UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
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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:
(Exact name of registrant as specified in its charter)
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Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:
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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.
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).
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.
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Large accelerated filer |
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Non-accelerated filer |
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Emerging growth company |
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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
As of April 30, 2022, the number of shares of the registrant’s common stock outstanding was
ASSETMARK FINANCIAL HOLDINGS, INC.
TABLE OF CONTENTS
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Page No. |
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Item 1. |
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Condensed Consolidated Balance Sheets as of March 31, 2022 and December 31, 2021 |
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Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2022 and 2021 |
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Notes to Unaudited Condensed Consolidated Financial Statements |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3. |
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Item 4. |
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Item 1. |
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Item 1A. |
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Item 2. |
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Item 3. |
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Item 4. |
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Item 5. |
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Item 6. |
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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 are forward-looking statements. For example, statements in this Form 10-Q 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,” “would,” “could,” “should,” “expect,” “plan,” “anticipate,” “intend,” “believe,” “estimate,” “predict,” “potential” or “continue,” the negative of these terms and other comparable terminology that conveys uncertainty of future events or outcomes. In addition, any statements that refer to 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, addressable market, investments in new products, services and capabilities; our ability to execute on strategic transactions; our ability to comply with existing, modified and new laws and regulations applying to our business; the impacts of the COVID-19 pandemic on our operations; demand from our customers and end investors; and other characterizations of future events or circumstances are forward-looking statements. These statements are only predictions based on our current expectations and projections about future events and are based upon information available to us as of the date of this Quarterly Report on Form 10-Q, and are subject to risks, uncertainties and assumptions, including those identified under “Item 1A. Risk Factors,” any of which 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. 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. 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. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of any of these forward-looking statements. 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 U.S. Securities and Exchange Commission (the “SEC”).
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Our revenue may fluctuate from period to period, which could cause our share price to fluctuate. |
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We operate in an intensely competitive industry, and this competition could hurt our financial performance. |
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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. |
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Investors that pay us asset-based fees may seek to negotiate lower fees, 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. |
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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 results of operations, financial condition or business. |
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Changes in market and economic conditions (including as a result of the ongoing COVID-19 pandemic or geopolitical conditions or events) could lower the value of assets on which we earn revenue and could decrease the demand for our investment solutions and services. |
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We may be subject to liability for losses that result from a breach of a third party’s fiduciary duties. |
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We are exposed to data and cybersecurity risks that could result in data breaches, service interruptions, harm to our reputation, protracted and costly litigation or significant liability. |
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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. |
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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. |
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Failure to properly disclose conflicts of interest could harm our reputation, results of operations or business. |
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Control by our principal stockholder could adversely affect our other stockholders. |
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)
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March 31, 2022 |
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December 31, 2021 |
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(unaudited) |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
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$ |
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Restricted cash |
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Investments, at fair value |
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Fees and other receivables, net |
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Income tax receivable, net |
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— |
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Prepaid expenses and other current assets |
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Total current assets |
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Property, plant and equipment, net |
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Capitalized software, net |
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Other intangible assets, net |
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Operating lease right-of-use assets |
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Goodwill |
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Other assets |
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Total assets |
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$ |
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$ |
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LIABILITIES AND STOCKHOLDERS’ EQUITY |
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Current liabilities: |
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Accounts payable |
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$ |
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$ |
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Accrued liabilities and other current liabilities |
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Income tax payable, net |
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— |
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Total current liabilities |
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Long-term debt, net |
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Other long-term liabilities |
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Long-term portion of operating lease liabilities |
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Deferred income tax liabilities, net |
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Total long-term liabilities |
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Total liabilities |
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Stockholders’ equity: |
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Common stock, $ |
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Additional paid-in capital |
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Retained earnings |
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Total stockholders’ equity |
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Total liabilities and stockholders’ equity |
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$ |
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$ |
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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)
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Three Months Ended March 31, |
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2022 |
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2021 |
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Revenue: |
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Asset-based revenue |
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$ |
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$ |
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Subscription-based revenue |
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— |
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Spread-based revenue |
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Other revenue |
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Total revenue |
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Operating expenses: |
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Asset-based expenses |
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Spread-based expenses |
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Employee compensation |
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General and operating expenses |
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Professional fees |
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Depreciation and amortization |
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Total operating expenses |
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Interest expense |
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Other expenses, net |
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Income (loss) before income taxes |
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Provision for (benefit from) income taxes |
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Net income (loss) |
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Net comprehensive income (loss) |
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$ |
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$ |
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Net income (loss) per share attributable to common stockholders: |
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Basic |
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$ |
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$ |
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Diluted |
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$ |
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$ |
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Weighted average number of common shares outstanding, basic |
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Weighted average number of common shares outstanding, diluted |
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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 March 31, 2022 and 2021
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Common stock |
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Additional paid-in |
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Retained |
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Total stockholders’ |
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Shares |
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Amount |
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capital |
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earnings |
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equity |
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Balance at December 31, 2020 |
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$ |
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$ |
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$ |
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$ |
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Net loss |
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— |
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— |
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— |
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Share-based employee compensation |
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— |
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— |
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— |
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Balance at March 31, 2021 |
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$ |
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$ |
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$ |
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$ |
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Balance at December 31, 2021 |
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$ |
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$ |
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$ |
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$ |
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Net income |
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— |
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— |
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— |
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Share-based employee compensation |
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— |
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— |
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— |
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Issuance of common stock - vesting of restricted stock units |
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— |
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— |
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— |
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— |
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Exercise of stock options |
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— |
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— |
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— |
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— |
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Balance at March 31, 2022 |
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$ |
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$ |
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$ |
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$ |
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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)
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Three Months Ended March 31, |
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2022 |
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2021 |
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CASH FLOWS FROM OPERATING ACTIVITIES |
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Net income (loss) |
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$ |
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$ |
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Adjustments to reconcile net income (loss) to net cash provided by operating activities: |
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Depreciation and amortization |
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Interest |
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Share-based compensation |
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Debt acquisition write-down |
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— |
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Changes in certain assets and liabilities: |
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Fees and other receivables, net |
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Receivables from related party |
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— |
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Prepaid expenses and other current assets |
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Accounts payable, accrued liabilities and other current liabilities |
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Income tax receivable and payable, net |
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Net cash provided by operating activities |
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CASH FLOWS FROM INVESTING ACTIVITIES |
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Purchase of investments |
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Sale of investments |
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Purchase of property and equipment |
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Purchase of computer software |
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Net cash used in investing activities |
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CASH FLOWS FROM FINANCING ACTIVITIES |
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Proceeds from issuance of long-term debt, net |
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— |
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Payments on revolving credit facility |
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— |
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Payments on term loan |
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— |
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Net cash provided by financing activities |
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— |
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Net change in cash, cash equivalents, and restricted cash |
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Cash, cash equivalents, and restricted cash at beginning of period |
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Cash, cash equivalents, and restricted cash at end of period |
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$ |
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$ |
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SUPPLEMENTAL CASH FLOW INFORMATION |
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Income taxes paid |
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$ |
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$ |
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Interest paid |
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$ |
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$ |
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Non-cash operating activities: |
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Non-cash changes to right-of-use assets |
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$ |
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$ |
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Non-cash changes to lease liabilities |
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$ |
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$ |
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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 for all notes.
Note 1. Overview
Organization and Nature of Business
These unaudited condensed consolidated financial statements include AssetMark Financial Holdings, Inc. (“AFHI” or the “Company”) and its subsidiaries. AFHI 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, Voyant, Inc., Voyant UK Limited, Voyant Financial Technologies Inc. and Voyant Australia Pty Ltd (collectively, the “Company”). We completed an internal restructuring on January 1, 2022, whereby AssetMark Financial, Inc. (formerly a direct, wholly owned subsidiary of AFHI) merged with and into AFHI, at which time AFHI automatically became the direct parent company of AssetMark, Inc., AssetMark Trust Company, AssetMark Brokerage, LLC, AssetMark Retirement Services, Inc., Global Financial Private Capital, Inc., Global Financial Advisory, LLC, Voyant, Inc., Voyant UK Limited, Voyant Financial Technologies Inc. and Voyant Australia Pty Ltd.
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. The following is a description of the products and services offered by our primary operating subsidiaries.
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 Trust Company (“ATC”) is a licensed trust company and was incorporated under the laws of the State of Arizona on August 24, 1994. ATC is 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 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.
Voyant, Inc. (“Voyant”) is a SaaS-based financial planning, wellness and client digital engagement solutions company that was originally formed in Texas on December 29, 2005 and was converted to a Delaware corporation on November 21, 2008.
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 months ended March 31, 2022 are not necessarily indicative of the results to be expected for the year ended December 31, 2022 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, 2021 included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.
8
AssetMark Financial Holdings, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
Risks and Uncertainties
The COVID-19 pandemic continues to evolve and has adversely impacted global commercial activities. Management expects COVID-19 related changes in market and investor behaviors to continue 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 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 or 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.
Geographic Sources of Revenue
Revenues attributable to customers outside of the United States totaled $
Recent Accounting Pronouncements – Not Yet Adopted
In April 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. These amendments provide temporary optional guidance to ease the potential burden in accounting for reference rate reform. The ASU provides optional expedients and exceptions for applying generally accepted accounting principles to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another reference rate expected to be discontinued. It is intended to help stakeholders during the global market-wide reference rate transition period. In January 2021, the FASB issued ASU 2021-01, which clarifies that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition. The guidance is effective for all entities through December 31, 2022. The Company is currently evaluating the effect that ASU 2020-04 will have on its consolidated financial statements.
In August 2021, the FASB issued ASU No. 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. The amendments in this Update require that an entity (acquirer) recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606. At the acquisition date, an acquirer should account for the related revenue contracts in accordance with Topic 606 as if it had originated the contracts. The guidance is effective for the Company beginning in the fiscal year ending December 31, 2023 and will be applied prospectively upon adoption.
Note 3. Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consisted of the following:
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March 31, 2022 |
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December 31, 2021 |
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Prepaid expenses |
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$ |
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$ |
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Right-of-use leases |
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Other |
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Total |
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$ |
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$ |
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Note 4. Goodwill and Other Intangible Assets
Goodwill
The Company’s goodwill balance was $
9
AssetMark Financial Holdings, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
Other Intangible Assets
Information regarding the Company’s intangible assets is as follows:
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March 31, 2022 |
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Gross carrying amount |
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Accumulated amortization |
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Net carrying amount |
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Estimated remaining useful life |
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Indefinite-lived intangible assets: |
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Broker-dealer relationships |
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$ |
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$ |
— |
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$ |
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Voyant enterprise distribution channel customer relationships |
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— |
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Definite-lived intangible assets: |
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Trade names |
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( |
) |
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Broker-dealer license |
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( |
) |
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ATC regulatory status |
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( |
) |
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Voyant non-enterprise distribution channel customer relationships |
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( |
) |
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GFPC adviser relationships |
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( |
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OBS adviser and trust relationships |
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( |
) |
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Voyant trade name |
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( |
) |
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Voyant technology |
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( |
) |
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Voyant non-compete agreement |
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( |
) |
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Total |
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$ |
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$ |
( |
) |
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$ |
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|
December 31, 2021 |
|
Gross carrying amount |
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|
Accumulated amortization |
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|
Net carrying amount |
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|
Estimated remaining useful life |
|||
|
Indefinite-lived intangible assets: |
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|
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|
|
|
|
|
|
|
|
|
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Broker-dealer relationships |
|
$ |
|
|
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$ |
— |
|
|
$ |
|
|
|
|
|
Voyant enterprise distribution channel customer relationships |
|
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|
|
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— |
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Definite-lived intangible assets: |
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Trade names |
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( |
) |
|
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|
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|
Broker-dealer license |
|
|
|
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|
( |
) |
|
|
|
|
|
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|
ATC regulatory status |
|
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|
|
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|
( |
) |
|
|
|
|
|
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|
Voyant non-enterprise distribution channel customer relationships |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
GFPC adviser relationships |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
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|
OBS adviser and trust relationships |
|
|
|
|
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|
( |
) |
|
|
|
|
|
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|
Voyant trade name |
|
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( |
) |
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Voyant technology |
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( |
) |
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Voyant non-compete agreement |
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( |
) |
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Total |
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$ |
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$ |
( |
) |
|
$ |
|
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The weighted average estimated remaining useful life was
10
AssetMark Financial Holdings, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
Estimated amortization expense for definite‑lived intangible assets for future years is as follows:
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Remainder of 2022 |
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$ |
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2023 |
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2024 |
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2025 |
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2026 |
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2027 and thereafter |
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Total |
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$ |
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Note 5. Accrued Liabilities and Other Current Liabilities
The following table shows the breakdown of accrued liabilities and other current liabilities:
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March 31, 2022 |
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December 31, 2021 |
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Accrued bonus |
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$ |
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$ |
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Current portion of long-term debt, net |
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— |
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Current portion of operating lease liability |
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Asset-based payables |
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Compensation and benefits payable |
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Other accrued expenses |
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Total |
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$ |
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$ |
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Note 6. Other Long-Term Liabilities
Other long-term liabilities consisted of the following:
|
|
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March 31, 2022 |
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December 31, 2021 |
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Deferred compensation plan liability |
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$ |
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$ |
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Contractor liability |
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Purchase commitments related to acquisition of GFPC |
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Total |
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$ |
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$ |
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Note 7. Fair Value Measurements
The following tables set forth the fair value of the Company’s financial assets and liabilities measured at fair value in the condensed consolidated balance sheets as of March 31, 2022 and December 31, 2021, based on the three-tier fair value hierarchy:
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March 31, 2022 |
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Fair Value |
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Level I |
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Level II |
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Level III |
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Assets: |
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Equity securities investments(1) |
|
$ |
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$ |
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$ |
— |
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$ |
— |
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Assets to fund deferred compensation liability(2) |
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— |
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— |
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Total assets |
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$ |
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$ |
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$ |
— |
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$ |
— |
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Liabilities: |
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Deferred compensation liability(3) |
|
$ |
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