Company Quick10K Filing
Quick10K
AssetMark
10-Q 2019-06-30 Quarter: 2019-06-30
S-1 2019-06-24 Public Filing
8-K 2019-09-30 Other Events, Exhibits
8-K 2019-08-28 Officers, Officers, Exhibits, Exhibits
8-K 2019-08-28 Earnings, Exhibits, Exhibits
8-K 2019-07-22 Officers, Amend Bylaw, Exhibits
CHFN Charter Financial 374
EACQ Easterly Acquisition 197
COFS Choiceone Financial Services 105
HAHA Haha Generation 45
SNNF Seneca Financial 16
BLYQ Bally 12
FFLO Free Flow 0
MONO Monopar Therapeutics 0
PTAD Postads 0
NHEL Natural Health Farm Holdings 0
AMK 2019-06-30
Part I. Financial Information
Item 1. Financial Statements.
Note 1. Organization and Nature of Business
Note 2. Summary of Significant Accounting Policies
Note 3. Acquisition of Global Financial Private Capital, Llc and Global Financial Advisory, Llc
Note 4. Goodwill and Intangible Assets
Note 5. Accrued Expenses and Other Current Liabilities
Note 6. Other-Long-Term Liabilities
Note 7. Asset-Based Expenses
Note 8. Debt
Note 9. Commitments and Contingencies
Note 10. Income Taxes
Note 11. Related Party Transactions
Note 12. 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-10.2 amk-ex102_103.htm
EX-31.1 amk-ex311_8.htm
EX-31.2 amk-ex312_7.htm
EX-32.1 amk-ex321_6.htm
EX-32.2 amk-ex322_9.htm

AssetMark Earnings 2019-06-30

AMK 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 amk-10q_20190630.htm 10-Q amk-10q_20190630.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 June 30, 2019

 

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 Act:

 

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 July 31, 2019, the number of shares of the registrant’s common stock outstanding was 72,400,000.

 

 

 

 


ASSETMARK FINANCIAL HOLDINGS, INC.

 

TABLE OF CONTENTS

 

 

 

Page No.

 

Special Note Regarding Forward-Looking Statements

2

 

 

 

 

PART I. FINANCIAL INFORMATION

 

Item 1.

Financial Statements (unaudited)

3

 

Condensed Consolidated Balance Sheets as of June 30, 2019 and December 31, 2018

3

 

Condensed Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2019 and 2018

4

 

Condensed Consolidated Statements of Stockholder’s Equity for the Three and Six Months Ended June 30, 2019 and 2018

5

 

Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2019 and 2018

6

 

Notes to Unaudited Condensed Consolidated Financial Statements

7

Item 2.

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

14

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

28

Item 4.

Controls and Procedures

29

 

 

 

 

PART II.  OTHER INFORMATION

 

Item 1.

Legal Proceedings

30

Item 1A.

Risk Factors

30

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

48

Item 3.

Defaults Upon Senior Securities

48

Item 4.

Mine Safety Disclosures

48

Item 5.

Other Information

48

Item 6.

Exhibits

49

 

Signatures

50

 

 

 

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, ability to close and execute on strategic transactions and ability to comply with existing, modified and new laws and regulations applying to our business and the expected date of the expiration of the lock-up agreements entered into in connection with our initial public offering. 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


PART I.  FINANCIAL INFORMATION

Item 1. Financial Statements.

AssetMark Financial Holdings, Inc.

Unaudited Condensed Consolidated Balance Sheets

(in thousands except share data and par value)

 

 

 

June 30,

2019

 

 

December 31,

2018

 

 

 

 

 

 

 

 

 

 

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) (See Note 12)

 

 

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

 

 

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

3


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

 

 

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

4


AssetMark Financial Holdings, Inc.

Unaudited Condensed Consolidated Statements of Stockholder’s Equity

(in thousands except share data)

For the three months ended June 30, 2019 and 2018

 

 

 

Common stock

 

 

Additional

paid-in

 

 

Retained

earnings

 

 

Accumulated

other

comprehensive

 

 

Total

stockholder’s

 

 

 

Shares

 

 

Amount

 

 

capital

 

 

(deficit)

 

 

income

 

 

equity

 

Balance at March 31, 2018

 

 

66,150,000

 

 

$

66

 

 

$

785,760

 

 

$

111,211

 

 

$

6

 

 

$

897,043

 

Net income

 

 

 

 

 

 

 

 

 

 

 

9,265

 

 

 

 

 

 

9,265

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2

 

 

 

2

 

Share-based employee compensation

 

 

 

 

 

 

 

 

1,443

 

 

 

 

 

 

 

 

 

1,443

 

Balance at June 30, 2018

 

 

66,150,000

 

 

$

66

 

 

$

787,203

 

 

$

120,476

 

 

$

8

 

 

$

907,753

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at March 31, 2019

 

 

66,150,000

 

 

$

66

 

 

$

640,322

 

 

$

66,657

 

 

$

19

 

 

$

707,064

 

Net income

 

 

 

 

 

 

 

 

 

 

 

3,237

 

 

 

 

 

 

3,237

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

3

 

 

 

(19

)

 

 

(16

)

2018 dividend reclassification

 

 

 

 

 

 

 

 

1,046

 

 

 

(1,046

)

 

 

 

 

 

 

Share-based employee compensation

 

 

 

 

 

 

 

 

5,226

 

 

 

 

 

 

 

 

 

5,226

 

Balance at June 30, 2019 (See Note 12)

 

 

66,150,000

 

 

$

66

 

 

$

646,594

 

 

$

68,851

 

 

$

 

 

$

715,511

 

 

For the six months ended June 30, 2019 and 2018

 

 

 

Common stock

 

 

Additional

paid-in

 

 

Retained

earnings

 

 

Accumulated

other

comprehensive

 

 

Total

stockholder’s

 

 

 

Shares

 

 

Amount

 

 

capital

 

 

(deficit)

 

 

income

 

 

equity

 

Balance at December 31, 2017

 

 

66,150,000

 

 

$

66

 

 

$

784,464

 

 

$

101,420

 

 

$

8

 

 

$

885,958

 

Net income

 

 

 

 

 

 

 

 

 

 

 

19,056

 

 

 

 

 

 

19,056

 

Share-based employee compensation

 

 

 

 

 

 

 

 

2,739

 

 

 

 

 

 

 

 

 

2,739

 

Balance at June 30, 2018

 

 

66,150,000

 

 

$

66

 

 

$

787,203

 

 

$

120,476

 

 

$

8

 

 

$

907,753

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2018

 

 

66,150,000

 

 

$

66

 

 

$

635,096

 

 

$

63,846

 

 

$

3

 

 

$

699,011

 

Net income

 

 

 

 

 

 

 

 

 

 

 

6,048

 

 

 

 

 

 

6,048

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

3

 

 

 

(3

)

 

 

 

2018 dividend reclassification

 

 

 

 

 

 

 

 

1,046

 

 

 

(1,046

)

 

 

 

 

 

 

Share-based employee compensation

 

 

 

 

 

 

 

 

10,452

 

 

 

 

 

 

 

 

 

10,452

 

Balance at June 30, 2019 (See Note 12)

 

 

66,150,000

 

 

$

66

 

 

$

646,594

 

 

$

68,851

 

 

$

 

 

$

715,511

 

 

 

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

 

5


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

 

 

$

 

 

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

 

6


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, LLC and Global Financial Advisory, LLC (collectively, the “Company”).

The Company’s legal entity structure as of June 30, 2019:

 

 

As of June 30, 2019, the Company was a wholly owned subsidiary of AssetMark Holdings LLC (“AssetMark Holdings”), which was organized for the purpose of acquiring the Company effective October 31, 2016. AssetMark Holdings was 98.58% owned by affiliates of Huatai Securities Co. Ltd. (“HTSC”) and 1.42% owned by management as of June 30, 2019. The Company was acquired from the private equity firms Aquiline Capital Partners LLC and Genstar Capital LLC.  On July 17, 2019, immediately following the pricing of its initial public offering (the “IPO”), AssetMark Holdings liquidated and dissolved and distributed shares of the Company’s common stock to its members and the Company ceased to be a wholly owned subsidiary of AssetMark Holdings.

7

 


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 (“AssetMark Trust”) 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 Financial Institutions. AssetMark Trust 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 incorproated 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 techonolgy 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 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. Its 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, LLC (“GFPC”) 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.

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 (“U.S. 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 U.S. 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 six months ended June 30, 2019 are not necessarily indicative of the results to be expected for the year ended December 31, 2019 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, 2018 included in the Company’s prospectus dated July 17, 2019 filed with the Securities and Exchange Commission (the “SEC”) pursuant to Rule 424(b) under the Securities Act of 1933, as amended (the “Securities Act”).

8


AssetMark Financial Holdings, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

 

Recent Accounting Pronouncements – Current Adoptions

In August 2016, the FASB issued ASU 2016-15, Classification of Certain Cash Receipts and Cash Payments, which clarifies how to classify certain types of cash payments and receipts on the statement of cash flows. The following amendments in ASU 2016-15 are or may be relevant to the Company: (1) debt prepayment or extinguishment costs should be classified as financing cash outflows; (2) cash consideration payments made soon after an acquisition’s consummation date (approximately three months or less) should be classified as cash outflows for investing activities; payments made thereafter should be classified as cash outflows for financing activities up to the amount of the original contingent consideration liability; payments made in excess of the amount of the original contingent consideration liability should be classified as cash outflows for operating activities; (3) proceeds from the settlement of insurance claims should be classified on the basis of the nature of the loss (or each component loss, if an entity receives a lump-sum settlement); (4) for distributions received from equity-method investments, companies may elect either a cumulative-earnings approach or the nature-of-distribution approach to determine whether distributions received from the equity method investees are returns on investment (operating cash inflows) or returns of investment (investing cash inflows); and (5) in the absence of specific guidance, companies determine each separately identifiable cash source and classify the receipt or payment based on the nature of the cash flow. ASU 2016-15 was effective for non-emerging growth companies on January 1, 2018, and required retrospective application. Companies were required to adopt all amendments at the same time. The Company adopted this ASU on January 1, 2019, and it did not have a significant impact on the Company’s consolidated financial statements and related disclosures.

In January 2016, the FASB issued ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities, which makes targeted improvements to the accounting for, and presentation and disclosure of, financial instruments. ASU 2016-01 requires that most equity investments be measured at fair value, with subsequent changes in fair value recognized in net income. ASU 2016-01 does not affect the accounting for investments that would otherwise be consolidated or accounted for under the equity method. The new standard also affects financial liabilities under the fair value option and the presentation and disclosure requirements for financial instruments. The provisions of ASU 2016-01 were effective for the Company in fiscal years beginning after December 15, 2018. The Company adopted this ASU in 2019, and it did not have a significant impact on its consolidated financial statements.

Recent Accounting Pronouncements – Not Yet 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 will be classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement. The new standard was effective for non-emerging growth companies on January 1, 2019, with early adoption permitted. The Company is currently evaluating the effect that ASU 2016-02 will have on its consolidated financial statements and plans to adopt the new standard on January 1, 2020.

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 is also recognized. The new standard is effective for non-emerging growth companies on January 1, 2020, with early adoption permitted. The Company is currently evaluating the effect that ASU 2018-15 will have on its consolidated financial statements and plans to adopt the new standard on January 1, 2021.

9


AssetMark Financial Holdings, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

 

Note 3. Acquisition of Global Financial Private Capital, LLC and Global Financial Advisory, LLC

On August 11, 2018, the Company entered into a unit purchase agreement to acquire Global Financial Private Capital, LLC and Global Financial Advisory, LLC for $55,000, subject to a purchase price adjustment based on a client attrition calculation and closing conditions that included approval from the Committee on Foreign Investment in the United States (CFIUS). On April 16, 2019, the Company closed the acquisition and paid a final purchase price of $35,906, net of working capital adjustments of $3,723 and client attrition adjustments. The Company recorded goodwill of $27,078, adviser relationships of $14,250, and deferred tax assets of $4,452 in connection with the acquisition.

Note 4. Goodwill and Intangible Assets

Goodwill

The Company’s goodwill balance was $325,493 and $298,415 as of June 30, 2019 and December 31, 2018, respectively. The Company, which has one reporting unit, performed an annual test for goodwill impairment in December for the years ended December 31, 2018 and 2017 and determined that goodwill was not impaired. There have been no significant events or circumstances affecting the valuation of goodwill subsequent to the Company’s annual assessment.

Intangible Assets

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

 

June 30, 2019

 

Gross carrying

amount

 

 

Accumulated

amortization

 

 

Net carrying

amount

 

Indefinite-lived intangible assets:

 

 

 

 

 

 

 

 

 

 

 

 

Broker-dealer relationships

 

$

570,480

 

 

$

 

 

$

570,480

 

Definite-lived intangible assets:

 

 

 

 

 

 

 

 

 

 

 

 

Trade names

 

 

45,830

 

 

 

(6,110

)

 

 

39,720

 

Broker-dealer license

 

 

11,550

 

 

 

(1,540

)

 

 

10,010

 

AssetMark Trust regulatory status

 

 

23,300

 

 

 

(3,107

)

 

 

20,193

 

GFPC adviser relationships

 

 

14,250

 

 

 

(213

)

 

 

14,037

 

Total

 

$

665,410

 

 

$

(10,970

)

 

$

654,440

 

 

December 31, 2018

 

Gross carrying

amount

 

 

Accumulated

amortization

 

 

Net carrying

amount

 

Indefinite-lived intangible assets:

 

 

 

 

 

 

 

 

 

 

 

 

Broker-dealer relationships

 

$

570,480

 

 

$

 

 

$

570,480

 

Definite-lived intangible assets:

 

 

 

 

 

 

 

 

 

 

 

 

Trade names

 

 

45,830

 

 

 

(4,965

)

 

 

40,865

 

Broker-dealer license

 

 

11,550

 

 

 

(1,251

)

 

 

10,299

 

AssetMark Trust regulatory status

 

 

23,300

 

 

 

(2,524

)

 

 

20,776

 

Total

 

$

651,160

 

 

$

(8,740

)

 

$

642,420

 

 

The weighted average estimated remaining useful life was 16.7 years for trade names, the broker-dealer license, AssetMark Trust regulatory status and GFPC adviser relationships as of June 30, 2019. Amortization expense for definite-lived intangible assets was $1,009 for the three months ended June 30, 2019 and 2018. Amortization expense was $2,229 and $2,016 for the six months ended June 30, 2019 and 2018, respectively. The Company performed an annual test for intangible assets impairment in December for the years ended December 31, 2018 and 2017 and determined that intangible assets were not impaired. There have been no significant events or circumstances affecting the valuation of intangible assets subsequent to the Company’s annual assessment.

 

10


AssetMark Financial Holdings, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

 

The expected future amortization expense for intangible assets as of June 30, 2019 is as follows:

 

Remainder of 2019

 

$

2,526

 

2020

 

 

5,052

 

2021

 

 

5,052

 

2022

 

 

5,052

 

2023

 

 

5,052

 

Thereafter

 

 

61,226

 

Total

 

$

83,960

 

 

 

Note 5. Accrued Expenses and Other Current Liabilities

The following table shows the breakdown of accrued expenses and other current liabilities:

 

 

 

June 30,

2019

 

 

December 31,

2018

 

Accrued bonus

 

$

9,681

 

 

$

14,553

 

Compensation and benefits payable

 

$

5,265

 

 

$

5,882

 

Asset-based payables

 

 

2,941

 

 

 

4,041

 

Other accrued expenses

 

 

15,278

 

 

 

13,724

 

Total

 

$

33,165

 

 

$

38,200

 

 

Note 6. Other-Long-Term Liabilities

Other long-term liabilities consisted of the following:

 

 

 

June 30,

2019

 

 

December 31,

2018

 

Contractor liability

 

$

3,324

 

 

$

3,825

 

Deferred rent

 

 

1,160

 

 

 

1,272

 

Purchase commitments related to acquisition of GFPC

 

 

5,963

 

 

 

 

Total

 

$

10,447

 

 

$

5,097

 

 

Note 7. Asset-Based Expenses

Asset-based expenses incurred by the Company relating to the generation of asset-based revenues are:

 

 

 

Three Months Ended

June 30,

 

 

Six Months Ended

June 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Strategist and manager fees

 

$

25,518

 

 

$

22,807

 

 

$

48,121

 

 

$

44,542

 

Premier broker-dealer fees

 

 

2,444

 

 

 

2,039

 

 

 

4,536

 

 

 

3,831

 

Custody fees

 

 

1,275

 

 

 

1,352

 

 

 

2,449

 

 

 

3,429

 

Fund advisory fees

 

 

1,724

 

 

 

2,007

 

 

 

3,442

 

 

 

2,669

 

Marketing allowance

 

 

612

 

 

 

514

 

 

 

1,127

 

 

 

1,052

 

Other

 

 

52

 

 

 

 

 

 

52

 

 

 

1

 

Total asset-based expenses

 

$

31,625

 

 

$

28,719

 

 

$

59,727

 

 

$

55,524

 

 

11


AssetMark Financial Holdings, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

 

Note 8. Debt

On November 14, 2018, the Company executed a Credit Agreement with Credit Suisse AG for a $250,000 term loan and a revolving line of credit that permits the Company to borrow up to $20,000. Both the Term Loan and the Revolver bear interest at (x) the London InterBank Offered Rate (“LIBOR”) plus a margin of 3.50%, with a step down to 3.25% or (y) the Alternate Base Rate, as specified in the Credit Agreement, plus a margin of 2.50%, with a step down to 2.25%, in each case based on our achievement of a specified first-lien leverage ratio. Additionally, the Term Loan’s margin will be reduced by 0.25% following an initial public offering. The term loan matures on November 14, 2025 and the revolving line of credit matures on November 14, 2023. As of June 30, 2019, $248.7 million aggregate principal amount of the term loan remained outstanding and the revolving line of credit was undrawn. Interest expense was $4,031 and $0 for the three months ended June 30, 2019 and 2018, respectively. Interest expense was $8,055 and $0 for the six months ended June 30, 2019 and 2018, respectively. See Note 12 for information regarding the Company’s completion of the IPO and a subsequent partial principal repayment of the term loan.

Note 9. Commitments and Contingencies

Litigation

The Company faces the risk of litigation and regulatory investigations and actions in the ordinary course of operating its businesses, including the risk of class action lawsuits. The Company’s pending legal and regulatory actions include proceedings specific to the Company and others generally applicable to business practices in the industries in which the Company operates. The Company is also subject to litigation arising out of its general business activities such as its contractual and employment relationships. In addition, the Company is subject to various regulatory inquiries, such as information requests, subpoenas, books and record examinations and market conduct and financial examinations from state, federal and other authorities. A substantial legal liability or a significant regulatory action against the Company could have an adverse effect on its business, financial condition and results of operations. Moreover, even if the Company ultimately prevails in the litigation, regulatory action or investigation, the Company could suffer significant reputational harm, which could have an adverse effect on its business, financial condition or results of operations.

 

Note 10. Income Taxes

The Company’s effective income tax rate differs from the federal corporate tax rate of 21.0%, primarily as a result of state taxes and the income tax effects of the Company’s share-based compensation.

 

Our effective tax rate was 50.4% and 31.9% for the three months ended June 30, 2019 and 2018, respectively. Our effective tax rate was 52.7% and 30.1% for the six months ended June 30, 2019 and 2018, respectively.

Note 11. Related Party Transactions

Due to the outstanding Class C Common Units being accounted for as a liability-classified award, AssetMark Holdings maintained an investment in the Company and an offsetting share-based compensation liability of $24,992 as of June 30, 2019, which represented the estimated value of the share-based employee compensation. The Company recorded these amounts as an expense and an increase to paid-in capital in 2019 and 2018.

As of June 30, 2019, the Company had a receivable due from AssetMark Holdings of $314, which represents the cash paid by the Company on behalf of AssetMark Holdings with respect to certain taxes payable in connection with the Company’s distribution to AssetMark Holdings in the fourth quarter of 2018.

12


AssetMark Financial Holdings, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

 

Note 12. Subsequent Events

On July 3, 2019, the Company’s Board of Directors adopted, and the Company’s sole stockholder approved, the 2019 Equity Incentive Plan (the “Plan”), which became effective on July 17, 2019, the date of effectiveness of the Company’s registration statement on Form S-1.  As of August 20, 2019, 4,801,954 shares were available for issuance under the Plan, which amount excluded the 85,737 shares of common stock subject to restricted stock units granted under the Plan immediately following the pricing of the Company’s IPO. Share and per share data shown in the accompanying unaudited condensed consolidated financial statements and related notes have not been retroactively revised to reflect these issuances, nor do they include the shares sold and related proceeds received by the Company from the IPO.

On July 5, 2019, the Company filed an amended and restated certificate of incorporation effecting a 661,500-for-one forward stock split. The par value was adjusted to $0.001 per share of common stock in connection with such filing. The number of authorized shares of common stock was increased to 675,000,000 and 75,000,000 shares of preferred stock were authorized to be issued; no preferred stock had been issued as of August 20, 2019. All share and per share data shown in the accompanying unaudited condensed consolidated financial statements and related notes thereto have been retroactively revised to reflect the forward stock split.  

 

On July 22, 2019, the Company completed its IPO, in which the Company issued and sold an aggregate of 6.25 million shares of its common stock at a price to the public of $22.00 per share. The Company received aggregate net proceeds of $124.4 million from the IPO after deducting underwriting discounts and commissions and offering expenses payable by the Company. Immediately following the pricing of the IPO, AssetMark Holdings liquidated and dissolved and distributed shares of the Company’s common stock to its members as follows: holders of Class A Common Units and Class B Common Units of AssetMark Holdings received an aggregate of 59,840,951 shares of the Company’s common stock, and holders of Class C Common Units of AssetMark Holdings received an aggregate number of restricted stock awards equal to 6,309,049 shares of the Company’s common stock. As of July 22, 2019, 72.4 million shares of the Company’s common stock were outstanding.

On July 26, 2019, the Company made a partial repayment of $125 million of the Company’s outstanding indebtedness under the term loan.

Any material subsequent events have been considered for disclosure through August 20, 2019, the date on which the financial statements were made available.

 

 

13


Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.

You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated condensed financial statements and the related notes and other financial information included in this Quarterly Report on Form 10-Q. Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report on Form 10-Q, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. You should review the sections titled “Special Note Regarding Forward-Looking Statements” and “Risk Factors” for a discussion of forward-looking statements and important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. Our fiscal year ends on December 31 each year.

Overview

AssetMark is a leading provider of extensive wealth management and technology solutions that power independent financial advisers and their clients. Our platform enables advisers to outsource high-cost and specialty services that would otherwise require significant investments of time and money—helping to level the playing field for independent financial advisers of all sizes. We provide an end-to-end experience, spanning nearly all elements of an adviser’s engagement with his or her client—from initial conversations to ongoing financial planning discussions, including performance reporting and billing. In addition, our platform provides tools and capabilities for advisers to better manage their day-to-day business activities, giving them more time for meaningful conversations with investors.

We believe that independent financial advisers who have a deep understanding of their communities and put the needs of investors first provide the best path for investors to achieve their long-term financial goals. We empower these adviser-entrepreneurs to start, run and grow independent advisory businesses. The compelling value of our tools for advisers and their clients has facilitated our rapid growth.

Business Highlights

 

We completed the acquisition of GFPC on April 16, 2019. Through the GFPC acquisition, we acquired $3.8 billion in platform assets and 215 new financial adviser relationships, of which 93 advisers are engaged advisers.

Financial Highlights

 

Total revenue for the quarter ended June 30, 2019 was $104.5 million, up $15.7 million, or 17.7%, from $88.8 million in the quarter ended June 30, 2018.

 

Net income for the quarter ended June 30, 2019 was $3.2 million, or $0.05 per share, compared to $9.3 million, or $0.14 per share, for the second quarter of 2018.  

 

Adjusted net income for the quarter ended June 30, 2019 was $16.6 million, or $0.25 per share, compared to $15.1 million, or $0.23 per share, for the quarter ended June 30, 2018. We generated this 10.2% increase in adjusted net income despite a $4.0 million increase in interest expense in the quarter ended June 30, 2019 resulting from our November 2018 draw down on our Credit Facility (as defined in —Liquidity and Capital Resources—Credit Facility) to make a one-time distribution to AssetMark Holding LLC.

 

Adjusted EBITDA for the quarter ended June 30, 2019 was $28.6 million, up $6.5 million, or 29.2%, from $22.1 million in the quarter ended June 30, 2018.

Asset and Adviser Growth Trends

 

Platform assets were $56.1 billion as of June 30, 2019, up 23.8% from $45.3 billion as of June 30, 2018.

 

Net flows were $1.5 billion for the quarter ended June 30, 2019, which increased net flows by 3.4% from January 1, 2019.

 

We had 2,125 engaged advisers on our platform as of June 30, 2019, up 15.6% from 1,839 as of June 30, 2018.  We added 93 new engaged advisers through our acquisition of GFPC.

 

 

14

 


 

Key Factors Affecting Our Performance

 

Expansion of Our Existing Financial Adviser Base

 

We are focused on attracting new advisers to our platform with our end-to-end wealth management offering, composed of a fully integrated technology platform, high-touch sales and service support and a curated investment platform. Our extensive offering is built to enhance adviser efficiency so that advisers of all sizes can compete and grow. We also strive to increase our share of wallet, or portion of an adviser’s fee-based business that is invested on our platform, by providing a holistic platform for advisers and surrounding advisers with the tools they need to better serve their clients. Our business will depend in part on our ability to drive higher usage of our platform by financial advisers and their client bases.

 

Increase of New Financial Advisers on Our Platform

 

Within the wealth management industry, the percentage of assets served by independent financial advisers is forecasted to grow from 42% in 2017 to 48% in 2022, based on our internal estimates and Cerulli data on expected industry growth. We seek to capitalize on this trend and attract new financial advisers to our platform by continuing to invest in our technology platform, sales and service standards and curated investment offering. Our annual cohort of new producing advisers grew 66% from 548 new producing advisers in 2014 to 910 in 2018. Our business will depend in part on our ability to continue to attract new advisers to our platform.

 

Technology Development

 

We invested $164 million in the development of our technology and our dedicated technology team from January 1, 2015 to June 30, 2019. We intend to continue to invest in our technology platform to address the needs of financial advisers and their investors. Our revenue growth will depend, in part, on our ability to continue to launch new offerings and deliver solutions to financial advisers efficiently. While these investments may delay or reduce our profitability, we believe they will enable us to grow our revenue meaningfully in the long term.

 

Investments In Growth

 

We have made and expect to continue to make substantial investments across our business, including those related to increasing our total employee base, to support our continued growth. We intend to continue to expand our sales capacity and further improve sales productivity to drive additional revenue and support the growth of our client base. We may incur increased general and administrative expenses to support our growth and operations. Our results of operations will depend in part on our ability to continue to manage such expenses, as well as on the effectiveness of our investments. We expect to continue managing such expenses and investments to support our adjusted EBITDA margin.

 

Competition

 

We compete with a broad range of wealth management firms that offer services to independent investment advisers. Our competitive landscape is defined by three primary factors: 1) technology capabilities, 2) consulting and back office servicing and 3) investment solutions. We may compete on these factors based on products, services or fees. While we anticipate that we will see increased competition and experience fee pressure, we believe that our technology platform, along with our personalized service and curated investment solutions, will continue to drive revenue expansion.

 

Value of Platform Assets

 

Our revenue is subject to fluctuations due to changes in general economic conditions, including market conditions and the changing interest rate environment. Most of our revenue is based on the value of assets invested in products on our platform, which is heavily influenced by general economic conditions. Fluctuations in securities prices may affect the value of such assets and may also influence an investor’s decision to select, grow, maintain or reduce an investment. We generate asset-based revenue from fees billed in advance of each quarter, providing visibility into near-term revenue and helping to minimize revenue fluctuations stemming from market volatility. In addition, we realize spread-based revenue, which represents a growing portion of our revenue. Spread-based revenue is subject to change based on interest rate changes and the amount of cash held by investors at our proprietary trust company.

 

15


 

Acquisitions

 

Our ability to pursue and execute strategic transactions may impact our assets and revenue. From 2014 to 2018, we acquired the platform assets of two firms, which collectively have added $3.5 billion in assets. Subsequently, in April 2019, we closed our acquisition of GFPC following CFIUS clearance and FINRA approval, for a total cash purchase price of $35.9 million. This acquisition added another $3.8 billion in platform assets. We expect to continue to selectively seek acquisitions that will enhance our scale, operating leverage and capabilities to further deepen our offering to advisers and investors.

 

Key Operating Metrics

In addition to our GAAP financials, we regularly review the following key metrics to measure performance, identify trends, formulate financial projections, compensate our employees and monitor our business. While we believe that these metrics are useful in evaluating our business, other companies may not use similar metrics or may not calculate similarly titled metrics in a consistent manner.

Key metrics for the three months ended June 30, 2019 and 2018 and the six months ended June 30, 2019 and 2018 include the following:

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,