LPL Financial (LPLA) Cuts Q3 Outlook

LPL Financial (NASDAQ: LPLA) announced that it expects to incur greater than expected charges totaling $23 million in the third quarter associated with regulatory matters relating primarily to issues involving LPL Financial's systems, policies and procedures.

Net revenue for the third quarter is expected to be consistent with prior expectations, growing to approximately $1.1 billion. Due to the increased regulatory charges, the Company expects net income and diluted earnings per share to be in the range of $32 million to $34 million and $0.32 and $0.34 per share, respectively, for the third quarter. It is anticipated reported core G&A, a non-GAAP financial measure, will be between $185 million and $187 million. As a result, adjusted EBITDA and adjusted earnings per share, both non-GAAP financial measures, are expected to be in the range of $108 million to $110 million and between $0.47 and $0.49, respectively, for the third quarter.

*** The Street sees EPS of $0.59 and revenue of $1.1 billion.

The $23 million of charges in the third quarter represent $18 million more than anticipated, leading to an expected impact of $0.11 on diluted earnings per share. In an effort to help shareholders better understand the Company's performance, the Company provides forward-looking statements which often include estimates for regulatory matters. The Company previously estimated approximately $15 million in up-weighted regulatory spend in 2014, bringing total estimated regulatory charges to $19 million for the full year 2014. This $19 million included $9 million of charges already expensed in the first half of 2014 and an estimate based on consideration for the overall regulatory environment that the Company would have on average $5 million in charges in each of the remaining two quarters of 2014.

"Beginning in the last weeks of the third quarter, we made progress towards the resolution of certain regulatory matters that contributed to us taking a larger than expected charge," stated Mark Casady, chairman and CEO of LPL Financial. "The nature of these matters makes it challenging to identify and evaluate the exact timing and magnitude of their resolution, but we are now able to estimate the potential costs associated with addressing these regulatory matters. We are focused on completing the resolution of these matters in the coming quarters and look forward to deriving the full benefit of our investments in our enhanced compliance and risk management capabilities to minimize future risk."

LPL's chief financial officer, Dan Arnold, added, "Importantly, the growth rate of our core expenses outside of regulatory costs has been significantly reduced and performed in-line with the expectations that we set at the beginning of 2014. In reviewing our third quarter core G&A costs, excluding the incremental $18 million of regulatory expense, we expect our run rate core G&A to be $167 million to $169 million. This would represent 4 percent growth year-over-year for the third quarter. These results reflect our heightened expense discipline and savings from our ongoing efficiency efforts including our service value commitment."

Mr. Casady concluded, "As we continue to reengineer our risk management and compliance capabilities, we also remain committed to providing our advisors the leading tools and technology they need to serve their clients. The power of our independent business model and the strength of our fundamental growth drivers remain intact."

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