Company Quick10K Filing
AssetMark
Price25.94 EPS-0
Shares72 P/E-3,825
MCap1,878 P/FCF75
Net Debt31 EBIT14
TEV1,909 TEV/EBIT137
TTM 2019-09-30, in MM, except price, ratios
10-Q 2020-09-30 Filed 2020-11-13
10-Q 2020-06-30 Filed 2020-08-11
10-Q 2020-03-31 Filed 2020-05-13
10-K 2019-12-31 Filed 2020-03-13
10-Q 2019-09-30 Filed 2019-11-06
10-Q 2019-06-30 Filed 2019-08-28
S-1 2019-06-24 Public Filing
8-K 2021-02-23 Officers, Other Events
8-K 2021-02-11 Earnings, Exhibits, Exhibits
8-K 2020-12-30 Enter Agreement, Leave Agreement, Off-BS Arrangement, Exhibits
8-K 2020-12-08 Regulation FD, Exhibits
8-K 2020-11-10
8-K 2020-08-27
8-K 2020-08-04
8-K 2020-06-08
8-K 2020-05-12
8-K 2020-05-05
8-K 2020-04-21
8-K 2020-03-26
8-K 2020-03-02
8-K 2020-02-26
8-K 2019-12-05
8-K 2019-11-05
8-K 2019-09-30
8-K 2019-08-28
8-K 2019-08-28
8-K 2019-07-22

AMK 10Q Quarterly Report

Part I. Financial Information
Item 1. Financial Statements.
Note 1. Organization and Nature of Business
Note 3. Acquisition of Wbi Obs Financial, Inc.
Note 4. Goodwill and Intangible Assets
Note 5. Accrued Liabilities and Other Current Liabilities
Note 6. Other Long - Term Liabilities
Note 7. Fair Value Measurements
Note 8. Asset - Based Expenses
Note 9. Debt
Note 10. Share - Based Compensation
Note 11. Commitments and Contingencies
Note 12. Income Taxes
Note 13. Related Party Transactions
Note 14. Net Income per Share Attributable To Common Stockholders
Note 15. Subsequent Events
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Item 4. Controls and Procedures.
Part II - Other Information
Item 1. Legal Proceedings.
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Item 3. Defaults Upon Senior Securities.
Item 4. Mine Safety Disclosures.
Item 5. Other Information.
Item 6. Exhibits.
EX-21.1 amk-ex211_8.htm
EX-31.1 amk-ex311_7.htm
EX-31.2 amk-ex312_10.htm
EX-32.1 amk-ex321_9.htm
EX-32.2 amk-ex322_6.htm

AssetMark Earnings 2020-09-30

Balance SheetIncome StatementCash Flow
1.21.00.70.50.20.02018201820192020
Assets, Equity
0.20.10.10.0-0.0-0.12018201820192020
Rev, G Profit, Net Income
0.10.10.0-0.0-0.1-0.12018201820192020
Ops, Inv, Fin

10-Q 1 amk-10q_20200930.htm 10-Q amk-10q_20200930.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

(Mark One) 

 

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2020

 

OR

 

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                to

 

Commission File Number: 001-38980

 

ASSETMARK FINANCIAL HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

 

 

Delaware

(State or other jurisdiction of

incorporation or organization)

 

 

 

30-0774039

(I.R.S. Employer

Identification Number)

 

 

 

 

 

 

 

1655 Grant Street, 10th Floor

Concord, California 94520

(Address of principal executive offices)

 

 

 

 

 

 

 

 

 

(925) 521-2200

(Registrant’s telephone number, including area code)

 

 

 

 

 

 

 

 

Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:

 

Title of each class

Trading symbol(s)

Name of each exchange on which registered

Common stock, par value $0.001 per share

AMK

New York Stock Exchange

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes   No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes   No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

Accelerated filer

Non-accelerated filer

 

Smaller reporting company

 

 

 

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes    No  

As of October 31, 2020, the number of shares of the registrant’s common stock outstanding was 72,449,255.

 

 

 

 


ASSETMARK FINANCIAL HOLDINGS, INC.

 

TABLE OF CONTENTS

 

 

 

Page No.

 

Special Note Regarding Forward-Looking Statements

2

 

Summary of Risk Factors

3

 

 

 

 

PART I. FINANCIAL INFORMATION

 

Item 1.

Financial Statements (unaudited)

4

 

Condensed Consolidated Balance Sheets as of September 30, 2020 and December 31, 2019

4

 

Condensed Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2020 and 2019

5

 

Condensed Consolidated Statements of Stockholder’s Equity for the Three and Nine Months Ended September 30, 2020 and 2019

6

 

Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2020 and 2019

7

 

Notes to Unaudited Condensed Consolidated Financial Statements

8

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

18

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

36

Item 4.

Controls and Procedures

37

 

 

 

 

PART II.  OTHER INFORMATION

 

Item 1.

Legal Proceedings

38

Item 1A.

Risk Factors

38

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

58

Item 3.

Defaults Upon Senior Securities

58

Item 4.

Mine Safety Disclosures

58

Item 5.

Other Information

58

Item 6.

Exhibits

59

 

Signatures

60

 

 

 

1


SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q, including statements regarding our future results of operations or financial condition, business strategy and plans and objectives of management for future operations, are forward-looking statements. In some cases, you can identify these statements by forward-looking words 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, which are subject to risks, uncertainties and assumptions about us, may include projections of our future financial performance and financial results, our anticipated growth strategies and anticipated trends in our business, our expectations regarding our industry outlook, market position, liquidity and capital resources, acquisition targets, addressable market, investments in new products, services and capabilities, our ability to close and execute on strategic transactions, our ability to comply with existing, modified and new laws and regulations applying to our business, and the impacts of the COVID-19 pandemic on our operations, demand from our customers and end investors and our operating results. These statements are only predictions based on our current expectations and projections about future events. There are important factors that could cause our actual results, level of activity, performance or achievements to differ materially from the results, level of activity, performance or achievements expressed or implied by the forward-looking statements, including those factors discussed in section titled “Risk Factors.” Although we believe the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, level of activity, performance or achievements. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of any of these forward-looking statements. We are under no duty to update any of these forward-looking statements after the date of this Quarterly Report on Form 10-Q to conform our prior statements to actual results or revised expectations, except as required by law. In addition, “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Quarterly Report on Form 10-Q, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements as predictions of future events.

2


SUMMARY OF RISK FACTORS

Our business is subject to numerous risks and uncertainties, any one of which could materially adversely affect our results of operations, financial condition or business. These risks include, but are not limited to, those listed below. This list is not complete, and should be read together with the section titled “Risk Factors” in this Quarterly Report on Form 10-Q, as well as the other information in this Quarterly Report on Form 10-Q and the other filings that we make with the SEC.

 

 

Our revenue may fluctuate from period to period, which could cause our share price to fluctuate.

 

 

We operate in an intensely competitive industry, and this competition could hurt our financial performance.

 

 

We derive nearly all of our revenue from clients in the financial advisory industry and our revenue could suffer if that industry experiences a downturn.

 

 

Our clients that pay us an asset-based fee may seek to negotiate a lower fee percentage, choose to use lower-revenue products or cease using our services, which could limit the growth of our revenue or cause our revenue to decrease.

 

 

Investors may redeem or withdraw their investment assets generally at any time. Significant changes in investing patterns or large-scale withdrawal of investment funds could have a material adverse effect on our business.

 

 

Changes in market and economic conditions (including as a result of the ongoing COVID-19 pandemic) could lower the value of assets on which we earn revenue and could decrease the demand for our investment solutions and services.

 

We are exposed to data and cyber-security risks that could result in data breaches, service interruptions, harm to our reputation, protracted and costly litigation or significant liability.

 

 

Our controlling stockholder is subject to supervision by regulatory authorities in the People’s Republic of China (“PRC”) and must comply with certain PRC laws and regulations that may influence our controlling stockholder’s decisions relating to our business.

 

 

We are subject to extensive government regulation in the United States, and our failure or inability to comply with these regulations or regulatory action against us could adversely affect our results of operations, financial condition or business.

 

 

Control by our principal stockholder could adversely affect our other stockholders.

 

 

We may be subject to liability for losses that result from a breach of our fiduciary duties.

 

Failure to properly disclose conflicts of interest could harm our reputation, results of operations or business.

 

3


PART I.  FINANCIAL INFORMATION

Item 1. Financial Statements.

AssetMark Financial Holdings, Inc.

Condensed Consolidated Balance Sheets

(in thousands except share data and par value)

 

 

 

September 30, 2020

 

 

December 31, 2019

 

 

 

(unaudited)

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

109,319

 

 

$

96,341

 

Restricted cash

 

 

9,125

 

 

 

9,000

 

Investments, at fair value

 

 

9,047

 

 

 

7,275

 

Fees and other receivables, net

 

 

7,462

 

 

 

9,679

 

Income tax receivable, net

 

 

15,392

 

 

 

3,994

 

Other current assets

 

 

10,012

 

 

 

6,565

 

Total current assets

 

 

160,357

 

 

 

132,854

 

Property, plant and equipment, net

 

 

7,436

 

 

 

7,067

 

Capitalized software, net

 

 

68,672

 

 

 

69,814

 

Other intangible assets, net

 

 

657,187

 

 

 

651,915

 

Operating lease right-of-use assets

 

 

28,509

 

 

 

 

Goodwill

 

 

338,848

 

 

 

327,310

 

Total assets

 

$

1,261,009

 

 

$

1,188,960

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

929

 

 

$

967

 

Accrued liabilities and other current liabilities

 

 

37,815

 

 

 

40,610

 

Total current liabilities

 

 

38,744

 

 

 

41,577

 

Long-term debt, net

 

 

121,934

 

 

 

121,692

 

Other long-term liabilities

 

 

15,556

 

 

 

16,440

 

Long-term portion of operating lease liabilities

 

 

32,838

 

 

 

 

Deferred income tax liabilities, net

 

 

150,795

 

 

 

150,390

 

Total long-term liabilities

 

 

321,123

 

 

 

288,522

 

Total liabilities

 

 

359,867

 

 

 

330,099

 

Commitments and contingencies

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Common stock, $0.001 par value (675,000,000 shares authorized and 72,449,255 and

  72,390,080 shares issued and outstanding as of September 30, 2020 and

  December 31, 2019, respectively)

 

 

72

 

 

 

72

 

Additional paid-in capital

 

 

836,634

 

 

 

796,406

 

Retained earnings

 

 

64,436

 

 

 

62,383

 

Total stockholders’ equity

 

 

901,142

 

 

 

858,861

 

Total liabilities and stockholders’ equity

 

$

1,261,009

 

 

$

1,188,960

 

 

The accompanying notes are an integral part of the condensed consolidated financial statements.

4


AssetMark Financial Holdings, Inc.

Unaudited Condensed Consolidated Statements of Comprehensive Income

(in thousands except share and per share data)

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Asset-based revenue

 

$

103,808

 

 

$

99,211

 

 

$

304,170

 

 

$

276,547

 

Spread-based revenue

 

 

2,628

 

 

 

9,638

 

 

 

14,128

 

 

 

25,997

 

Other revenue

 

 

702

 

 

 

1,282

 

 

 

2,861

 

 

 

4,384

 

Total revenue

 

 

107,138

 

 

 

110,131

 

 

 

321,159

 

 

 

306,928

 

Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Asset-based expenses

 

 

33,431

 

 

 

33,532

 

 

 

98,530

 

 

 

93,259

 

Spread-based expenses

 

 

436

 

 

 

1,556

 

 

 

2,158

 

 

 

3,629

 

Employee compensation

 

 

42,802

 

 

 

42,054

 

 

 

131,663

 

 

 

109,428

 

General and operating expenses

 

 

15,947

 

 

 

16,028

 

 

 

48,695

 

 

 

41,455

 

Professional fees

 

 

3,636

 

 

 

3,723

 

 

 

10,627

 

 

 

10,578

 

Depreciation and amortization

 

 

8,670

 

 

 

7,523

 

 

 

25,826

 

 

 

22,032

 

Total expenses

 

 

104,922

 

 

 

104,416

 

 

 

317,499

 

 

 

280,381

 

Interest expense

 

 

1,344

 

 

 

2,512

 

 

 

4,445

 

 

 

10,567

 

Other (income) expense

 

 

(15

)

 

 

2,296

 

 

 

(4

)

 

 

2,296

 

Income (loss) before income taxes

 

 

887

 

 

 

907

 

 

 

(781

)

 

 

13,684

 

Provision for (benefit from) income taxes

 

 

(7,710

)

 

 

4,635

 

 

 

(2,834

)

 

 

11,364

 

Net income (loss)

 

 

8,597

 

 

 

(3,728

)

 

 

2,053

 

 

 

2,320

 

Unrealized gain on investments, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

Net comprehensive income (loss)

 

$

8,597

 

 

$

(3,728

)

 

$

2,053

 

 

$

2,320

 

Net income (loss) per share attributable to common stockholders:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

0.13

 

 

 

(0.05

)

 

 

0.03

 

 

 

0.03

 

Diluted

 

 

0.12

 

 

 

(0.05

)

 

 

0.03

 

 

 

0.03

 

Weighted average number of common shares outstanding, basic

 

 

67,282,040

 

 

 

69,275,000

 

 

 

67,211,341

 

 

 

69,275,000

 

Weighted average number of common shares outstanding, diluted

 

 

70,068,690

 

 

 

69,275,000

 

 

 

69,695,817

 

 

 

69,503,611

 

 

The accompanying notes are an integral part of the condensed consolidated financial statements.

5


AssetMark Financial Holdings, Inc.

Unaudited Condensed Consolidated Statements of Stockholders’ Equity

(in thousands except share data)

 

For the three months ended September 30, 2020 and 2019

 

 

 

Common stock

 

 

Additional

paid-in

 

 

Retained

 

 

Accumulated

other

comprehensive

 

 

Total

stockholders’

 

 

 

Shares

 

 

Amount

 

 

capital

 

 

earnings

 

 

income

 

 

equity

 

Balance at June 30, 2019

 

 

66,150,000

 

 

$

66

 

 

$

646,594

 

 

$

68,851

 

 

$

 

 

$

715,511

 

Net income (loss)

 

 

 

 

 

 

 

 

 

 

 

(3,728

)

 

 

 

 

 

(3,728

)

Share-based employee compensation

 

 

 

 

 

 

 

 

11,641

 

 

 

 

 

 

 

 

 

11,641

 

Initial public offering proceeds, net of expenses

 

 

6,250,000

 

 

 

6

 

 

 

124,204

 

 

 

 

 

 

 

 

 

124,210

 

Balance at September 30, 2019

 

 

72,400,000

 

 

$

72

 

 

$

782,439

 

 

$

65,123

 

 

$

 

 

$

847,634

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at June 30, 2020

 

 

72,390,080

 

 

$

72

 

 

$

823,528

 

 

$

55,839

 

 

$

 

 

$

879,439

 

Net income

 

 

 

 

 

 

 

 

 

 

 

8,597

 

 

 

 

 

 

8,597

 

Exercise of stock options

 

 

8,504

 

 

 

 

 

 

187

 

 

 

 

 

 

 

 

 

187

 

Issuance of common stock - vesting of restricted stock units

 

 

50,671

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Share-based employee compensation

 

 

 

 

 

 

 

 

12,919

 

 

 

 

 

 

 

 

 

12,919

 

Balance at September 30, 2020

 

 

72,449,255

 

 

$

72

 

 

$

836,634

 

 

$

64,436

 

 

$

 

 

$

901,142

 

 

For the nine months ended September 30, 2020 and 2019

 

 

 

Common stock

 

 

Additional

paid-in

 

 

Retained

 

 

Accumulated

other

comprehensive

 

 

Total

stockholders’

 

 

 

Shares

 

 

Amount

 

 

capital

 

 

earnings

 

 

income

 

 

equity

 

Balance at December 31, 2018

 

 

66,150,000

 

 

$

66

 

 

$

635,096

 

 

$

63,846

 

 

$

3

 

 

$

699,011

 

Net income

 

 

 

 

 

 

 

 

 

 

 

2,320

 

 

 

 

 

 

2,320

 

Other comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

 

3

 

 

 

(3

)

 

 

 

2018 dividend reclassification

 

 

 

 

 

 

 

 

1,046

 

 

 

(1,046

)

 

 

 

 

 

 

Share-based employee compensation

 

 

 

 

 

 

 

 

22,093

 

 

 

 

 

 

 

 

 

22,093

 

Initial public offerings proceeds, net of expenses

 

 

6,250,000

 

 

 

6

 

 

 

124,204

 

 

 

 

 

 

 

 

 

124,210

 

Balance at September 30, 2019

 

 

72,400,000

 

 

 

72

 

 

 

782,439

 

 

 

65,123

 

 

 

 

 

 

847,634

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2019

 

 

72,390,080

 

 

$

72

 

 

$

796,406

 

 

$

62,383

 

 

$

 

 

$

858,861

 

Net income

 

 

 

 

 

 

 

 

 

 

 

2,053

 

 

 

 

 

 

2,053

 

Exercise of stock options

 

 

8,504

 

 

 

 

 

 

187

 

 

 

 

 

 

 

 

 

187

 

Issuance of common stock - vesting of restricted stock units

 

 

50,671

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Share-based employee compensation

 

 

 

 

 

 

 

 

40,041

 

 

 

 

 

 

 

 

 

40,041

 

Balance at September 30, 2020

 

 

72,449,255

 

 

$

72

 

 

$

836,634

 

 

$

64,436

 

 

$

 

 

$

901,142

 

 

The accompanying notes are an integral part of the condensed consolidated financial statements.

 

 

 

 

6


AssetMark Financial Holdings, Inc.

Unaudited Condensed Consolidated Statements of Cash Flows

(in thousands)

 

 

 

Nine Months Ended September 30,

 

 

 

2020

 

 

2019

 

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

 

 

 

 

Net income

 

$

2,053

 

 

$

2,320

 

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

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

25,826

 

 

 

22,032

 

Interest

 

 

456

 

 

 

478

 

Deferred income taxes

 

 

593

 

 

 

173

 

Share-based compensation

 

 

40,041

 

 

 

22,093

 

Impairment of right-of-use assets and property, plant, and equipment

 

 

2,381

 

 

 

 

Changes in certain assets and liabilities:

 

 

 

 

 

 

 

 

Fees and other receivables, net

 

 

2,853

 

 

 

(615

)

Receivables from related party

 

 

(42

)

 

 

(314

)

Other current assets

 

 

4,796

 

 

 

(1,461

)

Accounts payable, accrued expenses and other liabilities

 

 

(13,160

)

 

 

(10,972

)

Income tax receivable and payable

 

 

(11,398

)

 

 

(1,168

)

Net cash provided by operating activities

 

 

54,399

 

 

 

32,566

 

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

 

 

 

 

Purchase of Global Financial Private Capital, Inc.

 

 

 

 

 

(35,789

)

Purchase of WBI OBS Financial, Inc., net of cash received

 

 

(18,561

)

 

 

 

Purchase of investments

 

 

(1,896

)

 

 

(24

)

Sale of investments

 

 

12

 

 

 

 

Purchase of property and equipment

 

 

(2,288

)

 

 

(1,341

)

Purchase of computer software

 

 

(18,750

)

 

 

(14,990

)

Net cash used in investing activities

 

 

(41,483

)

 

 

(52,144

)

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

 

 

 

 

Proceeds from exercise of stock options

 

 

187

 

 

 

 

Initial public offering proceeds

 

 

 

 

 

124,210

 

Payments on long-term debt

 

 

 

 

 

(126,250

)

Net cash (used in) provided by financing activities

 

 

187

 

 

 

(2,040

)

Net change in cash, cash equivalents, and restricted cash

 

 

13,103

 

 

 

(21,618

)

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

 

 

105,341

 

 

 

112,354

 

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

 

$

118,444

 

 

$

90,736

 

SUPPLEMENTAL CASH FLOW INFORMATION

 

 

 

 

 

 

 

 

Income taxes paid

 

$

8,807

 

 

$

11,783

 

Interest paid

 

$

3,985

 

 

$

10,076

 

Non-cash operating activities:

 

 

 

 

 

 

 

 

Non-cash changes to right-of-use assets

 

$

38,734

 

 

$

 

Non-cash changes to lease liabilities

 

$

40,078

 

 

$

 

 

The accompanying notes are an integral part of the condensed consolidated financial statements.

 

7


AssetMark Financial Holdings, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

 

All dollar amounts presented are in thousands other than per share amounts.

Note 1. Organization and Nature of Business

These unaudited condensed consolidated financial statements include AssetMark Financial Holdings, Inc. and its subsidiaries, which include AssetMark Financial, Inc., which is the parent company of AssetMark, Inc., AssetMark Trust Company, AssetMark Brokerage, LLC, AssetMark Retirement Services, Inc., Global Financial Private Capital, Inc., Global Financial Advisory, LLC, WBI OBS Financial, Inc., OBS Holdings, Inc. and OBS Financial Services, Inc. (collectively, the “Company”).

The Company’s legal entity structure as of September 30, 2020 was as follows:

 

 

8

 


AssetMark Financial Holdings, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

 

The Company offers a broad array of wealth management solutions to individual investors through financial advisers by providing an open-architecture product platform along with tailored client advice, asset allocation options, practice management, support services and technology to the financial adviser channel.

AssetMark Trust Company (“ATC”) is a licensed trust company incorporated under the laws of the State of Arizona on August 24, 1994 and regulated by the Arizona Department of Insurance and Financial Institutions. ATC provides custodial recordkeeping services primarily to investor clients of registered investment advisers (including AMI) located throughout the United States.

AssetMark, Inc. (“AMI”) is a registered investment adviser that was incorporated under the laws of the State of California on May 13, 1999. AMI offers a broad array of wealth management solutions to individual investors through financial advisers by providing an open-architecture product platform along with tailored client advice, asset allocation options, practice management, support services and technology solutions to the financial adviser channel. AMI serves as investment adviser to the Company’s proprietary GuideMark Funds, GuidePath Funds and the Savos Dynamic Hedging Fund, each of which is a mutual fund offered to clients of financial advisers.

AssetMark Retirement Services, Inc. (“ARS”), formerly known as Aris Corporation of America, was incorporated under the laws of the State of Pennsylvania on April 30, 1974. ARS serves as the record-keeper and third-party administrator for the Aris Retirement product, which are 401(k) or 403(b) investment offerings utilized by small businesses.

AssetMark Brokerage, LLC (“AMB”) is a limited-purpose broker-dealer located in Concord, California and was incorporated under the laws of the State of Delaware on September 25, 2013. AMB’s primary function is to distribute the mutual funds of the Company and to sponsor the FINRA licensing of those AssetMark associates who provide distribution support through promotion of the AssetMark programs and strategies that employ the Company’s mutual funds.

Global Financial Private Capital, Inc. (“GFPC”), formerly known as Global Financial Private Capital, LLC and renamed effective July 12, 2019, is a registered investment adviser that was incorporated under the laws of the State of Florida on June 7, 2004. GFPC provides a broad suite of integrated wealth management services for institutional and individual investors.

Global Financial Advisory, LLC (“GFA”) is an insurance services company that was incorporated under the laws of the State of Delaware on June 30, 2016. GFA provides insurance services on an intermediary basis and is not a policy writer.

WBI OBS Financial, Inc. (“OBL”), formerly known as WBI OBS Financial, LLC and renamed effective June 11, 2020, is a corporation that was incorporated under the laws of the State of Ohio on October 6, 2011. OBL is a holding company whose only assets are the share of common stock of OBS Holdings, Inc. (“OBF”). OBF is a corporation that was incorporated under the laws of the State of Ohio on April 14, 2000. OBF is a holding company whose only assets are the shares of common stock of OBS Financial Services, Inc. (“OBS”). OBS is a registered investment adviser that was incorporated under the laws of the State of Delaware on November 2, 2005. OBS provides a broad suite of integrated wealth management services for institutional and individual investors. See Note 3 for additional details on the acquisition completed February 29, 2020.

Note 2. Summary of Significant Accounting Policies

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial statements and pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments, consisting of only normal recurring adjustments, considered necessary for fair presentation have been included. The results of operations for the three and nine months ended September 30, 2020 are not necessarily indicative of the results to be expected for the year ended December 31, 2020 or any future period. The accompanying unaudited interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes thereto for the year ended December 31, 2019 included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.

9


AssetMark Financial Holdings, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

 

Certain prior year amounts in the Company’s Condensed Consolidated Statements of Comprehensive Income have been reclassified to conform to current year presentation. Specifically, amounts related to debt modification expense that were previously classified in general and operating expenses were reclassified to other expenses. There was no change to consolidated total revenue, net income or cash flows as a result of this change in classification.

Risks and Uncertainties

The COVID-19 pandemic continues to rapidly evolve and has adversely impacted global commercial activities. Management expects COVID-19 related changes in market and investor behaviors to impact our asset- and spread-based revenue. However, given the uncertainty around the duration and extent of the COVID-19 pandemic, management cannot predict the impact on the Company’s results of operations, financial condition or liquidity in the fourth quarter for 2020 and subsequent periods.

Estimates and assumptions about future events and their effects on the Company cannot be determined with certainty and therefore require the exercise of judgment. The Company is not aware of any specific events or circumstances that would require the Company to update its estimates, assumptions and judgments or revise the carrying value of its assets or liabilities. The Company will update the estimates and assumptions underlying the consolidated financial statements in future periods as events and circumstances develop.

Recent Accounting Pronouncements – Adopted

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which requires lessees to recognize leases on-balance sheet and disclose key information about leasing arrangements. The new standard establishes a right-of-use (“ROU”) model that requires a lessee to recognize an ROU asset and lease liability on the balance sheet for all leases with a term longer than 12 months. Leases are classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement. The Company adopted the new standard on January 1, 2020 using the modified retrospective transition method with certain available transitional practical expedients, and elected to apply the short-term lease exemption (described below) to all of its classes of underlying assets. The standard had a material impact on the Company’s condensed consolidated balance sheets, but did not have an impact on the Company’s condensed consolidated statements of comprehensive income. The most significant impact was due to the recognition of ROU assets and lease liabilities for operating leases. Adoption of the standard had no impact on previously reported results. The Company determines if an arrangement is a lease at inception. Operating leases are included in other current assets, operating lease ROU assets, accrued liabilities and other current liabilities, and long-term portion of operating lease liabilities on the Company’s condensed consolidated balance sheets. The Company does not have material finance leases. ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligations to make payments arising from the lease. Operating lease ROU assets and liabilities are recognized at the commencement date based on the present value of lease payments over the remaining lease term. The Company uses an estimated incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. Expense for lease payments is recognized on a straight-line basis over the lease term. The Company has lease agreements with lease and non-lease components. The Company has elected to use the practical expedient to exclude the non-lease component from the lease for all asset classes. The majority of the Company’s lease agreements are facility leases. The Company’s leases have a weighted-average lease term of 7.3 years and used a weighted-average discount rate of 3.59% as of September 30, 2020.

Future minimum lease payments under non-cancellable leases as of September 30, 2020 are as follows:

 

Remainder of 2020

 

$

1,784

 

2021

 

 

6,053

 

2022

 

 

5,404

 

2023

 

 

5,343

 

2024

 

 

5,660

 

2025 and thereafter

 

 

19,198

 

Total

 

$

43,442

 

 

In January 2017, the FASB issued ASU 2017-04, Intangibles, Goodwill and Other (Topic 350), Simplifying the Test for Goodwill Impairment, which removes step 2 from the goodwill impairment test. As a result, an entity should perform its annual goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. The Company adopted the ASU on January 1, 2020 and it did not have a significant impact on the Company’s consolidated financial statements and related disclosures.

10


AssetMark Financial Holdings, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

 

In July 2018, the FASB issued ASU 2018-11, Lease (Topic 842) Targeted Improvements, which increases transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing transactions. The Company adopted the ASU on January 1, 2020 and it did not have a significant impact on the Company’s consolidated financial statements and related disclosures.

In August 2018, the FASB issued ASU 2018-15, Intangibles, Goodwill and Other, Internal-Use Software (Subtopic 350-40), which provides guidance to evaluate the accounting for fees paid by a customer in a cloud computing arrangement. If a cloud computing arrangement includes a license to internal-use-software, then the software license is accounted for by the customer in accordance with Subtopic ASC 350-40. An intangible asset is recognized for the software license and a liability also recognized. The Company adopted the ASU on January 1, 2020 and it did not have a significant impact on the Company’s consolidated financial statements and related disclosures.

In October 2018, the FASB issued ASU 2018-17, Consolidation, Targeted Improvements to Related Party Guidance for Variable Interest Entities, which clarifies the determination as to whether a decision-making fee is a variable interest by requiring reporting entities to consider indirect interests held through related parties under common control on a proportional basis rather than as an equivalent of a direct interest in its entirety. The Company adopted the ASU on January 1, 2020 and it did not have a significant impact on the Company’s consolidated financial statements and related disclosures.

Recent Accounting Pronouncements – Not Yet Adopted

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740), Simplifying the Accounting for Income Taxes, which removes certain exceptions to the general principles in Topic 740 and improves consistent application of U.S. GAAP by clarifying and amending existing guidance. The new standard is effective for the Company on January 1, 2021, with early adoption permitted. The Company is currently evaluating the effect that ASU 2019-12 will have on its consolidated financial statements.

Note 3. Acquisition of WBI OBS Financial, Inc.

On September 30, 2019, the Company entered into a unit purchase agreement to acquire WBI OBS Financial, Inc., subject to closing conditions that included approval from the Committee on Foreign Investment in the United States (“CFIUS). On February 29, 2020, the Company closed the acquisition and paid a final purchase price of $21,339, net of working capital adjustments. The Company recorded goodwill of $11,538, adviser and trust relationships of $9,500 and deferred tax assets of $188 in connection with the acquisition.

11


AssetMark Financial Holdings, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

 

Note 4. Goodwill and Intangible Assets

Goodwill

The Company’s goodwill balance was $338,848 and $327,310 as of September 30, 2020 and December 31, 2019, respectively. The Company, which has one reporting unit, performed an annual test for goodwill impairment in December for the years ended December 31, 2019 and 2018 and determined that goodwill was not impaired. The Company performed a qualitative test for goodwill impairment related to the COVID-19 pandemic and determined that an additional quantitative test was not necessary. Goodwill was not impaired as of September 30, 2020.

Intangible Assets

Information regarding the Company’s intangible assets is as follows:

 

September 30, 2020

 

Gross carrying

amount

 

 

Accumulated

amortization

 

 

Net carrying

amount

 

 

Estimated remaining useful life

Indefinite-lived intangible assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Broker-dealer relationships

 

$

570,480

 

 

$

 

 

$

570,480

 

 

 

Definite-lived intangible assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Trade names

 

 

45,830

 

 

 

(8,975

)

 

 

36,855

 

 

16 years

Broker-dealer license

 

 

11,550

 

 

 

(2,262

)

 

 

9,288

 

 

16 years

ATC regulatory status

 

 

23,300

 

 

 

(4,563

)

 

 

18,737

 

 

16 years

GFPC adviser relationships

 

 

14,250

 

 

 

(1,485

)

 

 

12,765

 

 

13 years

OBS adviser and trust relationships

 

 

9,500

 

 

 

(438

)

 

 

9,062

 

 

12 years

Total

 

$

674,910

 

 

$

(17,723

)

 

$

657,187

 

 

 

 

December 31, 2019

 

Gross carrying

amount

 

 

Accumulated

amortization

 

 

Net carrying

amount

 

 

Estimated remaining useful life

Indefinite-lived intangible assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Broker-dealer relationships

 

$

570,480

 

 

$

 

 

$

570,480

 

 

 

Definite-lived intangible assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Trade names

 

 

45,830

 

 

 

(7,256

)