our Q2 results, in the quarter, total client assets were $2.6 trillion of 10% from Q1 as organic growth was complemented by higher equity markets. We attracted organic net new assets of $23 billion, representing a 4% annualized growth rate. Our second quarter business results translated into another quarter of strong financial performance with record-adjusted EPS of $5.84. Turning to our strategic plan, we remain unwavering in our strategy and our aspiration to be the best firm in wealth management. To that end, we remain focused on three key priorities. One, preserving the client centricity the firm was built on. Two, empowering our employees to deliver exceptional outcomes for our advisors and institutions and their clients. and three, delivering improved operating leverage. Continued execution across these priorities will help us sustain our industry leading growth while advancing the effectiveness and efficiency of our model. With that as context, let's review a few business highlights from the quarter. In Q2, recruited assets improved to $25 billion. Prior to large institutional wins, this was our strongest quarter of recruiting in nearly two years. During Q2, we continued to advance opportunities into the later stages of our recruiting pipeline, and despite the strong pull-through, the overall pipeline reached a new record. This positions us well for improved organic growth in the second half of the year. In our traditional markets, we added approximately $23 billion in assets during Q2, maintaining our industry-leading capture of advisors in motion while continuing to expand the depth and breadth of our recruiting pipeline. With respect to our expanded affiliation models, we delivered another solid quarter, recruiting roughly $2 billion in assets. Turning to overall asset retention, it was 97% for both the second quarter and 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 ongoing evolution of our service and operations functions. Now let's turn to Commonwealth. The integration is progressing well, and we remain on track to onboard Commonwealth Advisors in the fourth quarter. In terms of asset retention, we are in the mid 80s today and we continue to work towards our target of 90% retention of client assets. From an operational standpoint, we are nearing the completion of the technology and capability builds needed to help facilitate a seamless conversion. Key initiatives include advancing our householding capabilities and modernizing our case management platform to support a more connected end-to-end service experience for existing Commonwealth advisors. When combined with the introduction of a single relationship agreement, this creates a more flexible, relationship-centric model that improves the client experience and enhances advisor productivity. These capabilities not only enable the Commonwealth conversion, but also accelerate the delivery of core functionality for the benefit of all LPL advisors and institutions. In parallel, we are ramping up our training efforts to ensure that our Commonwealth teammates are positioned to continue delivering exceptional service to existing Commonwealth advisors, and that Commonwealth advisors and their support staff are ready to hit the ground running following the conversion to the LPL platform. In closing, the second quarter was another strong quarter for LPL. I want to take a moment to thank our entire team, both at LPL and Commonwealth, for the dedication and hard work that drove these results and contributed to the recognition from J.D. Power. We are building something special. and I am incredibly proud of the passion and dedication our teams bring to supporting our advisors. As we look ahead, we remain well positioned to serve as a critical partner to our advisors and institutions to continue delivering industry-leading organic growth and to maximize long-term value for shareholders. With that, I'll turn the call over to Matt.

Thanks, Rich. I couldn't agree more. It was a tremendous quarter as the team continues to deliver remarkable results. To reiterate some of these highlights, We delivered solid improvement in organic growth, continued to advance our advisor experience, drove improved operating leverage through ongoing efficiency gains and better monetization of the value we deliver to clients, progressed our preparation to onboard Commonwealth, and executed on our capital allocation strategy. We closed the acquisition of Mariner Advisor Network, remained active with our liquidity and succession capability, and given the dislocation in our stock price, accelerated share purchases. These efforts resulted in strong second quarter business and financial performance and positioned us well for the second half of the year. Now turning to a few highlights from our Q2 business results. Total client assets were $2.6 trillion, up 10% from Q1 as continued organic growth was complemented by higher equity markets. Total organic net new assets were $23 billion and approximately 4% annualized growth rate. As for our Q2 financial results, the combination of organic growth and expense discipline led to an adjusted pre-tax margin of approximately 39.3% and record adjusted EPS of $5.84. Growth profit was $1,618,000,000, up $26,000,000 sequentially. As for the key drivers, commission and advisory fees net of payout were $486,000,000, down $1,000,000 from Q1. Our payout rate was 87.4%, up 22 basis points from Q1, largely due to the typical seasonal build in the production points. Looking ahead, we expect our payout rate will increase by approximately 80 basis points in Q3, driven by typical seasonality as well as the previously announced reductions to our corporate advisory pricing that went into effect on July 1st. With respect to client cash revenue, it was $457 million, down 3 million from Q1, primarily reflecting lower average cash balances. Overall client cash balances ended the quarter at 56.9 billion, down 2.2 billion. 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 Q2, unchanged sequentially. One item of note is that we are shifting our client sweep rate methodology from an asset-based tiering structure to a cash balance-based tiering structure. As a result, as we look ahead to Q3, we expect our ICA yield to increase by 10 basis points. As for service and fee revenue, it was $209 million in Q2, down $2 million from Q1. Looking ahead to Q3, we expect service and fee revenue to increase by approximately $5 million driven by revenues from our annual focus conference. Moving on to Q2 transaction revenue. It was $83 million, up $2 million from Q1, driven by record trading volumes in one additional trading day during the quarter. As we look ahead to Q3, we expect transaction revenue to decline by roughly $5 million. Now, turning to our acquisition of Commonwealth. As Rich mentioned, the transaction continues to progress well, and we remain on track to onboard Commonwealth Advisors in the fourth quarter. As for the financials, accounting for current market levels, we now estimate run rate EBITDA of approximately $435 million once fully integrated. Now let's move on to expenses starting with Core G&A. It was $519 million in Q2, down $13 million sequentially and 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 our core G&A outlook range. We now anticipate 2026 core G&A to be in a range of $2,140,000,000 to $2,165,000,000. To give you a sense of the near-term timing of this spend, we expect Q3 core G&A to be in the range of $540,000,000 to $560,000,000. Turning to TA loan amortization, it was $142 million in Q2, up $6 million from Q1. As we look ahead to the third quarter, we expect TA loan amortization to increase to approximately $150 million, reflecting strengthening advisor recruiting. As for promotional expense, it totaled $79 million in the second quarter, up $3 million from Q1, driven by increased conference spending. Looking ahead to Q3, we expect promotional expense to increase to approximately $95 million driven by conference spend. Turning to depreciation and amortization, it was $110 million in Q2, up $4 million sequentially. Looking ahead, we continue to invest in technology and expect depreciation and amortization to increase by roughly $8 million in Q3. Moving to our tax rate, it was approximately 26.4% in Q2, and we expect a similar level in Q3. Regarding capital management, we ended Q2 with corporate cash of $430 million down $137 million from Q1. As for our leverage ratio, it was 1.9 times at the end of Q2 near 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 Q2, we deployed capital across our entire framework. As we continued to invest to drive and support organic growth, closed the acquisition of Mariner Advisor Network, remained active with our liquidity and succession capability, and returned capital to shareholders. Specific to share purchases. While our initial plan was to repurchase $125 million of our stock in Q2, the dislocation in our share price presented an attractive opportunity to deploy additional capital, so we accelerated repurchases to $309 million. Additionally, in July, our board approved a new $2.5 billion repurchase authorization, with $300 million planned for the third quarter. 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, we are finally ready to open the call for questions.