AssetMark Financial Holdings, Inc. (NYSE:AMK) Q4 2021 Earnings Conference Call February 15, 2022 5:00 PM ET Company Participants Taylor Hamilton - Head of Investor Relations Natalie Wolfsen - Chief Executive Officer, Gary Zyla - Chief Financial Officer Conference Call Participants Ryan Bailey - Goldman Sachs Gerry O'Hara - Jefferies Kenneth Worthington - JPMorgan Michael Young - Truist Securities Patrick O'Shaughnessy - Raymond James. Operator Good afternoon, everyone, and welcome to AssetMark's Fourth Qua ...

2021 Performance Highlights - AssetMark ended 2021 with $93.5 billion in platform assets[5] - The company achieved $9.9 billion in net flows[5], representing a 13.3% net flows as a percentage of beginning-of-period platform assets[25] - AssetMark added $19.0 billion in platform assets during 2021[5] - The company onboarded 811 new producing advisors and engaged 322 advisors[5] - AssetMark served 23,298 households[5] Q4 2021 Financial Results - Total revenue for Q4 2021 was $143.6 million, a 29.4% increase year-over-year[28] - Asset-based revenue in Q4 2021 reached $137.5 million, up 27.5% from Q4 2020[28] - Adjusted EBITDA for Q4 2021 was $38.3 million, a 19.7% increase year-over-year[44] - Adjusted net income for Q4 2021 was $24.7 million, an 11.3% increase year-over-year[44] - Adjusted EPS for Q4 2021 was $0.33, a 6.5% increase year-over-year[44] 2022 Outlook - AssetMark is targeting platform asset growth of 13.5-15.5% in 2022[45] - The company anticipates revenue less cost of revenue growth of 18-22% in 2022[45] - AssetMark expects operating expenses to increase by 16-20% in 2022[45] - The company is targeting adjusted EBITDA growth of 20%+ in 2022, with an adjusted EBITDA margin expansion of 100 bps[45]

Financial Data and Key Metrics Changes - Platform assets reached a record $86.8 billion, up 29% year-over-year, driven by record net flows of $2.8 billion [19] - Net revenue increased by 38% year-over-year to $101.5 million, marking the first quarter with net revenue exceeding $100 million [6][21] - Adjusted EBITDA rose by 53% year-over-year to $44.8 million, with an adjusted EBITDA margin of 32%, up 460 basis points year-over-year [29] - Adjusted net income increased by over 60% to $29.9 million, or $0.40 per share [30] Business Line Data and Key Metrics Changes - Asset-based net revenue grew by 36% to $95.5 million, with additional revenue from Voyant contributing $3.5 million [21][22] - The introduction of the Pooled Employer Plan (PEP) aims to enhance retirement offerings, accounting for approximately $1.6 billion in platform assets [13] - A suite of separately managed accounts (SMAs) was launched, generating over 1,500 proposals amounting to approximately $375 million since its introduction [15] Market Data and Key Metrics Changes - The company added 201 new producing advisers, bringing total engaged advisers to 2,729, an increase of 351 advisers year-over-year [20] - Year-to-date annualized net flows as a percentage of beginning of year assets stood at 12.5% [20] Company Strategy and Development Direction - The company focuses on five key components of growth strategy, including catering to varying adviser affiliations and delivering a holistic experience [8][10] - The acquisition of Voyant is aimed at enhancing financial wellness solutions and expanding capabilities for advisers [11][12] - The company is actively pursuing M&A opportunities to enhance its service offerings and expand its market presence [17][70] Management's Comments on Operating Environment and Future Outlook - Management remains cautious about the market outlook due to macroeconomic uncertainties but is optimistic about strong organic growth [20] - For 2022, the company expects organic growth of over 10% and net revenue growth in the high teens to low 20% range [32] - The company anticipates a modest impact from inflation in 2022 but remains focused on disciplined expense management [26][33] Other Important Information - The company ended the quarter with over $50 million in cash and $135 million available on its revolving line of credit, positioning it well for future M&A opportunities [30] - The company is investing in new product initiatives and enhancing its technology platform to better serve advisers [56] Q&A Session Summary Question: How would you characterize the deal pipeline right now? - The deal pipeline is good, but valuations are high, and there is competition for acquisition opportunities. The company is a disciplined buyer [37] Question: How is the company thinking about interest rate sensitivity? - The company assumes no interest rate increases in its 2022 outlook but expects to benefit from any future increases [40] Question: Can you walk us through the growth in the RIA market relative to IBD? - The RIA segment is growing faster than other segments, driven by demand for independent fee-based advice and regulatory changes [44] Question: What are the expected contributions from Voyant in 2022? - Voyant is expected to contribute about three to four percentage points to both revenue and EBITDA growth in 2022 [60] Question: What steps have been taken to reduce asset-based expenses? - The company has renegotiated contracts with providers to reduce asset-based expenses, which will positively impact future guidance [57]

Financial Performance - Total revenue for Q3 2021 was $139.7 million, an increase of $32.5 million or 30.4% from $107.1 million in Q3 2020[102] - Net income for Q3 2021 was $12.3 million, or $0.17 per share, compared to $8.6 million, or $0.13 per share, in Q3 2020[102] - Adjusted EBITDA for Q3 2021 was $44.8 million, compared to $29.3 million in Q3 2020[102] - Total revenue for the nine months ended September 30, 2021 was $387 million, up from $321 million in the same period of 2020[117] - Adjusted net income for the nine months ended September 30, 2021 was $78.6 million, compared to $51.0 million for the same period in 2020[117] - The total net income for the three months ended September 30, 2021, was $12,250, compared to $8,597 for the same period in 2020, showing an increase of 42.5%[152] - Net income for the nine months ended September 30, 2021, was $13.3 million, a significant increase from $2.1 million in the same period of 2020[153] Revenue Breakdown - Asset-based revenue for Q3 2021 was $134.2 million, up $30.3 million or 29.2% from $103.8 million in Q3 2020[102] - Subscription-based revenue rose by $3.2 million in Q3 2021, attributed to the acquisition of Voyant on July 1, 2021[170] - Spread-based revenue decreased by $1.4 million, or 53.0%, from $2.6 million in Q3 2020 to $1.2 million in Q3 2021, mainly due to lower interest rates[171] - Asset-based revenue increased by $70.5 million, or 23.2%, from $304.2 million in the nine months ended September 30, 2020 to $374.7 million in the nine months ended September 30, 2021[184] Asset Management - Platform assets reached $86.8 billion as of September 30, 2021, a 29.1% increase from $67.3 billion a year earlier[103] - Regulatory assets under management (AUM) totaled $55,361 million as of September 30, 2021, compared to $41,546 million in the prior year, indicating a growth of about 33%[119] - As of September 30, 2021, platform assets reached $86,826 million, up from $67,254 million as of September 30, 2020, reflecting a year-over-year growth of approximately 29%[119] - 96% of total revenue for the nine months ended September 30, 2021, was based on the market value of assets on the platform, indicating a strong reliance on asset performance[217] Adviser Engagement - Engaged advisers on the platform increased to 2,749, up 14.6% from 2,398 as of September 30, 2020[103] - New producing advisers numbered 201 in Q3 2021, compared to 171 in Q3 2020[117] - As of September 30, 2021, engaged advisers, defined as those with at least $5 million in platform assets, contributed significantly to the overall platform assets[124] Expenses and Costs - Total operating expenses increased by $11.9 million, or 11.3%, from $104.9 million in Q3 2020 to $116.8 million in Q3 2021[168] - Employee compensation increased by $1.3 million, or 2.9%, from $42.8 million in Q3 2020 to $44.1 million in Q3 2021, driven by higher salaries and integration costs[175] - General and operating expenses rose by $2.9 million, or 17.8%, from $15.9 million in Q3 2020 to $18.8 million in Q3 2021, due to increased costs in various operational areas[176] - Professional fees increased by $1.4 million, or 39.5%, from $3.6 million in Q3 2020 to $5.1 million in Q3 2021, driven by higher outsourcing and consulting expenses[177] - Depreciation and amortization expense increased by $2.0 million, or 22.8%, from $8.7 million in Q3 2020 to $10.6 million in Q3 2021, primarily due to new assets and the Voyant acquisition[178] Cash Flow and Liquidity - Cash flow from operating activities increased by $39.5 million to $93.9 million for the nine months ended September 30, 2021, compared to $54.4 million for the same period in 2020[209] - Cash used in investing activities rose by $111.7 million to $(153.2) million for the nine months ended September 30, 2021, primarily due to a $124.2 million net cash payment for the Voyant acquisition[210] - Cash flow from financing activities increased by $39.9 million to $40.1 million for the nine months ended September 30, 2021, primarily due to net drawdowns on the 2020 Revolving Credit Facility[211] - Liquidity as of September 30, 2021 included cash and cash equivalents of $50.4 million and restricted cash of $12.0 million[200] Tax and Compliance - Provision for income taxes increased by $14.3 million, or 503.7%, from a benefit of $(2.8) million in the nine months ended September 30, 2020 to a provision of $11.4 million in the nine months ended September 30, 2021[198] - As of September 30, 2021, the Total Leverage Ratio was compliant with the covenant limit of 3.5 to 1.0, and the interest coverage ratio was above the minimum requirement of 4.0 to 1.0[206] Market Sensitivity - A 1% decrease in the aggregate value of assets on the platform would have led to a 1% decline in total revenue and an 11% decline in pre-tax income, equating to a $2.6 million impact[217] - Client cash assets in the insured cash deposit program totaled $2.6 billion as of September 30, 2021, with a potential annual income impact of approximately $26 million from a 100 basis point change in short-term interest rates[218] - If LIBOR-based interest rates increased by 100 basis points, annual interest expense would rise by approximately $1.2 million based on amounts drawn under the 2020 Revolving Credit Facility[219]

PART I. FINANCIAL INFORMATION [Item 1. Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) Unaudited financial statements for Q2 2021 show significant asset growth and a return to net income, driven by strong revenue [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Total assets increased to **$1.33 billion** by June 30, 2021, driven by higher cash, long-term debt, and stockholders' equity Condensed Consolidated Balance Sheet Summary (in thousands) | Account | June 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | **Total Assets** | **$1,333,892** | **$1,223,588** | | Cash and cash equivalents | $179,756 | $70,619 | | Goodwill | $338,848 | $338,848 | | **Total Liabilities** | **$387,644** | **$318,515** | | Long-term debt, net | $150,000 | $75,000 | | **Total Stockholders' Equity** | **$946,248** | **$905,073** | [Condensed Consolidated Statements of Comprehensive Income](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income) The company achieved a significant profitability turnaround in Q2 2021, reporting net income of **$10.0 million** on **29.2%** revenue growth Financial Performance Summary (in thousands, except per share data) | Metric | Q2 2021 | Q2 2020 | YTD 2021 | YTD 2020 | | :--- | :--- | :--- | :--- | :--- | | **Total Revenue** | **$128,042** | **$99,131** | **$247,048** | **$214,021** | | Asset-based revenue | $124,690 | $94,712 | $240,503 | $200,362 | | Spread-based revenue | $2,672 | $3,549 | $5,278 | $11,500 | | **Net Income (Loss)** | **$9,986** | **$(9,280)** | **$1,070** | **$(6,544)** | | Diluted EPS | $0.14 | $(0.14) | $0.02 | $(0.10) | [Condensed Consolidated Statements of Cash Flows](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Net cash from operations significantly increased to **$53.3 million** for H1 2021, contributing to a **$109.1 million** net cash increase Cash Flow Summary for the Six Months Ended June 30 (in thousands) | Cash Flow Activity | 2021 | 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $53,285 | $29,504 | | Net cash used in investing activities | $(19,148) | $(32,761) | | Net cash provided by financing activities | $75,000 | $— | | **Net change in cash** | **$109,137** | **$(3,257)** | [Notes to Unaudited Condensed Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) Notes detail accounting policies, the Voyant acquisition, a new **$250 million** credit facility, and increased share-based compensation expense - On March 1, 2021, the Company agreed to acquire Voyant for approximately **$145.5 million**, consisting of cash and **994,028** shares of common stock, with the acquisition closing on July 1, 2021[43](index=43&type=chunk)[86](index=86&type=chunk) - The company entered a new **$250 million** revolving credit facility on December 30, 2020, drawing down **$75 million** in December 2020 and an additional **$75 million** on June 22, 2021[64](index=64&type=chunk) - Share-based compensation expense increased significantly to **$40.1 million** for the six months ended June 30, 2021, up from **$27.1 million** for the same period in 2020[21](index=21&type=chunk)[71](index=71&type=chunk)[73](index=73&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=18&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management attributes strong Q2 2021 performance to significant platform asset growth and revenue increase, despite lower spread-based revenue [Overview and Financial Highlights](index=19&type=section&id=Overview%20and%20Financial%20Highlights) AssetMark reported strong Q2 2021 growth, with total revenue of **$128.0 million**, net income of **$10.0 million**, and platform assets reaching **$84.6 billion** Q2 2021 Financial Highlights vs. Q2 2020 | Metric | Q2 2021 | Q2 2020 | Change | | :--- | :--- | :--- | :--- | | Total Revenue | $128.0M | $99.1M | +29.2% | | Net Income (Loss) | $10.0M | $(9.3)M | N/A | | Adjusted EBITDA | $40.0M | $25.3M | +58.1% | | Adjusted Net Income | $26.6M | $15.1M | +76.2% | Asset and Adviser Growth Trends (as of June 30) | Metric | 2021 | 2020 | Change | | :--- | :--- | :--- | :--- | | Platform Assets | $84.6B | $63.2B | +33.8% | | Engaged Advisers | 2,691 | 2,327 | +15.6% | [Key Operating Metrics](index=21&type=section&id=Key%20Operating%20Metrics) Key operating metrics for H1 2021 show platform assets at **$84.6 billion**, driven by net flows and market impact, alongside strong Adjusted EBITDA and Net Income Key Metrics for the Six Months Ended June 30 | Metric | 2021 | 2020 | | :--- | :--- | :--- | | Platform Assets (period-end) | $84,594M | $63,229M | | Net Flows | $4,155M | $2,742M | | Engaged Advisers (period-end) | 2,691 | 2,327 | | New Producing Advisers | 395 | 395 | | Adjusted EBITDA | $74.1M | $53.7M | | Adjusted EBITDA Margin | 30.0% | 25.1% | Adjusted EBITDA Reconciliation (in thousands) | Line Item | Six Months 2021 | Six Months 2020 | | :--- | :--- | :--- | | Net income (loss) | $1,070 | $(6,544) | | Adjustments (Taxes, Interest, D&A) | $22,627 | $24,382 | | EBITDA | $23,699 | $17,858 | | Share-based compensation | $40,104 | $27,122 | | Other Adjustments | $10,229 | $8,724 | | **Adjusted EBITDA** | **$74,132** | **$53,704** | [Results of Operations](index=28&type=section&id=Results%20of%20Operations) Q2 2021 revenue increased **29.2%** to **$128.0 million**, driven by asset-based revenue growth, while operating expenses grew modestly, leading to income before taxes - **Q2 2021 vs Q2 2020:** - **Asset-Based Revenue:** Increased by **$30.0 million** (**31.7%**) due to growth in platform assets - **Spread-Based Revenue:** Decreased by **$0.8 million** (**24.7%**) due to the lower interest rate environment - **Employee Compensation:** Decreased by **$5.9 million** (**13.0%**), mainly from a **$7.2 million** reduction in share-based compensation expense[162](index=162&type=chunk)[163](index=163&type=chunk)[168](index=168&type=chunk) - **Six Months 2021 vs Six Months 2020:** - **Asset-Based Revenue:** Increased by **$40.1 million** (**20.0%**) - **Spread-Based Revenue:** Decreased by **$6.2 million** (**54.1%**) - **Employee Compensation:** Increased by **$17.9 million** (**20.1%**), primarily driven by a **$13.0 million** increase in share-based compensation related to the departure of the former CEO[177](index=177&type=chunk)[178](index=178&type=chunk)[183](index=183&type=chunk) [Liquidity and Capital Resources](index=34&type=section&id=Liquidity%20and%20Capital%20Resources) Liquidity is strong, supported by **$179.8 million** in cash and a new **$250 million** revolving credit facility, with **$150 million** drawn for acquisitions - The company entered into a new **$250 million** senior secured revolving credit facility on December 30, 2020, which matures on December 30, 2024[193](index=193&type=chunk)[194](index=194&type=chunk) - As of June 30, 2021, the company had drawn **$150 million** on its new credit facility, with a subsequent repayment of **$25 million** made on July 22, 2021[195](index=195&type=chunk)[88](index=88&type=chunk) - Cash flow from operations for the first six months of 2021 was **$53.3 million**, a significant increase from **$29.5 million** in the same period of 2020[199](index=199&type=chunk)[201](index=201&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=35&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company faces market and interest rate risks, with asset value changes impacting pre-tax income and interest rate shifts affecting revenue and expenses - A **1%** decrease in the value of platform assets would have caused pre-tax income for the first six months of 2021 to decline by **5%**, or **$0.9 million**[208](index=208&type=chunk) - A **100 basis point** change in short-term interest rates would result in an approximate **$26 million** annual change in income before taxes from the client cash deposit program[210](index=210&type=chunk) - A **100 basis point** increase in LIBOR-based rates would increase the company's annualized interest expense by approximately **$1.5 million** based on the debt outstanding at June 30, 2021[211](index=211&type=chunk) [Item 4. Controls and Procedures](index=36&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective as of June 30, 2021, with no material changes to internal control over financial reporting - The Principal Executive Officer and Principal Financial Officer concluded that as of June 30, 2021, the company's disclosure controls and procedures were effective at the reasonable assurance level[213](index=213&type=chunk) - No changes in internal control over financial reporting occurred during the quarter that materially affected, or are reasonably likely to materially affect, these controls[214](index=214&type=chunk) PART II. OTHER INFORMATION [Item 1. Legal Proceedings](index=37&type=section&id=Item%201.%20Legal%20Proceedings) The company is cooperating with SEC inquiries and subpoenas from July 2020 regarding potential conflicts of interest, as part of broader regulatory examinations - In July 2020, subsidiaries received an examination report and subpoenas from the SEC's Division of Examinations and Division of Enforcement, primarily related to the disclosure of potential conflicts of interest[216](index=216&type=chunk) [Item 1A. Risk Factors](index=37&type=section&id=Item%201A.%20Risk%20Factors) The company faces diverse risks including market volatility, competition, cybersecurity, regulatory oversight, and challenges related to its PRC-based controlling stockholder - Business risks include revenue fluctuations due to market conditions, intense competition, and reliance on the financial advisory industry[216](index=216&type=chunk)[217](index=217&type=chunk)[220](index=220&type=chunk) - The company is exposed to significant data and cybersecurity risks, which could result in breaches, service interruptions, and liability, with risks heightened by the remote workforce[261](index=261&type=chunk)[262](index=262&type=chunk) - The controlling stockholder (HTSC) is a PRC-based company, which subjects it to PRC laws that may influence decisions and requires CFIUS review for certain US acquisitions[286](index=286&type=chunk)[292](index=292&type=chunk) - As a 'controlled company' due to HTSC's majority ownership, the company is exempt from certain NYSE corporate governance requirements, such as having a majority of independent directors[319](index=319&type=chunk) [Item 2-5. Other Information](index=57&type=section&id=Item%202-5.%20Other%20Information) This section indicates no information to report for Items 2, 3, 4, and 5, covering unregistered sales, defaults, mine safety, and other disclosures - The report indicates 'Not applicable' for Items 2, 3, 4, and 5[333](index=333&type=chunk)[334](index=334&type=chunk) [Item 6. Exhibits](index=58&type=section&id=Item%206.%20Exhibits) This section lists exhibits filed with the Form 10-Q, including corporate foundational documents, agreements, and required officer certifications - The exhibits include foundational corporate documents, agreements, and required officer certifications (SOX 302 and 906)[335](index=335&type=chunk)[337](index=337&type=chunk)[339](index=339&type=chunk)

Financial Data and Key Metrics Changes - AssetMark reported record platform assets of $84.6 billion, a 34% increase year-over-year, driven by net flows of $2.2 billion and $3.5 billion in market gains [20][21] - Net revenue for the second quarter reached $128 million, reflecting a 33% year-over-year increase, with asset-based net revenue up 37.5% to $88.9 million [24][30] - Adjusted EBITDA was a record $40 million, up 58% year-over-year, with an adjusted EBITDA margin of 31.3%, an increase of 570 basis points year-over-year [32] Business Line Data and Key Metrics Changes - Organic growth has accelerated for four consecutive quarters, with year-to-date net flows at 11.2% of beginning-period platform assets [7][21] - The company added 201 new producing advisers in Q2 2021, the highest total since Q1 2020, bringing total engaged advisers to 2,691, which now account for 91% of platform assets [22][23] - The acquisition of Voyant is expected to contribute $20 million in revenue and $8 million in adjusted EBITDA for 2021, enhancing AssetMark's financial wellness vision [12][41] Market Data and Key Metrics Changes - The company noted that high net worth households account for over 43% of U.S. investable assets, indicating a growing market opportunity [14] - The shift towards fee-based solutions is being driven by regulatory changes, with programs in place to assist advisers in transitioning from commission-based to fee-based models [44][50] Company Strategy and Development Direction - AssetMark's growth strategy is centered around five key components, including meeting advisers' unique needs, delivering a holistic experience, and expanding into high net worth offerings [10][15] - The company aims to pursue strategic transactions to enhance capabilities and scale, positioning itself well for future M&A opportunities [17][34] - The focus on adviser-centric strategies is expected to drive long-term growth and shareholder value [18] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the second half of 2021, expecting continued strong organic growth and market impact, with revised net revenue growth outlook increased to 26% to 28% [34][35] - The potential for earlier-than-anticipated interest rate hikes could positively impact revenue diversification and earnings growth [26] Other Important Information - The company ended the quarter with $179.8 million in cash and a low debt position of $125 million, providing flexibility for future investments [33] - The effective tax rate for Q2 was 23.5%, lower than the previous year's rate, reflecting tax efficiencies created in 2020 [32] Q&A Session Summary Question: Insights on Voyant's future contributions - Management plans to invest in further integration of Voyant's capabilities and expects to cover costs within the regular capital budget, with a focus on expanding relationships in the U.S. and internationally [38][39] Question: Share of wallet capture from engaged advisers - Current share of wallet from engaged advisers is 50%, with plans to capture more through new product offerings and transitioning advisers to fee-based solutions [43][44] Question: Sources of organic growth acceleration - Organic growth is driven by share of wallet expansion, the move to fee-based solutions, and increased efficiency among advisers on the platform [46][48] Question: Future organic growth expectations - The company targets low to mid-double-digit organic growth as part of its ongoing objectives, with investments aimed at achieving these long-term goals [53] Question: Revenue run rate and infrastructure support - Management emphasized the need for continuous investment in infrastructure to support growth and expand the total addressable market through new services and technology [64]

AssetMark Financial Holdings, Inc. (NYSE:AMK) Q1 2021 Earnings Conference Call May 4, 2021 5:00 PM ET Company Participants Taylor Hamilton - Head of Investor Relations Natalie Wolfsen - Chief Executive Officer Gary Zyla - Chief Financial Officer Conference Call Participants Ryan Bailey - Goldman Sachs Patrick O'Shaughnessy - Raymond James Kenneth Worthington - JPMorgan Gerald O'Hara - Jefferies Michael Young - Truist Securities Operator Good afternoon, everyone, and welcome to the AssetMark's First Quarter ...