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AssetMark Reports Record $56.1B Platform Assets for Second Quarter 2019

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CONCORD, Calif., Aug. 28, 2019 (GLOBE NEWSWIRE) -- AssetMark Financial Holdings, Inc. (NYSE: AMK) today announced financial results for the quarter ended June 30, 2019.

Second Quarter 2019 Financial and Operational Highlights

  • Net income for the quarter was $3.2 million, or $0.05 per share.

  • Adjusted net income for the quarter was $16.6 million, or $0.25 per share, on total revenue of $104.5 million.

  • Adjusted EBITDA for the quarter was $28.6 million, or 27.4% of total revenue.

  • Platform assets increased 23.8% year-over-year and 12.8% quarter-over-quarter to $56.1 billion, aided by quarterly net flows of $1.5 billion, market impact net of fees of $1.1 billion and the addition of $3.8 billion in platform assets from the acquisition of Global Financial Private Capital.

  • Through the first half of 2019, annualized net flows as a percentage of beginning-of- year platform assets were 13.0%.

  • More than 17,000 new households and 280 new producing advisors joined the AssetMark platform during the second quarter. In total, as of June 30th, 2019, there were nearly 7,900 advisors and approximately 155,300 investor households on the AssetMark platform.

  • We realized 24.9% year-to-date production lift from existing advisors in the second quarter indicating that advisors continued to grow organically and increase wallet share on our platform.

Post-Second Quarter 2019 Financial and Operational Highlights

  • Raised $124.4 million in net proceeds to us from our initial public offering, which closed on July 22, 2019.

  • Used proceeds from the IPO, together with cash on hand, to pay down $125 million on our seven-year term loan that comes due in 2025.

“For the second quarter, AssetMark delivered double-digit year-over-year growth in total revenue, adjusted EBITDA and adjusted net income per share,” said Charles Goldman, President and CEO. “This performance is driven by our employees’ ability to execute our business strategy and the strength of our advisors’ relationships with their clients. We believe that the need for high quality integrated products and services that help independent advisors is poised to grow. This favorable industry trend is driven by an increased demand for financial advisors, a move to fee-based models and the decision by more advisors to outsource their businesses.”

Goldman concluded, “AssetMark’s disciplined balance sheet management has resulted in a strong cash position and low net debt, enabling us to invest in new technology, products and services as well as pursue strategic acquisitions that we believe will boost our platform assets and are accretive to our top and bottom lines. AssetMark plans to continue to invest in its business and people, a strategic approach that serves our advisors, our employees and our shareholders.”

Key Operating Metrics

2Q19

2Q18

Variance
per year

Operational metrics:

Platform assets (at period-beginning) (millions of dollars)

49,695

43,462

14.3

%

Net flows (millions of dollars)

1,514

1,695

-10.7

%

Market impact net of fees (millions of dollars)

1,053

117

798.6

%

Acquisition

3,789

0

NM

Platform assets (at period-end) (millions of dollars)

56,051

45,274

23.8

%

Net flows (% of beginning of year platform assets)

3.4

%

4.0

%

(60 bps)

Advisors (at period-end)

7,899

7,390

6.9

%

Engaged advisors (at period-end)

2,125

1,839

15.6

%

Assets from engaged advisors (at period-end) (millions of dollars)

49,455

39,092

26.5

%

Households (at period-end)

155,372

125,060

24.2

%

New producing advisors

280

240

16.7

%

Production lift from existing advisors ( year-to-date %)

24.9

%

23.3

%

160 bps

ATC client cash (millions of dollars)

1,493

1,245

20.0

%

Financial metrics:

Total revenue (millions of dollars)

104

89

17.7

%

Net income margin (%)

3.1

%

10.4

%

(730 bps)

Capital expenditure (millions of dollars)

6

4

61.2

%

Non-GAAP financial metrics:

Adjusted EBITDA (millions of dollars)

28.6

22.1

29.2

%

Adjusted net income (millions of dollars)

16.6

15.1

10.2

%

Webcast and Conference Call Information

AssetMark will host a live conference call and webcast to discuss its second quarter 2019 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: August 28, 2019

  • Time: 2:00 p.m. PT; 5:00 p.m. ET

  • Phone: 866-211-4156 (international dial-in: 647-689-6721); password: 8763616

  • 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 August 28, 2019.

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 $56.1 billion in platform assets as of June 30, 2019 and has a history of innovation spanning more than 20 years.

Forward-Looking Statements

This press release contains forward-looking statements, 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,” “might,” “will,” “should,” “expects,” “plans,” “anticipates,” “intends,” “believes,” “estimates,” “predicts,” “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 in relation to our ability to attract and retain advisors, competition in the industry in which we operate, the interest rate environment, shifting investor preferences, our financial performance, investments in new products, services and capabilities, our ability to execute strategic transactions, legal and regulatory developments and general market, political, 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 June 30, 2019, that will be filed following this earnings release. 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.

Use of Non-GAAP Financial Information

To supplement our financial information, which is prepared and presented in accordance with generally accepted accounting principles in the United States of America, or GAAP, we use two non-GAAP financial measures: adjusted EBITDA and adjusted net income. The presentation of these non-GAAP financial metrics is not intended to be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP. We believe that the presentation of non-GAAP financial information provides important supplemental information to management and investors regarding financial and business trends relating to our financial condition and results of operations. For further information regarding these non-GAAP measures, including the limitations thereof and reconciliations of each non-GAAP financial measure to its most directly comparable GAAP financial measure, please refer to the financial tables below, as well as the “Explanations and Reconciliations of Non-GAAP Financial Measures” section of this press release.


AssetMark Financial Holdings, Inc.
Condensed Consolidated Balance Sheets
(in thousands except share data and par value)

June 30,
2019

December 31,
2018

(unaudited)

ASSETS

Current assets:

Cash and cash equivalents

$

65,024

$

105,354

Restricted cash

7,000

7,000

Investments, at fair value

370

333

Fees and other receivables

10,295

8,760

Federal income tax receivable

2,875

586

State income tax receivable

449

332

Other current assets

7,120

4,391

Total current assets

93,133

126,756

Property, plant and equipment, net

7,146

7,040

Capitalized software, net

71,221

72,644

Other intangible assets, net

654,440

642,420

Goodwill

325,493

298,415

Total assets

$

1,151,433

$

1,147,275

LIABILITIES AND STOCKHOLDER’S EQUITY

Current liabilities:

Accounts payable

$

1,410

$

730

Accrued liabilities and other current liabilities

33,165

38,200

Current portion of long-term debt

1,786

2,305

Current portion of acquisition earn-out

8,000

Total current liabilities

36,361

49,235

Long-term debt, net

242,432

242,817

Other long-term liabilities

10,447

5,097

Deferred income tax liabilities, net

146,682

151,115

Total long-term liabilities

399,561

399,029

Total liabilities

435,922

448,264

Commitments and contingencies

Stockholder’s equity:

Common stock, $0.001 par value (675,000,000 shares authorized and 66,150,000 shares issued and outstanding)

66

66

Additional paid-in capital

646,594

635,096

Retained earnings

68,851

63,846

Accumulated other comprehensive income, net of tax

3

Total stockholder’s equity

715,511

699,011

Total liabilities and stockholder’s equity

$

1,151,433

$

1,147,275

AssetMark Financial Holdings, Inc.
Unaudited Condensed Consolidated Statements of Comprehensive Income
(in thousands except share and per share data)

Three Months Ended
June 30,

Six Months Ended
June 30,

2019

2018

2019

2018

Revenue

Asset-based revenue

$

94,273

$

83,234

$

177,336

$

162,310

Spread-based revenue

8,810

4,734

16,359

8,483

Other revenue

1,400

809

3,102

2,517

Total revenue

104,483

88,777

196,797

173,310

Expenses

Asset-based expenses

31,625

28,719

59,727

55,524

Spread-based expenses

1,595

444

2,073

805

Employee compensation

35,489

26,663

67,374

51,403

General and operating expenses

13,135

10,602

25,427

21,253

Professional fees

4,469

2,049

6,855

4,325

Interest

4,031

8,055

Depreciation and amortization

7,613

6,698

14,509

12,735

Total expenses

97,957

75,175

184,020

146,045

Income before income taxes

6,526

13,602

12,777

27,265

Provision for income taxes

3,289

4,337

6,729

8,209

Net income

3,237

9,265

6,048

19,056

Other comprehensive income, net of tax

Unrealized gain on investments, net of tax

2

Net comprehensive income

$

3,237

$

9,267

$

6,048

$

19,056

Net income per share attributable to common shareholder:

Net income per share, basic

$

0.05

$

0.14

$

0.09

$

0.29

Weighted average number of common shares outstanding, basic

66,150,000

66,150,000

66,150,000

66,150,000

AssetMark Financial Holdings, Inc.
Unaudited Condensed Consolidated Statements of Cash Flows
(in thousands)

Six Months Ended June 30,

2019

2018

CASH FLOWS FROM OPERATING ACTIVITIES

Net income

$

6,048

$

19,056

Adjustments to reconcile net earnings to net cash provided by operating activities:

Depreciation and amortization

14,509

12,735

Interest

347

Deferred income taxes

20

(220

)

Share-based compensation

10,452

2,739

Changes in certain assets and liabilities:

Fees and other receivables, net

(1,461

)

(1,926

)

Payable to related party

(314

)

(61

)

Other current assets

(2,012

)

40

Accounts payable, accrued expenses and other liabilities

(17,675

)

(15,783

)

Income tax receivable and payable

(2,406

)

1,811

Net cash provided by operating activities

7,508

18,391

CASH FLOWS FROM INVESTING ACTIVITIES

Purchase of Global Financial Private Capital, LLC

(35,906

)

Purchase of investments

(21

)

(300

)

Purchase of property and equipment

(838

)

(344

)

Purchase of computer software

(9,823

)

(7,521

)

Net cash used in investing activities

(46,588

)

(8,165

)

CASH FLOWS FROM FINANCING ACTIVITIES

Payments on long-term debt

(1,250

)

Net cash used in financing activities

(1,250

)

Net change in cash, cash equivalents, and restricted cash

(40,330

)

10,226

Cash, cash equivalents, and restricted cash at beginning of period

112,354

57,147

Cash, cash equivalents, and restricted cash at end of period

$

72,024

$

67,373

SUPPLEMENTAL CASH FLOW INFORMATION

Income taxes paid

$

8,966

$

11,053

Interest paid

$

7,708

$

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 and adjusted net income, both of which are non-GAAP measures, are useful in evaluating our performance. We use adjusted EBITDA 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 financial information 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

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 is a useful financial metric in assessing our operating performance from period to period by excluding 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, 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:

  • 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, 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.

We use adjusted EBITDA:

  • as a measure 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 a consideration in determining compensation for certain employees.

Adjusted EBITDA 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 EBITDA does not reflect all cash expenditures, future requirements for capital expenditures or contractual commitments;

  • adjusted EBITDA does not reflect changes in, or cash requirements for, working capital needs;

  • adjusted EBITDA does not reflect interest expense on our debt or the cash requirements necessary to service interest or principal payments; and

  • the definition of adjusted EBITDA can differ significantly from company to company and as a result has limitations when comparing similarly titled measures across companies.

Set forth below is a reconciliation from net income, the most directly comparable U.S. GAAP financial measure, to adjusted EBITDA for the three months ended June 30, 2019 and 2018 and the six months ended June 30, 2019 and 2018.

Three Months Ended June 30,

Six Months Ended June 30,

(in thousands)

2019

2018

2019

2018

Net income

$

3,237

$

9,265

$

6,048

$

19,056

Provision for (benefit from) income tax

3,289

4,337

6,729

8,209

Interest income

(730

)

(420

)

(1,622

)

(730

)

Interest expense

4,031

8,055

Amortization/depreciation

7,613

6,698

14,509

12,735

EBITDA

17,440

19,880

33,719

39,269

Share-based compensation(1)

5,226

1,443

10,452

2,739

IPO readiness(2)

767

407

1,335

458

Reorganization and integration costs(3)

130

403

787

675

Acquisition expenses(4)

5,031

5,031

Adjusted EBITDA

$

28,594

$

22,133

$

51,324

$

43,141

(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 parent company, 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) “IPO readiness” includes professional fees related to our preparation to become a public company. These expenses primarily include services for financial and human resources systems implementation, executive compensation assessments and other consulting services. Although these expenses occurred in both 2018 and the first quarter of 2019, these expenses are nonrecurring as they are limited to our public-company readiness preparation and do not include ongoing public-company compliance costs.
(3) “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.
(4) “GFPC-related expenses” includes employee severance, transition, and retention expenses, duplicative general and administrative expenses and other professional fees related to the acquisition of GFPC.

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 policies, 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 (loss) 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 (loss), 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.

Set forth below is a reconciliation from net income, the most directly comparable U.S. GAAP financial measure, to adjusted net income for the three months ended June 30, 2019 and 2018 and the six months ended June 30, 2019 and 2018.

Three Months Ended June 30,

Six Months Ended June 30,

(in thousands)

2019

2018

2019

2018

Net income

$

3,237

$

9,265

$

6,048

$

19,056

Acquisition-related amortization(1)

5,108

5,108

10,216

10,216

Expense adjustments(2)

5,928

810

7,153

1,133

Share-based compensation

5,226

1,443

10,452

2,739

Tax effect of adjustments(3)

(2,869

)

(1,538

)

(4,516

)

(2,951

)

Adjusted net income

$

16,630

$

15,088

$

29,353

$

30,193

(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
ir@assetmark.com

Media:
Lexy Siegel
Group Gordon
lsiegel@groupgordon.com

SOURCE: AssetMark, Inc.