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AssetMark Reports $99.6B Platform Assets for Third Quarter 2023

CONCORD, Calif., Nov. 06, 2023 (GLOBE NEWSWIRE) -- AssetMark Financial Holdings, Inc. (NYSE: AMK) today announced financial results for the quarter ended September 30, 2023.

Third Quarter 2023 Financial and Operational Highlights

  • Net income for the quarter was $38.4 million, or $0.52 per share.
  • Adjusted net income for the quarter was $46.0 million, or $0.62 per share, on total revenue of $190.5 million.
  • Adjusted EBITDA for the quarter was $66.5 million, or 34.9% of total revenue.
  • Platform assets increased 25.5% year-over-year to $99.6 billion. Quarter-over-quarter platform assets were down 1.2%, due to negative market impact net of fees of $2.7 billion, partially offset by quarterly net flows of $1.5 billion.
  • Year-to-date annualized net flows as a percentage of beginning-of-year platform assets were 7.1%.
  • More than 3,400 new households and 158 new producing advisors joined the AssetMark platform during the third quarter. In total, as of September 30, 2023, there were over 9,300 advisors (approximately 3,000 were engaged advisors) and over 251,000 investor households on the AssetMark platform.
  • We realized an 18.7% annualized production lift from existing advisors for the third quarter, indicating that advisors continued to grow organically and increase wallet share on our platform.

“The third quarter was another record quarter for AssetMark, highlighted by all-time highs across many financial and operating metrics. We realized our sixth straight quarter of record adjusted EBITDA, while also expanding margins 90 bps year-over-year to a record 34.9%. Simply put, the results for the third quarter were excellent, and we feel we are well on track for the best year in our company’s history,” said AssetMark CEO Michael Kim. “We are focused on continued execution of our strategy and three long-term priorities: hyper growth, accelerated capital deployment and enhanced scalability, which we believe will create continued value for our advisors, their clients, and our shareholders.”

Third Quarter 2023 Key Operating Metrics

 3Q22 3Q23 Variance
per year
Operational metrics:     
Platform assets (at period-beginning) (millions of dollars)$        82,127   $        100,762           22.7 %
Net flows (millions of dollars)         1,207            1,543           27.8 %
Market impact net of fees (millions of dollars)         (3,952)           (2,708)  NM
Acquisition impact (millions of dollars)         —            —   NM
Platform assets (at period-end) (millions of dollars)$        79,382   $        99,597           25.5 %
Net flows lift (% of beginning of year platform assets)         1.3 %          1.7 % 40 bps
Advisors (at period-end)         8,702            9,354           7.5 %
Engaged advisors (at period-end)         2,601            2,995           15.1 %
Assets from engaged advisors (at period-end) (millions of dollars)$        72,195   $        91,900           27.3 %
Households (at period-end)         223,098            251,424           12.7 %
New producing advisors 159    158   (0.6)%
Production lift from existing advisors (annualized %)         14.9 %          18.7 % 380 bps
Assets in custody at ATC (at period-end) (millions of dollars)$        61,539   $        73,445           19.3 %
ATC client cash (at period-end) (millions of dollars)$3,510   $2,897   (17.5)%
      
Financial metrics:     
Total revenue (millions of dollars)$        154.7   $        190.5           23.1 %
Net income (millions of dollars)$        30.1   $        38.4           27.6 %
Net income margin (%)         19.5 %          20.1 % 60 bps
Capital expenditure (millions of dollars)$        9.0   $        11.6           28.9 %
      
Non-GAAP financial metrics:     
Adjusted EBITDA (millions of dollars)$        52.7   $        66.5           26.2 %
Adjusted EBITDA margin (%)         34.0 %          34.9 % 90 bps
Adjusted net income (millions of dollars)$        35.0   $        46.0           31.4 %
 
Note: Percentage variance based on actual numbers, not rounded results
All metrics include Adhesion data, except "New producing advisors," "Production lift from existing advisors" and ATC related metrics.
 

Webcast and Conference Call Information

AssetMark will host a live conference call and webcast to discuss its third quarter 2023 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:

  • Date: November 6, 2023
  • Time: 2:00 p.m. PT; 5:00 p.m. ET
  • Phone: Listeners can pre-register for the conference call here: https://www.netroadshow.com/events/login?show=c8140a9d&confId=55622. Upon registering, you will be provided with participant dial-in numbers, passcode and unique registrant ID. In the 10 minutes prior to the call start time, you may use the conference access information (dial in number, direct event passcode and registrant ID) provided in the confirmation email received at the point of registering to join the call directly.
  • Webcast: http://ir.assetmark.com. Please access the website 10 minutes prior to the start time. The webcast will be available in recorded form at http://ir.assetmark.com for 14 days from November 6, 2023.

About AssetMark Financial Holdings, Inc.

AssetMark operates a wealth management platform that powers independent financial advisors and their clients. Together with our affiliates Voyant and Adhesion Wealth, we serve advisors of all models at every stage of their journey with flexible, purpose-built solutions that champion client engagement and drive efficiency. Our ecosystem of solutions equips advisors with services and capabilities that would otherwise require significant investments of time and money, ultimately enabling them to deliver better investor outcomes and enhance their productivity, profitability and client satisfaction.

Founded in 1996 and based in Concord, California, the company has over 1,000 employees. Today, the AssetMark platform serves over 9,300 financial advisors and over 251,000 investor households. As of September 30, 2023, the company had $99.6 billion in platform assets.

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 “will,” “may,” “could,” “should,” “believe,” “expect,” “estimate,” “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 presentation, including our ability to enhance shareholder value, advance our growth strategy and meet our operating and financial performance guidance. 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 Annual Report on Form 10-K for the year ended December 31, 2022, 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 Quarterly Report on Form 10-Q for the quarter ended September 30, 2023, which is expected to be filed on November 7, 2023. All information provided in this presentation is based on information available to us as of the date of this presentation 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 presentation, 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)
 
 September 30, 2023 December 31, 2022
 (unaudited)  
ASSETS   
Current assets:   
Cash and cash equivalents$        214,754  $        123,274 
Restricted cash         14,000           13,000 
Investments, at fair value         16,294           13,714 
Fees and other receivables, net         20,464           20,082 
Income tax receivable, net         —           265 
Prepaid expenses and other current assets         13,086           16,870 
Total current assets         278,598           187,205 
Property, plant and equipment, net         7,672           8,495 
Capitalized software, net         105,593           89,959 
Other intangible assets, net         686,765           694,627 
Operating lease right-of-use assets         21,625           22,002 
Goodwill         487,353           487,225 
Other assets         17,721           13,417 
Total assets$        1,605,327  $        1,502,930 
LIABILITIES AND STOCKHOLDERS’ EQUITY   
Current liabilities:   
Accounts payable$        1,781  $        4,624 
Accrued liabilities and other current liabilities         65,458           69,196 
Income tax payable, net         25,755           — 
Total current liabilities         92,994           73,820 
Long-term debt, net         93,519           112,138 
Other long-term liabilities         16,666           15,185 
Long-term portion of operating lease liabilities         27,539           27,924 
Deferred income tax liabilities, net         147,497           147,497 
Total long-term liabilities         285,221           302,744 
Total liabilities         378,215           376,564 
Stockholders’ equity:   
Common stock, $0.001 par value (675,000,000 shares authorized and 74,264,226 and 73,847,596 shares issued and outstanding as of September 30, 2023 and December 31, 2022, respectively)         74           74 
Additional paid-in capital         955,208           942,946 
Retained earnings         271,987           183,503 
Accumulated other comprehensive loss         (157)          (157)
Total stockholders’ equity         1,227,112           1,126,366 
Total liabilities and stockholders’ equity$        1,605,327  $        1,502,930 


 
AssetMark Financial Holdings, Inc.
Unaudited Condensed Consolidated Statements of Income and Comprehensive Income
(in thousands, except share and per share data)
 
 Three Months Ended
September 30,
 Nine Months Ended
September 30,
  2023   2022  2023 2022
Revenue:       
Asset-based revenue$        143,840  $        128,173  $        412,215  $        409,498 
Spread-based revenue         37,329           21,160           112,863           30,265 
Subscription-based revenue         3,891           3,126           11,128           9,703 
Other revenue         5,462           2,204           14,110           4,707 
Total revenue         190,522           154,663           550,316           454,173 
Operating expenses:       
Asset-based expenses         43,092           36,476           119,870           118,429 
Spread-based expenses         8,492           2,142           23,052           3,188 
Employee compensation         46,613           41,589           141,623           121,852 
General and operating expenses         22,714           21,667           72,757           65,949 
Professional fees         7,369           5,877           21,134           17,104 
Depreciation and amortization         8,965           7,961           26,077           23,141 
Total operating expenses         137,245           115,712           404,513           349,663 
Interest expense         2,305           1,560           6,789           4,207 
Other (income) expense, net         (2,192)          (11)          17,385           195 
Income before income taxes         53,164           37,402           121,629           100,108 
Provision for income taxes         14,779           7,293           33,145           22,440 
Net income         38,385           30,109           88,484           77,668 
Net comprehensive income$        38,385  $        30,109  $        88,484  $        77,668 
Net income per share attributable to common stockholders:       
Basic$        0.52  $        0.41  $        1.19  $        1.05 
Diluted$        0.51  $        0.41  $        1.19  $        1.05 
Weighted average number of common shares outstanding, basic 74,261,667   73,842,297   74,047,412   73,682,881 
Weighted average number of common shares outstanding, diluted 74,695,260   73,844,689   74,521,370   73,783,858 


 
AssetMark Financial Holdings, Inc.
Unaudited Condensed Consolidated Statements of Cash Flows
(in thousands)
 
 Nine Months Ended
September 30,
  2023   2022 
CASH FLOWS FROM OPERATING ACTIVITIES   
Net income$        88,484  $        77,668 
Adjustments to reconcile net income to net cash provided by operating activities:   
Depreciation and amortization         26,077           23,141 
Interest (income) expense, net         (184)          607 
Share-based compensation         12,262           10,096 
Debt acquisition cost write-down         92           130 
Changes in certain assets and liabilities:   
Fees and other receivables, net         (879)          (7,338)
Receivables from related party         480           568 
Prepaid expenses and other current assets         7,751           6,732 
Accounts payable, accrued liabilities and other current liabilities         (675)          (12,664)
Income tax receivable and payable, net         26,020           (3,341)
Net cash provided by operating activities         159,428           95,599 
CASH FLOWS FROM INVESTING ACTIVITIES   
Purchase of Adhesion Wealth         (3,000)          — 
Purchase of investments         (1,936)          (2,211)
Sale of investments         289           384 
Purchase of property and equipment         (1,155)          (1,440)
Purchase of computer software         (31,871)          (26,049)
Purchase of convertible notes         (4,275)          (8,600)
Net cash used in investing activities         (41,948)          (37,916)
CASH FLOWS FROM FINANCING ACTIVITIES   
Proceeds from issuance of long-term debt, net         —           122,508 
Proceeds from revolving credit facility draw down         50,000           — 
Payments on revolving credit facility         (50,000)          (115,000)
Payments on term loan         (25,000)          (4,688)
Net cash (used in) provided by financing activities         (25,000)          2,820 
Net change in cash, cash equivalents, and restricted cash         92,480           60,503 
Cash, cash equivalents, and restricted cash at beginning of period         136,274           89,707 
Cash, cash equivalents, and restricted cash at end of period$        228,754  $        150,210 
SUPPLEMENTAL CASH FLOW INFORMATION   
Income taxes paid, net$        6,962  $        26,176 
Interest paid$        7,837  $        2,714 
Non-cash operating and investing activities:   
Non-cash changes to right-of-use assets$        3,360  $        3,396 
Non-cash changes to lease liabilities$        3,360  $        3,396 


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, conversions, as well as other non-recurring litigation costs 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 and nine months ended September 30, 2023 and 2022 (unaudited).

 Three Months Ended
September 30,
 Three Months Ended
September 30,
(in thousands except for percentages) 2023   2022  2023 2022
Net income$        38,385  $        30,109          20.1 %         19.5 %
Provision for income taxes         14,779           7,293          7.8 %         4.7 %
Interest income (3,186)  (849) (1.7)% (0.5)%
Interest expense         2,305           1,560          1.2 %         1.0 %
Depreciation and amortization         8,965           7,961          4.7 %         5.1 %
EBITDA$        61,248  $        46,074          32.1 %         29.8 %
Share-based compensation(1)         4,288           3,923          2.3 %         2.5 %
Reorganization and integration costs(2)         2,662           2,281          1.4 %         1.5 %
Acquisition expenses(3)         195           379          0.1 %         0.2 %
Business continuity plan(4)         —           14          —           —  
SEC settlement(5) (1,673)    (0.9)%   
Other (income) expense, net$        (263) $        (11)         (0.1)%         —  
Adjusted EBITDA$        66,457  $        52,660          34.9 %         34.0 %


 Nine Months Ended
September 30,
 Nine Months Ended
September 30,
(in thousands except for percentages) 2023   2022  2023 2022
Net income$        88,484  $        77,668          16.1 %         17.1 %
Provision for income taxes         33,145           22,440          6.0 %         4.9 %
Interest income (7,746)  (1,107) (1.4)% (0.2)%
Interest expense         6,789           4,207          1.2 %         0.9 %
Depreciation and amortization         26,077           23,141          4.7 %         5.1 %
EBITDA$        146,749  $        126,349          26.6 %         27.8 %
Share-based compensation(1)         12,262           10,096          2.2 %         2.2 %
Reorganization and integration costs(2)         8,127           8,600          1.5 %         1.9 %
Acquisition expenses(3)         368           1,313          0.1 %         0.3 %
Business continuity plan(4)         (6)          234          —           0.1 %
SEC settlement(5)         18,327           —          3.3 %         —  
Other (income) expense, net         (186)          195          —           —  
Adjusted EBITDA$        185,641  $        146,787          33.7 %         32.3 %


(1)“Share-based compensation” represents granted share-based compensation in the form of 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 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)“Business continuity plan” includes incremental compensation and other costs that are directly related to a transition to a hybrid workforce in 2022.
(5)“SEC settlement” represents the amount paid by us pursuant to our settlement with the SEC discussed in Note 12 of notes to unaudited condensed consolidated financial statements in our Quarterly Report on Form 10-Q for the quarter ended September 30, 2023.
  

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 three and nine months ended September 30, 2023 and 2022 (unaudited), broken out by compensation and non-compensation expenses (unaudited).

  Three Months Ended September 30, 2023 Three Months Ended September 30, 2022
(in thousands) Compensation Non-
Compensation
 Total Compensation Non-
Compensation
 Total
Share-based compensation(1) $        4,288  $        —  $        4,288  $        3,923  $        —  $        3,923 
Reorganization and integration costs(2)          1,101           1,561           2,662           829           1,452           2,281 
Acquisition expenses(3)          —           195           195           (4)          383           379 
Business continuity plan(4)          —           —           —           —           14           14 
SEC settlement(5)          —           (1,673)          (1,673)          —           —           — 
Other (income) expense, net          —           (263)          (263)          —           (11)          (11)
Total adjustments to adjusted EBITDA $        5,389  $        (180) $        5,209  $        4,748  $        1,838  $        6,586 


  Three Months Ended September 30, 2023 Three Months Ended September 30, 2022
(in percentages) Compensation Non-
Compensation
 Total
 Compensation Non-
Compensation
 Total
Share-based compensation(1)         2.3 %         —           2.3 %         2.5 %         —           2.5 %
Reorganization and integration costs(2)         0.6 %         0.8 %         1.4 %         0.5 %         1.0 %         1.5 %
Acquisition expenses(3)         —           0.1 %         0.1 %         —           0.2 %         0.2 %
Business continuity plan(4)         —           —           —           —           —           —  
SEC settlement(5)         —           (0.9)%         (0.9)%         —           —           —  
Other (income) expense, net         —           (0.1)%         (0.1)%         —           —           —  
Total adjustments to adjusted EBITDA margin %         2.9 %         (0.1)%         2.8 %         3.0 %         1.2 %         4.2 %


(1)“Share-based compensation” represents granted share-based compensation in the form of 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 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)“Business continuity plan” includes incremental compensation and other costs that are directly related to a transition to a hybrid workforce in 2022.
(5)“SEC settlement” represents the amount paid by us pursuant to our settlement with the SEC discussed in Note 12 of notes to unaudited condensed consolidated financial statements in our Quarterly Report on Form 10-Q for the quarter ended September 30, 2023.
  


 Nine Months Ended September 30, 2023 Nine Months Ended September 30, 2022
(in thousands)Compensation Non-
Compensation
 Total Compensation Non-
Compensation
 Total
Share-based compensation(1)$        12,262  $        —  $        12,262  $        10,096  $        —  $        10,096 
Reorganization and integration costs(2)         3,370           4,757           8,127           2,823           5,777           8,600 
Acquisition expenses(3)         100           268           368           (4)          1,317           1,313 
Business continuity plan(4)         —           (6)          (6)          (2)          236           234 
SEC settlement(5)         —           18,327           18,327           —           —           — 
Other (income) expense, net         —           (186)          (186)          —           195           195 
Total adjustments to adjusted EBITDA$        15,732  $        23,160  $        38,892  $        12,913  $        7,525  $        20,438 


 Nine Months Ended September 30, 2023 Nine Months Ended September 30, 2022
(in percentages)Compensation Non-
Compensation
 Total Compensation Non-
Compensation
 Total
Share-based compensation(1)        2.2 %         —           2.2 %         2.2 %         —           2.2 %
Reorganization and integration costs(2)        0.6 %         0.9 %         1.5 %         0.6 %         1.3 %         1.9 %
Acquisition expenses(3)        —           0.1 %         0.1 %         —           0.3 %         0.3 %
Business continuity plan(4)        —           —           —           —           0.1 %         0.1 %
SEC settlement(5)        —           3.3 %         3.3 %         —           —           —  
Other (income) expense, net        —           —           —           —           —           —  
Total adjustments to adjusted EBITDA margin %        2.8 %         4.3 %         7.1 %         2.8 %         1.7 %         4.5 %


(1)“Share-based compensation” represents granted share-based compensation in the form of 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 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)“Business continuity plan” includes incremental compensation and other costs that are directly related to a transition to a hybrid workforce in 2022.
(5)“SEC settlement” represents the amount paid by us pursuant to our settlement with the SEC discussed in Note 12 of notes to unaudited condensed consolidated financial statements in our Quarterly Report on Form 10-Q for the quarter ended September 30, 2023.
  

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 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, debt refinancing, 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 expenses 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 nine months ended September 30, 2023 and 2022, 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 and nine months and years ended September 30, 2023 and 2022 (unaudited).

 Three Months Ended
September 30,
 Nine Months Ended
September 30,
  2023   2022   2023   2022 
Revenue:       
Asset-based revenue$        143,840  $        128,173  $        412,215  $        409,498 
Spread-based revenue 37,329           21,160   112,863           30,265 
Subscription-based revenue 3,891           3,126   11,128           9,703 
Other revenue 5,462           2,204   14,110           4,707 
Total revenue 190,522           154,663   550,316           454,173 
Operating expenses:       
Asset-based expenses 43,092           36,476   119,870           118,429 
Spread-based expenses 8,492           2,142   23,052           3,188 
Adjusted employee compensation(1) 41,224           36,841   125,891           108,939 
Adjusted general and operating expenses(1) 21,118           20,509   69,654           61,873 
Adjusted professional fees(1) 7,209           5,186   19,218           13,850 
Adjusted depreciation and amortization(2) 6,785           6,232   19,542           17,955 
Total adjusted operating expenses 127,920           107,386   377,227           324,234 
Interest expense 2,305           1,560   6,789           4,207 
Adjusted other expenses, net(1) (256)          —   (756)          — 
Adjusted income before income taxes 60,553           45,717   167,056           125,732 
Adjusted provision for income taxes(3) 14,532           10,744   40,093           29,548 
Adjusted net income$        46,021  $        34,973  $        126,963  $        96,184 
Net income per share attributable to common stockholders:       
Adjusted earnings per share(4)$        0.62  $        0.47  $        1.70  $        1.30 
Weighted average number of common shares outstanding, diluted 74,695,260   73,844,689   74,521,370   73,783,858 
(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 adjustments to normalize our estimated tax rate in determining adjusted net income.
(4) In Q1 2022, we began using the diluted GAAP shares outstanding given that our restricted stock awards fully vested in 2021 resulting in no material reconciling differences compared to the adjusted diluted common shares outstanding historically used for calculating adjusted earnings per share.
 

Set forth below is a reconciliation from net income, the most directly comparable GAAP financial measure, to adjusted net income for the three and nine months ended September 30, 2023 and 2022 (unaudited).

 Three months ended September 30, 2023 Three months ended September 30, 2022
Reconciliation of Non-GAAP PresentationGAAP Adjustments Adjusted GAAP Adjustments Adjusted
Revenue:           
Asset-based revenue$        143,840  $        —  $        143,840  $        128,173  $        —  $        128,173 
Spread-based revenue         37,329           —           37,329           21,160           —           21,160 
Subscription-based revenue         3,891           —           3,891           3,126           —           3,126 
Other revenue         5,462           —           5,462           2,204           —           2,204 
Total revenue         190,522           —           190,522           154,663           —           154,663 
Operating expenses:           
Asset-based expenses         43,092           —           43,092           36,476           —           36,476 
Spread-based expenses         8,492           —           8,492           2,142           —           2,142 
Employee compensation(1)          46,613           (5,389)          41,224           41,589           (4,748)          36,841 
General and operating expenses(1)         22,714           (1,596)          21,118           21,667           (1,158)          20,509 
Professional fees(1)         7,369           (160)          7,209           5,877           (691)          5,186 
Depreciation and amortization(2)         8,965           (2,180)          6,785           7,961           (1,729)          6,232 
Total operating expenses         137,245           (9,325)          127,920           115,712           (8,326)          107,386 
Interest expense         2,305           —           2,305           1,560           —           1,560 
Other expenses, net(1)         (2,192)          1,936           (256)          (11)          11           — 
Income before income taxes         53,164           7,389           60,553           37,402           8,315           45,717 
Provision for income taxes(3)         14,779           (247)          14,532           7,293           3,451           10,744 
Net income$        38,385    $        46,021  $        30,109    $        34,973 
(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 adjustments to normalize our estimated tax rate in determining adjusted net income.
 


 Nine months ended September 30, 2023 Nine months ended September 30, 2022
Reconciliation of Non-GAAP PresentationGAAP Adjustments Adjusted GAAP Adjustments Adjusted
Revenue:           
Asset-based revenue$        412,215  $        —  $        412,215  $        409,498  $        —  $        409,498 
Spread-based revenue         112,863           —           112,863           30,265           —           30,265 
Subscription-based revenue         11,128           —           11,128           9,703           —           9,703 
Other revenue         14,110           —           14,110           4,707           —           4,707 
Total revenue         550,316           —           550,316           454,173           —           454,173 
Operating expenses:           
Asset-based expenses         119,870           —           119,870           118,429           —           118,429 
Spread-based expenses         23,052           —           23,052           3,188           —           3,188 
Employee compensation(1)         141,623           (15,732)          125,891           121,852           (12,913)          108,939 
General and operating expenses(1)         72,757           (3,103)          69,654           65,949           (4,076)          61,873 
Professional fees(1)         21,134           (1,916)          19,218           17,104           (3,254)          13,850 
Depreciation and amortization(2)         26,077           (6,535)          19,542           23,141           (5,186)          17,955 
Total operating expenses         404,513           (27,286)          377,227           349,663           (25,429)          324,234 
Interest expense         6,789           —           6,789           4,207           —           4,207 
Other expenses, net(1)         17,385           (18,141)          (756)          195           (195)          — 
Income before income taxes         121,629           45,427           167,056           100,108           25,624           125,732 
Provision for income taxes(3)         33,145           6,948           40,093           22,440           7,108           29,548 
Net income$        88,484    $        126,963  $        77,668    $        96,184 
(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 adjustments to normalize our estimated tax rate in determining adjusted net income.
 

Set forth below is a summary of the adjustments involved in the reconciliation from net income, the most directly comparable GAAP financial measure, to adjusted net income for three and nine months ended September 30, 2023 and 2022 (unaudited), broken out by compensation and non-compensation expenses (unaudited).

  Three Months Ended September 30, 2023 Three Months Ended September 30, 2022
(in thousands) Compensation Non-
Compensation
 Total Compensation Non-
Compensation
 Total
Net income     $        38,385      $        30,109 
Acquisition-related amortization(1) $        —  $        2,180           2,180  $        —  $        1,729           1,729 
Expense adjustments(2)          1,101           83           1,184           825           1,849           2,674 
Share-based compensation          4,288           —           4,288           3,923           —           3,923 
Other (income) expense, net          —           (263)          (263)          —           (11)          (11)
Tax effect of adjustments(3)          (1,293)          1,540           247           (1,116)          (2,335)          (3,451)
Adjusted net income $        4,096  $        3,540  $        46,021  $        3,632  $        1,232  $        34,973 


  Nine Months Ended September 30, 2023 Nine Months Ended September 30, 2022
(in thousands) Compensation Non-
Compensation
 Total Compensation Non-
Compensation
 Total
Net income     $        88,484      $        77,668 
Acquisition-related amortization(1) $        —  $        6,535           6,535  $        —  $        5,186           5,186 
Expense adjustments(2)          3,470           23,346           26,816           2,817           7,330           10,147 
Share-based compensation          12,262           —           12,262           10,096           —           10,096 
Other (income) expense, net          —           (186)          (186)          —           195           195 
Tax effect of adjustments(3)          (3,776)          (3,172)          (6,948)          (3,035)          (4,073)          (7,108)
Adjusted net income $        11,956  $        26,523  $        126,963  $        9,878  $        8,638  $        96,184 


(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)Consists of adjustments to normalize our estimated tax rate in determining adjusted net income.
  

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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