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AssetMark Reports $93.5B Platform Assets for Fourth Quarter 2021

02/15/2022

CONCORD, Calif., Feb. 15, 2022 (GLOBE NEWSWIRE) -- AssetMark Financial Holdings, Inc. (NYSE: AMK) today announced financial results for the quarter and full year ended December 31, 2021.

Fourth Quarter 2021 Financial and Operational Highlights

  • Net income for the quarter was $12.4 million, or $0.17 per share.
  • Adjusted net income for the quarter was $24.7 million, or $0.33 per share, on total revenue of $143.6 million.
  • Adjusted EBITDA for the quarter was $38.3 million, or 26.7% of total revenue.
  • Platform assets increased 25.5% year-over-year and 7.7% quarter-over-quarter to $93.5 billion, aided by quarterly record net flows of $2.9 billion and market impact net of fees of $3.7 billion. Annual net flows as a percentage of beginning-of-year platform assets were 13.3%.
  • More than 6,800 new households and 215 new producing advisors joined the AssetMark platform during the fourth quarter. In total, as of December 31, 2021 there were over 8,600 advisors (approximately 2,850 were engaged advisors) and over 209,000 investor households on the AssetMark platform.
  • We realized a 24.6% annualized production lift from existing advisors for the fourth quarter, indicating that advisors continued to grow organically and increase wallet share on our platform.

“AssetMark ended 2021 with record results; assets on the platform grew to over $93 billion, and we served more advisors and investor households than ever before. We realized double digit growth for top- and bottom-line financials and expanded margins by 300 bps,” said AssetMark CEO Natalie Wolfsen. “We achieved important milestones that will drive our business forward – most notably, our expansion into the growing RIA channel and our acquisition of the financial planning software provider Voyant. In 2022, we will continue broadening our platform to redefine the advisor experience and deliver value to our clients and shareholders.”

Fourth Quarter 2021 Key Operating Metrics

       
  4Q21 4Q20 Variance
per year
Operational metrics:      
Platform assets (at period-beginning) (millions of dollars) 86,826 67,254 29.1%
Net flows (millions of dollars) 2,949 1,533 92.4%
Market impact net of fees (millions of dollars) 3,713 5,734 (35.2%)
Acquisition impact (millions of dollars) - - NM
Platform assets (at period-end) (millions of dollars) 93,488 74,520 25.5%
Net flows lift (% of beginning of year platform assets) 4.0% 2.5% 150 bps
Advisors (at period-end) 8,649 8,454 2.3%
Engaged advisors (at period-end) 2,858 2,536 12.7%
Assets from engaged advisors (at period-end) (millions of dollars) 86,385 67,300 28.4%
Households (at period-end) 209,900 186,602 12.5%
New producing advisors 215 177 21.5%
Production lift from existing advisors (annualized %) 24.6% 21.3% 15.8%
Assets in custody at ATC (at period-end) (millions of dollars) 71,320 53,878 32.4%
ATC client cash (at period-end) (millions of dollars) 2,932 2,618 12.0%
       
Financial metrics:      
Total revenue (millions of dollars) 144 111 29.4%
Net income (loss) (millions of dollars) 12.4 (9.9) NM
Net income (loss) margin (%) 8.6% (8.9%) 1750 bps
Capital expenditure (millions of dollars) 8.0 8.0 -0.1%
       
Non-GAAP financial metrics:      
Adjusted EBITDA (millions of dollars) 38.3 32.0 19.7%
Adjusted EBITDA margin (%) 26.7% 28.9% (220 bps)
Adjusted net income (millions of dollars) 24.7 22.2 11.3%
Note: Percentage variance based on actual numbers, not rounded results      

 

Note: Percentage variance based on actual numbers, not rounded results

Full Year 2021 Key Operating Metrics

       
  2021 2020 Variance
per year
Operational metrics:      
Platform assets (at period-beginning) (millions of dollars) 74,520 61,608 21.0%
Net flows (millions of dollars) 9,934 5,483 81.2%
Market impact net of fees (millions of dollars) 9,034 5,369 68.3%
Acquisition impact (millions of dollars) - 2,060 NM
Platform assets (at period-end) (millions of dollars) 93,488 74,520 25.5%
Net flows lift (% of beginning of year platform assets) 13.3% 8.9% 440 bps
Advisors (at period-end) 8,649 8,454 2.3%
Engaged advisors (at period-end) 2,858 2,536 12.7%
Assets from engaged advisors (at period-end) (millions of dollars) 86,385 67,300 28.4%
Households (at period-end) 209,900 186,602 12.5%
New producing advisors 811 743 9.2%
Production lift from existing advisors 24.2% 19.9% 21.7%
Assets in custody at ATC (at period-end) (millions of dollars) 71,320 53,878 32.4%
ATC client cash (at period-end) (millions of dollars) 2,932 2,618 12.0%
       
Financial metrics:      
Total revenue (millions of dollars) 530 432 22.7%
Net income (loss) (millions of dollars) 25.7 (7.8) NM
Net income (loss) margin (%) 4.8% (1.8%) 660 bps
Capital expenditure (millions of dollars) 34.7 29.1 19.2%
       
Non-GAAP financial metrics:      
Adjusted EBITDA (millions of dollars) 157.2 115.0 36.6%
Adjusted EBITDA margin (%) 29.6% 26.6% 300 bps
Adjusted net income (millions of dollars) 103.3 73.2 41.1%
Note: Percentage variance based on actual numbers, not rounded results      

Note: Percentage variance based on actual numbers, not rounded results

Webcast and Conference Call Information

AssetMark will host a live conference call and webcast to discuss its fourth quarter 2021 results. In conjunction with this earnings press release, AssetMark has posted an earnings presentation on its investor relations website at http://ir.assetmark.com. Conference call and webcast details are as follows:

About AssetMark Financial Holdings, Inc. 

AssetMark is a leading provider of extensive wealth management and technology solutions that power independent financial advisors and their clients. Through AssetMark, Inc., its investment advisor subsidiary registered with the Securities and Exchange Commission, AssetMark operates a platform that comprises fully integrated technology, personalized and scalable service and curated investment platform solutions designed to make a difference in the lives of advisors and their clients. AssetMark had $93.5 billion in platform assets as of December 31, 2021 and has a history of innovation spanning more than 25 years.

Forward-Looking Statements

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding our future financial and operating performance, which involve risks and uncertainties. Actual results may differ materially from the results predicted, and reported results should not be considered as an indication of future performance. Forward-looking statements include all statements that are not historical facts and can be identified by terms such as “may,” “could,” “should,” “believes,” “estimates,” “potential” or “continue,” the negative of these terms and other comparable terminology that conveys uncertainty of future events or outcomes. These forward-looking statements involve known and unknown risks, uncertainties, assumptions and other factors that may cause actual results to differ materially from statements made in this press release, including our business strategies, our financial performance, investments in new products, services and capabilities and general market, economic and business conditions. Other potential risks and uncertainties that could cause actual results to differ from the results predicted include, among others, those risks and uncertainties included under the captions “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our prospectus dated July 17, 2019 filed with the Securities and Exchange Commission pursuant to Rule 424(b) under the Securities Act of 1933, as amended, and in our Quarterly Report on Form 10-Q for the quarter ended September 30, 2021, which is on file with the Securities and Exchange Commission and available on our investor relations website at http://ir.assetmark.com. Additional information will be set forth in our Annual Report on Form 10-K for the year ended December 31, 2021, which is expected to be filed in mid-March. All information provided in this release is based on information available to us as of the date of this press release and any forward-looking statements contained herein are based on assumptions that we believe are reasonable as of this date. Undue reliance should not be placed on the forward-looking statements in this press release, which are inherently uncertain. We undertake no duty to update this information unless required by law.

 

AssetMark Financial Holdings, Inc.
Unaudited Condensed Consolidated Balance Sheets
(in thousands except share data and par value)
 
    December 31,
2021
    December 31,
2020
 
ASSETS                
Current assets:                
Cash and cash equivalents   $ 76,707     $ 70,619  
Restricted cash     13,000       11,000  
Investments, at fair value     14,498       10,577  
Fees and other receivables, net     9,019       8,891  
Income tax receivable, net     6,276       8,596  
Prepaid expenses and other current assets     14,673       13,637  
Total current assets     134,173       123,320  
Property, plant and equipment, net     8,015       7,388  
Capitalized software, net     73,701       68,835  
Other intangible assets, net     709,693       655,736  
Operating lease right-of-use assets     22,469       27,496  
Goodwill     436,821       338,848  
Other assets     2,090       1,965  
Total assets   $ 1,386,962     $ 1,223,588  
LIABILITIES AND STOCKHOLDERS' EQUITY                
Current liabilities:                
Accounts payable   $ 2,613     $ 2,199  
Accrued liabilities and other current liabilities     56,249       43,694  
Total current liabilities     58,862       45,893  
Long-term debt, net     115,000       75,000  
Other long-term liabilities     16,468       16,302  
Long-term portion of operating lease liabilities     28,316       31,820  
Deferred income tax liabilities, net     158,930       149,500  
Total long-term liabilities     318,714       272,622  
Total liabilities     377,576       318,515  
Commitments and contingencies            
Stockholders' equity:                
Common stock, $0.001 par value (675,000,000 shares authorized and 73,562,717 and 72,459,255 shares issued and outstanding as of December 31, 2021 and 2020, respectively)     74       72  
Additional paid-in capital     929,070       850,430  
Retained earnings     80,242       54,571  
Total stockholders' equity     1,009,386       905,073  
Total liabilities and stockholders' equity   $ 1,386,962     $ 1,223,588  

 

AssetMark Financial Holdings, Inc.
Unaudited Condensed Consolidated Statements of Income
(in thousands, except share and per share data)
 
  Three Months Ended
December 31,
  Year Ended
December 31,
  2021   2020   2021   2020
Revenue:                            
Asset-based revenue $ 137,533     $ 107,854     $ 512,188     $ 412,023  
Spread-based revenue   2,055       2,490       8,568       16,618  
Subscriptions based revenue   3,209             6,381        
Other revenue   787       576       3,162       3,438  
Total revenue   143,584       110,920       530,299       432,079  
Operating expenses:                            
Asset-based expenses   40,227       34,165       150,836       132,695  
Spread-based expenses   367       545       1,427       2,703  
Employee compensation   45,901       44,821       196,701       176,483  
General and operating expenses   20,342       13,770       72,941       62,466  
Professional fees   7,464       4,473       21,813       15,100  
Depreciation and amortization   8,080       9,300       37,929       35,126  
Total operating expenses   122,381       107,074       481,647       424,573  
Interest expense   953       1,142       3,559       5,588  
Other expenses, net   24       1,692       106       1,687  
Income before income taxes   20,226       1,012       44,987       231  
Provision for income taxes   7,875       10,877       19,316       8,043  
Net income (loss) $ 12,351     $ (9,865)     $ 25,671     $ (7,812)  
Net income (loss) per share attributable to common stockholders:                            
Basic $ 0.17     $ (0.15)     $ 0.36     $ (0.12)  
Diluted $ 0.17     $ (0.15)     $ 0.35     $ (0.12)  
Weighted average number of common shares outstanding, basic   73,242,802       67,810,682       72,137,174       67,361,995  
Weighted average number of common shares outstanding, diluted   73,441,555       67,810,682       72,399,213       67,361,995  



AssetMark Financial Holdings, Inc.
Unaudited Condensed Consolidated Statements of Cash Flows
(in thousands)
 
  Three Months Ended
December 31,
  Year Ended
December 31,
  2021   2020   2021   2020
CASH FLOWS FROM OPERATING ACTIVITIES                              
Net income (loss) $ 12,351     $ (9,865 )   $ 25,671     $ (7,812 )
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
                             
Depreciation and amortization   8,080       9,300       37,929       35,126  
Interest   160       150       700       606  
Deferred income taxes   (1,784 )     (1,299 )     (1,558 )     (706 )
Share-based compensation   5,558       13,796       53,637       53,837  
Debt acquisition cost write-down         1,729             1,729  
Impairment of operating lease right-of-use assets and property, plant, and
equipment
        139             2,520  
Changes in certain assets and liabilities:                              
Fees and other receivables, net   757       (1,328 )     163       1,525  
Receivables from related party         (101 )     (91 )     (143 )
Prepaid expenses and other current assets   (2,360 )     (2,395 )     2,506       2,401  
Accounts payable, accrued liabilities and other liabilities   7,436       5,626       7,450       (7,534 )
Income tax receivable, net   4,878       6,796       2,570       (4,602 )
Net cash provided by operating activities   35,076       22,548       128,977       76,947  
CASH FLOWS FROM INVESTING ACTIVITIES                              
Purchase of Voyant, net of cash received   76             (124,160 )      
Purchase of WBI OBS Financial, Inc., net of cash received                     (18,561 )
Purchase of investments   (569 )     (488 )     (3,004 )     (2,384 )
Sale of investments   660       28       833       40  
Purchase of property and equipment   (855 )     (613 )     (1,507 )     (2,901 )
Purchase of computer software   (7,129 )     (7,414 )     (33,145 )     (26,164 )
Net cash used in investing activities   (7,817 )     (8,487 )     (160,983 )     (49,970 )
CASH FLOWS FROM FINANCING ACTIVITIES                              
Proceeds from exercise of stock options               94       187  
Payments on long-term debt         (123,750 )     (35,000 )     (123,750 )
Proceeds from credit facility draw down         73,019       75,000       73,019  
Payment of credit facility issuance costs         (155 )           (155 )
Net cash (used in) provided by financing activities         (50,886 )     40,094       (50,699 )
Net change in cash, cash equivalents, and restricted cash   27,259       (36,825 )     8,088       (23,722 )
Cash, cash equivalents, and restricted cash at beginning of period   62,448       118,444       81,619       105,341  
Cash, cash equivalents, and restricted cash at end of period $ 89,707     $ 81,619     $ 89,707     $ 81,619  

 

SUPPLEMENTAL CASH FLOW INFORMATION                            
Income taxes paid $ 3,819     $ 4,649     $ 19,796     $ 13,456
Interest paid $ 958     $ 984     $ 2,828     $ 4,969
Non-cash operating, investing, and financing activities:                            
Non-cash changes to right-of-use assets $ 243     $ 62     $ (933 )   $ 38,796
Non-cash changes to lease liabilities $ 2,109     $ 62     $ 933     $ 40,140
Common stock issued in acquisition of business $     $     $ 24,910     $

Explanations and Reconciliations of Non-GAAP Financial Measures

In addition to our results determined in accordance with U.S. generally accepted accounting principles (“GAAP”), we believe adjusted EBITDA, adjusted EBITDA margin and adjusted net income, all of which are non-GAAP measures, are useful in evaluating our performance. We use adjusted EBITDA, adjusted EBITDA margin and adjusted net income to evaluate our ongoing operations and for internal planning and forecasting purposes. We believe that such non-GAAP financial information, when taken collectively, may be helpful to investors because it provides consistency and comparability with past financial performance. However, such non-GAAP financial information is presented for supplemental informational purposes only, has limitations as an analytical tool and should not be considered in isolation or as a substitute for, or superior to, financial information prepared and presented in accordance with GAAP.

Other companies, including companies in our industry, may calculate similarly titled non-GAAP measures differently or may use other measures to evaluate their performance, all of which could reduce the usefulness of our non-GAAP financial measures as tools for comparison.  

Investors are encouraged to review the related GAAP financial measures and the reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measures and not rely on any single financial measure to evaluate our business.

Adjusted EBITDA and Adjusted EBITDA Margin

Adjusted EBITDA is defined as EBITDA (net income plus interest expense, income tax expense, depreciation and amortization and less interest income), further adjusted to exclude certain non-cash charges and other adjustments set forth below. Adjusted EBITDA margin is defined as adjusted EBITDA divided by total revenue. Adjusted EBITDA and adjusted EBITDA margin are useful financial metrics in assessing our operating performance from period to period because they exclude certain items that we believe are not representative of our core business, such as certain material non-cash items and other adjustments such as share-based compensation, strategic initiatives and reorganization and integration costs. We believe that adjusted EBITDA and adjusted EBITDA margin, viewed in addition to, and not in lieu of, our reported GAAP results, provide useful information to investors regarding our performance and overall results of operations for various reasons, including:

  • non-cash equity grants made to employees at a certain price and point in time do not necessarily reflect how our business is performing at any particular time; as such, share-based compensation expense is not a key measure of our operating performance; and
  • costs associated with acquisitions and the resulting integrations, debt refinancing, restructuring, litigation and conversions can vary from period to period and transaction to transaction; as such, expenses associated with these activities are not considered a key measure of our operating performance.

We use adjusted EBITDA and adjusted EBITDA margin:

  • as measures of operating performance;
  • for planning purposes, including the preparation of budgets and forecasts;
  • to allocate resources to enhance the financial performance of our business;
  • to evaluate the effectiveness of our business strategies;
  • in communications with our board of directors concerning our financial performance; and
  • as considerations in determining compensation for certain employees.

Adjusted EBITDA and adjusted EBITDA margin have limitations as analytical tools, and should not be considered in isolation to, or as substitutes for, analysis of our results as reported under GAAP. Some of these limitations are:

  • adjusted EBITDA and adjusted EBITDA margin do not reflect all cash expenditures, future requirements for capital expenditures or contractual commitments;
  • adjusted EBITDA and adjusted EBITDA margin do not reflect changes in, or cash requirements for, working capital needs;
  • adjusted EBITDA and adjusted EBITDA margin do not reflect interest expense on our debt or the cash requirements necessary to service interest or principal payments; and
  • the definitions of adjusted EBITDA and adjusted EBITDA margin can differ significantly from company to company and as a result have limitations when comparing similarly titled measures across companies.

Set forth below is a reconciliation from net income, the most directly comparable GAAP financial measure, to adjusted EBITDA for the three months and years ended December 31, 2021 and 2020 (unaudited).

    Three Months Ended December 31,   Three Months Ended December 31,
(in thousands except for percentages)   2021   2020   2021   2020
Net income (loss)   $ 12,351     $ (9,865 )     8.6 %     (8.9 )%
Provision for income taxes     7,875       10,877       5.5 %     9.8 %
Interest income (loss)     (21 )     (57 )           (0.1 )%
Interest expense     953       1,142       0.7 %     1.1 %
Amortization/depreciation     8,080       9,300       5.6 %     8.4 %
EBITDA   $ 29,238     $ 11,397       20.4 %     10.3 %
Share-based
compensation(1)
    5,558       13,796       3.9 %     12.4 %
Reorganization and
integration costs(2)
    2,722       2,348       1.9 %     2.1 %
Acquisition expenses(3)     446       2,320       0.3 %     2.1 %
Debt acquisition cost
write-down(4)
          1,729             1.6 %
Business continuity plan (5)     324       185       0.2 %     0.2 %
Office closures(6)           276             0.2 %
Other expense     24       (38 )            
Adjusted EBITDA   $ 38,312       $ 32,013     26.7 %     28.9 %

 

    Year Ended December 31,   Year Ended December 31,
(in thousands except for percentages)   2021   2020   2021   2020
Net income (loss)   $ 25,671     $ (7,812 )     4.8 %     (1.8 )%
Provision for income taxes     19,316       8,043       3.6 %     1.9 %
Interest income (loss)     (137 )     (899 )           (0.2 )%
Interest expense     3,559       5,588       0.7 %     1.3 %
Amortization/depreciation     37,929       35,126       7.2 %     8.1 %
EBITDA   $ 86,338     $ 40,046       16.3 %     9.3 %
Share-based
compensation(1)
    53,637       53,837       10.1 %     12.4 %
Reorganization and
integration costs(2)
    10,816       2,596       2.0 %     0.6 %
Acquisition expenses(3)     5,682       12,558       1.1 %     2.9 %
Debt acquisition cost
write-down(4)
          1,729       (— )%     0.4 %
Business continuity plan (5)     460       1,568       0.1 %     0.4 %
Office closures(6)     167       2,755             0.6 %
Other expense     106       (42 )            
Adjusted EBITDA   $ 157,206     $ 115,047       29.6 %     26.6 %

(1) “Share-based compensation” represents granted share-based compensation in the form of Class C Common Units (which are incentive units) of AssetMark Holdings LLC, our former parent company, and RSA, restricted stock unit, stock option, and stock appreciation right grants by us to certain of our directors and employees. Although this expense occurred in each measurement period, we have added the expense back in our calculation of adjusted EBITDA because of its noncash impact.
(2) “Reorganization and integration costs” includes costs related to the departure of our former chief executive officer in March 2021, our functional reorganization within our Operations, Technology and Retirement functions as well as duplicate costs related to the outsourcing of back-office operations functions. While we have incurred such expenses in all periods measured, these expenses serve varied reorganization and integration initiatives, each of which is non-recurring. We do not consider these expenses to be part of our core operations.
(3) “Acquisition expenses” includes employee severance, transition and retention expenses, duplicative general and administrative expenses and other professional fees related to acquisitions.
(4) “Debt acquisition cost write-down” represents capitalized debt issuance costs extinguished due to the repayment of $124 million of our outstanding indebtedness under the Term Loan in July 2019 and repayment of $124 million remaining outstanding indebtedness under the Term Loan in December 2020. The July 2019 repayment was considered a substantial modification and the debt was considered fully extinguished as of December 31, 2020.
(5) “Business continuity plan” includes incremental compensation and other costs that are directly related to operations while transitioning to a remote workforce and other costs due to the COVID-19 pandemic.
(6) “Office closures” represents one-time expenses related to closing facilities.

Set forth below is a summary of the adjustments involved in the reconciliation from net income and net income margin, the most directly comparable GAAP financial measures, to adjusted EBITDA and adjusted EBITDA margin for the three months for the three months and years ended December 31, 2021 and 2020, broken out by compensation and non-compensation expenses (unaudited).

    Three Months Ended December 31, 2021     Three Months Ended December 31, 2020
(in thousands)   Compensation     Non-
Compensation
    Total     Compensation     Non-
Compensation
    Total
Share-based
compensation(1)
  $ 5,558     $     $ 5,558     $ 13,796     $     $ 13,796  
Reorganization and
integration costs(2)
    979       1,743       2,722       2,335       13       2,348  
Acquisition expenses(3)     38       408       446       1,164       1,156       2,320  
Debt acquisition cost
write-down(4)
                            1,729       1,729  
Business continuity plan (5)     162       162       324             184       184  
Office closures(6)                             276       276  
Other expense           24       24             (38 )     (38 )
Total adjustments to adjusted
EBITDA
  $ 6,737     $ 2,337     $ 9,074     $ 17,295     $ 3,320     $ 20,615  
                                               
    Three Months Ended December 31, 2021     Three Months Ended December 31, 2020
(in percentages)   Compensation     Non-
Compensation
    Total     Compensation     Non-
Compensation
    Total
Share-based
compensation(1)
    3.9 %           3.9 %     12.4 %           12.4 %
Reorganization and
integration costs(2)
    0.7 %     1.2 %     1.9 %     2.1 %           2.1 %
Acquisition expenses(3)           0.3 %     0.3 %     1.0 %     1.0 %     2.0 %
Debt acquisition cost
write-down(4)
                            1.6 %     1.6 %
Business continuity plan (5)     0.1 %     0.1 %     0.2 %           0.2 %     0.2 %
Office closures(6)                             0.2 %     0.2 %
Other expense                                    
Total adjustments to adjusted
EBITDA margin %
    4.7 %     1.6 %     6.3 %     15.5 %     3.0 %     18.5 %

 

    Year Ended December 31, 2021     Year Ended December 31, 2020
(in thousands)   Compensation     Non-
Compensation
    Total     Compensation     Non-
Compensation
    Total
Share-based
compensation(1)
  $ 53,637     $     $ 53,637     $ 53,837     $     $ 53,837  
Reorganization and
integration costs(2)
    5,396       5,420       10,816       2,585       11       2,596  
Acquisition expenses(3)     1,441       4,241       5,682       6,022       6,536       12,558  
Debt acquisition cost
write-down(4)
                            1,729       1,729  
Business continuity plan (5)     174       286       460       1,082       486       1,568  
Office closures(6)           167       167             2,755       2,755  
Other expense           106       106             (42 )     (42 )
Total adjustments to adjusted
EBITDA
  $ 60,648     $ 10,220     $ 70,868     $ 63,526     $ 11,475     $ 75,001  
                                               
    Year Ended December 31, 2021     Year Ended December 31, 2020
(in percentages)   Compensation     Non-
Compensation
    Total     Compensation     Non-
Compensation
    Total
Share-based
compensation(1)
    10.1 %           10.1 %     12.4 %           12.4 %
Reorganization and
integration costs(2)
    1.0 %     1.0 %     2.0 %     0.6 %           0.6 %
Acquisition expenses(3)     0.2 %     0.7 %     0.9 %     1.4 %     1.5 %     2.9 %
Debt acquisition cost
write-down(4)
                            0.4 %     0.4 %
Business continuity plan (5)                       0.3 %     0.1 %     0.4 %
Office closures(6)                             0.6 %     0.6 %
Other expense                                    
Total adjustments to adjusted
EBITDA margin %
    11.3 %     1.7 %     13.0 %     14.7 %     2.6 %     17.3 %

(1) “Share-based compensation” represents granted share-based compensation in the form of Class C Common Units (which are incentive units) of AssetMark Holdings LLC, our former parent company, and RSA, restricted stock unit, stock option, and stock appreciation right grants by us to certain of our directors and employees. Although this expense occurred in each measurement period, we have added the expense back in our calculation of adjusted EBITDA because of its noncash impact.
(2) “Reorganization and integration costs” includes costs related to the departure of our former chief executive officer in March 2021, our functional reorganization within our Operations, Technology and Retirement functions as well as duplicate costs related to the outsourcing of back-office operations functions. While we have incurred such expenses in all periods measured, these expenses serve varied reorganization and integration initiatives, each of which is non-recurring. We do not consider these expenses to be part of our core operations.
(3) “Acquisition expenses” includes employee severance, transition and retention expenses, duplicative general and administrative expenses and other professional fees related to acquisitions.
(4) “Debt acquisition cost write-down” represents capitalized debt issuance costs extinguished due to the repayment of $124 million of our outstanding indebtedness under the Term Loan in July 2019 and repayment of $124 million remaining outstanding indebtedness under the Term Loan in December 2020. The July 2019 repayment was considered a substantial modification and the debt was considered fully extinguished as of December 31, 2020.
(5) “Business continuity plan” includes incremental compensation and other costs that are directly related to operations while transitioning to a remote workforce and other costs due to the COVID-19 pandemic.
(6) “Office closures” represents one-time expenses related to closing facilities.

Adjusted Net Income

Adjusted net income represents net income before: (a) share-based compensation expense, (b) amortization of acquisition-related intangible assets, (c) acquisition and related integration expenses, (d) restructuring and conversion costs and (e) certain other expenses. Reconciled items are tax effected using the income tax rates in effect for the applicable period, adjusted for any potentially non-deductible amounts. We prepared adjusted net income to eliminate the effects of items that we do not consider indicative of our core operating performance. We have historically not used adjusted net income for internal management reporting and evaluation purposes; however, we believe that adjusted net income, viewed in addition to, and not in lieu of, our reported GAAP results, provides useful information to investors regarding our performance and overall results of operations for various reasons, including
the following:

  • non-cash equity grants made to employees at a certain price and point in time do not necessarily reflect how our business is performing at any particular time; as such, share-based compensation expense is not a key measure of our operating performance;
  • costs associated with acquisitions and related integrations, restructuring and conversions can vary from period to period and transaction to transaction; as such, expenses associated with these activities are not considered a key measure of our operating performance; and
  • amortization expense can vary substantially from company to company and from period to period depending upon each company’s financing and accounting methods, the fair value and average expected life of acquired intangible assets and the method by which assets were acquired; as such, the amortization of intangible assets obtained in acquisitions is not considered a key measure of our operating performance.

Adjusted net income does not purport to be an alternative to net income or cash flows from operating activities. The term adjusted net income is not defined under GAAP, and adjusted net income is not a measure of net income, operating income or any other performance or liquidity measure derived in accordance with GAAP. Therefore, adjusted net income has limitations as an analytical tool and should not be considered in isolation to, or as a substitute for, analysis of our results as reported under GAAP. Some of these limitations are:

  • adjusted net income does not reflect all cash expenditures, future requirements for capital expenditures or contractual commitments;
  • adjusted net income does not reflect changes in, or cash requirements for, working capital needs; and
  • other companies in the financial services industry may calculate adjusted net income differently than we do, limiting its usefulness as a comparative measure.

The schedule set forth below presents the Company’s GAAP results from the Condensed Consolidated Statements of Income (unaudited) for the three and twelve months ended December 30, 2021 and 2020, with certain line items adjusted for the items described above. Included below is also a reconciliation from net income, the most directly comparable GAAP financial measure, to adjusted net income for the three months and years ended December 31, 2021 and 2020 (unaudited).

  Three Months Ended
December 31,
    Year Ended
December 31,
  2021     2020     2021     2020
Revenue:                            
Asset-based revenue $ 137,533     $ 107,854     $ 512,188     $ 412,023
Subscription-based revenue   3,209             8,568       16,618
Spread-based revenue   2,055       2,490       6,381      
Other revenue   787       576       3,162       3,438
Total revenue   143,584       110,920       530,299       432,079
Adjusted operating expenses:                            
Asset-based expenses   40,227       34,165       150,836       132,695
Spread-based expenses   367       545       1,427       2,703
Adjusted employee compensation (1)   39,163       27,526       136,052       112,957
Adjusted general and operating expenses (1)   18,874       12,273       65,072       53,757
Adjusted professional fees (1)   6,619       4,342       19,568       14,021
Adjusted depreciation and amortization (2)   5,126       4,192       18,790       14,694
Total adjusted operating expenses   110,376       83,043       391,745       330,827
Interest expense   953       1,142       3,559       5,588
Adjusted other expense, net (1)                    
Adjusted income before income taxes   32,255       26,735       134,995       95,664
Adjusted provision for income taxes (3)   7,580       4,560       31,723       22,481
Adjusted net income $ 24,675     $ 22,175     $ 103,272     $ 73,183
Net income per share attributable to common stockholders:                            
Adjusted earnings per share $ 0.33     $ 0.31     $ 1.40     $ 1.01
Adjusted number of common shares outstanding, diluted (4)   74,746,770       72,265,783       73,947,311       72,541,836
Adjusted EBITDA (5) $ 38,312     $ 32,013     $ 157,206     $ 115,047

(1)   Consists of the adjustments to EBITDA listed in the adjusted EBITDA reconciliation table above.
(2)   Relates to intangible assets established in connection with HTSC’s acquisition of our Company in 2016.
(3)   Consists of the provision for income taxes under US GAAP and the estimated tax impact of expense adjustments and acquisition-related amortization.
(4)   Consists of the outstanding shares at period-end and the full dilutive impact of unvested equity awards which includes restricted stock awards, restricted stock units, stock options and stock appreciation rights.
(5)   Adjusted EBITDA is defined as EBITDA (net income plus interest expense, income tax expense, depreciation and amortization and less interest income), further adjusted to exclude certain non-cash charges and other adjustments set forth in the ‘Adjusted EBITDA and Adjusted EBITDA Margin’ section above.

Set forth below is a reconciliation from net income, the most directly comparable GAAP financial measure, to adjusted net income for the three months ended December 31, 2021 and 2020 (unaudited).

Reconciliation of Non-GAAP Presentation.   Three months ended
December 31, 2021
    Three months ended
December 31, 2020
(in thousands)   GAAP     Adjustments     Adjusted     GAAP     Adjustments     Adjusted
Revenue:                                              
Asset-based revenue   $ 137,533     $     $ 137,533     $ 107,854     $     $ 107,854
Subscription-based revenue     3,209             3,209                  
Spread-based revenue     2,055             2,055       2,490             2,490
Other revenue     787             787       576             576
Total revenue     143,584             143,584       110,920             110,920
Operating expenses:                                              
Asset-based expenses     40,227             40,227       34,165             34,165
Spread-based expenses     367             367       545             545
Employee compensation (1)     45,901       (6,738 )     39,163       44,821       (17,295 )     27,526
General and operating expenses (1)     20,342       (1,468 )     18,874       13,770       (1,497 )     12,273
Professional fees (1)     7,464       (845 )     6,619       4,473       (131 )     4,342
Depreciation and amortization(2)     8,080       (2,954 )     5,126       9,300       (5,108 )     4,192
Total operating expenses     122,381       (12,005 )     110,376       107,074       (24,031 )     83,043
Interest expense     953             953       1,142             1,142
Other income (expense), net (1)     24       (24 )           1,692       (1,692 )    
Income before income taxes     20,226       12,029       32,255       1,012       25,723       26,735
Provision for (benefit from) income taxes (3)     7,875       (295 )     7,580       10,877       (6,317 )     4,560
Net income   $ 12,351             $ 24,675     $ (9,865 )           $ 22,175

(1)   Consists of the adjustments to EBITDA listed in the adjusted EBITDA reconciliation table above.
(2)   Relates to intangible assets established in connection with HTSC’s acquisition of our Company in 2016.
(3)   Consists of the provision for income taxes under US GAAP and the estimated tax impact of expense adjustments and acquisition-related amortization.

Reconciliation of Non-GAAP Presentation.   Year ended December 31, 2021     Year ended December 31, 2020
(in thousands)   GAAP     Adjustments     Adjusted     GAAP     Adjustments     Adjusted
Revenue:                                              
Asset-based revenue   $ 512,188     $     $ 512,188     $ 412,023     $     $ 412,023
Spread-based revenue     8,568             8,568       16,618             16,618
Subscription-based revenue     6,381             6,381                  
Other revenue     3,162             3,162       3,438             3,438
Total revenue     530,299             530,299       432,079             432,079
Operating expenses:                                              
Asset-based expenses     150,836             150,836       132,695             132,695
Spread-based expenses     1,427             1,427       2,703             2,703
Employee compensation (1)     196,701       (60,649 )     136,052       176,483       (63,526 )     112,957
General and operating expenses (1)     72,941       (7,869 )     65,072       62,466       (8,709 )     53,757
Professional fees (1)     21,813       (2,245 )     19,568       15,100       (1,079 )     14,021
Depreciation and amortization(2)     37,929       (19,139 )     18,790       35,126       (20,432 )     14,694
Total operating expenses     481,647       (89,902 )     391,745       424,573       (93,746 )     330,827
Interest expense     3,559             3,559       5,588             5,588
Other income (expense), net (1)     106       (106 )           1,687       (1,687 )    
Income before income taxes     44,987       90,008       134,995       231       95,433       95,664
Provision for (benefit from) income taxes (3)     19,316       12,407       31,723       8,043       14,438       22,481
Net income   $ 25,671             $ 103,272     $ (7,812 )           $ 73,183

(1)   Consists of the adjustments to EBITDA listed in the adjusted EBITDA reconciliation table above.
(2)   Relates to intangible assets established in connection with HTSC’s acquisition of our Company in 2016.
(3)   Consists of the provision for income taxes under US GAAP and the estimated tax impact of expense adjustments and acquisition-related amortization.

    Three Months Ended December 31, 2021     Three Months Ended December 31, 2020  
(in thousands)   Compensation     Non-
Compensation
    Total     Compensation     Non-
Compensation
    Total  
Net income (loss)                   $ 12,351                     $ (9,865 )
Acquisition-related
amortization(1)
  $     $ 2,954       2,954     $     $ 5,108       5,108  
Expense adjustments(2)     1,180       2,313       3,493       3,499       1,628       5,127  
Share-based
compensation
    5,558             5,558       13,796             13,796  
Other expenses           24       24             1,692       1,692  
Tax effect of
adjustments(3)
    (277 )     572       295       (910 )     7,227       6,317  
Adjusted net income                   $ 24,675                     $ 22,175  
                                                 
    Year Ended December 31, 2021     Year Ended December 31, 2020  
(in thousands)   Compensation     Non-
Compensation
    Total     Compensation     Non-
Compensation
    Total  
Net income (loss)                   $ 25,671                     $ (7,812 )
Acquisition-related
amortization(1)
  $     $ 19,139       19,139     $     $ 20,432       20,432  
Expense adjustments(2)     7,012       10,114       17,126       9,689       9,788       19,477  
Share-based
compensation
    53,637             53,637       53,837             53,837  
Other expenses           106       106             1,687       1,687  
Tax effect of
adjustments(3)
    (1,648 )     (10,759 )     (12,407 )     (2,519 )     (11,919 )     (14,438 )
Adjusted net income                   $ 103,272                     $ 73,183  

(1)    Relates to intangible assets established in connection with HTSC’s acquisition of our Company in 2016.
(2)    Consists of the adjustments to EBITDA listed in the adjusted EBITDA reconciliation table above other than share-based compensation.
(3)    Reflects the tax impact of expense adjustments and acquisition-related amortization.

Contacts
Investors:
Taylor J. Hamilton, CFA
Head of Investor Relations
InvestorRelations@assetmark.com 

Media: 
Alaina Kleinman
Head of PR & Communications
alaina.kleinman@assetmark.com

SOURCE: AssetMark Financial Holdings, Inc.


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Source: AssetMark, Inc.
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