Good evening and thank you for joining the Second Quarter 2018 Earnings Conference Call for LPL Financial Holdings Inc. Today's the call – joining the call today are our President and Chief Executive Officer, Dan Arnold; and Chief Financial Officer, Matt Audette. Dan and Matt will offer introductory remarks and then the call will be opened for questions. The company would appreciate if each analyst would limit their questions to one question and one follow-up. The company has posted its earnings press release and supplementary information on the Events section of the company's website at investor.lpl.com. Today's call will include forward-looking statements, including statements about LPL Financial's future revenue, expenses, and other 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 risks and uncertainties that may cause actual results to differ materially. The company refers listeners to the Safe Harbor disclosures contained in the earnings press release and the company's latest SEC filings to appreciate those important factors that may cause actual financial or operating results or the timing of matters to differ from those contemplated in such forward-looking statements. During the call, the company will also discuss non-GAAP financial measures governed by SEC Regulation G. For a reconciliation of non-GAAP 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 now turn the call over to Mr. Arnold.

Thank you, James, and thank you to everyone for joining our call today. In the second quarter, we remained focused on our strategic priorities of growing our core business and executing with excellence, while continuing to assimilate advisors from NPH. This focus, combined with a supportive macro environment, led to another quarter of business and financial growth. Let's review our second quarter progress, starting with our advisors, where I want to take a moment to highlight some recent external recognition. Over the last quarter, LPL advisors were named to both the Forbes Top Women Wealth Advisors list and the Barron's Top Women Financial Advisors list. In addition, several LPL financial institution clients were named by Bank Investment Consultant magazine to its Top Program Manager list. This type of recognition reflects the quality of the advisors we serve, as well as our emphasis on diversity and inclusion to attract more advisors and clients to LPL. Moving to our second quarter financial results, we continued to grow and generate operating leverage. Gross profit increased 24% year-over-year, driven by growth across all of our revenue lines. We also remained disciplined on expenses. This combination led to second quarter EPS of $1.30, up more than 70% from a year ago. Matt will review our financial performance in greater depth. Second quarter business performance was the primary driver of these financial results. Brokerage and advisory assets were $659 billion, up 22% year-over-year. This increase in assets was driven by a combination of organic growth, onboarding of NPH assets, and market growth. Organic net new assets were $1 billion, including net new advisory assets of $4.1 billion, which translates to a 6% annualized growth rate. The key drivers of our second quarter organic growth were $6 billion of recruited assets and solid asset gathering by existing…

Thank you, Dan, and I'm glad to speak with everyone on today's call. We had another strong quarter in Q2. We continued to grow assets and gross profit, while remaining disciplined on expenses to drive operating leverage. As a result, our Q2 EPS prior to intangibles was $1.42, up 76% year-over-year. We are pleased with these results as we continue to focus on our strategy of growth and execution. Let's look at our business results in greater depth, starting with total brokerage and advisory assets. We finished the quarter at $659 billion, up $12 billion or 2% sequentially, driven by organic growth, onboarding the remaining NPH assets and market appreciation. Total net new assets were $2.5 billion for the quarter, including $1 billion of organic net new assets and $1.5 billion from NPH. Looking at organic growth in greater detail, net new advisory assets were $4.1 billion or a 6% annualized growth rate. This included $1.5 billion in conversions from brokerage to advisory. Looking at the mix of our advisory inflows, over 75% of our net new advisory assets were on the corporate platform, totaling $3.6 billion or a 9% annualized rate. Our centrally managed platforms continued to grow as well, with inflows of $1.5 billion or approximately a third of our net new advisory assets this quarter. Turning to our NPH results, Q2 net new assets were $1.5 billion, including $1.3 billion of brokerage and $0.2 billion of advisory. In total, for this transaction, we onboarded approximately $72 billion of assets. As for accretion, we generated approximately $23 million in run-rate EBITDA this quarter or $92 million on an annualized basis, above our year-end outlook of $90 million. We delivered this run rate earlier than expected, as NPH advisors ramped up their business faster than we anticipated. As we…

Thank you. Our first question comes from Bill Katz with Citigroup. Your line is now open.

Okay. Thank you very much. I appreciate the enhanced disclosure. Just maybe starting there, as you look at sort of the FA count sequentially, that was modestly lower and continue to see a much better trend elsewhere. So I was wondering if you could help sort of triangulate between sort of that lead indicator you highlighted in terms of recruited AUM, how that might spill into FAs, and then within that, how much was maybe desired attrition versus just sort of undesired attrition?

And so, Bill, it's Dan. Thanks. Let me take a couple of those and then certainly, Matt, you provide any color around that. And if I didn't get it all, Bill, just come back it, it's not on purpose. So let's take the assets for a minute inside the quarter, I think the question around net new assets for the quarter. I think when you look at second quarter, they came in around $1 billion, which were a little lighter than our average for the last couple of quarters, where you saw that more in line around $3.5 billion. So the key drivers of that $2.5 billion differential, one, was the $1 billion of tax deferred payments in April, and then you had about $1.5 billion of outflows of assets associated with a small group of hybrid RIAs. And as we went through strategic changes last year, I think for purposes of aligning both the corporate RIA and hybrid RIA for profitable growth, which we've seen continued growth in both, we teased out just some – where we didn't have alignment with a small group of hybrid RIAs, and they're the group that are driving those outflows in this quarter. You're likely to see that same level of outflows in both the next two quarters. That said, I think we're obviously committed strategically to offering both the corporate RIA and the hybrid platforms. We'll continue to invest in both and make sure that our advisors can differentiate and win. So, hopefully, that answers your question around maybe some of the NNA and questions around desirable assets that may have – where we saw outflows. If I missed any of the rest of your question, just please fill it in.

Yes. I thank you for that. I was actually more interested – and that's very helpful, but more interested in sort of the FA count, just sort of having sort of a minus 18 or so quarter-to-quarter decline, and similarly related to I guess the RIA outflows. Maybe my other follow-up, and we can sort of talk offline, the other follow-up circles back to capital management. So maybe two-part question, Matt. First one is, is there a way we should be thinking about some kind of combined payout ratio of either adjusted earnings or free cash flow to maybe help model repurchase? And then, the broader question is, as you think about M&A, how does the pipeline look, if you will, and how has that changed, if at all, given that seems like a large property went for what looks to be a pretty big multiple to a private equity sponsor?

Yes. So taking both of those, so I think with respect to share repurchase, I don't think there's a classic payout rate to think about in forecasting that going forward. I think when we think about where we want to deploy capital, it's, first and foremost, for organic growth. I think you've seen us do a lot of that this quarter. Dividends are something that I think are a lot more stable, not just for us but for most folks. They're typically flat to a little bit up. And share repurchases are naturally just going to move more up and down on an individual quarter basis, just depending on what's going on in that quarter. So I think I would just emphasize that we think returning capital to shareholders through share repurchases is a good use of our capital, but it's just tough to predict on an individual quarter basis how that would go. I think on the M&A side, I think just to emphasize what Dan said in the prepared remarks, I think when we look at M&A, we think it's a good use for our capital and it's a good way to grow the platform, but it's got to be a good match financially, strategically and operationally. And if it's not a match there, I don't think we're interested, and if it is, we are. And I think that'll be our philosophy now and going forward.

And, Bill, let me just add to your FA question, I missed that in the first part of your question I apologize. I think, yes, we were down 18 advisors within the second quarter. When you back out NPH, we had a net gain of 35 advisors. Obviously, that's driven through both recruiting and then any advisors that may have left the platform to get to that net number. I think when you look at the NPH advisors, they were down 53, and most of that is just noise around your typical post transaction cleanup. A great example of that would be reclassifying some of the advisors' license that came over to admin status. I think you'll see that as more just noise around the cleanup. So perhaps that ex-NPH number is the way to think about the quarter growth in advisors and reflective of the recruiting efforts.

That's actually very helpful color. Thank you so much, guys.

Thank you. Our next question comes from Ann Dai with KBW. Your line is now open. Matthew Gruseke - Keefe, Bruyette & Woods, Inc.: Hi, yes. This is actually Matthew Gruseke on the call for Ann. I know we talked about the deposit betas being – coming in at about 25%. I think prior guidance was a 25% to 50% range long-term. Do you anticipate further rate hikes? Any kind of color on what you might see coming forward?

Yes, sure. This is Matt. I mean I think our long-term view on a 25% to 50% beta is unchanged, right. And I think when you look at this rate cycle, we've averaged about 10% through the cycle overall, and the last two have been at 25%, so you've kind of seen that building up. And I think I'd also highlight that the 25% is an average, right. So we price deposits based on the amount of deposits. When you look at it across that spectrum, smaller accounts are a much lower beta in the 5% range versus the much larger balances are more like 50% to 60%. So there's certainly a range of betas, but on average, we've seen it at 25% for the last couple, and our view on the long-term is really unchanged at 25% to 50%. Matthew Gruseke - Keefe, Bruyette & Woods, Inc.: Thank you. Thank you very much. I appreciate it.

Thank you. Our next question comes from Craig Siegenthaler with Credit Suisse. Your line is now open. Craig Siegenthaler - Credit Suisse Securities (USA) LLC: Hey guys, it's Craig Siegenthaler here.

Hi, Craig. Craig Siegenthaler - Credit Suisse Securities (USA) LLC: So the brokerage to advisory migration just slowed a little bit in the quarter. And in the quarter it also looks like the dealer world has probably died here. I'm just wondering if you think the brokerage to advisory migration will continue to decelerate or if this is more of just a one quarter blip?

Yes, it's Dan, I wouldn't read too much into one quarter and try to draw any conclusions or trends associated with that. I think you do have the ongoing dynamic of a general transition from brokerage to advisory and I think about that as more the macro demand at the end client level. We do believe that as we get clarity around the regulatory environment associated with brokerage commission – brokerage products and solutions and commissions that that does make it more predictable and probably a bigger utilization of brokerage than we probably see today. But I wouldn't read too much into the quarterly blip. I think you have those two good dynamics ongoing and we believe those dynamics will stay in place and the ultimate outcome of that mix will be very similar to the dynamics we've seen over the last year. Craig Siegenthaler - Credit Suisse Securities (USA) LLC: Thank you.

Thank you. Our next question comes from Christian Bolu with Bernstein. Your line is now open. Christian Bolu - Sanford C. Bernstein & Co. LLC: Good afternoon Dan and Matt. Just a follow-up on the M&A question. Can you just speak to the broader competitive landscape for M&A deals? I think in addition to the large property that was referenced earlier on, we've seen other private equity led deals that have happened. Just trying to understand your thought process and passion upon these deals. Was it a financial issue or operational or something else, just trying to understand how you're evaluating deals here?

Yes, so maybe I'll give a little color and then Matt please add anything to it. So, we can't speak to any specific deal. That said, from a conceptual standpoint, we continue to see opportunity associated with M&A to add assets to our platform. We also think because of our vertical integration, our assets work more ultimately on our platform and we think our opportunity to pull through both revenue synergies and expense synergies create a compelling scenario for us and an opportunity. And again if we can find that right strategic alignment, operational alignment and financial, then we think that we have interesting prospects and opportunities of which to capitalize on any potential property that may be available in this space. And so we continue to explore those possibilities out in the market to the extent that we have something that's interested. Then I think we would ultimately look to try to pursue it. I don't know Matt, if you want to add anything to that.

No, well said. I mean I would just emphasize around all of that and we're going to continue to be disciplined and patient. And if something is a match, I think we'd be interested. Christian Bolu - Sanford C. Bernstein & Co. LLC: Okay and just a quick follow up. Client cash as a percentage of client asset continues to reach new lows for you guys and I guess the industry as a whole, I guess competitor speaking to yield seeking behavior as one of the drivers. Curious if you're seeing that at LPL also. And then given Matt you got a forecast and can you just jump in sort of a framework to help us think about how low client cash could go.

Yes, I mean, I think Chris you said it well. We're seeing it across our space and we don't -- what we see is investor engagement, right. When you look at the money and where it's going, I mean the levels of net buying we see in the last – as we've moved into this rate cycle have been nearly double that we see before that. So we it going into the market. I don't have a forecast or prediction for you on where it's going. I would just emphasize that overall it's a good thing, like high levels of investor engagement in deploying the money, it's a positive overall. Christian Bolu - Sanford C. Bernstein & Co. LLC: Okay. Great. Thank you very much.

Thank you. Our next question comes from Chris Shutler with William Blair. Your line is open. Chris Charles Shutler - William Blair & Co. LLC: Hi, guys. Good afternoon. On the NPH, you reached the $90 million annual run rate of EBITDA in Q2. Is that – how much of that is because there's kind of a new run rate, the run rate is actually higher than that, and how much of it's just timing because, I guess that – guesstimate the higher rates have helped quite a bit?

Yes, Chris. I mean, so the June hike was really had – really a minor impact on NPH in the quarter. I'd put it at say maybe $1 million, right. So instead of $92 million, prior to that move you'd be at $91 million. It was really about the NPH advisors just ramping up on our platform and getting to work for their clients earlier than we thought. So it is more about that. Chris Charles Shutler - William Blair & Co. LLC: So is the run rate higher then, other than the rate hike or not?

No, I think – well, I'd say broadly. The run rate is $92 million, and there will be a little bit of benefit as the second – the rest of the benefit from the rate hike comes into the next quarter. That's included though in our overall guidance on ICA yields for next quarter. I would emphasize that the opportunities on NPH are similar to the opportunities that we have in our business overall, of continuing to have assets move from brokerage to advisory, continuing to move within advisory on to the corporate platform or centrally managed platforms. So, I think those are all opportunities at NPH. But from a current run rate standpoint, it's $92 million plus with the benefits of the rate hikes that are in the overall guidance we gave. Chris Charles Shutler - William Blair & Co. LLC: Okay. And then, Matt, on the transaction and fee line in Q2, can you give us some sense to quantify how much the trading related revenue came in higher than your expectation?

I think so. I mean, I think when you look at it flat quarter-over-quarter, you had some of the NPH benefit in there that drove that line up about 3%. We also had some of the conference revenue. We had one of our larger conferences in the quarter that moved it up 1%. And then transactions were down to offset that, so down by 4%. So, I think that's still a little bit higher than we would have typically seen in Q2. That's why we expect a little bit of a decline next quarter, but hopefully that helps give you some idea of the changes there. Chris Charles Shutler - William Blair & Co. LLC: All right. Thanks. I'll hop back in the queue. Thanks.

Thank you. Our next question comes from Devin Ryan with JMP Securities. Your line is now open.

Hey, great. Good afternoon, guys. The first question here, so as you mentioned in the prepared remarks, so the new kind of Head of Business Development, it was a former Chief Digital Officer. And I'm curious I mean, I know technology integration is not a new theme here, but it's important for the company. So I guess what changes with the perspective that comes from someone with that background, or I'm just trying to think about if this is a strategy change or what to read into it?

Yes. This is Dan. I wouldn't read anything into it. I think, we went into that with a very clear profile that we're looking for, which is a general manager framework and that's what we were after and I think if you look at his diversity of skills and his track record of success, you begin to see someone who does have strategic agility, someone who solves problems and is very accountable, someone who operationally can get you from point A to B, and then someone who can lead people very effectively. And that's the general management framework that I looked for and he has those attributes, and that's what attracted us to him. We want someone who is an extraordinary leader, a big asset lead who can help us think about doing things in a different way to drive better results going forward. So hopefully, that provides you some helpful color.

Yes. It's great. Thanks. And then just a follow-up here, just on expenses, I appreciate some of the commentary on kind of the back half of the year and the full year kind of range that you provided today. How should we think about maybe the base heading into next year? I don't want to get too far out of ourselves, but it seems like there's a little bit of a step up into the back half. And so, is that kind of a good way to think about the launching point with some of the technology initiatives that are now starting to flow through the P&L? Or just trying to think about some of the moving parts here from 1H to 2H.

Yes, Devin, I mean I think we'll give 2019 guidance at a later point. And I think the individual quarters, we've always had some seasonality in moving in individual quarters. So, I think you just have to wait and see, and we'll give guidance on 2019 later in the year.

Okay. Great. Thanks. And I figured I'd try there. But just one more quick one. Just securities based loans, I'm curious where you guys think you are in education with advisors on that product? I know there has been a recent initiative with Goldman. I'm curious if that changed the trajectory at all there? And I'm just trying to think about the long-term opportunity just given that it has been a product that the industry has embraced and has done recently well for some of your peers.

Yes, I think, we've certainly been thinking through that opportunity set, sort of assess the marketplace and the success that we were seeing in certain parts of the industry. So, we are optimistic that by providing that additional service, not only does it create a better experience for the end investor and a leverage point for our advisors but, as you say, drives additional economics. I think it's very early in terms of the overall educational process and opportunity. And we're certainly having dialog with advisors as they're using it and trying to experiment with it and learn with it. And I think it'll be something that we sort of learn into. But we are optimistic that there is an opportunity for advisors to leverage that to better serve the clients, and because of that value, drive economics with it.

Great. Thank you.

Thank you. Our next question comes from Ken Worthington with JPMorgan. Your line is now open.

Hi. This is Bill Cuddy filling in for Ken. So first, core managed portfolios continues to grow. As we think about the long-term growth potential for that portion of your business, what would be the upper limit for centrally managed portfolios as a percent of total advisory assets?

Yes, it's a fair question. Look, I think we don't necessarily, I think, think about it in that way. I think one of the things that we continue to do is invest in our overall advisory platform because if $7 out of every $10 are going to the advisory platform, we see that as a place for advisors to differentiate and continue to win. And we look at the centrally managed platform as a great leverage point for our advisors when they want to outsource certain components of the overall administrative and operational efforts around managing the portfolio, right. And we are continuing to invest and continuing to enhance this. So we'll deliver new capabilities in the second half of the year that continue to enrich its value and I think appeal to our advisors. That said, we're also investing in our rep-driven platforms. And so, I would look at it more from a macro advisory standpoint. And again, I think as we continue to enhance the capabilities associated with these platforms and find more ways of which to offload administrative and operational tasks from our advisors, they're going to use these platforms more robustly. And so, I think with the pricing changes and the enhancements we've made to investment content and features within the centrally managed platform, that's where you've seen the growth over the last two years. And so there's – we believe there's no reason to continue if we create more value. We continue to leverage our scale to drive down lower prices that you don't continue to get a healthy mix and utilization of those platforms. I know that's more of a macro sort of qualitative directional way to think about it, but hopefully that gives you some color.

Yes, that's helpful, recognizing that it's a hard question to actually pinpoint a number on. And then, so my second question, could you just elaborate on how the recruiting pipeline looks for this year relative to last year? So, Matt had mentioned larger advisors. Are there other metrics such as production or advisory to brokerage mix changing over time? And relatedly, Dan, you had mentioned your temporary transition assistance initiative, is that driving a change in the types of advisors that you're seeing in your recruiting pipeline? Thank you.

Yes. Let me take that one first. I think we obviously offered that as a way to experiment and challenge our own strategic agility relative to an opportunity set. And so that was time-bound and we had some early interest on that. And I think it's too early to draw any conclusions from it. I think we'll see more clarity in activity in the third quarter, so probably have a better point of view on that at the end of next quarter relative to your question. That said, we offered that in a broad way across the board to the industry. So I don't necessarily see that as a change or relative to the overall mix of advisors that we would attract. I think it more helps us understand the elasticity of demand, if you will, relative to utilization of transition assistance and simplified pricing. I think relative to your question around the pipeline and maybe the characteristics around it, my word, not yours, so if I don't get that right, please guide me differently. But look, we continue to recruit, both in the independent space for those advisors who may be looking for a broader set of capabilities, the benefits of vertical integration, the benefits of our own advisory platform, better pricing in that advisory space. And so we continue to recruit in the independent space. We also recruit in that employee base model to independent model structural trends, so whether that's from the wires or the regionals. And we continue to see opportunity and progress occurring from those places. And those are two of the historically consistent places we've pulled from. And so we don't see a big difference in the overall historical mix in terms of the advisors that we're attracting. I think as Matt said, we're seeing a mix of larger advisors. And I think that's more just coincidental to opportunity out in the marketplace. And I wouldn't read anything into a shift in our strategy or something that's really driven that. I think we're casting a broad net and think we've got broad appeal in our model, and we like how it's positioned. We continue to test our own go-to-market strategy just to try to optimize it. But I think those things are leading to a pipeline that would look similar to what we've had in the past in terms of the advisors that are in it. I do think we've worked on picking a good team and continually trying to make it better with respect to new training, giving them new techniques and capabilities like data or new selling systems to enrich how they perform in their own roles. We want to take the opportunity and try to maximize it and put them in a position of executing extraordinarily well. So, we continue to invest there and we do believe that's beginning to have some benefit on the growing pipeline. So, that was probably more than you look for, but hopefully that was helpful.

No. It's helpful. Thanks, Dan.

Thank you. Our next question comes from Michael Cyprys with Morgan Stanley. Your line is now open. Zachary N. Feierstein - Morgan Stanley & Co. LLC: Hey, it's Zach Feierstein going in for Mike. Just a quick question on the advisors brought over from NPH. How are you thinking about the stickiness of those advisors maybe say three years out? We saw 53 leave this quarter. How should we think about that going forward to think about some softness or some color on that would be great?

Yes, so I would be careful concluding 53 left. As I said earlier, I think most of that was just customary post-transaction clean up and as we say, reassigning some of those licenses to administrative roles at which they should have been put in when they first came over. So, I wouldn't read anything into that. We think that we have a compelling value proposition. We think if we serve them well, give them the capabilities they need to solve the problems and challenges and opportunities for their clients, and do that all at a good price, then we think we have a good chance to have higher retention rates, just like we do in our core business. Remember, these advisors' profile were very similar to the LPL advisors' profile. So, we think we're well positioned to continue to serve them and support them going forward. Zachary N. Feierstein - Morgan Stanley & Co. LLC: And Matt, just going back to the cash levels. If they continue to drift lower as they have across the industry, would you consider maybe changing your pricing or making sort of changes to attract more cash, or any color on that would be great.

Sure. I mean, I think our pricing is – and we set our deposit pricing in line with the market. I'll just emphasize it's not a cash rate or interest rate sensitive product, right. This is about whether cash is deployed in the market or not. I don't think it's folks sitting there trying to get a higher rate. I think we feel good about our deposit betas and where we're positioned. And just a reminder, it's a range. It's a 25% to 50% range and we're right now at the lower end. So I just encourage you to think about it that way. Zachary N. Feierstein - Morgan Stanley & Co. LLC: Great. I appreciate it.

Thank you. This concludes our question-and-answer session. So, I'd like to turn it back over to Mr. Arnold for closing remarks.

Thanks, James. And I just wanted to thank everyone for taking time to join us this evening and we look forward to speaking with you again next quarter. Have a good day.

Thank you. Ladies and gentlemen, that does conclude today's conference. Please disconnect now and have a great day.