AssetMark(AMK) - 2023 Q4 - Annual Report

FORM 10-K Cover Page This section presents the cover page for the Annual Report on Form 10-K Documents Incorporated by Reference Certain information for Item 5 of Part II and Part III of Form 10-K is incorporated by reference from the Registrant's 2024 Proxy Statement, to be filed within 120 days after December 31, 2023 - Information for Item 5 of Part II and Part III of Form 10-K is incorporated by reference from the 2024 Proxy Statement[2] - The Proxy Statement will be filed no later than 120 days after December 31, 2023[2] Special Note Regarding Forward-Looking Statements This section provides a disclaimer regarding forward-looking statements, emphasizing their predictive nature and inherent risks Forward-Looking Statements Disclaimer This section highlights that the Annual Report on Form 10-K contains forward-looking statements, which are predictions based on current expectations and projections, subject to risks, uncertainties, and assumptions detailed in 'Item 1A. Risk Factors'. The company is not obligated to update these statements - The report contains forward-looking statements, identifiable by words like 'may,' 'will,' 'expects,' 'plans,' 'anticipates,' 'intends,' 'believes,' 'estimates,' 'predicts,' 'potential,' or 'continue'[8] - These statements are predictions based on current expectations and projections, subject to risks, uncertainties, and assumptions, including those in 'Item 1A. Risk Factors'[8] - The company is under no duty to update these forward-looking statements, except as required by law[8] Summary of Risk Factors This section provides a high-level overview of the principal risks that could materially affect the company's business, financial condition, and results of operations Key Business Risks The company's business faces numerous risks, including revenue fluctuations due to competition, industry downturns, fee negotiations, and market conditions. Other significant risks involve fiduciary duties, reliance on key personnel, cybersecurity threats, AI utilization, regulatory compliance, and control by its PRC-based principal stockholder - Revenue may fluctuate due to intense competition, industry downturns, fee negotiations, and changes in market/economic conditions[10] - Risks include liability for fiduciary duty breaches, reliance on executive officers, data and cybersecurity threats, and potential liabilities from AI utilization[10] - The company is subject to extensive government regulation and its controlling stockholder's PRC affiliation may influence business decisions and expose it to PRC laws[10] PART I This part provides a comprehensive overview of the company's business, risk factors, properties, and legal proceedings Item 1. Business AssetMark offers a wealth management platform for independent financial advisers, providing integrated technology, investment solutions, and consultative services. The company has experienced rapid growth, with platform assets reaching $108.9 billion by December 31, 2023, serving approximately 9,300 adviser relationships. Its revenue model is largely recurring, composed of asset-based and spread-based fees, generating $708.5 million in total revenue in 2023 - AssetMark provides a wealth management platform with integrated technology, wealth solutions, and consultative services for independent financial advisers[12][13] Platform Asset Growth (2020-2023) | Metric | December 31, 2020 | December 31, 2023 | | :--------------- | :---------------- | :---------------- | | Platform Assets | $74.5 billion | $108.9 billion | | CAGR (2020-2023) | - | 13.5% | 2023 Revenue Breakdown | Revenue Type | Amount (Millions) | Percentage of Total Revenue | | :------------------ | :---------------- | :-------------------------- | | Asset-based revenue | $553.5 | 78.1% | | Spread-based revenue| $120.3 | 17.0% | | Total Revenue | $708.5 | - | Overview AssetMark's platform offers flexible, open-architecture technology, personalized adviser service, curated investment solutions, and financial planning tools. The company's growth is evidenced by a 13.5% CAGR in platform assets from 2020 to 2023, reaching $108.9 billion, serving 9,300 adviser relationships and over 254,000 investor households - AssetMark's platform provides integrated technology, personalized service, curated investment solutions, and financial planning tools[15][16][17][18] Platform Growth Metrics (2020-2023) | Metric | December 31, 2020 | December 31, 2023 | | :---------------------- | :---------------- | :---------------- | | Platform Assets | $74.5 billion | $108.9 billion | | CAGR (2020-2023) | - | 13.5% | | Adviser Relationships | - | ~9,300 | | Investor Households | - | >254,000 | 2023 Financial Performance | Metric | Amount (Millions) | | :----------------- | :---------------- | | Total Revenue | $708.5 | | Net Income | $123.1 | | Adjusted EBITDA | $249.5 | | Adjusted Net Income| $170.9 | Market Opportunity The U.S. wealth management industry is growing, with adviser-managed assets increasing by 6.2% over five years to $26.8 trillion by year-end 2022. Key trends include rising investor demand for advisory services, a continuous shift to fee-based models (55% of managed assets in 2022), and significant growth in the independent RIA channel, which is projected to control 32% of retail assets by 2027. Advisers are also increasingly adopting technology - U.S. wealth management industry is growing, with adviser-managed assets increasing 6.2% over the last five years to $26.8 trillion by year-end 2022[22] - Investor reliance on advisers grew to 43% of affluent investors in Q2 2023, up from 36% in Q2 2022[24] - Fee-based managed accounts constituted 55% of all adviser-managed assets at the end of 2022, growing at a 10-year CAGR of 11.9%[25] - The independent RIA channel grew 11% in firm count and 8.6% in headcount in 2022, projected to control 32% of retail assets by 2027[26] Our Strategic Offering and Business Model AssetMark's strategic offering focuses on empowering independent adviser growth through a fully integrated technology platform, personalized service and consulting, and compelling wealth solutions, including a new Tax Management Services offering launched in January 2024. The business model is characterized by steady asset growth (9% from existing clients, $18.6 billion from new advisers, $6.9 billion from acquisitions 2020-2023), a recurring and resilient revenue model (95.1% recurring in 2023), attractive margins from proprietary and third-party solutions, and significant operating leverage, with adjusted EBITDA margin expanding from 29.6% in 2021 to 35.2% in 2023 - AssetMark launched Tax Management Services in January 2024, offering tax transition, rebalancing, loss harvesting, and client-directed activity[39] - The company invested over $228.2 million in technology development and its team from 2021-2023, launching the AssetMark Mobile App in 2023[31][32] Asset Growth Drivers (2020-2023) | Driver | Growth (2020-2023) | | :---------------------- | :----------------- | | Existing Clients | ~9% | | New Advisers | $18.6 billion | | Acquisitions | $6.9 billion | Revenue Model and Margin Profile (2023) | Metric | Value | | :-------------------------- | :-------- | | Recurring Revenue | 95.1% | | Asset-based Revenue | 78.1% | | Spread-based Revenue | 17.0% | | Adjusted EBITDA Margin (2023)| 35.2% | | Adjusted EBITDA Margin (2021)| 29.6% | Our Strengths AssetMark's competitive advantages stem from its client-focused culture, deep understanding of fee-based independent advisers, proven ability to deliver superior outsourced solutions via leading technology, and significant scale. The company also demonstrates a disciplined acquisition strategy, having added $6.9 billion in platform assets through acquisitions from 2019-2022, including Voyant and Adhesion Wealth - Strengths include a mission-driven, client-focused culture, deep understanding of fee-based independent advisers, and proven ability to execute superior outsource solutions[47][48][49] - AssetMark is a scale provider, enabling favorable partnerships and attractive pricing, and consistently invests in its core offering[50] - The company is a disciplined acquirer, adding $6.9 billion in platform assets through acquisitions from 2019-2022, including Voyant (SaaS financial planning) and Adhesion Wealth (wealth management technology)[51][52] Competition AssetMark operates in an intensely competitive wealth management industry, competing with turnkey asset management platforms, independent broker-dealer proprietary platforms, specific service application providers, and adviser-built in-house solutions. Competition is based on technological capabilities, consulting and back-office servicing, and investment solutions, with anticipated increased competition and fee pressure - AssetMark competes with turnkey asset management platforms, independent broker-dealer proprietary wealth platforms, specific service application providers, and adviser-built solutions[54] - Key competitive factors are technological capabilities, consulting and back-office servicing, and investment solutions[53] - The company anticipates increased competition and fee pressure but expects its platform, service, and solutions to drive revenue expansion[55] Human Capital As of December 31, 2023, AssetMark had 990 employees, operating under a hybrid work model. The company focuses on attracting, retaining, and motivating talent through equity incentive plans, health and wellness stipends, and technology reimbursements. Employee engagement is measured annually, and Diversity, Equity & Inclusion initiatives, such as 'Respect at AssetMark,' aim to bring diverse talent into financial services and develop existing employees - As of December 31, 2023, AssetMark had 990 employees and operates with a hybrid work model[56][57] - The company uses equity incentive plans, health/wellness stipends, and technology reimbursements to attract, retain, and motivate employees[56] - Diversity by gender was 56% male and 44% female; underrepresented minorities constituted 20% of the employee population as of December 31, 2023[60] Corporate Social Responsibility AssetMark is committed to corporate social responsibility, operating ethically and transparently. In May 2023, it released its 2022 Environmental, Social and Governance Report, highlighting sustainability initiatives and practices, aiming to create long-term value for stakeholders and improve community health - AssetMark released its 2022 Environmental, Social and Governance Report in May 2023, prepared in accordance with Sustainability Accounting Standards Board[61] - The company's mission is to make a difference for advisers and clients, aiming to create long-term value and improve community health[61][62] Information About Our Executive Officers This section lists AssetMark's executive officers as of March 14, 2024, including Michael Kim (CEO, President, Director), Gary Zyla (EVP, CFO), Ted Angus (EVP, General Counsel), Carrie Hansen (EVP, COO), David McNatt (EVP, Investment Solutions), Mukesh Mehta (EVP, CIO), and Esi Minta-Jacobs (EVP, Human Resources and Digital Product Solutions), along with their ages and brief professional backgrounds AssetMark Executive Officers (as of March 14, 2024) | Name | Age | Position | | :--------------- | :-- | :--------------------------------------------- | | Michael Kim | 54 | Chief Executive Officer, President and Director| | Gary Zyla | 52 | EVP, Chief Financial Officer | | Ted Angus | 53 | EVP, General Counsel | | Carrie Hansen | 53 | EVP, Chief Operating Officer | | David McNatt | 49 | EVP, Investment Solutions | | Mukesh Mehta | 57 | EVP, Chief Information Officer | | Esi Minta-Jacobs | 51 | EVP, Human Resources and Digital Product Solutions| - Michael Kim became CEO in September 2023 and President in March 2021, having joined the company in 2010[64] - Gary Zyla has served as CFO since 2011, and Carrie Hansen as COO since 2008[65][67] Available Information AssetMark makes its annual, quarterly, and current reports, along with amendments, available free of charge on its corporate website (ir.assetmark.com) as soon as practicable after filing with the SEC. The SEC's website (www.sec.gov) also hosts these materials - Annual, quarterly, and current reports (10-K, 10-Q, 8-K) are available free on ir.assetmark.com[72] - Information on the company's website is not incorporated by reference into the 10-K[72] - SEC filings are also available on www.sec.gov[72](index=72&type=chunk) Item 1A. Risk Factors This section details a comprehensive list of risks, categorized into business and operational, intellectual property/data privacy/cybersecurity, controlling stockholder's PRC ties, regulation and litigation, and common stock ownership. Key risks include revenue volatility, intense competition, market downturns, operational failures, acquisition integration challenges, cybersecurity threats, and regulatory compliance burdens. The company's controlling stockholder's PRC background introduces additional regulatory and geopolitical risks, while common stock ownership faces volatility and control concentration issues - Revenue is subject to fluctuations from market conditions, interest rates, fee pressures, and client behavior[74][75][81][83] - The company faces intense competition, risks from operational errors, challenges in integrating acquisitions, and potential liability from fiduciary duty breaches[77][87][89][92] - Significant risks include data and cybersecurity breaches, non-compliance with evolving data privacy regulations (e.g., CCPA, CPRA, GDPR), and intellectual property infringement[126][132][146] - Control by a PRC-based ultimate parent company (HTSC) introduces risks related to PRC regulatory supervision, stock exchange approval requirements, CFIUS review, and U.S.-PRC geopolitical relations[153][157][160][161] - Extensive government regulation in the financial services industry, potential changes in laws, internal control weaknesses, and litigation (including a recent SEC settlement) pose significant compliance and financial risks[162][170][174][177] Risks Related to Our Business and Operations Business and operational risks include revenue volatility due to market conditions, competition, and client fee negotiations. The company relies on introducing new solutions, faces operational error liabilities, and challenges in integrating acquisitions. Dependence on key personnel, third-party providers, and computer systems, along with potential reputational harm and liquidity issues, are also significant concerns. Debt obligations and restrictions in credit agreements further impact financial flexibility - Revenue may fluctuate due to financial market asset value changes, interest rate shifts, and client preferences for lower-fee products[74][75][81][83] - The company operates in an intensely competitive industry, with risks from competitors having greater resources or offering alternative solutions like 'robo' advisers[77][78] - Acquisitions, such as Adhesion Wealth, pose integration difficulties, diversion of management resources, and potential unanticipated costs or dilution[89][90][91] - Reliance on executive officers and key personnel means loss of talent could materially affect operations[108] - Lack of liquidity or access to capital could impair business, and restrictions in debt agreements (2022 Credit Agreement) limit growth and certain activities[114][119] Risks Related to Intellectual Property, Data Privacy and Cybersecurity AssetMark faces substantial risks related to data privacy and cybersecurity, including potential liability for disclosing personal information, data breaches, and service interruptions. The company must comply with evolving data protection regulations (e.g., CCPA, CPRA, GDPR) and industry standards, which are complex and costly. Intellectual property risks include infringement claims, inadequate confidentiality agreements, and challenges from using open-source code. The integration of AI also introduces new liabilities, biases, and regulatory uncertainties - The company stores extensive personal investment and financial information, exposing it to liability for inappropriate disclosure or third-party breaches[123] - Cybersecurity risks include data breaches, service interruptions, reputational harm, and costly litigation, heightened by remote work and sophisticated attacks[126][128] - Compliance with rapidly evolving data protection laws (e.g., CCPA, CPRA, GDPR) is complex, costly, and subject to uncertainty, with significant fines for non-compliance[132][135][141] - Risks to intellectual property include infringement by third parties, potential infringement by the company, and inadequate protection of trade secrets[146][149] - Utilization of AI introduces risks such as reliance on complex algorithms, potential biases, cybersecurity threats, and rapidly evolving regulatory frameworks[152] Risks Related to Our Controlling Stockholder's Ultimate Parent Being a PRC Company with Stock Listed in Hong Kong and Shanghai AssetMark's controlling stockholder, HTSC, being a PRC company, subjects AssetMark to indirect influence from PRC laws and regulations, which may affect corporate decisions and require approvals for certain actions (e.g., debt issuances, investments). HTSC's listing on Hong Kong and Shanghai stock exchanges also imposes disclosure and shareholder approval requirements for AssetMark's major transactions. Additionally, CFIUS review for acquisitions and potential changes in U.S.-PRC relations could adversely impact business, capital raising, and stock price - HTSC's PRC affiliation means AssetMark's controlling stockholder must comply with PRC laws, potentially influencing AssetMark's business and requiring approvals for corporate actions[153][156] - HTSC's listing on Shanghai and Hong Kong stock exchanges mandates board/shareholder approval for certain major transactions by AssetMark, potentially restricting its ability to engage in such activities[157][158] - CFIUS review may modify, delay, or prevent future acquisitions or investments due to AssetMark being deemed a 'foreign person' while HTSC retains material ownership[160] - Changes in U.S.-PRC relations could negatively impact AssetMark's operations, ability to raise capital, and stock price, affecting client sentiment[161] Risks Related to Regulation and Litigation AssetMark operates in a highly regulated financial services industry, subject to extensive government regulations from the SEC, CFTC, and state authorities. Non-compliance or changes in laws could severely impact operations. The company faces litigation and regulatory enforcement risks, including a recent $18.3 million SEC settlement for disclosure practices. Maintaining effective internal controls is critical, and failures could harm investor confidence. Compliance with ERISA and Internal Revenue Code regulations is also essential to avoid penalties - AssetMark is subject to extensive government regulation (Advisers Act, 1940 Act, CEA, FINRA, Bank Secrecy Act, OFAC), with non-compliance risking fines, sanctions, or revocation of registrations[162][163][164][165][168][169] - Changes in laws or regulations, such as proposed SEC rules on outsourcing and client asset safeguarding, could increase compliance costs and affect business models[170][172] - Failure to maintain effective internal controls could adversely affect financial reporting accuracy and investor confidence, especially as the company loses 'emerging growth company' status[174][175] - The company faces substantial litigation and regulatory enforcement risks, including a $9.5 million civil penalty and $8.8 million disgorgement/prejudgment interest from a September 2023 SEC settlement[177][518] - Proper disclosure and mitigation of conflicts of interest are crucial to avoid reputational damage, litigation, or regulatory penalties[178] Risks Related to Ownership of Our Common Stock The market price of AssetMark's common stock may be highly volatile due to various factors, including market conditions, financial results, and regulatory developments. The limited public float increases volatility, and future sales of substantial shares by the controlling stockholder (HTSC) or employees could depress the stock price. As a 'controlled company,' AssetMark relies on exemptions from certain NYSE corporate governance requirements, potentially reducing protections for other stockholders. The company's 'emerging growth company' status provides reduced disclosure requirements, but its eventual loss will increase compliance costs. Provisions in Delaware law and the company's Certificate of Incorporation may also deter third-party acquisitions - The market price of common stock may be highly volatile due to market conditions, financial results, new products, analyst reports, and regulatory developments[182] - Future sales of a substantial number of shares, particularly by the controlling stockholder HIIHL (68.9% voting interest as of Dec 31, 2023), could depress the market price[185][186][188] - As a 'controlled company,' AssetMark relies on NYSE exemptions from certain corporate governance requirements, which may reduce protections for other stockholders[189] - The company's 'emerging growth company' status provides reduced disclosure requirements, but losing this status in 2024 will lead to increased expenses and management effort for compliance[191][194] - Provisions in Delaware law and the company's Certificate of Incorporation and bylaws may deter third-party acquisitions and limit stockholders' ability to choose judicial forums[196][198][199] General Risk Factors General risks include the potential for inadequate or expensive insurance coverage, which could negatively impact financial condition and reputation. Additionally, a lack of research or adverse recommendations from securities analysts could lead to a decline in stock price and trading volume - Insurance coverage may be inadequate or become more expensive, potentially harming financial condition and reputation[202] - Stock price and trading volume could decline if securities analysts cease coverage or issue adverse recommendations[203] Item 1B. Unresolved Staff Comments There are no unresolved staff comments from the SEC - No unresolved staff comments[204] Item 1C. Cybersecurity AssetMark integrates cybersecurity risk management into its enterprise risk program, following industry best practices for identifying, monitoring, assessing, and responding to threats. The Audit and Risk Committee oversees the program, supported by a Chief Information Security Officer (CISO) and specialized committees. Employee training and an Information Security Program are in place, but control over third-party vendor security remains limited. No material cybersecurity threats or incidents were identified in 2023 - Cybersecurity risk management is an integral part of AssetMark's enterprise risk management program, following industry best practices[204] - The Audit and Risk Committee oversees the cybersecurity program, with management by the CISO, General Counsel, and CIO[205] - The company conducts risk assessments, system enhancements, and employee training, and has an Information Security Program[206] - No cybersecurity threats or incidents materially affected business strategy, operations, or financial condition in 2023[207] Item 2. Properties AssetMark's headquarters are in Concord, California, comprising approximately 96,944 square feet with a lease expiring on August 31, 2028. The company also leases an additional 105,442 square feet of office space across Phoenix, Chicago, Encino, Atlanta, Austin, and Charlotte, deeming current facilities adequate for immediate needs - Headquarters in Concord, California, consist of 96,944 sq ft leased space, with the lease expiring August 31, 2028[208] - Additional 105,442 sq ft of office space leased in Phoenix, Chicago, Encino, Atlanta, Austin, and Charlotte[208] Item 3. Legal Proceedings AssetMark is routinely involved in legal proceedings and regulatory matters. In September 2023, the company settled with the SEC regarding disclosure practices, paying a civil penalty of $9.5 million and disgorgement/prejudgment interest of $8.8 million, which will be distributed to impacted customers - AssetMark is involved in various legal proceedings, litigation, and regulatory matters in the normal course of business[209] - In September 2023, the company reached a settlement with the SEC concerning disclosure practices[210] SEC Settlement Details (September 2023) | Item | Amount (Millions) | | :--------------------------------- | :---------------- | | Civil Penalty | $9.5 | | Disgorgement & Prejudgment Interest| $8.8 | | Total | $18.3 | Item 4. Mine Safety Disclosures This item is not applicable to AssetMark Financial Holdings, Inc - Not applicable[211] PART II This part covers market information, equity matters, management's discussion and analysis, and financial statements Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities AssetMark's common stock has been listed on the NYSE under 'AMK' since July 18, 2019. As of February 29, 2024, there were 43 record holders. The company currently intends to retain all earnings and does not anticipate paying dividends in the foreseeable future, with future dividend decisions at the board's discretion and subject to debt agreement limitations. Stock performance is compared against the Russell 2000 Index and Dow Jones U.S. Financials Index - Common stock listed on NYSE under 'AMK' since July 18, 2019[212] - As of February 29, 2024, there were 43 holders of record[213] - The company intends to retain all available funds and future earnings, not anticipating dividends in the foreseeable future[214] Cumulative Total Stockholder Return (July 2019 - Dec 2023) | Date | AssetMark | Russell 2000 Index | Dow Jones U.S. Financials Index | | :----------- | :-------- | :----------------- | :------------------------------ | | 7/18/2019 | $100.00 | 100.00 | $100.00 | | 12/31/2020 | $89.50 | 126.95 | $104.46 | | 12/31/2021 | $96.93 | 144.34 | $135.55 | | 12/30/2022 | $85.06 | 113.22 | $114.42 | | 12/29/2023 | $110.76 | 130.31 | $129.61 | Market Information for Common Stock AssetMark's common stock has been listed on the NYSE under the symbol 'AMK' since July 18, 2019, with no prior public trading market - Common stock listed on NYSE under 'AMK' since July 18, 2019[212] Holders As of February 29, 2024, AssetMark had 43 holders of record for its common stock, noting that the actual number of stockholders is higher due to beneficial ownership - As of February 29, 2024, there were 43 holders of record of common stock[213] Dividend Policy AssetMark currently plans to retain all funds and future earnings for business operations and does not anticipate paying dividends in the foreseeable future. Future dividend decisions will be made by the board, considering earnings, cash flow, financial position, debt restrictions, and capital requirements - Company intends to retain all available funds and future earnings for business operations[214] - No dividends on common stock are anticipated in the foreseeable future[214] - Future dividend determinations are at the board's discretion, considering financial performance and debt agreement limitations[214] Securities Authorized for Issuance Under Equity Compensation Plans Information regarding securities authorized for issuance under equity compensation plans is incorporated by reference from the definitive Proxy Statement for the 2024 Annual Meeting of Stockholders - Information is incorporated by reference from the 2024 Proxy Statement[215] Stock Performance Graph A performance graph compares the cumulative total stockholder return of AssetMark's common stock against the Russell 2000 Index and Dow Jones U.S. Financials Index, assuming a $100 investment on July 18, 2019. Historical data is not indicative of future performance - Graph compares AssetMark's common stock return to Russell 2000 Index and Dow Jones U.S. Financials Index[216] - Assumes $100 invested on July 18, 2019, with dividends reinvested for indices[216] - Historical data is not indicative of future performance[218] Unregistered Sales of Equity Securities There were no unregistered sales of equity securities by the company - None[220] Purchases of Equity Securities by the Issuer and Affiliated Purchasers There were no purchases of equity securities by the issuer or affiliated purchasers - None[220] Item 6. [Reserved] This item is reserved and not applicable - Not applicable[220] Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides an overview of AssetMark's financial performance and operational highlights for the fiscal year ended December 31, 2023. The company achieved significant revenue and net income growth, driven by increased platform assets and higher interest rates. Key factors affecting performance include adviser base expansion, technology investments, and strategic acquisitions. The discussion also details key operating metrics, revenue and expense components, and liquidity and capital resources, including debt agreements and cash flow analysis Financial Highlights (2023 vs. 2022) | Metric | 2023 (Millions) | 2022 (Millions) | Change (Millions) | % Change | | :----------------- | :-------------- | :-------------- | :---------------- | :------- | | Total Revenue | $708.5 | $611.7 | $96.8 | 15.8% | | Net Income | $123.1 | $103.3 | $19.8 | 19.2% | | Adjusted EBITDA | $249.5 | $199.7 | $49.8 | 24.9% | | Adjusted Net Income| $170.9 | $130.5 | $40.4 | 30.9% | Asset and Adviser Growth Trends (2023 vs. 2022) | Metric | Dec 31, 2023 | Dec 31, 2022 | % Change | | :---------------------- | :----------- | :----------- | :------- | | Platform Assets | $108.9 billion | $91.5 billion | 19.1% | | Engaged Advisers | 3,123 | 2,882 | 8.4% | - Key factors affecting performance include expansion of existing adviser base, attracting new advisers, technology development, investments in growth, competition, value of platform assets, and acquisitions[229][230][231][232][233][234][235] Overview AssetMark provides a wealth management platform for independent financial advisers, offering solutions to enhance productivity and client satisfaction. The open-architecture platform delivers flexibility and choice, supporting advisers with end-to-end or modular solutions. The company's mission is to empower independent advisers to achieve entrepreneurial success and financial wellness for their clients - AssetMark offers a wealth management platform for independent financial advisers, providing services and capabilities to enhance productivity and client satisfaction[223] - The platform offers open architecture, flexibility, and choice, with both end-to-end and modular solutions[223] - The company's mission is to serve independent advisers with growth-enabling outsourced solutions[224] Business Highlights In 2023, AssetMark launched the pilot phase of tax management services (TMS) and the Kensington Managed Income strategy, which attracted nearly a quarter billion in assets. Significant technology enhancements were made to eWealthManager, including an innovative Advisor Dashboard - Launched pilot of tax management services (TMS) in Q3 2023[225] - Launched Kensington Managed Income strategy in October 2023, gathering close to a quarter billion in assets from over 650 advisers[225] - Enhanced eWealthManager with an innovative Advisor Dashboard in 2023[225] Financial Highlights AssetMark reported total revenue of $708.5 million in 2023, a 15.8% increase from 2022. Net income grew by 19.2% to $123.1 million, or $1.66 per share. Adjusted EBITDA increased by 24.9% to $249.5 million, and adjusted net income rose to $170.9 million Financial Highlights (2023 vs. 2022) | Metric | 2023 (Millions) | 2022 (Millions) | % Change | | :----------------- | :-------------- | :-------------- | :------- | | Total Revenue | $708.5 | $611.7 | 15.8% | | Net Income | $123.1 | $103.3 | 19.2% | | Net Income per share| $1.66 | $1.40 | 18.6% | | Adjusted EBITDA | $249.5 | $199.7 | 24.9% | | Adjusted Net Income| $170.9 | $130.5 | 30.9% | Asset and Adviser Growth Trends As of December 31, 2023, AssetMark's platform assets reached $108.9 billion, a 19.1% increase from 2022. The number of engaged advisers grew by 8.4% to 3,123, indicating continued expansion of its client base Asset and Adviser Growth (2023 vs. 2022) | Metric | Dec 31, 2023 | Dec 31, 2022 | % Change | | :---------------------- | :----------- | :----------- | :------- | | Platform Assets | $108.9 billion | $91.5 billion | 19.1% | | Engaged Advisers | 3,123 | 2,882 | 8.4% | Key Factors Affecting Our Performance AssetMark's performance is influenced by its ability to expand its existing financial adviser base and attract new ones, capitalizing on the growth of independent RIAs. Continuous investment in technology development and overall business growth, alongside managing competition and fluctuations in platform asset values due to market and interest rate changes, are critical. Strategic acquisitions also play a significant role in asset and revenue growth - Performance depends on expanding existing adviser relationships and attracting new financial advisers, leveraging the growth of the independent RIA channel[229][230] - Ongoing investments in technology development ($228.2 million from 2021-2023) and overall business growth are crucial for long-term revenue expansion[231][232] - Revenue is heavily influenced by the value of platform assets, which fluctuates with general economic conditions, market performance, and interest rates[234] - Strategic acquisitions, such as Voyant (2021) and Adhesion Wealth (2022), added $6.9 billion in platform assets and are expected to enhance scale and capabilities[235] Key Operating Metrics AssetMark uses various operational and financial metrics to measure performance, including platform assets, net flows, adviser counts, and households. Financial metrics include total revenue, net income, and capital expenditure. Non-GAAP metrics like Adjusted EBITDA and Adjusted Net Income are also used to assess core operating performance by excluding non-cash and non-recurring items, providing a clearer view of underlying business trends Key Operating Metrics (2021-2023) | Metric | 2023 | 2022 | 2021 | | :---------------------------------------------- | :---------- | :---------- | :---------- | | Platform assets (at period-end) | $108,929 M | $91,470 M | $93,488 M | | Net flows | $6,133 M | $5,612 M | $9,934 M | | Market impact net of fees | $11,326 M | $(14,526) M | $9,034 M | | Advisers (at period-end) | 9,323 | 9,297 | 8,649 | | Engaged advisers (at period-end) | 3,123 | 2,882 | 2,858 | | Households (at period-end) | 254,110 | 241,053 | 209,900 | | Total revenue | $708.5 M | $611.7 M | $530.3 M | | Net income | $123.1 M | $103.3 M | $25.7 M | | Adjusted EBITDA | $249.5 M | $199.7 M | $157.2 M | | Adjusted net income | $170.9 M | $130.5 M | $103.3 M | - Platform assets are a key indicator of business strength and growth, encompassing both assets under management (AUM) and other assets[240] - Adjusted EBITDA and Adjusted Net Income are non-GAAP metrics used to assess operating performance by excluding non-cash charges (e.g., share-based compensation) and non-recurring costs (e.g., acquisition expenses, reorganization costs)[258][268] Platform Assets Platform assets, defined as all assets on the AssetMark platform (advisory and non-advisory), are a key indicator of business growth. They reached $108,929 million as of December 31, 2023, up from $91,470 million in 2022, reflecting revenue growth and future potential. Fluctuations are influenced by adviser satisfaction, market conditions, and other external factors - Platform assets include both assets under management (AUM) and non-advisory assets under administration, with no material economic difference to financial results[240] Platform Assets (Period-End) | Year | Platform Assets (Millions) | | :--- | :------------------------- | | 2023 | $108,929 | | 2022 | $91,470 | | 2021 | $93,488 | Net Flows, Market Impact Net of Fees and Acquisition Impact Changes in platform assets are driven by production (new assets), redemptions (withdrawals), market impact (changes in market value net of fees), and acquisition impact. Net flows represent the difference between production and redemptions. In 2023, net flows were $6,133 million and market impact was $11,326 million, with no acquisition impact - Platform asset changes are driven by production, redemptions, market impact (net of fees), and acquisitions[244] Platform Asset Changes (2021-2023) | Metric | 2023 (Millions) | 2022 (Millions) | 2021 (Millions) | | :-------------------------- | :-------------- | :-------------- | :-------------- | | Beginning platform assets | $91,470 | $93,488 | $74,520 | | Production | $18,965 | $16,182 | $19,351 | | Redemptions | $(12,832) | $(10,570) | $(9,417) | | Net flows | $6,133 | $5,612 | $9,934 | | Market impact net of fees | $11,326 | $(14,526) | $9,034 | | Acquisition impact | — | $6,896 | — | | Ending platform assets | $108,929 | $91,470 | $93,488 | Net Flows Lift Net flows lift measures net new assets as a percentage of beginning-of-year platform assets, providing a consistent quarterly comparison by excluding market and prior-quarter net flows impacts. In 2023, net flows lift was 6.7% - Net flows lift is calculated as net flows divided by beginning-of-year platform assets[245] - This metric helps determine the percentage return in net new assets and allows for accurate quarterly comparisons[245] Net Flows Lift | Year | Net Flows Lift (%) | | :--- | :----------------- | | 2023 | 6.7% | | 2022 | 6.0% | | 2021 | 13.3% | Advisers (at Period-End) Adviser count represents the total number of advisers with at least one investor account on the platform at the end of a given period. As of December 31, 2023, there were 9,323 advisers - Adviser count includes all advisers with at least one investor account on the platform[246] Advisers (Period-End) | Year | Advisers | | :--- | :------- | | 2023 | 9,323 | | 2022 | 9,297 | | 2021 | 8,649 | Engaged Advisers (at Period-End) Engaged advisers are defined as those with at least $5 million in platform assets. As of December 31, 2023, the company had 3,123 engaged advisers - Engaged advisers are those with at least $5 million in platform assets[247] Engaged Advisers (Period-End) | Year | Engaged Advisers | | :--- | :--------------- | | 2023 | 3,123 | | 2022 | 2,882 | | 2021 | 2,858 | Assets from Engaged Advisers (at Period-End) Assets from engaged advisers represent the total platform assets attributable to advisers with at least $5 million on the platform. This figure reached $101,335 million as of December 31, 2023 - Assets from engaged advisers are total platform assets attributable to advisers with at least $5 million in platform assets[248] Assets from Engaged Advisers (Period-End) | Year | Assets from Engaged Advisers (Millions) | | :--- | :-------------------------------------- | | 2023 | $101,335 | | 2022 | $83,803 | | 2021 | $86,385 | Households (at Period-End) Households are defined as one or more client accounts grouped by a financial adviser's relationship identification code. As of December 31, 2023, the company served 254,110 households - A 'Household' is defined as one or more client accounts grouped by a financial adviser's relationship identification code[249] Households (Period-End) | Year | Households | | :--- | :--------- | | 2023 | 254,110 | | 2022 | 241,053 | | 2021 | 209,900 | New Producing Advisers New producing advisers represent those who invested their first client assets on the platform during a given period, excluding those joining through the Adhesion Wealth acquisition. In 2023, there were 666 new producing advisers - New producing advisers are those who invested their first client assets on the platform in that period, excluding Adhesion Wealth advisers[250] New Producing Advisers | Year | New Producing Advisers | | :--- | :--------------------- | | 2023 | 666 | | 2022 | 690 | | 2021 | 811 | Production Lift from Existing Advisers (Annualized) This metric measures the annualized organic growth and incremental share of wallet from existing advisers (excluding Adhesion Wealth advisers) by dividing their production by beginning-of-period platform assets. In 2023, the production lift was 19.3% - Production lift from existing advisers measures organic growth and incremental share of wallet on an annualized basis[251] Production Lift from Existing Advisers (Annualized) | Year | Production Lift (%) | | :--- | :------------------ | | 2023 | 19.3% | | 2022 | 16.3% | | 2021 | 24.2% | Assets in Custody at ATC (at Period-End) Assets in custody at AssetMark Trust Company (ATC) represent platform assets held by ATC. As of December 31, 2023, these assets totaled $80,325 million - Assets in custody at ATC represent platform assets held by AssetMark Trust Company[252] Assets in Custody at ATC (Period-End) | Year | Assets in Custody at ATC (Millions) | | :--- | :---------------------------------- | | 2023 | $80,325 | | 2022 | $66,169 | | 2021 | $71,320 | ATC Client Cash (at Period-End) ATC client cash refers to the aggregate cash assets held by investors at AssetMark Trust Company, typically ranging from 1.5% to 5% of invested assets, plus discretionary amounts. This cash is a primary source of spread-based revenue. As of December 31, 2023, ATC client cash was $3,054 million, representing 3.8% of total assets in custody at ATC - ATC client cash is the aggregate amount of cash held by investors at ATC, typically 1.5% to 5% of invested assets plus discretionary amounts[253] - The majority of ATC client cash is placed in the ATC Complete Cash Solutions program, generating spread-based revenue[253] ATC Client Cash (Period-End) | Year | ATC Client Cash (Millions) | % of Assets in Custody at ATC | | :--- | :------------------------- | :---------------------------- | | 2023 | $3,054 | 3.8% | | 2022 | $3,541 | 5.4% | | 2021 | $2,932 | 4.1% | Total Revenue Total revenue encompasses asset-based, spread-based, subscription-based, and other revenue streams. In 2023, total revenue was $708.5 million - Total revenue includes asset-based, spread-based, subscription-based, and other revenue[254] Total Revenue | Year | Total Revenue (Millions) | | :--- | :----------------------- | | 2023 | $708.5 | | 2022 | $611.7 | | 2021 | $530.3 | Net Income Net income is calculated as total revenue minus total expenses and provision for income taxes. For 2023, net income was $123.1 million - Net income is total revenue less total expenses and provision for income taxes[255] Net Income | Year | Net Income (Millions) | | :--- | :-------------------- | | 2023 | $123.1 | | 2022 | $103.3 | | 2021 | $25.7 | Net Income Margin Net income margin is defined as net income divided by total revenue. In 2023, the net income margin was 17.4% - Net income margin is net income divided by total revenue[256] Net Income Margin | Year | Net Income Margin (%) | | :--- | :-------------------- | | 2023 | 17.4% | | 2022 | 16.9% | | 2021 | 4.8% | Capital Expenditure Capital expenditure represents annual long-term investments, primarily in technology, new product development, and other intangible assets, as well as property and equipment. In 2023, capital expenditure was $44.2 million - Capital expenditure reflects long-term investments in technology, new products, intangible assets, and property/equipment[257] Capital Expenditure | Year | Capital Expenditure (Millions) | | :--- | :----------------------------- | | 2023 | $44.2 | | 2022 | $38.6 | | 2021 | $34.7 | Non-GAAP Financial Metrics AssetMark utilizes Adjusted EBITDA and Adjusted Net Income as non-GAAP financial metrics to evaluate core operating performance. These metrics exclude non-cash items like share-based compensation and non-recurring costs such as acquisition and reorganization expenses, providing a clearer view of underlying business trends. While useful for internal planning and investor communication, they have limitations and should not replace GAAP results - Adjusted EBITDA and Adjusted Net Income are non-GAAP metrics used to assess operating performance, planning, resource allocation, and strategy evaluation[259][268] - These metrics exclude non-cash charges (e.g., share-based compensation) and other adjustments (e.g., acquisition, reorganization, litigation costs) not considered representative of core business[258][259][268] - Limitations include not reflecting all cash expenditures, working capital needs, or interest expense, and definitions may vary across companies[260][269][270] Adjusted EBITDA and Adjusted EBITDA Margin Adjusted EBITDA is net income adjusted for interest, taxes, depreciation, amortization, and further excludes non-cash share-based compensation, reorganization, acquisition, business continuity, SEC settlement, and office closure costs. Adjusted EBITDA margin is Adjusted EBITDA divided by total revenue. In 2023, Adjusted EBITDA was $249.5 million (35.2% margin), up from $199.7 million (32.6% margin) in 2022, reflecting improved operating performance - Adjusted EBITDA excludes non-cash share-based compensation and non-recurring costs like reorganization, acquisition, and SEC settlement expenses[258][264][267] Adjusted EBITDA and Margin (2021-2023) | Metric | 2023 (Thousands) | 2022 (Thousands) | 2021 (Thousands) | | :--------------------- | :-------------- | :-------------- | :-------------- | | Net Income | $123,119 | $103,261 | $25,671 | | EBITDA | $200,755 | $171,765 | $86,338 | | Adjusted EBITDA | $249,470 | $199,666 | $157,206 | | Adjusted EBITDA Margin | 35.2% | 32.6% | 29.6% | Adjustments to Adjusted EBITDA (2023) | Adjustment Type | Compensation (Thousands) | Non-Compensation (Thousands) | Total (Thousands) | | :------------------------------- | :----------------------- | :--------------------------- | :---------------- | | Share-based compensation | $16,388 | — | $16,388 | | Reorganization & integration costs| $5,904 | $7,040 | $12,944 | | Acquisition expenses | $939 | $388 | $1,327 | | SEC settlement | — | $18,327 | $18,327 | | Total Adjustments | $23,231 | $25,484 | $48,715 | Adjusted Net Income Adjusted net income is net income before share-based compensation, amortization of acquisition-related intangibles, acquisition/integration expenses, restructuring/conversion costs, and other specific expenses, all tax-effected. This metric aims to provide a clearer view of core operating performance by removing non-cash and non-recurring items. In 2023, adjusted net income was $170.9 million, up from $130.5 million in 2022 - Adjusted net income excludes share-based compensation, amortization of acquisition-related intangible assets, acquisition/integration expenses, and restructuring/conversion costs, all tax-effected[268] Adjusted Net Income Reconciliation (2021-2023) | Metric | 2023 (Thousands) | 2022 (Thousands) | 2021 (Thousands) | | :----------------------------------- | :--------------- | :--------------- | :--------------- | | Net income | $123,119 | $103,261 | $25,671 | | Acquisition-related amortization | $8,715 | $6,996 | $19,139 | | Expense adjustments | $32,592 | $13,890 | $17,126 | | Share-based compensation | $16,388 | $13,876 | $53,637 | | Tax effect of adjustments | $(9,629) | $(7,699) | $(12,407) | | Adjusted net income | $170,920 | $130,459 | $103,272 | Components of Results of Operations AssetMark's revenue streams include asset-based (majority, 78.1% in 2023), spread-based (influenced by interest rates, 17.0% in 2023), subscription-based (from software solutions), and other revenue (primarily interest on operating cash). Operating expenses consist of asset-based fees (strategist, custody), spread-based fees, employee compensation, general and operating costs, professional fees, and depreciation/amortization. Interest expense and other income/expense items also impact profitability - Asset-based revenue, the majority, is derived from fees as a percentage of platform assets, billed quarterly in advance[272] - Spread-based revenue comes from interest earned on client cash custodied at ATC, net of interest credited to clients, and is sensitive to interest rates[273] - Operating expenses include asset-based fees (strategist, custody), spread-based fees, employee compensation, general & operating expenses, professional fees, and depreciation & amortization[276][277][278][279][280][281] Revenue Composition (2023) | Revenue Type | % of Total Revenue | | :------------------ | :----------------- | | Asset-based revenue | 78.1% | | Spread-based revenue| 17.0% | Results of Operations AssetMark's financial performance in 2023 saw total revenue increase by 15.8% to $708.5 million, driven by a significant 111.7% rise in spread-based revenue due to higher interest rates, and a 3.6% increase in asset-based revenue from higher average assets and the Adhesion Wealth acquisition. Net income grew 19.2% to $123.1 million. Operating expenses increased, primarily due to employee compensation and general operating costs, partially offset by lower spread-based expenses. The company also incurred an $18.3 million SEC settlement expense Revenue Performance (2023 vs. 2022) | Revenue Type | 2023 (Thousands) | 2022 (Thousands) | $ Change (Thousands) | % Change | | :------------------- | :--------------- | :--------------- | :------------------- | :------- | | Asset-based revenue | $553,483 | $534,182 | $19,301 | 3.6% | | Spread-based revenue | $120,262 | $56,798 | $63,464 | 111.7% | | Subscription-based revenue| $15,179 | $13,020 | $2,159 | 16.6% | | Other revenue | $19,575 | $7,695 | $11,880 | 154.4% | | Total revenue | $708,499 | $611,695 | $96,804 | 15.8% | Expense Performance (2023 vs. 2022) | Expense Type | 2023 (Thousands) | 2022 (Thousands) | $ Change (Thousands) | % Change | | :------------------------- | :--------------- | :--------------- | :------------------- | :------- | | Asset-based expenses | $162,420 | $154,100 | $8,320 | 5.4% | | Spread-based expenses | $1,244 | $1,571 | $(327) | (20.8)% | | Employee compensation | $190,616 | $166,330 | $24,286 | 14.6% | | General & operating expenses| $98,302 | $90,122 | $8,180 | 9.1% | | Professional fees | $26,852 | $25,186 | $1,666 | 6.6% | | Depreciation & amortization| $35,544 | $31,149 | $4,395 | 14.1% | | Interest expense | $9,108 | $6,520 | $2,588 | 39.7% | | Other (income) expense, net| $16,947 | $(43) | $16,990 | * | | Provision for income taxes | $44,347 | $33,499 | $10,848 | 32.4% | | Net income | $123,119 | $103,261 | $19,858 | 19.2% | - Net income increased by $19.9 million (19.2%) in 2023, primarily due to higher spread-based and other revenue, partially offset by increased employee compensation and the SEC Settlement expense[300] Contractual Obligations As of December 31, 2023, AssetMark's contractual obligations totaled $191.9 million, comprising $36.8 million in operating lease obligations, $37.8 million in non-cancellable purchase commitments, and $117.3 million in debt principal and interest payments under the 2022 Credit Agreement Contractual Obligations (as of Dec 31, 2023) | Obligation Type | Amount (Millions) | | :------------------------ | :---------------- | | Operating Lease Obligations| $36.8 | | Purchase Obligations | $37.8 | | Debt Principal & Interest | $117.3 | | Total | $191.9 | Off-Balance Sheet Arrangements As of December 31, 2023, AssetMark Financial Holdings, Inc. had no off-balance sheet arrangements - No off-balance sheet arrangements as of December 31, 2023[320] Liquidity and Capital Resources AssetMark's liquidity is primarily financed by cash flows from operations, supplemented by its 2022 Revolving Credit Facility. As of December 31, 2023, cash and cash equivalents were $217.7 million. The 2022 Credit Agreement provides a $500 million senior secured credit facility, including a $375 million revolving credit facility and $125 million term loans, with an ESG amendment. The company was in compliance with all debt covenants and expects to meet future cash needs through operations and the revolving facility - Operations are primarily financed by cash flows from operations[321] Cash and Restricted Cash (Period-End) | Metric | Dec 31, 2023 (Millions) | Dec 31, 2022 (Millions) | | :---------------------- | :---------------------- | :---------------------- | | Cash and cash equivalents| $217.7 | $123.3 | | Restricted cash | $15.0 | $13.0 | - The 2022 Credit Agreement provides a $500 million senior secured credit facility, including a $375 million revolving credit facility and $125 million term loans, maturing January 12, 2027[324][325] - As of December 31, 2023, the company was in compliance with all applicable debt covenants, with an outstanding balance of $93.8 million[326] Liquidity AssetMark's liquidity is primarily supported by cash flows from operations and the 2022 Revolving Credit Facility. As of December 31, 2023, the company held $217.7 million in cash and cash equivalents and $15.0 million in restricted cash. Material cash requirements include operating leases, purchase obligations, and debt payments, which are expected to be met by existing resources - Operations are primarily financed through cash flows from operations[321] Cash and Restricted Cash (Dec 31, 2023) | Metric | Amount (Millions) | | :---------------------- | :---------------- | | Cash and cash equivalents| $217.7 | | Restricted cash | $15.0 | - Future cash and liquidity needs are expected to be met by ongoing operations and the 2022 Revolving Credit Facility[321] 2020 Revolving Credit Facility AssetMark entered into the 2020 Credit Agreement on December 30, 2020, providing a $250 million senior secured revolving credit facility. The total outstanding principal under this agreement was fully repaid on January 12, 2022, when it was amended and restated - Entered into a $250 million senior secured revolving credit facility on December 30, 2020[323] - Total outstanding principal was paid in full on January 12, 2022[323][467] 2022 Credit Agreement The 2020 Credit Agreement was amended on January 12, 2022, creating the 2022 Credit Agreement, a $500 million senior secured credit facility. It includes a $375 million revolving credit facility and $125 million term loans, maturing on January 12, 2027. Interest rates are based on SOFR or Base Rate plus a margin, with an ESG amendment incorporated in October 2022. As of December 31, 2023, the outstanding balance was $93.8 million, and the company was in compliance with