AssetMark Financial Holdings, Inc. (NYSE: AMK) today announced
financial results for the quarter ended March 31, 2020.
First Quarter 2020 Financial and Operational
Highlights
- Net income for the quarter was $2.7 million, or $0.04 per
share.
- Adjusted net income for the quarter
was $17.7 million, or $0.24 per share, on total
revenue of $114.9 million.
- Adjusted EBITDA for the quarter was $28.4 million, or
24.7% of total revenue.
- Platform assets increased 12.7% year-over-year, but declined
9.1% quarter-over-quarter due to a negative $9.5 billion market
impact net of fees, partially offset by quarterly net flows of $1.8
billion and an addition of $2.1 billion from the acquisition of OBS
Financial, which closed in late February.
- Year-to-date annualized net flows as a percentage of
beginning-of-year platform assets were 11.9%.
- More than 14,400 new households and over 210 new producing
advisors joined the AssetMark platform during the first quarter. In
total, as of March 31, 2020 there were over 8,400 advisors (over
2,100 were engaged advisors) and nearly 177,000 investor households
on the AssetMark platform.
- We realized 23.3% annualized production lift from existing
advisors for the first quarter, indicating that advisors continued
to grow organically and increase wallet share on our platform.
“During these unprecedented times, our advisors need us more
than ever. I am incredibly proud of how our company has rallied in
the face of this crisis and worked 24/7 to ensure the safety and
well-being of each other, while also continuing to make a
difference in the lives of our advisors and their clients.” said
Charles Goldman, President and CEO. “We are providing advisors
reassurance, actionable takeaways and investor communication
support, while handling record call and trading volume. Our
platform, through a combination of compelling technology,
personalized services and curated investments is built to be able
to help advisors through these uncertain times. We have been so
inspired by stories from our advisors about how AssetMark is
helping them stay focused on running their business and helping
their investors stay focused on their goals.”
Goldman concluded, “Financially, record quarterly net flows of
$1.8 billion, and double digit year-over-year growth in revenue,
adjusted EBITDA and adjusted net income all demonstrated strong
performance in the first quarter of 2020. In the near term we are
reducing cost and capital spend while continuing to invest for the
long-term. AssetMark entered this crisis in a position of strength,
and we remain well capitalized with a resilient balance sheet, low
net debt ratio, strong cash flow generation and high
liquidity.”
First Quarter 2020 Key Operating Metrics
|
|
|
|
|
1Q20 |
1Q19 |
Variance per
year |
Operational metrics: |
|
|
|
Platform assets (at period-beginning) (millions of dollars) |
61,608 |
|
44,855 |
|
37.3 |
% |
Net flows (millions of dollars) |
1,834 |
|
1,409 |
|
30.1 |
% |
Market impact net of fees (millions of dollars) |
(9,477 |
) |
3,431 |
|
NM |
|
Acquisition impact (millions of dollars) |
2,060 |
|
0 |
|
NM |
|
Platform
assets (at period-end) (millions of dollars) |
56,025 |
|
49,695 |
|
12.7 |
% |
Net flows
lift (% of beginning of year platform assets) |
3.0 |
% |
3.1 |
% |
(10
bps) |
|
Advisors (at
period-end) |
8,477 |
|
7,615 |
|
11.3 |
% |
Engaged
advisors (at period-end) |
2,138 |
|
1,967 |
|
8.7 |
% |
Assets from
engaged advisors (at period-end) (millions of dollars) |
48,793 |
|
43,277 |
|
12.7 |
% |
Households
(at period-end) |
176,681 |
|
137,749 |
|
28.3 |
% |
New
producing advisors |
217 |
|
198 |
|
9.6 |
% |
Production
lift from existing advisors (annualized %) |
23.3 |
% |
24.0 |
% |
(70
bps) |
|
Assets in
custody at ATC (at period-end) (millions of dollars) |
38,770 |
|
35,558 |
|
9.0 |
% |
ATC client
cash (at period-end) (millions of dollars) |
2,991 |
|
1,411 |
|
112.0 |
% |
|
|
|
|
Financial metrics: |
|
|
|
Total
revenue (millions of dollars) |
115 |
|
92 |
|
24.5 |
% |
Net income
(millions of dollars) |
2.7 |
|
2.8 |
|
(2.7 |
%) |
Net income
margin (%) |
2.4 |
% |
3.0 |
% |
(60bps) |
|
Capital
expenditure (millions of dollars) |
6.5 |
|
4.7 |
|
38.2 |
% |
|
|
|
|
Non-GAAP financial metrics: |
|
|
|
Adjusted
EBITDA (millions of dollars) |
28.4 |
|
22.7 |
|
24.8 |
% |
Adjusted
EBITDA margin (%) |
24.7 |
% |
24.6 |
% |
10 bps |
|
Adjusted net
income (millions of dollars) |
17.7 |
|
12.7 |
|
39.2 |
% |
Note:
Percentage variance based on actual numbers, not rounded
results |
|
|
|
Webcast and Conference Call Information
AssetMark will host a live conference call and webcast to
discuss its first quarter 2020 results. In conjunction with this
earnings press release, AssetMark has posted an earnings
presentation on its investor relations website at
http://ir.assetmark.com. Conference call and webcast details are as
follows:
- Date: May 5, 2020
- Time: 2:00 p.m. PT; 5:00 p.m. ET
- Phone: 866-211-4156 (international dial-in: 647-689-6721);
password: 3440868
- Webcast: http://ir.assetmark.com. Please access the website 10
minutes prior to the start time. The webcast will be available in
recorded form at http://ir.assetmark.com for 14 days from May 5,
2020.
About AssetMark Financial Holdings, Inc.
AssetMark is a leading provider of extensive wealth management and
technology solutions that power independent financial advisors and
their clients. Through AssetMark, Inc., its investment advisor
subsidiary registered with the Securities and Exchange Commission,
AssetMark operates a platform that comprises fully integrated
technology, personalized and scalable service and curated
investment platform solutions designed to make a difference in the
lives of advisors and their clients. AssetMark had $56.0 billion in
platform assets as of March 31, 2020 and has a history of
innovation spanning more than 20 years.
Forward-Looking Statements
This press release contains forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of
1995, including statements regarding our future financial and
operating performance, which involve risks and uncertainties.
Actual results may differ materially from the results predicted,
and reported results should not be considered as an indication of
future performance. Forward-looking statements include all
statements that are not historical facts and can be identified by
terms such as “may,” “might,” “will,” “should,” “expects,” “plans,”
“anticipates,” “intends,” “believes,” “estimates,” “predicts,”
“potential” or “continue,” the negative of these terms and other
comparable terminology that conveys uncertainty of future events or
outcomes. These forward-looking statements involve known and
unknown risks, uncertainties, assumptions and other factors that
may cause actual results to differ materially from statements made
in this press release, including in relation to our ability to
attract and retain advisors, competition in the industry in which
we operate, the interest rate environment, shifting investor
preferences, our market share and the size of our addressable
market, our financial performance, investments in new products,
services and capabilities, our ability to execute strategic
transactions, legal and regulatory developments and general market,
political, economic and business conditions. Other potential risks
and uncertainties that could cause actual results to differ from
the results predicted include, among others, those risks and
uncertainties included under the captions “Risk Factors” and
“Management’s Discussion and Analysis of Financial Condition and
Results of Operations” in our prospectus dated July 17, 2019 filed
with the Securities and Exchange Commission pursuant to Rule 424(b)
under the Securities Act of 1933, as amended, and in our most
recent Annual Report on Form 10-K for the year ended December 31,
2019, which is on file with the Securities and Exchange Commission
and available on our investor relations website at
http://ir.assetmark.com. All information provided in this release
is based on information available to us as of the date of this
press release and any forward-looking statements contained herein
are based on assumptions that we believe are reasonable as of this
date. Undue reliance should not be placed on the forward-looking
statements in this press release, which are inherently uncertain.
We undertake no duty to update this information unless required by
law.
AssetMark Financial Holdings,
Inc.Condensed Consolidated Balance
Sheets(in thousands except share data and par value)
|
March 31,2020 |
|
|
December 31,2019 |
|
|
(unaudited) |
|
|
|
|
|
ASSETS |
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
Cash and cash equivalents |
$ |
80,161 |
|
|
$ |
96,341 |
|
Restricted cash |
|
8,500 |
|
|
|
9,000 |
|
Investments, at fair value |
|
6,888 |
|
|
|
7,275 |
|
Fees and other receivables |
|
12,199 |
|
|
|
9,679 |
|
Income tax receivable, net |
|
5,878 |
|
|
|
3,994 |
|
Other current assets |
|
12,135 |
|
|
|
6,565 |
|
Total current assets |
|
125,761 |
|
|
|
132,854 |
|
Property, plant and equipment, net |
|
7,207 |
|
|
|
7,067 |
|
Capitalized software, net |
|
69,372 |
|
|
|
69,814 |
|
Other intangible assets, net |
|
660,089 |
|
|
|
651,915 |
|
Operating lease right-of-use assets |
|
32,682 |
|
|
|
— |
|
Goodwill |
|
338,623 |
|
|
|
327,310 |
|
Total assets |
$ |
1,233,734 |
|
|
$ |
1,188,960 |
|
LIABILITIES AND
STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
Accounts payable |
$ |
600 |
|
|
$ |
967 |
|
Accrued liabilities and other current liabilities |
|
34,767 |
|
|
|
40,610 |
|
Total current liabilities |
|
35,367 |
|
|
|
41,577 |
|
Long-term debt, net |
|
121,770 |
|
|
|
121,692 |
|
Other long-term liabilities |
|
14,480 |
|
|
|
16,440 |
|
Long-term portion of operating lease liabilities |
|
36,608 |
|
|
|
— |
|
Deferred income tax liabilities, net |
|
150,724 |
|
|
|
150,390 |
|
Total long-term liabilities |
|
323,582 |
|
|
|
288,522 |
|
Total liabilities |
|
358,949 |
|
|
|
330,099 |
|
Commitments and
contingencies |
|
— |
|
|
|
— |
|
Stockholders’ equity: |
|
|
|
|
|
|
|
Common stock, $0.001 par value (675,000,000 shares authorized and
72,390,080 shares issued and outstanding as of March 31, 2020
and December 31, 2019) |
|
72 |
|
|
|
72 |
|
Additional paid-in capital |
|
809,594 |
|
|
|
796,406 |
|
Retained earnings |
|
65,119 |
|
|
|
62,383 |
|
Total stockholders’ equity |
|
874,785 |
|
|
|
858,861 |
|
Total liabilities and
stockholders’ equity |
$ |
1,233,734 |
|
|
$ |
1,188,960 |
|
|
|
|
|
|
|
|
|
AssetMark Financial Holdings,
Inc.Unaudited Condensed Consolidated Statements of
Income and Comprehensive Income(in thousands, except share
and per share data)
|
Three Months
EndedMarch 31, |
|
|
2020 |
|
|
2019 |
|
Revenue: |
|
|
|
|
|
|
|
Asset-based revenue |
$ |
105,650 |
|
|
$ |
83,063 |
|
Spread-based revenue |
|
7,951 |
|
|
|
7,549 |
|
Other revenue |
|
1,289 |
|
|
|
1,702 |
|
Total revenue |
|
114,890 |
|
|
|
92,314 |
|
Expenses: |
|
|
|
|
|
|
|
Asset-based expenses |
|
35,015 |
|
|
|
28,102 |
|
Spread-based expenses |
|
1,289 |
|
|
|
478 |
|
Employee compensation |
|
43,497 |
|
|
|
31,885 |
|
General and operating expenses |
|
19,365 |
|
|
|
12,292 |
|
Professional fees |
|
3,831 |
|
|
|
2,386 |
|
Depreciation and amortization |
|
8,409 |
|
|
|
6,896 |
|
Total expenses |
|
111,406 |
|
|
|
82,039 |
|
Interest expense |
|
1,627 |
|
|
|
4,024 |
|
Other expense |
|
50 |
|
|
|
— |
|
Income before income taxes |
|
1,807 |
|
|
|
6,251 |
|
Provision for (benefit from)
income taxes |
|
(929 |
) |
|
|
3,440 |
|
Net income |
|
2,736 |
|
|
|
2,811 |
|
Unrealized gain on investments,
net of tax |
|
— |
|
|
|
16 |
|
Net comprehensive income |
$ |
2,736 |
|
|
$ |
2,827 |
|
Net income per share attributable
to common shareholder: |
|
|
|
|
|
|
|
Net income per share, basic and diluted |
$ |
0.04 |
|
|
$ |
0.04 |
|
Weighted average number of common
shares outstanding, basic |
|
67,142,459 |
|
|
|
66,150,000 |
|
Weighted average number of common
shares outstanding, diluted |
|
69,317,261 |
|
|
|
66,150,000 |
|
|
|
|
|
|
|
|
|
AssetMark Financial Holdings,
Inc.Unaudited Condensed Consolidated Statements of
Cash Flows(in thousands)
|
Three Months Ended March 31, |
|
|
2020 |
|
|
2019 |
|
CASH FLOWS FROM OPERATING ACTIVITIES |
|
|
|
|
|
|
|
Net income |
$ |
2,736 |
|
|
$ |
2,811 |
|
Adjustments to reconcile net
earnings to net cash provided by operating activities: |
|
|
|
|
|
|
|
Depreciation and amortization |
|
8,409 |
|
|
|
6,896 |
|
Interest |
|
78 |
|
|
|
172 |
|
Deferred income taxes |
|
522 |
|
|
|
(132 |
) |
Share-based compensation |
|
13,188 |
|
|
|
5,226 |
|
Changes in certain assets and
liabilities: |
|
|
|
|
|
|
|
Fees and other receivables, net |
|
(1,835 |
) |
|
|
(3,755 |
) |
Other current assets |
|
944 |
|
|
|
(815 |
) |
Accounts payable, accrued expenses and other liabilities |
|
(12,909 |
) |
|
|
(10,694 |
) |
Income tax receivable and payable |
|
(1,884 |
) |
|
|
3,060 |
|
Net cash provided by operating
activities |
|
9,249 |
|
|
|
2,769 |
|
CASH FLOWS FROM INVESTING
ACTIVITIES |
|
|
|
|
|
|
|
Purchase of OBS, net of cash
received |
|
(18,404 |
) |
|
|
— |
|
Purchase of investments |
|
(1,014 |
) |
|
|
(308 |
) |
Purchase of property and
equipment |
|
(416 |
) |
|
|
(93 |
) |
Purchase of computer
software |
|
(6,095 |
) |
|
|
(4,619 |
) |
Net cash used in investing
activities |
|
(25,929 |
) |
|
|
(5,020 |
) |
CASH FLOWS FROM FINANCING
ACTIVITIES |
|
|
|
|
|
|
|
Payments on long-term debt |
|
— |
|
|
|
(625 |
) |
Net cash (used in) provided by
financing activities |
|
— |
|
|
|
(625 |
) |
Net change in cash, cash
equivalents, and restricted cash |
|
(16,680 |
) |
|
|
(2,876 |
) |
Cash, cash equivalents, and
restricted cash at beginning of period |
|
105,341 |
|
|
|
112,354 |
|
Cash, cash equivalents, and
restricted cash at end of period |
$ |
88,661 |
|
|
$ |
109,478 |
|
SUPPLEMENTAL CASH FLOW
INFORMATION |
|
|
|
|
|
|
|
Income taxes paid |
$ |
365 |
|
|
$ |
— |
|
Interest paid |
$ |
1,547 |
|
|
$ |
3,852 |
|
Non-cash operating
activities: |
|
|
|
|
|
— |
|
Non-cash changes to right-of-use assets |
$ |
38,495 |
|
|
$ |
— |
|
Non-cash changes to lease liabilities |
$ |
39,839 |
|
|
$ |
— |
|
Explanations and Reconciliations of Non-GAAP Financial
Measures
In addition to our results determined in accordance with U.S.
generally accepted accounting principles (“GAAP”), we believe
adjusted EBITDA, adjusted EBITDA margin and adjusted net income,
all of which are non-GAAP measures, are useful in evaluating our
performance. We use adjusted EBITDA, adjusted EBITDA margin and
adjusted net income to evaluate our ongoing operations and for
internal planning and forecasting purposes. We believe that such
non-GAAP financial information, when taken collectively, may be
helpful to investors because it provides consistency and
comparability with past financial performance. However, such
non-GAAP financial information is presented for supplemental
informational purposes only, has limitations as an analytical tool
and should not be considered in isolation or as a substitute for,
or superior to, financial information prepared and presented in
accordance with GAAP.
Other companies, including companies in our industry, may
calculate similarly titled non-GAAP measures differently or may use
other measures to evaluate their performance, all of which could
reduce the usefulness of our non-GAAP financial measures as tools
for comparison.
Investors are encouraged to review the related GAAP financial
measures and the reconciliation of these non-GAAP financial
measures to their most directly comparable GAAP financial measures
and not rely on any single financial measure to evaluate our
business.
Adjusted EBITDA and Adjusted EBITDA Margin
Adjusted EBITDA is defined as EBITDA (net income plus interest
expense, income tax expense, depreciation and amortization and less
interest income), further adjusted to exclude certain non-cash
charges and other adjustments set forth below. Adjusted EBITDA
margin is defined as adjusted EBITDA divided by total revenue.
Adjusted EBITDA and adjusted EBITDA margin are useful financial
metrics in assessing our operating performance from period to
period because they exclude certain items that we believe are not
representative of our core business, such as certain material
non-cash items and other adjustments such as share-based
compensation, strategic initiatives and reorganization and
integration costs. We believe that adjusted EBITDA and adjusted
EBITDA margin, viewed in addition to, and not in lieu of, our
reported GAAP results, provide useful information to investors
regarding our performance and overall results of operations for
various reasons, including:
- 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 refinancing, restructuring, litigation 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.
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;
- to evaluate the effectiveness of our business strategies;
- in communications with our board of directors concerning our
financial performance; and
- as considerations in determining compensation for certain
employees.
Adjusted EBITDA and adjusted EBITDA margin have limitations as
analytical tools, and should not be considered in isolation to, or
as substitutes for, analysis of our results as reported under GAAP.
Some of these limitations are:
- 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 on our debt or the cash requirements necessary to
service interest or principal payments; and
- 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.
Set forth below is a reconciliation from net income, the most
directly comparable GAAP financial measure, to adjusted EBITDA for
the three months ended March 31, 2020 and 2019 (unaudited).
|
|
Three Months Ended March 31, |
|
|
Three Months Ended March 31, |
|
(in thousands except for percentages) |
|
2020 |
|
|
2019 |
|
|
2020 |
|
|
2019 |
|
Net income |
|
$ |
2,736 |
|
|
$ |
2,811 |
|
|
|
2.4 |
% |
|
|
3.0 |
% |
Provision for (benefit from) income taxes |
|
|
(929 |
) |
|
|
3,440 |
|
|
|
(0.8 |
)% |
|
|
3.7 |
% |
Interest income |
|
|
(482 |
) |
|
|
(892 |
) |
|
|
(0.4 |
)% |
|
|
(1.0 |
)% |
Interest expense |
|
|
1,627 |
|
|
|
4,024 |
|
|
|
1.4 |
% |
|
|
4.4 |
% |
Amortization/depreciation |
|
|
8,409 |
|
|
|
6,896 |
|
|
|
7.3 |
% |
|
|
7.5 |
% |
EBITDA |
|
|
11,361 |
|
|
|
16,279 |
|
|
|
9.9 |
% |
|
|
17.6 |
% |
Share-based compensation(1) |
|
|
13,188 |
|
|
|
5,226 |
|
|
|
11.5 |
% |
|
|
5.7 |
% |
IPO readiness(2) |
|
|
— |
|
|
|
568 |
|
|
|
— |
|
|
|
0.6 |
% |
Reorganization and integration costs(3) |
|
|
103 |
|
|
|
657 |
|
|
|
0.1 |
% |
|
|
0.7 |
% |
Acquisition expenses(4) |
|
|
3,577 |
|
|
|
— |
|
|
|
3.1 |
% |
|
|
— |
|
Business continuity plan(5) |
|
|
96 |
|
|
|
— |
|
|
|
0.1 |
% |
|
|
— |
|
Unrealized loss in investments |
|
|
50 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Adjusted EBITDA |
|
$ |
28,375 |
|
|
$ |
22,730 |
|
|
|
24.7 |
% |
|
|
24.6 |
% |
(1) |
|
“Share-based compensation” represents granted share-based
compensation in the form of Class C Common Units (which are
incentive units) of AssetMark Holdings LLC, our former parent
company, and RSA, restricted stock unit and stock option 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) |
|
“IPO readiness” includes professional fees related to our
preparation for becoming a public company. These expenses primarily
include services for financial and human resources systems
implementation, executive compensation assessments and other
consulting services. These expenses are nonrecurring as they are
limited to our public-company readiness preparation and do not
include ongoing public-company compliance costs. |
(3) |
|
“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. |
(4) |
|
“Acquisition expenses” includes employee severance, transition
and retention expenses, duplicative general and administrative
expenses and other professional fees related to acquisitions. |
(5) |
|
“Business continuity plan” includes incremental compensation
and other costs that are directly related to operations while
transitioning to a remote workforce due to the COVID-19
pandemic. |
|
|
|
Set forth below is a summary of the adjustments involved in the
reconciliation from net income and net income margin, the most
directly comparable GAAP financial measures, to adjusted EBITDA and
adjusted EBITDA margin for the three months ended March 31, 2020
and 2019, broken out by compensation and non-compensation
expenses.
|
|
Three Months Ended March 31, 2020 |
|
|
Three Months Ended March 31, 2019 |
|
(in thousands) |
|
Compensation |
|
|
Non-Compensation |
|
|
Total |
|
|
Compensation |
|
|
Non-Compensation |
|
|
Total |
|
Share-based compensation(1) |
|
$ |
13,188 |
|
|
$ |
— |
|
|
$ |
13,188 |
|
|
$ |
5,226 |
|
|
$ |
— |
|
|
$ |
5,226 |
|
IPO readiness(2) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
568 |
|
|
|
568 |
|
Reorganization and integration
costs(3) |
|
|
105 |
|
|
|
(2 |
) |
|
|
103 |
|
|
|
562 |
|
|
|
95 |
|
|
|
657 |
|
Acquisition expenses(4) |
|
|
1,132 |
|
|
|
2,445 |
|
|
|
3,577 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Business continuity plan(5) |
|
|
96 |
|
|
|
— |
|
|
|
96 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Unrealized loss in
investments |
|
|
— |
|
|
|
50 |
|
|
|
50 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Total adjustments to adjusted
EBITDA |
|
$ |
14,521 |
|
|
$ |
2,493 |
|
|
$ |
17,014 |
|
|
$ |
5,788 |
|
|
$ |
663 |
|
|
$ |
6,451 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2020 |
|
|
Three Months Ended March 31, 2019 |
|
(in percentages) |
|
Compensation |
|
|
Non-Compensation |
|
|
Total |
|
|
Compensation |
|
|
Non-Compensation |
|
|
Total |
|
Share-based compensation(1) |
|
|
11.5 |
% |
|
|
— |
|
|
|
11.5 |
% |
|
|
5.7 |
% |
|
|
— |
|
|
|
5.7 |
% |
IPO readiness(2) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
0.6 |
% |
|
|
0.6 |
% |
Reorganization and integration
costs(3) |
|
|
0.1 |
% |
|
|
— |
|
|
|
0.1 |
% |
|
|
0.6 |
% |
|
|
0.1 |
% |
|
|
0.7 |
% |
Acquisition expenses(4) |
|
|
1.0 |
% |
|
|
2.1 |
% |
|
|
3.1 |
% |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Business continuity plan(5) |
|
|
0.1 |
% |
|
|
— |
|
|
|
0.1 |
% |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Unrealized loss in
investments |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Total adjustments to adjusted
EBITDA margin % |
|
|
12.7 |
% |
|
|
2.1 |
% |
|
|
14.8 |
% |
|
|
6.3 |
% |
|
|
0.7 |
% |
|
|
7.0 |
% |
(1) |
|
“Share-based compensation” represents granted share-based
compensation in the form of Class C Common Units (which are
incentive units) of AssetMark Holdings LLC, our former parent
company, and RSA, restricted stock unit and stock option 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) |
|
“IPO readiness” includes professional fees related to our
preparation for becoming a public company. These expenses primarily
include services for financial and human resources systems
implementation, executive compensation assessments and other
consulting services. These expenses are nonrecurring as they are
limited to our public-company readiness preparation and do not
include ongoing public-company compliance costs. |
(3) |
|
“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. |
(4) |
|
“Acquisition expenses” includes employee severance, transition
and retention expenses, duplicative general and administrative
expenses and other professional fees related to acquisitions. |
(5) |
|
“Business continuity plan” includes incremental compensation
and other costs that are directly related to operations while
transitioning to a remote workforce due to the COVID-19
pandemic. |
Adjusted Net Income
Adjusted net income represents net income before: (a)
share-based compensation expense, (b) amortization of
acquisition-related intangible assets, (c) acquisition and related
integration expenses, (d) restructuring and conversion costs and
(e) certain other expenses. Reconciled items are tax effected using
the income tax rates in effect for the applicable period, adjusted
for any potentially non-deductible amounts. We prepared adjusted
net income to eliminate the effects of items that we do not
consider indicative of our core operating performance. We have
historically not used adjusted net income for internal management
reporting and evaluation purposes; however, we believe that
adjusted net income, viewed in addition to, and not in lieu of, our
reported GAAP results, provides useful information to investors
regarding our performance and overall results of operations for
various reasons, includingthe following:
- 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;
- costs associated with acquisitions and related integrations,
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 expense 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 intangible assets and the method by which
assets were acquired; as such, the amortization of intangible
assets obtained in acquisitions is not considered a key measure of
our operating performance.
Adjusted net income does not purport to be an alternative to net
income or cash flows from operating activities. The term adjusted
net income is not defined under GAAP, and adjusted net income is
not a measure of net income, operating income or any other
performance or liquidity measure derived in accordance with GAAP.
Therefore, adjusted net income has limitations as an analytical
tool and should not be considered in isolation to, or as a
substitute for, analysis of our results as reported under GAAP.
Some of these limitations are:
- 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, 2020 and 2019 (unaudited).
|
|
Three Months Ended March 31, 2020 |
|
|
Three Months Ended March 31, 2019 |
|
(in thousands) |
|
Compensation |
|
|
Non-Compensation |
|
|
Total |
|
|
Compensation |
|
|
Non-Compensation |
|
|
Total |
|
Net income |
|
|
|
|
|
|
|
|
|
$ |
2,736 |
|
|
|
|
|
|
|
|
|
|
$ |
2,811 |
|
Acquisition-related amortization(1) |
|
$ |
— |
|
|
$ |
5,108 |
|
|
|
5,108 |
|
|
$ |
— |
|
|
$ |
5,108 |
|
|
|
5,108 |
|
Expense adjustments(2) |
|
|
1,332 |
|
|
|
2,443 |
|
|
|
3,775 |
|
|
|
562 |
|
|
|
663 |
|
|
|
1,225 |
|
Share-based compensation |
|
|
13,188 |
|
|
|
— |
|
|
|
13,188 |
|
|
|
5,226 |
|
|
|
— |
|
|
|
5,226 |
|
Unrealized loss in investments |
|
|
— |
|
|
|
50 |
|
|
|
50 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Tax effect of adjustments(3) |
|
|
(346 |
) |
|
|
(6,804 |
) |
|
|
(7,150 |
) |
|
|
(146 |
) |
|
|
(1,501 |
) |
|
|
(1,647 |
) |
Adjusted net income |
|
$ |
14,174 |
|
|
$ |
797 |
|
|
$ |
17,707 |
|
|
$ |
5,642 |
|
|
$ |
4,270 |
|
|
$ |
12,723 |
|
(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) Reflects the
tax impact of expense adjustments and acquisition-related
amortization.
Contacts Investors:Taylor J. Hamilton, CFAHead
of Investor RelationsInvestorRelations@assetmark.com
Media: Lexy SiegelGroup Gordon
lsiegel@groupgordon.com SOURCE: AssetMark Financial Holdings,
Inc.
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