CONCORD, Calif., Nov. 09, 2021 (GLOBE NEWSWIRE) -- AssetMark Financial Holdings, Inc. (NYSE: AMK) today announced financial results for the quarter ended September 30, 2021.
Third Quarter 2021 Financial and Operational Highlights
- Net income for the quarter was $12.3 million, or $0.17 per share.
- Adjusted net income for the quarter was $29.9 million, or $0.40 per share, on total revenue of $139.7 million.
- Adjusted EBITDA for the quarter was $44.8 million, or 32.0% of total revenue.
- Platform assets increased 29.1% year-over-year and 2.6% quarter-over-quarter to $86.8 billion, aided by quarterly record net flows of $2.8 billion and partially offset by a negative market impact net of fees of $0.6 billion. Year-to-date annualized net flows as a percentage of beginning-of-year platform assets were 12.5%.
- More than 6,500 new households and 201 new producing advisors joined the AssetMark platform during the third quarter. In total, as of September 30, 2021 there were over 8,500 advisors (approximately 2,750 were engaged advisors) and over 203,000 investor households on the AssetMark platform.
- We realized a 23.7% annualized production lift from existing advisors for the third quarter, indicating that advisors continued to grow organically and increase wallet share on our platform.
“This is another record-breaking quarter for AssetMark, underscoring the strength of our business and execution of our advisor-centric strategy,” said AssetMark CEO Natalie Wolfsen. “Net flows of $2.8 billion marked the third consecutive quarter of record organic growth. We also realized the company’s highest quarterly revenue, adjusted EBITDA, net income and EPS this quarter. While we are very happy with these results, our focus remains on the future and our commitment to delivering value to our advisors and our shareholders.”
Third Quarter 2021 Key Operating Metrics
| 3Q21 | 3Q20 | Variance per year | |
| Operational metrics: | |||
| Platform assets (at period-beginning) (millions of dollars) | 84,594 | 63,229 | 33.8% |
| Net flows (millions of dollars) | 2,830 | 1,209 | 134.1% |
| Market impact net of fees (millions of dollars) | (598) | 2,816 | NM |
| Acquisition impact (millions of dollars) | - | - | NM |
| Platform assets (at period-end) (millions of dollars) | 86,826 | 67,254 | 29.1% |
| Net flows lift (% of beginning of year platform assets) | 3.8% | 2.0% | 180 bps |
| Advisors (at period-end) | 8,552 | 8,473 | 0.9% |
| Engaged advisors (at period-end) | 2,749 | 2,398 | 14.6% |
| Assets from engaged advisors (at period-end) (millions of dollars) | 79,667 | 60,043 | 32.7% |
| Households (at period-end) | 203,004 | 182,683 | 11.1% |
| New producing advisors | 201 | 171 | 17.5% |
| Production lift from existing advisors (annualized %) | 23.7% | 18.7% | 26.6% |
| Assets in custody at ATC (at period-end) (millions of dollars) | 65,656 | 47,989 | 36.8% |
| ATC client cash (at period-end) (millions of dollars) | 2,611 | 2,656 | (1.7%) |
| Financial metrics: | |||
| Total revenue (millions of dollars) | 140 | 107 | 30.4% |
| Net income (loss) (millions of dollars) | 12.2 | 8.6 | 42.5% |
| Net income (loss) margin (%) | 8.8% | 8.0% | 80 bps |
| Capital expenditure (millions of dollars) | 9.3 | 8.3 | 11.3% |
| Non-GAAP financial metrics: | |||
| Adjusted EBITDA (millions of dollars) | 44.8 | 29.3 | 52.6% |
| Adjusted EBITDA margin (%) | 32.0% | 27.4% | 460 bps |
| Adjusted net income (millions of dollars) | 29.9 | 18.2 | 64.5% |
| Note: Percentage variance based on actual numbers, not rounded results |
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 third quarter 2021 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: November 9, 2021
- Time: 2:00 p.m. PT; 5:00 p.m. ET
- Phone: Listeners can pre-register for the conference call here: https://www.incommglobalevents.com/registration/q4inc/9023/assetmark-financial-holdings-inc-q3-2021-earnings-conference-call/. Upon registering, you will be provided with participant dial-in numbers, passcode and unique registrant ID. In the 10 minutes prior to the call start time, you may use the conference access information (dial in number, direct event passcode and registrant ID) provided in the confirmation email received at the point of registering to join the call directly.
- 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 November 9, 2021.
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 $86.8 billion in platform assets as of September 30, 2021 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,” “could,” “should,” “believes,” “estimates,” “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 our business strategies, our financial performance, investments in new products, services and capabilities and general market, 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 Quarterly Report on Form 10-Q for the quarter ended September 30, 2021. Additional information is also available in our Annual Report on Form 10-K for the year ended December 31, 2020, 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)
| September 30, 2021 | December 31, 2020 | |||||||
| (unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 50,448 | $ | 70,619 | ||||
| Restricted cash | 12,000 | 11,000 | ||||||
| Investments, at fair value | 13,872 | 10,577 | ||||||
| Fees and other receivables, net | 9,776 | 8,891 | ||||||
| Income tax receivable, net | 11,154 | 8,596 | ||||||
| Prepaid expenses and other current assets | 11,305 | 13,637 | ||||||
| Total current assets | 108,555 | 123,320 | ||||||
| Property, plant and equipment, net | 7,788 | 7,388 | ||||||
| Capitalized software, net | 71,994 | 68,835 | ||||||
| Other intangible assets, net | 706,623 | 655,736 | ||||||
| Operating lease right-of-use assets | 23,315 | 27,496 | ||||||
| Goodwill | 440,757 | 338,848 | ||||||
| Other assets | 2,145 | 1,965 | ||||||
| Total assets | $ | 1,361,177 | $ | 1,223,588 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 1,024 | $ | 2,199 | ||||
| Accrued liabilities and other current liabilities | 47,724 | 43,694 | ||||||
| Total current liabilities | 48,748 | 45,893 | ||||||
| Long-term debt, net | 115,000 | 75,000 | ||||||
| Other long-term liabilities | 17,190 | 16,302 | ||||||
| Long-term portion of operating lease liabilities | 29,288 | 31,820 | ||||||
| Deferred income tax liabilities, net | 159,475 | 149,500 | ||||||
| Total long-term liabilities | 320,953 | 272,622 | ||||||
| Total liabilities | 369,701 | 318,515 | ||||||
| Stockholders’ equity: | ||||||||
| Common stock, $0.001 par value (675,000,000 shares authorized and 73,548,557 and 72,459,255 shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively) | 74 | 72 | ||||||
| Additional paid-in capital | 923,511 | 850,430 | ||||||
| Retained earnings | 67,891 | 54,571 | ||||||
| Total stockholders’ equity | 991,476 | 905,073 | ||||||
| Total liabilities and stockholders’ equity | $ | 1,361,177 | $ | 1,223,588 | ||||
AssetMark Financial Holdings, Inc.
Unaudited Condensed Consolidated Statements of Income and Comprehensive Income
(in thousands, except share and per share data)
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Revenue: | ||||||||||||||||
| Asset-based revenue | $ | 134,152 | $ | 103,808 | $ | 374,655 | $ | 304,170 | ||||||||
| Subscription-based revenue | 3,172 | — | 3,172 | — | ||||||||||||
| Spread-based revenue | 1,235 | 2,628 | 6,513 | 14,128 | ||||||||||||
| Other revenue | 1,108 | 702 | 2,375 | 2,861 | ||||||||||||
| Total revenue | 139,667 | 107,138 | 386,715 | 321,159 | ||||||||||||
| Operating expenses: | ||||||||||||||||
| Asset-based expenses | 38,697 | 33,431 | 110,609 | 98,530 | ||||||||||||
| Spread-based expenses | (484 | ) | 436 | 1,060 | 2,158 | |||||||||||
| Employee compensation | 44,051 | 42,802 | 150,800 | 131,663 | ||||||||||||
| General and operating expenses | 18,794 | 15,947 | 52,599 | 48,695 | ||||||||||||
| Professional fees | 5,071 | 3,636 | 14,349 | 10,627 | ||||||||||||
| Depreciation and amortization | 10,648 | 8,670 | 29,849 | 25,826 | ||||||||||||
| Total operating expenses | 116,777 | 104,922 | 359,266 | 317,499 | ||||||||||||
| Interest expense | 1,061 | 1,344 | 2,606 | 4,445 | ||||||||||||
| Other income (expense), net | 119 | (15 | ) | 82 | (4 | ) | ||||||||||
| Income (loss) before income taxes | 21,710 | 887 | 24,761 | (781 | ) | |||||||||||
| Provision for (benefit from) income taxes | 9,460 | (7,710 | ) | 11,441 | (2,834 | ) | ||||||||||
| Net income | 12,250 | 8,597 | 13,320 | 2,053 | ||||||||||||
| Net comprehensive income | $ | 12,250 | $ | 8,597 | $ | 13,320 | $ | 2,053 | ||||||||
| Net income per share attributable to common stockholders: | ||||||||||||||||
| Basic | $ | 0.17 | $ | 0.13 | $ | 0.19 | $ | 0.03 | ||||||||
| Diluted | 0.17 | 0.12 | 0.19 | 0.03 | ||||||||||||
| Weighted average number of common shares outstanding, basic | 72,921,794 | 67,282,040 | 71,764,582 | 67,211,341 | ||||||||||||
| Weighted average number of common shares outstanding, diluted | 73,566,777 | 70,068,690 | 71,940,398 | 69,695,817 | ||||||||||||
AssetMark Financial Holdings, Inc.
Unaudited Condensed Consolidated Statements of Cash Flows
(in thousands)
| Nine Months Ended September 30, | ||||||||
| 2021 | 2020 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net income | $ | 13,320 | $ | 2,053 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
| Depreciation and amortization | 29,849 | 25,826 | ||||||
| Interest | 540 | 456 | ||||||
| Deferred income taxes | 226 | 593 | ||||||
| Share-based compensation | 48,079 | 40,041 | ||||||
| Impairment of right-of-use assets and property, plant, and equipment | — | 2,381 | ||||||
| Changes in certain assets and liabilities: | ||||||||
| Fees and other receivables, net | (594 | ) | 2,853 | |||||
| Receivables from related party | (91 | ) | (42 | ) | ||||
| Prepaid expenses and other current assets | 4,866 | 4,796 | ||||||
| Accounts payable, accrued liabilities and other current liabilities | 14 | (13,160 | ) | |||||
| Income tax receivable, net | (2,308 | ) | (11,398 | ) | ||||
| Net cash provided by operating activities | 93,901 | 54,399 | ||||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| Purchase of WBI OBS Financial, LLC, net of cash received | — | (18,561 | ) | |||||
| Purchase of Voyant, Inc., net of cash received | (124,236 | ) | — | |||||
| Purchase of investments | (2,435 | ) | (1,896 | ) | ||||
| Sale of investments | 173 | 12 | ||||||
| Purchase of property and equipment | (652 | ) | (2,288 | ) | ||||
| Purchase of computer software | (26,016 | ) | (18,750 | ) | ||||
| Net cash used in investing activities | (153,166 | ) | (41,483 | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Proceeds from credit facility draw down | 75,000 | — | ||||||
| Payments on credit facility | (35,000 | ) | — | |||||
| Proceeds from exercise of stock options | 94 | 187 | ||||||
| Net cash provided by financing activities | 40,094 | 187 | ||||||
| Net change in cash, cash equivalents, and restricted cash | (19,171 | ) | 13,103 | |||||
| Cash, cash equivalents, and restricted cash at beginning of period | 81,619 | 105,341 | ||||||
| Cash, cash equivalents, and restricted cash at end of period | $ | 62,448 | $ | 118,444 | ||||
| SUPPLEMENTAL CASH FLOW INFORMATION | ||||||||
| Income taxes paid | $ | 15,977 | $ | 8,807 | ||||
| Interest paid | 1,870 | 3,985 | ||||||
| Non-cash operating activities: | ||||||||
| Non-cash changes to right-of-use assets | (1,176 | ) | 38,734 | |||||
| Non-cash changes to lease liabilities | (1,176 | ) | 40,078 | |||||
| Common stock issued in acquisition of business | 24,910 | - | ||||||
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 and nine months ended September 30, 2021 and 2020 (unaudited).
| Three Months Ended September 30, | Three Months Ended September 30, | |||||||||||||||
| (in thousands except for percentages) | 2021 | 2020 | 2021 | 2020 | ||||||||||||
| Net income | $ | 12,250 | $ | 8,597 | 8.8 | % | 8.0 | % | ||||||||
| Provision for (benefit from) income taxes | 9,460 | (7,710 | ) | 6.8 | % | (7.2 | )% | |||||||||
| Interest income | (18 | ) | (111 | ) | — | (0.1 | )% | |||||||||
| Interest expense | 1,061 | 1,344 | 0.8 | % | 1.3 | % | ||||||||||
| Amortization/depreciation | 10,648 | 8,670 | 7.6 | % | 8.1 | % | ||||||||||
| EBITDA | 33,401 | 10,790 | 24.0 | % | 10.1 | % | ||||||||||
| Share-based compensation(1) | 7,974 | 12,919 | 5.7 | % | 12.1 | % | ||||||||||
| Reorganization and integration costs(2) | 2,315 | 101 | 1.7 | % | 0.1 | % | ||||||||||
| Acquisition expenses(3) | 948 | 3,014 | 0.7 | % | 2.8 | % | ||||||||||
| Business continuity plan(4) | 4 | 42 | — | — | ||||||||||||
| Office closures(5) | — | 2,479 | — | 2.3 | % | |||||||||||
| Unrealized loss (gain) in investments | 119 | (15 | ) | 0.1 | % | — | ||||||||||
| Adjusted EBITDA | $ | 44,761 | $ | 29,330 | 32.2 | % | 27.4 | % | ||||||||
| Nine Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| (in thousands except for percentages) | 2021 | 2020 | 2021 | 2020 | ||||||||||||
| Net income | $ | 13,320 | $ | 2,053 | 3.4 | % | 0.6 | % | ||||||||
| Provision for (benefit from) income taxes | 11,441 | (2,834 | ) | 3.0 | % | (0.9 | )% | |||||||||
| Interest income | (116 | ) | (842 | ) | — | (0.3 | )% | |||||||||
| Interest expense | 2,606 | 4,445 | 0.7 | % | 1.4 | % | ||||||||||
| Amortization/depreciation | 29,849 | 25,826 | 7.7 | % | 8.1 | % | ||||||||||
| EBITDA | 57,100 | 28,648 | 14.8 | % | 8.9 | % | ||||||||||
| Share-based compensation(1) | 48,079 | 40,041 | 12.4 | % | 12.5 | % | ||||||||||
| Reorganization and integration costs(2) | 8,094 | 248 | 2.1 | % | 0.1 | % | ||||||||||
| Acquisition expenses(3) | 5,236 | 10,239 | 1.4 | % | 3.2 | % | ||||||||||
| Business continuity plan(4) | 136 | 1,383 | — | 0.4 | % | |||||||||||
| Office closures(5) | 167 | 2,479 | — | 0.8 | % | |||||||||||
| Unrealized loss (gain) in investments | 82 | (4 | ) | — | — | |||||||||||
| Adjusted EBITDA | $ | 118,894 | $ | 83,034 | 30.7 | % | 25.9 | % | ||||||||
- “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, 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.
- “Reorganization and integration costs” includes costs related to the departure of our former chief executive officer in March 2021, 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.
- “Acquisition expenses” includes employee severance, transition and retention expenses, duplicative general and administrative expenses and other professional fees related to acquisitions.
- “Business continuity plan” includes incremental compensation and other costs that are directly related to operations while transitioning to a remote workforce and other costs due to the COVID-19 pandemic.
- “Office closures” represents one-time expenses related to closing facilities.
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 for the three and nine months ended September 30, 2021 and 2020, broken out by compensation and non-compensation expenses (unaudited).
| Three Months Ended September 30, 2021 | Three Months Ended September 30, 2020 | |||||||||||||||||||||||
| (in thousands) | Compensation | Non- Compensation | Total | Compensation | Non- Compensation | Total | ||||||||||||||||||
| Share-based compensation(1) | $ | 7,974 | $ | — | $ | 7,974 | $ | 12,919 | $ | — | $ | 12,919 | ||||||||||||
| Reorganization and integration costs(2) | 1,484 | 831 | 2,315 | 101 | — | 101 | ||||||||||||||||||
| Acquisition expenses(3) | 178 | 770 | 948 | 1,409 | 1,605 | 3,014 | ||||||||||||||||||
| Business continuity plan(4) | — | 4 | 4 | — | 42 | 42 | ||||||||||||||||||
| Office closures(5) | — | — | — | — | 2,479 | 2,479 | ||||||||||||||||||
| Unrealized loss (gain) in investments | — | 119 | 119 | — | (15 | ) | (15 | ) | ||||||||||||||||
| Total adjustments to adjusted EBITDA | $ | 9,636 | $ | 1,724 | $ | 11,360 | $ | 14,429 | $ | 4,111 | $ | 18,540 | ||||||||||||
| Three Months Ended September 30, 2021 | Three Months Ended September 30, 2020 | |||||||||||||||||||||||
| (in percentages) | Compensation | Non- Compensation | Total | Compensation | Non- Compensation | Total | ||||||||||||||||||
| Share-based compensation(1) | 5.7 | % | — | 5.7 | % | 12.1 | % | — | 12.1 | % | ||||||||||||||
| Reorganization and integration costs(2) | 1.1 | % | 0.6 | % | 1.7 | % | 0.1 | % | — | 0.1 | % | |||||||||||||
| Acquisition expenses(3) | 0.1 | % | 0.5 | % | 0.6 | % | 1.3 | % | 1.5 | % | 2.8 | % | ||||||||||||
| Business continuity plan(4) | — | — | — | — | — | — | ||||||||||||||||||
| Office closures(5) | — | — | — | — | 2.3 | % | 2.3 | % | ||||||||||||||||
| Unrealized loss (gain) in investments | — | — | — | — | — | — | ||||||||||||||||||
| Total adjustments to adjusted EBITDA margin % | 6.9 | % | 1.1 | % | 8.0 | % | 13.5 | % | 3.8 | % | 17.3 | % | ||||||||||||
| Nine Months Ended September 30, 2021 | Nine Months Ended September 30, 2020 | |||||||||||||||||||||||
| (in thousands) | Compensation | Non- Compensation | Total | Compensation | Non- Compensation | Total | ||||||||||||||||||
| Share-based compensation(1) | $ | 48,079 | $ | — | $ | 48,079 | $ | 40,041 | $ | — | $ | 40,041 | ||||||||||||
| Reorganization and integration costs(2) | 4,417 | 3,677 | 8,094 | 250 | (2 | ) | 248 | |||||||||||||||||
| Acquisition expenses(3) | 1,403 | 3,833 | 5,236 | 4,858 | 5,381 | 10,239 | ||||||||||||||||||
| Business continuity plan(4) | 12 | 124 | 136 | 1,082 | 301 | 1,383 | ||||||||||||||||||
| Office closures(5) | — | 167 | 167 | — | 2,479 | 2,479 | ||||||||||||||||||
| Unrealized loss (gain) in investments | — | 82 | 82 | — | (4 | ) | (4 | ) | ||||||||||||||||
| Total adjustments to adjusted EBITDA | $ | 53,911 | $ | 7,883 | $ | 61,794 | $ | 46,231 | $ | 8,155 | $ | 54,386 | ||||||||||||
| Nine Months Ended September 30, 2021 | Nine Months Ended September 30, 2020 | |||||||||||||||||||||||
| (in percentages) | Compensation | Non- Compensation | Total | Compensation | Non- Compensation | Total | ||||||||||||||||||
| Share-based compensation(1) | 12.4 | % | — | 12.4 | % | 12.5 | % | — | 12.5 | % | ||||||||||||||
| Reorganization and integration costs(2) | 1.1 | % | 1.0 | % | 2.1 | % | 0.1 | % | — | 0.1 | % | |||||||||||||
| Acquisition expenses(3) | 0.4 | % | 1.0 | % | 1.4 | % | 1.5 | % | 1.7 | % | 3.2 | % | ||||||||||||
| Business continuity plan(4) | — | — | — | 0.3 | % | 0.1 | % | 0.4 | % | |||||||||||||||
| Office closures(5) | — | — | — | — | 0.8 | % | 0.8 | % | ||||||||||||||||
| Unrealized loss (gain) in investments | — | — | — | — | — | — | ||||||||||||||||||
| Total adjustments to adjusted EBITDA margin % | 13.9 | % | 2.0 | % | 15.9 | % | 14.4 | % | 2.6 | % | 17.0 | % | ||||||||||||
- “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, 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.
- “Reorganization and integration costs” includes costs related to the departure of our former chief executive officer in March 2021, 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.
- “Acquisition expenses” includes employee severance, transition and retention expenses, duplicative general and administrative expenses and other professional fees related to acquisitions.
- “Business continuity plan” includes incremental compensation and other costs that are directly related to operations while transitioning to a remote workforce and other costs due to the COVID-19 pandemic.
- “Office closures” represents one-time expenses related to closing facilities.
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, including
the 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.
The schedule set forth below presents the Company’s GAAP results from the Condensed Consolidated Statements of Comprehensive Income (unaudited) for the three and nine months ended September 30, 2021 and 2020, with certain line items adjusted for the items described above. Included below is also a reconciliation from net income, the most directly comparable GAAP financial measure, to adjusted net income for the three and nine months ended September 30, 2021 and 2020 (unaudited).
Non-GAAP Presentation | Three months ended September 30, | Nine months ended September 30, | |||||||||||||
| (in thousands) | 2021 | 2020 | 2021 | 2020 | |||||||||||
| Revenue: | |||||||||||||||
| Asset-based revenue | $ | 134,152 | $ | 103,808 | $ | 374,655 | $ | 304,170 | |||||||
| Subscription-based revenue | 3,172 | — | 3,172 | — | |||||||||||
| Spread-based revenue | 1,235 | 2,628 | 6,513 | 14,128 | |||||||||||
| Other revenue | 1,108 | 702 | 2,375 | 2,861 | |||||||||||
| Total revenue | 139,667 | 107,138 | 386,715 | 321,159 | |||||||||||
| Adjusted operating expenses: | |||||||||||||||
| Asset-based expenses | 38,697 | 33,431 | 110,609 | 98,530 | |||||||||||
| Spread-based expenses | (484 | ) | 436 | 1,060 | 2,158 | ||||||||||
| Adjusted employee compensation (1) | 34,415 | 28,373 | 96,889 | 85,432 | |||||||||||
| Adjusted general and operating expenses (1) | 17,712 | 12,107 | 46,198 | 41,483 | |||||||||||
| Adjusted professional fees (1) | 4,548 | 3,350 | 12,949 | 9,680 | |||||||||||
| Adjusted depreciation and amortization (2) | 4,679 | 3,562 | 13,664 | 10,502 | |||||||||||
| Total adjusted operating expenses | 99,567 | 81,259 | 281,369 | 247,785 | |||||||||||
| Interest expense | 1,061 | 1,344 | 2,606 | 4,445 | |||||||||||
| Adjusted other expense, net (1) | — | — | — | — | |||||||||||
| Adjusted income before income taxes | 39,039 | 24,535 | 102,740 | 68,929 | |||||||||||
| Adjusted provision for income taxes (3) | 9,174 | 6,379 | 24,143 | 17,921 | |||||||||||
| Adjusted net income | $ | 29,865 | $ | 18,156 | $ | 78,597 | $ | 51,008 | |||||||
| Adjusted earnings per share | $ | 0.40 | $ | 0.25 | $ | 1.07 | $ | 0.70 | |||||||
| Adjusted number of common shares outstanding, diluted (4) | 74,687,043 | 72,798,865 | 73,680,825 | 72,633,854 | |||||||||||
| Adjusted EBITDA (5) | $ | 44,761 | $ | 29,330 | $ | 118,894 | $ | 83,034 | |||||||
- Consists of the adjustments to EBITDA listed in the adjusted EBITDA reconciliation table above.
- Relates to intangible assets established in connection with HTSC’s acquisition of our Company in 2016.
- Consists of the provision for income taxes under US GAAP and the estimated tax impact of expense adjustments and acquisition-related amortization.
- Consists of the outstanding shares at period-end and the full dilutive impact of unvested equity awards which includes restricted stock awards, restricted stock units, stock options and stock appreciation rights.
- 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 in the ‘Adjusted EBITDA and Adjusted EBITDA Margin’ section above.
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 September 30, 2021 and 2020 (unaudited).
| Reconciliation of Non-GAAP Presentation. | Three months ended September 30, 2021 | Three months ended September 30, 2020 | |||||||||||||||||||||
| (in thousands) | GAAP | Adjustments | Adjusted | GAAP | Adjustments | Adjusted | |||||||||||||||||
| Revenue: | |||||||||||||||||||||||
| Asset-based revenue | $ | 134,152 | $ | — | $ | 134,152 | $ | 103,808 | $ | — | $ | 103,808 | |||||||||||
| Subscription-based revenue | 3,172 | — | 3,172 | — | — | — | |||||||||||||||||
| Spread-based revenue | 1,235 | — | 1,235 | 2,628 | — | 2,628 | |||||||||||||||||
| Other revenue | 1,108 | — | 1,108 | 702 | — | 702 | |||||||||||||||||
| Total revenue | 139,667 | — | 139,667 | 107,138 | — | 107,138 | |||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||
| Asset-based expenses | 38,697 | — | 38,697 | 33,431 | — | 33,431 | |||||||||||||||||
| Spread-based expenses | (484 | ) | — | (484 | ) | 436 | — | 436 | |||||||||||||||
| Employee compensation (1) | 44,051 | (9,636 | ) | 34,415 | 42,802 | (14,429 | ) | 28,373 | |||||||||||||||
| General and operating expenses (1) | 18,794 | (1,082 | ) | 17,712 | 15,947 | (3,840 | ) | 12,107 | |||||||||||||||
| Professional fees (1) | 5,071 | (523 | ) | 4,548 | 3,636 | (286 | ) | 3,350 | |||||||||||||||
| Depreciation and amortization (2) | 10,648 | (5,969 | ) | 4,679 | 8,670 | (5,108 | ) | 3,562 | |||||||||||||||
| Total operating expenses | 116,777 | (17,210 | ) | 99,567 | 104,922 | (23,663 | ) | 81,259 | |||||||||||||||
| Interest expense | 1,061 | — | 1,061 | 1,344 | — | 1,344 | |||||||||||||||||
| Other income (expense), net (1) | 119 | (119 | ) | — | (15 | ) | 15 | — | |||||||||||||||
| Income before income taxes | 21,710 | 17,329 | 39,039 | 887 | 23,648 | 24,535 | |||||||||||||||||
| Provision for (benefit from) income taxes (3) | 9,460 | (286 | ) | 9,174 | (7,710 | ) | 14,089 | 6,379 | |||||||||||||||
| Net income | $ | 12,250 | $ | 29,865 | $ | 8,597 | $ | 18,156 | |||||||||||||||
- Consists of the adjustments to EBITDA listed in the adjusted EBITDA reconciliation table above.
- Relates to intangible assets established in connection with HTSC’s acquisition of our Company in 2016.
- Consists of the provision for income taxes under US GAAP and the estimated tax impact of expense adjustments and acquisition-related amortization.
| Reconciliation of Non-GAAP Presentation | Nine months ended September 30, 2021 | Nine months ended September 30, 2020 | |||||||||||||||||||||
| (in thousands) | GAAP | Adjustments | Adjusted | GAAP | Adjustments | Adjusted | |||||||||||||||||
| Revenue: | |||||||||||||||||||||||
| Asset-based revenue | $ | 374,655 | $ | — | $ | 374,655 | $ | 304,170 | $ | — | $ | 304,170 | |||||||||||
| Subscription-based revenue | 3,172 | — | 3,172 | — | — | — | |||||||||||||||||
| Spread-based revenue | 6,513 | — | 6,513 | 14,128 | — | 14,128 | |||||||||||||||||
| Other revenue | 2,375 | — | 2,375 | 2,861 | — | 2,861 | |||||||||||||||||
| Total revenue | 386,715 | — | 386,715 | 321,159 | — | 321,159 | |||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||
| Asset-based expenses | 110,609 | — | 110,609 | 98,530 | — | 98,530 | |||||||||||||||||
| Spread-based expenses | 1,060 | — | 1,060 | 2,158 | — | 2,158 | |||||||||||||||||
| Employee compensation (1) | 150,800 | (53,911 | ) | 96,889 | 131,663 | (46,231 | ) | 85,432 | |||||||||||||||
| General and operating expenses (1) | 52,599 | (6,401 | ) | 46,198 | 48,695 | (7,212 | ) | 41,483 | |||||||||||||||
| Professional fees (1) | 14,349 | (1,400 | ) | 12,949 | 10,627 | (947 | ) | 9,680 | |||||||||||||||
| Depreciation and amortization (2) | 29,849 | (16,185 | ) | 13,664 | 25,826 | (15,324 | ) | 10,502 | |||||||||||||||
| Total operating expenses | 359,266 | (77,897 | ) | 281,369 | 317,499 | (69,714 | ) | 247,785 | |||||||||||||||
| Interest expense | 2,606 | — | 2,606 | 4,445 | — | 4,445 | |||||||||||||||||
| Other income (expense), net (1) | 82 | (82 | ) | — | (4 | ) | 4 | — | |||||||||||||||
| Income (loss) before income taxes | 24,761 | 77,979 | 102,740 | (781 | ) | 69,710 | 68,929 | ||||||||||||||||
| Provision for (benefit from) income taxes (3) | 11,441 | 12,702 | 24,143 | (2,834 | ) | 20,755 | 17,921 | ||||||||||||||||
| Net income | $ | 13,320 | $ | 78,597 | $ | 2,053 | $ | 51,008 | |||||||||||||||
- Consists of the adjustments to EBITDA listed in the adjusted EBITDA reconciliation table above.
- Relates to intangible assets established in connection with HTSC’s acquisition of our Company in 2016.
- Consists of the provision for income taxes under US GAAP and the estimated tax impact of expense adjustments and acquisition-related amortization.
| Three Months Ended September 30, 2021 | Three Months Ended September 30, 2020 | |||||||||||||||||||||||
| (in thousands) | Compensation | Non- Compensation | Total | Compensation | Non- Compensation | Total | ||||||||||||||||||
| Net income | $ | 12,250 | $ | 8,597 | ||||||||||||||||||||
| Acquisition-related amortization(1) | $ | — | $ | 5,969 | 5,969 | $ | — | $ | 5,108 | 5,108 | ||||||||||||||
| Expense adjustments(2) | 1,662 | 1,605 | 3,267 | 1,510 | 4,126 | 5,636 | ||||||||||||||||||
| Share-based compensation | 7,974 | — | 7,974 | 12,919 | — | 12,919 | ||||||||||||||||||
| Other expenses | — | 119 | 119 | — | (15 | ) | (15 | ) | ||||||||||||||||
| Tax effect of adjustments(3) | (391 | ) | 677 | 286 | (393 | ) | (13,696 | ) | (14,089 | ) | ||||||||||||||
| Adjusted net income | $ | 9,245 | $ | 8,370 | $ | 29,865 | $ | 14,036 | $ | (4,477 | ) | $ | 18,156 | |||||||||||
| Nine Months Ended September 30, 2021 | Nine Months Ended September 30, 2020 | |||||||||||||||||||||||
| (in thousands) | Compensation | Non- Compensation | Total | Compensation | Non- Compensation | Total | ||||||||||||||||||
| Net income | $ | 13,320 | $ | 2,053 | ||||||||||||||||||||
| Acquisition-related amortization(1) | $ | — | $ | 16,185 | 16,185 | $ | — | $ | 15,324 | 15,324 | ||||||||||||||
| Expense adjustments(2) | 5,832 | 7,801 | 13,633 | 6,190 | 8,159 | 14,349 | ||||||||||||||||||
| Share-based compensation | 48,079 | — | 48,079 | 40,041 | — | 40,041 | ||||||||||||||||||
| Other expenses | — | 82 | 82 | — | (4 | ) | (4 | ) | ||||||||||||||||
| Tax effect of adjustments(3) | (1,371 | ) | (11,331 | ) | (12,702 | ) | (1,609 | ) | (19,146 | ) | (20,755 | ) | ||||||||||||
| Adjusted net income | $ | 52,540 | $ | 12,737 | $ | 78,597 | $ | 44,622 | $ | 4,333 | $ | 51,008 | ||||||||||||
- Relates to intangible assets established in connection with HTSC’s acquisition of our Company in 2016.
- Consists of the adjustments to EBITDA listed in the adjusted EBITDA reconciliation table above other than share-based compensation.
- Reflects the tax impact of expense adjustments and acquisition-related amortization.
Contacts
Investors:
Taylor J. Hamilton, CFA
Head of Investor Relations
InvestorRelations@assetmark.com
Media:
Alaina Kleinman
Head of PR & Communications
alaina.kleinman@assetmark.com
SOURCE: AssetMark Financial Holdings, Inc.
