[Form 10-Q Filing Information](index=1&type=section&id=Form%2010-Q%20Filing%20Information) This document is a Quarterly Report on Form 10-Q for AssetMark Financial Holdings, Inc. for Q1 2021, identifying the registrant as an accelerated filer and emerging growth company - The document is a Quarterly Report on Form 10-Q for AssetMark Financial Holdings, Inc. for the quarterly period ended March 31, 2021[2](index=2&type=chunk) - The registrant is an accelerated filer and an emerging growth company[3](index=3&type=chunk) Common Stock and Exchange Information | Metric | Value | | :--- | :--- | | Common stock par value | $0.001 per share | | Trading symbol | AMK | | Exchange | New York Stock Exchange | | Commission File Number | 001-38980 | | Shares outstanding (as of April 30, 2021) | 72,459,255 | [Special Note Regarding Forward-Looking Statements](index=3&type=section&id=Special%20Note%20Regarding%20Forward-Looking%20Statements) This report contains forward-looking statements subject to risks, uncertainties, and assumptions, with actual results potentially differing materially due to various factors - This report contains forward-looking statements subject to risks, uncertainties, and assumptions, including projections of future financial performance, growth strategies, industry outlook, and the impacts of the COVID-19 pandemic[8](index=8&type=chunk) - Actual results may differ materially from these statements due to factors discussed in the 'Risk Factors' section, and the company is not obligated to update these statements[8](index=8&type=chunk) [Summary of Risk Factors](index=4&type=section&id=Summary%20of%20Risk%20Factors) The company's business is exposed to numerous risks, including revenue fluctuations, intense competition, reliance on financial advisers, and market conditions - The company's business is exposed to numerous risks, including revenue fluctuations, intense industry competition, reliance on the financial advisory industry, potential fee negotiations, investor withdrawals, and changes in market and economic conditions (including the COVID-19 pandemic)[10](index=10&type=chunk)[11](index=11&type=chunk) - Other significant risks include liability for fiduciary duty breaches, data and cybersecurity risks, influence from its PRC-regulated controlling stockholder, extensive government regulation, and potential conflicts of interest[11](index=11&type=chunk)[12](index=12&type=chunk) [PART I. FINANCIAL INFORMATION](index=5&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) [Item 1. Financial Statements (unaudited)](index=5&type=section&id=Item%201.%20Financial%20Statements%20(unaudited)) This section presents AssetMark Financial Holdings, Inc.'s unaudited condensed consolidated financial statements, including balance sheets, income, equity, and cash flow statements, with notes on organization and accounting policies [Condensed Consolidated Balance Sheets](index=5&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Condensed Consolidated Balance Sheets (in thousands) | ASSETS | March 31, 2021 (unaudited) | December 31, 2020 | | :--- | :--- | :--- | | **Current assets:** | | | | Cash and cash equivalents | $75,831 | $70,619 | | Restricted cash | 11,000 | 11,000 | | Investments, at fair value | 12,263 | 10,577 | | Fees and other receivables, net | 8,459 | 8,891 | | Income tax receivable, net | 17,178 | 8,596 | | Prepaid expenses and other current assets | 13,088 | 13,637 | | **Total current assets** | **137,819** | **123,320** | | Property, plant and equipment, net | 8,187 | 7,388 | | Capitalized software, net | 69,392 | 68,835 | | Other intangible assets, net | 654,286 | 655,736 | | Operating lease right-of-use assets | 24,512 | 27,496 | | Goodwill | 338,848 | 338,848 | | Other assets | 2,294 | 1,965 | | **Total assets** | **$1,235,338** | **$1,223,588** | | **LIABILITIES AND STOCKHOLDERS' EQUITY** | | | | **Current liabilities:** | | | | Accounts payable | $1,434 | $2,199 | | Accrued liabilities and other current liabilities | 32,602 | 43,694 | | **Total current liabilities** | **34,036** | **45,893** | | Long-term debt, net | 75,000 | 75,000 | | Other long-term liabilities | 17,241 | 16,302 | | Long-term portion of operating lease liabilities | 29,976 | 31,820 | | Deferred income tax liabilities, net | 149,500 | 149,500 | | **Total long-term liabilities** | **271,717** | **272,622** | | **Total liabilities** | **305,753** | **318,515** | | Commitments and contingencies | — | — | | **Stockholders' equity:** | | | | Common stock, $0.001 par value | 72 | 72 | | Additional paid-in capital | 883,858 | 850,430 | | Retained earnings | 45,655 | 54,571 | | **Total stockholders' equity** | **929,585** | **905,073** | | **Total liabilities and stockholders' equity** | **$1,235,338** | **$1,223,588** | [Condensed Consolidated Statements of Comprehensive Income](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income) Unaudited Condensed Consolidated Statements of Comprehensive Income (in thousands except share and per share data) | Revenue: | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :--- | :--- | :--- | | Asset-based revenue | $115,813 | $105,650 | | Spread-based revenue | 2,606 | 7,951 | | Other revenue | 587 | 1,289 | | **Total revenue** | **119,006** | **114,890** | | Operating expenses: | | | | Asset-based expenses | 36,094 | 35,015 | | Spread-based expenses | 676 | 1,289 | | Employee compensation | 67,302 | 43,497 | | General and operating expenses | 17,489 | 19,365 | | Professional fees | 4,260 | 3,831 | | Depreciation and amortization | 9,471 | 8,409 | | **Total operating expenses** | **135,292** | **111,406** | | Interest expense | 771 | 1,627 | | Other expense, net | (15) | 50 | | Income (loss) before income taxes | (17,042) | 1,807 | | Provision benefit from income taxes | (8,126) | (929) | | **Net income (loss)** | **(8,916)** | **2,736** | | **Net comprehensive income (loss)** | **$(8,916)** | **$2,736** | | Net income (loss) per share attributable to common stockholders: | | | | Basic | (0.13) | 0.04 | | Diluted | (0.13) | 0.04 | | Weighted average number of common shares outstanding, basic | 70,422,306 | 67,142,459 | | Weighted average number of common shares outstanding, diluted | 70,422,306 | 69,317,261 | [Condensed Consolidated Statements of Stockholders' Equity](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders%27%20Equity) Unaudited Condensed Consolidated Statements of Stockholders' Equity (in thousands except share data) | | Common Shares | Common stock Amount | Additional paid-in capital | Retained earnings | Accumulated other comprehensive income | Total stockholders' equity | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Balance at December 31, 2019 | 72,390,080 | $72 | $796,406 | $62,383 | $— | $858,861 | | Net income | — | — | — | 2,736 | — | 2,736 | | Share-based employee compensation | — | — | 13,188 | — | — | 13,188 | | **Balance at March 31, 2020** | **72,390,080** | **$72** | **$809,594** | **$65,119** | **$—** | **$874,785** | | Balance at December 31, 2020 | 72,459,255 | $72 | $850,430 | $54,571 | $— | $905,073 | | Net loss | — | — | — | (8,916) | — | (8,916) | | Share-based employee compensation | — | — | 33,428 | — | — | 33,428 | | **Balance at March 31, 2021** | **72,459,255** | **$72** | **$883,858** | **$45,655** | **$—** | **$929,585** | [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Unaudited Condensed Consolidated Statements of Cash Flows (in thousands) | CASH FLOWS FROM OPERATING ACTIVITIES | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :--- | :--- | :--- | | Net income (loss) | $(8,916) | $2,736 | | Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | | | Depreciation and amortization | 9,471 | 8,409 | | Interest | 190 | 78 | | Deferred income taxes | — | 522 | | Share-based compensation | 33,428 | 13,188 | | Changes in certain assets and liabilities: | | | | Fees and other receivables, net | (710) | (1,835) | | Prepaid expenses and other current assets | 804 | 944 | | Accounts payable, accrued liabilities and other current liabilities | (11,028) | (12,909) | | Income tax receivable, net | (8,582) | (1,884) | | **Net cash provided by operating activities** | **14,657** | **9,249** | | CASH FLOWS FROM INVESTING ACTIVITIES | | | | Purchase of WBI OBS Financial, LLC, net of cash received | — | (18,404) | | Purchase of investments | (1,363) | (1,014) | | Sale of investments | 151 | — | | Purchase of property and equipment | (231) | (416) | | Purchase of computer software | (8,002) | (6,095) | | **Net cash used in investing activities** | **(9,445)** | **(25,929)** | | Net change in cash, cash equivalents, and restricted cash | 5,212 | (16,680) | | Cash, cash equivalents, and restricted cash at beginning of period | 81,619 | 105,341 | | **Cash, cash equivalents, and restricted cash at end of period** | **$86,831** | **$88,661** | | SUPPLEMENTAL CASH FLOW INFORMATION | | | | Income taxes paid | $464 | $365 | | Interest paid | $577 | $1,547 | | Non-cash operating activities: | | | | Non-cash changes to right-of-use assets | $(2,263) | $38,495 | | Non-cash changes to lease liabilities | $(2,263) | $39,839 | [Notes to Unaudited Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) [Note 1. Organization and Nature of Business](index=9&type=section&id=Note%201.%20Organization%20and%20Nature%20of%20Business) AssetMark Financial Holdings, Inc. and its subsidiaries provide wealth management solutions to individual investors through financial advisers, offering an open-architecture product platform, tailored client advice, asset allocation, practice management, support services, and technology - The Company offers wealth management solutions to individual investors via financial advisers, including an open-architecture product platform, client advice, asset allocation, practice management, and technology[27](index=27&type=chunk) - Key subsidiaries include AssetMark Trust Company (custodial services), AssetMark, Inc. (investment adviser to proprietary funds), AssetMark Retirement Services, Inc. (401(k)/403(b) record-keeper), and AssetMark Brokerage, LLC (mutual fund distribution)[28](index=28&type=chunk)[29](index=29&type=chunk)[30](index=30&type=chunk) - The company is in the process of acquiring Voyant Inc. and recently merged OBS Financial Services into AssetMark, Inc[31](index=31&type=chunk)[32](index=32&type=chunk) [Note 2. Summary of Significant Accounting Policies](index=10&type=section&id=Note%202.%20Summary%20of%20Significant%20Accounting%20Policies) The financial statements are prepared in accordance with GAAP for interim reporting, with management's opinion that all necessary adjustments are included; the COVID-19 pandemic is expected to impact revenue, and the company adopted ASU 2019-12 with no significant impact - Unaudited condensed consolidated financial statements are prepared in accordance with GAAP for interim reporting, with all necessary normal recurring adjustments included[33](index=33&type=chunk) - The COVID-19 pandemic is expected to impact asset- and spread-based revenue, but the duration and extent of the impact on operations, financial condition, or liquidity for future periods cannot be predicted with certainty[36](index=36&type=chunk) - The company adopted ASU 2019-12 (Income Taxes) on January 1, 2021, with no significant impact, and is evaluating ASU 2020-04 (Reference Rate Reform)[38](index=38&type=chunk)[39](index=39&type=chunk) [Note 3. Prepaid Expenses and Other Current Assets](index=11&type=section&id=Note%203.%20Prepaid%20Expenses%20and%20Other%20Current%20Assets) Prepaid expenses and other current assets totaled **$13.088 million** as of March 31, 2021, a slight decrease from **$13.637 million** at December 31, 2020 Prepaid Expenses and Other Current Assets (in thousands) | Category | March 31, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Prepaid expenses | $7,671 | $8,182 | | Right-of-use leases | 3,828 | 4,117 | | Other | 1,589 | 1,338 | | **Total** | **$13,088** | **$13,637** | [Note 4. Acquisition of Voyant Inc.](index=11&type=section&id=Note%204.%20Acquisition%20of%20Voyant%20Inc.) On March 1, 2021, the Company agreed to acquire Voyant Inc., a financial planning and client digital engagement solutions provider, for approximately **$145 million**, payable in cash and unregistered common stock, subject to regulatory approval - On March 1, 2021, the Company entered an agreement to acquire Voyant Inc. for approximately **$145 million**[42](index=42&type=chunk) - The purchase price will be paid in a mix of cash and **994,036 unregistered shares** of common stock (approx. **$25 million value**) to Voyant's founders, subject to an 18-month lock-up period[42](index=42&type=chunk) - The acquisition is subject to customary terms and conditions, including regulatory approval[42](index=42&type=chunk) [Note 5. Goodwill and Intangible Assets](index=12&type=section&id=Note%205.%20Goodwill%20and%20Intangible%20Assets) Goodwill remained stable at **$338.848 million** as of March 31, 2021, with no impairment, while definite-lived intangible assets totaled **$654.286 million** with a **14.7-year** weighted-average useful life - Goodwill balance remained at **$338,848 thousand** as of March 31, 2021, with no impairment identified after qualitative testing related to COVID-19[45](index=45&type=chunk) Intangible Assets (in thousands) | Category | March 31, 2021 Net Carrying Amount | December 31, 2020 Net Carrying Amount | Estimated Remaining Useful Life (March 31, 2021) | | :--- | :--- | :--- | :--- | | Indefinite-lived: Broker-dealer relationships | $570,480 | $570,480 | N/A | | Definite-lived: Trade names | 35,709 | 36,282 | 16 years | | Definite-lived: Broker-dealer license | 8,999 | 9,144 | 16 years | | Definite-lived: ATC regulatory status | 18,155 | 18,446 | 16 years | | Definite-lived: GFPC adviser relationships | 12,257 | 12,511 | 12 years | | Definite-lived: OBS adviser and trust relationships | 8,686 | 8,873 | 11 years | | **Total** | **$654,286** | **$655,736** | **14.7 years (weighted average)** | - Amortization expense for definite-lived intangible assets was **$1,450 thousand** for the three months ended March 31, 2021, up from **$1,326 thousand** in the prior year[47](index=47&type=chunk) [Note 6. Accrued Liabilities and Other Current Liabilities](index=13&type=section&id=Note%206.%20Accrued%20Liabilities%20and%20Other%20Current%20Liabilities) Accrued liabilities and other current liabilities decreased to **$32.602 million** as of March 31, 2021, from **$43.694 million** at December 31, 2020, primarily due to reductions in accrued bonus and compensation and benefits payable Accrued Liabilities and Other Current Liabilities (in thousands) | Category | March 31, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Accrued bonus | $7,329 | $15,336 | | Compensation and benefits payable | 3,299 | 10,423 | | Current portion of operating lease liability | 2,674 | 4,095 | | Asset-based payables | 1,356 | 1,339 | | Other accrued expenses | 17,944 | 12,501 | | **Total** | **$32,602** | **$43,694** | [Note 7. Other Long-Term Liabilities](index=13&type=section&id=Note%207.%20Other%20Long-Term%20Liabilities) Other long-term liabilities increased slightly to **$17.241 million** as of March 31, 2021, mainly driven by an increase in deferred compensation plan liability Other Long-Term Liabilities (in thousands) | Category | March 31, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Contractor liability | $2,226 | $2,305 | | Deferred compensation plan liability | 11,758 | 10,087 | | Purchase commitments related to acquisition of GFPC | 3,257 | 3,910 | | **Total** | **$17,241** | **$16,302** | [Note 8. Fair Value Measurements](index=13&type=section&id=Note%208.%20Fair%20Value%20Measurements) The Company's financial assets and liabilities measured at fair value, primarily investments and deferred compensation liabilities, are classified as Level I, totaling **$12.263 million** for assets and **$11.758 million** for liabilities as of March 31, 2021 Fair Value of Financial Assets and Liabilities (in thousands) | Category | March 31, 2021 Fair Value | December 31, 2020 Fair Value | | :--- | :--- | :--- | | **Assets:** | | | | Equity investment and alternative investment securities funds | $505 | $490 | | Assets to fund deferred compensation liability | 11,758 | 10,087 | | **Total assets** | **$12,263** | **$10,577** | | **Liabilities:** | | | | Deferred compensation liability | $11,758 | $10,087 | | **Total liabilities** | **$11,758** | **$10,087** | - All fair value measurements for both assets and liabilities are classified as Level I, based on month-end quoted market prices for net asset value of various funds and securities[56](index=56&type=chunk) - The Company recognized unrealized gains of **$451 thousand** related to the deferred compensation asset and other expenses of **$451 thousand** related to the deferred compensation liability for the three months ended March 31, 2021[56](index=56&type=chunk)[58](index=58&type=chunk) [Note 9. Asset-Based Expenses](index=14&type=section&id=Note%209.%20Asset-Based%20Expenses) Asset-based expenses increased by **3.1%** to **$36.094 million** for the three months ended March 31, 2021, primarily driven by higher strategist and manager fees and premier broker-dealer fees Asset-Based Expenses (in thousands) | Category | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :--- | :--- | :--- | | Strategist and manager fees | $28,819 | $28,442 | | Premier broker-dealer fees | 3,882 | 3,059 | | Custody fees | 1,810 | 1,530 | | Fund advisory fees | 1,077 | 1,081 | | Marketing allowance | 505 | 903 | | Other | 1 | — | | **Total** | **$36,094** | **$35,015** | - Total asset-based expenses increased by **$1.079 million (3.1%)** year-over-year[60](index=60&type=chunk) [Note 10. Debt](index=14&type=section&id=Note%2010.%20Debt) The Company repaid its Prior Credit Agreement in December 2020 and entered into a new **$250 million** senior secured revolving credit facility, drawing down **$75 million**, resulting in a **52.6%** decrease in interest expense year-over-year - On December 30, 2020, the Company entered into a New Credit Agreement for a **$250 million** revolving credit facility and drew down **$75 million** at an annual interest rate of **2.25%**[61](index=61&type=chunk) - The proceeds from the New Revolving Credit Facility, along with cash on hand, were used to fully repay the previous Term Loan[61](index=61&type=chunk) - Interest expense decreased by **$856 thousand (52.6%)** from **$1,627 thousand** in Q1 2020 to **$771 thousand** in Q1 2021[16](index=16&type=chunk)[61](index=61&type=chunk) [Note 11. Leases](index=14&type=section&id=Note%2011.%20Leases) The Company primarily has operating leases for facilities, with ROU assets and lease liabilities recognized on the balance sheet, incurring **$1.306 million** in operating lease costs for Q1 2021 and having **$37.363 million** in total future minimum lease payments - Operating lease ROU assets and liabilities are recognized based on the present value of lease payments, using an estimated incremental borrowing rate[62](index=62&type=chunk) - Operating lease costs were **$1,306 thousand** and related variable lease costs were **$197 thousand** for the three months ended March 31, 2021[63](index=63&type=chunk) Future Minimum Lease Payments (in thousands) as of March 31, 2021 | Period | Amount | | :--- | :--- | | Remainder of 2021 | $1,680 | | 2022 | 5,437 | | 2023 | 5,384 | | 2024 | 5,663 | | 2025 | 5,822 | | 2026 and thereafter | 13,377 | | **Total future minimum lease payments** | **$37,363** | | Less: imputed interest | (4,713) | | **Total operating lease liabilities** | **$32,650** | [Note 12. Share-Based Compensation](index=15&type=section&id=Note%2012.%20Share-Based%20Compensation) Share-based compensation expense significantly increased to **$33.428 million** for Q1 2021, primarily due to accelerated vesting of Restricted Stock Awards (RSAs) and new grants of Stock Appreciation Rights (SARs) - Total share-based compensation expense increased to **$33,428 thousand** for the three months ended March 31, 2021, up from **$13,188 thousand** in the prior year[22](index=22&type=chunk) - This increase was primarily driven by **$30,574 thousand** in RSA expense (up from **$12,252 thousand** in Q1 2020), with **3,148,573 RSAs** vesting in Q1 2021[68](index=68&type=chunk) - New SARs were issued in 2020 with a grant date fair value of **$9,239 thousand**, contributing **$750 thousand** in expense for Q1 2021[72](index=72&type=chunk) [Note 13. Commitments and Contingencies](index=16&type=section&id=Note%2013.%20Commitments%20and%20Contingencies) The Company is subject to litigation and regulatory investigations in the ordinary course of business, but management believes the ultimate resolution will not materially affect the consolidated financial condition, results of operations, or cash flows - The Company faces risks from litigation and regulatory investigations, including class action lawsuits and inquiries from state, federal, and other authorities[73](index=73&type=chunk) - A substantial legal liability or significant regulatory action could adversely affect business, financial condition, and results of operations, even if the company ultimately prevails[73](index=73&type=chunk) - Management, after consulting legal counsel, believes that the ultimate resolution of pending legal proceedings will not have a material effect on the consolidated financial condition, results of operations, or cash flows[73](index=73&type=chunk) [Note 14. Income Taxes](index=16&type=section&id=Note%2014.%20Income%20Taxes) The Company's effective income tax rate was **47.7%** for Q1 2021, a significant change from **(51.4)%** in Q1 2020, primarily due to the income tax effects of increased share-based compensation relative to income before taxes - The effective income tax rate was **47.7%** for the three months ended March 31, 2021, compared to **(51.4)%** for the same period in 2020[74](index=74&type=chunk) - This change was primarily due to changes in the relative amounts of share-based compensation and income before taxes across periods[74](index=74&type=chunk) - The Coronavirus Aid, Relief, and Economic Security (CARES) Act had no significant impact on the Company's financial condition and results of operations for Q1 2021[75](index=75&type=chunk) [Note 15. Related Party Transactions](index=17&type=section&id=Note%2015.%20Related%20Party%20Transactions) As of March 31, 2021, the Company had a **$143 thousand** receivable from Huatai Securities Co., Ltd. (HTSC) for professional services related to HTSC's consolidated audit - As of March 31, 2021, the Company had a **$143 thousand** receivable from Huatai Securities Co., Ltd. (HTSC)[77](index=77&type=chunk) - This receivable represents cash paid by the Company for professional services incurred on behalf of HTSC related to IFRS audit fees[77](index=77&type=chunk) [Note 16. Net Income (loss) Per Share Attributable to Common Stockholders](index=17&type=section&id=Note%2016.%20Net%20Income%20(loss)%20Per%20Share%20Attributable%20to%20Common%20Stockholders) Basic and diluted net loss per share for Q1 2021 was **$(0.13)**, a decrease from net income per share of **$0.04** in Q1 2020, primarily due to the net loss incurred Net Income (Loss) Per Share Attributable to Common Stockholders | Metric | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :--- | :--- | :--- | | Net income (loss) attributable to common stockholders (in thousands) | $(8,916) | $2,736 | | Weighted average number of shares outstanding, basic | 70,422,306 | 67,142,459 | | Net income (loss) per share, basic | $(0.13) | $0.04 | | Weighted average shares used in computing diluted EPS | 70,422,306 | 69,317,261 | | Net income (loss) per share, diluted | $(0.13) | $0.04 | - Certain securities (stock options, SARs, RSUs, RSAs) were not included in diluted EPS calculation for Q1 2021 as they did not have a dilutive effect due to the net loss[80](index=80&type=chunk) [Note 17. Subsequent Events](index=17&type=section&id=Note%2017.%20Subsequent%20Events) There were no subsequent events reported after March 31, 2021 - No subsequent events were reported after the period ended March 31, 2021[80](index=80&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=18&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section reviews AssetMark's Q1 2021 financial performance and operational metrics, highlighting revenue growth, a net loss driven by increased share-based compensation, and significant asset and adviser growth [Overview](index=18&type=section&id=Overview) AssetMark is a leading provider of wealth management and technology solutions for independent financial advisers, offering an end-to-end platform that supports client engagement, financial planning, performance reporting, and billing, enabling advisers to grow their businesses - AssetMark provides extensive wealth management and technology solutions to independent financial advisers, enabling them to outsource high-cost and specialty services[83](index=83&type=chunk) - The platform offers an end-to-end experience, covering client engagement, financial planning, performance reporting, and billing, to enhance adviser efficiency and business growth[83](index=83&type=chunk) [Financial Highlights](index=18&type=section&id=Financial%20Highlights) For Q1 2021, total revenue increased by **3.6%** to **$119.0 million**, driven by a **9.6%** rise in asset-based revenue, but the company reported a net loss of **$8.9 million**, or **$(0.13)** per share, compared to net income of **$2.7 million** in Q1 2020, primarily due to increased expenses Financial Highlights (in millions, except per share data) | Metric | Q1 2021 | Q1 2020 | Change (%) | | :--- | :--- | :--- | :--- | | Total revenue | $119.0 | $114.9 | 3.6% | | Asset-based revenue | $115.8 | $105.7 | 9.6% | | Spread-based revenue | $2.6 | $7.9 | (67.2)% | | Net income (loss) | $(8.9) | $2.7 | (429.6)% | | Net income (loss) per share | $(0.13) | $0.04 | (425.0)% | | Adjusted net income | $22.2 | $17.7 | 25.4% | | Adjusted EBITDA | $34.1 | $28.4 | 20.1% | [Asset and Adviser Growth Trends](index=18&type=section&id=Asset%20and%20Adviser%20Growth%20Trends) Platform assets grew significantly by **40.8%** to **$78.9 billion** as of March 31, 2021, while the number of engaged advisers increased by **22.1%** to **2,611** Asset and Adviser Growth Trends | Metric | March 31, 2021 | March 31, 2020 | Change (%) | | :--- | :--- | :--- | :--- | | Platform assets | $78.9 billion | $56.0 billion | 40.8% | | Engaged advisers | 2,611 | 2,138 | 22.1% | [Key Factors Affecting Our Performance](index=18&type=section&id=Key%20Factors%20Affecting%20Our%20Performance) The Company's performance is influenced by its ability to expand its financial adviser base, attract new advisers by capitalizing on industry trends, and continuous investment in technology, with competition, market conditions, and strategic acquisitions also playing crucial roles - Performance depends on attracting new advisers and increasing 'share of wallet' from existing advisers through its end-to-end wealth management offering[87](index=87&type=chunk) - Continued investment in technology (**$259 million** from 2015-2021) is crucial for revenue growth and delivering efficient solutions, despite potential short-term profitability impacts[90](index=90&type=chunk) - Revenue is heavily influenced by market and economic conditions, as most revenue is asset-based, and spread-based revenue is sensitive to interest rate changes[93](index=93&type=chunk) - Strategic acquisitions, such as Voyant Inc. in March 2021, are pursued to enhance scale, operating leverage, and capabilities[94](index=94&type=chunk) - The COVID-19 pandemic has adversely impacted asset- and spread-based revenue due to market declines and lower interest rates, but the company maintains positive operating cash flows and liquidity[95](index=95&type=chunk)[96](index=96&type=chunk) [Key Operating Metrics](index=20&type=section&id=Key%20Operating%20Metrics) AssetMark tracks various operational and financial metrics to measure performance, including platform assets which reached **$78.88 billion**, net flows of **$1.927 billion** for Q1 2021, **2,611** engaged advisers, and assets in custody at ATC increasing to **$57.778 billion** Key Operating Metrics (in millions, except percentages and adviser/household counts) | Metric | 2021 | 2020 | | :--- | :--- | :--- | | Platform assets (at period-beginning) | $74,520 | $61,608 | | Net flows | $1,927 | $1,834 | | Market impact net of fees | $2,433 | $(9,477) | | Acquisition impact | — | $2,060 | | Platform assets (at period-end) | $78,880 | $56,025 | | Net flows lift (% of beginning-of-year platform assets) | 2.6% | 3.0% | | Advisers (at period-end) | 8,477 | 8,477 | | Engaged advisers (at period-end) | 2,611 | 2,138 | | Assets from engaged advisers (at period-end) | $71,635 | $48,793 | | Households (at period-end) | 190,915 | 176,681 | | New producing advisers | 194 | 217 | | Production lift from existing advisers (annualized %) | 21.8% | 23.3% | | Assets in custody at ATC (at period-end) | $57,778 | $38,770 | | ATC client cash (at period-end) | $2,497 | $2,991 | | Total revenue | $119 | $115 | | Net income (loss) | $(8.9) | $2.7 | | Net income (loss) margin (%) | (7.5)% | 2.4% | | Capital expenditure | $8.2 | $6.5 | | Adjusted EBITDA | $34.1 | $28.4 | | Adjusted EBITDA margin (%) | 28.6% | 24.7% | | Adjusted net income | $22.2 | $17.7 | - Platform assets increased significantly year-over-year due to market recovery and growth, reaching **$78,880 million** as of March 31, 2021[101](index=101&type=chunk) - ATC client cash, a primary source of spread-based revenue, decreased from **$2,991 million** in Q1 2020 to **$2,497 million** in Q1 2021, representing **4.3%** of total assets in custody[112](index=112&type=chunk) [Non-GAAP Financial Metrics](index=22&type=section&id=Non-GAAP%20Financial%20Metrics) The Company uses Adjusted EBITDA and Adjusted Net Income as non-GAAP metrics to assess operating performance, excluding non-cash charges and other adjustments; for Q1 2021, Adjusted EBITDA was **$34.1 million (28.6% margin)** and Adjusted Net Income was **$22.2 million**, both showing increases from Q1 2020 Adjusted EBITDA Reconciliation (in thousands, except percentages) | Metric | 2021 | 2020 | 2021 (%) | 2020 (%) | | :--- | :--- | :--- | :--- | :--- | | Net income (loss) | $(8,916) | $2,736 | (7.5)% | 2.4% | | Provision for (benefit from) income taxes | (8,126) | (929) | (6.8)% | (0.8)% | | Interest income (loss) | (25) | (482) | (—)% | (0.4)% | | Interest expense | 771 | 1,627 | 0.6% | 1.4% | | Amortization/depreciation | 9,471 | 8,409 | 8.0% | 7.3% | | **EBITDA** | **$(6,825)** | **$11,361** | **(5.7)%** | **9.9%** | | Share-based compensation | 33,428 | 13,188 | 28.0% | 11.5% | | Reorganization and integration costs | 4,496 | 103 | 3.8% | 0.1% | | Acquisition expenses | 2,817 | 3,577 | 2.3% | 3.1% | | Business continuity plan | 72 | 96 | 0.1% | 0.1% | | Office closures | 121 | — | 0.1% | — | | Other expenses | (15) | 50 | (—)% | — | | **Adjusted EBITDA** | **$34,094** | **$28,375** | **28.6%** | **24.7%** | Adjusted Net Income Reconciliation (in thousands) | Metric | 2021 | 2020 | | :--- | :--- | :--- | | Net income (loss) | $(8,916) | $2,736 | | Acquisition-related amortization | 5,108 | 5,108 | | Expense adjustments | 7,490 | 3,825 | | Share-based compensation | 33,428 | 13,188 | | Tax effect of adjustments | (14,937) | (7,150) | | **Adjusted net income** | **$22,173** | **$17,707** | - Adjusted EBITDA and Adjusted Net Income are used to evaluate operating performance by excluding non-cash items and non-recurring costs like share-based compensation, acquisition expenses, and reorganization costs[117](index=117&type=chunk)[126](index=126&type=chunk) [Components of Results of Operations](index=25&type=section&id=Components%20of%20Results%20of%20Operations) This section details the components of revenue and operating expenses, showing that asset-based revenue, comprising **97.3%** of total revenue, increased due to higher assets under management, while spread-based revenue significantly decreased due to lower interest rates, and operating expenses rose primarily from increased employee compensation - Asset-based revenue accounted for approximately **97.3%** of total revenue in Q1 2021, increasing due to higher assets under management from market recovery[132](index=132&type=chunk) - Spread-based revenue decreased significantly in Q1 2021 due to the continued decline in U.S. interest rates[133](index=133&type=chunk) - Employee compensation increased substantially, primarily due to non-cash share-based compensation and reorganization expenses[138](index=138&type=chunk) - General and operating expenses are expected to increase in future periods due to costs associated with being a publicly traded company[139](index=139&type=chunk) [Results of Operations (Three Months Ended March 31, 2021 Compared to Three Months Ended March 31, 2020)](index=27&type=section&id=Results%20of%20Operations%20(Three%20Months%20Ended%20March%2031%2C%202021%20Compared%20to%20Three%20Months%20Ended%20March%2031%2C%202020)) For Q1 2021, total revenue increased by **3.6%** to **$119.0 million**, driven by a **9.6%** rise in asset-based revenue, partially offset by a **67.2%** decline in spread-based revenue, while total operating expenses surged by **21.4%** to **$135.3 million**, leading to a net loss of **$8.9 million** Results of Operations (in thousands) | Category | Q1 2021 | Q1 2020 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | **Revenue:** | | | | | | Asset-based revenue | $115,813 | $105,650 | $10,163 | 9.6 | | Spread-based revenue | 2,606 | 7,951 | (5,345) | (67.2) | | Other revenue | 587 | 1,289 | (702) | (54.5) | | **Total revenue** | **119,006** | **114,890** | **4,116** | **3.6** | | **Operating expenses:** | | | | | | Asset-based expenses | 36,094 | 35,015 | 1,079 | 3.1 | | Spread-based expenses | 676 | 1,289 | (613) | (47.6) | | Employee compensation | 67,302 | 43,497 | 23,805 | 54.7 | | General and operating expenses | 17,489 | 19,365 | (1,876) | (9.7) | | Professional fees | 4,260 | 3,831 | 429 | 11.2 | | Depreciation and amortization | 9,471 | 8,409 | 1,062 | 12.6 | | **Total operating expenses** | **135,292** | **111,406** | **23,886** | **21.4** | | Interest expense | 771 | 1,627 | (856) | (52.6) | | Other expense, net | (15) | 50 | (65) | (130.0) | | Income (loss) before income taxes | (17,042) | 1,807 | (18,849) | (1,043.1) | | Provision for (benefit from) income taxes | (8,126) | (929) | (7,197) | 774.7 | | **Net comprehensive income (loss)** | **$(8,916)** | **$2,736** | **$(11,652)** | **(425.9)** | - Employee compensation increased by **$23.8 million (54.7%)** due to a **$20.2 million** increase in share-based compensation (related to former CEO's departure and accelerated RSAs) and a **$2.1 million** increase in reorganization costs[152](index=152&type=chunk) - General and operating expenses decreased by **$1.9 million (9.7%)**, primarily due to a **$5.3 million** decrease in travel and event costs, partially offset by higher reorganization costs and software expenses[153](index=153&type=chunk) [Liquidity and Capital Resources](index=29&type=section&id=Liquidity%20and%20Capital%20Resources) The Company's liquidity is primarily financed by cash flows from operations and a new **$250 million** revolving credit facility, with **$75 million** drawn, and as of March 31, 2021, cash and cash equivalents were **$75.8 million**, with the Company in compliance with all financial covenants - As of March 31, 2021, the Company had **$75.8 million** in cash and cash equivalents and **$11.0 million** in restricted cash[160](index=160&type=chunk) - The Company's liquidity needs are expected to be met by cash from operations and the **$250 million** New Revolving Credit Facility, with **$75 million** drawn as of December 30, 2020[160](index=160&type=chunk)[163](index=163&type=chunk)[164](index=164&type=chunk) - Cash flows from operating activities increased by **$5.4 million** in Q1 2021, primarily due to increased share-based compensation and depreciation/amortization, offset by a net loss[170](index=170&type=chunk) - Cash used in investing activities decreased by **$16.5 million** in Q1 2021, mainly due to the absence of the OBS acquisition payment made in Q1 2020, partially offset by increased capital expenditures[171](index=171&type=chunk) - As of March 31, 2021, the Company was in compliance with all applicable covenants under the New Credit Agreement, including Total Leverage Ratio and interest coverage ratio[167](index=167&type=chunk) [Contractual Obligations](index=31&type=section&id=Contractual%20Obligations) There have been no material changes to the Company's contractual obligations and commitments as of March 31, 2021, compared to those disclosed in its Annual Report on Form 10-K for the year ended December 31, 2020 - No material changes to contractual obligations and commitments were reported as of March 31, 2021, compared to the prior Annual Report on Form 10-K[173](index=173&type=chunk) [Off-Balance Sheet Arrangements](index=31&type=section&id=Off-Balance%20Sheet%20Arrangements) The Company had no off-balance sheet arrangements as of December 31, 2020, and March 31, 2021 - The Company had no off-balance sheet arrangements as of December 31, 2020, and March 31, 2021[174](index=174&type=chunk) [JOBS Act Accounting Election](index=31&type=section&id=JOBS%20Act%20Accounting%20Election) As an emerging growth company under the JOBS Act, the Company has elected to use the extended transition period for complying with new or revised financial accounting standards - As an 'emerging growth company' under the JOBS Act, the Company has elected to use the extended transition period for new or revised accounting standards[175](index=175&type=chunk) [Critical Accounting Policies and Estimates](index=31&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) The Company's financial statements rely on GAAP and require estimates, assumptions, and judgments, with critical accounting policies detailed in the Annual Report on Form 10-K and Note 2 of this report - Financial statements are prepared in accordance with GAAP, requiring estimates, assumptions, and judgments that can materially affect results[176](index=176&type=chunk) - Critical accounting policies, defined by material judgment and potential impact on results, are detailed in the Annual Report on Form 10-K and Note 2[176](index=176&type=chunk) [Recently Issued Accounting Pronouncements](index=31&type=section&id=Recently%20Issued%20Accounting%20Pronouncements) Information regarding recently issued accounting pronouncements is provided in Note 2 to the unaudited condensed consolidated financial statements - Details on recently issued accounting pronouncements are available in Note 2 of the unaudited condensed consolidated financial statements[177](index=177&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=31&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The Company is exposed to market risk, primarily from asset-based revenue fluctuations due to changes in platform asset values, and interest rate risk affecting spread-based revenue and borrowing costs, with operational risks also being significant [Market Risk](index=31&type=section&id=Market%20Risk) The Company's market risk is directly tied to asset-based revenue, which constituted **97%** of total revenue in Q1 2021, where a **1%** decrease in platform asset value could lead to a **1%** decline in total revenue and an **8%** decline in pre-tax income - **97%** of total revenue in Q1 2021 was derived from asset-based fees, directly linked to the market value of assets on the platform[178](index=178&type=chunk) - A **1%** decrease in aggregate platform asset value could result in a **1%** decline in total revenue and an **8%** decline (**$0.8 million**) in pre-tax income[178](index=178&type=chunk) [Interest Rate Risk](index=32&type=section&id=Interest%20Rate%20Risk) Interest rate changes significantly impact spread-based revenue and borrowing costs; a **100 basis point** change in short-term interest rates could alter annual pre-tax income by approximately **$26 million**, and borrowing costs would increase by about **$0.8 million** annually for every **100 basis point** LIBOR increase - A **100 basis point** change in short-term interest rates could increase or decrease annual pre-tax income by approximately **$26 million**, based on **$2.5 billion** in client cash at ATC[180](index=180&type=chunk) - A **100 basis point** increase in LIBOR-based interest rates would increase annual interest expense by approximately **$0.8 million** on amounts drawn under the New Revolving Credit Facility[181](index=181&type=chunk) [Operational Risk](index=32&type=section&id=Operational%20Risk) Operational risk encompasses losses from improper transaction execution, technology deficiencies, or control breaches, which could lead to financial loss, regulatory sanctions, or reputational damage, especially during high market volatility - Operational risk includes losses from improper transaction execution, technology deficiencies, and control breaches, which can lead to financial loss, regulatory sanctions, or reputational damage[182](index=182&type=chunk) - The Company relies on its employees and systems to process a large number of transactions, and failures in these areas, particularly during high market volatility, could increase financial losses[182](index=182&type=chunk) - Mitigation strategies include business continuity plans, system redundancies, and specific policies and procedures to identify and manage operational risk[182](index=182&type=chunk) [Item 4. Controls and Procedures](index=32&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that the Company's disclosure controls and procedures were effective as of March 31, 2021, providing reasonable assurance for timely and accurate financial reporting, with no material changes in internal control over financial reporting during the quarter [Evaluation of Disclosure Controls and Procedures](index=32&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) As of March 31, 2021, the Company's management, with the participation of its principal executive and financial officers, concluded that its disclosure controls and procedures were effective at a reasonable assurance level - Management, including the principal executive and financial officers, evaluated and concluded that disclosure controls and procedures were effective as of March 31, 2021[183](index=183&type=chunk) - Disclosure controls are designed to provide reasonable assurance that required information is recorded, processed, summarized, and reported timely[183](index=183&type=chunk) [Changes in Internal Control over Financial Reporting](index=32&type=section&id=Changes%20in%20Internal%20Control%20over%20Financial%20Reporting) There were no material changes in the Company's internal control over financial reporting during the quarter ended March 31, 2021 - No material changes in internal control over financial reporting occurred during the quarter ended March 31, 2021[184](index=184&type=chunk) [Inherent Limitations on Effectiveness of Controls](index=32&type=section&id=Inherent%20Limitations%20on%20Effectiveness%20of%20Controls) Controls and procedures, regardless of design, can only offer reasonable assurance of achieving objectives, and management applies judgment in evaluating cost-benefit, as absolute assurance against misstatements or fraud is not possible - Controls and procedures provide only reasonable assurance, and management's judgment is applied in evaluating their cost-benefit relationship[185](index=185&type=chunk) - No evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or be detected[185](index=185&type=chunk) [PART II. OTHER INFORMATION](index=33&type=section&id=PART%20II.%20OTHER%20INFORMATION) [Item 1. Legal Proceedings](index=33&type=section&id=Item%201.%20Legal%20Proceedings) The Company and its subsidiaries are regularly subject to regulatory examinations and inquiries, including an SEC examination report and subpoenas related to potential conflicts of interest disclosures, but management believes these will not materially affect financial condition or results of operations - The Company's SEC-registered subsidiaries received an examination report and subpoenas from the SEC's Division of Enforcement in July 2020, primarily related to disclosure of potential conflicts of interest[186](index=186&type=chunk) - The inquiries are part of a broader SEC initiative examining conflicts of interest in the investment advisory industry[186](index=186&type=chunk) - Management is cooperating fully and believes the ultimate resolution will not have a material effect on the consolidated financial condition, results of operations, or cash flows[186](index=186&type=chunk) [Item 1A. Risk Factors](index=33&type=section&id=Item%201A.%20Risk%20Factors) This section details risks impacting the Company's operations, financial condition, and business, covering intellectual property, data privacy, cybersecurity, regulatory compliance, and controlling stockholder influence [Risks Related to Our Business and Operations](index=33&type=section&id=Risks%20Related%20to%20Our%20Business%20and%20Operations) The Company faces business risks including revenue volatility from market conditions and interest rates, intense competition, reliance on advisers, fee pressures, operational challenges, and integration difficulties from acquisitions - Revenue may fluctuate due to declines in financial market assets, lower interest rates, securities price volatility (including from COVID-19), and downward pressure on fees[186](index=186&type=chunk)[194](index=194&type=chunk) - The Company operates in an intensely competitive industry, facing firms with greater resources and potential in-house capabilities from clients, which could hurt financial performance[187](index=187&type=chunk)[188](index=188&type=chunk) - Failure to introduce new investment solutions, remediate operational errors, or successfully convert client assets to its platform could materially adversely affect results[196](index=196&type=chunk)[197](index=197&type=chunk)[205](index=205&type=chunk) - Acquisitions pose integration difficulties, diversion of management resources, unanticipated costs, and potential dilution to stockholders[200](index=200&type=chunk) - The Company is exposed to liability for breaches of fiduciary duties, reputational harm from misconduct or conflicts of interest, and reliance on key personnel and third-party service providers[201](index=201&type=chunk)[202](index=202&type=chunk)[215](index=215&type=chunk)[216](index=216&type=chunk) - Lack of liquidity or access to capital, and restrictions in debt agreements, could impair business and financial condition, potentially forcing asset sales or refinancing[219](index=219&type=chunk)[223](index=223&type=chunk)[224](index=224&type=chunk) [Risks Related to Intellectual Property, Data Privacy and Cybersecurity](index=41&type=section&id=Risks%20Related%20to%20Intellectual%20Property%2C%20Data%20Privacy%20and%20Cybersecurity) The Company faces significant risks from data storage, cybersecurity threats, and evolving data privacy laws, potentially leading to regulatory actions, litigation, reputational harm, and costly compliance or intellectual property infringement issues - Storing extensive personal investment and financial information exposes the Company to liability from inappropriate disclosure, network penetration, or misappropriation, leading to regulatory investigations, fines, and reputational harm[229](index=229&type=chunk) - The Company is exposed to data and cybersecurity risks, including cyber-attacks, fraudulent activity, and data breaches, which could result in service interruptions, harm to reputation, costly litigation, and significant liability[231](index=231&type=chunk)[233](index=233&type=chunk) - Compliance with rapidly evolving data protection laws (e.g., CCPA, CPRA) is complex and costly, with potential for increased liabilities, restrictions on operations, and enforcement actions[237](index=237&type=chunk)[238](index=238&type=chunk)[239](index=239&type=chunk) - Failure to protect proprietary technology and intellectual property rights, or infringement upon third-party IP, could result in significant costs, diversion of management attention, and competitive injury[244](index=244&type=chunk)[246](index=246&type=chunk) [Risks Related to Our Controlling Stockholder's Ultimate Parent Being a PRC Company with Stock Listed in Hong Kong and Shanghai](index=47&type=section&id=Risks%20Related%20to%20Our%20Controlling%20Stockholder%27s%20Ultimate%20Parent%20Being%20a%20PRC%20Company%20with%20Stock%20Listed%20in%20Hong%20Kong%20and%20Shanghai) AssetMark is influenced by its PRC-controlled stockholder, subjecting it to PRC laws, stock exchange requirements, and potential CFIUS review for acquisitions, which may impact corporate decisions and transactions - The controlling stockholder, a PRC enterprise, is subject to PRC laws and regulations that may influence its decisions regarding AssetMark's business and operations, including requiring approval for certain corporate actions[253](index=253&type=chunk)[254](index=254&type=chunk) - HTSC's listing on the Shanghai and Hong Kong Stock Exchanges requires shareholder approval for certain major transactions by AssetMark, such as asset purchases/sales, mergers, and share issuances, which could restrict AssetMark's ability to engage in such transactions[255](index=255&type=chunk)[256](index=256&type=chunk) - As a 'foreign person' under CFIUS regulations due to HTSC's ownership, AssetMark's future acquisitions or investments in U.S. businesses may be subject to CFIUS review, potentially leading to delays, conditions, or prevention of transactions[259](index=259&type=chunk) [Risks Related to Regulation and Litigation](index=48&type=section&id=Risks%20Related%20to%20Regulation%20and%20Litigation) Operating in a highly regulated industry, the Company faces risks from non-compliance, changing laws, internal control weaknesses, ERISA issues, and litigation, which could lead to fines, sanctions, or business practice changes - The Company is subject to extensive government regulation in the U.S. (SEC, CFTC, FINRA, state laws), and non-compliance could result in fines, suspensions, or revocation of registrations[260](index=260&type=chunk)[261](index=261&type=chunk)[262](index=262&type=chunk)[263](index=263&type=chunk)[265](index=265&type=chunk) - Changes to laws or regulations, such as Reg BI and Form CRS, or new interpretations, could adversely affect business models, increase liability, and raise compliance costs[266](index=266&type=chunk)[267](index=267&type=chunk) - Failure to maintain effective internal controls, comply with ERISA and Internal Revenue Code regulations, or properly disclose conflicts of interest could lead to reputational harm, litigation, and penalties[269](index=269&type=chunk)[270](index=270&type=chunk)[272](index=272&type=chunk) - A change of control may require FINRA approval and client consent to advisory agreements, and failure to obtain these could adversely affect operations[273](index=273&type=chunk)[274](index=274&type=chunk) [Risks Related to Ownership of Our Common Stock](index=51&type=section&id=Risks%20Related%20to%20Ownership%20of%20Our%20Common%20Stock) HTSC's majority ownership controls decisions, potentially conflicting with other stockholders, while stock price volatility, reduced investor protections as a 'controlled' and 'emerging growth' company, and increased compliance costs pose risks - HTSC's **70.2%** voting interest allows it to control management and stockholder approval matters, potentially delaying change of control or influencing decisions in its own interest[275](index=275&type=chunk)[276](index=276&type=chunk) - The common stock price may be highly volatile due to market conditions, financial results, new products, analyst reports, and potential sales of large blocks of stock by existing stockholders[277](index=277&type=chunk)[280](index=280&type=chunk) - As a 'controlled company' and 'emerging growth company,' the Company relies on exemptions from certain NYSE corporate governance and SEC disclosure requirements, which may reduce investor protections and affect stock attractiveness[284](index=284&type=chunk)[286](index=286&type=chunk) - Becoming a fully compliant public company will strain resources and management, incurring increased costs and potentially distracting from business operations[287](index=287&type=chunk)[288](index=288&type=chunk)[289](index=289&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=55&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This item is not applicable to the current report - This section is marked as 'Not applicable'[299](index=299&type=chunk) [Item 3. Defaults Upon Senior Securities](index=55&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) This item is not applicable to the current report - This section is marked as 'Not applicable'[299](index=299&type=chunk) [Item 4. Mine Safety Disclosures](index=55&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the current report - This section is marked as 'Not applicable'[299](index=299&type=chunk) [Item 5. Other Information](index=55&type=section&id=Item%205.%20Other%20Information) This item is not applicable to the current report - This section is marked as 'Not applicable'[299](index=299&type=chunk) [Item 6. Exhibits](index=56&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with the Quarterly Report on Form 10-Q, including organizational documents, agreements, certifications, and XBRL-related documents - The exhibits include the Amended and Restated Certificate of Incorporation and Bylaws, Registration Rights Agreement, Separation Agreement, Subsidiaries list, and various certifications (e.g., 302 and 906 certifications)[301](index=301&type=chunk) - XBRL (eXtensible Business Reporting Language) documents are also filed, including the Instance Document, Taxonomy Extension Schema, Calculation Linkbase, Definition Linkbase, Label Linkbase, and Presentation Linkbase[301](index=301&type=chunk) [Signatures](index=57&type=section&id=Signatures) The Quarterly Report on Form 10-Q was duly signed on behalf of AssetMark Financial Holdings, Inc. by its Chief Executive Officer, Natalie Wolfsen, and Chief Financial Officer, Gary Zyla, on May 7, 2021 - The Quarterly Report on Form 10-Q was signed by Natalie Wolfsen, Chief Executive Officer, and Gary Zyla, Chief Financial Officer, on May 7, 2021[303](index=303&type=chunk)[304](index=304&type=chunk)

PART I [Business](index=5&type=section&id=Item%201.%20Business) AssetMark offers wealth management and technology solutions to independent financial advisers, with asset-based revenue and platform assets growing to $75 billion by 2020 - AssetMark's platform assets grew at a **21% compounded annual growth rate** from **$29 billion** at the end of 2015 to **$75 billion** at the end of 2020[14](index=14&type=chunk) - As of December 31, 2020, the platform served over **186,000 investor households** through approximately **8,400 adviser relationships**[14](index=14&type=chunk) FY 2020 Financial Highlights | Metric | Value (USD) | | :--- | :--- | | Total Revenue | $432.1 million | | Net Loss | $7.8 million | | Adjusted EBITDA | $115.0 million | | Adjusted Net Income | $73.2 million | - The company's revenue model is highly recurring, with **99% of 2020 revenue** being recurring; asset-based revenue constituted **95% of total revenue**, while spread-based revenue accounted for **4%**[30](index=30&type=chunk) - As of December 31, 2020, the company had **732 employees**; the workforce is **57% male** and **43% female**, with **66% identifying as white** and **19% as underrepresented minorities**[38](index=38&type=chunk) [Risk Factors](index=13&type=section&id=Item%201A.%20Risk%20Factors) The company faces risks from market volatility, competition, data security, regulatory oversight, and the influence of its PRC-based controlling stockholder [Risks Related to Our Business and Operations](index=13&type=section&id=Risks%20Related%20to%20Our%20Business%20and%20Operations) Business operations face risks from market volatility, interest rate changes, competitive pressure, system failures, acquisition integration, and third-party dependencies - Asset-based revenue, which is sensitive to market fluctuations, constituted **95% of total revenue** for the year ended December 31, 2020[51](index=51&type=chunk) - Spread-based revenue is directly correlated with changes in interest rates, which declined significantly in 2020, remaining near zero in Q4[52](index=52&type=chunk) - The company faces risks related to integrating acquisitions, including the recent acquisitions of GFPC and OBS, which could divert management attention and incur unanticipated costs[57](index=57&type=chunk) [Risks Related to Intellectual Property, Data Privacy and Cybersecurity](index=20&type=section&id=Risks%20Related%20to%20Intellectual%20Property%2C%20Data%20Privacy%20and%20Cybersecurity) Significant data and cybersecurity risks, including breaches and evolving privacy laws, pose litigation, reputational, and compliance challenges - The company stores extensive personal investment and financial information, making it a target for cyber-attacks and creating liability risk from potential data breaches[89](index=89&type=chunk)[90](index=90&type=chunk) - The company is subject to evolving data privacy laws like the CCPA and the newly approved CPRA, which increase compliance costs and create a private right of action for certain data breaches[101](index=101&type=chunk) [Risks Related to Our Controlling Stockholder's Ultimate Parent Being a PRC Company](index=24&type=section&id=Risks%20Related%20to%20Our%20Controlling%20Stockholder%27s%20Ultimate%20Parent%20Being%20a%20PRC%20Company) The controlling stockholder's PRC affiliation may influence business decisions and subject future acquisitions to CFIUS review - The controlling stockholder, HTSC, is subject to PRC laws that may require approval from PRC regulators for certain corporate actions undertaken by AssetMark, such as specific debt issuances or investments[110](index=110&type=chunk)[112](index=112&type=chunk) - As a "foreign person" under U.S. law due to its ownership, the company's future acquisitions or investments may be subject to review by the Committee on Foreign Investment in the United States (CFIUS), which could block, delay, or impose conditions on such transactions[117](index=117&type=chunk) [Risks Related to Regulation and Litigation](index=27&type=section&id=Risks%20Related%20to%20Regulation%20and%20Litigation) Operating in a highly regulated industry, the company faces risks from non-compliance, new regulations, litigation, and investigations - The company's subsidiaries are registered as investment advisers with the SEC, a commodity pool operator with the CFTC, and a broker-dealer with FINRA, subjecting them to extensive and specific regulatory schemes[120](index=120&type=chunk)[121](index=121&type=chunk)[122](index=122&type=chunk) - New regulations, such as the SEC's Regulation Best Interest (Reg BI) which became effective in June 2020, could cause broker-dealers to re-evaluate their business models, potentially affecting their use of AssetMark's services[125](index=125&type=chunk) [Risks Related to Ownership of Our Common Stock](index=30&type=section&id=Risks%20Related%20to%20Ownership%20of%20Our%20Common%20Stock) HTSC's **70.2%** ownership creates a "controlled company" status, impacting governance and potentially stockholder interests - As of December 31, 2020, HTSC owned approximately **70.2% of outstanding common stock**, giving it effective control over matters requiring stockholder approval[134](index=134&type=chunk) - The company qualifies as a "controlled company" under NYSE listing standards, allowing it to rely on exemptions from certain corporate governance requirements, such as having a majority of independent directors[144](index=144&type=chunk) [Unresolved Staff Comments](index=34&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) The company has no unresolved staff comments from the SEC - None[157](index=157&type=chunk) [Properties](index=34&type=section&id=Item%202.%20Properties) Headquarters are in Concord, California, with additional leased office spaces totaling **96,944 square feet** and **65,729 square feet** respectively - The company's headquarters are in Concord, California, consisting of approximately **96,944 square feet** of leased space[157](index=157&type=chunk) [Legal Proceedings](index=34&type=section&id=Item%203.%20Legal%20Proceedings) The company is cooperating with SEC inquiries regarding potential conflicts of interest, following an examination report and subpoenas in July 2020 - In July 2020, two subsidiaries received subpoenas from the SEC's Division of Enforcement related to the disclosure of potential conflicts of interest; the company is cooperating with this non-public, fact-finding inquiry[158](index=158&type=chunk) [Mine Safety Disclosures](index=34&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - Not applicable[159](index=159&type=chunk) PART II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=35&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) Common stock is listed on NYSE under "AMK" since July 2019, with no anticipated dividends as earnings are retained for operations - The company's common stock is listed on the NYSE under the symbol "AMK" since July 18, 2019[161](index=161&type=chunk) - The company does not anticipate paying dividends on its common stock in the foreseeable future, intending to retain funds for business operations[163](index=163&type=chunk) [Selected Consolidated Financial Data](index=37&type=section&id=Item%206.%20Selected%20Consolidated%20Financial%20Data) Consolidated financial data shows total revenue growth to **$432.1 million** in 2020, with a net loss of **$7.8 million** and total assets of **$1.22 billion** Selected Consolidated Financial Data (in thousands USD) | Metric | 2020 | 2019 | 2018 | 2017 | | :--- | :--- | :--- | :--- | :--- | | **Total Revenue** | **$432,079** | **$417,936** | **$363,634** | **$295,517** | | Total Operating Expenses | $424,573 | $388,466 | $307,151 | $276,174 | | **Net Income (Loss)** | **($7,812)** | **($420)** | **$37,426** | **$98,978** | | Net Income (Loss) per Share | ($0.12) | ($0.01) | $0.57 | $1.50 | | **Total Assets** | **$1,223,588** | **$1,188,960** | **$1,147,275** | **$1,097,741** | | Total Stockholders' Equity | $905,073 | $858,861 | $699,011 | $885,958 | [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=38&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses 2020 financial performance, noting **3.4%** revenue growth to **$432.1 million**, a **$7.8 million** net loss, and **21%** platform asset growth to **$74.5 billion** [Business and Financial Highlights](index=38&type=section&id=Business%20and%20Financial%20Highlights) 2020 highlights include OBS acquisition, a new **$250 million** credit facility, **$432.1 million** revenue, and **$7.8 million** net loss - Completed the acquisition of OBS on February 29, 2020, adding approximately **$2.1 billion** in platform assets[176](index=176&type=chunk) - Entered into a new **$250 million** revolving credit facility on December 30, 2020, and used a **$75 million** drawdown to retire **$124 million** of previous outstanding debt[176](index=176&type=chunk) 2020 vs 2019 Financial Highlights (USD) | Metric | 2020 | 2019 | | :--- | :--- | :--- | | Total Revenue | $432.1M | $417.9M | | Net Loss | ($7.8M) | ($0.4M) | | Adjusted EBITDA | $115.0M | $109.9M | | Platform Assets (Year-End) | $74.5B | $61.6B | [Key Operating Metrics](index=40&type=section&id=Key%20Operating%20Metrics) Key operating metrics show platform assets at **$74.5 billion**, net flows of **$5.5 billion**, and Adjusted EBITDA of **$115.0 million** in 2020 Platform Asset Movement (in millions USD) | Metric | 2020 | 2019 | 2018 | | :--- | :--- | :--- | :--- | | Beginning Platform Assets | $61,608 | $44,855 | $42,385 | | Net Flows | $5,483 | $5,389 | $5,916 | | Market Impact net of fees | $5,369 | $7,575 | ($3,446) | | Acquisition Impact | $2,060 | $3,789 | — | | **Ending Platform Assets** | **$74,520** | **$61,608** | **$44,855** | Adviser and Household Metrics (at period-end) | Metric | 2020 | 2019 | 2018 | | :--- | :--- | :--- | :--- | | Advisers | 8,454 | 7,958 | 7,573 | | Engaged Advisers | 2,536 | 2,230 | 1,837 | | Households | 186,602 | 162,225 | 133,947 | Reconciliation of Net Income (Loss) to Adjusted EBITDA (in thousands USD) | Line Item | 2020 | 2019 | 2018 | | :--- | :--- | :--- | :--- | | **Net Income (Loss)** | **($7,812)** | **($420)** | **$37,426** | | Adjustments (Taxes, Interest, D&A) | $48,858 | $57,440 | $42,728 | | **EBITDA** | **$40,046** | **$55,020** | **$80,154** | | Share-based compensation | $53,837 | $36,202 | $6,568 | | Acquisition expenses | $12,558 | $11,392 | — | | Other Adjustments | $8,606 | $6,974 | $2,223 | | **Adjusted EBITDA** | **$115,047** | **$109,888** | **$88,945** | [Results of Operations](index=47&type=section&id=Results%20of%20Operations) Total revenue grew **3.4%** to **$432.1 million** in 2020, but a **52.0%** drop in spread-based revenue and higher expenses led to a **$7.8 million** net loss Results of Operations: 2020 vs 2019 (in thousands USD) | Metric | 2020 | 2019 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | **Total Revenue** | **$432,079** | **$417,936** | **$14,143** | **3.4%** | | Asset-based revenue | $412,023 | $377,718 | $34,305 | 9.1% | | Spread-based revenue | $16,618 | $34,586 | ($17,968) | (52.0)% | | **Total Operating Expenses** | **$424,573** | **$388,466** | **$36,107** | **9.3%** | | Employee compensation | $176,483 | $154,999 | $21,484 | 13.9% | | **Net Income (Loss)** | **($7,812)** | **($420)** | **($7,392)** | **1,760.0%** | - The decrease in spread-based revenue in 2020 was due to lower interest rates, while the increase in employee compensation was primarily due to a **$17.6 million** rise in share-based compensation expense[238](index=238&type=chunk)[243](index=243&type=chunk) Results of Operations: 2019 vs 2018 (in thousands USD) | Metric | 2019 | 2018 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | **Total Revenue** | **$417,936** | **$363,634** | **$54,302** | **14.9%** | | **Total Operating Expenses** | **$388,466** | **$307,151** | **$81,315** | **26.5%** | | **Net Income (Loss)** | **($420)** | **$37,426** | **($37,846)** | **(101.1)%** | [Liquidity and Capital Resources](index=54&type=section&id=Liquidity%20and%20Capital%20Resources) Operations are financed by cash flow, with **$70.6 million** cash, a new **$250 million** credit facility, and **$76.9 million** operating cash flow in 2020 - On December 30, 2020, the company entered into a new **$250 million** revolving credit facility and repaid its prior Term Loan in full[276](index=276&type=chunk)[280](index=280&type=chunk) Cash Flow Summary (in thousands USD) | Cash Flow Activity | 2020 | 2019 | 2018 | | :--- | :--- | :--- | :--- | | Net cash provided by operating activities | $76,947 | $55,083 | $61,662 | | Net cash used in investing activities | ($49,970) | ($59,914) | ($17,714) | | Net cash (used in) provided by financing activities | ($50,699) | ($2,182) | $11,259 | [Quantitative and Qualitative Disclosures About Market Risk](index=59&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) Market risk is primarily asset-based, with a **1%** platform asset decrease impacting pre-tax income by **$2.9 million**, and interest rate changes by **$26 million** - A **1% decrease** in the aggregate value of platform assets at the beginning of 2020 would have caused pre-tax income to decline by approximately **$2.9 million**[304](index=304&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, based on client cash assets at ATC as of December 31, 2020[305](index=305&type=chunk) [Financial Statements and Supplementary Data](index=60&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section presents audited consolidated financial statements for 2018-2020, including balance sheets, income statements, and detailed notes on key accounts and events [Consolidated Balance Sheets](index=62&type=section&id=Consolidated%20Balance%20Sheets) Total assets reached **$1.22 billion** in 2020, with liabilities decreasing to **$318.5 million** and equity increasing to **$905.1 million** Consolidated Balance Sheet Highlights (in thousands USD) | Account | Dec 31, 2020 | Dec 31, 2019 | | :--- | :--- | :--- | | Cash and cash equivalents | $70,619 | $96,341 | | Goodwill | $338,848 | $327,310 | | Other intangible assets, net | $655,736 | $651,915 | | **Total Assets** | **$1,223,588** | **$1,188,960** | | Long-term debt, net | $75,000 | $121,692 | | **Total Liabilities** | **$318,515** | **$330,099** | | **Total Stockholders' Equity** | **$905,073** | **$858,861** | [Consolidated Statements of Income and Comprehensive Income](index=63&type=section&id=Consolidated%20Statements%20of%20Income%20and%20Comprehensive%20Income) In 2020, total revenue was **$432.1 million**, with a net loss of **$7.8 million** and diluted loss per share of **$0.12** Consolidated Income Statement (in thousands USD) | Metric | 2020 | 2019 | 2018 | | :--- | :--- | :--- | :--- | | Total Revenue | $432,079 | $417,936 | $363,634 | | Total Operating Expenses | $424,573 | $388,466 | $307,151 | | Income Before Income Taxes | $231 | $14,905 | $54,563 | | **Net Income (Loss)** | **($7,812)** | **($420)** | **$37,426** | | **Diluted Net Income (Loss) Per Share** | **($0.12)** | **($0.01)** | **$0.57** | [Notes to Consolidated Financial Statements](index=66&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) Notes detail OBS acquisition, a **$250 million** credit facility, share-based compensation, and the **$145 million** Voyant acquisition - On February 29, 2020, the company acquired WBI OBS Financial, Inc. for a final purchase price of **$21.3 million**, recording goodwill of **$11.5 million**[395](index=395&type=chunk) - As of December 31, 2020, total unrecognized compensation cost related to unvested RSAs, stock options, RSUs, and SARs was **$41.8 million**, **$3.6 million**, **$8.2 million**, and **$7.9 million**, respectively[450](index=450&type=chunk)[455](index=455&type=chunk)[458](index=458&type=chunk)[463](index=463&type=chunk) - Subsequent to year-end, on March 1, 2021, the company entered into an agreement to acquire Voyant, Inc. for approximately **$145 million**, to be paid in a mix of cash and common stock[475](index=475&type=chunk) [Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](index=88&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20with%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) The company reports no changes or disagreements with its accountants on financial disclosure - None[478](index=478&type=chunk) [Controls and Procedures](index=88&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded disclosure controls and internal control over financial reporting were effective as of December 31, 2020 - Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2020[478](index=478&type=chunk) - Management concluded that the company's internal control over financial reporting was effective as of December 31, 2020[479](index=479&type=chunk) [Other Information](index=88&type=section&id=Item%209B.%20Other%20Information) This item is not applicable - Not applicable[482](index=482&type=chunk) PART III [Directors, Executive Officers, Corporate Governance, Executive Compensation, Security Ownership, and Certain Relationships](index=89&type=section&id=Items%2010-14) Information for Items 10-14, covering governance, compensation, and ownership, is incorporated by reference from the 2021 Proxy Statement - Information for Items 10, 11, 12, 13, and 14 is incorporated by reference from the Registrant's Proxy Statement for the 2021 Annual Meeting of Stockholders[484](index=484&type=chunk)[485](index=485&type=chunk)[486](index=486&type=chunk)[487](index=487&type=chunk)[488](index=488&type=chunk) PART IV [Exhibits and Financial Statement Schedules](index=90&type=section&id=Item%2015.%20Exhibits%20and%20Financial%20Statement%20Schedules) This section lists financial statements from Item 8 and an index of all exhibits, with financial statement schedules omitted - The financial statements required by this item are incorporated by reference from Item 8 of the report[490](index=490&type=chunk) - All financial statement schedules have been omitted because the required information is not applicable or is included in the consolidated financial statements[491](index=491&type=chunk) [Form 10-K Summary](index=90&type=section&id=Item%2016.%20Form%2010-K%20Summary) This item is not applicable - Not applicable[492](index=492&type=chunk)

Financial Data and Key Metrics Changes - In 2020, net revenue increased by 3.4% year-over-year, driven by an 11% increase in asset-based revenue [9] - Adjusted EBITDA grew by 4.7% to $115 million, with an adjusted EBITDA margin improvement of 30 basis points [9][29] - Adjusted net income rose by 10.7% to $73.2 million, resulting in an adjusted EPS of $2, the highest in the company's history [9][30] Business Line Data and Key Metrics Changes - Fourth quarter net flows were $1.5 billion, up 27% quarter-over-quarter, contributing to a record platform asset total of $74.5 billion [7][21] - For the full year, net flows totaled $5.5 billion, representing 8.9% of beginning year platform assets, aligning with the target of 8% to 10% [21][22] - Engaged advisors increased by 13.7% year-over-year, now accounting for 90% of total assets on the platform [24] Market Data and Key Metrics Changes - The company added $12.9 billion in assets and 306 engaged advisors in 2020, with 743 new producing advisors joining the platform [8] - The RIA and hybrid RIA segments accounted for 15.8% of production on the platform, up from 10.9% in 2018, with RIAs growing their production by 50% since last year [18] Company Strategy and Development Direction - The company is focused on attracting adjacent advisors in the RIA and hybrid RIA channels to augment its growth strategy [6][18] - Investment in technology development totaled $50 million in 2020, aimed at enhancing tools and services for advisors [11] - The launch of AssetMark Institutional aims to provide a holistic solution for RIAs, including new products and operational support [19] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about entering 2021, citing strong sales activity and a robust pipeline of projects [16][34] - The company anticipates organic growth of 8% to 10% for 2021, with total asset growth expected between 11.5% and 13.5% [34] - Management acknowledged potential challenges from the pandemic and market conditions but remains focused on leveraging technology and advisor engagement [34][56] Other Important Information - The company secured a new $250 million revolving credit facility, enhancing its financial flexibility [32] - Total adjusted expenses decreased by 2.5% year-over-year, reflecting effective cost management [27] Q&A Session Summary Question: Can you discuss the adoption trends for AMP and competition in the space? - Management highlighted that AMP (Advisor-Managed Portfolios) is designed for RIAs and hybrid RIAs, allowing them to manage parts of portfolios while outsourcing other functions, which is expected to drive growth [40][41] Question: How is the growth outlook for 2021 disaggregated between RIA and core legacy business? - Management indicated that a growing percentage of organic growth is coming from the RIA segment, while the majority still comes from the core IBD segment [49][50] Question: What lessons learned from the pandemic are supporting EBITDA outlook? - Management noted increased productivity from remote operations and the ability to deliver content more efficiently, which will continue to enhance business operations [55][56] Question: What are the main technology investment areas as the company moves into the RIA world? - Management emphasized investments in financial wellness tools, including planning visualization and risk assessment, as key areas for technology development [60][62] Question: How is the company approaching M&A opportunities? - Management remains focused on both consolidation and capability-enhancing deals, with a disciplined approach to evaluating potential acquisitions [66][68] Question: How does consolidation in the independent broker-dealer and RIA space affect the company? - Management views consolidation as both an opportunity and a threat, noting that while larger firms may invest in capabilities, there are still many sub-scale RIAs that present growth opportunities [70][74]

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 Title of each class Trading symbol(s) Name of each exchange on which registered Common stock, par value $0.001 per share AMK New York Stock Exchange FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2020 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Co ...

AssetMark Financial Holdings, Inc. (NYSE:AMK) Q3 2020 Earnings Conference Call November 10, 2020 5:00 PM ET Company Participants Taylor Hamilton - IR Charles Goldman - CEO Gary Zyla - CFO Conference Call Participants Kevin McVeigh - Credit Suisse Ryan Bailey - Goldman Sachs Patrick O'Shaughnessy - Raymond James Operator Good afternoon everyone and welcome to AssetMark's Third Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and ...

Financial Performance - 3Q20 net flows increased by 33% quarter-over-quarter to $1.2 billion[11] - The company's net flows as a percentage of beginning-of-period platform assets was 8.6%[29] - Total revenue decreased by 2.7% year-over-year, from $110.1 million in 3Q19 to $107.1 million in 3Q20[34] - Adjusted EBITDA increased slightly by 0.3% year-over-year, from $29.2 million in 3Q19 to $29.3 million in 3Q20[43] - Adjusted EBITDA margin increased by 80 bps year-over-year, from 26.6% in 3Q19 to 27.4% in 3Q20[43] - Adjusted net income increased by 6.1% year-over-year, from $17.1 million in 3Q19 to $18.2 million in 3Q20[43] Growth and Strategy - The company is focused on enhancing advisor value and productivity, attracting adjacent advisors, and continuing to scale the business[9] - The company's target organic growth is 10%+ annualized if COVID mitigates, or 8-10% annualized organic growth[26] - Existing advisors contribute approximately 66% of net flows, while new platform advisors (NPAs) contribute approximately 33%[26] Advisor Engagement and Platform Enhancements - Over 450 webinars were hosted with 20,000+ total attendees[12] - October Premier Advisor meetings had over 900 attendees, a 20%+ increase compared to previous meetings[12]

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2020 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number: 001-38980 ASSETMARK FINANCIAL HOLDINGS, INC. (Exact name of registrant as specified in its charter) Delaware (State or other jurisdi ...

Financial Data and Key Metrics Changes - Platform assets reached a record $63.2 billion, up 12.8% year-over-year and 12.9% quarter-over-quarter, driven by market recovery and net flow performance [22][27] - Net flows for the quarter were $907 million, reflecting a reduction to about 80% of pre-pandemic levels, with year-to-date net flows totaling $2.7 billion, or 8.9% of beginning-of-period assets [23][24] - Adjusted net income for the second quarter was $15.1 million, a decrease of 16% year-over-year, while adjusted EBITDA was $25.3 million, down 11.4% year-over-year [34][35] Business Line Data and Key Metrics Changes - Asset-based net revenue increased by 3.2% year-over-year to $64.6 million, while spread-based net revenue decreased by 56.8% year-over-year to $3.1 million due to lower rates [27][28] - Production lift from existing advisers was 16.3%, down from 23.3% in the first quarter of 2020 and 24.9% in the second quarter of 2019 [26] Market Data and Key Metrics Changes - The average client cash for the second quarter was $2.9 billion, with an annualized net yield of 43 basis points [28] - The net yield on total platform assets was 49 basis points, down 1 basis point quarter-over-quarter and 5 basis points year-over-year [29][30] Company Strategy and Development Direction - The company is focused on adapting to changes in investor demand, emphasizing the need for advisers to understand clients' goals and aspirations [12][13] - Investment in technology and outsourcing services is seen as critical for advisers to provide a broader range of services and remain competitive [13][14] - The company continues to invest in strategic pillars, including technology, personalized service, and holistic investment solutions, to enhance adviser capabilities [15][16][17] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to grow despite the pandemic, highlighting resilience and adaptability in the business model [6][40] - The outlook for the remainder of 2020 includes expectations for net revenue to be flat year-over-year, with adjusted EBITDA projected between $107 million and $113 million [38][39] Other Important Information - The company filed a shelf registration with the SEC, a standard practice for public companies to facilitate future offerings, though no specific date has been set for any offering [39] Q&A Session Summary Question: What is the expectation for net sales recovery as brokers acclimate to remote work? - Management noted that while predicting recovery is challenging, there are signs of advisers adapting to the new environment and focusing on growth [42][43] Question: Is there a concept of pent-up demand for production post-pandemic? - Historical trends suggest that after periods of distress, production often accelerates, and the company is preparing for such an outcome [44][45] Question: What is the potential for increased competition in the TAMP space? - Management acknowledged increased competition, particularly from broker-dealers building internal TAMPs, but emphasized the company's differentiated service and technology [47][48][50] Question: Are there any trends in household growth? - The company reported a 0.5% growth in households in June, indicating organic growth and adviser engagement [51][56] Question: Will the Schwab-Ameritrade merger impact the adviser pipeline? - Management indicated that while there is concern among advisers, the decision to outsource is not primarily driven by custodial changes but by broader trends in adviser practices [62][64]

Financial Performance - Total revenue for Q1 2020 was $114.9 million, an increase of $22.6 million or 24.5% from $92.3 million in Q1 2019[66] - Net income for Q1 2020 was $2.7 million, or $0.04 per share, compared to $2.8 million, or $0.04 per share, in Q1 2019[66] - Adjusted net income for Q1 2020 was $17.7 million, up from $12.7 million in Q1 2019[66] - Total revenue for Q1 2020 was $115 million, compared to $92 million in Q1 2019[81] - Adjusted EBITDA for Q1 2020 was $28.4 million, up from $22.7 million in Q1 2019[81] - Total revenue for the three months ended March 31, 2020, was $2,736,000, compared to $2,811,000 for the same period in 2019, reflecting a net income margin of 2.4% in 2020 versus 3.0% in 2019[104] - Adjusted EBITDA for the three months ended March 31, 2020, was $28,375,000, representing a margin of 24.7%, compared to $22,730,000 and a margin of 24.6% in 2019[104] - Adjusted net income for Q1 2020 was $14.2 million, compared to $797,000 in Q1 2019, reflecting a significant increase[112] - Total revenue for Q1 2020 was $114.9 million, up 24.5% from $92.3 million in Q1 2019, driven by a $22.6 million increase in asset-based revenue[128] Asset Management - Platform assets reached $56.0 billion as of March 31, 2020, a 12.7% increase from $49.7 billion as of March 31, 2019[67] - Engaged advisers increased to 2,138 as of March 31, 2020, an 8.7% rise from 1,967 as of March 31, 2019[67] - The company completed the acquisition of OBS, adding approximately $2.1 billion in platform assets and 499 new financial adviser relationships[65] - The annual cohort of new producing advisers grew 63% from 548 in 2014 to 894 in 2019[70] - Asset-based revenue increased by 27.2% to $105.7 million in Q1 2020, primarily due to growth in platform assets and advisory fees[129] - Spread-based revenue rose by 5.3% to $8.0 million in Q1 2020, attributed to higher cash balances at ATC despite lower interest rates[130] - Other revenue decreased by 24.3% to $1.3 million in Q1 2020, mainly due to lower interest income from reduced cash balances[131] - Assets in custody at AssetMark Trust Company (ATC) at period-end were significant, with ATC client cash accounting for 8% of total assets in custody as of March 31, 2020[92] Expenses and Costs - Total operating expenses increased by 35.8% to $111.4 million in Q1 2020, with significant rises in employee compensation and general operating expenses[128] - Employee compensation rose by 36.4% to $43.5 million in Q1 2020, largely due to increased share-based compensation following the IPO[135] - Asset-based expenses increased by 24.6% to $35.0 million in Q1 2020, driven by higher strategist and investment management costs[133] - Spread-based expenses surged by 169.7% to $1.3 million in Q1 2020, due to higher interest-credited payments to clients[134] - General and operating expenses increased by $7.1 million, or 57.5%, from $12.3 million in Q1 2019 to $19.4 million in Q1 2020, driven by higher costs in events, insurance, and software[136] - Professional fees rose by $1.4 million, or 60.6%, from $2.4 million in Q1 2019 to $3.8 million in Q1 2020, primarily due to increased consulting and audit fees[137] - Depreciation and amortization expense increased by $1.5 million, or 21.9%, from $6.9 million in Q1 2019 to $8.4 million in Q1 2020, partly due to amortization related to acquisitions[138] - Share-based compensation for the three months ended March 31, 2020, was $13,188,000, representing 11.5% of total expenses, compared to 5.7% in 2019[106] - The company incurred acquisition expenses of $3,577,000 during the period, reflecting ongoing strategic initiatives[104] Cash Flow and Debt - Cash flows from operating activities increased by $6.5 million in Q1 2020 compared to Q1 2019, primarily due to increased share-based compensation and depreciation[150] - Cash used in investing activities increased by $20.9 million in Q1 2020 compared to Q1 2019, mainly due to the OBS acquisition and increased capital expenditures[151] - As of March 31, 2020, cash and cash equivalents were $80.2 million, down from $96.3 million in the same period in 2019[144] - The company had $123.7 million of the Term Loan outstanding as of March 31, 2020, with a maturity in November 2025[145] Operational Risk - Operational risk includes potential losses from improper transaction execution and deficiencies in technology systems[163] - Increased transaction volumes during the COVID-19 pandemic have heightened operational risk exposure[163] - Financial losses from operational risk may rise during periods of high market volatility[163] - Business continuity plans are in place for critical systems to mitigate operational risks[163] - Specific policies and procedures are continuously enhanced to manage operational risk across the organization[163] - Control mechanisms ensure adherence to operational policies and corporate limits[163] - The company relies on employee and system efficiency to process a large number of transactions[163] - Regulatory sanctions and reputational damage are potential consequences of operational failures[163] - Redundancies are built into systems to address operational risk appropriately[163] - The company aims to identify and manage operational risk at various departmental levels[163]