In a repeat from last quarter, LPL Financial (LPLA) reported Tuesday that quarterly profits were down although revenues were up. An added bright spot was the Boston- and San Diego-based independent broker-dealer's addition of 223 net new advisors.
Profits for the second quarter dropped 13%, largely on investor uncertainty and low yields, the company said, with LPL reporting net income of $39.5 million, or earnings of $0.35 per share, which were $6.0 million lower than income of $45.5 million, or EPS of $0.40, a year ago. LPL earned $0.49 per share before charges and adjustments, but analysts had expected earnings of $0.56.
A 1.5% revenue rise to $908 million versus $894 million a year ago led to LPL's first-ever quarterly cash dividend, of $0.12 per share. LPL credited the following for the revenue increase:
- A 2.7% drop in commission revenue versus a year ago, to $447,243 from $459,882, as commissions per advisor declined 6.2%, offset by growth in advisor headcount.
- A 1.5% increase in advisory revenue, primarily due to growth in net advisory assets over the last year.
- Recurring revenues of 65.3% of net revenue compared with 62.4% a year ago.
LPLA stock was down 13.48% in early afternoon trading, at $27.73 per share versus Monday's close of $32.05.
"Investors are exhibiting more cautious behavior in light of the uncertain market conditions, which manifests itself in lower investment activity and reduced trading. As a result, net revenues only grew 1.5% year over year," said LPL Financial Chairman and CEO Mark Casady in a statement. "At the same time, our performance has been impacted by our ongoing commitment to additional investment. This strategy is driven by our confidence in the strength of our underlying business and in our competitive position, but has placed further pressure on our bottom-line results this quarter.
In the earnings call, Casady pointed to an increase in "transition assistance" to support advisor growth, as well as added expenses from LPL's acquisitions of open architecture firm Concord, alternative investment firm Fortigent and mass-market advisor Veritat.
Further growth expenses came from a $6 million conference in Q2 that LPL didn't have in Q2 last year, said newly named LPL Financial President and Chief Operating Officer Robert Moore in a telephone interview with AdvisorOne after the earnings release.
"At this stage, the acquisitions are not highly profitable, they're essentially break-even, so that puts pressure on margin as well as overall earnings," Moore said.
