ASSETMARK FINANCIAL HOLDINGS, INC. Management's Discussion and Analysis of Financial Condition and Resultsof Operations. (form 10-Q)

Published: 2022-05-09 16:43:24 ET AMK

Overview

Business Highlights

• We amended our 2020 Credit Agreement with Bank of Montreal on January 12,

2022 which as amended provides a senior secured credit facility in an

aggregate principal amount of $500,000,000 consisting of a revolving

Financial Highlights

• Total revenue for the quarter ended March 31, 2022 was $148.3 million, up

• Net income for the quarter ended March 31, 2022 was $22.2 million, or

• Adjusted EBITDA for the quarter ended March 31, 2022 was $44.5 million,

compared to $34.1 million for the quarter ended March 31, 2021. For a

reconciliation of net income, the most directly comparable GAAP financial

measure, to adjusted EBITDA, see the section titled "-Key Operating

Metrics-Non-GAAP Financial Metrics-Adjusted EBITDA."

Asset and Adviser Growth Trends

• Platform assets were $90.8 billion as of March 31, 2022, up 15.1% from

$78.9 billion as of March 31, 2021.

• We had 2,815 engaged advisers on our platform as of March 31, 2022, up

Key Factors Affecting Our Performance

Expansion of Our Existing Financial Adviser Base

Increase of New Financial Advisers on Our Platform

Technology Development

Value of Platform Assets

Acquisitions

selectively seek acquisitions that will enhance our scale, operating leverage and capabilities to further deepen our offering to advisers and investors.

COVID-19 Pandemic

Operational metrics: Platform assets (at period-beginning) (millions of dollars)

1,927

2,433

8,477

2,611

Production lift from existing advisers (annualized %)

21.8 % Assets in custody at ATC (at period-end) (millions of dollars)

Platform Assets

Net Flows, Market Impact Net of Fees and Acquisition Impact

Net Flows Lift

Advisers (at Period-End)

Adviser count reflects the total number of advisers who had at least one investor account on our platform at the end of the given period.

Engaged Advisers (at Period-End)

Engaged advisers are advisers with at least $5 million in platform assets.

Assets from Engaged Advisers (at Period-End)

Assets from engaged advisers are total platform assets attributable to engaged advisers.

Households (at Period-End)

We define a "Household" as one or more client accounts that are grouped together based on a relationship identification code as determined by the financial adviser.

New Producing Advisers

New producing advisers ("NPAs") for a given period represents the number of advisers that invested their first client assets on our platform in that period.

Production Lift from Existing Advisers (Annualized)

Assets in Custody at ATC (at Period-End)

Assets in custody at ATC represents platform assets that are in custody.

ATC Client Cash (at Period-End)

Total Revenue

Total revenue includes all revenue that we recognize, including asset-based revenue, spread-based revenue, subscription-based revenue and other revenue.

Net Income

Net income is defined as total revenue less total expenses and provision for income taxes.

Net income margin is defined as net income divided by total revenue.

Capital Expenditure

Adjusted EBITDA and Adjusted EBITDA Margin

• non-cash equity grants made to employees at a certain price and point in

time do not necessarily reflect how our business is performing at any

particular time; as such, share-based compensation expense is not a key

measure of our operating performance; and

• costs associated with acquisitions and the resulting integrations, debt

We use adjusted EBITDA and adjusted EBITDA margin:

• as measures of operating performance;

• for planning purposes, including the preparation of budgets and forecasts;

• to allocate resources to enhance the financial performance of our business;

• in communications with our board of directors concerning our financial

• adjusted EBITDA and adjusted EBITDA margin do not reflect all cash

expenditures, future requirements for capital expenditures or contractual

commitments;

• adjusted EBITDA and adjusted EBITDA margin do not reflect changes in, or

cash requirements for, working capital needs;

• adjusted EBITDA and adjusted EBITDA margin do not reflect interest expense

• the definitions of adjusted EBITDA and adjusted EBITDA margin can differ

significantly from company to company and as a result have limitations

when comparing similarly titled measures across companies.

(1) "Share-based compensation" represents granted share-based compensation in the

form of RSA, restricted stock unit, stock option, and stock appreciation

right grants by us to certain of our directors and employees. Although this

expense occurred in each measurement period, we have added the expense back

in our calculation of adjusted EBITDA because of its noncash impact.

(2) "Reorganization and integration costs" includes costs related our functional

reorganization within our Operations, Technology and Retirement functions as

well as duplicate costs related to the outsourcing of back-office operations

functions. While we have incurred such expenses in all periods measured,

these expenses serve varied reorganization and integration initiatives, each

of which is non-recurring. We do not consider these expenses to be part of

our core operations.

(3) "Acquisition expenses" includes employee severance, transition and retention

expenses, duplicative general and administrative expenses and other

professional fees related to acquisitions.

(4) "Business continuity plan" includes incremental compensation and other costs

that are directly related to a transition to and hiring of a primarily remote

workforce and other costs due to the COVID-19 pandemic.

(5) "Office closures" represents one-time expenses related to closing facilities.

(1) "Share-based compensation" represents granted share-based compensation in the

form of RSA, restricted stock unit, stock option, and stock appreciation

right grants by us to certain of our directors and employees. Although this

expense occurred in each measurement period, we have added the expense back

in our calculation of adjusted EBITDA because of its noncash impact.

(2) "Reorganization and integration costs" includes costs related to our

functional reorganization within our Operations, Technology and Retirement

functions as well as duplicate costs related to the outsourcing of

back-office operations functions. While we have incurred such expenses in all

periods measured, these expenses serve varied reorganization and integration

initiatives, each of which is non-recurring. We do not consider these

expenses to be part of our core operations.

(3) "Acquisition expenses" includes employee severance, transition and retention

expenses, duplicative general and administrative expenses and other

professional fees related to acquisitions.

(4) "Business continuity plan" includes incremental compensation and other costs

that are directly related to a transition to and hiring of a primarily remote

workforce and other costs due to the COVID-19 pandemic.

(5) "Office closures" represents one-time expenses related to closing facilities.

• non-cash equity grants made to employees at a certain price and point in

time do not necessarily reflect how our business is performing at any

particular time; as such, share-based compensation expense is not a key

refinancing, restructuring and conversions can vary from period to period

and transaction to transaction; as such, expenses associated with these

activities are not considered a key measure of our operating performance;

and

• amortization expenses can vary substantially from company to company and

from period to period depending upon each company's financing and

accounting methods, the fair value and average expected life of acquired

• adjusted net income does not reflect all cash expenditures, future

requirements for capital expenditures or contractual commitments;

• adjusted net income does not reflect changes in, or cash requirements for,

working capital needs; and

• other companies in the financial services industry may calculate adjusted

net income differently than we do, limiting its usefulness as a

comparative measure.

Set forth below is a reconciliation from net income, the most directly comparable GAAP financial measure, to adjusted net income for the three months ended March 31, 2022 and 2021.

(1) Relates to intangible assets established in connection with HTSC's

acquisition of our Company in 2016.

(2) Consists of the adjustments to EBITDA listed in the adjusted EBITDA

reconciliation table above other than share-based compensation.

(3) Consists of the provision for income taxes under U.S. GAAP and the estimated

tax impact of expense adjustments and acquisition-related amortization.

Components of Results of Operations

Revenue

Asset-Based Revenue

Other Revenue

Operating Expenses

Asset-Based Expenses

Spread-Based Expenses

Our spread-based expenses consist of expenses paid to ATC's third-party administrator for administering ATC's insured cash deposit program and interest payments to clients.

Employment and compensation expenses include salaries, commissions, non-cash share-based compensation, benefits and employer-related taxes.

General and Operating Expenses

Professional Fees

Professional fee expenses primarily relate to the fees associated with the outsourcing of administrative operations functions, audit and legal costs and expenses related to being a publicly traded company.

Depreciation and Amortization

Interest Expense

Interest expense reflects the interest paid under the 2020 Credit Agreement and the 2022 Credit Agreement, which may fluctuate over time.

Other Expense, Net

Other expense represents the expense associated with our equity security investment, along with the gains and losses from the related investments and foreign exchange fluctuations.

Results of Operations

Three Months Ended March 31, 2022 Compared to Three Months Ended March 31, 2021

Subscription-Based Revenue

Other Revenue

Spread-Based Expenses

General and Operating Expenses

Professional Fees

Depreciation and Amortization Expense

Interest Expense

Other Expense, net

Provision for (benefit from) Income Taxes

Net Income (Loss)

Net comprehensive income increased by $31.1 million, or 349.2%, from a net loss of $(8.9) million in the three months ended March 31, 2021 to net income of $22.2 million in the three months ended March 31, 2022.

Liquidity and Capital Resources

Liquidity

2020 Revolving Credit Facility

2022 Credit Agreement

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