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x | |||||
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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o | |||||
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Delaware (State or other jurisdiction of incorporation or organization) | 30-0774039 (I.R.S. Employer Identification Number) | |||||||||
1655 Grant Street, Concord, California 94520 (Address of principal executive offices) | ||||||||||
(925) 521-2200 (Registrant’s telephone number, including area code) | ||||||||||
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 |
Large accelerated filer |
| Accelerated filer |
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Non-accelerated filer |
| Smaller reporting company |
| |||||||||
Emerging growth company |
|
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
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•Our revenue may fluctuate from period to period, which could cause our share price to fluctuate. |
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•We operate in an intensely competitive industry, 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. |
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| June 30, 2022 |
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| December 31, 2021 |
| June 30, 2023 | December 31, 2022 | |||||||||||
|
| (unaudited) |
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|
| (unaudited) | |||||||||||
ASSETS |
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|
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|
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| ASSETS | ||||||||||
Current assets: |
|
|
|
|
|
|
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| Current assets: | ||||||||||
Cash and cash equivalents |
| $ | 116,537 |
|
| $ | 76,707 |
| Cash and cash equivalents | $ | 172,818 | $ | 123,274 | ||||||
Restricted cash |
|
| 13,000 |
|
|
| 13,000 |
| Restricted cash | 14,000 | 13,000 | ||||||||
Investments, at fair value |
|
| 13,225 |
|
|
| 14,498 |
| Investments, at fair value | 16,395 | 13,714 | ||||||||
Fees and other receivables, net |
|
| 12,497 |
|
|
| 9,019 |
| Fees and other receivables, net | 20,482 | 20,082 | ||||||||
Income tax receivable, net |
|
| 7,630 |
|
|
| 6,276 |
| Income tax receivable, net | — | 265 | ||||||||
Prepaid expenses and other current assets |
|
| 13,252 |
|
|
| 14,673 |
| Prepaid expenses and other current assets | 16,532 | 16,870 | ||||||||
Total current assets |
|
| 176,141 |
|
|
| 134,173 |
| Total current assets | 240,227 | 187,205 | ||||||||
Property, plant and equipment, net |
|
| 7,916 |
|
|
| 8,015 |
| Property, plant and equipment, net | 7,635 | 8,495 | ||||||||
Capitalized software, net |
|
| 81,364 |
|
|
| 73,701 |
| Capitalized software, net | 100,335 | 89,959 | ||||||||
Other intangible assets, net |
|
| 705,351 |
|
|
| 709,693 |
| Other intangible assets, net | 689,388 | 694,627 | ||||||||
Operating lease right-of-use assets |
|
| 22,576 |
|
|
| 22,469 |
| Operating lease right-of-use assets | 21,289 | 22,002 | ||||||||
Goodwill |
|
| 437,154 |
|
|
| 436,821 |
| Goodwill | 487,292 | 487,225 | ||||||||
Other assets |
|
| 3,103 |
|
|
| 2,090 |
| Other assets | 17,671 | 13,417 | ||||||||
Total assets |
| $ | 1,433,605 |
|
| $ | 1,386,962 |
| Total assets | $ | 1,563,837 | $ | 1,502,930 | ||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY |
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|
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|
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| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||
Current liabilities: |
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|
|
|
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|
|
| Current liabilities: | ||||||||||
Accounts payable |
| $ | 2,246 |
|
| $ | 2,613 |
| Accounts payable | $ | 1,763 | $ | 4,624 | ||||||
Accrued liabilities and other current liabilities |
|
| 50,313 |
|
|
| 56,249 |
| Accrued liabilities and other current liabilities | 78,638 | 69,196 | ||||||||
Income tax payable, net | Income tax payable, net | 13,797 | — | ||||||||||||||||
Total current liabilities |
|
| 52,559 |
|
|
| 58,862 |
| Total current liabilities | 94,198 | 73,820 | ||||||||
Long-term debt, net |
|
| 115,203 |
|
|
| 115,000 |
| Long-term debt, net | 93,496 | 112,138 | ||||||||
Other long-term liabilities |
|
| 15,100 |
|
|
| 16,468 |
| Other long-term liabilities | 17,110 | 15,185 | ||||||||
Long-term portion of operating lease liabilities |
|
| 28,368 |
|
|
| 28,316 |
| Long-term portion of operating lease liabilities | 27,097 | 27,924 | ||||||||
Deferred income tax liabilities, net |
|
| 159,257 |
|
|
| 158,930 |
| Deferred income tax liabilities, net | 147,497 | 147,497 | ||||||||
Total long-term liabilities |
|
| 317,928 |
|
|
| 318,714 |
| Total long-term liabilities | 285,200 | 302,744 | ||||||||
Total liabilities |
|
| 370,487 |
|
|
| 377,576 |
| Total liabilities | 379,398 | 376,564 | ||||||||
Stockholders’ equity: |
|
|
|
|
|
|
|
| Stockholders’ equity: | ||||||||||
Common stock, $0.001 par value (675,000,000 shares authorized and 73,745,114 and 73,562,717 shares issued and outstanding as of June 30, 2022 and December 31, 2021, respectively) |
|
| 74 |
|
|
| 74 |
| |||||||||||
Common stock, $0.001 par value (675,000,000 shares authorized and 74,172,080 and 73,847,596 shares issued and outstanding as of June 30, 2023 and December 31, 2022, respectively) | Common stock, $0.001 par value (675,000,000 shares authorized and 74,172,080 and 73,847,596 shares issued and outstanding as of June 30, 2023 and December 31, 2022, respectively) | 74 | 74 | ||||||||||||||||
Additional paid-in capital |
|
| 935,243 |
|
|
| 929,070 |
| Additional paid-in capital | 950,920 | 942,946 | ||||||||
Retained earnings |
|
| 127,801 |
|
|
| 80,242 |
| Retained earnings | 233,602 | 183,503 | ||||||||
Accumulated other comprehensive loss | Accumulated other comprehensive loss | (157) | (157) | ||||||||||||||||
Total stockholders’ equity |
|
| 1,063,118 |
|
|
| 1,009,386 |
| Total stockholders’ equity | 1,184,439 | 1,126,366 | ||||||||
Total liabilities and stockholders’ equity |
| $ | 1,433,605 |
|
| $ | 1,386,962 |
| Total liabilities and stockholders’ equity | $ | 1,563,837 | $ | 1,502,930 |
|
| Three Months Ended June 30, |
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| Six Months Ended June 30, |
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||||||||
|
| 2022 |
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| 2021 |
|
| 2022 |
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| 2021 |
| 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||||||
Revenue: |
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|
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|
|
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| Revenue: | ||||||||||||||||||||||
Asset-based revenue |
| $ | 139,249 |
|
| $ | 124,690 |
|
| $ | 281,325 |
|
| $ | 240,503 |
| Asset-based revenue | $ | 137,336 | $ | 139,249 | $ | 268,375 | $ | 281,325 | ||||||||||||||
Spread-based revenue |
|
| 7,150 |
|
|
| 2,672 |
|
|
| 9,105 |
|
|
| 5,278 |
| Spread-based revenue | 37,271 | 7,150 | 75,534 | 9,105 | ||||||||||||||||||
Subscription-based revenue |
|
| 3,259 |
|
|
| — |
|
|
| 6,577 |
|
|
| — |
| Subscription-based revenue | 3,693 | 3,259 | 7,237 | 6,577 | ||||||||||||||||||
Other revenue |
|
| 1,549 |
|
|
| 680 |
|
|
| 2,503 |
|
|
| 1,267 |
| Other revenue | 4,932 | 1,549 | 8,648 | 2,503 | ||||||||||||||||||
Total revenue |
|
| 151,207 |
|
|
| 128,042 |
|
|
| 299,510 |
|
|
| 247,048 |
| Total revenue | 183,232 | 151,207 | 359,794 | 299,510 | ||||||||||||||||||
Operating expenses: |
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|
|
|
|
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|
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| Operating expenses: | ||||||||||||||||||||||
Asset-based expenses |
|
| 40,266 |
|
|
| 35,818 |
|
|
| 81,953 |
|
|
| 71,912 |
| Asset-based expenses | 39,344 | 40,266 | 76,778 | 81,953 | ||||||||||||||||||
Spread-based expenses |
|
| 641 |
|
|
| 868 |
|
|
| 1,046 |
|
|
| 1,544 |
| Spread-based expenses | 8,003 | 641 | 14,560 | 1,046 | ||||||||||||||||||
Employee compensation |
|
| 39,973 |
|
|
| 39,447 |
|
|
| 80,263 |
|
|
| 106,749 |
| Employee compensation | 48,099 | 39,973 | 95,010 | 80,263 | ||||||||||||||||||
General and operating expenses |
|
| 22,223 |
|
|
| 16,316 |
|
|
| 44,282 |
|
|
| 33,805 |
| General and operating expenses | 24,354 | 22,223 | 50,043 | 44,282 | ||||||||||||||||||
Professional fees |
|
| 5,494 |
|
|
| 5,018 |
|
|
| 11,227 |
|
|
| 9,278 |
| Professional fees | 8,372 | 5,494 | 13,765 | 11,227 | ||||||||||||||||||
Depreciation and amortization |
|
| 7,711 |
|
|
| 9,730 |
|
|
| 15,180 |
|
|
| 19,201 |
| Depreciation and amortization | 8,684 | 7,711 | 17,112 | 15,180 | ||||||||||||||||||
Total operating expenses |
|
| 116,308 |
|
|
| 107,197 |
|
|
| 233,951 |
|
|
| 242,489 |
| Total operating expenses | 136,856 | 116,308 | 267,268 | 233,951 | ||||||||||||||||||
Interest expense |
|
| 1,488 |
|
|
| 774 |
|
|
| 2,647 |
|
|
| 1,545 |
| Interest expense | 2,137 | 1,488 | 4,484 | 2,647 | ||||||||||||||||||
Other expenses, net |
|
| 78 |
|
|
| (22 | ) |
|
| 206 |
|
|
| (37 | ) | |||||||||||||||||||||||
Other expense (income), net | Other expense (income), net | (288) | 78 | 19,577 | 206 | ||||||||||||||||||||||||||||||||||
Income before income taxes |
|
| 33,333 |
|
|
| 20,093 |
|
|
| 62,706 |
|
|
| 3,051 |
| Income before income taxes | 44,527 | 33,333 | 68,465 | 62,706 | ||||||||||||||||||
Provision for income taxes |
|
| 7,993 |
|
|
| 10,107 |
|
|
| 15,147 |
|
|
| 1,981 |
| Provision for income taxes | 11,650 | 7,993 | 18,366 | 15,147 | ||||||||||||||||||
Net income |
|
| 25,340 |
|
|
| 9,986 |
|
|
| 47,559 |
|
|
| 1,070 |
| Net income | 32,877 | 25,340 | 50,099 | 47,559 | ||||||||||||||||||
Net comprehensive income |
| $ | 25,340 |
|
| $ | 9,986 |
|
| $ | 47,559 |
|
| $ | 1,070 |
| Net comprehensive income | $ | 32,877 | $ | 25,340 | $ | 50,099 | $ | 47,559 | ||||||||||||||
Net income per share attributable to common stockholders: |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net income per share attributable to common stockholders: | ||||||||||||||||||||||
Basic |
| $ | 0.34 |
|
| $ | 0.14 |
|
| $ | 0.65 |
|
| $ | 0.02 |
| Basic | $ | 0.44 | $ | 0.34 | $ | 0.68 | $ | 0.65 | ||||||||||||||
Diluted |
| $ | 0.34 |
|
| $ | 0.14 |
|
| $ | 0.65 |
|
| $ | 0.02 |
| Diluted | $ | 0.44 | $ | 0.34 | $ | 0.67 | $ | 0.65 | ||||||||||||||
Weighted average number of common shares outstanding, basic |
|
| 73,631,588 |
|
|
| 71,922,179 |
|
|
| 73,601,852 |
|
|
| 71,176,386 |
| Weighted average number of common shares outstanding, basic | 73,986,326 | 73,631,588 | 73,938,510 | 73,601,852 | ||||||||||||||||||
Weighted average number of common shares outstanding, diluted |
|
| 73,692,278 |
|
|
| 72,155,068 |
|
|
| 73,651,172 |
|
|
| 71,231,337 |
| Weighted average number of common shares outstanding, diluted | 74,505,158 | 73,692,278 | 74,325,580 | 73,651,172 |
|
| Common stock |
|
| Additional paid-in |
|
| Retained |
|
| Total stockholders’ |
| |||||||||||||||||||||||||||||||||||||||||||
|
| Shares |
|
| Amount |
|
| capital |
|
| earnings |
|
| equity |
| Common stock | Additional paid-in capital | Retained earnings | Accumulated other comprehensive loss | Total stockholders’ equity | |||||||||||||||||||||||||||||||||||
Balance at March 31, 2021 |
|
| 72,459,255 |
|
| $ | 72 |
|
| $ | 883,858 |
|
| $ | 45,655 |
|
| $ | 929,585 |
| |||||||||||||||||||||||||||||||||||
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 9,986 |
|
|
| 9,986 |
| |||||||||||||||||||||||||||||||||||
Share-based compensation |
|
| — |
|
|
| — |
|
|
| 6,676 |
|
|
| — |
|
|
| 6,676 |
| |||||||||||||||||||||||||||||||||||
Issuance of common stock - vesting of restricted stock units |
|
| 81,409 |
|
|
| 1 |
|
|
| — |
|
|
| — |
|
|
| 1 |
| |||||||||||||||||||||||||||||||||||
Balance at June 30, 2021 |
|
| 72,540,664 |
|
| $ | 73 |
|
| $ | 890,534 |
|
| $ | 55,641 |
|
| $ | 946,248 |
| |||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Shares | Amount | Additional paid-in capital | Retained earnings | Accumulated other comprehensive loss | Total stockholders’ equity | |||||||||||||||||||||||||||||
Balance at March 31, 2022 |
|
| 73,594,027 |
|
| $ | 74 |
|
| $ | 932,212 |
|
| $ | 102,461 |
|
| $ | 1,034,747 |
| Balance at March 31, 2022 | 73,594,027 | $ | 74 | |||||||||||||||||||||||||||||||
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 25,340 |
|
|
| 25,340 |
| Net income | — | — | — | 25,340 | — | 25,340 | ||||||||||||||||||||||||||||
Share-based compensation |
|
| — |
|
|
| — |
|
|
| 3,031 |
|
|
| — |
|
|
| 3,031 |
| Share-based compensation | — | — | 3,031 | — | — | 3,031 | ||||||||||||||||||||||||||||
Issuance of common stock - vesting of restricted stock units |
|
| 151,087 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
| Issuance of common stock - vesting of restricted stock units | 151,087 | — | — | — | — | — | ||||||||||||||||||||||||||||
Balance at June 30, 2022 |
|
| 73,745,114 |
|
| $ | 74 |
|
| $ | 935,243 |
|
| $ | 127,801 |
|
| $ | 1,063,118 |
| Balance at June 30, 2022 | 73,745,114 | $ | 74 | $ | 935,243 | $ | 127,801 | $ | — | $ | 1,063,118 | |||||||||||||||||||||||
Balance at March 31, 2023 | Balance at March 31, 2023 | 73,924,212 | $ | 74 | $ | 946,768 | $ | 200,725 | $ | (157) | $ | 1,147,410 | |||||||||||||||||||||||||||||||||||||||||||
Net income | Net income | — | — | — | 32,877 | — | 32,877 | ||||||||||||||||||||||||||||||||||||||||||||||||
Share-based compensation | Share-based compensation | — | — | 4,152 | — | — | 4,152 | ||||||||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock - vesting of restricted stock units | Issuance of common stock - vesting of restricted stock units | 246,403 | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||
Exercise of stock appreciation rights | Exercise of stock appreciation rights | 1,465 | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||
Balance at June 30, 2023 | Balance at June 30, 2023 | 74,172,080 | $ | 74 | $ | 950,920 | $ | 233,602 | $ | (157) | $ | 1,184,439 |
|
| Common stock |
|
| Additional paid-in |
|
| Retained |
|
| Total stockholders’ |
| |||||||||||||||||||||||||||||||||||||||||||
|
| Shares |
|
| Amount |
|
| capital |
|
| earnings |
|
| equity |
| Common stock | Additional paid-in capital | Retained earnings | Accumulated other comprehensive loss | Total stockholders’ equity | |||||||||||||||||||||||||||||||||||
Balance at December 31, 2020 |
|
| 72,459,255 |
|
| $ | 72 |
|
| $ | 850,430 |
|
| $ | 54,571 |
|
| $ | 905,073 |
| |||||||||||||||||||||||||||||||||||
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,070 |
|
|
| 1,070 |
| |||||||||||||||||||||||||||||||||||
Share-based compensation |
|
| — |
|
|
| — |
|
|
| 40,104 |
|
|
| — |
|
|
| 40,104 |
| |||||||||||||||||||||||||||||||||||
Issuance of common stock - vesting of restricted stock units |
|
| 81,409 |
|
|
| 1 |
|
|
| — |
|
|
| — |
|
|
| 1 |
| |||||||||||||||||||||||||||||||||||
Balance at June 30, 2021 |
|
| 72,540,664 |
|
| $ | 73 |
|
| $ | 890,534 |
|
| $ | 55,641 |
|
| $ | 946,248 |
| |||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Shares | Amount | Additional paid-in capital | Retained earnings | Accumulated other comprehensive loss | Total stockholders’ equity | |||||||||||||||||||||||||||||
Balance at December 31, 2021 |
|
| 73,562,717 |
|
| $ | 74 |
|
| $ | 929,070 |
|
| $ | 80,242 |
|
| $ | 1,009,386 |
| Balance at December 31, 2021 | 73,562,717 | $ | 74 | |||||||||||||||||||||||||||||||
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 47,559 |
|
|
| 47,559 |
| Net income | — | — | — | 47,559 | — | 47,559 | ||||||||||||||||||||||||||||
Share-based compensation |
|
| — |
|
|
| — |
|
|
| 6,173 |
|
|
| — |
|
|
| 6,173 |
| Share-based compensation | — | — | 6,173 | — | — | 6,173 | ||||||||||||||||||||||||||||
Issuance of common stock - vesting of restricted stock units |
|
| 182,176 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
| Issuance of common stock - vesting of restricted stock units | 182,176 | — | — | — | — | — | ||||||||||||||||||||||||||||
Exercise of stock options |
|
| 221 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
| Exercise of stock options | 221 | — | — | — | — | — | ||||||||||||||||||||||||||||
Balance at June 30, 2022 |
|
| 73,745,114 |
|
| $ | 74 |
|
| $ | 935,243 |
|
| $ | 127,801 |
|
| $ | 1,063,118 |
| Balance at June 30, 2022 | 73,745,114 | $ | 74 | $ | 935,243 | $ | 127,801 | $ | — | $ | 1,063,118 | |||||||||||||||||||||||
Balance at December 31, 2022 | Balance at December 31, 2022 | 73,847,596 | $ | 74 | $ | 942,946 | $ | 183,503 | $ | (157) | $ | 1,126,366 | |||||||||||||||||||||||||||||||||||||||||||
Net income | Net income | — | — | — | 50,099 | — | 50,099 | ||||||||||||||||||||||||||||||||||||||||||||||||
Share-based compensation | Share-based compensation | — | — | 7,974 | — | — | 7,974 | ||||||||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock - vesting of restricted stock units | Issuance of common stock - vesting of restricted stock units | 269,755 | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||
Exercise of stock options | Exercise of stock options | 52,765 | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||
Exercise of stock appreciation rights | Exercise of stock appreciation rights | 1,964 | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||
Balance at June 30, 2023 | Balance at June 30, 2023 | 74,172,080 | $ | 74 | $ | 950,920 | $ | 233,602 | $ | (157) | $ | 1,184,439 |
|
| Six Months Ended June 30, |
| Six Months Ended June 30, | |||||||||||||||
|
| 2022 |
|
| 2021 |
| 2023 | 2022 | |||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES |
|
|
|
|
|
|
|
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||||
Net income |
| $ | 47,559 |
|
| $ | 1,070 |
| Net income | $ | 50,099 | $ | 47,559 | ||||||
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||
Depreciation and amortization |
|
| 15,180 |
|
|
| 19,201 |
| Depreciation and amortization | 17,112 | 15,180 | ||||||||
Interest |
|
| 407 |
|
|
| 370 |
| |||||||||||
Deferred income taxes |
|
| — |
|
|
| 226 |
| |||||||||||
Interest (income) expense, net | Interest (income) expense, net | (45) | 407 | ||||||||||||||||
Share-based compensation |
|
| 6,173 |
|
|
| 40,104 |
| Share-based compensation | 7,974 | 6,173 | ||||||||
Debt acquisition write-down |
|
| 130 |
|
|
| — |
| |||||||||||
Debt acquisition cost write-down | Debt acquisition cost write-down | 92 | 130 | ||||||||||||||||
Changes in certain assets and liabilities: |
|
|
|
|
|
|
|
| Changes in certain assets and liabilities: | ||||||||||
Fees and other receivables, net |
|
| (3,145 | ) |
|
| 47 |
| Fees and other receivables, net | (863) | (3,145) | ||||||||
Receivables from related party |
|
| (333 | ) |
|
| (43 | ) | Receivables from related party | 480 | (333) | ||||||||
Prepaid expenses and other current assets |
|
| 3,887 |
|
|
| 1,913 |
| Prepaid expenses and other current assets | 2,954 | 3,887 | ||||||||
Accounts payable, accrued liabilities and other current liabilities |
|
| (13,236 | ) |
|
| (5,220 | ) | Accounts payable, accrued liabilities and other current liabilities | 13,614 | (13,236) | ||||||||
Income tax receivable and payable, net |
|
| (1,354 | ) |
|
| (4,383 | ) | Income tax receivable and payable, net | 14,062 | (1,354) | ||||||||
Net cash provided by operating activities |
|
| 55,268 |
|
|
| 53,285 |
| Net cash provided by operating activities | 105,479 | 55,268 | ||||||||
CASH FLOWS FROM INVESTING ACTIVITIES |
|
|
|
|
|
|
|
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||||
Purchase of Adhesion Wealth | Purchase of Adhesion Wealth | (3,000) | — | ||||||||||||||||
Purchase of investments |
|
| (1,780 | ) |
|
| (1,927 | ) | Purchase of investments | (1,528) | (1,780) | ||||||||
Sale of investments |
|
| 361 |
|
|
| 174 |
| Sale of investments | 257 | 361 | ||||||||
Purchase of property and equipment |
|
| (1,222 | ) |
|
| (421 | ) | Purchase of property and equipment | (469) | (1,222) | ||||||||
Purchase of computer software |
|
| (17,180 | ) |
|
| (16,974 | ) | Purchase of computer software | (20,920) | (17,180) | ||||||||
Purchase of convertible notes | Purchase of convertible notes | (4,275) | — | ||||||||||||||||
Net cash used in investing activities |
|
| (19,821 | ) |
|
| (19,148 | ) | Net cash used in investing activities | (29,935) | (19,821) | ||||||||
CASH FLOWS FROM FINANCING ACTIVITIES |
|
|
|
|
|
|
|
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||||
Proceeds from revolving credit facility draw down |
|
| — |
|
|
| 75,000 |
| |||||||||||
Proceeds from issuance of long-term debt, net |
|
| 122,508 |
|
|
| — |
| Proceeds from issuance of long-term debt, net | — | 122,508 | ||||||||
Payments on revolving credit facility |
|
| (115,000 | ) |
|
| — |
| Payments on revolving credit facility | — | (115,000) | ||||||||
Payments on term loan |
|
| (3,125 | ) |
|
| — |
| Payments on term loan | (25,000) | (3,125) | ||||||||
Net cash provided by financing activities |
|
| 4,383 |
|
|
| 75,000 |
| |||||||||||
Net cash (used in) provided by financing activities | Net cash (used in) provided by financing activities | (25,000) | 4,383 | ||||||||||||||||
Net change in cash, cash equivalents, and restricted cash |
|
| 39,830 |
|
|
| 109,137 |
| Net change in cash, cash equivalents, and restricted cash | 50,544 | 39,830 | ||||||||
Cash, cash equivalents, and restricted cash at beginning of period |
|
| 89,707 |
|
|
| 81,619 |
| Cash, cash equivalents, and restricted cash at beginning of period | 136,274 | 89,707 | ||||||||
Cash, cash equivalents, and restricted cash at end of period |
| $ | 129,537 |
|
| $ | 190,756 |
| Cash, cash equivalents, and restricted cash at end of period | $ | 186,818 | $ | 129,537 | ||||||
SUPPLEMENTAL CASH FLOW INFORMATION |
|
|
|
|
|
|
|
| SUPPLEMENTAL CASH FLOW INFORMATION | ||||||||||
Income taxes paid |
| $ | 16,905 |
|
| $ | 7,672 |
| |||||||||||
Income taxes paid, net | Income taxes paid, net | $ | 4,298 | $ | 16,905 | ||||||||||||||
Interest paid |
| $ | 1,376 |
|
| $ | 985 |
| Interest paid | $ | 5,736 | $ | 1,376 | ||||||
Non-cash operating activities: |
|
|
|
|
|
|
|
| |||||||||||
Non-cash operating and investing activities: | Non-cash operating and investing activities: | ||||||||||||||||||
Non-cash changes to right-of-use assets |
| $ | 2,161 |
|
| $ | (2,140 | ) | Non-cash changes to right-of-use assets | $ | 1,795 | $ | 2,161 | ||||||
Non-cash changes to lease liabilities |
| $ | 2,161 |
|
| $ | (2,140 | ) | Non-cash changes to lease liabilities | $ | 1,795 | $ | 2,161 |
“Company.”
strategies.
2022.
The COVID-19 pandemic continues to evolve and has adversely impacted global commercial activities. Management expects COVID-19 related changes in market and investor behaviors to continue to impact our asset- and spread-based revenue. However, given the uncertainty around the duration and extent of the COVID-19 pandemic, management cannot predict the impact on the Company’s results of operations, financial condition or liquidity in subsequent periods.
Revenues
Recent Accounting Pronouncements – Not Yet Adopted
In August 2021, the FASB issued ASU No. 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. The amendments in this Update require that an entity (acquirer) recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606. At the acquisition date, an acquirer should account for the related revenue contracts in accordance with Topic 606 as if it had originated the contracts. The guidance is effective for the Company beginning in the fiscal year ending December 31, 2023 and will be applied prospectively upon adoption.
2022, respectively.
|
| June 30, 2022 |
|
| December 31, 2021 |
| June 30, 2023 | December 31, 2022 | |||||||||||
Prepaid expenses |
| $ | 8,057 |
|
| $ | 9,355 |
| Prepaid expenses | $ | 10,778 | $ | 11,697 | ||||||
Operating lease right-of-use assets |
|
| 4,199 |
|
|
| 4,198 |
| Operating lease right-of-use assets | 4,679 | 4,387 | ||||||||
Other |
|
| 996 |
|
|
| 1,120 |
| Other | 1,075 | 786 | ||||||||
Total |
| $ | 13,252 |
|
| $ | 14,673 |
| Total | $ | 16,532 | $ | 16,870 |
Adhesion Wealth
Acquisitioninternal restructuring of Adhesion Wealth Advisor Solutions,and Atria whereby Adhesion Wealth was merged out of existence and Atria became a direct subsidiary of AssetMark Financial Holdings, Inc.
On June 13, 2022,, and will continue to do business as Adhesion Wealth.
9
AssetMark Financial Holdings, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
2023.
June 30, 2022 |
| Gross carrying amount |
|
| Accumulated amortization |
|
| Net carrying amount |
|
| Estimated remaining useful life | |||
Indefinite-lived intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Broker-dealer relationships |
| $ | 570,480 |
|
| $ | — |
|
| $ | 570,480 |
|
|
|
Voyant enterprise distribution channel customer relationships |
|
| 32,100 |
|
|
| — |
|
|
| 32,100 |
|
|
|
Definite-lived intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade names |
|
| 45,830 |
|
|
| (12,985 | ) |
|
| 32,845 |
|
| 14 years |
Broker-dealer license |
|
| 11,550 |
|
|
| (3,273 | ) |
|
| 8,277 |
|
| 14 years |
ATC regulatory status |
|
| 23,300 |
|
|
| (6,602 | ) |
|
| 16,698 |
|
| 14 years |
Voyant non-enterprise distribution channel customer relationships |
|
| 9,500 |
|
|
| (679 | ) |
|
| 8,821 |
|
| 13 years |
GFPC adviser relationships |
|
| 14,250 |
|
|
| (3,266 | ) |
|
| 10,984 |
|
| 11 years |
OBS adviser and trust relationships |
|
| 9,500 |
|
|
| (1,754 | ) |
|
| 7,746 |
|
| 10 years |
Voyant trade name |
|
| 3,200 |
|
|
| (291 | ) |
|
| 2,909 |
|
| 10 years |
Voyant technology |
|
| 16,000 |
|
|
| (1,778 | ) |
|
| 14,222 |
|
| 8 years |
Voyant non-compete agreement |
|
| 400 |
|
|
| (131 | ) |
|
| 269 |
|
| 2 years |
Total |
| $ | 736,110 |
|
| $ | (30,759 | ) |
| $ | 705,351 |
|
|
|
June 30, 2023 | Gross carrying amount | Accumulated amortization | Net carrying amount | ||||||||||||||
Indefinite-lived intangible assets: | |||||||||||||||||
Broker-dealer relationships | $ | 570,480 | $ | — | $ | 570,480 | |||||||||||
Enterprise distribution channel customer relationships | 17,500 | — | 17,500 | ||||||||||||||
Definite-lived intangible assets: | |||||||||||||||||
Trade names | 50,530 | (15,939) | 34,591 | ||||||||||||||
Technology | 19,600 | (4,206) | 15,394 | ||||||||||||||
Customer relationships | 36,450 | (8,394) | 28,056 | ||||||||||||||
Regulatory licenses | 34,850 | (11,616) | 23,234 | ||||||||||||||
Non-compete agreements | 400 | (267) | 133 | ||||||||||||||
Total | $ | 729,810 | $ | (40,422) | $ | 689,388 |
December 31, 2021 |
| Gross carrying amount |
|
| Accumulated amortization |
|
| Net carrying amount |
|
| Estimated remaining useful life | |||
Indefinite-lived intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Broker-dealer relationships |
| $ | 570,480 |
|
| $ | — |
|
| $ | 570,480 |
|
|
|
Voyant enterprise distribution channel customer relationships |
|
| 32,100 |
|
|
| — |
|
|
| 32,100 |
|
|
|
Definite-lived intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade names |
|
| 45,830 |
|
|
| (11,839 | ) |
|
| 33,991 |
|
| 15 years |
Broker-dealer license |
|
| 11,550 |
|
|
| (2,984 | ) |
|
| 8,566 |
|
| 15 years |
ATC regulatory status |
|
| 23,300 |
|
|
| (6,019 | ) |
|
| 17,281 |
|
| 15 years |
Voyant non-enterprise distribution channel customer relationships |
|
| 9,500 |
|
|
| (339 | ) |
|
| 9,161 |
|
| 14 years |
GFPC adviser relationships |
|
| 14,250 |
|
|
| (2,757 | ) |
|
| 11,493 |
|
| 11 years |
OBS adviser and trust relationships |
|
| 9,500 |
|
|
| (1,378 | ) |
|
| 8,122 |
|
| 11 years |
Voyant trade name |
|
| 3,200 |
|
|
| (145 | ) |
|
| 3,055 |
|
| 11 years |
Voyant technology |
|
| 16,000 |
|
|
| (889 | ) |
|
| 15,111 |
|
| 9 years |
Voyant non-compete agreement |
|
| 400 |
|
|
| (67 | ) |
|
| 333 |
|
| 3 years |
Total |
| $ | 736,110 |
|
| $ | (26,417 | ) |
| $ | 709,693 |
|
|
|
December 31, 2022 | Gross carrying amount | Accumulated amortization | Net carrying amount | ||||||||||||||
Indefinite-lived intangible assets: | |||||||||||||||||
Broker-dealer relationships | $ | 570,480 | $ | — | $ | 570,480 | |||||||||||
Enterprise distribution channel customer relationships | 17,500 | — | 17,500 | ||||||||||||||
Definite-lived intangible assets: | |||||||||||||||||
Trade names | 50,530 | (14,573) | 35,957 | ||||||||||||||
Technology | 19,600 | (2,717) | 16,883 | ||||||||||||||
Customer relationships | 36,450 | (6,948) | 29,502 | ||||||||||||||
Regulatory licenses | 34,850 | (10,745) | 24,105 | ||||||||||||||
Non-compete agreements | 400 | (200) | 200 | ||||||||||||||
Total | $ | 729,810 | $ | (35,183) | $ | 694,627 |
The weighted average estimated remaining useful life was
10
AssetMark Financial Holdings, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
2023.
Remainder of 2022 |
| $ | 4,342 |
| |||||
2023 |
|
| 8,684 |
| |||||
Remainder of 2023 | Remainder of 2023 | $ | 5,245 | ||||||
2024 |
|
| 8,617 |
| 2024 | 10,425 | |||
2025 |
|
| 8,551 |
| 2025 | 10,308 | |||
2026 |
|
| 8,551 |
| 2026 | 9,158 | |||
2027 and thereafter |
|
| 64,026 |
| |||||
2027 | 2027 | 9,158 | |||||||
2028 and thereafter | 2028 and thereafter | 57,114 | |||||||
Total |
| $ | 102,771 |
| Total | $ | 101,408 |
|
| June 30, 2022 |
|
| December 31, 2021 |
| |||||||||||||
June 30, 2023 | December 31, 2022 | ||||||||||||||||||
Accrual for SEC matter | Accrual for SEC matter | $ | 20,000 | $ | — | ||||||||||||||
Accrued bonus |
| $ | 11,106 |
|
| $ | 20,718 |
| Accrued bonus | 13,757 | 19,813 | ||||||||
Current portion of long-term debt, net |
|
| 6,117 |
|
|
| — |
| |||||||||||
Compensation and benefits payable |
|
| 5,216 |
|
|
| 7,182 |
| Compensation and benefits payable | 8,430 | 13,403 | ||||||||
Asset-based payables | Asset-based payables | 4,800 | 840 | ||||||||||||||||
Current portion of operating lease liabilities |
|
| 4,039 |
|
|
| 4,223 |
| Current portion of operating lease liabilities | 4,748 | 4,485 | ||||||||
Reserve for uncertain tax positions |
|
| 3,695 |
|
|
| 3,695 |
| Reserve for uncertain tax positions | 4,136 | 4,136 | ||||||||
Asset-based payables |
|
| 2,044 |
|
|
| 1,709 |
| |||||||||||
Current portion of long-term debt, net | Current portion of long-term debt, net | — | 6,123 | ||||||||||||||||
Other accrued expenses |
|
| 18,096 |
|
|
| 18,722 |
| Other accrued expenses | 22,767 | 20,396 | ||||||||
Total |
| $ | 50,313 |
|
| $ | 56,249 |
| Total | $ | 78,638 | $ | 69,196 |
|
| June 30, 2022 |
|
| December 31, 2021 |
| June 30, 2023 | December 31, 2022 | |||||||||||
Deferred compensation plan liability |
| $ | 13,123 |
|
| $ | 14,379 |
| Deferred compensation plan liability | $ | 15,961 | $ | 13,602 | ||||||
Contractor liability |
|
| 1,531 |
|
|
| 1,602 |
| |||||||||||
Other |
|
| 446 |
|
|
| 487 |
| Other | 1,149 | 1,583 | ||||||||
Total |
| $ | 15,100 |
|
| $ | 16,468 |
| Total | $ | 17,110 | $ | 15,185 |
|
| June 30, 2022 |
| June 30, 2023 | |||||||||||||||||||||||||||||||||||
|
| Fair Value |
|
| Level I |
|
| Level II |
|
| Level III |
| Fair Value | Level I | Level II | Level III | |||||||||||||||||||||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Assets: | ||||||||||||||||||||||
Equity securities investments(1) |
| $ | 102 |
|
| $ | 102 |
|
| $ | — |
|
| $ | — |
| |||||||||||||||||||||||
Assets to fund deferred compensation liability(2) |
|
| 13,123 |
|
|
| 13,123 |
|
|
| — |
|
|
| — |
| |||||||||||||||||||||||
Equity securities investments | Equity securities investments | $ | 434 | $ | 434 | $ | — | $ | — | ||||||||||||||||||||||||||||||
Assets to fund deferred compensation liability | Assets to fund deferred compensation liability | 15,961 | 15,961 | — | — | ||||||||||||||||||||||||||||||||||
Convertible notes receivable | Convertible notes receivable | 15,058 | — | — | 15,058 | ||||||||||||||||||||||||||||||||||
Total assets |
| $ | 13,225 |
|
| $ | 13,225 |
|
| $ | — |
|
| $ | — |
| Total assets | $ | 31,453 | $ | 16,395 | $ | — | $ | 15,058 | ||||||||||||||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Liabilities: | ||||||||||||||||||||||
Deferred compensation liability(3) |
| $ | 13,123 |
|
| $ | 13,123 |
|
| $ | — |
|
| $ | — |
| |||||||||||||||||||||||
Deferred compensation liability | Deferred compensation liability | $ | 15,961 | $ | 15,961 | $ | — | $ | — | ||||||||||||||||||||||||||||||
Total liabilities |
| $ | 13,123 |
|
| $ | 13,123 |
|
| $ | — |
|
| $ | — |
| Total liabilities | $ | 15,961 | $ | 15,961 | $ | — | $ | — |
11
December 31, 2022 | |||||||||||||||||||||||
Fair Value | Level I | Level II | Level III | ||||||||||||||||||||
Assets: | |||||||||||||||||||||||
Equity securities investments | $ | 112 | $ | 112 | $ | — | $ | — | |||||||||||||||
Assets to fund deferred compensation liability | 13,602 | 13,602 | — | — | |||||||||||||||||||
Convertible notes receivable | 10,352 | — | — | 10,352 | |||||||||||||||||||
Total assets | $ | 24,066 | $ | 13,714 | $ | — | $ | 10,352 | |||||||||||||||
Liabilities: | |||||||||||||||||||||||
Deferred compensation liability | $ | 13,602 | $ | 13,602 | $ | — | $ | — | |||||||||||||||
Total liabilities | $ | 13,602 | $ | 13,602 | $ | — | $ | — |
|
| December 31, 2021 |
| |||||||||||||
|
| Fair Value |
|
| Level I |
|
| Level II |
|
| Level III |
| ||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities investments(1) |
| $ | 119 |
|
| $ | 119 |
|
| $ | — |
|
| $ | — |
|
Assets to fund deferred compensation liability(2) |
|
| 14,379 |
|
|
| 14,379 |
|
|
| — |
|
|
| — |
|
Total assets |
| $ | 14,498 |
|
| $ | 14,498 |
|
| $ | — |
|
| $ | — |
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred compensation liability(3) |
| $ | 14,379 |
|
| $ | 14,379 |
|
| $ | — |
|
| $ | — |
|
Total liabilities |
| $ | 14,379 |
|
| $ | 14,379 |
|
| $ | — |
|
| $ | — |
|
|
|
|
|
|
|
|
| Three Months Ended June 30, |
|
| Six Months Ended June 30, |
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||||||
Strategist and manager fees |
| $ | 35,650 |
|
| $ | 31,171 |
|
| $ | 72,117 |
|
| $ | 59,990 |
| Strategist and manager fees | $ | 34,951 | $ | 35,650 | $ | 68,155 | $ | 72,117 | ||||||||||||||
Custody fees | Custody fees | 1,566 | 1,816 | 3,069 | 3,579 | ||||||||||||||||||||||||||||||||||
Premier broker-dealer fees |
|
| 1,675 |
|
|
| 1,718 |
|
|
| 3,783 |
|
|
| 5,600 |
| Premier broker-dealer fees | 1,430 | 1,675 | 2,742 | 3,783 | ||||||||||||||||||
Custody fees |
|
| 1,816 |
|
|
| 1,625 |
|
|
| 3,579 |
|
|
| 3,434 |
| |||||||||||||||||||||||
Fund advisory fees |
|
| 1,125 |
|
|
| 1,080 |
|
|
| 2,213 |
|
|
| 2,158 |
| Fund advisory fees | 1,291 | 1,125 | 2,644 | 2,213 | ||||||||||||||||||
Marketing allowance |
|
| — |
|
|
| 224 |
|
|
| 261 |
|
|
| 729 |
| |||||||||||||||||||||||
Other |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1 |
| Other | 106 | — | 168 | 261 | ||||||||||||||||||
Total |
| $ | 40,266 |
|
| $ | 35,818 |
|
| $ | 81,953 |
|
| $ | 71,912 |
| Total | $ | 39,344 | $ | 40,266 | $ | 76,778 | $ | 81,953 |
12
AssetMark Financial Holdings, Inc.
Notes On October 25, 2022, the Company entered into an amendment (the “ESG Amendment”) to Unaudited Condensed Consolidated Financial Statements
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.
Interest expense was $1,488 The ESG Amendment provides for up to (i) 0.05% positive or negative adjustments to the applicable margin and $774 for(ii) 0.01% positive or negative adjustments to the three months ended June 30, 2022 and 2021, respectively,and $2,647 and $1,545 for the six months ended June 30, 2022 and 2021, respectively.
Note 11. Leases
The Company determines if an arrangement is a lease at inception. Operating leases are includedcommitment fee, in other current assets, operating lease right-of-use (“ROU”) assets, accrued liabilities and other current liabilities, and long-term portion of operating lease liabilitieseach case, based on the Company’s condensed consolidated balance sheets. The Company does not have material finance leases. ROU assets representperformance against the Company’s rightKPIs, and includes customary affirmative covenants and representations and warranties with respect to use an underlying asset for the lease term and lease liabilities represent the Company’s obligations to make payments arising from the lease. Operating lease ROU assets and liabilities are recognized at the commencement date based on the present value of lease payments over the remaining lease term.
The majority of the Company's leases are for corporate facilities that contain terms for renewal and extension of the lease agreement. The exercise of lease renewal options is generally at the Company’s sole discretion. The Company includes the lease extensions when it is reasonably certainKPIs.
The Company has elected to use the practical expedient to exclude the non-lease component from the lease for all asset classes. Operating lease costs of $1,316 and $1,241, and related variable lease costs of $165 and $149, were recorded in general and operating expenses for the three months ended June 30, 2022 and 2021, respectively. Operating lease costs of $2,627 and $2,544, and related variable lease costs of $343 and $346, were recorded in general and operating expenses for the six months ended June 30, 2022 and 2021, respectively. The Company’s leases had a weighted-average lease term of 6.2 years and 6.8 years, and used a weighted-average discount rate of 4.34% and 3.65% as of June 30, 2022 and 2021, respectively. The Company paid $1,404 and $1,299 for amounts included in the measurement of lease liabilities for the three months ended June 30, 2022 and 2021, respectively, and $2,867 and $2,600 for the six months ended June 30, 2022 and 2021, respectively.
Future minimum lease payments under non-cancellable leases, as of June 30, 2022, were as follows:
Remainder of 2022 |
| $ | 2,807 |
|
2023 |
|
| 5,940 |
|
2024 |
|
| 6,339 |
|
2025 |
|
| 6,151 |
|
2026 |
|
| 5,662 |
|
2027 and thereafter |
|
| 10,883 |
|
Total future minimum lease payments |
|
| 37,782 |
|
Less: imputed interest |
|
| (5,375 | ) |
Total operating lease liabilities |
| $ | 32,407 |
|
Restricted Stock Awards
Immediately following the pricing of the IPO, the Company issued an aggregate number of restricted stock awards (“RSAs”) equal to 6,309,049 shares of the Company’s common stock to the Company’s officers, certain sales employees and independent director of the board.
Subject to the recipient’s continued employment through the vesting date, 50% of these RSAs vested in 3 (3) equal installments on the third, fourth and fifth anniversaries of November 18, 2016, and 50% vested subject to the recipient’s continued employment through February 1, 2021 and the satisfaction of a performance-based vesting condition. The performance condition for these RSAs was deemed to have been satisfied in connection with the IPO. In the event that the vesting conditions were not satisfied for any portion of an award, the shares covered by such RSAs transferred automatically to the Company. On November 18, 2021, the last installment of outstanding unvested RSAs vested.
Share-based compensation expense related to the RSAs was $0 and $4,396 for the three months ended June 30, 2022 and 2021, respectively, and $0 and $34,970 for the six months ended June 30, 2022 and 2021, respectively.
On July 18, 2022, the last installment of outstanding options vested.
the board.
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
credits, permanent non-deductible items and the accrual related to the SEC matter.
Unaudited Condensed Consolidated Financial Statements
15
AssetMark Financial Holdings, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
|
| Three Months Ended June 30, |
|
| Six Months Ended June 30, |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Net income attributable to common stockholders |
| $ | 25,340 |
|
| $ | 9,986 |
|
| $ | 47,559 |
|
| $ | 1,070 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares of common stock used in computing net income per share attributable to common stockholders, basic |
|
| 73,631,588 |
|
|
| 71,922,179 |
|
|
| 73,601,852 |
|
|
| 71,176,386 |
|
Net income per share attributable to common stockholders, basic |
| $ | 0.34 |
|
| $ | 0.14 |
|
| $ | 0.65 |
|
| $ | 0.02 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares used in computing net income per share attributable to common stockholders, basic |
|
| 73,631,588 |
|
|
| 71,922,179 |
|
|
| 73,601,852 |
|
|
| 71,176,386 |
|
Effect of dilutive shares: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unvested RSAs |
|
| — |
|
|
| 136,903 |
|
|
| — |
|
|
| — |
|
Unvested RSUs |
|
| 60,690 |
|
|
| 95,986 |
|
|
| 49,320 |
|
|
| 54,951 |
|
Diluted number of weighted-average shares outstanding |
|
| 73,692,278 |
|
|
| 72,155,068 |
|
|
| 73,651,172 |
|
|
| 71,231,337 |
|
Net income per share attributable to common stockholders, diluted |
| $ | 0.34 |
|
| $ | 0.14 |
|
| $ | 0.65 |
|
| $ | 0.02 |
|
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
Net income attributable to common stockholders | $ | 32,877 | $ | 25,340 | $ | 50,099 | $ | 47,559 | |||||||||||||||
Weighted average number of shares of common stock used in computing net income per share attributable to common stockholders, basic | 73,986,326 | 73,631,588 | 73,938,510 | 73,601,852 | |||||||||||||||||||
Net income per share attributable to common stockholders, basic | $ | 0.44 | $ | 0.34 | $ | 0.68 | $ | 0.65 | |||||||||||||||
Weighted average shares used in computing net income per share attributable to common stockholders, basic | 73,986,326 | 73,631,588 | 73,938,510 | 73,601,852 | |||||||||||||||||||
Effect of dilutive shares: | |||||||||||||||||||||||
Stock options | 120,681 | — | 112,271 | — | |||||||||||||||||||
Unvested RSUs | 326,913 | 60,690 | 235,820 | 49,320 | |||||||||||||||||||
SARs | 71,238 | — | 38,979 | — | |||||||||||||||||||
Diluted number of weighted-average shares outstanding | 74,505,158 | 73,692,278 | 74,325,580 | 73,651,172 | |||||||||||||||||||
Net income per share attributable to common stockholders, diluted | $ | 0.44 | $ | 0.34 | $ | 0.67 | $ | 0.65 |
Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 Stock options 803,306 900,271 803,306 900,271 SARs 2,659,388 1,726,313 2,659,388 1,726,313 RSUs 769,095 200,471 406,897 200,471 RSAs — — — 646,884 Total 4,231,789 2,827,055 3,869,591 3,473,939 advice delivery themselves. 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 June 30, 2023 was $60.4 million, compared to $49.6 million for the quarter ended June 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 $100.8 billion as of June 30, 2023, up 22.7% from $82.1 billion as of June 30, 2022. margin Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 Operational metrics: Platform assets (at period-beginning) (millions of dollars) $ 90,818 $ 78,880 $ 93,487 $ 74,520 Net flows (millions of dollars) 1,363 2,228 3,498 4,155 Market impact net of fees (millions of dollars) (10,054 ) 3,487 (14,858 ) 5,919 Platform assets (at period-end) (millions of dollars) $ 82,127 $ 84,594 $ 82,127 $ 84,594 Net flows lift (% of beginning-of-year platform assets) 1.5 % 3.0 % 3.7 % 5.6 % Advisers (at period-end) 8,688 8,496 8,688 8,496 Engaged advisers (at period-end) 2,663 2,691 2,663 2,691 Assets from engaged advisers (at period-end) (millions of dollars) $ 74,994 $ 77,352 $ 74,994 $ 77,352 Households (at period-end) 220,172 196,474 220,172 196,474 New producing advisers 193 201 388 395 Production lift from existing advisers (annualized %) 17.4 % 26.6 % 18.1 % 24.2 % Assets in custody at ATC (at period-end) (millions of dollars) $ 63,055 $ 63,394 $ 63,055 $ 63,394 ATC client cash (at period-end) (millions of dollars) $ 3,700 $ 2,590 $ 3,700 $ 2,590 Financial metrics: Total revenue (millions of dollars) $ 151.2 $ 128.0 $ 299.5 $ 247.0 Net income (millions of dollars) $ 25.3 $ 10.0 $ 47.6 $ 1.1 Net income margin (%) 16.8 % 7.8 % 15.9 % 0.4 % Capital expenditure (millions of dollars) $ 10.0 $ 9.2 $ 18.4 $ 17.4 Non-GAAP financial metrics: Adjusted EBITDA (millions of dollars) $ 49.6 $ 40.0 $ 94.1 $ 74.1 Adjusted EBITDA margin (%) 32.8 % 31.3 % 31.4 % 30.0 % Adjusted net income (millions of dollars) $ 32.4 $ 26.6 $ 61.2 $ 48.7 Platform Assets Production Lift from Existing Advisers (Annualized) Company (“ATC”). •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 •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 •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 Three Months Ended June 30, Three Months Ended June 30, (in thousands except for percentages) 2022 2021 2022 2021 Net income $ 25,340 $ 9,986 16.8 % 7.8 % Provision for income taxes 7,993 10,107 5.3 % 7.9 % Interest income (227 ) (73 ) (0.2 )% (0.1 )% Interest expense 1,488 774 1.0 % 0.6 % Depreciation and amortization 7,711 9,730 5.1 % 7.6 % EBITDA $ 42,305 $ 30,524 28.0 % 23.8 % Share-based compensation(1) 3,031 6,676 2.0 % 5.2 % Reorganization and integration costs(2) 3,313 1,283 2.2 % 1.0 % Acquisition expenses(3) 799 1,471 0.5 % 1.2 % Business continuity plan(4) 105 61 0.1 % 0.1 % Office closures(5) — 46 — — Other expense, net 78 (22 ) 0.1 % — Adjusted EBITDA $ 49,631 $ 40,039 32.9 % 31.3 % Six Months Ended June 30, Six Months Ended June 30, (in thousands except for percentages) 2022 2021 2022 2021 Net income $ 47,559 $ 1,070 15.9 % 0.4 % Provision for income taxes 15,147 1,981 5.1 % 0.8 % Interest income (258 ) (98 ) (0.1 )% — Interest expense 2,647 1,545 0.9 % 0.6 % Amortization/depreciation 15,180 19,201 5.1 % 7.8 % EBITDA $ 80,275 $ 23,699 26.9 % 9.6 % Share-based compensation(1) 6,173 40,104 2.1 % 16.2 % Reorganization and integration costs(2) 6,319 5,779 2.1 % 2.3 % Acquisition expenses(3) 934 4,288 0.3 % 1.7 % Business continuity plan(4) 220 132 0.1 % 0.1 % Office closures(5) — 167 — 0.1 % Other expenses 206 (37 ) 0.1 % — Adjusted EBITDA $ 94,127 $ 74,132 31.6 % 30.0 % Three Months Ended June 30, 2022 Three Months Ended June 30, 2021 (in thousands) Compensation Non- Compensation Total Compensation Non- Compensation Total Share-based compensation(1) $ 3,031 $ — $ 3,031 $ 6,676 $ — $ 6,676 Reorganization and integration costs(2) 1,209 2,104 3,313 726 557 1,283 Acquisition expenses(3) — 799 799 509 962 1,471 Business continuity plan(4) (2 ) 107 105 12 49 61 Office closures(5) — — — — 46 46 Other expenses, net — 78 78 — (22 ) (22 ) Total adjustments to adjusted EBITDA $ 4,238 $ 3,088 $ 7,326 $ 7,923 $ 1,592 $ 9,515 Three Months Ended June 30, 2022 Three Months Ended June 30, 2021 (in percentages) Compensation Non- Compensation Total Compensation Non- Compensation Total Share-based compensation(1) 2.0 % — 2.0 % 5.2 % — 5.2 % Reorganization and integration costs(2) 0.8 % 1.4 % 2.2 % 0.6 % 0.4 % 1.0 % Acquisition expenses(3) — 0.5 % 0.5 % 0.4 % 0.7 % 1.1 % Business continuity plan(4) — 0.1 % 0.1 % — — — Office closures(5) — — — — — — Other expenses, net — 0.1 % 0.1 % — — — Total adjustments to adjusted EBITDA margin % 2.8 % 2.1 % 4.9 % 6.2 % 1.1 % 7.3 % Six Months Ended June 30, 2022 Six Months Ended June 30, 2021 (in thousands) Compensation Non- Compensation Total Compensation Non- Compensation Total Share-based compensation(1) $ 6,173 $ — $ 6,173 $ 40,104 $ — $ 40,104 Reorganization and integration costs(2) 1,995 4,324 6,319 2,933 2,846 5,779 Acquisition expenses(3) — 934 934 1,225 3,063 4,288 Business continuity plan(4) (2 ) 222 220 12 120 132 Office closures(5) — — — — 167 167 Other expenses — 206 206 — (37 ) (37 ) Total adjustments to adjusted EBITDA $ 8,166 $ 5,686 $ 13,852 $ 44,274 $ 6,159 $ 50,433 Six Months Ended June 30, 2022 Six Months Ended June 30, 2021 (in percentages) Compensation Non- Compensation Total Compensation Non- Compensation Total Share-based compensation(1) 2.1 % — 2.1 % 16.2 % — 16.2 % Reorganization and integration costs(2) 0.7 % 1.4 % 2.1 % 1.2 % 1.2 % 2.4 % Acquisition expenses(3) — 0.3 % 0.3 % 0.5 % 1.2 % 1.7 % Business continuity plan(4) — 0.1 % 0.1 % — — — Office closures(5) — — — — 0.1 % 0.1 % Other expenses — 0.1 % 0.1 % — — — Total adjustments to adjusted EBITDA margin % 2.8 % 1.9 % 4.7 % 17.9 % 2.5 % 20.4 % •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 •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 Three Months Ended June 30, 2022 Three Months Ended June 30, 2021 (in thousands) Compensation Non- Compensation Total Compensation Non- Compensation Total Net income $ 25,340 $ 9,986 Acquisition-related amortization(1) $ — $ 1,729 1,729 $ — $ 5,108 5,108 Expense adjustments(2) 1,207 3,010 4,217 1,248 1,613 2,861 Share-based compensation 3,031 — 3,031 6,676 — 6,676 Other expenses, net — 78 78 — (22 ) (22 ) Tax effect of adjustments(3) (996 ) (973 ) (1,969 ) (293 ) 2,242 1,949 Adjusted net income $ 3,242 $ 3,844 $ 32,426 $ 7,631 $ 8,941 $ 26,558 Six Months Ended June 30, 2022 Six Months Ended June 30, 2021 (in thousands) Compensation Non- Compensation Total Compensation Non- Compensation Total Net income $ 47,559 $ 1,070 Acquisition-related amortization(1) $ — $ 3,457 3,457 $ — $ 10,216 10,216 Expense adjustments(2) 1,993 5,480 7,473 4,170 6,196 10,366 Share-based compensation 6,173 — 6,173 40,104 — 40,104 Other expenses, net — 206 206 — (37 ) (37 ) Tax effect of adjustments(3) (1,919 ) (1,738 ) (3,657 ) (980 ) (12,009 ) (12,989 ) Adjusted net income $ 6,247 $ 7,405 $ 61,211 $ 43,294 $ 4,366 $ 48,730 The decrease in asset-based revenue’s proportion of our total revenue was primarily driven by the increase in spread-based revenue and lower assets under management excluding Adhesion Wealth at the beginning of the period during the six months ended June 30, 2023 as compared to June 30, 2022. . rates in the United States rise. General and Operating Expenses 2022 Three months ended June 30, (in thousands) 2022 2021 $ Change % Change Revenue: Asset-based revenue $ 139,249 $ 124,690 $ 14,559 11.7 Spread-based revenue 7,150 2,672 4,478 167.6 Subscription-based revenue 3,259 — 3,259 * Other revenue 1,549 680 869 127.8 Total revenue 151,207 128,042 23,165 18.1 Operating expenses: Asset-based expenses 40,266 35,818 4,448 12.4 Spread-based expenses 641 868 (227 ) (26.2 ) Employee compensation 39,973 39,447 526 1.3 General and operating expenses 22,223 16,316 5,907 36.2 Professional fees 5,494 5,018 476 9.5 Depreciation and amortization 7,711 9,730 (2,019 ) (20.8 ) Total operating expenses 116,308 107,197 9,111 8.5 Interest expense 1,488 774 714 92.3 Other expense, net 78 (22 ) 100 455.1 Income before income taxes 33,333 20,093 13,240 65.9 Provision for income taxes 7,993 10,107 (2,114 ) (20.9 ) Net income $ 25,340 $ 9,986 $ 15,354 153.8 2022. Net 2022 to $32.8 million in the three months ended June 30, 2023. asset-based expense. 2022 Six months ended June 30, (in thousands) 2022 2021 $ Change % Change Revenue: Asset-based revenue $ 281,325 $ 240,503 $ 40,822 17.0 Spread-based revenue 9,105 5,278 3,827 72.5 Subscription-based revenue 6,577 — 6,577 * Other revenue 2,503 1,267 1,236 97.5 Total revenue 299,510 247,048 52,462 21.2 Operating expenses: Asset-based expenses 81,953 71,912 10,041 14.0 Spread-based expenses 1,046 1,544 (498 ) (32.3 ) Employee compensation 80,263 106,749 (26,486 ) (24.8 ) General and operating expenses 44,282 33,805 10,477 31.0 Professional fees 11,227 9,278 1,949 21.0 Depreciation and amortization 15,180 19,201 (4,021 ) (20.9 ) Total operating expenses 233,951 242,489 (8,538 ) (3.5 ) Interest expense 2,647 1,545 1,102 71.4 Other expense, net 206 (37 ) 243 657.1 Income before income taxes 62,706 3,051 59,655 (1,955.3 ) Provision for income taxes 15,147 1,981 13,166 664.6 Net income $ 47,559 $ 1,070 $ 46,489 (4,344.8 ) Subscription-Based Revenue share-based compensation expense and a $0.3 million increase in employee compensation in connection with reorganizations and integrations. insurance expenses. 2022. Net 2022 to $50.1 million in the six months ended June 30, 2023. a $1.8 million increase in interest expense. 2022 Credit Agreement On October 25, 2022, we 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 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 our performance against the KPIs, and includes customary affirmative covenants and representations and warranties with respect to the KPIs. 2023. Six months ended June 30, (in thousands) 2022 2021 Cash provided by operating activities $ 55,268 $ 53,285 Cash used in investing activities (19,821 ) (19,148 ) Cash provided by financing activities 4,383 75,000 Net change in cash, cash equivalents and restricted cash 39,830 109,137 Cash, cash equivalents and restricted cash at beginning of period 89,707 81,619 Cash, cash equivalents and restricted cash at end of period $ 129,537 $ 190,756 2022. Interest Rate Risk •a continued decline or slowdown in growth of the value of financial market assets or changes in the mix of assets on our platform, which may reduce the value of our platform assets and therefore our revenue and cash flows; •fluctuations in interest rates, which have a direct and proportionate impact on our spread-based revenue; •significant fluctuations in securities prices affecting the value of assets on our platform, including as a result of macroeconomic factors, inflation, geopolitics or public health concerns; •negative public perception and reputation of the financial services industry, which could reduce demand for our investment solutions and services; •acceleration of client investment preferences to lower-fee options; •downward pressure on fees we charge our investor clients, which would reduce our revenue; •changes in laws or regulations that could impact our ability to offer investment solutions and services, including any laws or regulations implicated by our controlling stockholder’s ultimate parent being a PRC company; •announcements regarding regulatory actions or litigation that are adverse to us or our business, including the payment of fines; •failure to obtain new clients or retain existing clients on our platform, or changes in the mix of clients on our platform; •failure to adequately protect our proprietary technology and intellectual property rights; •reduction in the suite of investment solutions and services made available by third-party providers to existing clients; 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. Furthermore, certain clients or potential clients may prefer not to work with a company, such as us, that is controlled by a PRC company in light of continued or increased tension in U.S.-PRC relations or any deterioration in political or trade relations between the United States and the PRC. change their investment strategies, including by withdrawing all or a portion of their assets from their accounts to avoid securities markets-related risks. These actions by investors are outside of our control and could materially adversely affect the market value of our platform assets, which or otherwise incur increased costs or lower revenue to maintain customer relationships. In any of the forgoing circumstances, our results of operations, financial condition or business could be materially adversely affected. investment solutions and services and new versions of existing solutions and services. Our third-party providers, including asset managers whose products our clients access through our platform, could fail to detect errors or defects in the offered products that our clients use. Despite internal testing and testing by current and prospective clients, our current and future investment solutions and services may contain serious defects or malfunctions. If we detect any errors before release, we might be required to delay the release of the investment solution or service for an extended period of time while we address the problem. We might not discover errors that affect our new or current investment solutions, services or enhancements until after they are deployed, and we may need to provide enhancements to correct such errors. Errors may occur that could Inadequacy or disruption of our disaster recovery plans and procedures in the event of a catastrophe could adversely affect our business. We rely on our executive officers and other key personnel. LLC (“AMB”). subject to litigation or regulatory actions that could have a material adverse effect on our results of operations, financial condition or business. parties, which could materially and adversely affect our results of operations, financial condition or business. Any such proceeding or action, and any related indemnification obligations, could damage our reputation, force us to incur significant expenses in defense of such proceeding or action, distract our management, increase our costs of doing business or result in the imposition of financial liability. The data protection landscape is rapidly evolving, and we expect that there will continue to be new proposed laws, regulations and industry standards, and changes to and in the interpretation of existing laws, regulations and standards, concerning privacy, data protection, information security and telecommunications services. Interpretation and implementation standards and enforcement practices are likely to remain uncertain for the foreseeable future, and we cannot yet determine the impact such future laws, regulations and standards, or changes to and in the interpretation of existing laws, regulations and standards, may have on our business, but they may result in greater public scrutiny and escalated levels of enforcement and sanctions, increased compliance costs, increased liabilities, restrictions on our operations or other adverse impacts upon our business. For example, evolving and changing definitions of personal information and personal data, especially related to the classification of IP addresses, machine identification, location data and other information, may limit or inhibit our ability to operate or expand our business, including limiting the sharing of data. Internationally, many jurisdictions have established their own data security and privacy legal frameworks with which we may need to comply. For example, the European Union (the “EU”) has adopted the General Data Protection Regulation (the “GDPR”), which went into effect in May 2018 and contains numerous requirements and changes from previously existing EU law, including more robust obligations on data processors and heavier documentation requirements for data protection compliance programs. The GDPR requires data controllers to implement more stringent operational requirements for processors and controllers of personal data, including, for example, transparent and expanded disclosure to data subjects about how their personal information is to be used, limitations on retention of information, mandatory data breach notification requirements, and higher standards for data controllers to demonstrate that they have obtained valid consent for certain data processing activities. The GDPR also imposes strict rules on the transfer of personal data to countries outside the European Economic Area (the “EEA”), including the United States. Fines for noncompliance with the GDPR are significant and can be up to the greater of €20 million or 4% of annual global turnover. The GDPR also provides that EU member states may introduce further conditions, including limitations, which could limit our ability to collect, use and share EU data, and could cause our compliance costs to increase, ultimately having an adverse impact on our enforce, monitor, police or defend our intellectual property rights, or if we were to infringe, misappropriate or violate the intellectual property rights of others, our competitive position, operations, financial condition or business could suffer. certain PRC regulations require our controlling stockholder to file with or obtain approval from various PRC regulators before approving certain of our corporate actions, including: •obtaining approval from or filing with the China National Development and Reform Commission (the “NDRC”), for certain debt issuances by us, or certain investments we seek to make involving a sensitive industry, country or region, as defined by the NDRC; and continue to impact decisions by certain clients regarding whether they will remain on our platform, and decisions by potential clients as to whether they will do business on our platform. Furthermore, continued or increased tension in U.S.-PRC relations or any deterioration in political or trade relations between the United States and the PRC may lead to negative investor sentiment towards companies with significant PRC ownership, which could make our common stock less attractive to U.S. investors and depress the market price of our common stock, which in turn would make it difficult for us to access the U.S. capital markets. Additionally, We are subject to litigation and regulatory examinations and investigations. Additionally, actions brought against us may result in settlements, awards, injunctions, fines and penalties, which could negatively impact our results of operations, financial condition, business and reputation. Further, HTSC and its affiliates engage in a broad spectrum of activities, including investments in the financial services industry in particular. In the ordinary course of their businesses, HTSC and its affiliates may engage in activities where their interests conflict with our interests or those of our other stockholders. In addition, HTSC or an affiliate may pursue acquisition opportunities that may be complementary to our business, and, as a result, those acquisition opportunities may not be available to us. Further, although we are a stand-alone public company, HTSC, •market conditions in the broader stock market in general, or in our industry in particular; •changes in the interest rate environment; •actual or anticipated fluctuations in our quarterly financial and operating results; •introduction of new products and services by us or our competitors; •issuance of new or changed securities analysts’ reports or recommendations; •sales of large blocks of our stock by our employees or controlling stockholder or the perception that our employees or controlling stockholder will sell our stock; •additions or departures of key personnel; •regulatory developments, litigation and governmental investigations; and becoming freely tradable without compliance with Rule 144 upon effectiveness of the applicable registration statement. Further, the president of the United States has threatened to limit Chinese ownership in U.S. technology companies; if, as a result of new laws or regulations limiting such ownership, HIIHL is required to divest some or all of its shares of our common stock, such sales could cause the price of our common stock to decline, particularly if HIIHL is required to sell shares in a short amount of time. As an “emerging growth company” as defined in the JOBS Act, we have elected to take advantage of certain temporary exemptions from various reporting requirements including, but not limited to, the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act and certain disclosure obligations regarding executive compensation in our periodic reports and proxy 2024. •a staggered board and restrictions on the ability of our stockholders to fill a vacancy on the board of directors; •the authorization of undesignated preferred stock, the terms of which may be established and shares of which may be issued without stockholder approval; •advance notice requirements for stockholder proposals; •certain limitations on convening special stockholder meetings; and Our amended and restated certificate of incorporation designates the Court of Chancery of the State of Delaware and the federal district courts of the United States as the sole and exclusive forums for certain types of actions and proceedings that may be initiated by our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, employees or agents. Exhibit Number Exhibit Description Form File No. Exhibit Filing Date Filed Herewith 3.1 Amended and Restated Certificate of Incorporation of the Company S-1/A 333-232312 3.1 July 8, 2019 3.2 8-K 001-38980 3.1 July 22, 2019 4.1 S-1 333-232312 4.2 June 24, 2019 10.1 X 10.2 X 10.3 X 31.1 X 31.2 X 32.1* X 32.2* X 101.INS Inline XBRL Instance Document X 101.SCH Inline XBRL Taxonomy Extension Schema Document X 101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document X 101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document X 101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document X 101.PRE Inline XBRL Extension Presentation Linkbase Document X 104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) X /s/ Natalie Wolfsen Natalie Wolfsen Chief Executive Officer (Principal Executive Officer) /s/ Gary Zyla Gary Zyla Chief Financial Officer (Principal Financial Officer)Three Months Ended June 30, Six Months Ended June 30, 2023 2022 2023 2022 Stock options — 803,306 — 803,306 SARs 1,571,831 2,659,388 1,571,831 2,659,388 RSUs 53,055 769,095 53,055 406,897 Total 1,624,886 4,231,789 1,624,886 3,869,591 Note 17. Subsequent EventsNone. leading provider of extensive wealth management and technology solutionsplatform that powerpowers independent financial advisers and their clients. Our platform drives transformational value acrossecosystem of solutions equips advisers of all aspects of the adviser’s business. Through innovative digital tools, deep expertise,sizes and hands-on service, our platform enables advisers to outsourcemodels with services and capabilities that would otherwise require significant investments of time and money. money, which ultimately enables them to deliver better investor outcomes and enhance their productivity, profitability and client satisfaction.purpose-builtopen architecture platform delivers flexibility and choice to advisers across the spectrum of profiles and outsourcing preferences, including end-to-end solutions support each adviser’s unique goals, including growing their business, increasing client engagement and driving scale and efficiency. We provide an end-to-end experience, spanning nearlyfor those who prefer to fully outsource, as well as modular solutions for those who prefer to handle some or all elementscomponents 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.who have a deep understanding of their communities and putunique opportunity to level the needs of investors first provide the best pathplaying 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 long-term financial goals. When an adviser chooses to work with AssetMark, we recognize that their success is paramount,clients. The compelling value of our tools for advisers and it is our role to support their goals. We serve as an extension of an adviser’s team, and we are equally committed to the best interest of their clients andhas facilitated our rapid growth.successquarter ended June 30, 2023 was $183.2 million, up $32.0 million, or 21.2%, from $151.2 million for the quarter ended June 30, 2022. Asset-based revenue for the quarter ended June 30, 2023 was $137.3 million, down $1.9 million, or 1.4%, from $139.2 million for the quarter ended June 30, 2022. Spread-based revenue for the quarter ended June 30, 2023 was $37.3 million, up $30.1 million, or 421.3%, from $7.2 million for the quarter ended June 30, 2022.their business.Business Highlights•In June 2022, we entered into an agreement to acquire Adhesion Wealth Advisor Solutions, Inc. a leading provider of wealth management technology solutions to RIAs, RIA enterprises and asset managers.Highlights•Total revenue for the quarter ended June 30, 2022 was $151.2 million, up $23.2 million, or 18.1%, from $128.0 million for the quarter ended June 30, 2021. Asset-based revenue for the quarter ended June 30, 2022 was $139.2 million, up $14.6 million, or 11.7%, from $124.7 million for the quarter ended June 30, 2021. Spread-based revenue for the quarter ended June 30, 2022 was $7.2 million, up $4.5 million, or 167.6%, from $2.7 million for the quarter ended June 30, 2021.•Net income for the quarter ended June 30, 2022 was $25.3 million, or $0.34 per share, from $10.0 million, or $0.14 per share, for the quarter ended June 30, 2021.•Adjusted net income for the quarter ended June 30, 2022 was $32.4 million, compared to $26.6 million for the quarter ended June 30, 2021. 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 June 30, 2022 was $49.6 million, compared to $40.0 million for the quarter ended June 30, 2021. 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.”•Platform assets were $82.1 billion as of June 30, 2022, down 2.9% from $84.6 billion as of June 30, 2021.•We had 2,663 engaged advisers on our platform as of June 30, 2022, down 1.0% from 2,691 as of June 30, 2021.
•We had 3,032 engaged advisers on our platform as of June 30, 2023, up 13.9% from 2,663 as of June 30, 2022.$37.6$30.5 million in the development of our technology and our dedicated technology team during the six months ended June 30, 2022.2023. 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 may delay or reduce our profitability, we believe they will enable us to grow our revenue meaningfully in the long term.margin.back officeback-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.solutions. In Junesolutions, and in December 2022, we entered into anagreementacquired Adhesion Financial Advisor Solutions, Inc. (“Adhesion Wealth”), a leading provider of wealth management technology solutions to acquireregistered investment advisers (“RIAs”), RIA enterprises, turnkey asset management programs and asset managers. The acquisition of Adhesion Wealth Advisor Solutions, Inc.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.COVID-19 PandemicBeginning in early 2020, the outbreak of COVID-19 rapidly evolved into a global pandemic and adversely impacted global commercial activities. The near-term impacts related to the COVID-19 pandemic were to our asset-based revenue and spread-based revenue. The impact of COVID-19 has not materially affected and is not expected to materially affect our capabilities to conduct business with our financial advisers. Management believes there continues to be risk that the COVID-19 pandemic may adversely affect our operations and operating results in subsequent periods, although, given the uncertainty around the duration and extent of the COVID-19 pandemic, management cannot at this time quantify with any level of specificity the impact on our results of operations, financial condition or liquidity. We have continued to generate positive operating cash flows, have adequate cash on hand, and maintain access to our existing line of credit to meet our short-term liquidity needs. We have experienced neither material impairments of our assets nor a significant change in the fair value of our assets and liabilities due to the COVID-19 pandemic. We continue to monitor the developments relating to COVID-19 and are coordinating our operational response based on existing business continuity plans and guidance from global health organizations, relevant governments and general pandemic response best practices.20222023 and 20212022 include the following:Three Months Ended June 30, Six Months Ended June 30, 2023 2022 2023 2022 Operational metrics: Platform assets (at period-beginning) (millions of dollars) $ 96,203 $ 90,818 $ 91,470 $ 93,487 Net flows (millions of dollars) 1,695 1,363 3,326 3,498 Market impact net of fees (millions of dollars) 2,864 (10,054) 5,966 (14,858) Platform assets (at period-end) (millions of dollars) $ 100,762 $ 82,127 $ 100,762 $ 82,127 Net flows lift (% of beginning-of-year platform assets) 1.9 % 1.5 % 3.6 % 3.7 % Advisers (at period-end) 9,323 8,688 9,323 8,688 Engaged advisers (at period-end) 3,032 2,663 3,032 2,663 Assets from engaged advisers (at period-end) (millions of dollars) $ 93,109 $ 74,994 $ 93,109 $ 74,994 Households (at period-end) 247,934 220,172 247,934 220,172 New producing advisers 188 193 354 388 Production lift from existing advisers (annualized %) 20.2 % 17.4 % 19.5 % 18.1 % Assets in custody at ATC (at period-end) (millions of dollars) $ 74,074 $ 63,055 $ 74,074 $ 63,055 ATC client cash (at period-end) (millions of dollars) $ 2,942 $ 3,700 $ 2,942 $ 3,700 Financial metrics: Total revenue (millions of dollars) $ 183.2 $ 151.2 $ 359.8 $ 299.5 Net income (millions of dollars) $ 32.9 $ 25.3 $ 50.1 $ 47.6 Net income margin (%) 17.9 % 16.8 % 13.9 % 15.9 % Capital expenditure (millions of dollars) $ 11.2 $ 10.0 $ 21.2 $ 18.4 Non-GAAP financial metrics: Adjusted EBITDA (millions of dollars) $ 60.4 $ 49.6 $ 119.2 $ 94.1 Adjusted EBITDA margin (%) 33.0 % 32.8 % 33.1 % 31.4 % Adjusted net income (millions of dollars) $ 41.2 $ 32.4 $ 80.9 $ 61.2 platform,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$82,127$100,762 million and $84,594 $82,127 million as of June 30, 20222023 and 2021,2022, respectively. Our regulatory AUM totaled $52,877$61,603 million and $54,117 $52,877 million as of June 30, 20222023 and 2021,2022, 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. (“NPAs”) for a given period represents the number of advisers that invested their first client assets on our platform in that period.period, excluding advisers joining our platform through our acquisition of Adhesion Wealth.Company.20222023 and 2021,2022, ATC client cash accounted for 5.9%4.0% and 4.1%5.9%, respectively, of the total assets in custody at ATC. As of June 30, 2023 and 2022, and 2021, 100%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.•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; andcosts associated with acquisitions and the resulting integrations, debt refinancing, restructuring, litigation 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.
•costs associated with acquisitions and the resulting integrations, debt refinancing, restructuring, litigation 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.•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; andas considerations in determining compensation for certain employees.•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; andthe 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.20222023 and 2021.
2022.(1)“Share-based compensation” represents granted share-based compensation in the form of RSA, 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 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.Three Months Ended June 30, Three Months Ended June 30, (in thousands except for percentages) 2023 2022 2023 2022 Net income $ 32,877 $ 25,340 17.9 % 16.8 % Provision for income taxes 11,650 7,993 6.4 % 5.3 % Interest income (2,509) (227) (1.4) % (0.2) % Interest expense 2,137 1,488 1.2 % 1.0 % Depreciation and amortization 8,684 7,711 4.7 % 5.1 % EBITDA $ 52,839 $ 42,305 28.8 % 28.0 % 4,152 3,031 2.3 % 2.0 % 3,556 3,313 2.0 % 2.2 % (140) 799 (0.1) % 0.5 % — 105 — 0.1 % Other (income) expense, net (10) 78 — 0.1 % Adjusted EBITDA $ 60,397 $ 49,631 33.0 % 32.9 % (3)(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.“Acquisition expenses” includes employee severance, transition and retention expenses, duplicative general and administrative expenses and other professional fees related to acquisitions.(4)(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.“Business continuity plan” includes incremental compensation and other costs that are directly related to a transition to a primarily remote workforce in 2021 and transition to a hybrid workforce in 2022, and other costs due to the COVID-19 pandemic.(5)(3)“Acquisition expenses” includes employee severance, transition and retention expenses, duplicative general and administrative expenses and other professional fees related to acquisitions.“Office closures” represents one-time expenses related to closing facilities.
(4)“Business continuity plan” includes incremental compensation and other costs that are directly related to a transition to a hybrid workforce in 2022.Six Months Ended June 30, Six Months Ended June 30, (in thousands except for percentages) 2023 2022 2023 2022 Net income $ 50,099 $ 47,559 13.9 % 15.9 % Provision for income taxes 18,366 15,147 5.1 % 5.1 % Interest income (4,560) (258) (1.3) % (0.1) % Interest expense 4,484 2,647 1.2 % 0.9 % Amortization/depreciation 17,112 15,180 4.8 % 5.1 % EBITDA $ 85,501 $ 80,275 23.7 % 26.9 % 7,974 6,173 2.2 % 2.1 % 5,465 6,319 1.5 % 2.1 % 173 934 0.1 % 0.3 % (6) 220 — 0.1 % 20,000 — 5.6 % — Other expense, net 77 206 — 0.1 % Adjusted EBITDA $ 119,184 $ 94,127 33.1 % 31.6 % 20222023 and 2021,2022, broken out by compensation and non-compensation expenses.(1)“Share-based compensation” represents granted share-based compensation in the form of RSA, 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.Three Months Ended June 30, 2023 Three Months Ended June 30, 2022 (in thousands) Compensation Non-
CompensationTotal Compensation Non-
CompensationTotal $ 4,152 $ — $ 4,152 $ 3,031 $ — $ 3,031 1,204 2,352 3,556 1,209 2,104 3,313 — (140) (140) — 799 799 — — — (2) 107 105 Other (income) expense, net — (10) (10) — 78 78 Total adjustments to adjusted EBITDA $ 5,356 $ 2,202 $ 7,558 $ 4,238 $ 3,088 $ 7,326 (3)(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.“Acquisition expenses” includes employee severance, transition and retention expenses, duplicative general and administrative expenses and other professional fees related to acquisitions.(4)(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.“Business continuity plan” includes incremental compensation and other costs that are directly related to a transition to a primarily remote workforce in 2021 and transition to a hybrid workforce in 2022, and other costs due to the COVID-19 pandemic.(5)(3)“Acquisition expenses” includes employee severance, transition and retention expenses, duplicative general and administrative expenses and other professional fees related to acquisitions.“Office closures” represents one-time expenses related to closing facilities.
(4)“Business continuity plan” includes incremental compensation and other costs that are directly related to a transition to a hybrid workforce in 2022.Three Months Ended June 30, 2023 Three Months Ended June 30, 2022 (in percentages) Compensation Non-
CompensationTotal Compensation Non-
CompensationTotal 2.3 % — 2.3 % 2.0 % — 2.0 % 0.7 % 1.3 % 2.0 % 0.8 % 1.4 % 2.2 % — (0.1) % (0.1) % — 0.5 % 0.5 % — — — — 0.1 % 0.1 % Other (income) expense, net — — — — 0.1 % 0.1 % Total adjustments to adjusted EBITDA margin % 3.0 % 1.2 % 4.2 % 2.8 % 2.1 % 4.9 % Six Months Ended June 30, 2023 Six Months Ended June 30, 2022 (in thousands) Compensation Non-
CompensationTotal Compensation Non-
CompensationTotal $ 7,974 $ — $ 7,974 $ 6,173 $ — $ 6,173 2,269 3,196 5,465 1,995 4,324 6,319 100 73 173 — 934 934 — (6) (6) (2) 222 220 — 20,000 20,000 — — — Other (income) expense, net — 77 77 — 206 206 Total adjustments to adjusted EBITDA $ 10,343 $ 23,340 $ 33,683 $ 8,166 $ 5,686 $ 13,852 Six Months Ended June 30, 2023 Six Months Ended June 30, 2022 (in percentages) Compensation Non-
CompensationTotal Compensation Non-
CompensationTotal 2.2 % — 2.2 % 2.1 % — 2.1 % 0.6 % 0.9 % 1.5 % 0.7 % 1.4 % 2.1 % 0.1 % — 0.1 % — 0.3 % 0.3 % — — — — 0.1 % 0.1 % — 5.6 % 5.6 % — — — Other (income) expense, net — — — — 0.1 % 0.1 % Total adjustments to adjusted EBITDA margin % 2.9 % 6.5 % 9.4 % 2.8 % 1.9 % 4.7 % •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; andamortization 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 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; andother companies in the financial services industry may calculate adjusted net income differently than we do, limiting its usefulness as a comparative measure.20222023 and 2021.2022.(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 the provision for income taxes under U.S. GAAP and the estimated tax impact of expense adjustments and acquisition-related amortization.Three Months Ended June 30, 2023 Three Months Ended June 30, 2022 (in thousands) Compensation Non-
CompensationTotal Compensation Non-
CompensationTotal Net income $ 32,877 $ 25,340 $ — $ 2,180 2,180 $ — $ 1,729 1,729 1,204 2,212 3,416 1,207 3,010 4,217 Share-based compensation 4,152 — 4,152 3,031 — 3,031 Other (income) expense, net — (10) (10) — 78 78 (1,285) (88) (1,373) (996) (973) (1,969) Adjusted net income $ 4,071 $ 4,294 $ 41,242 $ 3,242 $ 3,844 $ 32,426 Six Months Ended June 30, 2023 Six Months Ended June 30, 2022 (in thousands) Compensation Non-
CompensationTotal Compensation Non-
CompensationTotal Net income $ 50,099 $ 47,559 $ — $ 4,354 4,354 $ — $ 3,457 3,457 2,369 23,263 25,632 1,993 5,480 7,473 Share-based compensation 7,974 — 7,974 6,173 — 6,173 Other (income) expense, net — 77 77 — 206 206 (2,482) (4,712) (7,194) (1,919) (1,738) (3,657) Adjusted net income $ 7,861 $ 22,982 $ 80,942 $ 6,247 $ 7,405 $ 61,211 92.1%75.0% and 97.4%92.1% of our total revenue for the three months ended June 30, 2023 and 2022, and 2021, respectively and approximately 93.9%74.6% and 97.4%93.9% of our total revenue for the six months ended June 30, 20222023 and 2021,2022, respectively.2022, 2023, primarily as a result of the higher interest rate environment. We expect spread-based revenue to continue to increase givenas interest rates in the rising interest rate environment.United States rise We began recognizing revenue related to subscription fee arrangements as a result of the Voyant acquisition in July 2021.consists of income related to consulting revenue from Voyant and interest earned on ouroperating cash balance.held by us. Other one-time income items are also reported under “Other Revenue,” as discussed elsewhere in this section. Other revenue increased in the second quarter of 2022, primarily as a result of the higher interest rate environment. We expect other revenue to increase in future periods as a result of the recent increases in interest rates in the United States.program andprogram. We expect spread-based expenses to continue to increase as interest payments to clients.Employment andnon-cash share-based compensation, benefits and employer-related taxes.Huatai Securities Co., Ltd. (“HTSC”)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. the 2020 Credit Agreement and 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.security investment,securities investments, along with the gains and losses from the relatedsuch investments, and foreign exchange fluctuations.fluctuations, interest earned on our convertible notes and accruals recognized in connection with regulatory matters.20222023 Compared to Three Months Ended June 30, 202120222023 and 2021.2022. 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.*Not meaningful.Three months ended June 30, (in thousands) 2023 2022 $ Change % Change Revenue: Asset-based revenue $ 137,336 $ 139,249 $ (1,913) (1.4) Spread-based revenue 37,271 7,150 30,121 421.3 Subscription-based revenue 3,693 3,259 434 13.3 Other revenue 4,932 1,549 3,383 218.4 Total revenue 183,232 151,207 32,025 21.2 Operating expenses: Asset-based expenses 39,344 40,266 (922) (2.3) Spread-based expenses 8,003 641 7,362 1,148.5 Employee compensation 48,099 39,973 8,126 20.3 General and operating expenses 24,354 22,223 2,131 9.6 Professional fees 8,372 5,494 2,878 52.4 Depreciation and amortization 8,684 7,711 973 12.6 Total operating expenses 136,856 116,308 20,548 17.7 Interest expense 2,137 1,488 649 43.6 Other (income) expense, net (288) 78 (366) (469.2) Income before income taxes 44,527 33,333 11,194 33.6 Provision for income taxes 11,650 7,993 3,657 45.8 Net income $ 32,877 $ 25,340 $ 7,537 29.7 increaseddecreased by $14.6$1.9 million, or 11.7%1.4%, from $124.7 million in the three months ended June 30, 2021 to $139.2 million in the three months ended June 30, 2022. This increase was related2022 to increased platform fees and advisory fees of $14.6 million associated with higher billable assets at the beginning of the period.Spread-Based RevenueSpread-based revenue increased by $4.5 million, or 167.6%, from $2.7$137.3 million in the three months ended June 30, 20212023. This decrease was primarily related to decreased platform fees and advisory fees of $1.6 million associated with reduced assets under management, excluding Adhesion Wealth, at the beginning of the period and lower custodial revenue of $0.3 million.2022.2022 to $37.3 million in the three months ended June 30, 2023. This increase was primarily related to higher interest income attributed to higher cash assets anddriven by an increase in interest rates during the three months endedsubsequent to June 30, 2022 as compared to the three months ended June 30, 2021.$3.3 million for the three months ended June 30, 2022 as compared to the three months ended June 30, 2021 due to our acquisition of Voyant on July 1, 2021.Other RevenueOther revenue increased by $0.9$0.4 million, or 127.8%, for the three months ended June 30, 2022 compared to the three months ended June 30, 2021. This increase was primarily related to $0.5 million in higher fees collected at ATC, and a $0.4 million increase in consulting revenue in connection with the Voyant acquisition.Asset-Based ExpensesAsset-based expenses increased by $4.4 million, or 12.4%13.3%, from $35.8$3.3 million in the three months ended June 30, 20212022 to $40.3$3.7 million in the three months ended June 30, 2022.2023. This increase was primarily driven byrelated to an increase in asset-based fees due tothe average number of subscription licenses.platform assets from the prior year.Spread-Based ExpensesSpread-based expenses decreased by $0.2$3.4 million, or 26.2%218.4%, from $0.9$1.5 million in the three months ended June 30, 20212022 to $4.9 million in the three months ended June 30, 2023. This increase was driven by a $3.0 million increase in interest income due to higher interest rates, and a $0.4 million increase in revenue related to other miscellaneous items.2022. The decrease was primarily driven by a one-time adjustment as a result of our change in presentation of Securities Backed Line of Credit (“SBLOC”) revenue from a gross2022 to net form of presentation in the third quarter of 2021. The SBLOC adjustment was partially offset by higher interest credited as a result of higher interest rates.Employee CompensationEmployee compensation increased by $0.5 million, or 1.3%, from $39.4$8.0 million in the three months ended June 30, 20212023. This increase was primarily driven by higher interest-credited payments to clients as a result of increased interest rates.2022. The2022 to $48.1 million in the three months ended June 30, 2023. This increase was primarily driven by a $3.6$6.9 million increase in salaries and related expenses attributable to our ongoing growth, a $0.5$1.1 million increase in reorganization and integration costs,share-based compensation expense and a $0.5$0.1 million increase in contractor-related costs. This increase was partially offset by a $3.6 million decrease in share-based compensation related to our restricted stock awards fully vesting in November 2021, and a $0.5 million decrease in acquisition-relatedother miscellaneous expenses.$5.9$2.1 million, or 36.2%9.6%, from $16.3 million in the three months ended June 30, 2021 to $22.2 million in the three months ended June 30, 2022.2022 to $24.3 million in the three months ended June 30, 2023. This increase was primarily due to a $4.4$1.6 million increase in software and subscription costs, a $1.1 million increase in events and travel costs, a $0.9$0.6 million increase in softwaretrading-related costs and subscription costs, a $0.8 million increase in reorganization and integration costs, a $0.5 million increase in printing-related costs, a $0.2$0.3 million increase in facilities-related costs, and a $0.2 million increase in advertisement-related costs. This increase was partially offset by a $0.8 million decrease in trading fees, and a $0.3 million decrease in acquisition costs.Professional FeesProfessional fees increased by $0.5 million, or 9.5%, from $5.0 million in the three months ended June 30, 2021 to $5.5 million in the three months ended June 30, 2022. This increase was driven by a $0.7 million increase in professional fees associated with reorganization and integration work, a $0.2 million increase in professional fees associated with acquisitions, and a $0.1 million increase in consulting fees. ThisThe increase was partially offset by a $0.5 million decrease in audit fees.Depreciationprinting-related costs, a $0.5 million decrease in general reorganization and Amortization ExpenseDepreciationintegration-related costs and amortization expense decreaseda $0.5 million decrease in general acquisition-related costs.$2.0$2.9 million, or 20.8%52.4%, from $9.7$5.5 million in the three months ended June 30, 20212022 to $8.4 million in the three months ended June 30, 2023. This increase was driven by a $1.5 million increase in general professional fees, a $0.8 million increase in professional fees associated with reorganizations and integrations, a $0.6 million increase in consulting fees, a $0.3 million increase in audit-related costs and a $0.2 million increase in tax-related costs. The increase was partially offset by a $0.5 million decrease in acquisition-related costs.2022. The decrease was primarily related2022 to a $4.1 million decrease in amortization expense in connection with intangible assets previously adjusted to fair value when HTSC acquired us on October 31, 2016, with definite lives ranging from 5 to 20 years. With 5 years having elapsed, certain software intangible assets have become fully amortized resulting in a decrease in amortization expense. The decrease was partially offset by a $1.3 million increase in depreciation and amortization related to assets placed into service after the second quarter of 2021, and a $0.8 million increase in amortization related to intangible assets as a result of the acquisition of Voyant.Interest ExpenseInterest expense increased by $0.7 million, or 92.3%, from $0.8$8.7 million in the three months ended June 30, 20212023. The increase was primarily driven by $0.5 million in higher amortization as a result of software assets placed into service subsequent to June 30, 2022 and $0.5 million in amortization of intangible assets from our acquisition of Adhesion Wealth in December 2022.2022.2022 to $2.1 million in the three months ended June 30, 2023. This increase canwas primarily be attributed to an increase in our average outstanding debt balancehigher interest rates during the three months ended June 30, 20222023 as compared to the three months ended June 30, 2021, as a direct result of executing our 2022 Credit Agreement in January 2022.netincreasednet, changed by $0.4 million, or 469.2%, from $0.1 million or 455.1%,in expense in the three months ended June 30, 2022 primarily due to $0.1$0.3 million in remeasurement losses from transactions denominated in foreign currencies during the three months ended June 30, 2022.Provision for Income TaxesProvision for income taxes decreased by $2.1 million, or 20.9%, from $10.1 million in the three months ended June 30, 20212023 primarily due to an increase in interest income of $0.2 million related to our convertible notes receivable and a $0.2 million decrease in other expenses.2022. This decrease was primarily a result of the income tax effects of equity compensation relative2022 to our income before income taxes.Net IncomeNet income increased by $15.4 million, or 153.8%, from $10.0$11.7 million in the three months ended June 30, 20212023. This increase was primarily due to an increase in pre-tax income in the three months ended June 30, 2023.2022.to (i) an increase in asset-based revenue, net of asset-based expenses, of $10.1 million, (ii) a $4.7$22.8 million increase in spread-based revenue, net of spread-based expenses, (iii)expense and a $3.3$3.4 million increase in subscription-based revenue, (iv)other revenue.$2.1$8.1 million decreaseincrease in employee compensation-related costs, a $3.7 million increase in our provision for income taxes, and (v) a decrease$2.9 million increase in depreciation expense of $2.0 million.The increase was partially offset byprofessional fees, a $5.9$2.1 million increase in general and operating expenses, a $0.5$1.0 million increase in employee compensation,depreciation expense and an increasea $0.9 million decrease in asset-based revenue, net of $0.5 million in professional fees.20222023 Compared to Six Months Ended June 30, 202120222023 and 2021.2022. 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.*Not meaningful.Six months ended June 30, (in thousands) 2023 2022 $ Change % Change Revenue: Asset-based revenue $ 268,375 $ 281,325 $ (12,950) (4.6) Spread-based revenue 75,534 9,105 66,429 729.6 Subscription-based revenue 7,237 6,577 660 10.0 Other revenue 8,648 2,503 6,145 245.5 Total revenue 359,794 299,510 60,284 20.1 Operating expenses: Asset-based expenses 76,778 81,953 (5,175) (6.3) Spread-based expenses 14,560 1,046 13,514 1,292.0 Employee compensation 95,010 80,263 14,747 18.4 General and operating expenses 50,043 44,282 5,761 13.0 Professional fees 13,765 11,227 2,538 22.6 Depreciation and amortization 17,112 15,180 1,932 12.7 Total operating expenses 267,268 233,951 33,317 14.2 Interest expense 4,484 2,647 1,837 69.4 Other expense, net 19,577 206 19,371 9,403.4 Income before income taxes 68,465 62,706 5,759 9.2 Provision for income taxes 18,366 15,147 3,219 21.3 Net income $ 50,099 $ 47,559 $ 2,540 5.3 increaseddecreased by $40.8$13.0 million, or 17.0%4.6%, from $240.5 million in the six months ended June 30, 2021 to $281.3 million in the six months ended June 30, 2022. This increase was primarily related2022 to increased platform fees and advisory fees of $42.4 million associated with growth in platform assets, partially offset by lower custodial revenue of $1.6 million.Spread-Based RevenueSpread-based revenue increased by $3.8 million, or 72.5%, from $5.3$268.4 million in the six months ended June 30, 20212023. This decrease was primarily related to decreased platform fees and advisory fees of $12.0 million associated with reduced assets under management, excluding Adhesion Wealth, at the beginning of the period and lower custodial revenue of $1.0 million.2022.2022 to $75.5 million in the six months ended June 30, 2023. This increase was primarily related to higher interest income as a result of higher average ATC cash balances and an increase in interest rates during the six months endedsubsequent to June 30, 2022 as compared to the six months ended June 30, 2021.2022.$6.6 million from the six months ended June 30, 2021 to the six months ended June 30, 2022 due to our acquisition of Voyant on July 1, 2021.Other RevenueOther revenue increased by $1.2$0.6 million, or 97.5%10.0%, from $1.3$6.6 million in the six months ended June 30, 20212022 to $7.2 million in the six months ended June 30, 2023. This increase was primarily related to an increase in the average number of subscription licenses.2022. This increase was due2022 to $0.6 million in higher fees collected at ATC as a result of higher cash balances, and an increase of a $0.6 million in consulting revenue in connection with the Voyant acquisition.Asset-Based ExpensesAsset-based expenses increased by $10.0 million, or 14.0%, from $71.9$8.6 million in the six months ended June 30, 20212023. This increase was driven by a $5.2 million increase in interest income due to higher interest rates, and a $0.9 million increase in revenue related to other miscellaneous items.2022. This increase was primarily driven by an increase in asset-based fees due2022 to increased platform assets from the prior year.Spread-Based ExpensesSpread-based expenses decreased by $0.5 million, or 32.3%, from $1.5$76.8 million in the six months ended June 30, 20212023. This decrease was primarily due to lower asset-based fees on account of lower assets under management at the beginning of the period.2022. The decrease was primarily driven by a one-time adjustment as a result of our change in presentation of SBLOC revenue from gross2022 to a net form of presentation in the third quarter of 2021.Employee CompensationEmployee compensation decreased by $26.5 million, or 24.8%, from $106.7$14.5 million in the six months ended June 30, 20212023. This increase was primarily driven by higher interest-credited payments to clients as a result of increased interest rates.2022. This decrease was primarily driven by a $33.92022 to $95.0 million decrease in share-based compensation, of which $20.2 million related to the departure of our former chief executive officer and accelerated restricted stock awards expense in the first quarter of 2021, and $13.7 million related to our restricted stock awards fully vesting in November 2021. The remaining decreasesix months ended June 30, 2023. This increase was driven by a $1.2 million reduction in acquisition-related expenses, and a $0.9 million decrease in reorganization and integration costs. The decrease was partially offset by a $8.6$12.5 million increase in salaries and related expenses attributable to our ongoing growth, and a $0.9$1.9 million increase in contractor-related costs.$10.5$5.8 million, or 31.0%13.0%, from $33.8$44.2 million in the six months ended June 30, 20212022 to $44.3$50.0 million in the six months ended June 30, 2022.2023. This increase was primarily due to a $10.4$3.0 million increase in software and subscription costs, a $2.7 million increase in events and travel costs, a $1.7$1.0 million increase in software and subscriptiontrading-related costs, and a $0.5 million increase in printing-related costs. Thisfacilities-related costs, a $0.5 million increase in expenses related to helping our engaged advisers grow their businesses and a $0.3 million increase in costs associated with our broker-dealer partners. The increase was partially offset by a $2.0$1.0 million decrease in acquisitiongeneral reorganization and integration-related costs, a $0.6 million decrease in printing-related costs, a $0.4 million decrease in general acquisition-related costs and a $0.1$0.2 million decrease in reorganization and integration costs.$1.9$2.5 million, or 21.0%22.6%, from $9.3 million in the six months ended June 30, 2021 to $11.2 million in the six months ended June 30, 2022.2022 to $13.7 million in the six months ended June 30, 2023. This increase was driven by a $1.6$2.0 million increase in general professional fees, associated with reorganization and integration work, a $0.5$0.6 million increase in audit-related costs, a $0.6 million increase in consulting fees and a $0.4$0.2 million increase in general professional fees. Thisrecruiting-related costs. The increase was partially offset by a $0.5 million decrease in audit-related fees, andacquisition-related costs, a $0.1$0.2 million decrease in professional fees associated with reorganizations and integrations and a $0.2 million decrease in business continuity planning costs. acquisitions.decreasedincreased by $4.0$1.9 million, or 20.9%12.7%, from $19.2 million in the six months ended June 30, 2021 to $15.2 million in the six months ended June 30, 2022. The decrease was primarily related2022 to a $8.2 million decrease in amortization expense in connection with intangible assets previously adjusted to fair value when HTSC acquired us on October 31, 2016, with definite lives ranging from 5 to 20 years. With 5 years having elapsed, certain software intangible assets have become fully amortized resulting in a decrease in amortization expense. The decrease was partially offset by a $2.7 million increase in depreciation and amortization related to assets placed into service after the second quarter of 2021, and a $1.5 million increase in amortization related to intangible assets as a result of the acquisition of Voyant.Interest ExpenseInterest expense increased by $1.1 million, or 71.4%, from $1.5$17.1 million in the six months ended June 30, 20212023. The increase was primarily driven by $1.0 million in higher amortization as a result of software assets placed into service subsequent to June 30, 2022 and $0.9 million in amortization of intangible assets from our acquisition of Adhesion Wealth in December 2022.2022.2022 to $4.4 million in the six months ended June 30, 2023. This increase canwas primarily be attributed to an increase in our average outstanding debt balance as a result of executing our 2022 Credit Agreement in January 2022, and higher interest rates during the six months ended June 30, 20222023 as compared to the six months ended June 30, 2021.net$0.2$19.4 million, or 657.1%9,403.4%, from $0.2 million in the six months ended June 30, 2022 primarily due to a $0.1 million partial extinguishment of deferred debt modification expense related to our 2020 Credit Facility in connection with the amendment executed on January 12, 2022 and $0.1 million in remeasurement losses from transactions denominated in foreign currencies during the six months ended June 30, 2022.Provision for Income TaxesProvision for income taxes increased by $13.2 million, or 664.6%, from $2.0$19.6 million in the six months ended June 30, 20212023. This increase was primarily attributed to a $20.0 million reserve for a potential SEC settlement accrued during the six months ended June 30, 2023. The increase was partially offset by a $0.4 million increase in interest income related to our convertible notes receivable and a $0.2 million gain on foreign currency transactions.2022. This increase was primarily a result of the income tax effects of equity compensation relative2022 to our income before income taxes.Net IncomeNet income increased by $46.5 million, or 4,344.8%, from $1.1$18.3 million in the six months ended June 30, 20212023. This increase was primarily due to an increase in pre-tax income and permanent non-deductible items in the six months ended June 30, 2023.2022.to (i) an increase in asset-based revenue, net of asset-based expenses, of $30.8 million, (ii) a decrease of $26.5 million in employee compensation costs, (iii) a $6.6 million increase in subscription-based revenue, (iv) a $4.3$52.9 million increase in spread-based revenue, net of spread-based expenses,expense, a $6.1 million increase in other revenue and (v) a decrease of $4.0$0.6 million increase in depreciation and amortization expense.The increases weresubscription-based revenue.$13.2$19.4 million increase in other expense, net, as a result of our reserve for a potential SEC settlement, a $14.7 million increase in employee compensation-related costs, a $7.8 million decrease in asset-based revenue, net of asset-based expense, a $5.8 million increase in general and operating expenses, a $3.2 million increase in our provision for income taxes, and a $10.5$2.5 million increase in generalprofessional fees, a $1.9 million increase in depreciation expense and operating expenses.Branch (“Credit Suisse”).Branch. In December of 2020, we entered into the 2020 Revolving Credit Facility with Bank of Montreal and repaid the credit facility established in 2018, and in January of 2022 we amended the 2020 Credit Agreement, which, as amended and restated, we refer to as the 2022 Credit Agreement. As of June 30, 2022,2023, we had cash and cash equivalents of $116.5$172.8 million, and restricted cash of $13.0$14.0 million. Our material cash requirements primarily comprise operating lease obligations, purchase obligations and principal and interest payments with respect to the 2022 Term Loans. We expect that our cash and liquidity needs will continue to be met by cash generated by our ongoing operations along with our 2022 Revolving Credit Revolving Facility (defined below) over the next twelve months, as well as beyond the next twelve months. To the extent that existing cash, cash from operations and our 2022 Revolving Credit Facility are not sufficient to fund our future operations, we may need to raise additional funds through public or private equity or additional debt financing. In addition, we may opportunistically seek to raise additional capital to fund our continued growth. To the extent that we are unsuccessful in additional debt or equity financings, our plans for continued growth may be curtailed.bookrunners;bookrunners (the “2020 Credit Agreement”); our existing and future wholly owned material domestic subsidiaries as guarantors; and the several banks, financial institutions, institutional investors and other entities from time to time party thereto as lenders and letter of credit issuers. new senior secured credit facility in an aggregate principal amount of $250.0 million, consisting of a revolving credit facility with commitments in an aggregate principal amount of $250.0 million (the “2020 Revolving Credit Facility” and the loans thereunder, the “2020 Revolving Loans”), with an accordion option of up to $25.0 million.million.2022,2023, we were in compliance with all applicable covenants. The 2022 Credit Agreement also contains customary events of default, which could result in acceleration of amounts due thereunder. Such events of default include, subject to the grace periods specified therein, our failure to pay principal or interest when due, our failure to satisfy or comply with covenants, a change of control, the imposition of certain judgments and the invalidation of liens we have granted. We had an outstanding balance under the 2022 Credit Agreement of $121.9$93.8 million as of June 30, 2022.Six months ended June 30, (in thousands) 2023 2022 Cash provided by operating activities $ 105,479 $ 55,268 Cash used in investing activities (29,935) (19,821) Cash (used in) provided by financing activities Cash (used in) provided by financing activities (25,000) 4,383 Net change in cash, cash equivalents and restricted cash 50,544 39,830 Cash, cash equivalents and restricted cash at beginning of period 136,274 89,707 Cash, cash equivalents and restricted cash at end of period $ 186,818 $ 129,537 provided byfrom operating activities increased by $2.0$50.2 million from $53.3 million in the six months ended June 30, 2021 to $55.3 million in the six months ended June 30, 2022 primarily due to a $3.0 million decrease in income tax receivable and payable, net, and a $2.0 million decrease in prepaid expenses and other current assets. The increase was partially offset by a $8.0 million decrease in accounts payable, accrued liabilities and and other current liabilities related to timing of payments.Cash Used in Investing ActivitiesCash used in investing activities increased by $0.7 million from $19.1$105.5 million in the six months ended June 30, 20212023, primarily due to, among other things, an increase in the change in operating assets and liabilities of $44.4 million, an increase in net income of $2.5 million and an increase in period-over-period of non-cash addbacks for depreciation and amortization expense of $1.9 million and share-based compensation expense of $1.8 million.2022. The change was primarily related2022 to purchases of fixed assets and captalized software.Cash Provided by Financing ActivitiesCash provided by financing activities decreased by $70.6 million from $75.0$29.9 million in the six months ended June 30, 20212023. The increase was primarily due to our $4.3 million purchase of convertible notes, a $3.0 million paydown of a purchase consideration liability in connection with our acquisition of Adhesion Wealth and a $3.0 million increase in capital expenditures during the six months ended June 30, 2023. The increase was partially offset by a $0.2 million decrease in investment purchases during the six months ended June 30, 2023.primarily due to our draw down on the 2020 Revolving Credit Facilitycash used of $25.0 million in the six months ended June 30, 2021.Contractual ObligationsDuring2023. The increase was primarily due to our repayment of $25.0 million of the three2022 Term Loans during the six months ended June 30, 2023. In 2022, cash provided related to $7.5 million in net proceeds from our 2022 amendment of our Credit Agreement executed in the six months ended June 30, 2022, partially offset by a $3.1 million principal payment made during the six months ended June 30, 2022.$2.1$2.0 million. We owe debt principal and interest payments of $123.5 million under the 2022 Credit Agreement, with all amounts due in January 2027 (based on a forecasted interest rate). There have been no other material changes to our contractual obligations and commitments as of June 30, 20222023 from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2021.2022,2023, we had no off-balance sheet arrangements. U.S. GAAP. The preparation of condensed consolidated financial statements in accordance with U.S. GAAP requires certain estimates, assumptions and judgments to be made that may affect our condensed consolidated financial statements. Our accounting policies that have significant impact on our results are described more fully in our Annual Report on Form 10-K for the year ended December 31, 20212022 and in Note 2 to our unaudited condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q. The accounting policies discussed therein are those that we consider to be the most critical. We consider an accounting policy to be critical if the policy is subject to a material level of judgment and if changes in those judgments are reasonably likely to materially impact our results.Recently Issued Accounting PronouncementsSee Note 2 to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.2022, 94.8%2023, 94.0% of our total revenue was based on the market value of assets on our platform and werewas recurring in nature. We expect this percentage to vary over time. A 1% decrease in the aggregate value of assets on the platform at the beginning of the period for the six months ended June 30, 20222023 would have caused our total revenue to decline by 1%, or $3.4 million, and would have caused our pre-tax income to decline by 3%3.3%, or $2.0$2.5 million, assuming we did not initiate additional expense measures in response to a market decline.throughby diversifying our revenue streams includingto include subscription-based revenue and spread-based revenue. In addition, we bill platform fees in advance of each quarter, providing visibility into near-term revenue and affording us time to adjust forward-looking spend if necessary.2022,2023, client cash assets participating in the insured cash deposit program at ATC totaled $3.7$2.9 billion. A change in short-term interest rates of 100 basis points at the beginning of the period for the six months ended June 30, 20222023 would result in an increase or decrease in income before income taxes of approximately $29.3$24.9 million on an annual basis (based on total client cash assets at December 31, 2021)2022) and subject to any changes to interest credited to the end-investor).end-investor. Actual impacts may vary depending on interest rate levels and the significance of change.$1.2$0.9 million on an annual basis (based on the outstanding balance under the 2022 Credit Agreement as of June 30, 2022)2023).2022.2023. Our disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to management, including the principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure. Based on such evaluation, our principal executive officer and principal financial officer concluded that, as of June 30, 2022,2023, our disclosure controls and procedures were effective, at the reasonable assurance level.and enforcement inquiries by the SEC and other governmental and regulatory agencies. Inrelevant regulators. As disclosed since the fall of 2020, in July 2020, one of our SEC-registered investment subsidiariesAMI received an examination report from the SEC’s Division of Examinations requesting that such subsidiaryAMI and certain subsidiaries of AFHI take certain corrective actions. Two of ourThese subsidiaries also received related subpoenas from the SEC’sSEC Division of Enforcement requesting thefor production of documents.documents and testimony. The examination report and subpoenas primarily relate tomatter at issue concerns allegedly inadequate disclosure of potential conflicts of interest among our subsidiaries,by AMI between 2016 and they appear to be part2021. We are in discussions with the SEC enforcement staff regarding the framework for a possible resolution of a broader SEC initiative examining disclosure of potential conflicts of interest in the investment advisory industry. The examination report expressly provides that it represents the conclusions ofthis matter. After discussions with the SEC staff, involved and not those ofwe recorded a $20 million accrual for this matter in our financial statements in March 2023. Changes in the accrual may be required in future periods as discussions with the SEC or any division or office thereof. The subpoenas expressly provide that the inquiry is not to be construed as an indication by the SEC or its staff that any violations of the federal securities laws have occurred, nor should it be considered a reflection upon any person, entity or security. We are fully cooperating with these non-public, fact-finding inquiries.continue and additional information becomes available. However, there can be no assurance that we will be successful in reaching an agreement with the SEC. There have been no changes with respect to this accrual as toof June 30, 2023.outcomeopinion of these matters.management, after discussions with legal counsel, the ultimate resolution of the pending regulatory action will not have a material adverse effect on our business operations.•a decline or slowdown of the growth in the value of financial market assets or changes in the mix of assets on our platform, which may reduce the value of our platform assets and therefore our revenue and cash flows;•fluctuations in interest rates, which have a direct and proportionate impact on our spread-based revenue;•significant fluctuations in securities prices affecting the value of assets on our platform, including, as a result of public health concerns or epidemics such as the COVID-19 pandemic;•negative public perception and reputation of the financial services industry, which could reduce demand for our investment solutions and services;•unanticipated acceleration of client investment preferences to lower-fee options;•downward pressure on fees we charge our investor clients, which would reduce our revenue;•changes in laws or regulations that could impact our ability to offer investment solutions and services;•failure to obtain new clients or retain existing clients on our platform, or changes in the mix of clients on our platform;•failure by our financial adviser clients to obtain new investor clients or retain their existing investor clients;•failure to adequately protect our proprietary technology and intellectual property rights;•reduction in the suite of investment solutions and services made available by third-party providers•failure of our financial adviser clients to obtain new investor clients or retain their existing investor clients;•reduction in fee percentage or total fees for future periods, which may have a delayed impact on our results given that our asset-based fees are billed to advisers in advance of each quarter;•changes in our pricing policies or the pricing policies of our competitors to which we have to adapt; or•general domestic and international economic and political conditions that may decrease investor demand for financial advisers or investment services.lower revenuelower-revenue products or cease using our services, which could limit the growth of our revenue or cause our revenue to decrease.couldwould materially adversely affect the asset-based revenue we receive. the ongoing COVID-19 pandemic, or geopolitical conditions or events) could lower the value of assets on which we earn revenue, thereby negatively impacting our revenue, and could decrease the demand for our investment solutions and services.93.9%74.6% and 97.4%93.9% of our total revenue for the six months ended June 30, 20222023 and 2021,2022, respectively. In addition, given our fee-based model, we expect that asset-based revenue will continue to account for a significant percentage of our total revenue in the future. Significant fluctuations in securities prices hashave materially affected and will materially affect the value of the assets managed by our clients, and any decrease in the value of assets managed by our clients wouldhas and will continue to negatively impact our asset-based revenue. Spread-based revenue accounted for 3.0%21.0% and 2.1%3.0% of our total revenue for the six months ended June 30, 20222023 and 2021,2022, respectively. Fluctuations in interest rates have had and future fluctuations in interest rates will have a direct impact on our spread-based revenue. Changes in interest rates, inflation and other economic indicators may also influence financial adviser and investor decisions regarding whether to invest in, or maintain an investment in, one or more of our investment solutions. If such fluctuations in securities prices, or interest rates or inflation were to lead to decreased investment in the securities markets, our revenue and earnings derived from asset-based and spread-based revenue could be simultaneously materially adversely affected.such as the COVID-19 pandemic and other factors that are difficult to predict. In the event that the U.S. or international financial markets suffer aDuring periods of severe or prolonged downturn,downturns or market volatility, investments may lose value and investors may choose to withdraw assets from financial advisers and use the assets to pay expenses or transfer them to investments that they perceive to be more secure, such as bank deposits and Treasury securities. Any prolonged downturn in financial markets, or increased levels of asset withdrawals could have a material adverse effect on our results of operations, financial condition or business.potential inefficiencies driven by the transition from a our hybrid in-person/remote workforce during the COVID-19 pandemic to a hybrid work model in March 2022.model. We operate in diverse markets and are reliant on the ability of our employees and systems to process large volumes of transactions often within short time frames. In the event of a breakdown or improper operation of systems (including due to extreme market volumes or volatility or the failure or delay of systems supporting aour hybrid work model), human error or improper action by employees, we could suffer financial loss, regulatory sanctions or damage to our reputation. In addition, there may be circumstances when our customers are dissatisfied with our investment solutions and services, even in the absence of an operational error. In such circumstances, we may elect to make paymentsOBSVoyant and Voyant,Adhesion Wealth, without a material adverse effect on our results of operations, financial condition or business. Assimilating the acquired businesses may divert significant management attention and financial resources from our other operations and could disrupt our ongoing business. We may have difficulty integrating the acquired operations, products, technologies or personnel, and may incur substantial unanticipated integration costs. Financing an acquisition could result in dilution from issuing equity securities or a weaker balance sheet from using cash or incurring debt. Any debt securities that we issue or credit agreements into which we enter to finance an acquisition may contain covenants that would restrict our operations, impair our ability to pay dividends or limit our ability to take advantage of other strategic opportunities. Further, we may fail to realize the potential cost savings or other financial benefits of the acquisition. In addition, acquisitions, including our recent acquisitions of OBSVoyant and Voyant,Adhesion Wealth, may result in the loss of key employees or customers, particularly those of the acquired operations. Acquisitions, including our recent acquisitions of OBSVoyant and Voyant,Adhesion Wealth, could further adversely affect our existing business relationships with third parties and/or cause us to incur regulatory, legal or other liabilities from the acquired businesses, including claims for infringement of intellectual property rights, for which we may not be indemnified in full or at all.have a material adverse effect on our results of operations, financial condition or business and could result in harm to our reputation, lost sales, delays in commercial release, third-party claims, contractual disputes, contract terminations or renegotiations or unexpected expenses and diversion of management and other resources to remedy errors. In addition, negative public perception and reputational damage caused by such claims would adversely affect our client relationships and our ability to enter into new contracts. Any of these problems could have a material adverse effect on our results of operations, financial condition or business.challenges.matters. If we fail to successfully complete our conversions in a timely and accurate manner, we may be required to expend more time and resources than anticipated, which could erode the profitability of the client relationship. In addition, any such failure may harm our reputation and may cause financial advisers or their clients to move their assets off of our platform or make it lessuponon our ability to deliver time-sensitive, up-to-date data and information. Our business relies heavily on computer equipment (including servers), electronic delivery systems and the Internet, but these technologies are vulnerable to disruptions, failures or slowdowns caused by fire, earthquake, power loss, telecommunications failure, terrorist attacks, wars, Internet failures, cyber-attacks and other events beyond our control. In addition to such vulnerabilities, there can be no assurance that the Internet’s infrastructure will continue to be able to support the demands placed on it by sustained growth in the number of users and amount of traffic, in particular during periods of office closure or on a more consistent basis as employers shift to or make permanent remote or hybrid work models involving remote workforces relying largely uponon home broadband and internet access, and, toInternet access. To the extent that the Internet’s infrastructure is unable to support the demands placed on it, our business maywill be negatively impacted. Similarly, the reduction in the growth of, or a decline in, broadband and Internet access poses a risk to us.business.business, and are subject to general business regulations and laws as well as federal and state regulations and laws specifically governing the Internet. The adoption, modification or interpretation of laws or regulations relating to the Internet could impede the growth of the Internet or other online services or increase the cost of providing online services, which could adversely affect the manner in which we conduct our business. Such laws and regulations may cover sales practices, taxes, user privacy, data protection, pricing, content, copyrights, distribution, electronic contracts, consumer protection, broadband residential Internet access and the characteristics and quality of services. Moreover, it is not clear how existing laws governing these matters apply to the Internet. If we are required to comply with new regulations or legislation or new interpretations of existing regulations or legislation, we may be required to incur additional expenses or alter our business model, either of which could have a material adverse effect on our results of operations, financial condition or business. Likewise, any failure, or perceived failure, by us to comply with any of these laws or regulations could result in damage to our reputation and brand, a loss in business, and proceedings or actions against us by governmental entities or others, which could adversely affect our results of operations, financial condition or business.events such as the COVID-19 pandemic.events. Such a catastrophic event could have a direct negative impact on us by adversely affecting financial advisers, our employees or facilities and our ability to serve clients using an entirely remote ora hybrid workforce, or an indirect impact on us by adversely affecting the financial markets or the overall economy. While we have implemented business continuity and disaster recovery plans and maintain business interruption insurance, it is impossible to fully anticipate and protect against all potential catastrophes, in particular those affecting a dispersed remote workforce. If our business continuity and disaster recovery plans and procedures were disrupted, inadequate or unsuccessful in the event of a catastrophe, we could experience a material adverse interruption of our operations. We serve financial advisers and their clients using third-party data centers and cloud services. While we have electronic access to the infrastructure and components of our platform that are hosted by third parties, we do not control the operation of these facilities. Consequently, we may be subject to service disruptions asevents such as the COVID-19 pandemic.events. Our data centers may also be subject to local administrative actions, changes to legal or permitting requirements and litigation to stop, limit or delay operations. Despite precautions taken at these facilities, such as disaster recovery and business continuity arrangements, the occurrence of a natural disaster or an act of terrorism, a decision to close the facilities without adequate notice or other unanticipated problems at these facilities could result in interruptions or delays in our services, impede our ability to scale our operations or have other adverse impacts uponon our business.financialinvestment adviser for several of the products offered through our investment management programs and utilize the services of investment sub-advisers to manage many of these assets. A failure in the performance of our due diligence processes and controls related to the supervision and oversight of these firms in detecting and addressing conflicts of interest, fraudulent activity, data breaches and cyber-attacks or noncompliance with relevant securities and other laws could cause us to suffer financial loss, regulatory sanctions or damage to our reputation.upon thoseon such services for those valuations and their failure to accurately price those securities may result in inaccurate valuation of securities in our systems. In addition, in rare cases where market prices are not readily available, securities are valued in accordance with procedures applicable to that investment product. These procedures may utilize unobservable inputs that are not gathered from any active markets and involve considerable judgment. If these valuations prove to be inaccurate, our revenue and earnings from platform assets could be adversely affected.2022,2023, we had total indebtedness of $121.9$93.8 million. Our ability to make scheduled payments on or to refinance our indebtedness depends on our financial condition and operating performance, which are subject to prevailing economic and competitive conditions and certain financial, business and other factors beyond our control. We may not be able to maintain a level of cash flow from operating activities sufficient to permit us to pay the principal and interest on our indebtedness. If our cash flows and capital resources are insufficient to fund our debt service obligations, we may be forced to reduce or delay acquisitions and capital expenditures, sell assets, seek additional capital or restructure or refinance our indebtedness. Our ability to restructure or refinance indebtedness will depend on the condition of the capital markets and our financial condition at such time. Any refinancing of indebtedness could be at higher interest rates and may require us to comply with more onerous covenants, which could further restrict our business operations. The terms of existing or future debt instruments may restrict us from adopting some of these alternatives. In addition, any failure to make payments of interest and principal on our outstanding indebtedness on a timely basis could harm our ability to incur additional indebtedness. In the absence of sufficient cash flows and capital resources, we could face substantial liquidity problems and might be required to dispose of material assets or operations to meet our debt service and other obligations. Our 2022 Credit Agreement (as defined in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources”) currently restricts our ability to dispose of assets and our use of the proceeds from such disposition. We may not be able to consummate those dispositions, and the proceeds of any such disposition may not be adequate to meet any debt service obligations then due. Any of these circumstances could adversely affect our results of operations, financial condition or business.may requirerequires us to maintain certain financial ratios. These restrictions may also limit our ability to obtain future financings, to withstand a future downturn in our business or the economy in general, or to otherwise conduct necessary corporate activities. We may also be prevented from taking advantage of acquisitions or other business opportunities that arise because of the limitations that the restrictive covenants under our 2022 Credit Agreement impose on us. A breach of any covenant in our 2022 Credit Agreement would result in a default under the applicable agreement after any applicable grace periods. A default, if not waived, could result in acceleration of the indebtedness outstanding under the 2022 Credit Agreement and our inability to borrow thereunder. The accelerated indebtedness would become immediately due and payable. If that occurs, we may not be able to make all of the required payments or borrow on short notice sufficient funds to refinance such indebtedness. Even if new financing were available at that time, it may not be on terms that are acceptable to us.the Financial Industry Regulatory Authority (“FINRA”)FINRA regulations may under certain circumstances restrict the payment of dividends by a registered broker-dealer. Compliance with this regulation may impede our ability to receive dividends from our subsidiary AssetMark Brokerage, LLC. to implement effective preventive measures against all cyber threats. No security solution, strategy, or measures can address all possible security threats or block all methods of penetrating a network or otherwise perpetrating a security incident. The risk of unauthorized circumvention of our security measures or those of our third-party providers, clients and partners has been heightened by advances in computer and software capabilities and the increasing sophistication of hackers, including those operating on behalf of nation-state actors, who employ complex techniques involving the theft or misuse of personal and financial information, counterfeiting, “phishing” or social engineering incidents, account takeover attacks, denial or degradation of service attacks, malware, fraudulent payment and identity theft. Because the techniques used by hackers change frequently and are increasingly complex and sophisticated, and new technologies may not be identified until they are launched against a target, we and our third-party service providers may be unable to anticipate these techniques or detect an incident, assess its severity or impact, react or appropriately respond in a timely manner or implement adequate preventative measures. Our systems are also subject to compromise from internal threats, such as theft, misuse, unauthorized access or other improper actions by employees, service providers and other third parties with otherwise legitimate access to our systems or databases. The latency of a compromise is often measured in months, but could be years, and we may not be able to detect a compromise in a timely manner.financial condition, results of operations, financial condition and reputation. Moreover, there could be public announcements regarding any such incidents and any steps we take to respond to or remediate such incidents, and if securities analysts or investors perceive these announcements to be negative, it could, among other things, have a substantial adverse effect on the price of our common stock. In addition, our remediation efforts may not be successful. issues in the United States and abroad. We are subject to a variety of laws and regulations that apply to our collection, use, retention, protection, disclosure, transfer and other processing of personal information, including our National Security Agreements with the Committee on Foreign Investment in the United States (“CFIUS”), and our handling of personal data is regulated by federal, state and international governmental authorities and regulatory agencies. In addition to such laws and regulations, we may be subject to self-regulatory standards or other rules pertaining to information security and data protection proposed by privacy advocates, industry groups, other self-regulatory bodies or other information security or data protection-related organizations. These and other industry standards may legally or contractually apply to us, or we may elect to comply with such standards. Further, our contractual arrangements may impose additional, or more stringent, obligations upon us relating to our collection, use, retention, protection, disclosure, transfer and other processing of personal, financial and other data.new disclosures to such residents. Specifically, among other things, the CCPA created new consumer rights, and imposes corresponding obligations on covered businesses, relating to the access to, deletion of and sharing of personal information collected by covered businesses, including California residents’ right to access and delete their personal information, opt out of certain sharing and sales of their personal information and receive detailed information about how their personal information is used. The CCPA provides for civil penalties for violations, as well as a private right of action for certain data breaches that result in the loss of personal information. This private right of action is expected to increase the likelihood of, and risks associated with, data breach litigation. The CCPA has already been amended several times, and further amendments may be enacted. Although interpretive guidance through enforcement cases brought by the California Office of the Attorney General is becoming available, even in its current form, it remains unclear how various provisions of the CCPA will be interpreted and enforced. Additionally, on November 3, 2020, California voters approved a further amendment to the CCPA, the California Privacy Rights Act (the “CPRA”), which will taketook effect in most material respects on January 1, 2023. The CPRA significantly modifiesmodified the CCPA, including by expanding consumers’ rights with respect to certain personal information and creating a new state agency to oversee implementation and enforcement efforts, potentially resultingwhich has resulted in further uncertainty and requiringhas caused us to incur additional costs and expenses related to our compliance efforts. It remains unclear how various provisions of the CCPA and CPRA will be interpreted and enforced. Numerous other states, including Virginia, Utah, Connecticut, Colorado and Colorado,Iowa, have also enacted or are in the process of enacting or considering comprehensive state-level data privacy and security laws, rules and regulations. Compliance with these state laws may require us to modify our data processing practices and policies and may increase our compliance costs and potential liability. There is also discussion in Congress of a new comprehensive federal data protection and privacy law to which we likely would be subject if it is enacted.whichthat would require financial advisers, investment companies and public companies to adopt and implement formal cybersecurity policies, report significant cybersecurity incidents to the SEC and provide enhanced disclosure of cybersecurity risks and incidents to investors. The proposed rules are subject to a comment period, and the final rules adopted by the SEC may differ significantly from the proposed rules. If adopted as proposed, the rules are expected to increase the cost of operating our business and will likely require additional time and resources dedicated to reporting and compliance matters.business, and harming our results of operations, financial condition andor business.third countries the European Commission has determined do not provide adequate data protections under their laws. On June 4, 2021, the European Commission adopted new Standard Contractual Clauses, which impose on companies additional obligations relating to data transfers, including the obligation to conduct a transfer impact assessment and, depending on a party’s role in the transfer, to implement additional security measures and to update internal privacy practices. As of September 27, 2021, companies must use the new Standard Contractual Clauses to govern data transfers made absent an adequacy determination or appropriate safeguards, and as of December 27, 2022, companies must replace existing Standard Contractual Clauses to additional risk of infringement or misappropriation claims if we hire an employee who possesses third-party proprietary information who decides to use such information in connection with our investment solutions, services or business processes without such third party’s authorization. Furthermore, third parties may in the future assert intellectual property infringement claims against our customers, which, in certain circumstances, we have agreed to indemnify.andfrom or operations exclusively within the United States,PRC, we are not subject to regulation by foreignPRC authorities. However, because HTSC, the ultimate parent company of our controlling stockholder, is an enterprise incorporated under the laws of the PRC, our controlling stockholder isand HTSC are subject to and must comply with PRC laws and regulations promulgated by PRC governmental authorities. Such regulations may influence the decisions of our controlling stockholder, as well as those of its director appointees serving on our board of directors, regarding our business and operations. Certain of these regulations require our controlling stockholder to approve specific corporate actions taken by us, including any amendment to our certificate of incorporation; certain mergers, acquisitions, asset sales and divestments that we may seek to undertake; and certain related-party transactions in which we are involved. In addition,•obtaining approval from or filing with the China National Development and Reform Commission (the “NDRC”), for certain debt issuances by us, or certain investments we seek to make involving a sensitive industry, country or region, as defined by the NDRC; and•filing with the China Securities Regulatory Commission (the “CSRC”), and registering with the State Administration of Foreign Exchange, to provide us with financing or to guarantee our obligations.The Committee on Foreign Investment in the United States (“CFIUS”), to include certain non-passive, non-controlling investments (including certain investments in entities that hold or process personal information about U.S. nationals), certain acquisitions of real estate even with no underlying U.S. business, transactions the structure of which is designed or intended to evade or circumvent CFIUS jurisdiction and any transaction resulting in a “change in the rights” of a foreign person in a U.S. business if that change could result in either control of the business or a covered non-controlling investment. FIRRMA also subjects certain categories of investments to mandatory filings. If a particular proposed acquisition or investment by us in a U.S. business falls within CFIUS’s jurisdiction, we may determine that we are required to make a mandatory filing or that we will submit to CFIUS review on a voluntary basis, or to proceed with the transaction without submitting to CFIUS and risk CFIUS intervention, before or after closing the transaction. CFIUS may decide to block or delay an acquisition or investment by us, impose conditions with respect to such acquisition or investment or order us to divest all or a portion of a U.S. business that we acquired or in which we invested without first obtaining CFIUS approval, which may limit the attractiveness of or prevent us from pursuing certain acquisitions or investments that we believe would otherwise be beneficial to us and our stockholders. In addition, among other things, FIRRMA authorizes CFIUSThese risks have and may continue to prescribeincrease due to geopolitical, policy or regulatory developments, particularly with regard to U.S.-PRC relations.defining “foreign person” differently in different contexts, which could result in less favorable treatment for investments and acquisitions by companies from countriesconcerning the PRC, may adversely impact our results of “specialconcern.” If such future regulationsoperations, financial condition or other actions by the U.S. government impose additional burdens on acquisition and investment activities involving PRC and PRC-controlled entities,business, our ability to consummate transactionsraise capital or the market price of our common stock.might otherwise be beneficialhave led to, and may in the future make statements or take actions that would lead to, changes in relations between the United States and the PRC, which statements and actions could impact companies, including us, with connections to the PRC. In particular, the United States has imposed sanctions and restrictions on the PRC, and may in the future impose policies on or increase scrutiny of companies in the PRC (such as HTSC) or in the United States with significant PRC ownership (such as us) that could restrict or negatively impact our stockholdersbusiness or our ability to access the U.S. capital markets. More broadly, changes in political conditions in the PRC and changes in the state of PRC-U.S. relations, including any tensions relating to potential military conflict between the PRC and Taiwan, are difficult to predict and could lead to policies or regulations that adversely affect our results of operations or financial condition on account of our controlling stockholder’s ties to the PRC. We believe the foregoing has impacted and may be hindered.subsidiary, issubsidiaries, are registered with the SEC under the Investment Advisers Act of 1940 (as amended, the “Advisers Act”) and isare regulated thereunder. In addition, manyMany of our investment advisory services are conducted pursuant to the nonexclusive safe harbor from the definition of an “investment company” provided under Rule 3a-4 under the Investment Company Act of 1940 (as amended, the “1940 Act”). If Rule 3a-4 were to cease to be available, or if the SEC were to modify the rule or its interpretation of how the rule is applied, our business could be adversely affected. Certain of our registered investment adviser subsidiaries provideIn addition, AMI provides advice to certain mutual fund clients. Mutual funds are registered as “investment companies” under the 1940 Act. The Advisers Act and the 1940 Act, together with related regulations and interpretations of the SEC, impose numerous obligations and restrictions on investment advisers and mutual funds, including requirements relating to the safekeeping of client funds and securities,securities; limitations on advertising, including recent amendments addressing the use of hypothetical performance, time periods for performance, testimonials and endorsements in advertising; disclosure and reporting obligations,obligations; prohibitions on fraudulent activities,activities; restrictions on transactions between an adviser and its clients, and between a mutual fund and its advisers and affiliates,affiliates; and other detailed operating requirements, as well as general fiduciary obligations.These includeRegistration as a CPO imposes additional compliance obligations on AMI, including disclosure and reporting requirements, restrictions on advertising, registration and licensing of certain personnel and conduct and anti-fraud requirements, among others. AMI is not registered with the CFTC as a commodity trading advisor, based on its determination that it willcan rely on certain exemptions from registration provided by the CEA and the rules thereunder. The CFTC has not passed uponIf applicable exemptions cease to the validity of AMI’s determination.AssetMark Brokerage, LLC (“AMB”),be available to AMI, it may become subject to additional compliance obligations as a commodity trading advisor.usAMB and conduct administrative proceedings that can result in censure, fine, the issuance of cease-and-desist orders or the suspension or expulsion of a broker-dealer from registration or membership. AMB is registered with the SEC and with all 53 U.S. states and jurisdictions as a limited purpose broker-dealer providing mutualFurther, broker-dealers areWhile AMB is a limited purpose broker-dealer that does not facilitate retail business and exists solely to underwrite and distribute the Proprietary Mutual Funds of its affiliated adviser, AMI, it is still subject to regulations whichthat cover all applicable aspects of their business, which may include sales practices, anti-money laundering, handling of material non-public information, safeguarding data, recordkeeping, reporting and the conduct and qualifications of directors, officers, employees, representatives and other associated persons.AssetMark Trust Companyin June 2020, certain SEC rulemakings and interpretations went into effect that (i) require broker-dealers to act in the “best interest” of retail customers when making a recommendation, without placing the financial or other interests of the broker-dealer ahead of the interest of the retail customer (“ATC”Regulation Best Interest”), our(ii) require that broker-dealers and investment advisers deliver to retail investors a short-form disclosure document describing the firm’s relationship with and duties to the customer (“Form CRS”), (iii) clarify the scope of the “solely incidental” exception to Advisers Act registration by brokers when providing investment advice and (iv) clarify the SEC’s views on the fiduciary duty that investment advisers owe to their clients. Compliance with “Regulation Best Interest” and Form CRS disclosure remains an area of focus for the SEC and FINRA. subsidiary licensed with, and regulatedsubject to supervision, periodic examination, and regulation by, the Arizona Department of Insurance and Financial Institutions,Institutions. ATC is one of several custodians on our platform that offers integrated custodial, brokerage and related services to clients of our adviser clients. Further, ATC isand AMB are subject to the Bank Secrecy Act, , as amended by the USA PATRIOT Act of 2001, and the implementing regulations thereunder, which require financial institutions, including broker-dealers, to establish anti-money laundering compliance programs, file suspicious activity and other reports with the U.S. government and maintain certain records. Broker-dealers, including AMB and mutual funds must also implement related customer identification procedures and customer due diligence procedures, including beneficial ownership identification procedures. these and other applicable laws and regulations could result in regulatory fines, suspensions of personnel or other sanctions, including revocation of our registration or that of our subsidiaries as an investment adviser, broker-dealer, commodity pool operatorCPO or trust company, as the case may be, which could, among other things, require changes to our business practices and scope of operations or harm our reputation, which, in turn could have a material adverse effect on our results of operations, financial condition or business.
We also rely on exemptions from various regulatory regimes. These exemptions are sometimes highly complex and may in certain circumstances depend on compliance by third parties whom we do not control. If for any reason these exemptions were to become unavailable to us, we could become subject to regulatory action, or third-party claims or additional compliance costs, and our results of operations, financial condition or business could be materially and adversely affected.on June 30, 2020, certain SEC rulemakings and interpretations went into effect that (i) require broker-dealers to act in the “best interest” of retail customers when making a recommendation, without placing the financial or other interests of the broker-dealer ahead of the interest of the retail customer, (ii) require that broker-dealers and investment advisers deliver to retail investors a short-form disclosure document describing the firm’s relationship with and duties to the customer, (iii) clarify the scope of the “solely incidental” exception to Advisers Act registration by brokers when providing investment advice and (iv) clarify the SEC’s views on the fiduciary duty that investment advisers owe to their clients. Compliance with Regulation Best Interest and Form CRS disclosure remains an area of focus for the SEC and FINRA. Additionally, on December 22, 2020, the SEC voted to adoptadopted reforms under the Advisers Act to modernize the rules that govern investment adviser advertisements and payments to solicitors. The compliance date to adopt the reforms under the Advisers Act iswas November 4, 2022. Additionally, on October 26, 2022, the SEC proposed a new rule and rule amendments under the Advisers Act to prohibit registered investment advisers from outsourcing certain services and functions without conducting due diligence and monitoring of the service providers. Many investment advisers, including us, are re-evaluating their business models in light of these and other similar regulatory changes, and any ultimate change to their business models may affect their desire or ability to use our services and may therefore adversely affect our business. Legislative or regulatory actions and any required changes to our business operationsorand divert financial and management resources from our regular business activities. (including shorter comment periods), ever-changing regulatory interpretations of existing laws and regulations and the retroactive imposition of new interpretationsTheseIn particular, the SEC over the past several years has undertaken an aggressive rulemaking agenda covering a broad array of topics, including securities market structure and settlement, regulatory reporting and recordkeeping, investor disclosures, the scope of various registration requirements, cybersecurity and money market funds, among others. Regulatory examinations or investigations could result in the identification of matters that may require remediation activities or enforcement proceedings by regulators. For example, as previously disclosed, we are currently under investigation by the regulator.SEC’s Division of Enforcement concerning disclosure practices with respect to potential conflicts of interest among our subsidiaries, which we believe is part of a broader SEC initiative examining disclosure of potential conflicts of interest in the investment advisory industry. In the first quarter of 2023, we recorded a $20 million accrual with respect to this matter. The direct and indirect costs of responding to thesethis or other examinations, or of defending ourselves in any litigation could be significant. Additionally, actions brought against us may result in settlements, awards, injunctions, finessignificant, and penalties. Thethe outcome of examinations, litigation or regulatory action is inherently difficult to predict and could have an adverse effect on our ability to offer some of our products and services.proprietary mutual fundsour Proprietary Mutual Funds and third-party mutual funds. In certain circumstances, such arrangements allow us to receive payments from multiple parties based on the same client asset. Further, we operate as ana registered investment adviser;adviser, our status as a registered investment adviserwhich subjects us to a legal obligation to operate under the fiduciary standard. The SEC and other regulators have increased their scrutiny of potential conflicts of interest, and we have implemented policies and procedures to mitigate such conflicts of interest. However, if we fail to fully disclose or adequately mitigate conflicts of interest, become subject to retroactive determinations that past disclosures or mitigation efforts were not sufficient or if our policies and procedures are not effective, we could face reputational damage, litigation or regulatory proceedings or penalties, any of which may adversely affect our reputation, results of operations or business.69.0%68.6% voting interest in us as of June 30, 2022.2023. An assignment or a change of control could be deemed to occur in the future if we, or one of our investment adviser subsidiaries, were to gain or lose a controlling person, or in other situations that may depend significantly on the facts and circumstances. In any such case, we would seek to obtain the consent of our advisory clients, including any funds, to the assignment. Further, our U.S. broker-dealer subsidiary, AMB, is a member of FINRA and subject to FINRA rules, which could impede or delay a change of control. FINRA Rule 1017 generally provides that FINRA approval must be obtained in connection with any transaction resulting in a single person or entity acquiring or controlling, directly or indirectly, 25% or more of a FINRA member firm’smember’s or its parent company’s equity. If we fail to obtain such consents or approval, our results of operations, financial condition or business could be adversely affected.69.0%68.6% of our outstanding shares of common stock as of June 30, 2022,2023, and controls our management and affairs, including determining the outcome of matters requiring stockholder approval. So long as HTSC continues to own a significant amount of the outstanding shares of our common stock, even if such amount is less than a majority, HTSC will continue to be able to strongly influence or effectively control our decisions, including matters requiring approval by our stockholders (including the election ofwill remainas our controlling stockholder, and may from time to time make strategic decisions that may be different from the decisions that we would have made on our own. HTSC’s decisions with respect to us or our business may be resolved in ways that favor HTSC and therefore HTSC’s own shareholders, which may not coincide with the interests of our other stockholders. Although our Audit and Risk Committee reviews and approves all proposed related party transactions, including any transactions between us and HTSC, we may not be able to resolve certain conflicts of interest, or the resolution may be less favorable to us and our other stockholders.following:
following:•market conditions in the broader stock market in general, or in our industry in particular;•changes in the interest rate environment;•actual or anticipated fluctuations in our quarterly financial and operating results;•introduction of new products and services by us or our competitors;•issuance of new or changed securities analysts’ reports or recommendations;•sales of large blocks of our stock by our employees or controlling stockholder or the perception that our employees or controlling stockholder will sell our stock;•additions or departures of key personnel;•regulatory developments, litigation and governmental investigations; and•economic, political and geopolitical conditions or events, including public health concerns or epidemics such as the COVID-19 pandemic. we have listed our common stock is listed on the NYSE under the symbol “AMK,” we cannot assure you that an active trading market for our common stock will continue on that exchange or elsewhere. The majority of our shares of common stock are not available for sale in the public market. Accordingly, we cannot assure you of the likelihood of your ability to sell your shares of our common stock when desired, the prices that you may be able to obtain for your shares or the liquidity of any trading market.2022,2023, has the right, subject to certain exceptions and conditions, to require us to register its shares of common stock under the Securities Act and to participate in future registrations of securities by us. Registration of any of these outstanding shares of common stock would result in such sharesInWe have in the future, wepast and may alsoin the future issue our securities in connection with investments or acquisitions, and such issuances could constitute a material portion of the then-outstanding shares of our common stock. Any such issuance of additional securities in connection therewith may result in additional dilution to our stockholders.statements.statements, as well as exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. We cannot predict whether investors have or will find our common stock less attractive ifbecause we rely on these exemptions. If some investors find our common stock less attractive as a result of our reliance on these exemptions, there may be a less active trading market for our common stock and our stock price may be more volatile.statements.statements, as well as exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. In addition, we have and may continue to delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies, as permitted by the JOBS Act.them.applicable regulatory and reporting requirements. Our management and other personnel will need to devote a substantial amount of time to these compliance initiatives, and we expect that these initiatives will substantially increase our legal and financial compliance costs. Such increased costs may require us to reduce costs in other areas of our business or increase the prices of our services. We cannot predict or estimate the amount of additional costs we may incur as a result of losing our “emerging growth company” status or the precise timing of such costs.Our management has limited experience managing a public company, and We expect to lose our current resources may not be sufficient to fulfill our public company obligations.As a public company, we are subject to various regulatory requirements, including those of the SEC and the NYSE. These requirements relate to, among other matters, record keeping, financial reporting and corporate governance. Our management team has limited experience“emerging growth company” in managing a public company, and our internal infrastructure may not be adequate to support our increased regulatory obligations. Further, we may be unable to hire, train or retain necessary staff and may initially be reliant on engaging outside consultants or professionals to overcome our lack of experience. Our business could be adversely affected if our internal infrastructure is inadequate, we are unable to engage outside consultants or are otherwise unable to fulfill our public company obligations.•a staggered board and restrictions on the ability of our stockholders to fill a vacancy on the board of directors;•the authorization of undesignated preferred stock, the terms of which may be established and shares of which may be issued without stockholder approval;•advance notice requirements for stockholder proposals;•certain limitations on convening special stockholder meetings; and•the amendment of certain provisions of our certificate of incorporation and bylaws only by the affirmative vote of the holders of at least two-thirds in voting power of all outstanding shares of our stock entitled to vote thereon, voting together as a single class.Not applicable.
Michael Kim, President and Chief Client Officer, adopted a 10b5-1 plan on May 26, 2023. The plan is intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) and will take effect on August 25, 2023. The total number of shares to be sold pursuant to such plan is 91,542 shares of our common stock. The plan will automatically terminate on December 31, 2024, irrespective of whether any or all of the shares are sold.Exhibit
NumberExhibit
DescriptionForm File No. Exhibit Filing
DateFiled
Herewith3.1 S-1/A 333-232312 3.1 July 8, 2019 3.2 8-K 001-38980 3.1 June 7, 2023 3.3 8-K 001-38980 3.1 July 22, 2019 4.1 S-1 333-232312 4.2 June 24, 2019 10.1 X 10.2 X 31.1 X 31.2 X 32.1* X 32.2* X 101.INS Inline XBRL Instance Document X 101.SCH Inline XBRL Taxonomy Extension Schema Document X 101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document X 101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document X 101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document X 101.PRE Inline XBRL Extension Presentation Linkbase Document X 104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) 8, 2022.4, 2023.ASSETMARK FINANCIAL HOLDINGS, INC. By: By:By: By:59