10-Q 1 amk-20230930.htm 10-Q amk-20230930
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________________________________________
FORM 10-Q
_______________________________________________
(Mark One)
xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2023
OR
oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from            to            
Commission File Number: 001-38980
_______________________________________________
ASSETMARK FINANCIAL HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
_______________________________________________
Delaware
(State or other jurisdiction of
incorporation or organization)
30-0774039
(I.R.S. Employer
Identification Number)
1655 Grant Street, 10th Floor
Concord, California 94520
(Address of principal executive offices)
(925) 521-2200
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:
Title of each classTrading symbol(s)Name of each exchange on which registered
Common stock, par value $0.001 per shareAMKNew 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 x No o
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 x No o
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 fileroAccelerated filerx
Non-accelerated fileroSmaller reporting companyo
Emerging growth companyx
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. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
As of October 31, 2023, the number of shares of the registrant’s common stock outstanding was 74,265,358.



ASSETMARK FINANCIAL HOLDINGS, INC.
TABLE OF CONTENTS
Page No.
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,” “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. 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; 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”).
Our revenue may fluctuate from period to period, which could cause our share price to fluctuate.
We operate in an intensely competitive industry, with many firms competing for business from financial advisers on the basis of the quality and breadth of investment solutions and services, ability to innovate, reputation and the prices of services, among other factors, and this competition could hurt our financial performance.
We derive nearly all of our revenue from the delivery of investment solutions and services to clients in the financial advisory industry and our revenue could suffer if that industry experiences a downturn.
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.
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.
Changes in market and economic conditions (including as a result of 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.
We may be subject to liability for losses that result from a breach of our or a third party’s fiduciary duties.
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.
Our controlling stockholder is subject to supervision by regulatory authorities in the People’s Republic of China (“PRC”) and must comply with certain PRC laws and regulations that may influence our controlling stockholder’s decisions relating to our business.
We are subject to extensive government regulation in the United States, and our failure or inability to comply with these regulations or regulatory action against us could adversely affect our results of operations, financial condition or business.
Failure to properly disclose conflicts of interest could harm our reputation, results of operations or business.
Control by our principal stockholder could adversely affect our other stockholders.
We rely on our executive officers and other key personnel.
3


PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
AssetMark Financial Holdings, Inc.
Condensed Consolidated Balance Sheets
(in thousands except share data and par value)
September 30, 2023December 31, 2022
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents$214,754 $123,274 
Restricted cash14,000 13,000 
Investments, at fair value16,294 13,714 
Fees and other receivables, net20,464 20,082 
Income tax receivable, net 265 
Prepaid expenses and other current assets13,086 16,870 
Total current assets278,598 187,205 
Property, plant and equipment, net7,672 8,495 
Capitalized software, net105,593 89,959 
Other intangible assets, net686,765 694,627 
Operating lease right-of-use assets21,625 22,002 
Goodwill487,353 487,225 
Other assets17,721 13,417 
Total assets$1,605,327 $1,502,930 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable$1,781 $4,624 
Accrued liabilities and other current liabilities65,458 69,196 
Income tax payable, net25,755  
Total current liabilities92,994 73,820 
Long-term debt, net93,519 112,138 
Other long-term liabilities16,666 15,185 
Long-term portion of operating lease liabilities27,539 27,924 
Deferred income tax liabilities, net147,497 147,497 
Total long-term liabilities285,221 302,744 
Total liabilities378,215 376,564 
Stockholders’ equity:
Common stock, $0.001 par value (675,000,000 shares authorized and 74,264,226 and 73,847,596 shares issued and outstanding as of September 30, 2023 and December 31, 2022, respectively)
74 74 
Additional paid-in capital955,208 942,946 
Retained earnings271,987 183,503 
Accumulated other comprehensive loss(157)(157)
Total stockholders’ equity1,227,112 1,126,366 
Total liabilities and stockholders’ equity$1,605,327 $1,502,930 
The accompanying notes are an integral part of the condensed consolidated financial statements.
4


AssetMark Financial Holdings, Inc.
Unaudited Condensed Consolidated Statements of Comprehensive Income
(in thousands except share and per share data)
Three Months Ended September 30,Nine Months Ended September 30,
2023202220232022
Revenue:
Asset-based revenue$143,840 $128,173 $412,215 $409,498 
Spread-based revenue37,329 21,160 112,863 30,265 
Subscription-based revenue3,891 3,126 11,128 9,703 
Other revenue5,462 2,204 14,110 4,707 
Total revenue190,522 154,663 550,316 454,173 
Operating expenses:    
Asset-based expenses43,092 36,476 119,870 118,429 
Spread-based expenses8,492 2,142 23,052 3,188 
Employee compensation46,613 41,589 141,623 121,852 
General and operating expenses22,714 21,667 72,757 65,949 
Professional fees7,369 5,877 21,134 17,104 
Depreciation and amortization8,965 7,961 26,077 23,141 
Total operating expenses137,245 115,712 404,513 349,663 
Interest expense2,305 1,560 6,789 4,207 
Other (income) expense, net(2,192)(11)17,385 195 
Income before income taxes53,164 37,402 121,629 100,108 
Provision for income taxes14,779 7,293 33,145 22,440 
Net income38,385 30,109 88,484 77,668 
Net comprehensive income$38,385 $30,109 $88,484 $77,668 
Net income per share attributable to common stockholders:
Basic$0.52 $0.41 $1.19 $1.05 
Diluted$0.51 $0.41 $1.19 $1.05 
Weighted average number of common shares outstanding, basic74,261,66773,842,29774,047,41273,682,881
Weighted average number of common shares outstanding, diluted74,695,26073,844,68974,521,37073,783,858
The accompanying notes are an integral part of the condensed consolidated financial statements.
5


AssetMark Financial Holdings, Inc.
Unaudited Condensed Consolidated Statements of Stockholders’ Equity
(in thousands except share data)
For the three months ended September 30, 2023 and 2022
Common stockAdditional
paid-in
capital
Retained
earnings
Accumulated
other
comprehensive loss
Total
stockholders’
equity
Shares Amount
Balance at June 30, 202273,745,114$74 $935,243 $127,801 $— $1,063,118 
Net income— — 30,109 — 30,109 
Share-based compensation— 3,923 — — 3,923 
Issuance of common stock - vesting of restricted stock units100,860— — — — — 
Balance at September 30, 202273,845,974$74 $939,166 $157,910 $— $1,097,150 
Balance at June 30, 202374,172,080$74 $950,920 $233,602 $(157)$1,184,439 
Net income— — 38,385 — 38,385 
Share-based compensation— 4,288 — — 4,288 
Issuance of common stock - vesting of restricted stock units92,146— — — — — 
Balance at September 30, 202374,264,226$74 $955,208 $271,987 $(157)$1,227,112 
For the nine months ended September 30, 2023 and 2022
Common stockAdditional
paid-in
capital
Retained
earnings
Accumulated
other
comprehensive loss
Total
stockholders’
equity
Shares Amount
Balance at December 31, 202173,562,717$74 $929,070 $80,242 $— $1,009,386 
Net income— — 77,668 — 77,668 
Share-based compensation— 10,096 — — 10,096 
Issuance of common stock - vesting of restricted stock units283,036— — — — — 
Exercise of stock options221— — — — — 
Balance at September 30, 202273,845,974$74 $939,166 $157,910 $— $1,097,150 
Balance at December 31, 202273,847,596$74 $942,946 $183,503 $(157)$1,126,366 
Net income— — 88,484 — 88,484 
Share-based compensation— 12,262 — — 12,262 
Issuance of common stock - vesting of restricted stock units361,901— — — — — 
Exercise of stock options52,765— — — — — 
Exercise of stock appreciation rights1,964— — — — — 
Balance at September 30, 202374,264,226$74 $955,208 $271,987 $(157)$1,227,112 
The accompanying notes are an integral part of the condensed consolidated financial statements.
6


AssetMark Financial Holdings, Inc.
Unaudited Condensed Consolidated Statements of Cash Flows
(in thousands)
Nine Months Ended September 30,
20232022
CASH FLOWS FROM OPERATING ACTIVITIES
Net income$88,484 $77,668 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization26,077 23,141 
Interest (income) expense, net(184)607 
Share-based compensation12,262 10,096 
Debt acquisition cost write-down92 130 
Changes in certain assets and liabilities:
Fees and other receivables, net(879)(7,338)
Receivables from related party480 568 
Prepaid expenses and other current assets7,751 6,732 
Accounts payable, accrued liabilities and other current liabilities(675)(12,664)
Income tax receivable and payable, net26,020 (3,341)
Net cash provided by operating activities159,428 95,599 
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of Adhesion Wealth(3,000) 
Purchase of investments(1,936)(2,211)
Sale of investments289 384 
Purchase of property and equipment(1,155)(1,440)
Purchase of computer software(31,871)(26,049)
Purchase of convertible notes(4,275)(8,600)
Net cash used in investing activities(41,948)(37,916)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of long-term debt, net 122,508 
Proceeds from revolving credit facility draw down50,000  
Payments on revolving credit facility(50,000)(115,000)
Payments on term loan(25,000)(4,688)
Net cash (used in) provided by financing activities(25,000)2,820 
Net change in cash, cash equivalents, and restricted cash92,480 60,503 
Cash, cash equivalents, and restricted cash at beginning of period136,274 89,707 
Cash, cash equivalents, and restricted cash at end of period$228,754 $150,210 
SUPPLEMENTAL CASH FLOW INFORMATION
Income taxes paid, net$6,962 $26,176 
Interest paid$7,837 $2,714 
Non-cash operating and investing activities:
Non-cash changes to right-of-use assets$3,360 $3,396 
Non-cash changes to lease liabilities$3,360 $3,396 
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. and its subsidiaries, which include 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., Voyant Australia Pty Ltd. and Atria Investments, Inc. The entities listed above are collectively referred to as the “Company.”
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 significant 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 and GuidePath Funds (“Proprietary Mutual Funds”), each of which is a mutual fund offered to clients of financial advisers.
AssetMark Trust Company (“ATC”) is a licensed trust company incorporated under the laws of the State of Arizona on August 24, 1994 and regulated by the Arizona Department of Insurance and Financial Institutions. ATC provides custodial recordkeeping services primarily to investor clients of registered investment advisers (including AMI) located throughout the United States.
AssetMark 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 underwrite and distribute the Company’s Proprietary Mutual Funds and to sponsor the Financial Industry Regulatory Authority (“FINRA”) licensing of those AssetMark associates who provide distribution support of the Company’s Proprietary Mutual Funds employed in certain AssetMark programs and strategies.
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.
Atria Investments, Inc. (“Atria”), doing business as Adhesion Wealth, is a registered investment adviser that was formed as a limited liability company under the laws of the State of North Carolina on March 29, 2007, and was converted to a corporation under the laws of the State of North Carolina on December 22, 2022. Atria offers a broad array of services and solutions, including overlay management, investment solutions, flexible desktop technology and a manager marketplace.
Note 2. Summary of Significant Accounting Policies
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial statements and pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments, consisting of only normal recurring adjustments, considered necessary for fair presentation have been included. The results of operations for the three and nine months ended September 30, 2023 are not necessarily indicative of the results to be expected for the year ended December 31, 2023 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, 2022 included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.
8


AssetMark Financial Holdings, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
Risks and Uncertainties
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.
Basis of Presentation
The accompanying condensed consolidated financial statements have been prepared in accordance with GAAP. Certain prior period amounts in the accompanying notes have been reclassified to conform to the current period’s presentation.
Geographic Sources of Revenue
Revenue attributable to customers outside of the United States totaled $4,167 and $3,527 in the three months ended September 30, 2023 and 2022, respectively, and $12,065 and $10,691 in the nine months ended September 30, 2023 and 2022, respectively.
Note 3. Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consisted of the following:
September 30, 2023December 31, 2022
Prepaid expenses$7,110 $11,697 
Operating lease right-of-use assets4,747 4,387 
Other1,229 786 
Total$13,086 $16,870 
Note 4. Business Combinations
Acquisition of Adhesion Wealth
On December 14, 2022, the Company acquired all of the issued and outstanding equity interests of Adhesion Financial Advisor Solutions (“Adhesion Wealth”). The estimated fair values of working capital balances, identifiable intangible assets and goodwill are provisional and are based on the information that was available as of the acquisition date. The estimated fair values of these provisional items are based on certain valuation and other studies that remain in progress and are not yet determinable. The Company believes the preliminary information provides a reasonable basis for estimating the fair values of these amounts, but is waiting for additional information necessary to finalize those fair values. Therefore, provisional measurements of fair values reflected are subject to change and such changes could be significant. The Company expects to finalize the valuation of tangible assets and liabilities and identifiable intangible assets and goodwill and complete the acquisition accounting as soon as practicable and no later than December 14, 2023.
On January 30, 2023, the Company completed an internal restructuring of Adhesion Wealth and Atria whereby Adhesion Wealth was merged out of existence and Atria became a direct subsidiary of AssetMark Financial Holdings, Inc., and will continue to do business as Adhesion Wealth.
In January 2023, the Company settled a purchase consideration liability in the amount of $3,000.
Note 5. Goodwill and Other Intangible Assets
Goodwill
The Company’s goodwill balance was $487,353 and $487,225 as of September 30, 2023 and December 31, 2022, respectively. The Company performed an annual test for goodwill impairment based on the financial information available as of October 31, 2022 and 2021 for the years ended December 31, 2022 and 2021 and determined that goodwill was not
9


AssetMark Financial Holdings, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
impaired. The Company performed a qualitative analysis of factors and determined that goodwill was not impaired as of September 30, 2023.
Other Intangible Assets
Information regarding the Company’s intangible assets is as follows:
September 30, 2023Gross carrying
amount
Accumulated
amortization
Net carrying
amount
Indefinite-lived intangible assets:
Broker-dealer relationships$570,480 $— $570,480 
Enterprise distribution channel customer relationships17,500 — 17,500 
Definite-lived intangible assets:
Trade names50,530 (16,622)33,908 
Technology19,600 (4,950)14,650 
Customer relationships36,450 (9,120)27,330 
Regulatory licenses34,850 (12,053)22,797 
Non-compete agreements400 (300)100 
Total$729,810 $(43,045)$686,765 
December 31, 2022Gross carrying
amount
Accumulated
amortization
Net carrying
amount
Indefinite-lived intangible assets:
Broker-dealer relationships$570,480 $— $570,480 
Enterprise distribution channel customer relationships17,500 — 17,500 
Definite-lived intangible assets:
Trade names50,530 (14,573)35,957 
Technology19,600 (2,717)16,883 
Customer relationships36,450 (6,948)29,502 
Regulatory licenses34,850 (10,745)24,105 
Non-compete agreements400 (200)200 
Total$729,810 $(35,183)$694,627 

Amortization expense for definite-lived intangible assets was $2,623 and $2,171 for the three months ended September 30, 2023 and 2022, respectively, and $7,862 and $6,513 for the nine months ended September 30, 2023 and 2022, respectively. The Company performed an annual test for intangible assets impairment in October for the years ended December 31, 2022 and 2021 and determined that intangible assets were not impaired. The Company performed a qualitative analysis of factors and determined that intangible assets were not impaired as of September 30, 2023.
Estimated amortization expense for definite‑lived intangible assets for future years is as follows:
Remainder of 2023$2,623 
202410,425 
202510,308 
20269,158 
20279,158 
2028 and thereafter57,113 
Total$98,785 
10


AssetMark Financial Holdings, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
Note 6. Accrued Liabilities and Other Current Liabilities
The following table shows the breakdown of accrued liabilities and other current liabilities:
September 30, 2023December 31, 2022
Accrued bonus$17,976 $19,813 
Asset-based payables7,870 840 
Compensation and benefits payable7,801 13,403 
Current portion of operating lease liabilities4,586 4,485 
Reserve for uncertain tax positions4,136 4,136 
Current portion of long-term debt, net 6,123 
Other accrued expenses23,089 20,396 
Total$65,458 $69,196 
Note 7. Other Long-Term Liabilities
Other long-term liabilities consisted of the following:
September 30, 2023December 31, 2022
Deferred compensation plan liability$15,817 $13,602 
Other849 1,583 
Total$16,666 $15,185 
11


AssetMark Financial Holdings, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
Note 8. 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 September 30, 2023 and December 31, 2022, based on the three-tier fair value hierarchy:
September 30, 2023
Fair ValueLevel ILevel IILevel III
Assets:
Equity securities investments$477 $477 $ $ 
Assets to fund deferred compensation liability15,817 15,817   
Convertible notes receivable15,385   15,385 
Total assets$31,679 $16,294 $ $15,385 
Liabilities:    
Deferred compensation liability$15,817 $15,817 $ $ 
Total liabilities$15,817 $15,817 $ $ 
December 31, 2022
Fair ValueLevel ILevel IILevel III
Assets:
Equity securities investments$112 $112 $ $ 
Assets to fund deferred compensation liability13,602 13,602   
Convertible notes receivable10,352   10,352 
Total assets$24,066 $13,714 $ $10,352 
Liabilities:
Deferred compensation liability$13,602 $13,602 $ $ 
Total liabilities$13,602 $13,602 $ $ 

Fair Value of Equity Securities Investments
The fair values of the Company’s assets consisting of investment funds that invest in listed equity securities are based on the month-end quoted market prices for the net asset value of the various funds.

Fair Value of Assets to Fund Deferred Compensation Liability and Deferred Compensation Liability
The assets to fund deferred compensation liability are included in investments, at fair value in the condensed consolidated balance sheets, with fair market value based on the month-end quoted market prices for the net asset value of the various investment funds.
The deferred compensation liability is included in other long-term liabilities in the condensed consolidated balance sheets and its fair market value is based on the month-end market prices for the net asset value of the various investment funds in the Company’s rabbi trust that the participants have selected.

Fair Value of Convertible Notes Receivable
The fair value of the convertible notes receivables was estimated using a market yield method with significant inputs that are not observable in the market, including inputs related to the creditworthiness of the borrower, and thus represents a Level III fair value measurement. The Company’s management believes the fair value is appropriately discounted considering the uncertainties associated with these obligations, and is calculated in accordance with the terms of the underlying contractual agreement between the Company and the borrower.
12


AssetMark Financial Holdings, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
Note 9. Asset-Based Expenses
Asset-based expenses incurred by the Company relating to the generation of asset-based revenue are as follows:
Three Months Ended September 30,Nine Months Ended September 30,
2023202220232022
Strategist and manager fees$36,663 $32,437 $104,818 $104,554 
Premier broker-dealer fees3,348 1,272 6,090 5,055 
Custody fees1,655 1,519 4,723 5,098 
Fund advisory fees1,323 1,226 3,967 3,443 
Other103 22 272 279 
Total$43,092 $36,476 $119,870 $118,429 
Note 10. Debt
On December 30, 2020, the Company entered into a credit agreement (the “2020 Credit Agreement”) with Bank of Montreal for a senior secured credit facility in an aggregate principal amount of $250,000, consisting of a revolving credit facility with commitments in an aggregate principal amount of $250,000 (the “2020 Revolving Credit Facility”), with an accordion option of up to $25,000. The total outstanding principal under the 2020 Credit Agreement was paid in full on January 12, 2022.
On January 12, 2022, the Company amended the 2020 Credit Agreement to, among other things, add a term loan facility (as amended and restated, the “2022 Credit Agreement”). Joint lead arrangers and joint bookrunners for the 2022 Credit Agreement are BMO Capital Markets Corp., JPMorgan Chase Bank, N.A., Truist Securities, Inc., U.S. Bank National Association and Wells Fargo Securities, LLC. The 2022 Credit Agreement provides for a senior secured credit facility in an aggregate principal amount of $500,000, consisting of a revolving credit facility with commitments in an aggregate principal amount of $375,000 (the “2022 Revolving Credit Facility”) and a term loan facility with commitments in an aggregate amount of $125,000 (the “2022 Term Loans”), with an accordion option to increase the revolving commitments by $100,000. On October 25, 2022, the Company entered into an amendment (the “ESG Amendment”) to the 2022 Credit Agreement, solely for the purpose of incorporating key performance indicators (“KPIs”) and environmental, social and governance pricing provisions into the 2022 Credit Agreement.
The 2022 Term Loans bear interest at a rate per annum equal to, at the Company’s option, either (i) SOFR plus a margin based on the Company’s Total Leverage Ratio (as defined in the 2022 Credit Agreement) or (ii) the Base Rate (as defined in the 2022 Credit Agreement) plus a margin based on the Company’s Total Leverage Ratio. The margin ranges between 0.875% and 2.5% for base rate loans and between 1.875% and 3.5% for SOFR loans. The Company will pay a commitment fee based on the average daily unused portion of the commitments under the 2022 Revolving Credit Facility, a letter of credit fee equal to the margin then in effect with respect to the SOFR loans under the 2022 Revolving Credit Facility, a fronting fee and any customary documentary and processing charges for any letter of credit issued under the 2022 Credit Agreement. The 2022 Term Loans are subject to quarterly amortization payments and will mature on January 12, 2027. The ESG Amendment provides for up to (i) 0.05% positive or negative adjustments to the applicable margin and (ii) 0.01% positive or negative adjustments to the commitment fee, in each case, based on the Company’s performance against the KPIs, and includes customary affirmative covenants and representations and warranties with respect to the KPIs.
In March 2023, the Company paid down a total of $25,000, with the excess repayment above the scheduled amortizing payment to be applied to future quarterly principal payments.
Note 11. Share-Based Compensation
On July 3, 2019, the Company’s Board of Directors adopted, and the Company’s sole stockholder approved, the 2019 Equity Incentive Plan (the “2019 Equity Incentive Plan”), which became effective on July 17, 2019, the date of effectiveness of the Company’s initial public offering (the “IPO”) registration statement on Form S-1. As of September 30, 2023, 514,521 shares were available for issuance under the 2019 Equity Incentive Plan.
13


AssetMark Financial Holdings, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
Stock Options
In connection with the IPO, the Company issued options to certain officers to acquire an aggregate of 918,981 shares of the Company’s common stock outside of the 2019 Equity Incentive Plan, with an exercise price of $22 dollars per share. Each of these options vested and became exercisable in substantially equal installments on each of the first three anniversaries of July 18, 2019, subject to the recipient’s continued employment through the vesting date and have a ten-year contractual term. On July 18, 2022, the last installment of outstanding options vested.
Share-based compensation expense related to the stock options was $0 and $64 for the three months ended September 30, 2023 and 2022, respectively, and $0 and $670 for the nine months ended September 30, 2023 and 2022, respectively.
Restricted Stock Units
Periodically, the Company issues restricted stock units (“RSUs”) to all officers, certain employees and independent directors of the board under the 2019 Equity Incentive Plan. Most of these RSUs are scheduled to vest in substantially equal installments on each of the first four anniversaries of their grant date.
During the nine months ended September 30, 2023, the Company issued 593,653 RSUs in aggregate to its officers, certain employees and independent directors of the board.
Share-based compensation expense related to the RSUs was $3,150 and $2,321 for the three months ended September 30, 2023 and 2022, respectively, and $8,103 and $5,850 for the nine months ended September 30, 2023 and 2022, respectively.
Stock Appreciation Rights
Equity-settled Stock Appreciation Rights
Periodically, the Company issues equity-settled stock appreciation rights (“Equity-settled SARs”) to certain officers with respect to shares of the Company’s common stock under the 2019 Equity Incentive Plan. Each Equity-settled SAR has a strike price equal to the fair market value of the Company’s common stock on the date of grant and is scheduled to vest and become exercisable in substantially equal installments on each of the first four anniversaries of their grant date, subject to the recipient’s continued employment through the vesting date, and have a ten-year contractual term. Upon exercise, each of these Equity-settled SARs will be settled in shares of the Company’s common stock with a value equal to the excess, if any, of the fair market value of the Company’s common stock measured on the exercise date over the strike price.
During the nine months ended September 30, 2023, the Company issued 109,889 Equity-settled SARs to certain officers.
Share-based compensation expense related to Equity-settled SARs was $1,138 and $1,538 for the three months ended September 30, 2023 and 2022, respectively, and $4,159 and $3,576 for the nine months ended September 30, 2023 and 2022, respectively.
Cash-settled Stock Appreciation Rights
The Company issued cash-settled stock appreciation rights (“Cash-settled SARs”) to certain officers with respect to shares of the Company’s common stock under the 2019 Equity Incentive Plan. Each Cash-settled SAR has a strike price equal to the fair market value of the Company’s common stock on the date of grant and is scheduled to vest and become exercisable in substantially equal installments on each of the first four anniversaries of their grant date, subject to the recipient’s continued employment through the vesting date, and have a ten-year contractual term. Upon exercise, each of
14


AssetMark Financial Holdings, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
these Cash-settled SARs will be settled in cash with a value equal to the excess, if any, of the fair market value of the Company’s common stock measured on the exercise date over the strike price.
During the nine months ended September 30, 2023, the Company issued 338,907 Cash-settled SARs to certain officers.
Share-based compensation expense related to Cash-settled SARs was $77 and $0 for the three months ended September 30, 2023 and 2022, respectively, and $159 and $0 for the nine months ended September 30, 2023 and 2022, respectively.
Note 12. Commitments and Contingencies
Litigation
The Company faces the risk of litigation and regulatory investigations and actions in the ordinary course of operating the Company’s 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 the Company’s general business activities such as the Company’s 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. Plaintiffs in class action and other lawsuits against the Company may seek very large or indeterminate amounts which may remain unknown for substantial periods of time. A substantial legal liability or a significant regulatory action against the Company could have an adverse effect on the Company’s 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 the Company’s business, financial condition or results of operations.
Because the Company operates in a highly regulated industry, the Company and its subsidiaries are regularly subject to examinations by the SEC and other relevant regulators. As disclosed since the fall of 2020, in July 2020, AMI received an examination report from the SEC’s Division of Examinations requesting that AMI and certain subsidiaries of AFHI take corrective actions. The Company’s subsidiaries also received related subpoenas from the SEC Division of Enforcement for production of documents and testimony. The matter at issue concerned allegedly inadequate disclosure of potential conflicts of interest by AMI between 2016 and 2021. Based on discussions with the SEC enforcement staff, the Company recorded an accrual of $20,000 in its financial statements in March 2023 for the expected resolution of this matter. In September 2023, the Company reached a settlement with the SEC regarding the matter at issue without admitting or denying the SEC’s findings. The Company paid a civil penalty of $9,500 as well as disgorgement and prejudgment interest of $8,827, which will be distributed to impacted customers once the SEC approves the distribution plan. The Company also consented to, and intends to, comply with certain undertakings under the settlement. The adjustment related to the settlement has been included within other (income) expense, net within the unaudited condensed consolidated statements of comprehensive income for the three months ended September 30, 2023.
Other Contingencies
In connection with the acquisition of Adhesion Wealth, the Company may incur contingent compensation obligations with respect to certain former Adhesion Wealth employees based upon the achievement of certain milestones and their continued employment with the Company. The potential payouts were indeterminable at the balance sheet date.
Note 13. 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, the effect of research and development tax credits, and permanent non-deductible items.
The Company’s effective tax rate was 27.8% and 19.5% for the three months ended September 30, 2023 and 2022, respectively, and 27.3% and 22.4% for the nine months ended September 30, 2023 and 2022, respectively.
15


AssetMark Financial Holdings, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
Note 14. Related Party Transactions
As of September 30, 2023 and December 31, 2022, the Company had no amounts due from Huatai Securities Co., Ltd. (“HTSC”).
Note 15. Net Income Per Share Attributable to Common Stockholders
Basic net income per share is computed by dividing net income by the weighted average number of shares of common stock outstanding for the period. For the calculation of diluted net income per share, the basic weighted average number of shares of common stock outstanding is increased by the dilutive effect (if any) of stock options, restricted stock awards, restricted stock units and stock appreciation rights.
The following table provides a reconciliation of the numerators and denominators used in computing basic and diluted net income per share attributable to common stockholders:
Three Months Ended September 30,Nine Months Ended September 30,
2023202220232022
Net income attributable to common stockholders$38,385 $30,109 $88,484 $77,668 
Weighted average number of shares of common stock used in computing net income per share attributable to common stockholders, basic74,261,66773,842,29774,047,41273,682,881
Net income per share attributable to common stockholders, basic$0.52 $0.41 $1.19 $1.05 
Weighted average shares used in computing net income per share attributable to common stockholders, basic74,261,66773,842,29774,047,41273,682,881
Effect of dilutive shares:
Stock options109,324 111,283 
Unvested RSUs236,7942,392 289,708100,977 
SARs87,475 72,967 
Diluted number of weighted-average shares outstanding74,695,26073,844,68974,521,37073,783,858
Net income per share attributable to common stockholders, diluted$0.51 $0.41 $1.19 $1.05 
The following securities were not included in the computation of diluted shares because such securities did not have a dilutive effect.
Three Months Ended September 30,Nine Months Ended September 30,
2023202220232022
Stock options803,306803,306
SARs1,571,8312,631,7611,571,8312,631,761
RSUs31,9801,038,68254,221671,935
Total1,603,8114,473,7491,626,0524,107,002
16


Item 2. Management’s 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 condensed consolidated financial statements and the related notes thereto and the 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 committed to transforming financial advice by enabling holistic financial wellness and empowering independent financial advisers to help their clients reach their goals. We are a wealth management platform that powers independent financial advisers and their clients. Our ecosystem of solutions equips advisers of all sizes and models with services and capabilities that would otherwise require significant investments of time and money, which ultimately enables them to deliver better investor outcomes and enhance their productivity, profitability and client satisfaction.
Our open architecture platform delivers flexibility and choice to advisers across the spectrum of profiles and outsourcing preferences, including end-to-end solutions for those who prefer to fully outsource, as well as modular solutions for those who prefer to handle some or all components of advice delivery themselves.
We believe that community-based financial advisers have a unique opportunity to level the playing field for investors of all sizes by providing them with access to highly personalized and trusted financial guidance that is in their best interest. AssetMark serves these independent advisers with growth-enabling outsourced solutions so that their independence doesn’t inhibit their ability to achieve entrepreneurial success for themselves and financial wellness for their clients. The compelling value of our tools for advisers and their clients has facilitated our rapid growth.
Financial Highlights
Total revenue for the quarter ended September 30, 2023 was $190.5 million, up $35.9 million, or 23.2%, from $154.7 million for the quarter ended September 30, 2022. Asset-based revenue for the quarter ended September 30, 2023 was $143.8 million, up $15.7 million, or 12.2%, from $128.2 million for the quarter ended September 30, 2022. Spread-based revenue for the quarter ended September 30, 2023 was $37.3 million, up $16.2 million, or 76.4%, from $21.2 million for the quarter ended September 30, 2022.
Net income for the quarter ended September 30, 2023 was $38.4 million, or $0.52 per share, up from $30.1 million, or $0.41 per share, for the quarter ended September 30, 2022.
Adjusted net income for the quarter ended September 30, 2023 was $46.0 million, compared to $35.0 million for the quarter ended September 30, 2022. For a reconciliation of net income, the most directly comparable GAAP financial measure, to adjusted net income, see the section titled “—Key Operating Metrics—Non-GAAP Financial Metrics—Adjusted Net Income.”
Adjusted EBITDA for the quarter ended September 30, 2023 was $66.5 million, compared to $52.7 million for the quarter ended September 30, 2022. For a reconciliation of net income, the most directly comparable GAAP financial measure, to adjusted EBITDA, see the section titled “—Key Operating Metrics—Non-GAAP Financial Metrics—Adjusted EBITDA.”
Asset and Adviser Growth Trends
Platform assets were $99.6 billion as of September 30, 2023, up 25.5% from $79.4 billion as of September 30, 2022.
We had 2,995 engaged advisers on our platform as of September 30, 2023, up 15.1% from 2,601 as of September 30, 2022.
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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 2020 to 47% in 2025, based on our internal estimates and Cerulli Associates’ 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 business will depend in part on our ability to continue to attract new advisers to our platform.
Technology Development
We invested $63.8 million in the development of our technology and our dedicated technology team during the nine months ended September 30, 2023. 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 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 expansion of 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) technological 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. In addition, we realize spread-based revenue, which is influenced significantly by interest rate changes and the amount of cash held by investors at our proprietary trust company.
Acquisitions
Our success in pursuing and executing strategic transactions may impact our assets and revenue. From 2014 to 2020, we acquired the platform assets of four firms, which have collectively added $9.4 billion in platform assets. In 2021,
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we acquired Voyant, a leading global provider of SaaS-based financial planning and client digital engagement solutions, and in December 2022, we acquired Adhesion Financial Advisor Solutions, Inc. (“Adhesion Wealth”), a leading provider of wealth management technology solutions to registered investment advisers (“RIAs”), RIA enterprises, turnkey asset management programs and asset managers. The acquisition of Adhesion Wealth added $6.9 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 and nine months ended September 30, 2023 and 2022 include the following:
Three Months Ended September 30,Nine Months Ended September 30,
2023202220232022
Operational metrics:
Platform assets (at period-beginning) (millions of dollars)$100,762 $82,127 $91,470 $93,488 
Net flows (millions of dollars)1,543 1,207 4,868 4,704 
Market impact net of fees (millions of dollars)(2,708)(3,952)3,259 (18,810)
Platform assets (at period-end) (millions of dollars)$99,597 $79,382 $99,597 $79,382 
Net flows lift (% of beginning-of-year platform assets)1.7 %1.3 %5.3 %5.0 %
Advisers (at period-end)9,354 8,702 9,354 8,702 
Engaged advisers (at period-end)2,995 2,601 2,995 2,601 
Assets from engaged advisers (at period-end) (millions of dollars)$91,900 $72,195 $91,900 $72,195 
Households (at period-end)251,424 223,098 251,424 223,098 
New producing advisers158 159 512 547 
Production lift from existing advisers (annualized %)18.7 %14.9 %19.2 %17.0 %
Assets in custody at ATC (at period-end) (millions of dollars)$73,445 $61,539 $73,445 $61,539 
ATC client cash (at period-end) (millions of dollars)$2,897 $3,510 $2,897 $3,510 
Financial metrics:
Total revenue (millions of dollars)$190.5 $154.7 $550.3 $454.2 
Net income (millions of dollars)$38.4 $30.1 $88.5 $77.7 
Net income margin (%)20.1 %19.5 %16.1 %17.1 %
Capital expenditure (millions of dollars)$11.6 $9.0 $32.9 $27.4 
Non-GAAP financial metrics:
Adjusted EBITDA (millions of dollars)$66.5 $52.7 $185.6 $146.8 
Adjusted EBITDA margin (%)34.9 %34.0 %33.7 %32.3 %
Adjusted net income (millions of dollars)$46.0 $35.0 $127.0 $96.2 
Platform Assets
We believe that the amount of assets on our platform is an important indicator of the strength and growth of our business, our increased customer footprint and the market acceptance of our platform. We define platform assets as substantially all assets on the AssetMark and Adhesion Wealth platforms, whether these are assets for which we provide advisory services, referred to as regulatory assets under management (“AUM”), or non-advisory assets under administration, assets held in cash accounts or otherwise not managed (collectively, “Other Assets”). There is generally no
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material economic difference to our financial results whether assets are considered AUM or Other Assets. We view our platform assets as reflective of our revenue growth and potential for future growth. We had platform assets of $99,597 million and $79,382 million as of September 30, 2023 and 2022, respectively. Our regulatory AUM totaled $60,282 million and $51,520 million as of September 30, 2023 and 2022, respectively. We intend to continue growing our platform assets with enhancements to our technology, services and investment solutions. We expect the growth in our platform assets will remain a significant indicator of our business momentum and results of operations as existing advisers and new advisers realize the benefits of our platform. Our platform assets in any period may continue to fluctuate as a result of several factors, including our adviser satisfaction with the functionality, features, performance or pricing of our offering, overall fluctuations in the securities markets and other factors, a number of which are beyond our control.
Net Flows, Market Impact Net of Fees and Acquisition Impact
The changes in our platform assets from period to period are driven by production, redemptions, changes in market value and acquisitions. The amount of new assets that are added to existing and new client accounts are referred to as production, and the amount of assets that are withdrawn from client accounts are referred to as redemptions. We refer to the difference between production and redemptions as net flows. Positive net flows indicate that the amount of assets added to client accounts exceeds the amount of assets that have been terminated or withdrawn from client accounts. In addition to net flows, the change in the market value of investments held in client accounts between the beginning and end of a period, which we define as market impact, also influences platform assets. For each period, we show the market impact on platform assets net of the fees paid to financial advisers and custodians and certain fees embedded in investment vehicles. Further, acquisition impact refers to the amount of assets added to our platform through acquisitions.
Net Flows Lift
Net flows lift refers to net flows over a given period divided by platform assets at the beginning of the year. Net flows lift allows us to determine the percentage return we are attaining in terms of net new assets from our asset base at the beginning of year. We use beginning-of-year platform assets to calculate net flows lift for a given quarter to eliminate market and net flows impacts from previous quarters of the calendar year, which allows for a more accurate and consistent quarterly comparison.
Advisers (at Period-End)
Adviser count reflects the total number of advisers who had at least one investor account on our platform at the end of the given period.
Engaged Advisers (at Period-End)
Engaged advisers are advisers with at least $5 million in platform assets.
Assets from Engaged Advisers (at Period-End)
Assets from engaged advisers are total platform assets attributable to engaged advisers.
Households (at Period-End)
We define a “Household” as one or more client accounts that are grouped together based on a relationship identification code as determined by the financial adviser.
New Producing Advisers
New producing advisers for a given period represents the number of advisers that invested their first client assets on our platform in that period, excluding advisers joining our platform through our acquisition of Adhesion Wealth.
Production Lift from Existing Advisers (Annualized)
Existing advisers for a given period are defined as those who had invested client assets on our platform as of the beginning of the period. Production lift from existing advisers for a given period is calculated by dividing production (the amount of new assets that are added to client accounts) attributable to existing advisers (excluding Adhesion Wealth
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advisers) for such period by platform assets as of the beginning of such period and annualizing the result. This metric represents both the organic growth of these advisers as well as any incremental share of wallet of the adviser’s business that is added to our platform on an annualized basis.
Assets in Custody at ATC (at Period-End)
Assets in custody at ATC represents platform assets that are in custody at AssetMark Trust Company (“ATC”).
ATC Client Cash (at Period-End)
In general, all accounts with ATC are required to have cash at a minimum level ranging from of 1.5% to 5% of invested assets. In addition to this minimum amount, strategists and advisers have the discretion to hold additional invested assets in cash. We refer to the aggregate amount of cash held at ATC as ATC client cash. As of September 30, 2023 and 2022, ATC client cash accounted for 3.9% and 5.7%, respectively, of the total assets in custody at ATC. As of September 30, 2023 and 2022, the majority of the ATC client cash was placed with the ATC-insured cash deposit program and was the primary source of spread-based revenue for our business.
Total Revenue
Total revenue includes all revenue that we recognize, including asset-based revenue, spread-based revenue, subscription-based revenue and other revenue.
Net Income
Net income is defined as total revenue less total expenses and provision for income taxes.
Net Income Margin
Net income margin is defined as net income divided by total revenue.
Capital Expenditure
Capital expenditure represents the long-term investments that we make on an annual basis. Capital expenditure primarily reflects investments in technology, the development of new products and services and other intangible assets, but also includes investments in property and equipment such as technology support and office space.
Non-GAAP Financial Metrics
Adjusted EBITDA and Adjusted EBITDA Margin
Adjusted EBITDA is defined as EBITDA (net income plus interest expense, income tax expense, depreciation and amortization and less interest income), further adjusted to exclude certain non-cash charges and other adjustments set forth below. Adjusted EBITDA margin is defined as adjusted EBITDA divided by total revenue. Adjusted EBITDA and adjusted EBITDA margin are useful financial metrics in assessing our operating performance from period to period because they exclude certain items that we believe are not representative of our core business, such as certain material non-cash items and other adjustments such as share-based compensation, strategic initiatives and reorganization and integration costs. We believe that adjusted EBITDA and adjusted EBITDA margin, viewed in addition to, and not in lieu of, our reported GAAP results, provide useful information to investors regarding our performance and overall results of operations for various reasons, including:
non-cash equity grants made to employees at a certain price and point in time do not necessarily reflect how our business is performing at any particular time; as such, share-based compensation expense is not a key measure of our operating performance; and
costs associated with acquisitions and the resulting integrations, debt refinancing, restructuring, conversions, as well as other non-recurring litigation costs can vary from period to period and transaction to transaction; as such, expenses associated with these activities are not considered a key measure of our operating performance.
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We use adjusted EBITDA and adjusted EBITDA margin:
as measures of operating performance;
for planning purposes, including the preparation of budgets and forecasts;
to allocate resources to enhance the financial performance of our business;
to evaluate the effectiveness of our business strategies;
in communications with our board of directors concerning our financial performance; and
as considerations in determining compensation for certain employees.
Adjusted EBITDA and adjusted EBITDA margin have limitations as analytical tools, and should not be considered in isolation to, or as substitutes for, analysis of our results as reported under GAAP. Some of these limitations are:
adjusted EBITDA and adjusted EBITDA margin do not reflect all cash expenditures, future requirements for capital expenditures or contractual commitments;
adjusted EBITDA and adjusted EBITDA margin do not reflect changes in, or cash requirements for, working capital needs;
adjusted EBITDA and adjusted EBITDA margin do not reflect interest expense on our debt or the cash requirements necessary to service interest or principal payments; and
the definitions of adjusted EBITDA and adjusted EBITDA margin can differ significantly from company to company and as a result have limitations when comparing similarly titled measures across companies.
Set forth below is a reconciliation from net income and net income margin, the most directly comparable GAAP financial measures, to adjusted EBITDA and adjusted EBITDA margin for the three and nine months ended September 30, 2023 and 2022.
Three Months Ended September 30,Three Months Ended September 30,
(in thousands except for percentages)2023202220232022
Net income$38,385 $30,109 20.1 %19.5 %
Provision for income taxes14,779 7,293 7.8 %4.7 %
Interest income(3,186)(849)(1.7)%(0.5)%
Interest expense2,305 1,560 1.2 %1.0 %
Depreciation and amortization8,965 7,961 4.7 %5.1 %
EBITDA$61,248 $46,074 32.1 %29.8 %
Share-based compensation(1)
4,288 3,923 2.3 %2.5 %
Reorganization and integration costs(2)
2,662 2,281 1.4 %1.5 %
Acquisition expenses(3)
195 379 0.1 %0.2 %
Business continuity plan(4)
— 14 — — 
SEC settlement(5)
(1,673)— (0.9)%— 
Other (income) expense, net(263)(11)(0.1)%— 
Adjusted EBITDA$66,457 $52,660 34.9 %34.0 %
(1)“Share-based compensation” represents granted share-based compensation in the form of restricted stock unit, stock option and stock appreciation right grants by us to certain of our directors and employees. Although this expense occurred in each measurement period, we have added the expense back in our calculation of adjusted EBITDA because of its noncash impact.
(2)“Reorganization and integration costs” includes costs related to our functional reorganization within our Operations, Technology and Retirement functions as well as duplicate costs related to the outsourcing of back-office operations functions. While we have incurred such expenses in all periods measured, these expenses serve varied reorganization and integration initiatives, each of which is non-recurring. We do not consider these expenses to be part of our core operations.
(3)“Acquisition expenses” includes employee severance, transition and retention expenses, duplicative general and administrative expenses and other professional fees related to acquisitions.
(4)“Business continuity plan” includes incremental compensation and other costs that are directly related to a transition to a hybrid workforce in 2022.
(5)“SEC settlement” represents the amount paid by us pursuant to our settlement with the SEC discussed in Note 12 to our unaudited condensed consolidated financial statements.
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Nine Months Ended September 30,Nine Months Ended September 30,
(in thousands except for percentages)2023202220232022
Net income$88,484 $77,668 16.1 %17.1 %
Provision for income taxes33,145 22,440 6.0 %4.9 %
Interest income(7,746)(1,107)(1.4)%(0.2)%
Interest expense6,789 4,207 1.2 %0.9 %
Depreciation and amortization26,077 23,141 4.7 %5.1 %
EBITDA$146,749 $126,349 26.6 %27.8 %
Share-based compensation(1)
12,262 10,096 2.2 %2.2 %
Reorganization and integration costs(2)
8,127 8,600 1.5 %1.9 %
Acquisition expenses(3)
368 1,313 0.1 %0.3 %
Business continuity plan(4)
(6)234 — 0.1 %
SEC settlement(5)
18,327 — 3.3 %— 
Other (income) expense, net(186)195 — — 
Adjusted EBITDA$185,641 $146,787 33.7 %32.3 %
Set forth below is a summary of the adjustments involved in the reconciliation from net income and net income margin, the most directly comparable GAAP financial measures, to adjusted EBITDA and adjusted EBITDA margin for the three and nine months ended September 30, 2023 and 2022, broken out by compensation and non-compensation expenses.
Three Months Ended September 30, 2023Three Months Ended September 30, 2022
(in thousands)CompensationNon-
Compensation
TotalCompensationNon-
Compensation
Total
Share-based compensation(1)
$4,288 $— $4,288 $3,923 $— $3,923 
Reorganization and integration costs(2)
1,101 1,561 2,662 829 1,452 2,281 
Acquisition expenses(3)
— 195 195 (4)383 379 
Business continuity plan(4)
— — — — 14 14 
SEC settlement(5)
— (1,673)(1,673)— — — 
Other (income) expense, net— (263)(263)— (11)(11)
Total adjustments to adjusted EBITDA$5,389 $(180)$5,209 $4,748 $1,838 $6,586 
(1)“Share-based compensation” represents granted share-based compensation in the form of restricted stock unit, stock option and stock appreciation right grants by us to certain of our directors and employees. Although this expense occurred in each measurement period, we have added the expense back in our calculation of adjusted EBITDA because of its noncash impact.
(2)“Reorganization and integration costs” includes costs related to our functional reorganization within our Operations, Technology and Retirement functions as well as duplicate costs related to the outsourcing of back-office operations functions. While we have incurred such expenses in all periods measured, these expenses serve varied reorganization and integration initiatives, each of which is non-recurring. We do not consider these expenses to be part of our core operations.
(3)“Acquisition expenses” includes employee severance, transition and retention expenses, duplicative general and administrative expenses and other professional fees related to acquisitions.
(4)“Business continuity plan” includes incremental compensation and other costs that are directly related to a transition to a hybrid workforce in 2022.
(5)“SEC settlement” represents the amount paid by us pursuant to our settlement with the SEC discussed in Note 12 to our unaudited condensed consolidated financial statements.
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Three Months Ended September 30, 2023Three Months Ended September 30, 2022
(in percentages)CompensationNon-
Compensation
TotalCompensationNon-
Compensation
Total
Share-based compensation(1)
2.3 %— 2.3 %2.5 %— 2.5 %
Reorganization and integration costs(2)
0.6 %0.8 %1.4 %0.5 %1.0 %1.5 %
Acquisition expenses(3)
— 0.1 %0.1 %— 0.2 %0.2 %
Business continuity plan(4)
— — — — — — 
SEC settlement(5)
— (0.9)%(0.9)%— — — 
Other (income) expense, net— (0.1)%(0.1)%— — — 
Total adjustments to adjusted EBITDA margin %2.9 %(0.1 %)2.8 %3.0 %1.2 %4.2 %
Nine Months Ended September 30, 2023Nine Months Ended September 30, 2022
(in thousands)CompensationNon-
Compensation
TotalCompensationNon-
Compensation
Total
Share-based compensation(1)
$12,262 $— $12,262 $10,096 $— $10,096 
Reorganization and integration costs(2)
3,370 4,757 8,127 2,823 5,777 8,600 
Acquisition expenses(3)
100 268 368 (4)1,317 1,313 
Business continuity plan(4)
— (6)(6)(2)236 234 
SEC settlement(5)
— 18,327 18,327 — — — 
Other (income) expense, net— (186)(186)— 195 195 
Total adjustments to adjusted EBITDA$15,732 $23,160 $38,892 $12,913 $7,525 $20,438 

Nine Months Ended September 30, 2023Nine Months Ended September 30, 2022
(in percentages)CompensationNon-
Compensation
TotalCompensationNon-
Compensation
Total
Share-based compensation(1)
2.2 %— 2.2 %2.2 %— 2.2 %
Reorganization and integration costs(2)
0.6 %0.9 %1.5 %0.6 %1.3 %1.9 %
Acquisition expenses(3)
— 0.1 %0.1 %— 0.3 %0.3 %
Business continuity plan(4)
— — — — 0.1 %0.1 %
SEC settlement(5)
— 3.3 %3.3 %— — — 
Other (income) expense, net— — — — — — 
Total adjustments to adjusted EBITDA margin %2.8 %4.3 %7.1 %2.8 %1.7 %4.5 %
(1)“Share-based compensation” represents granted share-based compensation in the form of restricted stock unit, stock option and stock appreciation right grants by us to certain of our directors and employees. Although this expense occurred in each measurement period, we have added the expense back in our calculation of adjusted EBITDA because of its noncash impact.
(2)“Reorganization and integration costs” includes costs related to our functional reorganization within our Operations, Technology and Retirement functions as well as duplicate costs related to the outsourcing of back-office operations functions. While we have incurred such expenses in all periods measured, these expenses serve varied reorganization and integration initiatives, each of which is non-recurring. We do not consider these expenses to be part of our core operations.
(3)“Acquisition expenses” includes employee severance, transition and retention expenses, duplicative general and administrative expenses and other professional fees related to acquisitions.
(4)“Business continuity plan” includes incremental compensation and other costs that are directly related to a transition to a hybrid workforce in 2022.
(5)“SEC settlement” represents the amount paid by us pursuant to our settlement with the SEC discussed in Note 12 to our unaudited condensed consolidated financial statements.
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Adjusted Net Income
Adjusted net income represents net income before: (a) share-based compensation expense, (b) amortization of acquisition-related intangible assets, (c) acquisition and related integration expenses, (d) restructuring and conversion costs and (e) certain other expenses. Reconciled items are tax effected using the income tax rates in effect for the applicable period, adjusted for any potentially non-deductible amounts. We prepared adjusted net income to eliminate the effects of items that we do not consider indicative of our core operating performance. We believe that adjusted net income, viewed in addition to, and not in lieu of, our reported GAAP results, provides useful information to investors regarding our performance and overall results of operations for various reasons, including the following:
non-cash equity grants made to employees at a certain price and point in time do not necessarily reflect how our business is performing at any particular time; as such, share-based compensation expense is not a key measure of our operating performance;
costs associated with acquisitions and related integrations, debt refinancing, restructuring and conversions can vary from period to period and transaction to transaction; as such, expenses associated with these activities are not considered a key measure of our operating performance; and
amortization expenses can vary substantially from company to company and from period to period depending upon each company’s financing and accounting methods, the fair value and average expected life of acquired intangible assets and the method by which assets were acquired; as such, the amortization of intangible assets obtained in acquisitions is not considered a key measure of our operating performance.
Adjusted net income does not purport to be an alternative to net income or cash flows from operating activities. The term adjusted net income is not defined under GAAP, and adjusted net income is not a measure of net income, operating income or any other performance or liquidity measure derived in accordance with GAAP. Therefore, adjusted net income has limitations as an analytical tool and should not be considered in isolation to, or as a substitute for, analysis of our results as reported under GAAP. Some of these limitations are:
adjusted net income does not reflect all cash expenditures, future requirements for capital expenditures or contractual commitments;
adjusted net income does not reflect changes in, or cash requirements for, working capital needs; and
other companies in the financial services industry may calculate adjusted net income differently than we do, limiting its usefulness as a comparative measure.
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Set forth below is a reconciliation from net income, the most directly comparable GAAP financial measure, to adjusted net income for the three and nine months ended September 30, 2023 and 2022.
Three Months Ended September 30, 2023Three Months Ended September 30, 2022
(in thousands)CompensationNon-
Compensation
TotalCompensationNon-
Compensation
Total
Net income$38,385 $30,109 
Acquisition-related amortization(1)
$— $2,180 2,180 $— $1,729 1,729 
Expense adjustments(2)
1,101 83 1,184 825 1,849 2,674 
Share-based compensation4,288 — 4,288 3,923 — 3,923 
Other (income) expense, net— (263)(263)— (11)(11)
Tax effect of adjustments(3)
(1,293)1,540 247 (1,116)(2,335)(3,451)
Adjusted net income$4,096 $3,540 $46,021 $3,632 $1,232 $34,973 

Nine Months Ended September 30, 2023Nine Months Ended September 30, 2022
(in thousands)CompensationNon-
Compensation
TotalCompensationNon-
Compensation
Total
Net income$88,484 $77,668 
Acquisition-related amortization(1)
$— $6,535 6,535 $— $5,186 5,186 
Expense adjustments(2)
3,470 23,346 26,816 2,817 7,330 10,147 
Share-based compensation12,262 — 12,262 10,096 — 10,096 
Other (income) expense, net— (186)(186)— 195 195 
Tax effect of adjustments(3)
(3,776)(3,172)(6,948)(3,035)(4,073)(7,108)
Adjusted net income$11,956 $26,523 $126,963 $9,878 $8,638 $96,184 
(1)Relates to intangible assets established in connection with HTSC’s acquisition of our Company in 2016.
(2)Consists of the adjustments to EBITDA listed in the adjusted EBITDA reconciliation table above other than share-based compensation.
(3)Consists of adjustments to normalize our estimated tax rate in determining adjusted net income.
Components of Results of Operations
Revenue
Asset-Based Revenue
A majority of our revenue is derived from the fees we charge as a percentage of platform assets. We record this revenue as asset-based revenue. Our asset-based revenue varies based on the types of investment solutions and services that financial advisers utilize for their clients. Asset-based revenue accounted for approximately 75.5% and 82.9% of our total revenue for the three months ended September 30, 2023 and 2022, and approximately 74.9% and 90.2% of our total revenue for the nine months ended September 30, 2023 and 2022, respectively. The decrease in asset-based revenue’s proportion of our total revenue was primarily driven by the increase in spread-based revenue during the nine months ended September 30, 2023 as compared to nine months ended September 30, 2022.
Spread-Based Revenue
Our spread-based revenue consists of the fees we earn on cash custodied at ATC, one of our wholly owned subsidiaries and one of several custodians offered on our platform. ATC’s program utilizes third-party banks to place and hold client cash and is paid interest-rate-sensitive fees calculated by reference to such deposits. Spread-based revenue increased in the third quarter of 2023, primarily as a result of the higher interest rate environment. We expect spread-based revenue to continue to increase as interest rates in the United States rise.
Subscription-Based Revenue
Subscription-based revenue consists of revenue recognized from subscription fee arrangements in connection with our financial planning and wealth management software solutions.
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Other Revenue
Other revenue consists primarily of interest earned on operating cash held by us. Other one-time income items are also reported under “Other Revenue”. We expect other revenue to increase in future periods as a result of the continued increases in interest rates in the United States.
Operating Expenses
Asset-Based Expenses
Asset-based expenses primarily relate to costs incurred directly from the generation of asset-based revenue, including strategist, investment manager and sub-advisory fees, custody fees paid to our third-party custodian partners, payments to our broker-dealer partners and business development allowance payments for our premier advisers. These expenses are typically calculated based upon a percentage of the market value of assets held in customer accounts measured as of the end of each fiscal quarter.
Spread-Based Expenses
Our spread-based expenses consist of interest payments to clients and expenses paid to ATC’s third-party administrator for administering ATC’s insured cash deposit program. We expect spread-based expenses to continue to increase as interest rates in the United States rise.
Employee Compensation
Employee compensation expenses include salaries, commissions and bonuses, share-based compensation, benefits and employer-related taxes.
General and Operating Expenses
General and operating expenses include occupancy expenses and expenses relating to trading, events, communications services, research and data services, website and systems development, marketing, legal services and travel and entertainment. We expect general and operating expenses to increase in absolute dollars in future periods as a result of increased costs associated with the anticipated loss of our emerging growth company status and significant increased legal and accounting costs related to compliance with rules and regulations implemented by the SEC and the New York Stock Exchange (the “NYSE”).
Professional Fees
Professional fee expenses primarily relate to the fees associated with the outsourcing of administrative operations functions, audit and legal costs and expenses related to being a publicly traded company.
Depreciation and Amortization
Amortization expense reflects the amortization of our intangible technology assets and our other assets such as trade names, broker-dealer licenses and ATC regulatory status, from the fair value established at the date of our sale to HTSC in 2016, as well as the amortization of the intangible assets we acquired through our acquisitions. Depreciation expense reflects the ongoing cost of annual usage of property and equipment.
Interest Expense
Interest expense reflects the interest paid under the 2022 Credit Agreement, which may fluctuate over time. We expect interest expense to increase in the short term due to the recent increases in interest rates in the United States.
Other (Income) Expense, Net
Other (income) expense, net, represents the expense associated with our equity securities investments, along with the gains and losses from such investments, foreign exchange fluctuations, interest earned on our convertible notes and settlement recognized in connection with regulatory matters.
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Results of Operations
Three Months Ended September 30, 2023 Compared to Three Months Ended September 30, 2022
The following discussion presents an analysis of our results of operations for the three months ended September 30, 2023 and 2022. Where appropriate, we have identified specific events and changes that affect comparability or trends and, where possible and practical, have quantified the impact of such items.
Three months ended September 30,
(in thousands)20232022$ Change% Change
Revenue:
Asset-based revenue$143,840 $128,173 $15,667 12.2 
Spread-based revenue37,329 21,160 16,169 76.4 
Subscription-based revenue3,891 3,126 765 24.5 
Other revenue5,462 2,204 3,258 147.8 
Total revenue190,522 154,663 35,859 23.2 
Operating expenses:
Asset-based expenses43,092 36,476 6,616 18.1 
Spread-based expenses8,492 2,142 6,350 296.5 
Employee compensation46,613 41,589