10-Q 1 amk-10q_20200331.htm 10-Q amk-10q_20200331.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

(Mark One) 

 

 

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

For the quarterly period ended March 31, 2020

 

OR

 

 

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

For the transition period from to

 

Commission File Number: 001-38980

 

ASSETMARK FINANCIAL HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

 

 

Delaware

(State or other jurisdiction of

incorporation or organization)

 

 

 

30-0774039

(I.R.S. Employer

Identification Number)

 

 

 

 

 

 

 

1655 Grant Street, 10th Floor

Concord, California 94520

(Address of principal executive offices)

 

 

 

 

 

 

 

 

 

(925) 521-2200

(Registrant’s telephone number, including area code)

 

 

 

 

 

 

 

 

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

 

Title of each class

Trading symbol(s)

Name of each exchange on which registered

Common stock, par value $0.001 per share

AMK

New York Stock Exchange

 

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

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

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

 

Large accelerated filer

 

Accelerated filer

Non-accelerated filer

 

Smaller reporting company

 

 

 

Emerging growth company

 

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

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

As of April 30, 2020, the number of shares of the registrant’s common stock outstanding was 72,390,080.

 

 

 

 


ASSETMARK FINANCIAL HOLDINGS, INC.

 

TABLE OF CONTENTS

 

 

 

Page No.

 

Special Note Regarding Forward-Looking Statements

2

 

 

 

 

PART I. FINANCIAL INFORMATION

 

Item 1.

Financial Statements (unaudited)

3

 

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

3

 

Condensed Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2020 and 2019

4

 

Condensed Consolidated Statements of Stockholder’s Equity for the Three Months Ended March 31, 2020 and 2019

5

 

Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2020 and 2019

6

 

Notes to Unaudited Condensed Consolidated Financial Statements

7

Item 2.

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

16

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

30

Item 4.

Controls and Procedures

31

 

 

 

 

PART II.  OTHER INFORMATION

 

Item 1.

Legal Proceedings

32

Item 1A.

Risk Factors

32

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

52

Item 3.

Defaults Upon Senior Securities

52

Item 4.

Mine Safety Disclosures

52

Item 5.

Other Information

52

Item 6.

Exhibits

53

 

Signatures

54

 

 

 

1


SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

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

2


PART I.  FINANCIAL INFORMATION

Item 1. Financial Statements.

AssetMark Financial Holdings, Inc.

Condensed Consolidated Balance Sheets

(in thousands except share data and par value)

 

 

 

March 31,

2020

 

 

December 31,

2019

 

 

 

(unaudited)

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

80,161

 

 

$

96,341

 

Restricted cash

 

 

8,500

 

 

 

9,000

 

Investments, at fair value

 

 

6,888

 

 

 

7,275

 

Fees and other receivables, net

 

 

12,199

 

 

 

9,679

 

Income tax receivable, net

 

 

5,878

 

 

 

3,994

 

Other current assets

 

 

12,135

 

 

 

6,565

 

Total current assets

 

 

125,761

 

 

 

132,854

 

Property, plant and equipment, net

 

 

7,207

 

 

 

7,067

 

Capitalized software, net

 

 

69,372

 

 

 

69,814

 

Other intangible assets, net

 

 

660,089

 

 

 

651,915

 

Operating lease right-of-use assets

 

 

32,682

 

 

 

 

Goodwill

 

 

338,623

 

 

 

327,310

 

Total assets

 

$

1,233,734

 

 

$

1,188,960

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

600

 

 

$

967

 

Accrued liabilities and other current liabilities

 

 

34,767

 

 

 

40,610

 

Total current liabilities

 

 

35,367

 

 

 

41,577

 

Long-term debt, net

 

 

121,770

 

 

 

121,692

 

Other long-term liabilities

 

 

14,480

 

 

 

16,440

 

Long-term portion of operating lease liabilities

 

 

36,608

 

 

 

 

Deferred income tax liabilities, net

 

 

150,724

 

 

 

150,390

 

Total long-term liabilities

 

 

323,582

 

 

 

288,522

 

Total liabilities

 

 

358,949

 

 

 

330,099

 

Commitments and contingencies

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Common stock, $0.001 par value (675,000,000 shares authorized and 72,390,080

   shares issued and outstanding as of March 31, 2020 and December 31, 2019)

 

 

72

 

 

 

72

 

Additional paid-in capital

 

 

809,594

 

 

 

796,406

 

Retained earnings

 

 

65,119

 

 

 

62,383

 

Total stockholders’ equity

 

 

874,785

 

 

 

858,861

 

Total liabilities and stockholders’ equity

 

$

1,233,734

 

 

$

1,188,960

 

 

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

3


AssetMark Financial Holdings, Inc.

Unaudited Condensed Consolidated Statements of Comprehensive Income

(in thousands except share and per share data)

 

 

 

Three Months Ended

March 31,

 

 

 

2020

 

 

2019

 

Revenue:

 

 

 

 

 

 

 

 

Asset-based revenue

 

$

105,650

 

 

$

83,063

 

Spread-based revenue

 

 

7,951

 

 

 

7,549

 

Other revenue

 

 

1,289

 

 

 

1,702

 

Total revenue

 

 

114,890

 

 

 

92,314

 

Expenses:

 

 

 

 

 

 

 

 

Asset-based expenses

 

 

35,015

 

 

 

28,102

 

Spread-based expenses

 

 

1,289

 

 

 

478

 

Employee compensation

 

 

43,497

 

 

 

31,885

 

General and operating expenses

 

 

19,365

 

 

 

12,292

 

Professional fees

 

 

3,831

 

 

 

2,386

 

Depreciation and amortization

 

 

8,409

 

 

 

6,896

 

Total expenses

 

 

111,406

 

 

 

82,039

 

Interest expense

 

 

1,627

 

 

 

4,024

 

Other expense

 

 

50

 

 

 

 

Income before income taxes

 

 

1,807

 

 

 

6,251

 

Provision for (benefit from) income taxes

 

 

(929

)

 

 

3,440

 

Net income

 

 

2,736

 

 

 

2,811

 

Unrealized gain on investments, net of tax

 

 

 

 

 

16

 

Net comprehensive income

 

$

2,736

 

 

$

2,827

 

Net income per share attributable to common shareholder:

 

 

 

 

 

 

 

 

Net income per share, basic and diluted

 

$

0.04

 

 

$

0.04

 

Weighted average number of common shares outstanding, basic

 

 

67,142,459

 

 

 

66,150,000

 

Weighted average number of common shares outstanding, diluted

 

 

69,317,261

 

 

 

66,150,000

 

 

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

4


AssetMark Financial Holdings, Inc.

Unaudited Condensed Consolidated Statements of Stockholders’ Equity

For the three months ended March 31, 2020 and 2019

(in thousands except share data)

 

 

 

Common stock

 

 

Additional

paid-in

 

 

Retained

 

 

Accumulated

other

comprehensive

 

 

Total

stockholders’

 

 

 

Shares

 

 

Amount

 

 

capital

 

 

earnings

 

 

income

 

 

equity

 

Balance at December 31, 2018

 

 

66,150,000

 

 

$

66

 

 

$

635,096

 

 

$

63,846

 

 

$

3

 

 

$

699,011

 

Net income

 

 

 

 

 

 

 

 

 

 

 

2,811

 

 

 

 

 

 

2,811

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

16

 

 

 

16

 

Share-based employee compensation

 

 

 

 

 

 

 

 

5,226

 

 

 

 

 

 

 

 

 

5,226

 

Balance at March 31, 2019

 

 

66,150,000

 

 

$

66

 

 

$

640,322

 

 

$

66,657

 

 

$

19

 

 

$

707,064

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2019

 

 

72,390,080

 

 

$

72

 

 

$

796,406

 

 

$

62,383

 

 

$

 

 

$

858,861

 

Net income

 

 

 

 

 

 

 

 

 

 

 

2,736

 

 

 

 

 

 

2,736

 

Share-based employee compensation

 

 

 

 

 

 

 

 

13,188

 

 

 

 

 

 

 

 

 

13,188

 

Balance at March 31, 2020

 

 

72,390,080

 

 

$

72

 

 

$

809,594

 

 

$

65,119

 

 

$

 

 

$

874,785

 

 

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

 

5


AssetMark Financial Holdings, Inc.

Unaudited Condensed Consolidated Statements of Cash Flows

(in thousands)

 

 

 

Three Months Ended March 31,

 

 

 

2020

 

 

2019

 

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

 

 

 

 

Net income

 

$

2,736

 

 

$

2,811

 

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

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

8,409

 

 

 

6,896

 

Interest

 

 

78

 

 

 

172

 

Deferred income taxes

 

 

522

 

 

 

(132

)

Share-based compensation

 

 

13,188

 

 

 

5,226

 

Changes in certain assets and liabilities:

 

 

 

 

 

 

 

 

Fees and other receivables, net

 

 

(1,835

)

 

 

(3,755

)

Other current assets

 

 

944

 

 

 

(815

)

Accounts payable, accrued expenses and other liabilities

 

 

(12,909

)

 

 

(10,694

)

Income tax receivable and payable

 

 

(1,884

)

 

 

3,060

 

Net cash provided by operating activities

 

 

9,249

 

 

 

2,769

 

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

 

 

 

 

Purchase of OBS, net of cash received

 

 

(18,404

)

 

 

 

Purchase of investments

 

 

(1,014

)

 

 

(308

)

Purchase of property and equipment

 

 

(416

)

 

 

(93

)

Purchase of computer software

 

 

(6,095

)

 

 

(4,619

)

Net cash used in investing activities

 

 

(25,929

)

 

 

(5,020

)

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

 

 

 

 

Payments on long-term debt

 

 

 

 

 

(625

)

Net cash (used in) provided by financing activities

 

 

 

 

 

(625

)

Net change in cash, cash equivalents, and restricted cash

 

 

(16,680

)

 

 

(2,876

)

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

 

 

105,341

 

 

 

112,354

 

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

 

$

88,661

 

 

$

109,478

 

SUPPLEMENTAL CASH FLOW INFORMATION

 

 

 

 

 

 

 

 

Income taxes paid

 

$

365

 

 

$

 

Interest paid

 

$

1,547

 

 

$

3,852

 

Non-cash operating activities:

 

 

 

 

 

 

 

Non-cash changes to right-of-use assets

 

$

38,495

 

 

$

 

Non-cash changes to lease liabilities

 

$

39,839

 

 

$

 

 

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

 

6


AssetMark Financial Holdings, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

 

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

Note 1. Organization and Nature of Business

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

The Company’s legal entity structure as of March 31, 2020 was as follows:

 

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

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

AssetMark, Inc. (“AMI”) is a registered investment adviser that was incorporated under the laws of the State of California on May 13, 1999. AMI offers a broad array of wealth management solutions to individual investors through financial advisers by

7

 


AssetMark Financial Holdings, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

 

providing an open-architecture product platform along with tailored client advice, asset allocation options, practice management, support services and technology solutions to the financial adviser channel. AMI serves as investment adviser to the Company’s proprietary GuideMark Funds, GuidePath Funds and the Savos Dynamic Hedging Fund, each of which is a mutual fund offered to clients of financial advisers.

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

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

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

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

OBS Financial Services, Inc. (“OBS”) is a registed investment advisor that was incorporated under the laws of the State of Delaware on November 2, 2005. OBS provides a broad suite of integrated wealth management services for institutional and individual investors. WBI OBS Financial, LLC (“OBL”) is a limited liability company that was formed under the laws of the State of Ohio on October 6, 2011. OBL is a holding company whose only assets are the share of common stock of OBS Holdings, Inc. (“OBF”). OBF is a corporation that was incorporated under the laws of the State of Ohio on April 14, 2000. OBF is a holding company whose only assets are the shares of common stock of OBS. See Note 3 for additional details on the acquisition completed during the quarter ended March 31, 2020.

Note 2. Summary of Significant Accounting Policies

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

Risks and Uncertainties

The outbreak of COVID-19 has rapidly evolved into a pandemic and has adversely impacted global commercial activities. Given the uncertainty around the duration and extent of the COVID-19 pandemic, management cannot accurately predict at this time the potential impact on the Company’s results of operations, financial condition or liquidity, although management expects that it will adversely affect the Company’s operations and operating results in the second quarter for 2020 and subsequent periods.

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

8


AssetMark Financial Holdings, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

 

Recent Accounting Pronouncements – Adopted

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which requires lessees to recognize leases on-balance sheet and disclose key information about leasing arrangements. The new standard establishes a right-of-use (“ROU”) model that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than 12 months. Leases will be classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement. The Company adopted the new standard on January 1, 2020 using the modified retrospective transition method with certain available transitional practical expedients. The Company has elected to apply the short-term lease exemption to all of its classes of underlying assets. The standard had a material impact on the Company’s condensed consolidated balance sheets, but did not have an impact on the Company’s condensed consolidated statements of comprehensive income. The most significant impact was the recognition of right-to-use (“ROU”) assets and lease liabilities for operating leases. Adoption of the standard had no impact to previously reported results. The Company determines if an arrangement is a lease at inception. Operating leases are included in the other current assets, operating lease ROU assets, accrued liabilities and other current liabilities, and long-term portion of operating lease liabilities on the Company’s condensed consolidated balance sheets. The Company does not have material finance leases. ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligations to make payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the remaining lease term. The Company uses an estimated incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. Expense for lease payments is recognized on a straight-line basis over the lease term. The Company has lease agreements with lease and non-lease components. The Company has elected the practical expedient to exclude the non-lease component as part of the lease component for all asset classes. The majority of the Company’s lease agreements are facility leases. The Company’s leases have a weighted-average lease term of 7.8 years and used a weighted-average discount rate of 3.63% as of March 31, 2020.

Future minimum lease payments under non-cancellable leases as of March 31, 2020 is as follows:

 

Remainder of 2020

 

$

2,906

 

2021

 

 

5,525

 

2022

 

 

5,873

 

2023

 

 

5,710

 

2024

 

 

6,084

 

2025 and thereafter

 

 

19,662

 

Total

 

$

45,760

 

 

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

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

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

9


AssetMark Financial Holdings, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

 

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

Recent Accounting Pronouncements – Not Yet Adopted

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

Note 3. Acquisition of WBI OBS Financial, LLC

On September 30, 2019, the Company entered into a unit purchase agreement to acquire WBI OBS Financial, LLC, subject to closing conditions that included approval from the Committee on Foreign Investment in the United States (“CFIUS). On February 29, 2020, the Company closed the acquisition and paid a final purchase price of $21,496, net of working capital adjustments. The Company recorded goodwill of $11,313, adviser and trust relationships of $9,500 and deferred tax assets of $188 in connection with the acquisition.

Note 4. Goodwill and Intangible Assets

Goodwill

The Company’s goodwill balance was $338,623 and $327,310 as of March 31, 2020 and December 31, 2019, respectively. The Company, which has one reporting unit, performed an annual test for goodwill impairment in December for the years ended December 31, 2019 and 2018 and determined that goodwill was not impaired. The Company performed a qualitative test for goodwill impairment related to the COVID-19 pandemic and determined that an additional quantitative test was not necessary. Goodwill was not impaired as of March 31, 2020.

Intangible Assets

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

 

March 31, 2020

 

Gross carrying

amount

 

 

Accumulated

amortization

 

 

Net carrying

amount

 

 

Estimated useful life

Indefinite-lived intangible assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Broker-dealer relationships

 

$

570,480

 

 

$

 

 

$

570,480

 

 

 

Definite-lived intangible assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Trade names

 

 

45,830

 

 

 

(7,830

)

 

 

38,000

 

 

17 years

Broker-dealer license

 

 

11,550

 

 

 

(1,973

)

 

 

9,577

 

 

17 years

ATC regulatory status

 

 

23,300

 

 

 

(3,980

)

 

 

19,320

 

 

17 years

GFPC adviser relationships

 

 

14,250

 

 

 

(975

)

 

 

13,275

 

 

13 years

OBS adviser and trust relationships

 

 

9,500

 

 

 

(63

)

 

 

9,437

 

 

12 years

Total

 

$

674,910

 

 

$

(14,821

)

 

$

660,089

 

 

 

10


AssetMark Financial Holdings, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

 

 

December 31, 2019

 

Gross carrying

amount

 

 

Accumulated

amortization

 

 

Net carrying

amount

 

 

Estimated useful life

Indefinite-lived intangible assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Broker-dealer relationships

 

$

570,480

 

 

$

 

 

$

570,480

 

 

 

Definite-lived intangible assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Trade names

 

 

45,830

 

 

 

(7,256

)

 

 

38,574

 

 

17 years

Broker-dealer license

 

 

11,550

 

 

 

(1,829

)

 

 

9,721

 

 

17 years

ATC regulatory status

 

 

23,300

 

 

 

(3,689

)

 

 

19,611

 

 

17 years

GFPC adviser relationships

 

 

14,250

 

 

 

(721

)

 

 

13,529

 

 

13 years

Total

 

$

665,410

 

 

$

(13,495

)

 

$

651,915

 

 

 

 

The weighted average estimated remaining useful life was 14.9 years for trade names, the broker-dealer license, ATC regulatory status, GFPC adviser relationships and OBS adviser and trust relationships as of March 31, 2020. Amortization expense for definite-lived intangible assets was $1,326 and $1,009 for the three months ended March 31, 2020 and 2019, respectively. The Company performed an annual test for intangible assets impairment in December for the years ended December 31, 2019 and 2018 and determined that intangible assets were not impaired. The Company performed a test for intangible assets impairment due to the COVID-19 pandemic and determined that intangible assets were not impaired as of March 31, 2020.

The expected future amortization expense for intangible assets as of March 31, 2020 is as follows:

 

Remainder of 2020

 

$

4,353

 

2021

 

 

5,803

 

2022

 

 

5,803

 

2023

 

 

5,803

 

2024

 

 

5,803

 

2025 and thereafter

 

 

62,044

 

Total

 

$

89,609

 

 

 

Note 5. Accrued Liabilities and Other Current Liabilities

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

 

 

 

March 31,

2020

 

 

December 31,

2019

 

Accrued bonus

 

$

6,157

 

 

$

17,209

 

Compensation and benefits payable

 

 

7,821

 

 

 

7,591

 

Asset-based payables

 

 

4,273

 

 

 

3,718

 

Other accrued expenses

 

 

16,516

 

 

 

12,092

 

Total

 

$

34,767

 

 

$

40,610

 

 

Note 6. Other Long-Term Liabilities

Other long-term liabilities consisted of the following:

 

 

 

March 31,

2020

 

 

December 31,

2019

 

Contractor liability

 

$

2,805

 

 

$

3,083

 

Deferred compensation plan liability

 

 

6,529

 

 

 

6,885

 

Purchase commitments related to acquisition of GFPC

 

 

5,146

 

 

 

5,322

 

Deferred rent

 

 

 

 

 

1,150

 

Total

 

$

14,480

 

 

$

16,440

 

 

11


AssetMark Financial Holdings, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

 

Note 7. Fair Value Measurements

The following tables set forth the fair value of the Company’s financial assets and liabilities measured at fair value in the consolidated balance sheets as of March 31, 2020 and December 31, 2019, based on the three-tier fair value hierarchy:

 

 

 

March 31, 2020

 

 

 

Fair Value

 

 

Level I

 

 

Level II

 

 

Level III

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity investment and alternative investment securities funds(1)

 

$

359

 

 

$

359

 

 

$

 

 

$

 

Assets to fund deferred compensation liability(2)

 

 

6,529

 

 

 

6,529

 

 

 

 

 

 

 

Total assets

 

$

6,888

 

 

$

6,888

 

 

$

 

 

$

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deferred compensation liability(3)

 

$

6,529

 

 

$

6,529

 

 

$

 

 

$

 

Total liabilities

 

$

6,529

 

 

$

6,529

 

 

$

 

 

$

 

 

 

 

December 31, 2019

 

 

 

Fair Value

 

 

Level I

 

 

Level II

 

 

Level III

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity investment and alternative investment securities funds(1)

 

$

390

 

 

$

390

 

 

$

 

 

$

 

Assets to fund deferred compensation liability(2)

 

 

6,885

 

 

 

6,885

 

 

 

 

 

 

 

Total assets

 

$

7,275

 

 

$

7,275

 

 

$

 

 

$

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deferred compensation liability(3)

 

$

6,885

 

 

$

6,885

 

 

$

 

 

$

 

Total liabilities

 

$

6,885

 

 

$

6,885

 

 

$

 

 

$

 

(1)

The fair value of the Company’s rabbi trust, which is comprised of equity investment and alternative investment securities funds, is based on the month-end quoted market prices for the net asset value of the various funds and securities, which mature on a daily basis.

(2)

The deferred compensation asset fair value is based on the month-end quoted market prices for the net asset value of the various investment funds. The Company recognized unrealized (loss) gains of $(1,370) and $1,089 related to this asset within the statements of income and comprehensive income for the three months ended March 31, 2020 and year ended December 31, 2019, respectively.

(3)

The deferred compensation liability is included in other non-current liabilities in the consolidated balance sheets and its fair market value is based on the month-end market prices for the net asset value of the various funds of the Company’s rabbi trust in which the participants have selected. The Company recognized other expenses of $(1,370) and $1,089 related to this liability within the statements of income and comprehensive income for the three months ended March 31, 2020 and the year ended December 31, 2019, respectively.

 

Note 8. Asset-Based Expenses

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

 

 

 

Three Months Ended

March 31,

 

 

 

2020

 

 

2019

 

Strategist and manager fees

 

$

28,442

 

 

$

22,460

 

Premier broker-dealer fees

 

 

3,059

 

 

 

2,092

 

Custody fees

 

 

1,530

 

 

 

1,174

 

Fund advisory fees

 

 

1,081

 

 

 

1,718

 

Marketing allowance

 

 

903

 

 

 

515

 

External managers

 

 

 

 

 

142

 

Other

 

 

 

 

 

1

 

Total

 

$

35,015

 

 

$

28,102

 

 

Note 9. Debt

On November 14, 2018, the Company executed a Credit Agreement with Credit Suisse AG for a $250,000 term loan (the “Term Loan”) and a revolving line of credit (the “Revolver”) that permits the Company to borrow up to $20,000. The Term Loan matures on November 14, 2025 and the Revolver matures on November 14, 2023. On July 26, 2019, the Company made a partial repayment of

12


AssetMark Financial Holdings, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

 

$125 million of the Company’s outstanding indebtedness under the Term Loan. The repayment was considered a substantial modification and the debt was considered partially extinguished. As of March 31, 2020, $123.7 million aggregate principal amount of the Term Loan remained outstanding and the Revolver was undrawn. As of March 31, 2020, both the Term Loan and Revolver bear interest at the London InterBank Offered Rate (“LIBOR”) plus a margin of 3.0%. Interest expense was $1,627 and $4,024 for the three months ended March 31, 2020 and 2019, respectively.

Note 10. Share-Based Compensation

On July 3, 2019, the Company’s Board of Directors adopted, and the Company’s sole stockholder approved, the 2019 Equity Incentive Plan (the “2019 Equity Incentive Plan”), which became effective on July 17, 2019, the date of effectiveness of the Company’s IPO registration statement on Form S-1. As of March 31, 2020, 4,801,954 shares were available for issuance under the 2019 Equity Incentive Plan, which amount excluded the 85,737 shares of common stock subject to restricted stock units granted under the 2019 Equity Incentive Plan immediately following the pricing of the IPO.

Restricted Stock Awards

Prior to the liquidation and dissolution of AssetMark Holdings and the IPO, all officers and certain sales employees of AssetMark Holdings held Class C Common Units of AssetMark Holdings, which were intended to be treated as profits interests. Immediately following the pricing of the IPO, AssetMark Holdings liquidated and dissolved and distributed shares of the Company’s common stock to its members, including an aggregate number of restricted stock awards (“RSAs”) equal to 6,309,049 shares of the Company’s common stock to the holders of the Class C Common Units of AssetMark Holdings.

These RSAs are subject to the same vesting schedule as the Class C Common Units of AssetMark Holdings, with 50% of the RSAs scheduled to vest in three (3) equal installments on the third, fourth and fifth anniversaries of November 18, 2016 subject to the recipient’s continued employment through the vesting date, and 50% 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. The time-based vesting condition for these RSAs will be satisfied upon the holder’s continued service with the Company through November 2021. In the event that the vesting conditions are not satisfied for any portion of an award, the shares covered by such RSAs will transfer automatically to the Company.

Share-based compensation expense related to the RSAs was $12,252 for the three months ended March 31, 2020.

Stock Options

In connection with the IPO, the Company issued options to certain officers to acquire an aggregate of 918,981 shares of the Company’s common stock outside of the 2019 Equity Incentive Plan, with an exercise price of $22 dollars per share. Each of these options is scheduled to vest and become exercisable in substantially equal installments on each of the first three anniversaries of July 18, 2019.

Share-based compensation expense related to the stock options was $583 for the three months ended March 31, 2020.

Restricted Stock Units

Also in connection with the IPO, the Company issued restricted stock units (“RSUs”) to certain officers and sales employees covering an aggregate of 85,737 shares of the Company’s common stock under the 2019 Equity Incentive Plan. Each of these RSUs is scheduled to vest in substantially equal installments on each of the first three anniversaries of July 18, 2019.

Share-based compensation expense related to the RSUs was $353 for the three months ended March 31, 2020.

13


AssetMark Financial Holdings, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

 

Note 11. Commitments and Contingencies

Litigation

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

 

Note 12. Income Taxes

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

 

The Company’s effective tax rate was (51.4)% and 55.0% for the three months ended March 31, 2020 and 2019, respectively. This decrease was due to changes in the relative amounts of the Company’s share-based compensation and income before taxes.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act was signed into law. The provisions of the CARES Act affecting corporations include, but are not limited to, elimination of certain limitations for utilizing net operating losses, relaxation of limitations on interest deductions, the expensing of costs of acquired qualified improvement property, employee retention tax credits and deferral of payroll taxes. The Company is still evaluating the impact of this new law on its financial condition and results of operations, but no significant impact is anticipated.

Note 13. Related Party Transactions

As of March 31, 2020, the Company had a receivable due from Huatai Securities Co., Ltd.(“HTSC”) of $113, which represents the cash paid by the Company on behalf of HTSC with respect to certain professional services incurred on behalf of HTSC related to IFRS audit fees and goodwill impairment tests fees required by HTSC’s consolidated audit.

14


AssetMark Financial Holdings, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

 

Note 14. Net Income Per Share Attributable to Common Stockholder

Basic net income per share is computed by dividing net income available to common stockholders by the weighted average number of shares of common stock outstanding for the period. For the calculation of diluted earnings per share, the basic weighted average number of shares is increased by the dilutive effect of stock options, restricted stock awards and restricted stock units, if dilutive.

The following table provides a reconciliation of the numerators and denominators used in computing basic and diluted net income per share attributable to common stockholders:

 

 

 

Three Months Ended March 31,

 

 

 

2020

 

 

2019

 

Basic income per share calculation:

 

 

 

 

 

 

 

 

Net income attributable to common stockholders

 

$

2,736

 

 

$

2,811

 

 

 

 

 

 

 

 

 

 

Weighted average shares used in computing net income per share attributable

  to common stockholders, basic

 

 

67,142,459

 

 

 

66,150,000

 

Net income per share attributable to common stockholders, basic

 

$

0.04

 

 

$

0.04

 

 

 

 

 

 

 

 

 

 

Weighted average shares used in computing net income per share attributable

  to common stockholders, basic

 

 

67,142,459

 

 

 

66,150,000

 

Effect of dilutive shares:

 

 

 

 

 

 

 

 

Unvested RSAs

 

 

2,133,649

 

 

 

 

Unvested RSUs

 

 

41,153

 

 

 

 

Diluted number of weighted-average shares outstanding

 

 

69,317,261

 

 

 

66,150,000

 

Net income per share attributable to common stockholders, diluted

 

$

0.04

 

 

$

0.04

 

 

The following securities were not included in the computation of diluted shares outstanding because the effect would be anti-dilutive.

 

 

Three Months Ended March 31,

 

 

 

2020

 

 

2019

 

Stock Options

 

 

908,775

 

 

 

 

Total

 

 

908,775

 

 

 

 

 

Note 15. Subsequent Events

None.

 

 

15


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

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

Overview

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

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

Business Highlights

 

We completed the acquisition of OBS on February 29, 2020. Through the OBS acquisition, we acquired approximately $2.1 billion in platform assets and 499 new financial adviser relationships, of which 67 advisers are engaged advisers.

Financial Highlights

 

Total revenue for the quarter ended March 31, 2020 was $114.9 million, up $22.6 million, or 24.5%, from $92.3 million for the quarter ended March 31, 2019.

 

Net income for the quarter ended March 31, 2020 was $2.7 million, or $0.04 per share, compared to net income of $2.8 million, or $0.04 per share, for the quarter ended March 31, 2019.

 

Adjusted net income for the quarter ended March 31, 2020 was $17.7 million, compared to $12.7 million for the quarter ended March 31, 2019. 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 March 31, 2020 was $28.4 million, up $5.6 million, or 24.8%, from $22.7 million for the quarter ended March 31, 2019. 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 $56.0 billion as of March 31, 2020, up 12.7% from $49.7 billion as of March 31, 2019.

 

We had 2,138 engaged advisers on our platform as of March 31, 2020, up 8.7% from 1,967 as of March 31, 2019. We added 67 engaged advisers through our acquisition of OBS.

 

16

 


 

Key Factors Affecting Our Performance

 

Expansion of Our Existing Financial Adviser Base

 

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

 

Increase of New Financial Advisers on Our Platform

 

Within the wealth management industry, the percentage of assets served by independent financial advisers is forecasted to grow from 42% in 2018 to 48% in 2023, based on our internal estimates and Cerulli data on expected industry growth. We seek to capitalize on this trend and attract new financial advisers to our platform by continuing to invest in our technology platform, sales and service standards and curated investment offering. Our annual cohort of new producing advisers grew 63% from 548 new producing advisers in 2014 to 894 in 2019. Our business will depend in part on our ability to continue to attract new advisers to our platform.

 

Technology Development

 

We invested $203 million in the development of our technology and our dedicated technology team from January 1, 2015 to March 31, 2020. We intend to continue to invest in our technology platform to address the needs of financial advisers and their investors. Our revenue growth will depend, in part, on our ability to continue to launch new offerings and deliver solutions to financial advisers efficiently. While these investments may delay or reduce our profitability, we believe they will enable us to grow our revenue meaningfully in the long term.

 

Investments in Growth

 

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

 

Competition

 

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

 

Value of Platform Assets

 

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

 

17


 

Acquisitions

 

Our success in pursuing and executing strategic transactions may impact our assets and revenue. From 2014 to 2019, we acquired the platform assets of three firms, which collectively have added $7.3 billion in assets. In September 2019, we announced our agreement to acquire OBS Financial, which closed on February 29, 2020 and which added approximately $2.1 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 Pandemic

Since early 2020, the outbreak of COVID-19 has rapidly evolved into a global pandemic and has adversely impacted global commercial activities. The pandemic has had no significant impact on our unaudited consolidated financial statements for the three months ended March 31, 2020. The near-term impacts related to the COVID-19 pandemic have primarily been to our asset-based revenue and spread-based revenue. The impact of declining global equity and bond markets as well as a lower interest rate environment will first become evident in our financial statements for the second quarter of 2020. We expect to incur expenses related to the transition to an entirely remote workforce arrangement, while at the same time experiencing increased expenditures for asset-based investment trading activities. The impact of COVID-19 is not expected to affect our capabilities to conduct business with our financial advisers. Management expects that the pandemic will adversely affect the Company’s operations and operating results in the second quarter of 2020 and 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 the Company’s results of operations, financial condition or liquidity. We continue 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 are monitoring 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.

Initial Public Offering

On July 22, 2019, we completed our IPO, in which we issued and sold 6,250,000 shares of our common stock, and the selling stockholder sold 8,125,000 shares of our common stock (including shares sold in connection with the full exercise of the underwriters’ option to purchase additional shares), at a price to the public of $22.00 per share. We received aggregate net proceeds of $124.1 million from the IPO after deducting underwriting discounts and commissions and offering expenses payable by us. We used the aggregate net proceeds to us, together with cash on hand, to pay down approximately $125 million of our indebtedness under the Term Loan.

Key Operating Metrics

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

18


 

Key metrics for the three months ended March 31, 2020 and 2019 include the following:

 

 

 

Three Months Ended March 31,

 

 

 

2020

 

 

2019

 

Operational metrics:

 

 

 

 

 

 

 

 

Platform assets (at period-beginning) (millions of dollars)

 

$

61,608

 

 

$

44,855

 

Net flows (millions of dollars)

 

 

1,834

 

 

 

1,409

 

Market impact net of fees (millions of dollars)

 

 

(9,477

)

 

 

3,431

 

Acquisition impact (millions of dollars)

 

 

2,060

 

 

 

 

Platform assets (at period-end) (millions of dollars)

 

$

56,025

 

 

$

49,695

 

Net flows lift (% of beginning-of-year platform assets)

 

 

3.0

%

 

 

3.1

%

Advisers (at period-end)

 

 

8,477

 

 

 

7,615

 

Engaged advisers (at period-end)

 

 

2,138

 

 

 

1,967

 

Assets from engaged advisers (at period-end) (millions of dollars)

 

$

48,793

 

 

$

43,277

 

Households (at period-end)

 

 

176,681

 

 

 

137,749

 

New producing advisers

 

 

217

 

 

 

198

 

Production lift from existing advisers (annualized %)

 

 

23.3

%

 

 

24.0