Q1 2020 Earnings Call

Good afternoon. Thank you for joining the first quarter 2020 earnings conference call for LPL Financial Holdings Inc., joining the call today, our President and Chief Executive Officer, Dan Arnold and Chief Financial Officer Mad Dog.

And then Matt law for introductory remarks, and then the call will be open for questions. The company would appreciate it analysts would limit themselves to one question and one follow up each.

The company has posted its earnings press release in supplementary information on the Investor Relations section of the company's website Investor Dot LPL Dotcom. Today's call will include forward looking statements, including statements about LPL financial future financial and operating results outlook business strategies and plans as well, there's other opportunities and potential risk.

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. The company were first listeners to the disclosers disclosures set forth under.

For the captions forward looking statements in the earnings press release as long as the risk factors and other disclosures contained in the company's recent filings with the Securities and Exchange Commission for more information about such risks and uncertainties. During the call. The company will also discuss certain non-GAAP financial measure 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 that investor Dot LPL dotcom with that I will now turn the call over to Mr. Arnold.

Thank you, Josh and thanks, everyone for joining our call.

Over the past quarter. The cobot 19 virus has altered both the economy and our daily lives given this I first want to thank our employees for their remarkable hard work to commitment to supporting our advisors over the past few months and I also want to thank our advisors for continuing to provide financial guidance to millions.

As of Americans.

At a time when it is needed most.

More broadly after executing on our strategy over the past several years, we've built an organization that not only performs well in good environment, but also excels in challenging times to provide street for advisors and their clients.

As we look ahead, we envision and even greater number of advisors and their clients seeking not only advice, but also the capabilities and stability LPL can provide we're well positioned to meet this growing need and increase our market leadership.

And that spirit today, I'm going to focus our discussion on three areas first our position in momentum entering this coin second how we are executing our cobot 19 contingency plans and finally, how we are driving the business forward from here.

Now over the past several years with a focus on serving our advisors and their clients. We have built a robust and resilient operating platform innovated on differentiated capabilities and enhanced our service experience at the same time, we increased our balance sheet capacity and stability, which positions us to continuing.

Testing in a broad range of macro environments. This combination of business and financial strength has made our model more appealing in the marketplace and led to positive momentum at higher levels of growth.

So all of this reflected in our first quarter results.

Organic growth continued to increase in the first quarter as net new assets totaled 12.5 billion, which translates to a 6.5% annualized growth rate.

This is the highest level, we have recorded an up from 4.9% in the prior quarter as new store sales same store sales and retention all increased on a sequential basis.

Looking more closely at new store sales recruited assets were 8.4 billion in the first quarter and 36 billion over the past year.

Turning to our financial results first quarter eat <unk> prior to intangibles was $2.06, which was up 7% from a year ago.

With respect to results around the advisor experience I want to highlight two key indicators of our progress in this area first our advisor net promoter scores increased by another nine points in Q1 for a total increase of roughly 55 points and just over two years second annualized production retention.

As a new high 99% in the first quarter as we look ahead, we will continue to work to drive favorable outcomes like these by investing in capabilities and technology, transforming our service model and attracting and developing extraordinary talent with our mission driven culture.

Now let's move.

So how we are executing our contingency plans for cobalt 90.

We first identified the principles that mattered most to guide our efforts taken care of our advisors. So they can take care of their clients and protecting the health of our employees.

We then used the data driven agile approach to work through this effort.

Management Committee met daily to assess the changing dynamics at a rate on our plan and take a series of actions guided by our principles.

These actions, including quickly stopping employed travel and changing our approach to adviser conferences to avoid large group gatherings.

We also effectively moved over 90% of our staff to work from home, while maintaining that the high levels of service our advisors expect.

To provide additional support for our employees through this period, we paid a cash bonus to those required to come to the office and for family members of employees, who lost their jobs that other companies, we offered temporary roles and placement services.

Remaining responsive to evolving conditions, we extended service hours to give our advisors more flexibility in their own workday. Our research team also increased their level of support by providing a round the clock updates insights and forums to enrich our advisors guidance and communications as they work to keep their costs.

And for.

And to help advisors lower trading cost we added two more sponsors to our no transaction fee ETF flows prober platform.

Through all of this our systems were stable and resilient handling up to seven times average daily trading volumes with no interruptions.

We're pleased with how our organization quickly and nimbly solve problems and work through challenges. So our advisors could continue to focus on serving their clients.

Advisor feedback indicates they appreciate we have maintained continuity in our business and the assistance, we provided to help them manage their own transition.

Into working and these new ways.

More broadly we also see the emergence of new ways of thinking that will come out of this period.

Such as a more distributed workforce model and increased utilization of automation and artificial intelligence.

These structural trends are creating opportunities to evolve certain aspects of how we work and serve our advisors, which we are incorporated into our plans.

As we look ahead, regardless of the shape of the recovery, we see an even greater need for our solutions and are better positioned than ever to serve our existing advisors and compete for additional market share. Given this we remain focused on our three strategic place and I thought it might be helpful to share some color on our prior.

Yes.

As a reminder, our first strategic play involves winning in our traditional independent and institutional markets. While also expanding our affiliation models to compete in new markets.

With respect to our traditional markets, we continue to bring advisors onto our platform and grow our pipeline.

Our differentiated capabilities resilient platform and stable balance sheet or an even greater competitive advantage in this environment.

Which in turn is leading to increased interest from prospective advisors.

Capitalize on this enters our business development team has created alternative digital approaches in order to continue recruiting and Onboarding perspective advisors.

These capabilities also provide an interesting leverage point to increase our business development reach and efficiency going forward.

Looking more closely at recent recruiting activity January and February where some of our highest month pipeline growth.

Then in March activity slowed as advisors focused on serving their clients through the market volatility and transitioning to work from home.

At the climate stabilized in April advisors had more time to work on the strategic elements of their business and our pipeline growth returned to levels similar to January and February as a result.

Pro recruited assets or slightly above the monthly average in the first quarter and our pipeline is now at launch at the largest in its history.

Our work on expanding our affiliation models in the advisory oriented and employee markets is progressing and starting to deliver results in April we officially launched our premium offering as LPL strategic wealth services and our first team joined and is now operating in serving clients on our platform.

Later this quarter, we have additional advisors scheduled to join in our pipeline continues to expand.

As for our independent employee offering we are still on track with our plans to go to market at the end of this quarter.

Across both the employee and independent channels, we're hearing solid interest from prospective advisors.

We also continue to use M&A that complement organic growth earlier. This week, we announced our acquisition of with GMP Securities a San Diego based from the 20 advisers and 1.5 billion client assets. This transaction will give lunches advisors access to our differentiated capabilities technology.

In service and we look forward to them joining our platform later this year.

Our second strategic play involves creating an industry, leading service experience that increases our ability to attract and retain advisors.

The main components of this strategic play or investing to enhance and differentiate clientworks transforming our service model into a client care model and delivering instantaneous processing driven by robotics in artificial intelligence.

As part of our service model transformation, we're now providing omnichannel capabilities to over 3000 of our advisors. This approach combined interactive voice recognition the skills based routing to ensure our advisors can easily connect with the service professional who is trained and certified to answer there specific question given.

The positive feedback we've heard from advisors, we plan to rollout these capabilities to the rest of art Pfizer's over the next quarter.

Our third strategic play is focused on helping advisors run the best businesses in the independent marketplace using innovations such as outsourcing business solutions digitize workflows.

Hi, guys are focused capital solutions and lead generation.

The last few months have reinforced the importance of this strategic play and the value we can bring to advisors as their business partners. We remain focused on digitizing the six primary advisor workflows and our about halfway through this effort.

In the first quarter, we completed the end to end integration of the first workflow, which is turning prospects in the clients as a result, when an adviser generates a proposal and then a prospective client accepts it a click of a button now populate is all proposal information into our new account system. This integration makes it much more.

Efficient for advisors to term prospects in the clients as they grow their business.

As we move forward, we continue to focus on innovative solutions that make it easier for advisors to run successful businesses through any market conditions.

In summary, the focused execution of our strategy over the past few years has enabled us to be a source of strength and support for advisors and their clients during that time with unique needs.

As we all look ahead and try to envision what the future may look like we believe our continued execution of our strategy combined with the learnings and insights we've gained and this climate position us to shake new opportunities for even more advisors and their clients tend to continue creating long term shareholder value.

With that I'll turn the call over to map.

Thank you, Dan and Im glad to speak with everyone on today's call.

Before I review, our first quarter results I'd like to highlight some of our progress over the past few years to enhance both our business and financial strain.

We invested in capabilities technology and service with a focus on improving the support and experience of our advisors and their clients.

These investments are some of the key factors that led to a record growth in more than doubling of our EBITDA to over 1 billion last year.

Additionally, our growth combined with disciplined expense management increased our operating margins from the low 30% range to nearly 50%.

During the same period, we increased the stability and flexibility of our balance sheet through several debt refinancings, which resulted in lower interest expense greater corporate liquidity and longer term maturities, all while cutting our leverage ratio nearly in half.

And perhaps most important of all.

These steps positioned us to have an unwavering focus on supporting our advisors and their clients, which in turn drove the highest level of organic growth in our history.

And as we look ahead.

While taking into account the impact of cobot 19 on the environment, we're even better position to drive long term growth.

With that let's now turn to our first quarter results at high level, our Q1 results or another example of the resiliency of our business and financial model during volatile times, the combination of strong organic growth.

Natural hedges from client cash balances and trading.

And disciplined expense management led to EPS prior to intangibles of $2 in six cents.

This was up 7% from a year ago and has the highest result in our history.

Looking at our business results. We finished Q1 would total brokerage and advisory assets of 670 billion.

Down 12% from Q4.

Driven by the decline in equity markets, partially offset by organic growth.

Total net new assets were 12, and a half billion in Q1 were 6.5% annualized growth rate.

And within the quarter as we look at the impact of Cobot 19 on our growth I would highlight that net new assets in March were 4.3 billion, our second best month ever.

And as for the month of April we have continued to see strengths and net new assets, which are trending to levels similar to the monthly average we saw in Q4.

Now looking at our business mix, we continue to see positive trends this quarter.

Advisory assets increased over 48% of total assets, primarily driven by advisory inflows of 12, and a half billion or a 14% annualized growth rate.

Within our advisory platforms, essentially manage that new assets were 2.2 billion or a 17% annualized growth rate.

Before moving on I'd like to share one final item on net new assets.

As you know organic net new assets is a key metric in our industry, both to evaluate individual company performance and to compare growth rates across our space.

It's important that our net new asset definition reflects both the full organic growth, we are generating and be comparable across companies.

With that perspective, we evaluated our definition as well as the prevalent practice of our peers.

We found that what we do not include the combined contribution of dividends interest and advisory fees most firms did.

And our business these sources generate approximately 1.5% of asset growth per year.

So beginning in Q2, we will include these factors in our net new asset reporting.

This update will more fully reflect our organic growth and make our results more comparable across the industry.

We have provided historical data in our key metrics presentation. So you can see the net new assets generated from these sources.

Now, let's turn to our Q1 financial results.

GAAP line growth continued as gross profit was 576 million.

37 million or 7% sequentially.

Looking at the components Commission advisory fees net a payout were 162 million up 28 million from Q4.

Increase was mostly driven by seasonally lower production bonus expense as well as higher advisory fees and sales commissions.

Looking ahead to Q2 I would highlight that advisory fees are primarily priced off of prior quarter balances. So the impact of the decline we saw an equity markets in the first quarter will be fully reflected in our Q2 results.

Moving on to asset based revenues sponsor revenues were 134 million in Q1.

1 million sequentially, driven by greater usage of our mutual fund and F. No transaction fee platforms, partially offset by lower average assets.

Turning to client cash revenues, they were 151 million down $4 million or 3% from Q4.

The decrease was driven by lower short term interest rates, mostly offset by higher client cash balances.

Looking more closely at cash balances. They were 48 billion at the end of Q1 up 14 billion sequentially with nearly all were $13.6 billion of that increase coming in the month of March.

When we look at April cash balances have remained steady and have only declined slightly from the impact of advisory fee billings.

As for client cash yields our Q1 I see a yield was 195 basis points down 27 basis points from Q4, mostly driven by the decline in short term interest rates in March.

Looking ahead to Q2, we thought it would be helpful to provide some additional disclosure in light of the dynamic environment.

So we have shared new insight into our fixed variable and overflow balances as part of our key metrics presentation.

I hope you find its helpful. When thinking through how our IC yield will vary in different environments.

So given where balances in rates were at the end of Q1, we expect our Q2 I see a yield to be around 120 basis points.

The action volumes were somewhat elevated in early April they have now returned to levels similar to queue for.

Given this April transaction revenue was about 5 million higher than our queue for monthly average.

Now, let's turn to expenses started with Gorging.

It was 223 million in Q1 or an annualized run rate of about 890 million.

As we look ahead to the full year I wanted to share some contacts on our spending plans.

[noise], we remained focused on balancing expense discipline with growth investments, especially as environments. Like this can provide some of the best opportunities to drive organic growth.

And as a reminder, we started the year with a core G.N.A. outlook range of 915 to 940 million.

For a 5.5% to 8% growth rate from our 2000 in 19 levels.

The increase investment is almost entirely dedicated to driving organic growth.

Both in our traditional markets like we saw in Q1 as well as a new markets.

We have also sequenced are spending plans to build gradually through the year, which positions us to be flexible in dynamic depending on how the year plays out.

In our Q. on expenses with a run rate below the low end of our full your outlook range further strengthens that position.

So as we think about the environment, we are in right now.

As well as the organic growth results are investments are generally we believe the best way to drive longterm shareholder value is by continuing to invest.

I am more modest level.

Given that we are now planning for a full year core G.N.A. to be in the lower half of our outlook range.

That said, we will remain flexible in are prepared to adjust our spending up or down depending on how our growth opportunities and the macro evolved from here.

No turning back to Q. on promotional expenses, there were 57 million up 6 million sequentially, primarily driven by higher adviser conference expense.

Looking ahead, we have no large conferences and q. too. So we anticipate conference expenses will decrease by approximately 10 million sequentially.

Moving on capital management.

The current macro environment has been ball, we continue to generate strong cash flow.

Even if we look at scenarios for the macro deteriorates meaningfully from here <unk>.

Our cash flow would still be well in excess of our needs, including serving our advisers investing for growth and paying regular dividends.

This positions us while to continue to deploy capital, while maintaining strong balance sheet.

As for our approach to capital allocation or framework is unchanged, we invest organic growth first and foremost.

Then pursue emanate opportunities where appropriate.

And finally returned excess capital to shareholders.

And as we have discussed we think this environment can provide us with even more opportunity to deploy capital organic growth given the strength of our business and value proposition.

This climate May also create more emanate opportunities and our approach here remains the same.

We are interested in firms that are aligned strategically financially and operationally.

And we are starting to see opportunities materialize like the acquisition of Blue Cheer Securities We announced earlier this week.

They are far with 20 advisers in one and a half million decline assets.

The transaction has an anticipated EBIDTA purchased multiple of approximately six times and we expected to close in the second half of this year.

We're excited to welcome when she is advisers to the L.P.L. thing.

As for capital returns to shareholders. In Q1, we were purchased 150 million of our shares and pay 20 million a regular dividends.

Given the uncertainty in the macro environment and are increasing opportunity to deploy capital for growth, we pause or share repurchase program towards the end of Q. what.

We were visit our plans as the macro stabilizes, we have more clarity on the path from here.

In closing, we delivered another quarter of strong results and Q1, including the best organic growth in earnings in our history and as we look forward, we're excited about or opportunity to continue driving growth in creating long term shareholder value.

<unk> operator, please open the call for questions.

Thank you as a reminder to ask the question you'll need to press star wandering and telephone to with Trier question Press. The phone keep please limit yourself to one question then one follow up.

Our first question comes from Stephen to backwards well researched May proceed with your question.

Hi, good afternoon.

So.

Woot start off with just a question on T.I.C.A. I really appreciate being has disclosure on slide 16, Oh, including the maturity schedule for the I.C.A. contract.

Quarter to be.

Okay that it was a broader industry trend and they you saw material uplifting cash well given caches remained elevated in April as you noted and just some of the pressures up along and you still have your same 50% to 75%.

Fix target, what's your appetite to deploy some of those floating balances today when to fix gray just given some of the pressure's on the code.

Yeah. So I think it there's a few factors at play I mean, I think first with our our approach the long term I think our target of 50 to 75 per cent overtime.

I'm still holds is still makes sense I think the key here is really about reducing our sensitivity to short term movements and interest rates and while we're subject of course to the interest rate environment, having that flowed through our financials over a much longer period of time.

I think helps us focus on our advisers makes most sense for them from an investment standpoint, I think when you look at the the market today, Steve and with it to your point on that the amount of cash that is that as on balance sheets right. Now thinks are much much different than to for an understatement of the call I suspect, they're just a few months ago.

With short term rates zero and yeah. The 10 year it to your point at about 50 basis points and I think that combined with the amount of cash that's out there I think the just the demand and market for fixed rate contracts now I think is pretty light, there's some demand and that kind of you know the short end of the fixed rate part of the current meeting in the.

A one to two years down so that if there might be tactical opportunities there, but I think broadly where for right. Now we're focused on really you know putting those balances more and in floating contracts, but contracts with the spread and and you know on the damn sure you saw it on the the disclosure that you referred to it towards the end of the quarter. We we put in place another 5 billion dollar.

Variable contract at a spreading the that 20 to 25 basis point range versus the kind of those over <unk> overflow contracts that are kind of flat. So hopefully that gives you a little bit of color about the environment right now, but I think the long term strategy is really unchanged.

No. Thanks.

And maybe you just switching over to question for then.

I was hoping down that you could provide us with some updated thoughts are color on the I mean, a backdrop recently executed a deal at the same time, we're also hearing.

Across the industry that a lot in the private players that employee much more leverage feeling it's increasing levels of stress and that's obviously, there's some contacts as towards the end. They may opportunity is evolving maybe some more transformational deals and also how the perception of weaker Balanchine say your competitors.

There's maybe enhancing your ability to recruit getting some of this wrong number then you saw in April.

Yes, either so there's a lot there if I don't hit it all on the first try you can just redirect me, but let's start with the M. and eighties, perhaps and <unk> and I'll start from a strategic place, which is you know as you guys know isn't a continues to stay on our strategic Ah radar as a reminder, first priority is.

They use of our capital drive organic growth and then we use them in a as a complement one of those opportunities. We do see is is with m. and a across the small <unk> segment on the market place.

As you said the they'll let you look <unk> Lou G. transaction is is a great example that opportunity where we can create value for both the principals and advisors that those practices we transition.

Their business onto our platform. So we we do continue to see an opportunity there and environments. Like this are coming out of <unk>. We would anticipate based on what history would tell us is that there would be demand an opportunity for you know continued consolidation within that segment of the marketplace.

So.

As we said in our remarks, we continued to look at that segment of the marketplace for opportunity I think with respect to the broader question you ask around transformational opportunities I I think that again history would tell us that in times like this where you know you've got a tougher macro conditions.

That potentially.

Disrupt the overall economic drivers of firms yeah add to that perhaps leverage that they have on their balance sheet creates tough conditions to have the capacity to continue to invest and us drives those businesses in a meaningful way forward generating.

Organic types of growth and so I think we believe that in with that as a backdrop you will begin to see some potential.

<unk> and dialogues about strategic pivots by those firms.

Absence, some sort of v. shape recovery and so again I think we look at that in the same way we do with the other segment from an emanate standpoint is on our strategic radar, we look at as a compliment organic growth different to launch strategically operationally and financially with our business. We would have an interest in having.

Type of dialogue. So hopefully that gives you some perspective at least on the image a landscape.

I think if you flip over to the question that you were asking about you know value propositions relative to the competition I alluded to to the fact that you know it it can be tough given the macro conditions with with highly leveraged balance sheet and and some of the the financial drive.

As of your top line growth.

Challenged in this type of environment I think for US we look at our model and just continue to invest in it to enrich the competitive appeal that model through its capabilities and services. It's technology, we feel good about that baseline values that we offered today I think when you come through and and <unk>.

But like this with our resiliency stability and those capabilities. Then you add to that continued capacity to invest we think that creates the pretty appealing scenario and and alternative for advisers to consider and we'll continue them to take that position of strength.

And and explore those possibilities across the independent space and the new markets that we've talked about in terms of attracting new advisers to our platforms. We think that creates a pretty compelling alternative option and you know if you don't have those opportunities associated with your model then it makes.

Also pretty tough team to be.

Oh, that's great and then things friend altering my three part fall pretty well.

Huh.

<unk>.

Take your next question comes from Alex Boasting with Goldman Sachs. Even proceeded your question.

Hey, guys how are Ya.

First question just around I guess organic growth. So in the past, we've seen a slow down and that and U.S. a girl turn period, so far market volatility Oh, so you're not nuances in March we're really strong and comments about April also point to a much different pick a much more different picture that moves in the past.

I guess keep talking about sustainability of that growth ability to convert the the robust pipeline that you talked about internet new assets over the coming Muslim quarters, and I guess to what extent you see your investments and tack in digital solutions, it's kind of a key differentiating factor at times of social distancing.

Yeah. So it's great question, Alex Let me, let me take a stab at that and again.

Welcome to has to follow on it they don't if I don't cover all of that I I think the <unk>. The you know the with respect to sustaining.

That type of inundate growth I think that is certainly are aspiration or one of our primary areas of focus and I think coming into the quarter. We had a good trajectory on that organic growth.

N.N. Q1 week, we continued that Trent so that certainly a nice jumping off point and I think as you look forward.

We believe that capacity to invest the investments we've made over the past three years give us a real strong positioning promo competitive appeal as we talked about and and again our ability to continue to invest we think will continue to extend that differentiation and and that competitive that.

Vantage point I think you also then match that with.

The resiliency of our platform in the in the ability we've had to serve and support our advisers through what is what is it <unk> challenging and tough environment and you take that baseline you add that to it you add the ability to invest in it and again that combination creates a an interesting opportunity.

For us as we think about sustaining that organic growth both across new store sales, but also across some same store sales and retention.

And so I think we're pretty encourage when we look at that package of options alternatives and levers you know that that that we can continue to.

To drive that that trajectory and trend with respect to our in in a over time. So short answer is yeah, we feel pretty good about our continued focus on sustaining that and and our competitive advantages options alternatives and tools in order to do that.

Thanks for that part.

Yeah, you got a second part I don't think I got.

No I think you you you got rid of pretty well I think my my My second question was format also round I see a I guess I'm, just hoping to get a little bit more color round, if there's any opportunity to expand a variable contra capacity to accommodate some of those overflow balances in order to pick up you know the 20 to 30 basis points bread.

Sure I mean, I think I think if you you just look at the the additional disclosure we we put in for the color I think we've we've got most of them in there and with the contract that we put in place at the at the end of this quarter of around 5 billion you've now got.

Just under 3 billion in the overflow balances and I think the it of course will always look for opportunities, but I think over the long term. Your does balances are probably not going to be in cash for an extended period of time. So I think we feel pretty good between the fix portfolio and the the increase of the variable.

Passes you by 5 billion this quarter again there'll be tactical things that that we're working on I think might improve that a little bit from here, but I think the bulk of it we were happy to get done the in March.

Great. Thanks very much.

You bet.

Thank you are next question comes from Craig seeking handler with credit Suisse. He May proceed with your question.

Thanks, Good evening, everyone and hope y'all staying healthy.

I had actually all to Alice says first question on the impressive April Crooked assets How're you actively recruiting you advisors without the ability to hold in person meetings and it sounds like your business can survive pretty much using zoom in Skype probably better than your competitors.

Yeah, well I'll speak for US, saying look we we obviously make a big investment in in recruiting and see it as a as a as a nice let lever of organic growth and if you look at.

Over the last year, we've we've recruited 36 billion and and assets and we feel good about you know the progress that we're making there and that ongoing trajectory. There's a couple of p. drivers to that it's certainly continued to invest in the in the mall and creating differentiated capabilities that.

Create that competitive appeal that I talked about earlier, we feel good about that continued trend in the opportunity with some of the new capabilities, we're delivering to to continue to create a distinction there and I think the second part is the efficacy of our business development team and their ability to continue to.

Take what is a competitive differentiated solution and go effectively take that to the marketplace and.

As you said I think in the midst of March where.

Oh I guess the the the full force of the pandemic hid it was quite disruptive to the typical and <unk> traditional recruiting processes that [noise]. Many of them are done in person and I think.

Some of the work that we had done to automate and digitize a lot of the processes in the past, we're certainly leverage points, but I think that that teams ability to really pull off and explore what were the options and alternatives and it'd be quite agile about different ways to solve where you couldn't travel or you couldn't have.

Home office visit or you you couldn't go visit an office and bring them onboard and help them transition into the platform. Then we created digitize tools to to overcome those things. So that we could continue our activities and and though as we said you know March had an impact in terms of the overall recruiting we did see.

Some deals <unk> push back into second quarter because of some of that complexity, we were able to mitigate some of those challenges with these digitize capabilities and will continue to leverage I'm going forward.

And they essential way our opportunity said you know in April as we're seeing in some cases, where we used to digitize means to on board someone creating a a faster ramp up in assets and we've seen traditionally so there's some cool possibilities. There that will continue to work on well refined we still have things to learn but it's all in the spirit of continuously getting.

<unk>.

If we split that strong March net new asset number into same score Istel's and news store sales contribution you know the rough mix and was there any changing composition enlarge versus what you saw in January and February.

Yeah, maybe I'll take a stab at first and all that Matt give you. Some additional color I think if you have you looked interestingly if the trends you would have seen some stronger new store sales at the beginning of the quarter that that had some impact in March is as the.

As the you know the pandemic sort of took and created a bigger impact I think contrary to that same store sales actually strengthen through a quarter as the value proposition of these advisors, providing insight in perspective, both when the when the engagement was good at the beginning of a quarter, but.

<unk> as positive as well as in March where sentiment completely changed for the games <unk> still strong as they it was all [noise] a lot to help clients with in terms of how they think about their financial futures in their life goals and dreams and so we actually saw same store sales build throughout the quarter or you want to put a higher capstone on that.

<unk> I I was going to say the same thing setting you summer as well.

[laughter].

Great. Thank you guys.

Thank you are next question comes from Bill Cats with Citigroup you May proceed to new question.

Okay. Thank you very much and appreciate the extra disclosure Super helpful. There was doing okay. Maybe that one few perhaps just structurally may maybe it's too soon you. When your peers are seen just a tremendous spike in cash and the like others, you're sort of seeing the relatively steady state enable despite the markets bouncing back.

You think we've reached some kind of point, where cash becomes a higher percentage of client assets all else being equal what's your sense in your conversations in the field.

Yeah. It's it's it's a really great question, Bill and and it it is early.

You know, we can look to history as a as a way to as one source of data as I think about that question. I think you can also looked a human behavior in when you go through an impact like this what sort of.

Ongoing tail impact does it have on how people think about an allocation or even if <unk> allocations I you know my sense of it is this I do believe you'll see cash in just more normalized market environments I eat less vault.

<unk>, you'll see more money get put back to work do we return to those 4% you know a cash as a as a as a percentage of overall asset levels I I'm not sure I think that's back on the backs of a long sustained bull market and probably have more risk taking <unk>.

Tight than than <unk>, one normally might so you know as you think about the the 4% range and assets that we jumped off up to now it's roughly seven per cent of total assets.

You know I think historically says you live in a in a five to six range and that may be a reasonable way to think about this over the long term.

Acknowledging that there's lots of data collecting more time to play out but that might be a framework at least of which didn't Richard thinking.

Okay. Thank you for that and my second question I'm Gonna she too a little bit of two party a little bit disparate so I apologize.

It's an update on business solutions, and and how those conversations may have been evolving, particularly with just so the celebration of volatility in the in the second quarter in the first quotes you'd meet and then man may one for you just going back to your decision to sort of slow us pause to buy back how much of that is truly from them.

Macro versus the building emanate pipeline.

Thank you.

Yeah. So I took the business solutions first bill and and then all turned over to map. So look at just for everyone. As a reminder, that business solutions is is really about providing access to expertise and affordable way to help advisers operate their businesses.

Q1, you know we had good momentum to start the quarter the fundamental value proposition continues to resonate with our advisers.

And and we saw our subscriber base grow to around 700 in the first quarter, which was up roughly 50 over fourth quarter. So so that's all that good solid baseline and we feel good about that certainly when covert arrived we saw two things that maybe are worth noting the first is if.

<unk>, who were in the pipeline to potentially.

Set up a subscription and begin to use one of those services that progress slowed as as they.

Rightfully shifted their focus over to serving and supporting their clients and you know not as prioritizing sort of starting something new.

I think that creates some some you know short term headway on in terms of working through that we also cancelled some conferences that we would have typically use to as sales forums for business solutions. So you know we have to find other ways of which to to consistently offer those types of solutions.

We do but those are just some time centerpieces too how we offer those types of solutions into one so that has a bit of the headwind as well I think more on the favorable side of it though the advisers that are using these services given the complexity operating environment and.

First quarter the value of these solutions was magnified you know whether it was the marketing solutions not just helping them with lead generation, helping them manage their client communications in and it really intense time, where the C.F.O.s solutions, helping them with with business stress testing or cash flow.

So analysis and evaluations the tech solutions, where we actually came up with a really cool creative turn key remote office solution with it with Liz literally two weeks within the quarter to again helped advisers and working from home and making that simpler and easier. So it really does.

Reinforce the value these solutions offered to the advisers. So again, we we were excited about the long term opportunity set and the value. They create you just got some short term headwinds that we've got to work through.

You want it to.

Yeah, I see bill and repurchased program pause medic. The the thing I would emphasize most is when we look at our organic growth in our value proposition, having a strong balance sheet is just critical and supportive of that so being able to to manage through a a downturn like this ball continuing to generate cash.

To have low leverage <unk> low leverage ratios compared to others into space to to not being a bank with the risks that come along with being a bank and eating capitalist supported and having loan losses associated with loans.

I could go on and on right. So I think those things are really really important. So when you look at continuing to do share purchases in an environment. Like this we really balance that against being able to have that strong balance sheet and being able to support everything that we need. So I think it's out into the out of in abundance of caution I think we'll you know kind of getting more.

Clarity on where the macro goes from here I think will help on that front.

So I I think that's the primary thing I think when you look at <unk> I think those those opportunities are there and interesting I think Dan described that well the only thing I would add is just to remind her you know emanate you've got a lot of clarity on the bit that comes with that and given our price discipline. There. That's not you know unless you're talking large large deals.

Typically a big you know user of leverage given our price discipline compiled debt with either come along so hopefully that helps you give a little little perspective or color on our perspective.

Thank you.

Thank you are next question comes from Jerry O'hare with Jeff raising their personal question.

Great. Thanks for taking my question this the senators seeming potentially.

<unk> portfolios, obviously, a very strong on it.

In a growth continues.

Trying to get a sense or sort of the the adoption. Some advisers. This this program and kind of where you where you might see a trendy and I go poured basis as it is it's sort of Holy adopted by the advisors. This point as a sort of still and it's in an evolutionary stage or or or what is that that's you know continuing to.

Drive this this strong and then a girl going forward.

Yeah, Let me give you a little color on that you get Mad if you want to add anything behind that <unk>. So so look is if I took at a high level I think you're in.

Mm.

The earlier part of the nine any game in terms of the adoption and utilization of centrally managed solutions.

And I think they continued investment we make in the capabilities the flexibility Optionality would give the advisers the improvement and user interface is.

Oh will help support and drive the continued use.

Of centrally managed platforms I think we recognize there's more innovation out there for us to work on and add to those centrally managed solutions such that you've got terrific investment options and strategies to help those advisers create and add value to their clothes.

Science, you can do it in a highly simplified digitized way the gives access to the at Pfizer to kind of take their hands on and off the wheel.

Is is is a really interesting appealing package of value to those advisers as we continue to have all of our capabilities. There. We think there's a correlation between the evolution of those capabilities and the utilization of of the centrally managed platforms.

What's driving it Oh, I think advisers more and more recognize and look for <unk> that it can be a great leverage points or overall practice and as they try to either lower their cost or create <unk> more flexibility to reallocate their time to more valuable activities.

I think.

This becomes a more and more appealing type of concept that they can use as a leverage point to their practices. So we create a really appealing a solution their need for it will only have all been grow as they looked for more leverage points in their practice, that's we think a nice combination.

To drive a a long sustainable trend, which is why we say it's in the early parts of the game I don't know from that you want to add anything to them.

<unk>.

That's that's helpful and and I guess I guess, one for for Matt specifically Ah apologies, if I if I Miss this or.

Or or <unk> somewhat clear, but I guess intuitively promotional expenses would would likely come come in in the in the current coming quarters, assuming all else equal with the with the current backdrop, but <unk> I guess can you, perhaps kind of confirm that statement and then to have you kind of.

Thought about ways to perhaps I I don't done up as impossible, but you know digitize. If you. This this sort of activity or if there's you know sort of virtual virtual capabilities that will enable you to kind of continue down the road in certain promotional activities.

Yeah sure Jerry Man I think on on <unk> on both of those the the.

Promotional expenses in Q2, we have very few if any conferences, so they'll come down specific to the conference piece of that by about 10 million.

So is definitely a decline there on on the second part of your question I'll, just give a little bit of the financial ends and then down if you want to jump in but our our our National Conference. Our largest conference severe is in Q3, and we have we have already decided to move that to a virtual conference.

So we are in the in the planning stages of that setting the answer. The question. It's is definitely possible. We are in the in the middle of working on that and.

Obviously dan's in a better spot to get some color on that to me.

Yeah, So I I obviously.

Together eight to 9000 people in July.

It doesn't sound like a great risk to take given the backdrop often so we've we announced that we would shift this to a virtual conference a lot of folks are working on that that same concept. There's again, some interesting technologies cool ways of which to to share that content in a more digital platform.

And so we're working through exactly how we would do that the cost associated with doing that working with sponsors to be a part of that overall program.

So more to come on that but I think think match right as we think about third quarter and that being our largest conference.

As we get through the other side to that I would expect you to see some shift or change and in any overall economics around focus are are big conference.

That's great. Thanks for taking my question in Sacramento.

Like your next question comes from Devon, right with G.M.P. Securities. He May proceed with your question.

Okay, Great <unk>.

<unk>.

First question here just on <unk> upfront contracts in the industry. You know obviously had seem kind of those scaling up in recent years, just as there's quite a bit of competition and also affirms had the benefit of higher interest rates was maybe supporting some of that spending.

Or investment if you will with interest rates and equity markets abruptly moving lower I guess, what are you guys seeing with a profit recruiting packages.

Appreciate it's probably early and and whether you guys expect to hold the line, which would maybe further accelerate organic growth or.

You know potentially would you would you move that lower which would make the recruiting economics, even more attractive assuming the organic <unk> trying to think about how that may effective things moving forward.

[noise], Yeah, no, but I mean I take on the way. We approach that is is really a change we we change we adjusted our approach a couple of years ago, just underwrite two returns a we're continuing to underwrite those returns a we've never put into those models any saying what are the you. If you will on the macro so we'll we'll update based.

On the the environment were in that could biased things down a little bit, but I would you know as a general role, but each deal is individually underwritten depending on the the mix of that from and and what products and services. They use the will continue to underwrite returns no change there.

[noise] data variable and then just to follow up on a customer cash appreciate all the detail and presentation and and the commentary portfolio with respect to the D.C.A. piece you guys updated the fee schedule and just trying to think about and.

Whether there was more room to do that and kind of it'd be inputs to do that you're trying to think whether there might be some additional opportunity for that piece of as well cut them down the road here.

Yeah, Yeah, I think when you think about that product to me. It's it's one where it's a fee per account. So the balances in their kind of you know are the drive the overall economics I think that the changes that we made that you referred to are are based on where those balances are and I think of that changes over the long term that could could.

Pack things, but I think we we feel like with the adjustments we've made that that product is in the in the right spot in a competitive spot for that for the clients that have a investors in there.

Great limit their thanks guys.

Thank you.

[noise] accurate next question comes from Ken Worthington with J.P. Morgan You May proceed with your question.

Hi, Good evening I'm, just curious to hear thoughts if you think there might be a longer term impact of covert 19 on the wealth management business.

Either the way that advisors for the manage their relationships are work from home or something else that really change is the efficiency of the advisor in their business.

Yeah.

So can I think there's no doubt this will create some structural change across the market in the industry and I think probably history again tells us the magnitude that change will likely be driven by the desire of individual firms and how much they want to embrace and pull that.

That changed through.

And you know we we entered this environment with as I said earlier, where we established and principles that drove how we think about this opportunity and that's starts with taking care of our advisers. So they can take care of their clients.

And also at the same time protecting the health and safety of our employee so those principles drove our thinking our decision, making through this and and actually given the significant change across both of those spectrums, there's a tremendous amount a learning opportunity that sits inside that change right.

Which took us to the next place we went to in managing through this was our culture in our values and one of our values is a commitment to learning and applying that learning to drive innovation.

In an agile way and so in a climate like this where we talked about the significant change we believe it creates an incredible opportunity to learn and apply that learning going forward to drive real structural differences in in the business and I think you hit on.

You know in the spirit of brevity, one of those examples which would be how people think about a distributed workforce and what what does that mean as you apply that to 4500 employees in our case or nearly 17000 advisers and how we supported engaged with them or even as you said, how we how they would engage in.

Millions of their clients and so we believe there's a there's a a real ripe opportunity that this creates an opening of which to think about things in a different way and opens up the playing field. If you will do is experimentation to do things that you may never have don't have otherwise there could be jobs that you'd.

I didn't think where possible to do remotely from home that all the sudden by doing it you now have a different point of view on that and that shapes. How you think about managing your workforce flexible schedules. How you would access talent in even how you manage your real estate portfolio and that's just one example, right that sits inside that structural changes suggested.

We believe the whole use of.

[noise] robotics A.I. in digital tools will be different going forward people's thinking around outsourcing and supply chains will be changed forever by this if they have a desire to pull that through and I think we're looking at at those things and more really challenging ourselves to make sure. We we <unk>.

N.N. to the learning opportunities and how you may pull through.

Those changes to reshape your cost structure to reshape how you engage with your employees all the way to how you positioned your advisors to deliver a different client experience to their client. So that's the spectrum of opportunity.

Kind of see coming out of this there will be more to emerge. It's early we've got a lot to learn but we're trying to be purposeful about getting arms around as much of that is <unk> thoughtful and having an informed view as the best way forward.

<unk> well, thank you very much.

Take your next question comes from Chris Shutler with William There you May proceedings your question.

Hey, guys, so girls don't well.

Follow up on Devins question from earlier, Yeah, how how does the the change in the interest rate environment affect what you're willing to pay for advisory assets are you.

Underwriting a much lower fed funds rate today, given the environment or.

When you think about.

Did you do kind of structure in the hopes that rates bounce back.

Yeah, Chris <unk>. So we I I think I use my S.A.T. word were not sanguine on the macro in in the early your answer. So so we don't assume any improvement in the background re underwrites returns in the current environment that means the current interest rate environment.

And then based on again, each individually each deals individually and underwritten and we say disciplined on on that an indirect returns.

Okay fair enough.

And then just a second went to small question on the the conferences since you're going to be doing those virtual this year I think you mentioned the 10 million dollar.

Reduction in conference expense from Q1 accuse to anything you can say about the remainder of the year and how both revenue and expenses will be impacted.

Yeah <unk>. The Q2 reduction is really just based on the timing of conferences, which this year plan primarily for Q. on Q3, I think in in Q3, only at where we have our focus conference that Dan talked about I'm, a little bit earlier that going partial I think that just to give you a sense that that conferences typically around 15 million and call.

Costs and around five or 6 million and sponsor revenues.

So I think as we approach movie naturally virtual conference I think we'll we'll think through how those expenses of all.

<unk> things like travel expenses, there won't be any right to that'll bring costs down but at the same time, we're focused on investing in in that in the the virtual areas of the digital capabilities of that conference to make it something that's compelling and helpful. For this for the very reasons that we do that conference right. So we're we're in the planning stages now we'll we'll go.

Give me an update next quarter into two c. have a sense as to our best estimate as to what's coming and Q3 then.

Okay. Thanks, a lot.

I think you and hey, thanks to everyone for taking the time to join US. This afternoon, and we look forward to speaking with you again next borders stay healthy.

Mm.

Thank you ladies and gentlemen. This includes today's conference call. Thank you for participating humane I'll discuss.

Oh.

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