AssetMark(AMK) - 2024 Q1 - Quarterly Results

Executive Summary & Highlights AssetMark reported strong Q1 2024 financial and operational growth, with significant increases in net income, platform assets, and key advisor metrics, detailed across financial and operating highlights First Quarter 2024 Financial and Operational Highlights AssetMark reported strong Q1 2024 results with significant growth in net income, adjusted net income, and platform assets, alongside an increase in new households and advisors Q1 2024 Financial Highlights | Metric | Value | | :------------------- | :------------------- | | Net income | $38.0 million | | Net income per share | $0.51 | | Adjusted net income | $45.2 million | | Adjusted net income per share | $0.60 | | Total revenue | $190.3 million | | Adjusted EBITDA | $65.9 million | | Adjusted EBITDA margin | 34.6% of total revenue | - Platform assets increased 21.5% year-over-year to $116.9 billion, and 7.3% quarter-over-quarter, driven by $6.1 billion market impact net of fees and $1.8 billion quarterly net flows[1] - Year-to-date annualized net flows as a percentage of beginning-of-year platform assets were 6.8%[1] - The AssetMark platform added over 3,000 new households and 169 new producing advisors during the first quarter[2] - An 18.6% annualized production lift was realized from existing advisors, indicating organic growth and increased wallet share[2] Key Operating and Financial Metrics A detailed comparison of Q1 2024 versus Q1 2023 reveals significant year-over-year growth across most operational and financial indicators, particularly in platform assets, net flows, and net income First Quarter 2024 Key Operating Metrics (YoY Variance) | Metric | 1Q23 | 1Q24 | Variance per year | | :--------------------------------------------------- | :------- | :--------- | :---------------- | | Platform assets (at period-beginning) (millions of dollars) | $91,470 | $108,929 | 19.1 % | | Net flows (millions of dollars) | 1,631 | 1,842 | 12.9 % | | Market impact net of fees (millions of dollars) | 3,102 | 6,130 | 97.6 % | | Platform assets (at period-end) (millions of dollars) | $96,203 | $116,901 | 21.5 % | | Net flows lift (% of beginning of year platform assets) | 1.8 % | 1.7 % | (10 bps) | | Advisors (at period-end) | 9,319 | 9,280 | (0.4)% | | Engaged advisors (at period-end) | 2,976 | 3,208 | 7.8 % | | Assets from engaged advisors (at period-end) (millions of dollars) | $88,587 | $109,267 | 23.3 % | | Households (at period-end) | 243,775 | 257,162 | 5.5 % | | New producing advisors | 166 | 169 | 1.8 % | | Production lift from existing advisors (annualized %) | 18.8 % | 18.6 % | (20 bps) | | Assets in custody at ATC (at period-end) (millions of dollars) | $70,069 | $86,373 | 23.3 % | | ATC client cash (at period-end) (millions of dollars) | $3,189 | $3,170 | (0.6)% | First Quarter 2024 Key Financial Metrics (YoY Variance) | Metric | 1Q23 | 1Q24 | Variance per year | | :--------------------------------------------------- | :------- | :--------- | :---------------- | | Total revenue (millions of dollars) | $170.3 | $190.3 | 11.7 % | | Net income (millions of dollars) | $17.2 | $38.0 | 120.9 % | | Net income margin (%) | 10.1 % | 20.0 % | 990 bps | | Capital expenditure (millions of dollars) | $10.0 | $11.9 | 19.0 % | | Adjusted EBITDA (millions of dollars) | $58.8 | $65.9 | 12.1 % | | Adjusted EBITDA margin (%) | 34.5 % | 34.6 % | 10 bps | | Adjusted net income (millions of dollars) | $39.7 | $45.2 | 13.9 % | Corporate Developments AssetMark announced its acquisition by GTCR, leading to the withdrawal of financial guidance, while highlighting its core business as a wealth management platform for independent advisors Acquisition Announcement AssetMark announced its agreement to be acquired by GTCR, with the transaction expected to close in Q4 2024, leading to the withdrawal of previous financial guidance and cancellation of the earnings call - AssetMark entered into an agreement to be acquired by GTCR on April 25, 2024[5] - The transaction is subject to customary closing conditions and regulatory approvals, expected to close in Q4 2024[5] - Due to the announced transaction, AssetMark will not host an earnings call and has withdrawn all previously provided financial guidance[5] About AssetMark Financial Holdings, Inc. AssetMark operates a wealth management platform supporting independent financial advisors with flexible solutions to enhance client engagement, efficiency, and advisor productivity - AssetMark operates a wealth management platform that powers independent financial advisors and their clients, offering flexible, purpose-built solutions[8] - The platform serves over 9,200 financial advisors and over 257,000 investor households[8] - As of March 31, 2024, the company had $116.9 billion in platform assets[8] Financial Statements The company's Q1 2024 financial statements show increased total assets, significant revenue growth, and a substantial rise in net income and operating cash flow Condensed Consolidated Balance Sheets The balance sheet shows an increase in total assets from $1,620,563 thousand at December 31, 2023, to $1,656,826 thousand at March 31, 2024, primarily driven by higher cash and capitalized software Condensed Consolidated Balance Sheets (in thousands) | ASSETS | March 31, 2024 (unaudited) | December 31, 2023 | | :------------------------------------------ | :------------------------- | :------------------ | | Cash and cash equivalents | $247,626 | $217,680 | | Total current assets | $322,093 | $291,111 | | Capitalized software, net | $113,123 | $108,955 | | Goodwill | $487,909 | $487,909 | | Total assets | $1,656,826 | $1,620,563 | | LIABILITIES AND STOCKHOLDERS' EQUITY | | | | Total current liabilities | $69,247 | $75,842 | | Long-term debt, net | $93,567 | $93,543 | | Total liabilities | $347,312 | $353,181 | Condensed Consolidated Statements of Comprehensive Income For Q1 2024, total revenue increased by 11.7% year-over-year to $190.3 million, while net income more than doubled to $38.0 million, resulting in a significant improvement in net income margin Condensed Consolidated Statements of Comprehensive Income (in thousands, except per share data) | Revenue | Three Months 2024 | Three Months Ended March 31, 2023 | | :--------------------------- | :------------------ | :-------------------------------- | | Asset-based revenue | $149,984 | $131,039 | | Spread-based revenue | $30,093 | $31,999 | | Subscription-based revenue | $4,252 | $3,544 | | Other revenue | $5,937 | $3,716 | | Total revenue | $190,266 | $170,298 | | Total operating expenses | $138,576 | $124,148 | | Income before income taxes | $49,728 | $23,938 | | Provision for income taxes | $11,764 | $6,716 | | Net income | $37,964 | $17,222 | | Net income per share (Basic) | $0.51 | $0.23 | | Net income per share (Diluted) | $0.50 | $0.23 | | Weighted average common shares outstanding (Diluted) | 75,269,626 | 74,370,353 | Condensed Consolidated Statements of Cash Flows Net cash provided by operating activities increased to $47.4 million in Q1 2024, while net cash used in investing activities also increased, leading to a substantial net change in cash, cash equivalents, and restricted cash Condensed Consolidated Statements of Cash Flows (in thousands) | Cash Flows From | Three Months 2024 | Three Months Ended March 31, 2023 | | :--------------------------------------------------- | :------------------ | :-------------------------------- | | Net income | $37,964 | $17,222 | | Net cash provided by operating activities | $47,415 | $39,126 | | Net cash used in investing activities | $(17,469) | $(13,932) | | Net cash used in financing activities | $0 | $(25,000) | | Net change in cash, cash equivalents, and restricted cash | $29,946 | $194 | | Cash, cash equivalents, and restricted cash at end of period | $262,626 | $136,468 | Non-GAAP Financial Measures Reconciliation This section provides detailed reconciliations of Adjusted EBITDA and Adjusted Net Income to GAAP measures, defining their utility and limitations for evaluating core operating performance Adjusted EBITDA and Adjusted EBITDA Margin This section defines Adjusted EBITDA and its margin, explains their utility for evaluating core operating performance by excluding non-cash and non-recurring items, and outlines their inherent limitations Definition and Use Adjusted EBITDA is defined as EBITDA adjusted for certain non-cash charges and other items not representative of core business, used for performance evaluation, planning, and resource allocation - Adjusted EBITDA is defined as EBITDA (net income plus interest expense, income tax expense, depreciation and amortization, less interest income) further adjusted to exclude certain non-cash charges and other adjustments[21] - It excludes items not representative of core business, such as share-based compensation, strategic initiatives, reorganization, and integration costs[21] - Adjusted EBITDA is used for evaluating operating performance, planning, resource allocation, and in communications with the board of directors[23] - Limitations include not reflecting all cash expenditures, future capital requirements, working capital needs, or interest expense on debt[23] Reconciliation to GAAP Net Income The reconciliation shows Adjusted EBITDA increased by 12.1% to $65.9 million in Q1 2024, primarily due to higher net income and adjustments for income taxes, share-based compensation, and reorganization costs Reconciliation from Net Income to Adjusted EBITDA (in thousands, except percentages) | Metric | Three Months 2024 | % of Revenue | Three Months Ended March 31, 2023 | % of Revenue | | :----------------------------------- | :------------------ | :----------- | :-------------------------------- | :----------- | | Net income | $37,964 | 20.0 % | $17,222 | 10.1 % | | Provision for income taxes | 11,764 | 6.2 % | 6,716 | 3.9 % | | Interest income | (4,023) | (2.2)% | (2,051) | (1.2)% | | Interest expense | 2,294 | 1.2 % | 2,347 | 1.4 % | | Depreciation and amortization | 9,922 | 5.2 % | 8,428 | 5.0 % | | EBITDA | $57,921 | 30.4 % | $32,662 | 19.2 % | | Share-based compensation | 4,168 | 2.2 % | 3,822 | 2.2 % | | Reorganization and integration costs | 3,841 | 2.0 % | 1,909 | 1.1 % | | Acquisition expenses | 12 | — | 313 | 0.2 % | | Business continuity plan | — | — | (6) | — | | Accrual for SEC settlement | — | — | 20,000 | 11.8 % | | Other (income) expense, net | (35) | — | 88 | — | | Adjusted EBITDA | $65,907 | 34.6 % | $58,788 | 34.5 % | Summary of Adjustments Total adjustments to Adjusted EBITDA were $7.986 million in Q1 2024, primarily driven by share-based compensation and reorganization and integration costs Summary of Adjustments to Adjusted EBITDA (in thousands) | Adjustment Type | Three Months 2024 Compensation | Three Months 2024 NonCompensation | Three Months 2024 Total | Three Months 2023 Compensation | Three Months 2023 NonCompensation | Three Months 2023 Total | | :----------------------------------- | :----------------------------- | :-------------------------------- | :---------------------- | :----------------------------- | :-------------------------------- | :---------------------- | | Share-based compensation | $4,168 | $— | $4,168 | $3,822 | $— | $3,822 | | Reorganization and integration costs | 1,532 | 2,309 | 3,841 | 1,064 | 845 | 1,909 | | Acquisition expenses | — | 12 | 12 | 100 | 213 | 313 | | Business continuity plan | — | — | — | — | (6) | (6) | | Accrual for SEC settlement | — | — | — | — | 20,000 | 20,000 | | Other (income) expense, net | — | (35) | (35) | — | 88 | 88 | | Total adjustments to adjusted EBITDA | $5,700 | $2,286 | $7,986 | $4,986 | $21,140 | $26,126 | Summary of Adjustments to Adjusted EBITDA Margin (% of Revenue) | Adjustment Type | Three Months 2024 Compensation | Three Months 2024 NonCompensation | Three Months 2024 Total | Three Months 2023 Compensation | Three Months 2023 NonCompensation | Three Months 2023 Total | | :----------------------------------- | :----------------------------- | :-------------------------------- | :---------------------- | :----------------------------- | :-------------------------------- | :---------------------- | | Share-based compensation | 2.2 % | — | 2.2 % | 2.2 % | — | 2.2 % | | Reorganization and integration costs | 0.8 % | 1.2 % | 2.0 % | 0.6 % | 0.5 % | 1.1 % | | Acquisition expenses | — | — | — | 0.1 % | 0.1 % | 0.2 % | | Business continuity plan | — | — | — | — | — | — | | Accrual for SEC settlement | — | — | — | — | 11.8 % | 11.8 % | | Other (income) expense, net | — | — | — | — | — | — | | Total adjustments to adjusted EBITDA margin % | 3.0 % | 1.2 % | 4.2 % | 2.9 % | 12.4 % | 15.3 % | Adjusted Net Income This section defines Adjusted Net Income, detailing its adjustments to GAAP net income to provide a clearer view of core operating performance, while also acknowledging its limitations as a non-GAAP measure Definition and Use Adjusted net income is defined as net income before share-based compensation, amortization of acquisition-related intangibles, acquisition/integration expenses, and restructuring costs, aiming to reflect core operating performance - Adjusted net income represents net income before share-based compensation, amortization of acquisition-related intangible assets, acquisition and related integration expenses, restructuring and conversion costs, and certain other expenses[32] - It is prepared to eliminate the effects of items not considered indicative of core operating performance, such as non-cash equity grants and acquisition-related amortization[32] - Adjusted net income has limitations as an analytical tool, as it is not defined under GAAP and does not reflect all cash expenditures or working capital needs[33] Reconciliation to GAAP Net Income Adjusted net income increased by 13.9% to $45.2 million in Q1 2024, reflecting adjustments for employee compensation, depreciation and amortization, and other expenses Reconciliation from Net Income to Adjusted Net Income (in thousands, except per share data) | Metric | Three Months 2024 GAAP | Adjustments | Three Months 2024 Adjusted | Three Months 2023 GAAP | Adjustments | Three Months 2023 Adjusted | | :--------------------------------------------------- | :--------------------- | :---------- | :------------------------- | :--------------------- | :---------- | :------------------------- | | Total revenue | $190,266 | $— | $190,266 | $170,298 | $— | $170,298 | | Employee compensation | $50,007 | $(5,700) | $44,307 | $46,911 | $(4,986) | $41,925 | | General and operating expenses | $27,324 | $(1,710) | $25,614 | $25,689 | $(884) | $24,805 | | Professional fees | $6,081 | $(611) | $5,470 | $5,393 | $(168) | $5,225 | | Depreciation and amortization | $9,922 | $(2,180) | $7,742 | $8,428 | $(2,174) | $6,254 | | Total operating expenses | $138,576 | $(10,201) | $128,375 | $124,148 | $(8,212) | $115,936 | | Income before income taxes | $49,728 | $10,166 | $59,894 | $23,938 | $28,300 | $52,238 | | Provision for income taxes | $11,764 | $2,910 | $14,674 | $6,716 | $5,821 | $12,537 | | Net income / Adjusted net income | $37,964 | | $45,220 | $17,222 | | $39,701 | | Adjusted earnings per share | | | $0.60 | | | $0.53 | | Weighted average common shares outstanding (diluted) | | | 75,269,626 | | | 74,370,353 | Summary of Adjustments Total adjustments to Adjusted Net Income were $7.256 million in Q1 2024, primarily from acquisition-related amortization, expense adjustments, and share-based compensation, offset by tax effects Summary of Adjustments to Adjusted Net Income (in thousands) | Adjustment Type | Three Months 2024 Compensation | Three Months 2024 NonCompensation | Three Months 2024 Total | Three Months 2023 Compensation | Three Months 2023 NonCompensation | Three Months 2023 Total | | :----------------------------------- | :----------------------------- | :-------------------------------- | :---------------------- | :----------------------------- | :-------------------------------- | :---------------------- | | Net income | | | $37,964 | | | $17,222 | | Acquisition-related amortization | $— | $2,180 | $2,180 | $— | $2,174 | $2,174 | | Expense adjustments | 1,532 | 2,321 | 3,853 | 1,164 | 21,052 | 22,216 | | Share-based compensation | 4,168 | — | 4,168 | 3,822 | — | 3,822 | | Other (income) expense, net | — | (35) | (35) | — | 88 | 88 | | Tax effect of adjustments | (1,397) | (1,513) | (2,910) | (1,197) | (4,624) | (5,821) | | Adjusted net income | $4,303 | $2,953 | $45,220 | $3,789 | $18,690 | $39,701 | Additional Information This section includes cautionary forward-looking statements regarding potential risks and uncertainties, along with essential contact information for investor relations and media inquiries Forward-Looking Statements This section serves as a cautionary note, indicating that the press release contains forward-looking statements subject to risks and uncertainties, and actual results may differ materially - This press release contains forward-looking statements regarding future financial and operating performance, which involve risks and uncertainties[9] - Actual results may differ materially from predicted results due to known and unknown risks, uncertainties, assumptions, and other factors[9] - The company undertakes no duty to update this information unless required by law[9] Contacts Provides contact details for investor relations and media inquiries for AssetMark Financial Holdings, Inc - Investors can contact Taylor J. Hamilton, CFA, Head of Investor Relations, at InvestorRelations@assetmark.com[40] - Media inquiries can be directed to Alaina Kleinman, Head of PR & Communications, at alaina.kleinman@assetmark.com[40]